Centrica reinstates dividend as profits jump sharply during energy crisis

British Gas owner Centrica has called on the UK government to provide more support for households hammered during the energy crisis even as it reinstated its dividend for the first time since 2020 and profits surged fivefold.

Chris O’Shea, chief executive, warned that the UK was “facing what is likely to be a difficult winter” with forecasts that the average annual UK household energy bill could soar towards £4,000 early next year, and said he was asking the government to give customers greater support.

Operating profits at the UK’s biggest energy retailer jumped to £1.3bn in the first six months of the year from £262mn during the same period in 2021, buoyed by higher revenues from its oil, gas and nuclear assets. It will pay a dividend of 1p a share, totalling £59mn.

Investors have been asking Centrica to reinstate its dividend as O’Shea has helped return stability to the business, helped in part by rising energy prices, since taking the helm two years ago.

But it comes at a challenging political time for the company, which is often a target for consumer anger when bills rise. O’Shea this year waived a £1.1mn bonus payment but on Thursday declined to say if he would do the same next year.

The charity Citizens Advice warned on Thursday it had already seen more people seeking help about energy in the first half of 2022 than in the whole of 2019 or 2020, including “unprecedented” numbers who could not afford to top up prepayment meters and so could not turn on their fridge or cook a meal.

O’Shea acknowledged that customers were “struggling” and called for greater action from the government, which launched a £15bn support package for households in May when bills were forecast to rise to about £2,800, a level now far below where they are expected to reach.

Gas and electricity bills for the most vulnerable customers — who cannot spread the cost of winter energy usage over the rest of the year — could rise to as much as £500 a month in January, the consultancy BFY Group warned on Wednesday.

“The numbers that are being talked about — you look at the average household income in the UK you can see it’s going to put a lot of pressure on people,” O’Shea said. The median UK household income is about £31,400 after tax, according to the Office for National Statistics.

“We wait to see if there will be more [government] intervention. We very much welcome that. We’ve been calling for more support for consumers.”

O’Shea defended the company’s decision to restart the dividend, arguing the last year had demonstrated the need for strong energy companies after the collapse of dozens of smaller UK energy suppliers.

Many of those customers had to be transferred by the regulator to larger operators such as Centrica.

He said the majority of the company’s shareholders were “normal” UK citizens who bought a stake in the company when it was privatised by the Thatcher government with the famous “Tell Sid” advertising campaign in 1986.

“The source of our profits is not rising customer energy bills,” O’Shea said, arguing that in the first half of the year on average Centrica made just £6 per UK household it supplies.

“The vast majority of our shareholders are Sids. They’re struggling as well. I know it’s difficult to see the words ‘dividend’ or ‘profits’ when people are suffering . . . but we’re paying a windfall tax of well over £600mn pounds . . . so a lot of this is going back into society.”

Operating profits at the British Gas Energy segment of the business fell 43 per cent to £98mn, driven largely by the need to buy gas and electricity for new customers for whom it had not been able to hedge in advance.

Gas prices have soared in Europe as Russia has restricted supplies to the continent following its invasion of Ukraine. They are now trading at about 10 times the average level of the past decade, stoking a cost of living crisis and contributing to a surge in inflation as energy prices filter through all areas of the economy.

O’Shea declined to say whether the UK could face gas shortages this winter if Russia completely severs exports, saying only “we have to see how the winter pans out”.

But he emphasised that the company has secured additional contracted gas volumes from Norway and is in the process of trying to restart the Rough offshore storage facility — which the company shut down in 2017 — to bolster the UK’s supply security.

The UK is less exposed to direct Russian gas imports than mainland Europe but can rely on pipeline shipments from Belgium and the Netherlands for about 15 per cent of supplies on the coldest days, so shortages in Europe could potentially have a knock-on effect.

O’Shea said discussions with government on restarting Rough were continuing at pace but was unable to commit to the facility being ready for the coming winter. He said the company estimated that Rough could have saved consumers about £100 off their bills last winter if it was operational. It is not asking for government support to finance the cost of restarting the facility.

“I think it could transform security of supply in the UK and also lower customer bills,” O’Shea said.

At the group level, adjusted earnings before interest, taxes, depreciation and amortisation — including from oil and gas producing assets — increased to £1.66bn in the first six months of the year from £682mn during the same period in 2021. Adjusted earnings per share, which strip out the impact of the writedowns and other one-off charges, jumped to 11p from 1.7p.

Additional reporting by Delphine Strauss