Centrica says overhaul ‘only just started’ as British Gas profits hit new low
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British Gas owner Centrica has warned its overhaul “has only just started” as profits at its energy supply business slumped to a new all-time low.
British Gas Energy saw earnings tumble 35% to £80 million in 2020 after shedding another 164,000 customers and as it took a hit from the pandemic and warmer weather.
The wider Centrica group was left nursing a 31% drop in underlying earnings to £447 million after a £250 million impact from Covid-19 on energy demand and customer defaults, which was only partially offset by cost-cutting.
On a statutory basis and excluding its offloaded US Direct Energy business, the group posted operating losses of £362 million against £783 million in 2019, weighed down by £1.6 billion of charges as commodity prices fell.
Centrica chief executive Chris O’Shea said turnaround efforts “won’t be easy”, with more than 3,000 jobs gone by the end of 2020 under a cost-cutting plan that will see 5,000 roles axed.
Our journey to transform has only just started
He said further extensive staff cuts were not planned, stressing “the era of thousands of job losses every year is over”.
Shares fell 4% as the group dashed investor hopes of a dividend and said it would only resume payouts when it was “prudent to do so”.
The group warned over the outlook as ongoing Covid-19 restrictions are set to keep energy demand under pressure and amid an ongoing bitter dispute with the GMB union over pay in its UK services business.
Mr O’Shea said: “We have made a good start to the turnaround of Centrica, with the sale of Direct Energy now complete and our significant group restructure on track.
“However, our journey to transform has only just started.
“It won’t be easy but I am confident we have the people, the brands and the market positions to deliver a successful turnaround in the coming years.”
The group also announced it was bringing forward its commitment to have net zero greenhouse gas emissions to 2045 – five years ahead of its previous target and the UK deadline – and vowed to help its customers become net zero by 2050.
The results showed earnings at its British Gas energy business was impacted as households used less energy in warmer weather conditions – a trend seen by the group over the past four to five years and put down to the impact of global warming.
This cost the division around £40 million while it also set aside about £40 million for customer defaults as it expects rising numbers of borrowers to struggle with bill payments due to the coronavirus crisis.
Customer numbers at the division dropped 2% to 6.9 million, although it said all the fall was in the first half.
Overall, Centrica set aside £80 million for customer bad debts due to the pandemic, but it said it was able to offset this and other Covid-19 pressures by cutting costs and scrapping bonus payments to top bosses for 2019.
William Ryder, equity analyst at Hargreaves Lansdown, said the results show “another tough year” for Centrica.
“Centrica has an opportunity to get things moving in the right direction again now, but there’s no guarantee of success and the economic outlook is still uncertain,” he added.
