The Centrica chief executive, Iain Conn, avoided the indignity of cutting the dividend for a second time in three years and has probably saved his job as a result, at least for now. It will be 4,000 colleagues who lose theirs as the company embarks on another round of cost-cutting in search of stability.
Conn found himself issuing regrets on many fronts – to the affected workers and to investors for “a very poor shareholder experience”. You bet: he inherited a share price of 279p at the start of 2015 and it’s now just 142p, even with Thursday’s 7% relief bounce.
The dividend calculations look mighty tight since 12p a share is being distributed from earnings of 12.6p, even when those earnings are totted up on Centrica’s “adjusted” basis. Next year the City expects earnings of 14p, which is hardly a great leap forward. Yet Conn was prepared to stick out his neck and say Centrica “expects” to keep the dividend intact until 2020.
The weak promise comes with two caveats – annual cash flow must be £2.1bn to £2.3bn and debt must not explode. Neither assumption is heroic, but the point about Centrica is that nobody really knows what will happen to profits and cashflow at British Gas when the government’s price cap on standard variable tariffs (SVT) arrives.
In anticipation, Centrica can shed staff and push more of its SVT customers on to fixed-price tariffs, with boiler-maintenance deals and smart thermostats as part of the package. But what’s the likely long-term profit margin for British Gas? It’s surely lower than the 5.5% reported last year – and maybe much lower.
The same, one assumes, will apply to Conn’s bonus for 2017. After last year’s bonus debacle – he received a £4m pay package including a £759,000 bonus – zero would be another way for him to express regret, or be told to.
Pensions Regulator in the dark
By the end of her bruising session with MPs one almost felt sorry for Lesley Titcomb, chief executive of the Pensions Regulator. After all, she became boss only in 2015, meaning others were responsible for most of the regulator’s ineffectual dance around Carillion’s pension deficit.
Yet the MPs’ outrage was legitimate for two reasons. First, two big pension blow-ups – the other being BHS – seem to have failed to inspire a sense of urgency at the regulator. Titcomb was asked a seemingly simple question about how many pension schemes have had very lengthy recovery periods similar to Carillion’s 16 years and couldn’t offer even a rough estimate. Isn’t that the sort of thing she should know, especially as MPs have made the sharpest pointed comments on the subject?
Frank Field, co-chair of the inquiry, thought so. “If Rachel [Reeves, the other co-chair] and I bumped into you at a bus stop we would expect you to be better informed than you are now,” he said. Harsh but fair.
The second reason is Titcomb’s apparent reluctance to concede that the regulator should have exercised its powers of intervention at Carillion and insisted on bigger and quicker contributions to the pension scheme in 2013, when the company was spraying dividends at shareholders and bonuses at directors. Instead it merely threatened to intervene, without actually doing so, before settling for a limp compromise.
Maybe Titcomb was being loyal to colleagues but pleas about how “very difficult judgments were made at the time” inspire little confidence that the same mistakes won’t be repeated elsewhere.
Pursuing Carillion’s former directors, as the regulator is now doing, is sensible but any recovered sums will be tiny in the context of the deficit. The time to get heavy is when a company says it’s flush with cash. Why is that so hard for Titcomb to say?
Barclays needs to mind the gap
“Today it is difficult to imagine the world of banking as a solely male environment,” runs a self-congratulatory piece on Barclays website. But, actually, it’s not terribly hard because Barclays’ own gender pay statistics suggest things haven’t changed that much over the years.
The numbers are extraordinary: women in the international division, which houses the investment bank, were paid half as much as the men last year. We’ll wait to see what other banks report, but the gap feels far wider than average. Note that Barclays’ nine-strong executive committee was exclusively male for a while until Laura Padovani became “interim” chief compliance officer last October.
The bank talks about its “long-standing commitment to improving gender diversity”. It’s right in the sense that the same website piece reveals that an “equality and diversity charter” was launched as long ago as 2001. Real commitment, however, is measured in action, not in nice charters.