Customer Retention: British Gas’ Mid-Year Performance

The ‘Big Six’ energy supplier British Gas has succeeded in holding back numerous UK households from switching to other providers since the beginning of July. Customer retention was an urgent need especially when the company lost 400,000 customers to its competitors in Q1 and Q2 of 2016. The Big Six supplier also rushed into various customer retention programmes due to the government and regulatory body’s pressure to offer energy at lower prices.

Echoing the fact, Centrica, the biggest home energy supplier in the UK, suggested that the dynamics of the UK energy accounts have been flat since the end of June, which is a turnaround from the first half of the year.

Talking about British Gas, the company has been applying various strategies to keep hold of its customers. It has designed new and affordable tariffs and froze its standard tariffs for the winter season. These measures had become a necessity for the company not just due to the fear of losing its existing customers, but, also because of the constant scrutiny the Big Six suppliers faced by the Prime Minister and the chancellor, who said that they would be examining the retail energy market so as to get fair deals for the energy customers.

These improvements in the UK energy market have come due to the cost cutting programme as suggested by Centrica. The company also said that by cost cutting, it is able to exceed its financial targets set for the year 2016.

The presumed operating cash flow of the company would be between £2.4bn and £2.6bn for this year. This is higher than the indicated cash flow which was anticipated somewhere above £2bn. Another thing to rejoice is that the group capital investment is estimated to be somewhere around £900m in 2016. Adjusted earnings per share for the entire year are presumed to be somewhere around 16.5p. These are the updates given by Centrica prior to its full-year results which would be announced on 23 February 17.

Looking at the figures, analysts at Jefferies said that although the figures are 6% above the the market anticipations, they are still under performing when compared to 2015 which recorded 17.2p adjusted earnings per share. The financial targets were set by the company’s CEO to create solid strategies to combat the issues with the energy business, followed by drop in oil and gas prices since 2014.

Image Source: Financial Times

Centrica had declared at the beginning of the year 2016 that it would be providing higher cost savings in 2016. Its efficiency savings are presumed to surpass £300m this year, a £100m more over the actual target of £200m. These savings are considered as part of a larger strategy that is designed to save total £750m per year by 2020.

The company poses a positive picture but shows concern over its financial performance by stating that its profits of 2016 were affected by the climatic actions, article of trade prices and asset performance. Its profits dropped to £853m in the first half of the year and its operating profits scaled down by 12%.

Chief Executive of Centrica Iain Conn expressed his views on the report by saying that “Our performance in the second half of the year has been strong and we expect to exceed our 2016 targets. We have made considerable progress in reshaping our portfolio and capabilities to deliver a robust platform for customer-focused growth. The Centrica team has performed very well in extremely difficult circumstances.”

Centrica also questioned the ability of smaller suppliers that challenge the domination of the Big Six suppliers. By giving the example of the collapse of GB Energy which succumbed to increasing wholesale prices, it confirmed that smaller suppliers may not be able to change the energy market especially when the wholesale energy prices are soaring.

To sum up, by studying the reports of Centrica, it is clear that powerful energy suppliers like British Gas are succeeding in customer retention. The report also gives an elaborate account of the energy market with its troughs and crests. It is an interesting analysis and a must read if one wants to understand the energy market of the UK.

Shay Ramani