Centrica profits plunge £1.5bn after blows to legacy divisions
PROFITS at British Gas owner Centrica plunged £1.5bn in the first half of the year, as it suffered a series of blows at its legacy energy divisions, and its business and household supply arms.
The company took a £270m writedown at Britain’s most important gas storage site and £367m worth of impairments within its Canadian oil and gas exploration business.
The charges dragged the group’s pre-tax profits down to £81m for the six months to June 30 from £1.6bn a year earlier, re-enforcing Centrica’s argument that it needs to shift from lossmaking large-scale energy assets towards a “future-proof ” business model based on energy services and smart home solutions.
It came as Centrica faced criticism yesterday for announcing a 12.5pc price hike for British Gas electricity customers on its standard tariff.
The new energy vision was laid out in 2015 by Iain Conn, Centrica’s chief executive, and places energy services and “smart home” technology at its centre, shrugging off high-cost assets in areas such as oil and gas production, power generation and gas storage, which were once at Centrica’s core.
“We’re on the right track,” he told The Daily Telegraph yesterday, adding that the first phase of the portfolio transformation would be complete by the end of 2017.
“We’re trying to diversify away from pure energy sales to selling things other than energy. And we are the 10th largest insurance company in the UK. We have sold 660,000 Hive [internetconnected thermostat] hubs, which is becoming a material business and one we are planning to grow in Italy. We’re selling to people who don’t even buy energy from us,” he said.
Earnings from Centrica’s “connected home” business, which includes smart meters and the smart Hive thermostats, climbed by over 80pc to £660m.
For analysts it was a rare bright spot in an otherwise gloomy period for Centrica’s supply business. Profits made in its UK home supply business fell 23pc to £489m, after British Gas held bills lower in an attempt to stem the flow of customers to its rivals.
In a triple blow to Britain’s largest energy supplier, 377,000 customers abandoned British Gas to take up new deals, while its remaining customers used on average 12pc less gas and 6pc less electricity due to milder than usual
‘We’re trying to diversify away from pure energy sales. We have sold 660,000 Hive hubs’
weather this year. The final hit was due to the Government’s cap on energy bills for pre-pay meters. The business supply division also faltered after 30,000 customers left in the wake of legacy billing issues. The IT problems are resolved but the customer exodus meant the segment, which made a £31m profit a year ago, only managed to break even. Sam Arie, an analyst at UBS, said despite the “disappointing” results there are signs that the new strategy direction under Mr Conn is starting to deliver.
Centrica’s revenue climbed 7pc from last year to £14.3bn. At the same time its net debt eased down to £2.9bn, after about £900m worth of divestments. Its shares ended up 2.3pc at 203p.