3rd Apr 2019 14:32
LONDON (Alliance News) - Standard & Poor's Global late Monday reduced the long-term issuer credit rating of Centrica PLC to BBB from BBB+, while the outlook was changed to Stable from Negative.
This change in rating follows a three-year period of Centrica being on a negative outlook.
The ratings agency said the downgrade reflects its view that Centrica's market position and overall credit quality have weakened, with limited prospects for marked improvement in the coming two to three years.
"Over the past two to three years, strong competitive pressures in the UK power and gas retail activities, combined with the implementation of the default price cap that the regulator, Ofgem, has applied to UK energy suppliers, have gradually weakened the operating environment. This has directly harmed Centrica's profitability," S&P said in the statement Monday.
S&P said that the British Gas owner's performance in its core electricity and gas supply divisions in the UK and the US was "materially" lower that the rating agency had expected. Operating profit for 2018 came in 15% and 25%, respectively, below expectations.
This was due to ongoing competitive pressure in the UK with Centrica's market share continuing to decline to 24% in the third quarter of 2018 from 26% as of the same period in 2017.
Meanwhile, the US division missed estimates due to unfavourable weather conditions, competitive market conditions, and lower retail power net margins, S&P said.
Looking ahead, the ratings agency expects 2019 to remain challenging for Centrica, primarily because of the UK default price cap. Following a governmental pledge to prevent energy bills from increasing, Ofgem introduced the price cap for its first dual fuel cap level effective for standard variable tariffs customers from January.
"Considering our expectation that 2019 will be challenging, we view positively management's commitment to take further actions to improve performance and reduce debt," S&P noted.
Looking ahead, S&P said the ratings upgrade would depend on good operating performance and maintained market positions and profitability, both in the UK and the US.
S&P also said that at this stage a further downgrade of FTSE 100-listed Centrica is unlikely, given the company's supportive financial policy.
Centrica shares were trading 0.6% lower on Wednesday at 114.00 pence each.
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