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    UK Centrica Sees 1H Losses Fall


The utility has written off over £1bn in impairments over the period but its trading desk did much better.

by: William Powell

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UK Centrica Sees 1H Losses Fall

UK utility Centrica reported July 24 a statutory loss of £135 ($169)mn for its first-half trading, up from 2019's £446mn loss. As it announced the sale of its North American business, it also said its other planned disposals – nuclear and its majority stake in producer Spirit Energy – would remain on hold until financial and commodity markets had improved.

It reported a net exceptional pre-tax charge of £1,036bn in H1 2020 (H1 2019: £346mn) including: £381mn relating to the impairment of upstream assets; £395mn related to the nuclear investment on lower prices and availability issues at Hunterston B, Dungeness B and Hinkley Point B power stations; and £251mn of restructuring charges relating to restructuring and headcount reduction announcement in June 2020. The adjusted operating loss in its nuclear power generation business was £16mn compared with a profit of £2mn in H1 2019. 

Energy Marketing & Trading reported an operating profit up 259% to £115mn, with strong performance in proprietary and LNG trading. There was however a partial offset from an unspecified increased loss of £27mn from the one remaining legacy gas contract, compared with a loss of £18mn in H1 2019.

Covid-19, and the loss-making unwinding of hedges, hit its UK Business, which made an adjusted operating loss or £39mn compared with a £19mn profit in H1 2019.  The bad debt charge also roughly doubled owing to increased provisions. Centrica Business Solutions also reported an adjusted operating loss: £34mn compared with £27mn in H1 2019, reflecting lower revenue as less sales and workload were carried out during Covid-19 lockdowns.

Spirit Energy's adjusted operating profit fell by 63% to £33mn, with the impact of lower achieved prices in the falling commodity price environment partly offset by lower depreciation resulting from 2019 impairments, lower field write-off costs and tight cost control. Falling commodity prices cost the upstream division – power generation and gas production – an estimated £190mn compared with H1 2019. The mild winter cost the supply business an estimated £60mn.

Centrica Storage's adjusted operating profit was £1mn compared with £58mn in H1 2019, owing to lower prices for less output as the sole asset, the Rough field, continues to decline. 

In addition, costs associated with the continuation of the Group’s cost efficiency programme principally related to property rationalisation costs and other transformational activity have been incurred in the first half of 2020.
These charges in total generated a taxation credit of £148m (2019: £86m). As a result, total net exceptional charges after taxation were £888mn (2019: £260mn).

CEO Chris O'Shea said: “Centrica delivered a resilient performance against the unprecedented backdrop of the Covid-19 crisis during the first half of the year.... Our mission now is to turn around the company by putting customers at the heart of everything we do and creating a simpler, leaner, more modern and more sustainable company. The sale of Direct Energy is a fundamental step towards this, and although we have a lot more to do, we have the people, the brands and the market positions to deliver a successful turnaround.”