30th Jul 2015 07:13
LONDON (Alliance News) - Centrica PLC said it has completed its strategic review of the business which will see a shift in investment away from its upstream segment and toward its British Gas business as it reported a rise in pretax profit but a slight fall in earnings in the first half of 2015.
The FTSE 100-listed electricity and gas provider reported a GBP1.20 billion pretax profit in the first half of 2015, up from a GBP890 million profit a year earlier despite revenue experiencing a slight 2% drop to GBP15.45 billion from GBP15.74 billion.
Earnings before exceptional items was down 3% to GBP1.0 billion from GBP1.03 billion after higher profit from customer-facing businesses more than offset by lower profit from upstream gas and power businesses.
Centrica slashed its interim dividend by 30% to 3.57 pence from 5.10 pence following the decision earlier in the year to rebase the dividend.
Centrica has been conducting a review of the business "in light of significantly changed circumstances" and said after a "rigorous" analysis, it has concluded it must focus on meeting the needs of our customers and to deliver long-term shareholder value through both returns and growth.
"The conclusion of our strategic review provides a clear direction for the business. Centrica is an energy and services company. Our purpose is to provide energy and services to satisfy the changing needs of our customers, and as such we will focus our growth ambitions on our customer-facing activities," said Chief executive Iain Conn.
As a result, Centrica said it aims to increase operating cashflow by between 3% to 5% per year, underpinned by near-term efficiencies, and said it will continue with its "progressive dividend policy" in line with its cash flow growth.
Centrica has decided to divert GBP1.50 billion of capital from its upstream business which focuses on exploration, production and central power generation, toward its other segments.
That further GBP1.50 billion investment will be split into several areas between 2015 and 2020.
It will also spend an additional GBP250 million over the next five years growing its service business in the UK and in North America and an extra GBP700 million in the same period on its energy and power distribution. An extra GBP500 million will be spent to improve the capacity of its connected homes segment and another GBP150 million on its marketing and trading activities.
Those extra investments will be made by Centrica cutting its expenditure on exploration and production and its central power generation to lower its "capital intensity". It said resource allocation in these areas will be cut by around GBP1.5 billion over the five year period. It also aims to make GBP750 million in cost savings across these areas between 2015 and 2020.
However, that shift in capital allocation away from its upstream segment will lead to around 6,000 jobs being cut by 2020, however it will also increase its headcount in some areas resulting in a net reduction of 4,000 staff, it said.
Overall capital expenditure will be limited to no more than GBP1.0 million per year in the near-term, it added.
"With Centrica delivering solid financial and operational performance in the first half of the year, and making good progress in strengthening its balance sheet and reducing net debt, the group is well placed to compete materially against the emerging long-term trends in global energy markets," said Conn.
"Full year outlook broadly unchanged, but uncertainties include continued low wholesale commodity prices and a competitive environment for our customer-facing businesses, as well as the ongoing resolution of British Gas business energy supply billing issues," said the company.
Centrica shares were up 0.2% to 275.60 pence per share on Thursday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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