Centrica slashes dividend policy 30% due to oil and gas prices

19th Feb 2015 08:00

With oil and gas prices plummeting, Centrica has taken dramatic action by slashing its 2014 dividend, future payout policy and capital expenditure plans, as well as warning that earnings for next year will be lower than expected.Directors decided to rebase the dividend policy down by 30%, starting with the final payout for 2014 being cut to 8.4p, which dragged the total annual payout down 21% to 13.5p, when the market had been expecting nearer 17.5p.The FTSE 100 energy supplier, which owns British Gas in the UK and Direct Energy in the US as well as major upstream oil exploration and production (E&P) operations, lifted revenue for 2014 11% to £29.4bn but due to lower consumption in a record warm year in the UK and the polar vortex in the US saw adjusted operating profits sink 35% to £1.7bn and earnings per share (EPS) 28% lower at 19.2p, slightly below expectations.Furthermore, since the company's third quarter update in November, its forecast 2015 adjusted EPS has been lowered by a further 2.5p, due to the changes in the external environment, with 2015 adjusted earnings now expected to be down compared to 2014.As well as expressing regret about the "difficult decision" to rebase the dividend, chief executive Iain Conn, said: "2014 was a very difficult year for Centrica and the recent fall in oil and gas prices creates further challenge. We are cutting investment and costs in response."He added that, given the changed external environment, the longer-term strategy will be reviewed, with an update at the interim results in July.Management actions to slim the business down include a 40% reduction in exploration and production capital expenditure (capex) to £650m by 2016, with a "continued focus" on competitiveness, service and efficiency in the downstream business, as well as a new group-wide performance improvement plan, with a particular focus on costs.At the statutory level the company suffered a £1.4m loss before tax, after recognising exceptional items of £1.6bn, included impairments on E&P and power assets totalling £1.4bn.