The British Gas owner Centrica has revealed plans to hand more money back to shareholders, as stronger profits from high electricity and gas prices help offset poor performance of its retail arm.
In an unscheduled trading update on Thursday, the company said it expected profits to be at the top end of analyst forecasts, which are predicting earnings of about 15.1p to 26p a share for 2022.
It follows “strong operational performance’” from its electricity generation and gas production business, as well as its marketing and trading arm, which have helped to make up for tougher conditions for its retail operations that serve households and businesses across the UK and Ireland.
The stronger profits are likely to reignite the debate around an extension of the windfall tax on North Sea oil and gas operators and curbs on revenues for electricity generators. The chancellor, Jeremy Hunt, is reportedly ready to toughen the levy in next week’s autumn statement.
Centrica’s chief executive, Chris O’Shea, said in July that the company expected to pay more than £600m over the “next couple of years” in windfall tax.
The oil and gas multinational Shell triggered fresh calls for a strengthened windfall tax last month when it said it had paid zero windfall tax in the UK, despite making record global profits this year. BP expects to pay about $800m in windfall tax on its North Sea operations this year.
Rishi Sunak originally hoped the levy would bring in £5bn for the Treasury when he announced the measure as chancellor in May.
Centrica said on Thursday that it was now planning to buy back up to 5% of its shares, worth about £250m, after a pledge to return more cash to investors earlier this year. It said the decision reflected the company’s “recent performance and outlook, together with the work undertaken in recent years to strengthen the balance sheet and ensure appropriate liquidity”.
Shares rose more than 8% on Thursday morning, making Centrica the top riser on the FTSE 100.
However, the energy company said surging inflation and “economic pressures” had increased its costs and hit customer numbers across its retail arm, while warmer warm weather in October hurt profits. “As a result, we expect adjusted operating profit in our retail division to be lower than current expectations,” Centrica said.
The company said there was still a risk that the retail division would be affected by further fluctuations in energy prices, as well as customers struggling to pay their bills over the coming months.
“There are significant uncertainties that remain over the remaining two months of the year, including the impacts of weather, commodity price movements, asset performance and the potential consequences of a weak economy and high inflation on commercial performance in British Gas Services & Solutions and bad debt in our energy supply activities.”
Centrica said it was “acutely aware” of the challenges facing customers, and promised to offer a further £25m to support those who need help, bringing total voluntary support to £50m this year. That is meant to add to the government’s energy bills support scheme, which is cutting household energy bills by about £67 a month between October and March.
Russ Mould, investment director at AJ Bell, said: “For as long as energy companies continue to post record profit while consumers are facing soaring energy bills the debate around some form of windfall tax is not going to go away.
“However, some of the heat has been taken out of the debate by some very mild autumn temperatures, reflected in a weak showing for Centrica’s British Gas retail business.”
