Centrica Plc Announces Weak H1 FY19 Numbers Amid Challenging Environment

Centrica Plc Announces Weak H1 FY19 Numbers Amid Challenging Environment

Centrica PLC

Centrica PLC (CNA) is a British energy and services corporation based in Windsor, Berkshire. The company is primarily engaged in the supply of power and gas to businesses and consumers, and its target market includes the United Kingdom, Ireland and North America. It is the owner of British Gas, which is the largest energy provider in the United Kingdom, and along with five other power supplying company, it’s a part of Britain’s ‘Big Six’ energy suppliers. The company is a constituent of the FTSE 100 index.

Recent News

The board has started thinking on succession planning for the post of CEO (Chief Executive officer) in the company. Iain Conn will be serving as the CEO until the Annual General Meeting 2020. He shall retire after this event. Mr Conn will continue working on finding the right mix for the company’s portfolio, which is in line with the company’s strategy of transformation into a new phase and quitting existing E&P business. Mr Conn has been associated with the company as the CEO since 2015 and has been a lighthouse to Centrica in achieving strategic objectives such as delivering sustainable clean, affordable energy with low carbon emissions in line with reducing carbon footprint all around the world.

The interim dividend was reduced and stood at 1.5 pence per share (reduced by 60 per cent) after things went south in almost all the key performance indicators. On 30 July 2019, the company declared interim results for H1 FY19.

Financial Highlights for First half of the year 2019 period ended June 30, 2019

The first half of FY19 has been rough weather for Centrica Plc. The financial performance in H1 Financial Year 2019 was weak in comparison to H1 Financial Year 2018 and the cash flows and earnings reflect the same. The company’s revenue (adjusted) stood at £13.8 billion (down by 2 per cent) in H1 FY19 as against £14.0 billion in H1 FY18. The company’s revenue (Consumer) plunged by £0.1 billion due to a smaller number of energy accounts of the customers, a default tariff cap introduced on the energy supply on UK home, and less consumption of energy due to warmer weather.

The company’s revenue (business) plunged by £0.1 billion due to lesser opportunities in gas optimisation in North America. The company’s production and exploration remained flat in H1 FY19 as against H1 FY18.

The company’s operating loss (reported) stood at £446 million in H1 FY19 as against operating profit of £704 million in H1 FY18. However, the operating profit (underlying) stood at £399 million in H1 FY19 as against £782 million in H1 FY18.

The company’s underlying operating profit (Exploration and Production) plunged by 42 per cent to £148 million. This can be attributed to the falling gas prices in the United Kingdom; a write off on drilling activities at Greater Warwick followed by field’s natural decline. The company’s net finance costs plunged to £123 million in the first half of the financial year 2019 as against £150 million in the first half of the financial year 2018. This can be attributed to rate cuts on debt instruments followed by the repurchase of £1.1 billion of net debt (gross) which got completed in H1 FY18. The company’s tax charge (adjusted) stood at £128 million in the first half of the financial year 2019 as against £246 million in H1 FY18.

The company’s profit stood at £143 million in the first half of the financial year 2019 as against £381 million in the first half of the financial year 2018 and after factoring the non-controlling interests, the company’s adjusted earnings plunged by 63 per cent to £134 million in the first half of the financial year 2019 as against £358 million in the first half of the financial year 2018. The company’s basic EPS (adjusted) plunged by 63 per cent to 2.4 pence per share in the first half of the financial year 2019 as against 6.4 pence in the first half of the financial year 2018.

The company’s cash flow from operating activities (net) stood at £177 million in the first half of the financial year 2019 as against £876 million in the first half of the financial year 2018, the earnings declined followed by surge in payments regarding exceptional charges and taxes as against a net tax refund in the first half of the year 2018. The company’s operating cash-flow (underlying) stood at £744 million in the first half of the financial year 2019, down by 32 per cent. The company’s operating cash-flow (underlying) from consumer segment stood at £250 million (up by 29 per cent) in the first half of the financial year 2019 whereas the company’s operating cash-flow (underlying) from business segment stood at £61 million (down by 77 per cent) in the first half of the financial year 2019.

