Centrica’s recovery has been aided by the energy crisis. The profits for British Gas’ owner were nearly £2.8 billion in 2018. This is a drop from the £3.3 billion record set in 2022 but still second in group history.
British Gas was one of the biggest beneficiaries from rising energy prices in 2018. This was due to the dramatic increase by Ofgem on the energy price cap. The household supply business has around 7.5 millions customers. Profits have more than doubled to £751million, from £72million in 2022.
British Gas profits helped Centrica to surpass the consensus expectation of £2.6 billion last year. The volatility in commodity prices decreased, which led to a decrease in profits for Centrica’s oil and gas trading division.
Chris O’Shea said that the figures were boosted by a “one off” increase during the first half of the year, when the regulator raised the price cap in order to compensate suppliers who had set it too low previously.
Centrica’s profits have increased by more than £2.7billion at the end December due to the extreme volatility of oil and gas prices and the soaring costs of energy.
The years of debt have been reversed. This was helped by the £800,000,000 disposal of Norwegian oil and gas field interests in 2021. Dividends for the last year were raised by a quarter to 4p per share and a £1billion share buyback program is still in place.
Analysts speculated that the decision to not announce any new buybacks alongside the full-year figures could have been a pragmatic one, considering the continued furore of campaigners regarding the group’s bumper profit. If earnings do return to normal levels as predicted later this year, an expansion of its share repurchase program could be in the works.
In fact, the FTSE 100’s improved fortunes have been celebrated by shareholders. Share prices, which have risen more than half in just 12 months, reversing a decline of nearly ten years, ended the year more than two per cent higher.
But household bills are still on average over £1,928 per year – almost twice the historical norm. Simon Francis, coordinator of the End Fuel Poverty Coalition said that the profits were “astronomical” for a company providing energy to people who need it in order to stay warm.
The bad debt charges increased to £541 from £297 millions, the company said. This included the impact of pausing their debt collection activities after an investigation revealed the supplier was forcing vulnerable customers to install prepayment meters at home.
The energy group didn’t break out the exact impact of temporarily stopping debt collection on bad debt charges. O’Shea said it was “almost impossible” to predict the outcome if debt collection had not stopped. He said that the poorest people in society were “really struggling” and this included mortgages, rent, food, and other bills.
O’Shea declined to comment on his comments made earlier this year in a BBC Interview that it was “impossible to justify ” for his pay package which totaled £4.5 million for 2022. O’Shea also refused to comment on whether or not he will accept any bonuses for last year. Details of the bonus package will be revealed in the annual report of his company in March.
Profits will not continue at the current levels. British Gas is expected to return earnings to normal levels between £150 and £250 millions this year. This will be partly due to the anticipated drop in Ofgem’s price cap. O’Shea predicted that this would fall to about £1,700 per year by April, and remain at that level throughout the rest of the calendar year.
Around 30 suppliers failed in 2021-2022, halting the fierce competition that characterized the retail energy market and caused Centrica customers to leave to smaller competitors before the energy crises.
According to O’Shea, there has been a slight rise in switching on the market since this year began. He said that “we became obsessed with switching as a nation, and the regulator too.”
The volatile oil and gas business, which is inherently unpredictable, saw profits drop to £774 millions last year from £1.4 billion as prices fell. This segment will contribute between £250 and £350 millions over the medium-term.
Over the medium-term, the company expects to earn an average profit of £800million for its trading operations and retail activities, including home services. Analysts from Bernstein forecast profits for this year of £1,58 billion and £968 millions for next year.
Centrica’s energy business is represented by the gap between management guidance, and market forecasts. This includes its nuclear generation investments, Rough gas storage, and North Sea oil and natural gas production. Up to 70 percent of Centrica’s gas and electricity generation is hedged, at historically high prices.
Centrica will also invest in renewables and energy storage as the assets slowly wear out. The group increased capital expenditures to £415million last year due to the higher cash generated by its business.
It will be difficult to beat its record of profits, but the energy company is emerging from the crisis with a stronger footing.