Centrica’s first-half underlying revenue fell 12% to £10.5bn, reflecting declines across all business units.
Underlying cash profit (EBITDA) fell by 18% to £0.7bn (£0.8bn expected). This was driven by a sharp decline in the Infrastructure business, largely reflecting disposals in Spirit Energy and lower Nuclear power generation due to both planned and unplanned outages.
Free cash flows worsened from a £0.2bn inflow to a £0.6bn outflow, due to the lower profitability, a step-up in investment spending and the £0.4bn acquisition of the Severn power plant. The net cash position fell from £2.5bn to £0.7bn.
Retail and Optimisation full-year underlying cash profit guidance is unchanged at the lower end of £500-800mn and around £250mn, respectively. Infrastructure guidance has been raised around 30% to £650-750mn.
An interim dividend of 2.0p per share was announced, up 9%.
The shares fell 3.2% in early trading.
Our view
British Gas owner Centrica had a soft start to the year, with disposals and lower nuclear power generation weighing on profits in its Infrastructure business. Despite this, full-year guidance remains on track. But markets reacted poorly to news that profits in its Optimisation business look set to remain subdued, which we think could see next year’s profit forecasts reined back.
In its Retail division, customer satisfaction scores continue to rise thanks to the group's efforts to improve service. But Centrica chose to hold firm on pricing, which saw customer numbers slip slightly lower as they shopped around for better deals. The warmer-than-usual weather and an increase in customers struggling to pay their bills also weighed on performance.
The Optimisation division houses Centrica’s energy trading arm. This buys and stores gas when prices are low, then waits for higher prices to generate and sell power back to the market, profiting on the difference. However, the subdued energy prices of last year were unfavourable, causing the group to hit pause on its storage operations. As a result, it looks like the group has missed out on benefitting from the recent volatility in energy prices, and the outlook here remains subdued.
The Infrastructure division is responsible for producing oil and selling power from its UK nuclear plants. Underlying performance is improving, and profits now look set to land ahead of group guidance, largely due to higher energy prices.
Big plans are afoot to turn this unit into a renewable energy powerhouse. But the transition is not going to come cheap or quickly, with between £600-£800mn per year set to be invested in the transition out to 2028.
The balance sheet remains in decent shape, with enough cash on hand to help fund the group’s mammoth investment plans, and the forward dividend yield of 3.7% looks well covered. But, in order to make sure it doesn’t burn through cash too quickly, the group has stopped share buybacks for now (2025: £0.8bn), a clear reminder that shareholder returns are never guaranteed.
The longer-term picture for Centrica remains favourable, helped by its ongoing investments in the business and life extensions of its nuclear fleet. Despite a sharp decline, there is still a sizable cash pile to cushion any further bumps in the road. But a lot of these strengths are now priced into the valuation, and we don’t see many near-term catalysts on the horizon.
Environmental, social and governance (ESG) risk
The utilities industry is high-risk in terms of ESG. Management of these risks tends to be strong, with European firms outperforming their overseas counterparts. Environmental risks like carbon emissions, resource use and non-carbon emissions and spills tend to be the most significant risks for this industry. Employee health and safety and community relations are also key risks to monitor.
According to Sustainalytics, Centrica’s management of ESG risk is strong.
It has a board-level committee overseeing ESG issues such as safety and environmental programmes. Services have been digitalised to help improve customer experience and retention, however, customer complaints at British Gas Energy rose by 5.9% in FY22. Centrica also reports ESG information in its annual report, which does not follow best practices.
Centrica key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.