LONDON: The new head of Centrica, Britain’s largest utility company, said he was cutting dividend payouts by 30 percent after falling energy prices drove profits down by more than a third in 2014.
Iain Conn, who took over as Centrica chief executive in January, warned on Thursday that energy prices would weigh on profit this year and announced a review of strategy to be completed by July.
Ahead of that review, Centrica said it was cutting its 2015-2016 exploration and production (E&P) budget by 400 million pounds ($618 million) in response to lower energy prices.
Unlike oil majors which have maintained payouts to investors, Centrica has cut its dividend by 30 percent, the reduction taking effect from the final payout for 2014.
The dividend cut was “to make sure the company has a solid credit rating going forward,” Conn told reporters.
Conn, former head of marketing and refining for BP, said Centrica had to cut spending because there was “no certainty” oil prices would rebound to previous highs.
Shares in the company, which owns energy supplier British Gas, traded more than eight percent lower at 1000 GMT, the biggest loser in the FTSE 100 share index.
“For investors, and in the current ultra-low interest rate environment, the cut to the dividend payment is a major blow,” said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers. “The search for income yield is becoming ever harder,” he added.
CHALLENGES TO COME
Centrica reported a 35 percent fall in 2014 adjusted operating profit, with the lower energy prices eating into earnings at both its production and supply units.
“2014 was a very difficult year for Centrica and the recent fall in oil and gas prices creates further challenge,” Conn said in a statement.
“We are cutting investment and costs in response.”
To add to its problems, Centrica is one of Britain’s big six energy suppliers which are being investigated by competition authorities after industry regulator Ofgem said the market was not competitive enough.
The low commodity prices led to a post-tax impairment charge of 1.385 billion pounds on its E&P and power assets.
The firm had already announced a tighter 2015 capital expenditure programme in November, when it also prepared investors for lower than expected 2014 earnings due to mild weather and lower output at nuclear plants.
Since then, low oil prices have had a knock-on effect on Centrica’s upstream business, which mainly produces gas.
Plans to sell three of its large combined-cycle gas turbine (CCGT) power plants, announced last May have also been dropped after the company said bids it received for the plants fell short of expectations.
The 665 megawatt (MW) Killingholme gas plant, which was up for sale, will now be closed, along with the 260 (MW) Glanford Brigg power plant, both of which are in north-east England.
Conn said the company hopes to sell its gas assets in Trinidad and Tobago assets but cautioned this may not be possible due to weak oil and gas prices. ($1 = 0.6470 pounds)