British Gas-owner Centrica has lost £1.6 billion of its market value and seen shares plunge to a 14-year low after the energy giant shed 823,000 household energy accounts and warned over profits.
Shares in the energy giant closed down more than 15%, or 25.3p to 138p, as investors digested the impact of a customer exodus, warmer-than-normal weather in October, and woes in its North American arm.
The sharp drop dragged on the wider market, with the FTSE 100 Index finishing down 1.78 to 7,417.24.
The move by British Gas to hike electricity prices by 12.5% in September contributed to the loss of customers between the end of June and end of October.
British Gas – Britain’s biggest energy supplier – now has 13.1 million customer accounts and 7.9 million customers.
All of the UK’s Big Six energy providers have been under pressure from smaller rivals as customers increasingly switch to get the best deal.
The most recent customer losses at British Gas follow 387,000 domestic energy customers shed by the group in the first six months of the year.
Centrica warned its earnings per share would be nearly a fifth lower than expected due to the British Gas woes as well as troubles in its North American arm, which is being hit by “highly competitive market conditions and low price volatility”.
The group said annual earnings in its British Gas business would only break even due to the account losses and a drop in demand for energy in the recent unseasonally warm autumn weather, although it said cost cutting had helped limit the profit impact.
Centrica group chief executive Iain Conn said “Although some aspects of our delivery in the second half of 2017 have been disappointing, I remain encouraged by our progress in implementing our strategy.”
Its update comes just days after British Gas moved to scrap its standard variable tariffs (SVTs) for new customers ahead of Government plans to impose a price cap on the costly energy products.
Around 4.5 million of Centrica’s customers – or about 60% – are currently on SVTs, with 70% of profits coming from the company’s SVT customer base.
Centrica said 150,000 of the UK accounts lost since the end of June were down to market switching trends following the tariff rise.
The bulk – 650,000 of its customer accounts – were as a result of so-called collective switching, where large groups of households join forces with a new provider to get the best deal, as well as falling numbers on its white-label and prepayment tariffs, according to the group.
Its gloomy update also saw it caution over a £76 million pre-tax hit in its North American business division, with full-year profits in the unit set to tumble to £86 million.
The group’s division in the UK that serves businesses is also being impacted by “competitive pressures” and will only “broadly break even” this year.
George Salmon, Equity Analyst at Hargreaves Lansdown, said: “After a dilutive share placing last year, and considering the challenges in the retail business, investor confidence in the Centrica turnaround story was already fairly brittle.
“That meant the group could ill-afford having to break more bad news, but unfortunately, that’s exactly what it’s done. The real kick in the teeth is that few anticipated the source of the latest trouble.”
Across Europe, Germany’s Dax edged lower and the Cac 40 in France rose by 0.5%.
On the currency markets, the pound was down 0.1% versus the US dollar at 1.33, as profit taking and the latest slew of official economic data weighed on the UK currency.
Sterling was also trading 0.4% lower against the euro despite economic growth picking up pace in the third quarter thanks to a rebound in household spending.
In its second estimate, the Office for National Statistics (ONS) confirmed gross domestic product (GDP) grew by 0.4% between July and September, rising from 0.3% for the first and second quarters.
Consumer spending proved resilient over the period, bouncing back to 0.6% from 0.2% in the second quarter despite the persistent squeeze on household finances from higher inflation and dismal wage growth.
The resurgent performance was driven by new car sales, which had slumped between April and June after people forked out money in the first three months of the year to escape tax changes on high-polluting vehicles.
In oil, Brent crude was marginally lower at 63.22 US dollars as traders factored in rising output from US producers and a Canadian crude pipeline going offline.
Turning to UK stocks, All Bar One owner Mitchells & Butlers saw its shares plunge after warning that it could scrap its next shareholder dividend payout on the back of lower profits.
The pub group was down more than 6% on the second tier – 17p lower at 241p – after reporting a fall in pre-tax profits to £77 million for the year to September 30, compared to £94 million the previous year.
It comes as the company works to offset a spike in buying costs on the back of the Brexit-hit pound, saying it expects those pressures to continue into the next financial year.
The biggest risers on the FTSE 100 Index were Mediclinic International up 16.5p to 525p, Sage Group up 24p to 806p, ITV up 3.6p to 152.4p, Berkeley Group up 73p to 3,3730p.
The biggest fallers were Centrica down 25.3p to 138p, Babcock International down 23p to 682.5p, National Grid down 25.2p to 866.1p, Johnson Matthey down 73p to 3,068p.
Source : HeraldScotland