Centrica hikes dividend despite plunge in profit

Centrica PLC reported a significant H1 2025 financial downturn, with adjusted EBITDA down 36% to £0.9 billion and adjusted operating profit roughly halved, alongside a statutory operating loss and reduced free cash flow. Despite these declines, the British Gas owner increased its interim dividend by 22% to 1.83p per share, citing a resilient performance in a challenging market and supported by £2.5 billion in net cash. This dividend hike, coupled with a recently approved 15% stake in the Sizewell C nuclear plant and a £2.5 billion investment program through 2028, signals management's confidence in future regulated returns, even as shares initially fell 1.2% on the news.

Analysis

Centrica's first-half 2025 results present a dichotomy between sharply deteriorating operational performance and a confident capital return policy. Adjusted EBITDA fell 36% to £0.9 billion and adjusted operating profit was nearly halved to £549 million, driven by weaker commodity prices and market conditions impacting its optimisation and infrastructure divisions. This culminated in a statutory operating loss of £69 million, a stark reversal from a £1.7 billion profit in the prior year, primarily due to a £618 million net loss on derivative remeasurements and impairments. The decline was also reflected in free cash flow, which contracted from £0.8 billion to £0.2 billion. Despite these headwinds, the company leveraged its robust balance sheet, holding £2.5 billion in net cash, to increase its interim dividend by 22% to 1.83p per share and guide for a full-year dividend of 5.5p. This decision, coupled with the recent approval for a 15% stake in the Sizewell C nuclear plant as part of a £2.5 billion investment program, signals a strategic pivot towards securing predictable, regulated returns to offset the volatility of its core energy trading operations. The initial 1.2% share price decline suggests investor caution, weighing the poor current profitability against management's long-term strategic confidence and shareholder-friendly actions.

Key Decisions for Investors

• Investors should weigh the significant H1 profit decline and reduced free cash flow against the company's strong balance sheet and commitment to increased capital returns, as the 22% dividend hike signals strong management confidence despite the earnings miss.
• The approved investment in the Sizewell C nuclear plant marks a strategic shift towards securing predictable, regulated returns, and progress on this £2.5 billion program should be monitored as a key indicator of future earnings stability.
• Given the initial negative share price reaction, investors should closely watch for a recovery in the optimisation and infrastructure segments, as sustained weakness here could undermine the company's ability to fund both its investment program and its aggressive dividend policy.