Centrica profits down 12 per cent as British Gas thrives

Centrica’s 2015 adjusted operating profit was down 12 per cent to £1,459m (2014: £1,657m), the company announced today.

However its residential energy supply business, part of British Gas, saw operating profit rise 31 per cent to £574m (2014: £439m), reflecting “higher gas volumes due to more normal weather conditions, and lower costs [including ECO costs].” The company was the fifth of the big six energy suppliers to announce a cut to its gas tariff earlier this month.

British Gas’s total operating profit was down 2 per cent to £809m (2014: £823m).

Chief executive Iain Conn said the group had delivered a “resilient financial performance” in “a very challenging environment”. Adjusted earnings per share were down 4 per cent to 17.2 pence, and the dividend was cut from 13.5 pence in 2014 to 12 pence.

The results provided an update on Centrica’s billion-pound strategy swing towards retail, announced last summer following a six-month strategic review. The company has already cut 2000 jobs, and expects this to increase to 3000 by the end of this year.

Last summer, it outlined plans to shed 6000 jobs and create 2000 jobs by 2020, leading to a net headcount reduction of 4000 as it refocuses on energy supply, services, distributed energy and power, the connected home and energy trading.

Since then, the company has made a number of changes as it enacts its new strategy. Last month, it announced 500 jobs to go, largely at its loft and cavity wall insulation business, which is closing down. Earlier in the year it announced a restructure and management overhaul at British Gas. These changes will help it deliver £200m of annualised savings in 2016. It on track to make £500m savings a year by 2018, and £750m by 2020.

Today it announced further cost reduction to come in its upstream business, where it now expects costs to be 15 per cent, or £150 million, lower in 2016 when compared to 2014. This is £50 million lower than previously announced. It said: “We will explore all options to strengthen our E&P business.”

The company wrote down the value of its E&P assets by nearly £1.5bn, and of its power plants by £485m.

Chief executive Iain Conn said: “Centrica has delivered a resilient financial performance, with solid 2015 adjusted earnings despite the challenge of falling wholesale oil and gas prices. Operating cash flow has been strong, and with capital discipline this has allowed the Group to reduce net debt. In 2016 we expect operating cash flow also to be over £2 billion. We have a clear strategy for delivering growth and returns built around the customer and I am encouraged by the progress we have made. We remain confident that our plans and underlying performance momentum will allow us to more than balance cash flows and deliver at least 3-5% per annum underlying operating cash flow growth to 2020, even in the current environment, so underpinning a progressive dividend policy.”