The company’s net cash outflow from investments plunged to £100 million in the first half of the financial year 2019 as against £491 million in the first half of the financial year 2018. This can be attributed to cash proceeds from the sale of Clockwork and reduced expenditure on PPE (Property, plant & Equipment).

The company’s cash outflow (financing activities) plunged to £570 million in the first half of the financial year 2019 as against £1,838 million in the first half of the financial year 2018, capturing the effect of repurchasing of debt in the first half of financial year 2018 and lesser share-based payments. The company’s net assets plunged to £2,845 million in the first half of the financial year 2019.

Centrica cut its interim dividend by 58 per cent to 1.5 pence per share and said it would reset the full-year dividend, blaming the introduction of the price cap as well as higher pension deficit contributions. This was even lower than analysts had been expecting. The company had warned that it was unlikely to hit its operating cash flow target this year. Furthermore, Iain Conn has agreed to step down as chief executive of Centrica, after announcing a further hefty cut to the dividend and the sale of its oil and gas production arm.

In H1 FY19, the company had a challenging environment which impacted the adjusted operating cash flow and adjusted earnings. In FY2019, adjusted earnings projected to be weighted towards H2 FY2019, offering momentum into 2020. In the financial year 2019, the company continue to expect adjusted operating cash flow in the range of £1.8-£2 billion and net debt will be between £3 billion and £3.5 billion.

However, the group is focusing on cost efficiency and have established material new consumer-facing capabilities in both Business and Consumer segments. The company is planning to enter into a strategic partnership with Ford automaker and will be providing home charging installations.

Centrica shall make a transition towards a lower carbon emission future, emphasise on its strengths in the energy production and optimisation. The company intends to take strategic decisions on improving company’s position in the UK home segment and North America businesses.

UK home might need to undergo some structural changes with a focus on cost-effectiveness and optimisation. On the North America front, the company is targeting of generating returns to the tune of 10-12 per cent with minimum volatility. In addition, by 2022, the company is looking forward to working upon £1billion of efficiencies (annualised).

Centrica PLC Share price performance

Chart as on 30-July-19, before the market close (Source: Thomson Reuters)

While writing (as on 30th July 2019, at 12:11 PM GMT), Centrica Plc shares were trading at GBX 77.42 per share; plunged by 14.77 per cent as compared to the previous day closing price level. The company’s market capitalisation was around £5.35 billion.

In the last 52-wks, Centrica Plc shares have registered a high of GBX 156.67 (as on 13 Nov 2018) and a low of GBX 76.54 (as on 30 July 2019). At the current trading level, as quoted in the price chart, its shares were trading 50.58 per cent below the 52-week high price level and 1.15 per cent above the 52-week low price level.

At the time of writing, the stock’s volume before the market close, stood at 55,727,613. Stock’s average traded volume for 5 days was 24,509,579.80; 30 days- 22,187,793.10 and 90 days – 22,129,297.27. The company’s stock beta was 0.65, which makes it less volatile as against the benchmark index.

The average traded volume for 5 days surged by 10.46 per cent as against 30 days average traded volume. The shares of the company (at the time of writing) were trading below the 60-days and 200-days SMA, which shows a negative trend in the stock price movement and could further move down from the current trading levels.

In the past 1 year, Centrica shares have delivered a negative return of 40.41 per cent. Also, on a YTD (Year-to-Date) time interval, the stock plunged by approximately 32.66 per cent and was down by 14.14 per cent in the last three months.

Share’s RSI (Relative Strength Index) for the 30-days, 14-days and 9-days was recorded at 46.10, 55.17 and 60.15 respectively. Also, the stock’s 3-days RSI was recorded at 74.81.

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