Centrica profits double as British Gas picks up 700,000 customers

Centrica has reported a more than doubling of its adjusted operating profit from £447 million to £948 million in its preliminary financial results for 2021.

Announcing the results for the year ending on 31 December, the British Gas owner revealed its retail arm had acquired around 700,000 customers through the Supplier of Last Resort (SoLR) process as the energy crisis saw off around 30 suppliers in 2021 alone.

The results showed a 38% increase in earnings before interest, taxes, depreciation, and amortisation (EBITDA) to £1.85 billion, up from £1.3 billion in 2020. Statutory operating profit was £954 million, up from a £362 million loss in the previous year.

Although the second half of 2021 saw an unprecedented increase in wholesale gas prices, Centrica said it was well-hedged for the 2021/22 winter, albeit still retaining weather and customer volume risk.

“We handled these impacts well, demonstrating the importance of having a responsible business model and a disciplined approach to hedging and risk management, with our energy marketing and trading capabilities proving particularly valuable,” it said.

The combined net negative impact of the pandemic across the group and the industrial action affecting British Gas Services and Solutions was estimated at approximately £60 million.

This compares to an estimated net negative impact of £110 million in 2020 which included a number of mitigating actions not repeated in 2021, including use of the government’s Coronavirus Job Retention Scheme and the decision not to pay senior management bonuses relating to 2019 performance.

Elsewhere, the company gave an update on its restructuring, saying it is now largely complete. The “difficult, but necessary” process to move staff onto new terms and conditions was completed in the first half of the year.

It said: “The increased flexibility this creates will be a key factor in enabling us to better serve the needs of our customers.”

As part of the restructure, the number of organisational layers have been reduced from eleven to seven. Centrica said it cut 3,000 job positions in 2021 – more than half of them management roles – and a further 1,000 will go during 2021. As a result, the company said a significantly higher proportion of its staff are now in customer-facing roles.

It said the benefits are already being seen in its retail arm British Gas Energy, with the annualised cost per customer falling by £9 to £93 over the year. This is despite an cost of around £4 per customer from the running of dual IT systems.

British Gas Energy, which now serves more than 7.2 million customers, saw its adjusted operating profit increase by 44% to £118 million, partly due to colder than average temperatures during the first half of 2021 and therefore higher consumption when compared a warm first half of 2020.

Additionally, warmer than normal temperatures in the fourth quarter allowed a small portion of surplus gas and power to be sold back into a high-priced commodity market.

These positive impacts were “broadly offset” by additional costs associated with the commodity environment and the number of supplier failures, including additional balancing costs and the mutualisation of Renewables Obligation shortfalls.

Financial performance was described as resilient overall. Adjusted operating costs were around £100 million lower than in 2020 and free cash flow from continuing operations was up 71% to £1.2 billion.

The company has returned £27 million it received as part of the government’s Coronavirus Job Retention Scheme and has also announced an increase to its Winter Fuel Fund from £2 million to £4 million to provide grants to help financially vulnerable customers.

Centrica chief executive Chris O’Shea has also forfeited his 2021 bonus of £1.1 million in recognition of the difficulties being faced by consumers.

The company said O’Shea was aware 2021 had been an “extraordinary year” with the energy crisis and the cost-of-living crisis.

As such, he made the personal decision to forfeit his annual bonus and in a conference call with journalists further clarified his thoughts, saying it “didn’t feel right to take a bonus”.

British Gas Services

Centrica described the performance of British Gas Services as “disappointing,” adding: “We let too many customers down and improving this will remain a major area of focus in 2022.”

It said the process of implementing the new terms and conditions to employee contracts, which prompted strike action by some workers, “proved difficult” in this sector of the business.

While contingency plans were put in place and emergency visits were prioritised, the company concedes it saw “some deterioration” in operational performance over the first quarter, contributing to a drop in customer satisfaction and a reduction in the number of accounts, which fell by 135,000 – or 4% – to 3.4 million.

Engineer productivity, measured as the number of jobs per day completed by service and repair engineers, improved following the first quarter and remained above 2019 levels. Yet the pandemic saw absence rates remain higher than usual.

This resulted in an increased number of jobs having to be rescheduled, further impacting customer service levels. Centrica said it used more contractor labour than planned, adding to costs.

In addition, it added, broader UK supply chain issues impacted the availability of some boilers, lowering the number of home heating installations Centrica was able to carry out.

Commenting on the results, O’Shea said: “Our strong balance sheet and responsible business model has allowed us to ensure continued supply for customers whose suppliers have ceased trading and offer additional help to those most vulnerable through the ongoing energy crisis.

“2021 financial performance was resilient, and we continue to make good progress towards the turnaround of Centrica, having materially completed our portfolio simplification.

“Our focus for 2022 is on building on the progress we have already made to drive improvements in colleague engagement and in particular customer service, while continuing to build our capabilities to help our customers on their path to net zero.”