Centrica warns of lower earnings after further outages

Centrica warned that full year earnings would be dented after weaker energy production volumes and the loss of 372,000 home energy supply accounts in the third quarter, though the British Gas owner still expects to hit its full year targets.

While full year guidance for operating cash flow, net debt, efficiencies and dividends remained unchanged, the FTSE 100 group said its results will be affected by outages in the recent quarter at its Spirit Energy exploration and production joint venture, and at its nuclear division.

Full year adjusted earnings per share are now expected to come in around 11.5p, around 10% below what analysts had pencilled in, with an effective tax rate of around 40% reflecting a changed profit mix.

Operational issue and unexpected outages at Spirit Energy have led to full year forecasts being cut to roughly 47.5m barrels of oil equivalent per day from the guidance of around 50mmboe given at the interim results. Spirit Energy, the 69%-owned JV, had also been below expectations during the first half due to unplanned outages and increased remediation spending.

Centrica said oil and gas production for 2019 is currently expected to be at "broadly similar levels to 2018". Initial guidance at the formation of the JV was that production would be 45-55mmboe in the medium term.

In the nuclear business, performance was impacted by "extended inspections and outages" at the Hunterston B and Dungeness B power stations, with an expected full-year impact of around 0.2TWh since the interim results. Volumes in the first half had been hit by outages on the Hunterston B reactor

There was no update on Centrica attempts to sell its 20% interest in the fleet of nuclear power stations.

By the end of October, the group has made annualised efficiencies of £189m and said it remained on track to deliver over £200m by the end of the year.

"As we have done over the last four years, we are focused on driving significant underlying improvements in performance and delivering attractive returns while re-positioning the portfolio towards the customer," said chief executive Iain Conn.

He said efficiencies and new customer propositions were "helping to offset the effects of strong competition and regulation in energy supply", though financial performance has "remained resilient" despite weaker than planned volumes from E&P and nuclear and that cash generation "remains strong".

Centrica's shares, having slowly rallied 3% in 2018 after losing two thirds of their value since late 2013, fell 7% on Thursday morning to just 136p.

Russ Mould, investment director at AJ Bell, said: "The tough competitive environment is reflected in the 372,000 customers lost in the four months to the end of October, although this is not as alarming as the 823,000 lost in the same period in 2017.

"The company has delivered some significant cost savings and appears to be keeping a lid on its borrowings, however only a return to growth would really reassure on the sustainability of the dividend.

"Centrica is somewhat unusual in the utilities space given its material oil and gas production arm. While this does provide some diversification from the consumer energy business, it also comes with its own headaches attached, such as output recently being hit by operational issues."

Nicholas Hyett at Hargreaves Lansdown said the nuclear and oil & gas businesses problems were short term headwind.

"The longer term problems lie in the British Gas business, where a price cap and shake-up in regulation is costing the group 100,000’s of customers. Centrica’s making progress in shifting consumers off the single variable tariffs that are being targeted, but it’s a slow process and there are still some 3m customers that will be affected."

He said the company's goal in the next couple of years is "not an ambitious one" but merely to negotiate the new regulatory landscape while keeping the dividend unaffected. "A dividend yield of approaching 9% this year suggests the market thinks it might find that difficult.”