Centrica Boosts Buybacks After Record British Gas Profits

(Bloomberg) -- Centrica Plc, the owner of British Gas, will increase returns to shareholders after it benefited from record profits in its UK energy retail supply business in the first half of the year.

Shares rose to the highest since February 2019 after the company increased its interim dividend by 33%. It also almost doubled its share buyback program to £1 billion, a boon for shareholders that’s likely to cause a fresh public outcry as customers struggle to pay their bills amid soaring living costs.

Centrica already faced widespread criticism earlier this year because of its record profits in 2022, fueled by surging global energy prices.  Spiraling costs of food and other basics — as well as a painful mortgage shock — have added to the strains facing UK households.

British Gas, the nation’s biggest household energy supplier, boosted adjusted operating profit nearly 10-fold year-on-year to £969 million. That’s the highest-ever first-half result for the unit and more than Centrica received from global energy trading. The company said last month it expected retail profits to be “significantly higher,” and consumer bills are forecast to stay elevated well into 2024.

British Gas and other domestic suppliers got a boost after the energy regulator Ofgem loosened the way it calculates a price cap for them, allowing to claim back some of the past losses from elevated wholesale costs. But the watchdog also warned energy firms must not use surging profits for huge shareholder payouts, and earnings should ease in the second half of this year.

Pressure on Households

“At a time when household energy debt is spiraling to record levels and energy bills remain double what they were just a few years ago, the profits posted will be greeted with disbelief by those struggling through the crisis,” said campaigner Simon Francis, coordinator of the End Fuel Poverty Coalition.

UK Minister for Energy Consumers and Affordability Amanda Solloway said the government wants “to see some of these profits invested in better customer services and crucial protections for vulnerable households.”

Centrica said about £500 million of the jump in its first-half retail result was from a one-off boost from the price cap without which it wouldn’t have achieved a record. The overall result allows the company to also support customers with a more than £100 million package, Chief Executive Chris O’Shea said Thursday. 

Shares rose as much as 8.1% to 134.05 pence a piece in London, the highest in more than four years. Total adjusted operating profit rose 55% to £2.08 billion for the first half of the year, beating analyst estimates.

Centrica also updated its strategy, aiming to invest “several billion pounds in the energy transition, creating thousands of new well-paid jobs.” The company said it will stick to a “progressive” dividend policy, while share buybacks will remain an option if there’s surplus capital after investments, which are seen at £600 million to £800 million per year until 2028. 

Read also: Centrica Halts Sale of ‘Key’ UK Gas Assets After Energy Crisis

(Updates with comment in seventh paragraph, additional details lower down)

©2023 Bloomberg L.P.