Centrica is making progress, apparently. Look, British Gas customers are fleeing at a rate of only 93,000 a month this year, as opposed to the 100,000-plus that were deserting on average every month during 2017.
As corporate boasts go, this is pretty desperate stuff. Indeed, if you cut the numbers a different way, the rush for the exit is intensifying: there have already been more escapees in the second half of 2018 than in the first.
All big six energy suppliers are losing customers because switching to smaller independents is suddenly fashionable. But the really bad news for the old guard is that the process is happening even before the government-imposed price cap arrives to take a bite out of profits next year.
On the plus side, Centrica can claim genuine success in signing up punters to its “connected home” services. But a shrinking pool of retail customers represents a serious long-term headache that cost-cutting can only partially fix. The consumer market looks unstable. That’s a problem if, like Centrica’s chief executive, Iain Conn, your strategy is to “reposition the portfolio towards the customer.”
Still, at least the gas exploration and energy-generation divisions offer greater stability, right? Not on current form.
The other revelation in Thursday’s trading update is weaker than expected production from the gas fields and “outages” at the Hunterston B and Dungeness C nuclear power stations, where Centrica has exposure via its 20% stake in British Energy.
The combined cash flow impact will be small – just £50m or so. But, at an earnings level, Centrica’s numbers suddenly look horribly tight. The plan is to pay a 12p-per-share dividend this year from expected earnings of just 11.5p, so you can understand why investors fear for their income in the medium-term. A dividend yield on the shares of 9% underlines the point.
At a push, one can see why management thinks the dividend arithmetic still works. Add up capital expenditure (£1.1bn), the dividend (£600m), interest costs (£300m) and pension fund repair (£100m) and you still have £100m of spare change if operating cash flow arrives, as still predicted, at £2.2bn-ish.
Yet the plan leaves almost no room for error or bad luck. Conn, who cut the dividend by 30% soon after he arrived from BP in 2015, cannot afford any more bad news if he is to avoid a repeat. Unfortunately, bad news is mostly what Centrica shareholders have been hearing in the past year. As the shrunken share price shows, they’re losing faith.
Berkeley bribery claims
Nicolas Simpkin’s departure from the housebuilder Berkeley Group in September 2014 was surprising since finance directors don’t often get fired from FTSE 100 companies “with immediate effect” with no other details given. What followed was also interesting.
As Berkeley’s annual report in August this year explained, an out-of-court settlement was eventually agreed in which the company paid Simpkin £9.5m and proceedings brought by the former finance chief in the high court and employment tribunal were withdrawn. As this newspaper then revealed on Wednesday, the withdrawn allegations, as shown in court papers, included claims that Berkeley engaged in years of bribery with a partner at a large estate agent.
Simpkin claimed that the Berkeley chairman, Tony Pidgley, made “expensive gifts” to the partner. He also alleged that Pidgley had benefitted from about £660,000 of company money that had, he claimed, been “intended to be used on fitting out” one of the chairman’s luxury London flats “on the pretence the flat was to be used as a show home”.
The company denied Simpkin’s allegations at the time and continues to do so. It then offered this helpful detail: “There was a thorough and extensive investigation by a QC and a senior lawyer from a major law firm which concluded these allegations were unfounded.”
Are Berkeley’s shareholders allowed to see this thorough independent report that cleared the board? Since Simpkin’s allegations were not tested in court, it would surely be reassuring for them to hear more than just the unidentified QC’s headline conclusion.
Berkeley declined to comment on whether there are plans to publish. For a company that announces in its annual report that the first of its five “values” is to “build trust by being open, clear and credible”, that is also surprising.
