By Anchal Rana
(Reuters) -British Gas owner Centrica (LON:CNA) increased its annual dividend payout by 33% on Thursday after a surge in its retail division's annual profits, in part because of government help to offset the impact of unpaid customer bills.
Shares in the British energy supplier were up by 3.8% to 139.5 pence at 1009 GMT, leading gains on London's blue-chip FTSE 100 index.
In Centrica's preliminary results to the end of 2023, it said adjusted operating profits in British Gas Energy rose to 751 million pounds ($942.58 million), from 72 million pounds in 2022, despite a 218 million pound loss in the second-half.
Overall, Centrica reported an adjusted operating profit of 2.8 billion pounds, compared with 3.3 billion pounds a year earlier, but above a company-compiled consensus of 2.6 billion pounds. This was mainly due to lower seasonal demand and less volatile wholesale prices.
It raised its full-year dividend to 4 pence versus 3 pence last year.
The profits increase was in part driven by one-off benefits as the government provided help for consumers struggling with high-energy costs and compensated energy suppliers for unpaid debts they could not recover.
CEO Chris O'Shea said the company's bad debt charge almost doubled last year across residential and business customers to "a little over 500 million pounds".
"So, people that we think are struggling to pay, they might continue to struggle. I can't predict where that's going to go," he said in a media call.
UK energy regulator Ofgem is planning a one-off increase to its price cap on energy bills between April 2024 and March 2025 to reduce the risk of suppliers going bust. The price cap, introduced in 2019, provides an allowance to account for debt on energy bills that cannot be recovered by energy suppliers and would ultimately be written off.
This allows suppliers to reclaim some losses from selling at the capped prices.
Lower consumption, mild weather and increased pipeline gas supply from Norway and liquefied natural gas (LNG) from countries such as the United States have reduced gas prices that hit record highs in 2022, when the disruption of supplies as a result of the Ukraine war drove concerns about supply.
At the height of the energy price crisis, many customers struggled to pay their bills and several smaller energy suppliers in Britain went bust, while many energy suppliers made healthy profits.
In a statement, O'Shea said the "strong underlying operational performance" had continued into early 2024.
The price outlook, however, was unclear.
"As you would expect, sharply lower commodity prices and reduced volatility will naturally lower earnings in comparison to 2023 as we return to a more normalised environment," he said.
($1 = 0.7964 pounds)