Centrica to cut 2020 expenditure by £400m

British Gas owner Centrica will cut cash expenditure by around £400 million this financial year, reducing non-essential operating costs and the delay of capital and restructuring projects, to mitigate the impacts of the coronavirus pandemic.

A trading update published this morning (2 April) revealed that the energy giant has also cancelled its 2019 final dividend payment of 3.5p per share which was expected to be £204 million in total.

Further mitigating actions include the delay of more than £100 million of its £800 million restructuring spend in its consumer divisions, pausing the sale of Spirit Energy and reducing 2020 expenditure on the exploration and production company by around £100 million to around £400 million. The sale of its 20 per cent stake in Britain’s existing nuclear fleet has additionally been halted.

Bids for Spirit Energy were due at the end of March but Centrica says it has paused the process until financial and commodity markets have settled. The company still intends to exit oil and gas production as well as nuclear generation.

Following a decision not to pay any board level bonuses relating to 2019, bonus payments to all other management have also been paused and will be reviewed when the financial impacts become clearer.

Customer-facing business

While the company is seeing increased energy demand from its residential customers as more people work from home, there has been a significant reduction in demand from business customers.

As certain customer segments defer payments due to the reduction in household incomes and business revenues, Centrica expects to see an increase in its working capital expenditure and customer bad debt.

In addition, there will likely be an impact on revenues from its services and solutions activities for both homes and businesses, as it prioritises only essential work in the near term and given the uncertain economic outlook.

As a result of the government’s social isolation measures, the AGM planned for 11 May can not go ahead as planned and will be instead held as a closed meeting. Shareholders will be able to submit their votes either electronically or by post, however.

Chris O’Shea, Centrica’s interim group chief executive, said: “As the scale and length of the crisis unfolds, it is becoming increasingly clear what a vital role so many of the Centrica team perform to keep our communities warm, safe and supplied with energy.

“I am extremely proud and humbled by the response of colleagues, and on behalf of the board I would like to say how grateful we are to them. While there are so many uncertainties surrounding the impacts of this situation, I am confident that we have acted promptly and prudently to underpin the long-term strength of Centrica.”