The owner of British Gas has said that its 2020 profits will be higher than expected as it cut costs at the energy supplier and enjoyed a strong performance from its trading business.
Shares in Centrica rose about 3 per cent in morning trading despite a warning that it remained cautious about the outlook for this year because of the impact of tighter Covid-19 restrictions. Lockdowns have reduced energy demand from its business customers in 2020 and resulted in it carrying out less maintenance work in customers’ homes.
Centrica has lost more than 75 per cent of its value over the past five years as British Gas customers leave it for cheaper energy suppliers. The company said today that it had halted the exodus in the second half of 2020 and ended the year with 6.9 million UK energy supply customers and 3.6 million UK service customers, “both broadly unchanged since the half year”. It had started the year supplying 7.1 million UK households.
British Gas is Britain’s biggest household energy supplier and operates a significant home services business offering boiler repair and other maintenance. The company has been hit hard by the government’s price cap on standard energy tariffs as well as fierce competition from cheap new entrants. Group profits fell to £901 million in 2019.
Chris O’ Shea, who took over as Centrica chief executive last year, is attempting to “arrest the decline” with an aggressive cost-cutting programme that has put him at loggerheads with the GMB union and prompted strike action this month by thousands of British Gas engineers.
Mr O’Shea wants to focus Centrica on the core British Gas business and has just offloaded Centrica’s North American supply arm, Direct Energy, for net proceeds of £2.7 billion that will be used to reduce its £2.8 billion net debt pile. He is also attempting to sell its North Sea oil and gas business and its stake in Britain’s nuclear plants, and is said to be seeking to sell its liquefied natural gas (LNG) trading business.
Centrica has been further hit in 2020 by the impact of the pandemic but said that there was less impact in the second half. Business electricity demand was down by about 15 per cent, compared to a 30 per cent drop in the second quarter. Domestic boiler installations were also down by about 15 per cent compared with a 40 per cent drop in the first half.
Centrica said today that it had had a resilient performance in the second half with a “a tight focus on cash generation and expenditure”. “The significant restructure announced in June remains on track, and trading and optimisation performance continued to be strong, in particular in our LNG business,” it said.
Energy suppliers have said that they expect to see an increase in customers unable to pay their bills as the economic impacts of the pandemic hit. Ofgem, the energy regulator, has said that it plans to raise the energy price cap by £21 per household per year to compensate suppliers for the anticipated increase in “bad debt” from other households being unable to pay.
At its interim results Centrica had booked a £60 million charge for increased bad debt provisions. It said today that “cash collection trends across the group were broadly in line with previous years” in the second half, comments that are likely to increase scrutiny of Ofgem’s proposals. Octopus Energy has said that the regulator should wait and adjust the price cap depending on actual bad debt, rather than pre-emptively.
A Centrica spokeswoman said that it had incurred the £60 million bad debt costs flagged at interims, but that this still left its cash collection broadly in line in the context of £21 billion annual revenues last year. In its statement it reiterated that the “uncertain economic backdrop increases the potential for additional working capital outflow and higher bad debts”.
Behind the storyFrom picket line to online, battle enters new era Engineers at British Gas have been waging a social media campaign to turn up the heat on the company as they go on strike over pay and conditions (Emily Gosden writes). MPs and celebrities have weighed in amid an increasingly bitter row after Centrica was accused of threatening to “fire and rehire” employees if they did not agree to new terms.
Centrica wants its engineers to work 40 hours a week, up from 37 hours, and to accept other changes to their working conditions that the GMB union claims amount to a 10 per cent pay cut. The union, which represents more than 7,000 of Centrica’s 20,000-strong UK workforce, staged a walkout last week, with further one-day strikes planned this month.
Striking engineers have posted on social media using hashtags such as “#StopTheBritishGasFire”. An engineer named Pete Howis tweeted that he faced the sack after 13 years of service unless he agreed to “significantly worse terms”.
“Fire + rehire is morally wrong and soul destroying,” he wrote in a tweet that has been liked more than 25,000 times.
Ciara Arrowsmith shared a photograph of two children holding protest signs, one of which read: “We don’t want Mummy to work more hours!” She tweeted: “These are the most precious and amazing people I know. My employer of 13 years thinks it’s ok to make me work more hours, not pay me any more for doing so and reduce my holiday allowance. Don’t think so!”
A Centrica spokesman said: “British Gas has lost too many jobs and too many customers over recent years. We cannot continue like this. We need to take action to modernise and refocus the company.” He said that pay would “remain the highest in the sector”, that it would “reward increased productivity through additional bonuses” and that 83 per cent of its employees had accepted new terms.