Centrica's Profits Tumble, Future Brighter

The UK regulatory price cap and falling gas prices hit Centrica’s profits in 2019, but the UK’s largest utility managed to reverse the decline in customer accounts and made cost efficiencies above those it aimed for. Its adjusted profit was £901mn ($1.17bn), down 35% from £1.39bn in 2018, but it expects the revival in its fortunes in the latter half of 2019 will continue well into this year – with the exception of gas prices.

CEO Iain Conn, who steps down this year, said: "Upstream earnings are likely to be impacted by the lower commodity price environment. However, with our continued focus on financial discipline we expect 2020 sources and uses of cash flow to remain broadly balanced. 2020 will be another busy year as we complete the re-positioning of the company towards the customer, focused on our strengths."

Full year adjusted operating cash flow was down and net debt was up but both within its target ranges, it said February 13. Return on average capital employed was 9%, down from 13%. It recorded exceptional charges of £1.103bn including impairments of upstream and nuclear assets, on the basis of commodity price forecasts and restructuring costs, propelling it to a statutory operating loss figure of £849mn, down from a similarly calculated profit of £987mn in 2018. It is planning to sell both businesses in order to focus on energy supply and its optimisation. Most of its upstream assets are in Spirit Energy, a joint venture it controls.

Centrica Business adjusted gross margin was up £148m or 17% to £1.030bn and adjusted operating profit was up £142mn or 189% to £217mn.

This was due to a "significant improvement in achieved power retail margins in North America, good European trading and optimisation performance and a benefit from the decision to defer delivery of gas from 2019 into 2020 from the one remaining large legacy gas contract," it said.

Gas production fell from 2.6bn therms to 2.3bn therms as the Rough field, a former storage site, continues to decline; but the gas price drop was bigger, from 49.3 p/th to 42.9 p/th. Exploration & Production adjusted operating profit was down £361mn or 69% to £160m.

There were extended outages at both the Dungeness B and Hunterston B power plants, which it does not operate. Sales were down 9% at 10.2 GWh; but the power it did sell went for about 11% more per MWh than it had the year before.