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Centrica Reports Customer Growth In North American Consumer Business

Cites Higher Power Net Margins Versus Year-Ago, Negative Impact From Warmer Weather, In Trading Update

May 13, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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Centrica issued a trading statement in which the company said, "Centrica’s operational performance has been largely in line with the Company’s expectations in the first four months of 2019."

Among other things, Centrica stated, "Relative to a strong first quarter of 2018, North America Business wholesale gas optimisation performance negatively impacted by warm weather in the first quarter. Power net margin delivered or under contract for 2019 higher than at the same point last year."

Total Centrica Consumer customer accounts were down by 20,000 over the first four months of the year, with growth in North America, Ireland and Connected Home mostly offsetting a reduction of 234,000 customer accounts in UK Home energy supply. "This includes the impact of a spike in customer churn in March and April following the announcement of a significant increase in the level of the default tariff cap. However, the number of customer accounts exposed to the new UK default tariff cap remained broadly flat over the period," Centrica said

Centrica said, "the trading environment has been challenging due to a specific set of external factors, with the expected negative impact from the UK default tariff cap (including the one-off £70m impact in the first quarter), warmer than normal weather and falling UK natural gas prices. We also experienced extensions to outages at the non-operated Dungeness B and Hunterston B nuclear power stations."

Centrica stated, "In response, Centrica continues to focus on those things it can control, including improving customer service and propositions, margin capture, driving cost programmes hard and maintaining financial discipline. In the year to date, the Company has made further good progress on cost efficiency delivery, continued to tightly control capital expenditure and completed the sale of the non-core Clockwork Home Services business in North America for $300m (£230m)."

Centrica stated, "While a number of the factors leading to the challenging trading environment are temporary in nature, they will impact financial performance in the first half of 2019 and have also put some further pressure on the outlook for the full year."

Centrica stated, "However, with cost efficiency delivery expected to accelerate in the second half of the year and a continued focus on capital discipline, Centrica is maintaining its full-year guidance on operating cash flow and net debt," and continues to expect to achieve its 2019 Group targets of:

• Adjusted operating cash flow in the £1.8-£2.0bn range.

• In-year efficiency delivery of £250m.

• Like-for-like headcount reduction of 1,500-2,000.

• Group capital investment of around £1.0bn.

• £500m of non-core divestments.

• Net debt within the £3.0-£3.5bn range.

"2019 financial performance remains subject to the usual variables of weather patterns, commodity prices and operational and commercial performance in the balance of the year," Centrica said

Centrica noted the following in its update:

• Distributed Energy & Power committed forward order book up 58% over the past 12 months. Gross revenue for the first four months of the year up 54%.

• Connected Home gross revenue up 70% for the four months to the end of April compared to the same period in 2018.

• Annualised efficiencies of £58m delivered to the end of April. On track to deliver £250m of efficiencies in 2019 with benefits expected to be weighted towards the second half of the year.

Iain Conn, Centrica Group Chief Executive, stated, "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, in the form of the default tariff cap, warm weather, and falling gas prices. We have also experienced extensions to nuclear outages. 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. We intend to provide a strategic update regarding our portfolio and prospects at the time of our Interim Results in July."

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