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Centrica shares plummet to 20-year low as retail pressures loom

Image: Centrica.

Image: Centrica.

Centrica has warned that it will face “some pressure” next year as Ofgem’s price cap bites, sending shares plummeting to a 20-year low in early morning trading.

But the energy giant has pointed towards “material” new consumer-facing capabilities and an “expanding opportunity-set” from new technologies as it looks to offset the impact of the price cap as well as falling activity in its fossil fuel and nuclear arms.

This morning Centrica published its 2018 financial results as chief executive Iain Conn said the firm’s financial performance was mixed against a “challenging external backdrop”.

While adjusted operating profit climbed 12% and both its cash flow and net debt were within Centrica’s target ranges, volumes in the firm’s Spirit Energy and nuclear divisions disappointed.

But of further concern will be Centrica’s frank admission that this year stands to be tougher still. Conn said that continuing lower volumes in its exploration and production and nuclear arms, coupled with the biting impact of the default tariff cap, will mean that the 2018 – 2020 target operating cash flow range is “under some pressure”.

That admission sent Centrica’s share price plummeting. At the time of writing Centrica shares had fallen by more than 10% in early morning trading, down to a 20-year low of 122.85.

Actions to strengthen

As a result of that forecast, Centrica is taking actions to strengthen the company moving forward.

The firm is now seeking £500 million of non-core divestments this year, starting with the £230 million sales of its US-facing Clockwork Home Services unit.

A further £250 million of efficiency savings are now expected in the year ahead, a similar figure to the £248 million of savings realised in 2018. An additional £500 million are now being targeted in the year ahead.

It’s also expected that £1 billion worth of capital is to be reinvested throughout 2019 as Centrica looks to capitalise on what Conn called “material new capabilities” within its consumer and business-facing units.

These divisions, the company said, were evidence of “encouraging signs of stabilisation and growth potential” in markets where the firm reported difficulties last year. While the firm shelled almost 700,000 customers last year – much like most of its peers – Centrica recorded a near 50% increase in the number of Connected Home customers to 1.34 million.

There was a similar story in its business-facing energy supply unit. It lost around 65,000 business customers last year, down to just over 1.2 million, but witnessed a 16% increase in the number of active customer sites within its distributed energy and power business, which has a key focus on decentralised energy solutions.

“We have developed material new customer-facing capabilities in both Consumer and Business, exposing Centrica to an expanding opportunity-set, with encouraging indications of stabilisation and growth potential. Our focus is on performance delivery and financial discipline as we satisfy the changing needs of our customers,” Conn added.

Earlier this week Centrica confirmed another raft of investments in domestic energy flexibility service providers from its Innovations team, indicating continued interest in bolstering its service offering in this field.

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