British Gas owner Centrica PLC (LON:CNA) shares edged higher on Monday as the firm said it is on track to meet its 2018 targets even as the ‘Beast from the East’ hit UK profits in the first half.
The group experienced higher customer complaints and call outs to fix broken boilers due to extreme cold weather in the UK in February and March.
Centrica fixed 145,000 boilers in a week, more than twice the normal amount, meaning it now expects first half adjusted operating profit in its UK customer services division to be lower than the previous year.
Customer account holdings fell by 62,000 in the first four months of year. Energy supply accounts dropped by 110,000 in the UK and by 28,000 in North America.
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However, the company said net consumer customer account losses in the year to date slowed materially compared to the average of 2017, supported by growth in its Connected Home business.
Connected Home, which supplies smart home products, saw revenue jump 37% in the first half. Centrica said it continues to target a “doubling” of revenue in Connected Home for the full year with 500,000 new customer and more than one million product sales.
Centrica Business full year profits set to improve
In the division that supplies energy to businesses, the company said it achieved improved operational performance and customer outcomes in the year to date in the UK with lower complaints and a pick-up in the brand net promoter score.
The North America business unit “performed well with strong gas optimisation performance” during periods of cold weather and higher brand NPS.
While competitive intensity remains high, the group expects the Centrica Business arm to deliver improved full year adjusted operating profit compared to last year.
Oil and gas production to reach lower half of target range
The company’s exploration and production unit, Spirit Energy, was hit by unplanned outages at Morecambe in England and lower volumes from certain non-operated Norwegian fields.
As a result, production is slightly below expectations in the year to date and is now forecast to reach the lower half of the target range of 50-55mln barrels of oil equivalent.
Revenue weighted to second half, annual results hit by one-off charge
The company said it expects revenue growth to be weighted to the second half given the anticipated realisation of the order book in distributed energy and power.
Centrica added that the full year results will include an exceptional charge of £140mln resulting from the repurchase of £1.1bn of gross debt, which is at the upper end of the targeted £0.6-£1.1bn range.
The move will, however, deliver ongoing interest savings of around £35mln per year over the first four years and total lifetime savings of around £300mln.
Centrica repeats opposition to energy price caps
On the government’s proposal to cap standard variable tariffs, Centrica said it continues to believe “price controls in competitive energy markets are not good for customers”.
It expects regulator Ofgem to implement a temporary default tariff cap in the UK at the end of this year.
In response, the group scrapped the standard variable tariff for new customers and introduced of a new temporary fixed-term default tariff, which is priced below the standard tariff.
The company has 3.8mln customers on the standard variable tariff, down from 4.3mln at the end of 2017 and expects this to fall to about 3mln by the end of this year.
In April the group said it would raise its standard electricity tariff would increase on May 29 by £60, blaming rising wholesale and policy costs.
“While the outcome of regulations to impose a temporary cap on all default energy tariffs in the UK remains uncertain, we continue to participate actively in the consultation process,” said chief executive Iain Conn.
“Our focus remains on performance delivery and financial discipline and we remain on track to achieve our 2018 group targets."
Centrica's full year targets
The group's targets include adjusted operating cash flow of £2.1-£2.3bn, capital investment of no more than £1.1bn, a full year dividend of 12p per share, efficiency savings of £200mln, a 1,000 decline in like-for-like direct headcount, and net debt of £2.5-£3.0bn.
"Centrica is sticking to previous targets, including holding the dividend at 12p per share, and this will boost confidence to a degree," said George Salmon, equity analyst at Hargreaves Lansdown.
"The prospect of an 8%-plus yield will be attractive to some, but the market is wary the pressures on the group could mean a repeat of recent dividend cuts.”
In lunchtime trading Centrica shares were 0.2% higher at 147.4p.
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