Centrica is cancelling its dividend and halting its sale of Spirit Energy in response to COVID-19.
In an update released today (2 April), the Big Six supplier announced it has cancelled the proposed 2019 final dividend payment of 3.5 pence per share. This was to be paid in June, with the total cash outflow expected to be £204 million.
The decision has been taken to pause the sale of Spirit Energy until the financial and commodity markets have settled, Centrica said, with the current environment making it “more challenging” to execute the planned divestments of both Spirit and its interests in nuclear energy. It was originally expecting to receive initial bids for Spirit Energy at the end of March.
All non-essential customer visits have also stopped, although service engineers are continuing to attend breakdowns.
Centrica is also reporting an increase in residential demand, as well as a more significant reduction in demand from business customers.
This is in line with the whole of the UK, with demand falling due to the shutting down of industry.
Centrica also expects to see an increase in working capital outflows and bad customer debt as certain customer segments defer payments. There is “substantial liquidity” available to accommodate this, however.
UK suppliers introduced new emergency measures in light of COVID-19 allowing for discretionary funds being added to consumers credit and the issuing of pre-loaded top up cards, as well as suppliers looking into debt repayments schemes. As part of the measures, bill payments are being reassessed, reduced or paused where necessary.
But there is likely to be an impact on revenues from its services and solutions activities for both homes and businesses, with the company prioritising only essential work in the near term.
Centrica has already taken action to reduce its 2020 cash capital expenditure by around £100 million to around £400 million in Spirit Energy and identified further cost savings, it said.
It confirmed the Board remains committed to “taking appropriate actions to maintain a strong balance sheet”. Following the decision taken earlier this year not to pay any Board level bonuses relating to 2019, all bonus payments to other management have now also been suspended.
Total Group capital expenditure including E&P is now expected to be around £600 million compared to around £800 million at the time of its Preliminary Results.
However, the financial impacts of COVID-19 and related economic weakness difficult to quantify precisely at this stage, the company said.
Chris O’Shea, interim group chief executive, said it is becoming “increasingly clear what a vital role so many of the Centrica team perform” as the scale and length of the COVID-19 pandemic becomes more apparent.
“While there are so many uncertainties surrounding the impacts of this situation, I am confident that we have acted promptly and prudently to underpin the long term strength of Centrica."
The company lost £849 million in 2019, a performance it blamed on Ofgem’s energy price cap for creating a “challenging environment”.