Centrica profits triple to over £3bn
The owner of British Gas has reported a surge in annual profits this morning, becoming the latest energy giant to benefit from the jump in energy prices since the invasion of Ukraine.
Centrica made total operating profits of £3.3bn, a record, and more than three times as much as the £948m adjusted profits it made in 2021.
The jump in earnings comes just weeks after British Gas suspended the forced installation of prepayment meters due to concerns over its treatment of vulnerable customers.
Centrica says it benefitted from “strong gas production and electricity generation against a backdrop of higher commodity prices”.
The company operates oil and gas production in the North Sea, plus holds interests in Britain’s nuclear power plants and operates an energy trading business. These divisions, rather thatn British Gas, provided the bulk of Centrica’s profits.
Such high profits, when the energy crisis is fuelling the cost of living crisis, will intensify calls for tougher windfall taxes on the industry, with BP and Shell have also reported record profits for 2022.
Chris O’Shea, Centrica chief executive, says:
“Our performance in 2022 demonstrates the benefits of our balanced portfolio and our strong balance sheet.
The energy crisis and cost of living pressures have created a challenging environment for customers and communities, but we have been able to provide much needed stability and support.
We invested £75m in supporting our energy customers in 2022, which was greater than the £8 post-tax profit per customer earned by British Gas Energy. Whilst customers may see some relief given recent easing of prices, it remains clear that some will continue to need help and we will do what we can to support them in the year ahead.”
Key events
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UK consumer spending weakened last week, the latest realtime economic data shows.
But, takings at Pret A Manger rose, as workers returned to the office following rail strikes the previous week.
The Office for National Statistics has reported that aggregate UK spending on debit and credit cards is estimated to have dropped by 3 percentage points last week. Younger shoppers cut back the most; debit card transactions by those aged 18-34 fell by 12 percentage points.
But, the number of in-store transactions at all Pret A Manger locations increased in the week to 9 February 2023, apart from in “London Suburban” where they were broadly unchanged.
Pret takings are a proxy for consumer spending and high street visits.
The ONS says:
This latest recovery in transactions may be partially because of the rail strikes in the previous week. Manchester stores saw the largest increase of 12 percentage points compared with the previous week, followed by Regional Stations where they increased by 9 percentage points.
In the week ending 9 Feb 2023, transactions at @Pret stores increased in all locations except “London Suburban”.
The largest increases were in Manchester stores and regional stations.
This may be partially because of the rail strikes the previous week. pic.twitter.com/4IiT2O5Mfo
— Office for National Statistics (ONS) (@ONS) February 16, 2023
Centrica has beaten City forecasts with its 2022 earnings this morning, reports Keith Bowman, investment analyst at interactive investor:
Bowman explains:
Higher energy prices following the war in Ukraine helped push upstream adjusted operating profit to £1.79 billion from last year’s £663 million. Profit on the same basis for its British Gas supply business fell 39% to £72 million, while profit at its Irish supply business rose 11% to £31 million. Hindered by the loss of customer numbers as consumers look to reduce outgoings, its boiler and other services business saw an adjusted loss of £9 million.
A final dividend of 3p per share follows the reinstatement of shareholder payouts at the half year results in July, and leaves the shares sat on an historic yield of around 4%. Centrica’s existing £250 million share buyback scheme is being extended by a further £300 million.
In all, and as with business in general, elevated inflation is raising costs, Bowman adds:
The weather and its unseasonal swings also cause uncertainty over customer energy demand, while a lot is already in the price after outperforming the FTSE 100 by 20%-plus over the last year.
British Gas owner Centrica posts record profits of £3.3bn – beating the £2.7bn notched up in 2012.
– Plans to pay out £200m to investors and extra £300m in share buybacks.
– Says it was “extremely disappointed” by debt agents on prepayment meters https://t.co/GlGAbMskFG— Alex Lawson (@MrAlexLawson) February 16, 2023
Here’s Ed Miliband, Shadow Climate and Net Zero Secretary, on Centrica’s profit surge:
It cannot be right that, as oil and gas giants rake in the windfalls of war, Rishi Sunak’s Conservatives refuse to implement a proper windfall tax that would make them pay their fair share.
Labour would use a real windfall tax to stop the energy price cap going up in April. https://t.co/RyJrki0EYs
— Ed Miliband (@Ed_Miliband) February 16, 2023
Shares in Standard Chartered are now up 3.5%, after the bank upgraded its forecasts and posted a 28% rise in profits for last year.
