British Gas owner Centrica plc (LON:CNA) has warned that a warmer than average winter and lower energy prices in the UK hurt results in the year to date.
However, its shares rose 2.16% to 2.16% in afternoon trading as the company said it was still on track to achieve its full year targets.
The company lost 261,000 customers in the first quarter of 2017 even though it was only one of the big six energy suppliers to not raise its tariffs over winter. Last year it also lost 400,000 customers, reducing its UK residential clients to below 14mln for the first time.
In a trading update, Centrica said higher-than-average winter temperatures in the UK and in North America had resulted in lower consumption than normal. Centrica, which has a power generation arm, also took a hit from a drop in UK wholesale oil, gas and baseload power prices since its preliminary results in February.
Centrica calls on government to resist imposing price caps...
The group added that it is in talks with the government about finding an alternative to a proposed energy price cap.
The Conservatives have pledged to crack down on the UK energy sector with a price cap as part of their campaign ahead of the general election on 8 June. Centrica said the proposal would lead to reduced competition and choice as well as potentially higher average prices.
“We have had a regular and constructive dialogue with the government and have proposed alternative ways to improve the market further and address their concerns, without resorting to price regulation,” the group said in a trading update.
Goldman Sachs said in a note that if the cap extended to standard variable tariffs, it would impact Centrica the most, prompting a 23-56% downgrade to consensus forecasts for earnings per share in 2019.
“If the current cap mechanism was extended to include SVTs, we estimate that 75% of the Big Six suppliers’ customer base would be subject to a cap.
“Our scenario analysis suggests a potential reduction in UK Energy Supply EBITDA (underlying earnings) of 40%-50%.”
Centrica on track to meet 2017 targets...
Still, Centrica said it was on course to meet 2017 targets including cost savings of £250mln on the back of plans to cut around 1,500 jobs this year.
The savings are in addition to the £384mln achieved in 2016 and are part of the group’s £750mln per year cash efficiency programme.
The group expects adjusted operating cash flow to exceed £2bn and said it made incremental revenue investments of about £100mln in growth areas.
Closing net debt is estimated to reach £2.5-£3.0bn.
Capital investment, including acquisitions of less than £100mln each, is projected to amount to “no more than £1bn”, including exploration and production capital expenditure of about £500mln.
“We continue to make good progress in implementing our customer-facing strategy, building on the underlying momentum we had as we entered 2017,” said chief executive Iain Conn.
Good to see guidance unchanged amid challenges, says Hargreaves Lansdown
George Salmon, equity analyst at Hargreaves Lansdown, said given warmer winter weather, falling gas prices and the prospect of energy price caps, it was "good to see guidance remain unchanged, as progress against strategic targets continues apace".
"Although customer numbers continue to fall, adopting a quality over quantity approach feels like the right thing to do, after all slashing prices to keep everyone on board can be a dangerous tactic," he said.
"Investors will be hoping that with customer offers shifting to a more loyalty-based approach and service levels improving, the group can build a strong and stable base of valuable customers.”
-- Adds share price reaction, broker comments --