Centrica says it will take £300m hit on cap on energy bills and lowers 2019 cashflow outlook

This article is more than 1 year old

This article is more than 1 year old

The owner of British Gas, Centrica, lost about three-quarters of a million customers last year and warned it will take a £300m hit from the government’s price cap on energy bills.

Shares in Britain’s biggest energy company dropped more than 10% after the company lowered its cashflow outlook for 2019, leading investors to fear Centrica’s dividend could be cut.

Iain Conn, the chief executive, said the group faced a “huge number of headwinds”, including the price cap, reduced gasfield production and several of its nuclear power plants being offline.

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The company lost 742,000 of its 25 million household energy customers last year, although the figure is about half the losses in 2017. While the group’s profits were up 12% in 2018 to £1.39bn, its home energy unit profits fell 18% to £668m.

Conn said customer numbers had remained stable in 2019 so far. He was strongly critical of the cap, which he said had been set at a level that was stopping companies investing.

“The problem is it’s temporary and it doesn’t fix the market. We think it’s the wrong intervention but obviously it’s here and we’ll live with it,” he said.

Even with energy regulator, Ofgem, lifting the cap in April, Centrica said it would lose £300m this year because of the measure. The firm has launched a legal challenge against a one-off £70m portion of that £300m total.

Centrica plans to cut and sell its way out of what it called a “challenging external backdrop”.

The firm has already cut 7,700 jobs since 2015 and plans to cut another 1,500-2,000 this year.

On Thursday it announced a further £500m of cuts beyond 2019. However, the firm refused to lay out the impact on jobs because it said overheads were falling as customers moved to managing their accounts online rather than on the phone. An earlier £500m cut resulted in the loss of more than 4,000 jobs.

The company said it had sold Clockwork, the US home services arm it bought in 2010, for £230m, which Conn called a “good deal”.

Centrica is also trying to sell its 20% stake in the UK’s eight nuclear power plants but would only say the sale was progressing as planned. “We’ve had expressions of interest from a number of parties,” Conn said.

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The firm’s difficulties in home energy supply, nuclear power and gas production led to it revising down its outlook for adjusted operating cashflow to £1.8bn-2bn, below a previous target of £2.1bn-2.3bn for 2018-2020.

Conn said no decision had been made on dividends for shareholders. “The cash flow target is under some pressure and therefore people could conclude the dividend is under pressure … [but] I do not think you should automatically conclude there is a dividend cut coming.”

However, analysts said they would not be surprised if a dividend cut was imminent. George Salmon, an equity analyst at Hargreaves Lansdown, said: “The dividend is starting to creak. It’s been held at 12p this year but Centrica is increasingly relying on cost-cutting and disposals to prop up the payment. Neither can continue forever.”

SSE, the second biggest energy supplier, said on Thursday that it was raising prices by 10% for millions of its customers on default tariffs. All of the big six energy suppliers have now set their default tariffs at the exact level of the cap from 1 April, £1,254.