Standard Chartered said the reopening of China after the pandemic is giving grounds for optimism, after it made a statutory pre-tax profit of $4.3bn (£3.56bn) for last year.
Standard Chartered, which is focused on the Asia-Pacific region, told shareholders that the pace of economic recovery in many of its “footprint markets” was encouraging.
“The recent opening-up of China and the generally receding impacts of COVID-19 should help,” it added.
It also saw its net interest margin – the difference between what a bank charges for loans and pays for savings – increase by 0.2 percentage points as it benefited from a higher interest rate environment.
CEO Bill Winters says the bank is upgrading its expectations, and now targeting “a return on tangible equity approaching 10% in 2023, to exceed 11% in 2024, and to continue to grow thereafter”.
Alex Lawson
The scandal-hit owner of British Gas has reported record profits of £3.3bn boosted by soaring wholesale gas prices after Russia’s invasion of Ukraine and as many households in Britain struggle with the cost of living, our energy correspondent Alex Lawson reports.
Centrica’s bumper profits are likely to anger campaigners calling for tougher windfall taxes, lower bills and better treatment of vulnerable customers against the backdrop of the prepayment meter scandal.
The company’s profits for 2022 more than tripled compared with the £948m in 2021, aided by soaring profits in its North Sea oil and gas division. They also surpass the company’s previous profit high of £2.7bn, recorded in 2012.
British Gas faced widespread criticism earlier this month when it emerged that debt agents working for Britain’s largest energy supplier had ignored customers’ vulnerabilities and forced them on to prepayment meters to recover debts.
The company suspended the use of court warrants to install prepayment meters and the government and Great Britain’s energy regulator, Ofgem, later ordered all energy suppliers to pause the tactic.
Centrica’s North Sea profits are subject to a windfall tax on North Sea oil and gas operators while it also has a 20% stake in Britain’s nuclear power stations, which are subject to the electricity generator levy implemented by the chancellor, Jeremy Hunt, to capture windfall gains.
However, Labour has called for the oil and gas windfall tax to be expanded to capture a greater proportion of profits.
More here:
Windfall tax calls will grow louder following Centrica tripling its profits to £3.3bn last year, even though the company paid nearly £1bn, predicts Tom Gilbey, equity research analyst at investment management firm Quilter Cheviot:
Gilbey say:
“Centrica produced some strong results this morning as its trading division took advantage of energy trends that came to dominate in 2022.
Its adjusted profit grew over 250% to over £3bn , and it more than doubled its free cash flow, putting this to use by paying a dividend – which they only reinstated a year ago – and getting approval to buy back a potential 10% of their shares. It is this that may draw controversy given it is also benefiting from elevated energy prices and it has come under fire in recent weeks for its consumer practices.
“The business still expects conditions to remain tough for customers and stressed it will try and support them, pointing to the fact it recruited 700 additional people over 2022 to help.
Interestingly, Centrica paid around £1bn in tax, perhaps putting the larger energy producing giants to shame. However, with these profits quite so extraordinary for Centrica, calls are only going to grow for stricter windfall taxes, particularly in the run up to the general election next year. While the results are strong, it is a reminder that Centrica faces a number of headwinds, some of its own making but some out of their control.”
FTSE 100 hits new record over 8,000 points as Centrica shares jump
Shares in Centrica have jumped by 6% at the start of trading in London.
Investors are cheering its new £300m share buyback plan announced this morning, on top of the tripling of its profits last year.
This has helped drive the FTSE 100 index to a fresh alltime high. It’s gained around 48 points or 0.6% to 8046 points, beating yesterday’s record high.
Asia-Pacific focused bank Standard Chartered are also rallying, up 1.7% after reporting a jump in profits and a new $1bn share buyback programme.
As flagged in the introduction, the FTSE 100’s surge to record highs reflects hopes that the world economy may avoid recession, rather than optimism specifically about the UK economy.
Matthew Ryan, head of market strategy at global financial services firm Ebury, explains:
“With more than 80% of FTSE 100 revenues earned abroad, we see the move as more of a consequence of growing optimism surrounding the easing in inflation rates and risk of recessions globally, rather than necessarily an improvement in sentiment towards the domestic economy.
“The harsh reality is that with UK inflation still stubbornly high, a recession remains very much on the cards, and that does not present a particularly encouraging environment for British stocks. Indeed, the FTSE 250 index, which has a greater weighting towards British firms, is still trading around 17% off its 2021 highs.
