Scottish Gas owner Centrica shocks investors

SHAREHOLDERS in Scottish Gas owner Centrica were hammered yesterday as the company said an “urgent” dividend cut was needed to shore up its finances as profits fell by more than a third.

Gas prices are down and Centrica is cutting tariffs by 5 per cent
Gas prices are down and Centrica is cutting tariffs by 5 per cent

Shares plunged by as much as 9 per cent at one point – wiping more than £1 billion off the value of the FTSE 100 giant – as the “painful” payout announcement hit the group’s army of 650,000 small investors.

Recently appointed chief executive Iain Conn said costs and investment would also be slashed, sounding a warning over the challenge of keeping the lights on in the UK – and the need to explore shale gas alternatives – as the firm said it planned to close two power ­stations.

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He also defended profit levels at its British and Scottish Gas arms which he said earned £42 a year per household – around £10 less than the year before – or about 80p per week.

Conn added that a further cut to gas tariffs this year after a recently-announced 5 per cent cut, amid low wholesale market prices, was “absolutely feasible” but depended on a number of factors, while admitting the annual exodus of hundreds of thousands of customers was ­unsustainable.

Residential supply operating profits for 2014 fell 23 per cent to £439 million amid a half-million fall in customer accounts and a £100 decline in average bills over 2014 as gas consumption dropped by a fifth amid warmer weather.

The wider group saw adjusted operating profits fall 35 per cent to £1.75bn as it was also hit by extreme weather patterns in its North America business and plunging oil and gas prices hit its power generation.

Centrica slumped to a £1.4bn pre-tax loss on a statutory basis as it booked £1.94bn in pre-tax write-offs, including asset valuations hit by the tumbling wholesale energy market, including North Sea projects and power stations.

Conn said: “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. It certainly wasn’t the year that we planned for. We had impacts across the board on all of our businesses.”

It lost 368,000 customer accounts over 2014 and also calculated it had 110,000 less than it thought in the first place. It ended the year with 14.8 million.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers said: “Centrica has been hit on all fronts.

“Lower consumption as a result of warm UK weather and falling energy prices have impacted on its British Gas supply business, whilst the drop in oil and gas prices is bad news for its expanded exploration division.”

Shares closed down 8.5 per cent, or 24p, at 257.1p.