Centrica PLC (LON:CNA) has warned that tariff caps, warmer than normal weather and falling UK gas prices will impact its performance in the first half of the fiscal year.
In a first-quarter trading update, the FTSE 100 owner of British Gas said while its operational performance had been “largely in line” with its expectations, the “challenging trading environment”, which included a £70mln hit from the energy price cap, would impact its first-half performance and had also put pressure on its full-year outlook. The company also saw around 234,000 customers exit in the UK over the quarter.
READ: UBS cuts target price for Centrica, thinks pressure on British Gas owner’s strategy is intensifying
However, the group managed to maintain its guidance for the whole of 2019, adding that it also expected its cost efficiencies to accelerate in the second half of the year.
Centrica is aiming to axe around 2,000 jobs this year as part of a cost-cutting drive aimed at protecting the group’s profits and cash balance.
"Although operational performance has been largely in line with our plans, external factors have presented challenges for Centrica during the first four months of 2019," said Iain Conn, Centrica’s chief executive.
“However, we continue to focus on those things we can control and as a result we expect to achieve our 2019 cash flow and net debt targets, while we are making further progress on cost efficiency delivery and on demonstrating margin capture capability”.
Conn added that an update to the company’s strategy would be provided at its interim results, which are scheduled for 30 July.
The comments on “challenging” trading are unlikely to assuage investors at the company’s AGM later today, with Conn facing a shareholder revolt over his pay packet, which is scheduled to increase to £2.4mln from £1.7mln last year despite the share price having fallen 38% in the last 12 months.
There may also be continued speculation that the firm could be preparing to cut its generous dividend, with UBS saying in February that “the writing is pretty much on the wall” for the payout to be trimmed.
However, in early afternoon trading on Monday investors seemed to be relieved that the update wasn't as bad an expected, with shares up 1.5% at 94p.
Update not as bad as feared but “stage set for dividend cut”
George Salmon, equity analyst at Hargreaves Lansdown, said that while the update wasn’t as bad as investors had hoped, the stage was now set for a dividend cut.
However, Salmon added that even if Centrica cut its dividend in half it would still be paying “above market yield, and there’d probably be room for the dividend to grow from that materially lower base”.
“Cocktail of headwinds” could see Conn exit
Neil Wilson, chief market analyst at Markets.com, was similarly fatalist around a possible divi cut, saying the with the company facing “a cocktail of headwinds” it was “increasingly clear” it would not be able to defend its payout for much longer.
He added that unless the group could produce a “convincing strategic update” at its interims in July, CEO Conn wouldn’t be sticking around for much longer, particularly in combination with the “absurd” pay increase that has attracted the ire of shareholders.
--Adds analyst comment and updates share price--