Apocalypse on Planet Centrica
Centrica, the owner of British Gas Business has announced a profit warning and a freezing of prices as they attempt to ‘shore up’ their business.
In the light of a forecast downgrade statement from Moody’s (as we reported recently) Centrica has blamed the unseasonably mild winter for depressing usage as well as announcing an equally depressing profit warning for the second time in six months.
After the foot in mouth antics of soon to be departed Chief Executive Sam Laidlaw and the heavy fine for persistent mis-selling in the business energy market this hasn’t been an auspicious few months for Centrica.
Positioning themselves for the CMA investigation into the UK energy market Centrica reported:
- A falling portfolio
- A second profit warning in 6 months
- A post tax margin of ‘just’ 4%
- The sale of a batch of generation plant
Laidlaw said:
“While earnings are anticipated to fall in 2014, we expect an improvement in 2015, assuming more normal weather conditions and reflecting the prospects for underlying growth in Direct Energy, UK gas storage, British Gas Services and British Gas Business.”
Over the 12 month period to April 2014, Nick Luff, the equally soon to be departed Centrica Finance Director revealed that ‘smaller’ suppliers had started to eat into Centrica’s supplier share.
However before the balloons and party hats come out at Ofgem and Energy UK, the 180,000-customer drop on 15,000,000 customer accounts represented just a 1.2% decrease in Centrica’s huge portfolio.
The disposal of a large chunk of Centrica’s generation capacity fits the narrative of Laidlaw’s warnings on power shortages from plant closure and under investment. These sales come on top of the mothballing of plant due to the low margins on offer to Centrica.
Luff warned:
“What matters for the country’s power sector is that there’s enough capacity to meet demand. These big plants will be there, regardless of who owns them”
Centrica have never been a subtle business, ever less so with Laidlaw at the helm, however they are a barometer for the wider market, and even taking the measured positioning of these announcements in the context of the CMA investigation, it is worrying that a one-time market leader has apparently lost its mojo and is no longer the innovator everyone watches.
Perhaps a consequence of a wholesale change of guard, perhaps a reaction to Miliband’s madness, maybe the advent of the welcome CMA investigation, possibly a hangover from some poor strategic decisions or a combination of all four. What isn’t in doubt is that Centrica needs to recover its form of old. Strong, fair, British owned companies are essential to the future good of the energy market; it’s time for Centrica to accept the situation and make the best of it.