LONDON: Centrica Plc’s full-year profit plunged, missing estimates, because of the negative impact of the government’s price cap and declining natural gas prices. The UK’s biggest energy supplier to homes also booked an impairment of more than £1.1bil (US$1.4bil) because of a decline in the value of the company’s oil, gas and nuclear assets.
Adjusted operating profit dropped 35% to £901mil, missing analyst estimates of £974mil, the company said in a statement. The net exceptional charge was also due to a reduction in commodity price forecasts and restructuring costs of £356mil pounds.
Centrica was the second worst performer on the UK’s main stock index last year, despite half a decade of cost cutting by outgoing chief executive officer Iain Conn. The company quickly needs to find a way to halt the downward spiral that has decimated its share price to near the lowest in more than two decades.
Conn has doggedly stuck to his strategy of making Centrica more of a customer-focused company, pinning his hopes on transforming its Connected Home business into a growth engine. Analyst doubts were proved correct in July when the revenue target for Connected Home was slashed to £150mil-£200mil by 2022 from the earlier projection of £1bil.
Centrica is selling its North Sea exploration arm Spirit Energy Ltd and a 20% stake in Electricite de France SA’s UK nuclear plants. Both sales “face headwinds and uncertainty, ” according to Berenberg Bank. The disposals are slated for end of this year, but risks have increased and delays are possible, the bank said.
On a positive note, some of the political risk hanging over the company has disappeared, with the threat of nationalisation by the Labour Party now dead. The government’s price cap on default tariffs is now also in place and the squeeze on profit can be predicted by analysts and investors.
Shares have dropped 5% this year in London, ranking as the worst performer in the 29-member Stoxx 600 Utilities index, which is up 11%.
UK front month gas slumped 49% last year in the biggest annual drop since 2006 on ICE Futures Europe.
Earnings per share fell 35% to 7.3 pence from 11.2 pence a year earlier.
UK energy supply customers dropped by 286,000. 2020 adjusted operating cashflow expected to be £1.6bil to £1.8bil. — Bloomberg