It’s been a tough start to life at the top for new Centrica chief executive Ian Conn. He only took over from Sam Laidlaw on New Year’s Day, but got landed with the unenviable task of presenting a dire set of results for 2014, the only cold comfort being that none of it was his fault.
The British Gas owner’s adjusted operating profit plunged like mercury in winter, down 35% to £1.75bn over the year as it struggled with the double whammy of warmer weather (which means households use less energy) and falling oil and gas prices.
Although revenues rose 11% to £29.4bn, Centrica was forced to write £1.39bn off the value of North Sea and power plant assets. Conn, a former BP executive, took the grim decision to cut investment in oil and gas exploration and production 40% to £650m and slash (or ‘rebase’ if we are to believe Conn’s management speak) the full-year dividend 21% to 13.5p.
Predictably, investors were less than pleased at their payout being cut: shares were down almost 9% to 256p in mid-morning trading, a big drop considering they fell 10.5% in the previous 12 months.
Credit: Yahoo Finance
‘2014 was a very difficult year for Centrica and the recent fall in oil and gas prices creates further challenge. We are cutting investment and costs in response,’ Conn said, in a pleasingly does-what-it-says-on-the-tin statement.
Its British Gas business came under particular pressure at the start of 2014, after big energy companies became politicians’ favourite footballs for putting up household bills. It duly announced it was cutting gas prices 5% from March last month, which unsurprisingly provoked calls for even deeper cuts given the fall in oil prices from $110 in June to as low as $45 earlier this month (it’s now around $59).
Energy companies have to hedge and buy supplies way in advance, though, something politicians often conveniently like to forget. Conn said it was ‘absolutely feasible’ there could be another bill cut later this year if energy prices stay low.
British Gas and its ‘Big Six’ rivals (E.on, SSE, Scottish Power, Npower, EDF energy) also have to contend with an ongoing competition inquiry. The Competition and Markets Authority said just yesterday millions of households were paying up to £234 a year more than necessary by failing to switch supplier. At least it looks unlikely that the CMA will call for the ‘Big Six’ to be broken up anyway – more cold comfort for Conn.