Centrica suspends dividends and announces cost-cutting measures on COVID-19 uncertainty

Centrica suspends dividends and announces cost-cutting measures on COVID-19 uncertainty
Written by:
Wajeeh Khan
April 2, 2020
  • Centrica suspends dividends to cut costs amidst the rising COVID-19 uncertainty.
  • The energy company postponed its new capital expenditure projects.
  • Centrica canceled 2019 employee cash bonuses for as long as the outlook isn't clear.

The British multinational energy and services company, Centrica (LON:CNA) announced its 2019 dividends suspended on Thursday. The company also resorted to other measures aimed at cutting costs as it expected the UK consumers to defer payments for electricity bills amidst the ongoing Coronavirus lockdown. In the upcoming months, the company said, business usage is likely to see a steep decline.

The rising uncertainty, according to Centrica, poses new challenges for the company to continue its divestment plans concerning Spirit Energy (oil and gas producer) and its nuclear energy interests.

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Centrica Says Demand From Residential Customers Is Increasing

Centrica also highlighted in its statement on Thursday that the residential customers are pushing the energy demand higher as the government restricted people to their homes and offices made work from home arrangements. However, as business customers push the demand to a near halt amidst the nationwide lockdown, the overall impact on the company remains negative.

Centrica also remarked on Thursday:

“We also expect to see an increase in working capital outflows and customer bad debt, as certain customer segments defer payments due to the reduction of household incomes and business revenues.”

To further save costs, Centrica said that its customer-facing divisions will postpone or pause all of the new capital expenditure projects (non-critical). Such measures, as per the energy services company, is expected to fuel a 25% cut in spending plans. Centrica had originally estimated £800 million in spending in 2020 which will now be reduced to £600 million.  

Centrica Suspends 2019 Employee Cash Bonuses

Centrica also made the decision of suspending the 2019 employee cash bonuses for as long as the uncertainty prevails. The company also resorted to a pay freeze applied to the majority of its non-customer facing workers.

In its announcement earlier in 2020, Centrica had told its directors that they will not be receiving their 2019 bonuses due to the COVID-19 driven financial challenges. All in all, the company has postponed its restructuring expenditure by a massive £100 million.

At the time of writing, Centrica is exchanging hands at 34 pence per share in the stock market that marks an over 60% decline in 2020 so far. However, its performance in the stock market wasn’t any better even before the pandemic with an annual loss of around 35% in 2019. Centrica currently has a market cap of £1.98 billion.