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Centrica suspends dividend as Ovo furloughs 3,400 workers


Centrica has cancelled its dividend and suspended asset sales, while Ovo has furloughed more than a third of its workforce, in the first signs of the coronavirus pandemic’s impact on the already challenged UK energy sector.

Market leader Centrica released an unscheduled trading update on Thursday in which it outlined a series of measures to weather the economic storm, including cancelling its dividend, pausing the planned sales of its upstream oil and gas and nuclear arms and suspending its financial guidance.

It will also cut cash spending by £400m this year compared with previous plans, including by delaying £100m of planned restructuring spending and slashing capital expenditure at its oil and gas joint venture, Spirit Energy.

Ovo, a top three energy supplier after buying SSE’s retail business in January, told staff on Tuesday that 3,400 of its workforce of roughly 10,000 would be sent home on 80 per cent pay under the government’s job retention scheme.

The moves are the first signs of the serious threat posed by the pandemic to energy companies, which have been hit by a sharp decline in overall electricity demand since the UK government imposed sweeping restrictions on movement and business activity. Energy companies also said customers in financial distress are already cancelling their direct debit payments.

Centrica said it was braced for an increase in “bad debt” and had already seen a “significant reduction” in demand from corporate customers after businesses in sectors including hospitality, retail and leisure were last week forced to close by the government to stem the spread of Covid-19. Many industrial sites such as UK car plants also halted production.

Analysts fear rising bad debts could force further energy companies, which already operate on thin margins, to the wall this year. Nineteen smaller suppliers have gone bust since 2016.

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Centrica sought to reassure on the health of its own balance sheet, saying it had “significant flexibility in its cash flows” and was sitting on £600m of available cash and cash equivalents at the end of March and £2.7bn of undrawn credit facilities. “There are no material covenants on any of our existing debt,” the company added.

Ovo said roles that had been furloughed included meter readers and engineers who fit smart meters, the digital devices that are being rolled out under a £13.4bn government programme, who could no longer work under the lockdown.

Workers would receive 80 per cent of actual pay, it said, with the government footing the bill under its coronavirus job retention scheme up to its threshold of £2,500 a month and the company topping up for those who earn more.

Senior directors at the privately owned company, which was founded more than a decade ago by former City trader Stephen Fitzpatrick, have also taken a 20 per cent pay cut.

Energy companies have asked the government for a loan scheme, potentially worth up to £100m a month, so they can offer customers payment holidays without falling into financial distress themselves.



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