“The recent drop in the value of sterling, which has fallen by more than 2% on the dollar so far this month, can also partly explain the boom, as this boosts the value of earnings from overseas.”
Aldi to hire 6,000 UK staff
The British arm of Aldi, the German discount supermarket chain, has announced plans to hire more than 6,000 workers in the UK, as part of its expansion plans.
Aldi said new stores were planned in Norwich and Newcastle in England, and that it was also recruiting for 450 jobs across its 11 regional distribution centres.
Giles Hurley, chief executive officer of Aldi UK, said:
“Demand for Aldi has never been higher as more and more people realise they can make significant savings on every shop without compromising on quality. It’s more important than ever that we are making it even easier for more people to shop with us – including by opening dozens of new stores.
“Our success is dependent on the amazing work that colleagues do, day in and day out, and we’re looking forward to welcoming thousands more colleagues to Team Aldi throughout 2023.”
Aldi currently has more than 990 stores and employs around 40,000 people.
Market research firm Kantar has reported that Aldi, and rival discount chain Lidl, have both seen sales growth, boosting their market share, as households have tried to control their shopping bills.
Centrica has announced a new £300m share buyback this morning.
That’s on top of its existing £250m share buyback programme.
Share buybacks are a way of returning cash to shareholders (and to pump up a company’s stock price). Critics say they simply funnel money from customers, who may be strugging in the cost of living crisis, to wealthier investors.
Dr George Dibb, head of the Centre for Economic Justice at IPPR, says the UK should tax such buybacks.
”These scandalous profits are undeserved and come directly from the pocket of bill-payers. We all know that wholesale energy prices have been sky-high for the past year, but that’s no reason that gas suppliers should be making higher profits on the back of higher bills.
These profits, which are then being transferred directly to shareholders via buybacks and dividends, are a direct transfer away from bill-payers during a cost of living crisis. It is time to introduce a tax on share buybacks and use those revenues to support public services.”
In the US, Joe Biden pushed through a 1% tax on corporate stock buybacks. Last week, the US president called for it to be quadrupled, in his State of the Union speech.
Scope, the disability equality charity, are calling for a social energy tariff to help disabled people through the cost of living crisis.
Tom Marsland, policy manager at Scope, said:
“It’s obscene that energy companies continue to make massive profits as disabled people face devastating situations because they can’t afford enough energy.
“Life costs a lot more when you’re disabled. We’re being inundated with heart-breaking calls from disabled people who haven’t eaten for days, who can’t afford energy to charge wheelchairs and stairlifts, but are still racking up huge energy debts.
“As we’ve seen, many have been forced onto prepayment meters as a result, putting lives and health in danger.
“Energy companies need to start putting disabled customers first.
“We need a social energy tariff – a discounted rate – for disabled people, to put an end to sky-high energy bills.”
Scope and Age UK have drawn up an open letter asking the government to introduce a social tariff, which can be signed here.
Friends of the Earth are also calling for a tougher levy on energy company profits.
Sana Yusuf, climate campaigner at Friends of the Earth, says Centrica’s earnings will fuel ‘further outrage’, given the cost of living crisis:
“Another set of bumper profits from one of the companies fuelling the energy and climate crises will no doubt spark further outrage as millions of people struggle to pay their bills and face a drop in government support from April.
“The new Energy Security and Net Zero Secretary [Grant Shapps] needs to step up and back growing calls for a tougher windfall tax on the excessive profits of fossil fuel companies like Centrica to help fund the investment in insulation and homegrown renewables needed to bring down bills and cut emissions.”
Unite: Obscene Centrica profits confirm need for tougher energy windfall tax
The “obscene” profits reported by Centrica this morning show that the government should bring in a meaningful windfall tax on the energy industry, says the Unite union.
Unite general secretary Sharon Graham says:
“British Gas owner Centrica has been coining it in from our massive energy bills while sending bailiffs to prey on vulnerable consumers the length and breadth of the country.
“These energy companies are showing us everything that is wrong with the UK’s broken economy.
“Rishi Sunak should get a grip – pull the plug on rampaging energy profiteering, impose a meaningful, tough windfall tax and give the NHS a pay rise with the proceeds.”
Centrica says today it paid nearly £1bn in tax related to its 2022 profits.
