Thursday, 20 February 2014

Centrica - 2013 Final Results

Centrica is a top 30 FTSE 100 company with a market cap. of around £16bn. It operates predominantly in the UK (British Gas) and USA (Direct Energy) and has 35,000 employees serving 30 million customers.

I purchased Centrica for my shares ISA last November - here’s a link to the post

They have today reported results for the full year to 31st December 2013 (link via Investegate). The group reported that basic EPS over the year was unchanged at 26.6p as CNA declared a 2% reduction in residential customers at 15.25m (2012 15.6m). The loss of customers coupled with high costs for wholesale gas and transmitting energy resulted in operating profits having declined 2% to £2.69bn (2012 £2.74bn). They completed a £500m cost cutting programme during the year.

Centrica said it expects earnings per share (EPS) to decline over the coming 12 months “Market conditions look set to remain challenging for our gas-fired power stations with no sign of material recovery in 2014," the Company said in its results statement.

As we all know, the big 6 energy companies have been in the spotlight in recent months. Firstly, Labour are promising to freeze energy prices if they get elected next May. Secondly, all have recently announced above-inflation energy price rises for 2014 although this has recently been mitigated by a reduction in prices following changes to the ECO programme.

Chairman, Rick Haythornthwaite has been exploring the issues leading to the Company being perceived in a negative light and said :
“Centrica recognises the need to reaffirm and demonstrate its commitments to treating customers well, working constructively with policy makers and conducting its business in the most transparent manner possible. I have found such a response to be instinctive within the company and very much the focus of attention – as evidenced by the pace at which savings from recent UK Government policy changes were passed on to customers.”

“But this alone is unlikely to be sufficient to completely turn the tide. So, in parallel, I have been using my early independence to explore some of the issues to find a way to accelerate the restoration of trust and collaboration.
First, I have been looking into the various criticisms that have been directed towards the industry and am conducting my own independent fact finding review of some of the issues that are most important to our customers and seeing for myself whether we are truly living by the Business Principles we espouse.
Secondly, I have been meeting our customers to discuss what they need from their energy supplier, the trade-offs involved in fulfilling these needs and what it will take to re-establish a sense of mutual partnership. My early impression is that, while there are issues around customer trust and service levels, the reputation of British Gas in the eyes of our customers is vastly better than one would be led to believe from the media and political commentary, particularly when it comes to our service engineers helping customers in their homes.”

Although the share price weakness could continue for some time, I believe the long-term outlook is not as bleak as is currently being painted. Centrica is a large, solid company with a well diversified operation.

I am not anticipating much, if any, increase on the current 17p dividend .The results are possibly a little better than analysts expectations and by midday the share price was up 1.5% at 319p. The current yield is 5.3% with a cover of 1.5x adjusted earnings.

I will be happy to take the income for a while and wait for a turn around in sentiment.

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