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Centrica expects to maintain its 2018 dividend, allaying cut fears, as British Gas owner posts slight rise in first-half earnings

Last updated: 11:30 31 Jul 2018 BST, First published: 08:07 31 Jul 2018 BST

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Centrica said its Consumer business saw adjusted operating profit drop by 20% year-on-year to £430mln

Centrica PLC (LON:CNA) saw its shares fall on Tuesday as the energy group's pledge to maintain its 2018 dividend failed to allay fears over future payout cuts, with the British Gas owner only reporting a slight rise in headline first-half earnings.

The FTSE 100-listed firm saw its underlying earnings (EBITDA) increase by 3% to £1.324bn for the six months to June 30, however, the company's adjusted operating profit fell by 4% year-on-year to £782mln.

READ: Centrica shares edge higher as British Gas-owner on track to meet full year targets despite 'Beast from the East' hit

The group said higher commodity prices and good production from the Rough field in the North Sea "largely" offset the fall in profit from its customer-facing divisions.

Centrica said its Consumer business saw adjusted operating profit drop by 20% year-on-year to £430mln, with the biggest fall in the UK Home segment.

Centrica said energy consumption in the first quarter of 2018 rose due to the harsh winter weather in the UK, but the company was hit by the full period impact of the UK prepayment cap brought in April 2017, lower customer numbers, and higher costs.

Despite this, the firm is holding its interim dividend at 3.6p per share and said it expects its 2018 dividend to remain at 12p.

Iain Conn, Centrica’s group chief executive said: “We are on track to achieve our full year Group financial targets and expect to maintain the full year dividend per share at its current level, subject to delivering adjusted operating cash flow and net debt in line with our target ranges."

Not enough to ease future divi worries

George Salmon, equity analyst at Hargreaves Lansdown: commented: “These results are reasonable enough given the headwinds of higher wholesale costs, but they aren’t enough to ease worries on the dividend, especially with the government’s long-awaited price cap getting closer to becoming reality. That probably explains why the yield, which stands at around 8%, is so high.”

He added: Centrica’s Standard Variable Tariff currently has bills of around £1,100 a year on average. While that means the group is far from the worst offender in the eyes of the regulator, it’s not beyond the realms of possibility that Centrica will have to cut prices by 5-10% at a time when wholesale energy costs are rising. That’s not a good combination for profits.”

In late morning trade, Centrica shares were 4.7% lower at 145.55p.

In a separate statement today, Centrica also said that its chief financial officer (CFO) Jeff Bell will be leaving the firm, with former Smiths Group PLC (LON:SMIN) and Vesuvius PLC (LON:VSVS) CFO Chris O'Shea taking his place.

Bell will quit his post at the end of October, and leave the company in July next year, while O'Shea will take up the position from the start of November.

 -- Adds analyst comment, share price --

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