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Shares in Centrica dropped sharply after the energy supplier warned its full-year earnings per share would fall considerably short of market expectations following problems at its North American division and its loss of 823,000 household customer accounts in the UK.
Shares in the owner of British Gas dropped almost 17 per cent to 135.9p on Thursday shortly after the open of markets in London following what Iain Conn, the chief executive, admitted was a “disappointing” trading update.
In the UK, where Centrica is the biggest energy supplier to households, the group shed 823,000 domestic customer accounts 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, although the company insisted the lion’s share of those customer losses were because of “collective switch” deals coming to an end.
Collective switch deals involve large numbers of customers signing up for cheap deals and can often distort company results when they come to an end and those households move on to competitive products at rivals.
Despite the hefty customer losses, Mr Conn insisted the performance of the UK domestic business would be “broadly in line” with last year, as a result of efficiency savings.
However, analysts were taken aback by a deterioration in the group’s North American division serving businesses since its last update at the halfway stage. Centrica said “highly competitive market conditions and low price volatility” had put “significant downward pressure” on power margins. It warned it would book a one-off non-cash charge of £46m after tax in its full-year results relating to that division.
The group cautioned its UK division serving businesses was also facing “competitive pressures”.
As a result of the problems in North America and the UK, the group said adjusted earnings per share this year are expected to be about 12.5p, almost 3p below market expectations.
The share price drop came despite attempts to reassure shareholders about the dividend as the UK government forges ahead with plans to cap household electricity and gas prices.
Mr Conn said “for a period of time” Centrica would be “willing to operate with dividend cover from earnings below historic levels”, until the regulatory situation in the UK stabilises and it is able to increase profits from other areas, such as services.
The UK government has promised to clamp down on the standard variable tariff, the most common energy rate in the market, through a price cap.
Although legislation is not expected to come into force until 2019, several analysts had warned the move may force Centrica and potentially others to cut their payouts to shareholders.
Many energy companies are hoping to offset the effect on their profits of a cap by expanding services such as boiler repair and selling digital products such as smart thermostats that allow consumers to adjust their heating via their mobile phones.
Centrica earlier this week became the latest big energy supplier to pledge to rule out the standard variable 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 for legislation.
Analysts at Jefferies said Thursday’s trading update showed “2017 is on track to be another tough year for Centrica”.