The current windfall tax, or ‘energy profits levy’, was introduced last May and then increased in November. But critics say it is flawed, because it allows energy producers to offset increased development in the North See off their tax bill.
British Gas’s adjusted operating profit decreased by 39% to £72m in 2022.
Centrica says this “largely reflects voluntary donations made to support customers and the repayment of furlough funds received by the Group in 2020”.
In August, British Gas announced it would donate 10% of its profits to help its poorer customers.
Centrica profits triple to over £3bn
The owner of British Gas has reported a surge in annual profits this morning, becoming the latest energy giant to benefit from the jump in energy prices since the invasion of Ukraine.
Centrica made total operating profits of £3.3bn, a record, and more than three times as much as the £948m adjusted profits it made in 2021.
The jump in earnings comes just weeks after British Gas suspended the forced installation of prepayment meters due to concerns over its treatment of vulnerable customers.
Centrica says it benefitted from “strong gas production and electricity generation against a backdrop of higher commodity prices”.
The company operates oil and gas production in the North Sea, plus holds interests in Britain’s nuclear power plants and operates an energy trading business. These divisions, rather thatn British Gas, provided the bulk of Centrica’s profits.
Such high profits, when the energy crisis is fuelling the cost of living crisis, will intensify calls for tougher windfall taxes on the industry, with BP and Shell have also reported record profits for 2022.
Chris O’Shea, Centrica chief executive, says:
“Our performance in 2022 demonstrates the benefits of our balanced portfolio and our strong balance sheet.
The energy crisis and cost of living pressures have created a challenging environment for customers and communities, but we have been able to provide much needed stability and support.
We invested £75m in supporting our energy customers in 2022, which was greater than the £8 post-tax profit per customer earned by British Gas Energy. Whilst customers may see some relief given recent easing of prices, it remains clear that some will continue to need help and we will do what we can to support them in the year ahead.”
Introduction: FTSE 100 to power over 8,000 points
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK’s blue-chip share index is set to hit new record highs today, after hitting the 8,000 point mark for the first time on Wednesday.
The FTSE 100 hit 8,003.65 points yesterday, before closing just below the 8k milestone at 7997.83 (a new closing high), as hopes grow that inflation may have peaked.
Shares are set to keep rising today, as global stock markets continue to be cheered by optimism that central banks may ease their interest rate increases soon.
Indices Update: As of 05:00, these are your best and worst performers based on the London trading schedule:
Germany 40: 0.38%
France 40: 0.36%
FTSE 100: 0.27%
US 500: 0.16%
Wall Street: 0.04%
View the performance of all markets via https://t.co/2NUaqnUPED pic.twitter.com/gEz7VFLaXf— DailyFX Team Live (@DailyFXTeam) February 16, 2023
Jason Hollands, managing director of online investment service Bestinvest, says the UK market is increasingly seen as a bargain by international investors.
A number of large investment banks are taking a positive view on the opportunity, Hollands says, while some private investors have been “heavy sellers of UK equity funds for several months”, probably ground down by relentless gloomy news on the domestic economic outlook.
However, the FTSE 100 is not a barometer of the UK domestic economy, given its dominance by multinationals such as banks, mining companies and oil giants.
Hollands explains:
It is a highly international index, which makes around 79% of its revenues overseas. This includes around 13% of revenues earned in China, and so these companies should also be a beneficiary of the expected rebound in the Chinese economy this year following its ditching of draconian COVID restrictions in December.
“In recent years, many investors have dismissed UK blue chip shares as ‘boring’, lacking exposure to exciting sectors like technology and social media. But in a more trying economic environment, solid companies churning out reliable dividends are well worth considering. Boring is the new sexy. With an abundance of exposure to energy, commodities, consumer staples and healthcare companies, the FTSE 100 looks well placed for the current environment.”
Since the start of January, the FTSE 100 index has gained 7% – which wouldn’t be a bad return for a full year.
Other European markets have made an even more sparkling start, with Germany’s DAX and France’s CAC having gained around 12%.
We get new US producer prices data and jobless claims figures later today, which may move the markets – if they change investors’ views of the path of inflation and interest rates.
The agenda
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9am GMT: ECB Economic Bulletin
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9.30am GMT: UK business insights and economic activity data
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1.30pm GMT: US PPI index of producer prices
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1.30pm GMT: US weekly jobless figures
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5pm GMT: Bank of England chief economist Huw Pill gives a fireside chat at the Warwick Think Tank on the UK economy
