Expect investors to substantially up the volume on calls for Centrica (CNA) to do the splits after today's two-tone results that are anything but special. British Gas is doing great, posting record-breaking operating profits of £656 million in the six months to June, that's up 44%, thanks partly to colder cold weather and previous tariff rises. True, this may stick in the craw of consumer campaign groups despite more recent tariff cuts, but there's no denying the impressive performance.

Yet investors will soon tire of rocking British Gas performances being eaten alive by ongoing trouble and strife on the exploration and production (E&P) side, which have completely offset the former in today's figures. Overall adjusted operating profits actually reversed by 3% in the period to £1 billion.


Centrica has long maintained that both sides of the business are vital to the greater good of the company, and its shareholders. But its becoming increasingly difficult to buy that view. In fact, even CEO David Conn today admits that 'we will focus our growth ambitions on our customer-facing activities,' or in other words, E&P will play second fiddle to British Gas in future.

The message becomes even clearer. After an extensive strategic review lunched in February, the group plans to 'reduce and limit scale in E&P and central power generation,' further fuelling the view that E&P is will be increasingly side-tracked. And what do good businesses do with non-core assets? They find a buyer and get shot.


Centrica has already launched a 'major group-wide efficiency programme, this will underpin long-term shareholder value, as we target operating cash flow growth of 3% to 5% per year and deliver a progressive dividend policy.' Remember, the payout was shockingly slashed by 30% in February to rebase expectations. In that regard it worked, today's interim 3.57p payout, down from 5.1p a year ago, barely gets a mention by analysts (as far as I can tell), while the share price, at 267.9p, down 2.6% today, is trading not far off five-year lows. One wonders what effect an E&P side demerger might do to change that.

Issue Date: 30 Jul 2015