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Centrica customer exodus continues

A challenging trading environment will dampen performance in 2019, as a potential dividend cut looms
May 13, 2019

Centrica (CNA) has warned that a “challenging trading environment” will hit financial performance in the first half of 2019, placing further pressure on its full-year outlook. After going ex-dividend last week, the shares dipped below the 100p mark for the first time since 1998. A downward trend is being exacerbated by the cumulative effect of factors including warmer-than-expected weather, falling natural gas prices and the UK default tariff cap (which has already had an adverse £70m impact in the first quarter).

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With significant customer churn in March and April following the increase in the default tariff cap, UK home energy supply customer accounts plummeted by 234,000. Despite growth in North America, Ireland and connected homes (which saw a 70 per cent surge in gross revenue), total consumer customer accounts still fell by 20,000.

EDF Energy’s recent announcement of a further delay at the Hunterston B nuclear reactor only compounded a series of extended outages. Centrica currently holds a 20 per cent stake in the eight nuclear power stations owned and operated by EDF, stating its intention to divest this holding back in February 2018. With half-year results due on 30 July, the group is promising “reflections on the current business portfolio”, with further clarity on the planned disposal of its nuclear interest.

Meanwhile, the group is choosing to “focus on those things it can control” with £58m of cost efficiencies delivered to the end of April, on track for £250m for the full year. As such, the group expects adjusted operating cash flow and net debt to remain on target for 2019 at £1.8bn-£2bn and £3bn-£3.5bn, respectively.

It remains to be seen whether this will be sufficient to satisfy investors. Expressing their discontent over the contradiction between the group’s lagging performance and rising executive pay, almost 15 per cent of shareholders voted against the directors’ annual remuneration report at the recent AGM.