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Centrica, the owner of British Gas and Britain’s biggest energy supplier to homes, has sought to address concerns over its dividend, despite further heavy customer losses to rivals in recent months and the government forging ahead with plans to cap household electricity and gas prices.
The group said “for a period of time” it would be “willing to operate with dividend cover from earnings below historic levels”, as it seeks to increase profits from other areas.
It looked to reassure shareholders despite what chief executive Iain Conn admitted was a “disappointing” second half to the year, with the company losing a further 823,000 domestic energy customers between the end of June and October. This followed a decision by British Gas in September to raise standard electricity prices by 12.5 per cent.
The government has promised to clamp down on the most common energy rate in the market – the standard variable tariff – through a price cap.
Although legislation is not expected to come into force until 2019, several analysts have warned the move may force Centrica – and potentially others – to cut their payouts to shareholders.
Centrica earlier this week became the latest big energy supplier to pledge to rule out the controversial tariff, which has no end date and can be up to £300 more expensive than the cheapest deals in the market, although the government has indicated this is unlikely to derail its plans.
Centrica shareholders had at the start of this year been hoping the company would restore a progressive dividend policy.
In a trading update on Thursday, Centrica blamed the the lion’s share of the 823,000 customer losses between June 30 and the end of October on “collective switch” deals coming to an end. Collective switches encourage large numbers of customers to sign up to particular deals with a specific expiry date.
However, Centrica has also been experiencing challenges in its business divisions, both in the UK and North America. In North America, the company said “highly competitive market conditions and low price volatility” had put “significant downward pressure” on power margins, and it warned it will book a one-off non-cash post-tax charge of £46m in its full year results relating to that division.
Its division in the UK that serves businesses is also facing “competitive pressures” and will only be “broadly break-even” this year.