British Gas owner Centrica, for all its smart meters and connected home hubs, cannot predict the February weather. But, given all of its historical data, it should know which way the wind is blowing on executive pay.
It has now conducted 24 annual votes on bosses’ bonuses since Cedric Brown’s 75 per cent pay rise — to £475,000 a year — inspired protesters to name a pig after him, and bring it to the 1995 shareholder meeting, where it eschewed the in-house catering in favour of a trough of treacle-covered £5 notes. And yet, on Monday, the energy group still expected shareholders to back a 44 per cent pay rise for current boss Iain Conn — to £2.42m for last year — despite serving them the closest thing to a profit warning and saying nothing about their much feared-for dividend. Perhaps the board was emboldened by the demise of the porcine Cedric in a bread-eating accident some years ago. Or insufficiently scared by the GMB union’s evocation of “The Ghost of Cedric The Pig” — a spectre that becomes less terrifying when imagined scoffing a loaf of sliced white.
Arguably, Centrica had got its forecast right on pay: this time, only 15 per cent of shareholders voted against Mr Conn’s remuneration. Mr Brown’s was opposed by 17 per cent. Still, how much longer can other investors remain supportive — given the adverse climate the group faces?
In its trading update, Centrica warned that falling gas prices, tariff caps and warmer than normal first-quarter weather — including the hottest ever February day — would put “further pressure on the outlook for the full year”. As the first quarter is typically the coldest and most lucrative for its British Gas division, the chances of Centrica making up the lost profit are rather like the chances of Lucifer turning up the thermostat.
Against this, Mr Conn’s £2.42m looks like money for just turning up. His pay was boosted by a £776,000 bonus for achieving growth in areas that were always going to grow — ie, selling Hive home hubs, and helping corporate customers manage their bills — and for cutting expenditure in areas where exposure was going to reduce, ie oil and gas exploration and production.
UK customer churn rates look no better — another 234,000 left in the quarter, a similar percentage to last year and more than some analysts had hoped. Pension deficit worries remain — addressing this may hit cash flow as proceeds from disposals look set to be delayed. Full-year cash flow and debt guidance has been maintained but much else in 2019’s performance now depends on achieving more job cuts and cost efficiencies.
In fact, with limited growth prospects, and continued pricing pressure, several analysts doubt Centrica’s dividend can be sustainable. RBC’s forecast a 40 per cent cut. Credit Suisse’s assume a 33 per cent reduction. Kepler’s even call for one. And, unlike otherworldly oink of the Ghost of Cedric, this is one demand for lower pay that Centrica might heed.
Loss of Dignity
Dignity, the funeral business, is distinctly lacking in gravitas, writes Kate Burgess. On Monday, it warned analysts that 2019 profit would be lower than expected. Its shares lurched down again, having halved since 2018.
Death has been on a go-slow, the company said. Whatever the reason — an unseasonably warm winter, perhaps — mortalities in the first quarter fell 12 per cent. But Dignity’s operating profit plummeted 42 per cent, pushing analysts to cut full-year pre-nasties earnings forecasts by nearly a tenth. Although market share increased a fraction to about 12 per cent, costs — including marketing — also rose.
Declines in mortality make life grim for Dignity on many levels. Aside from the effect on revenues, high fixed costs have to be spread among fewer customers. In the past, Dignity has (more than) protected its 25 per cent margin by hiking prices. But, last year, its main rival slashed prices forcing Dignity to follow suit.
Now the UK regulator is examining whether competition works properly in the sector, or whether funeral directors are gouging vulnerable customers. Cremation and burial costs have risen at more than twice the rate of inflation for a decade and a half.
Dignity maintains that the drop in 2019 deaths will normalise to 3 per cent by the year-end. And longer-term, deaths will rise from about 550,000 a year to the 700,000 seen in the 1980s. That is the grim reality, says Dignity. And it really, really hopes it is right.
Metro: antisocial media
Does social media encourage antisocial behaviour? It certainly seems to have made some Metro Bank customers miss Sunday lunch. When they read Twitter and WhatsApp posts about queues in branches, they apparently joined them, fearing for the bank’s health. Had they instead read the FT scoop about a capital-boosting sale of loans, they might have enjoyed a more sociable weekend.
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