Profits warning at Centrica sends shares into tailspin

Centrica has issued a profits warnings. Picture: PA Wire
Centrica has issued a profits warnings. Picture: PA Wire
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A profit warning from Scottish Gas‑owning Centrica yesterday saw its shares dive 15 per cent as the energy utility also revealed a further exodus of customers since June.

Centrica reported a loss of 823,000 supply customers in the four months to end-October, as Britain’s big energy suppliers come under pressure from smaller rivals offering cheaper deals.

The company also said its full-year adjusted earnings per share this year were expected to be below market forecasts at about 12.5p “largely reflecting lower than expected adjusted operating profit in North America Business and UK Business”. The previous market consensus expectation had been for earnings of 14.9p a share.

Iain Conn, Centrica’s group chief executive, said: “Trading conditions continue to be highly competitive and performance delivery since mid-year within the Centrica Business energy supply businesses has been disappointing.”

Conn added: “In Centrica Business we have experienced significant market pressures in our North American Business retail power book, and in the UK business we are not yet seeing improved operational performance flowing through to the bottom line (earnings).”

Shares in the group initially slumped 22 per cent, before later paring back some of the losses to close at 138p.

“The question now is whether this weakness will persist into 2018, and the longer term potential impact on the dividend,” analysts at Morgan Stanley said.

George Salmon, an analyst with Hargreaves Lansdown, said: “After a dilutive share placing last year, and considering the challenges in the retail business, investor confidence in the Centrica turnaround story was already fairly brittle.

“That meant the group could ill-afford having to break more bad news, but unfortunately that’s exactly what it’s done. The real kick in the teeth is that few anticipated the source of the latest trouble.”

Centrica said it now expected an adjusted operating cashflow of more than £2 billion this year, down from £2.69bn last year. The group’s British Gas business had 14 million residential energy supply accounts in 2016.

But the energy sector has come under pressure since Prime Minister Theresa May said last month that she would impose controls to tackle what she branded “rip-off energy prices”.

Centrica hiked prices 12.5 per cent in September, and said it estimated that 150,000 of the accounts lost since June were solely down to market switching trends following the tariff rise.

The group indicated it will have cut £300m of costs in 2017 on top of savings of £384m last year.

Yesterday’s profit warning came just days after British Gas moved to scrap its standard variable tariffs (SVTs) for new customers ahead of government plans to impose a price cap on the costly energy products.