Centrica reports steep drop in profits

The owner of British Gas has reported a 35 per cent drop in full-year operating profits.

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By :  ,  Financial Analyst

British Gas owner Centrica has announced a steep drop in its full-year operating profits.

The company reported a 35 per cent fall to £1.75 billion and this negative performance was felt around the organisation. British Gas' residential business saw profits drop by 23 per cent to £439 million, one of the main reasons was the unseasonably warm weather which meant a reduction in used energy for heating.

Following the announcement, Centrica saw its share price drop by 8.5 per cent to 257.3p at the end of Thursday (February 19th). Its performance did not improve on Fridayas it fell by a further 1.35 per cent to 253.7p as of 09:18 GMT. It has prompted the company to cut its full-year dividend for 2014 to 13.5p a share from 17p the year before, a decision it regarded as "painful".

Iain Conn, chief executive of Centrica since the beginning of 2015, said: "[The dividend cut] was quite urgent actually. Some of our credit metrics at the end of last year were really quite far below where our current credit rating is and we weren’t able to balance cash going out with cash coming in. Clearly it is a big blow. It was important to be clear."

The Centrica boss explained that the company would now be looking to cut exploration and production capital by around 40 per cent. This would see it reduced to £650 million by 2016 and would include the closure of power stations at Killingholme and Brigg in Lincolnshire.

Tumbling oil prices

Alongside the warm weather, Centrica has also been hit hard by the tumbling oil prices. Both Brent crude and US crude have fallen significantly over the past six months prompting meetings of the Organization of Petroleum Exporting Countries (Opec). The cartel held discussions over whether to reduce production in a bid to stimulate prices.

However, members such as Saudi Arabia and non-member Russia were openly against the idea and production levels maintained the same.

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