Shares in British Gas owner Centrica (CNA) were reeling after it reported full year adjusted profits down 35% to £901m and booked a £1.1bn exceptional charge due to a reduction in commodity prices.

The shares fell 15% to 71.8p, giving back half of the 30% gain over the last six months.

TOUGH ENERGY BACKDROP, GOOD PROGRESS IN CONSUMER

Although disappointing, there wasn’t much management could have done to mitigate weak gas prices which according to Bloomberg fell 49% last year, the biggest drop since 2006, while nuclear outages and the mandated tariff cap were arguably outside its control.

The company’s intention to exit nuclear has been complicated by the operational issues at Hunterston B and Dungeness B, and may result in some interests being held at the year-end, but the disposal of Centrica’s 69% in Spirit Energy is on target and offers are expected around the end of the first quarter.

It will be interesting to see what level of interest there is in the up-stream assets given the fall in commodity prices and the associated write-down. Analysts were pencilling in £2.7bn of disposal proceeds before today’s update.

Russ Mould, investment director at AJ Bell commented: ‘Unfortunately the decision to write down the value of the oil and gas production assets means it may have to sell them for a lower price than the market might have previously expected. It’s a similar story for its nuclear assets which are also up for sale.’

The re-positioning of the consumer businesses outlined in July saw continued progress with customer accounts up 722,000 in 2019 and higher net promoter scores in most segments. In addition Centrica’s cost savings are ahead of target.

NEGATIVE EARNINGS IMPACT

Centrica expects the positive earnings momentum from the core customer-facing businesses to be broadly offset by the negative earnings impact from the legacy gas contract and up-stream portfolio.

Adjusted operating cash flow is expected to be in the range of £1.6n to £1.8bn, slightly lower than the £1.8bn in 2019.

Cost savings are expected to total £350m with an associated cost of £300m, and net debt is expected to be in the range of £3.2bn to £3.6bn. The company confirmed its commitment to hold the dividend at 5p per share, which equates to a 7% yield.

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Issue Date: 13 Feb 2020