Powering up the profits

UK energy watchdog Ofgem has proposed lifting the household price cap from April of next year to help suppliers recover almost £3 billion from customers who can’t pay their bills, but there was little evidence of these record bad debts weighing on the financial performance of gas and electricity companies in 2023.

Centrica, the owner of Scottish Gas and British Gas, posted record annual profits in February which were fuelled by its upstream division as wholesale gas prices surged throughout 2022. The results were accompanied by the restoration of the group’s annual dividend to 3p per share and a £300 million extension of its share buy-pack programme to £550m.

Centrica went on to report further profits of £6.5bn for the first half of 2023 as British Gas put in a record interim performance, contributing £969m to the bottom line after Ofgem tweaked the price cap to let suppliers recoup some of the costs of keeping customers connected during the energy crisis. Centrica also boosted its interim dividend by 33% to 1.33p per share.

Other suppliers reaped similar windfalls in the first half of 2023. The customer-facing business of ScottishPower, owned by Spain’s Iberdrola, reported earnings of £567m after it retrieved outstanding monies it was due via Ofgem’s price cap adjustments. This compared to losses of £662m in the same period a year earlier by the retail division, though group profits were buoyed by higher contributions from ScottishPower’s energy generation business.

Ofgem said earlier this month that it wants to increase the price cap – which is due to rise from the current £1,834 to £1,928 in January – by a further £16 between April 2024 and March 2025 to help suppliers recover £2.9bn in bad debts, the highest-ever level on record. The regulator said this action is necessary to “make sure suppliers can recover their reasonable costs, so the market remains resilient”.

In high spirits

Glasgow-based Edrington isn’t a household name but its whisky brands certainly are, with the growing popularity of The Macallan, Highland Park and The Famous Grouse helping the group break the billion pound revenue barrier for the first time during the year to the end of March.

The Herald: Rolling casks at Highland Park DistilleryRolling casks at Highland Park Distillery (Image: Edrington)

Revenues from its core brands hit a record of £1.08bn on a constant currency basis while statutory revenues – which included the flattering impact of translating sales in overseas currencies into a weaker sterling – grew by 30% to £1.27bn. This was achieved despite privately-owned Edrington’s decision to quickly withdraw from its fourth-largest market, Russia, following the invasion of Ukraine.

Edrington also posted a 43% surge in pre-tax profits which paved the way to a 10% increase in total dividend payments for the year. This came on top of two share buybacks that returned a further £220m to its owners – chiefly The Robertson Trust charitable foundation, which was set up in 1961 for the specific purpose of distributing Edrington’s dividends to charities across Scotland. To date is has donated £343m to worthy causes.

Putting profits to good use

Nationwide, the UK’s biggest building society, declared in November that it delivered record benefits to its members in the first half of its financial year which included £344m of payments during the summer to help customers with the cost-of-living crisis.

Led by Scottish managing director Debbie Crosbie, the historic mutual society said it provided £1.23bn in value to its members as profits increased to £989m, up from £969m at the same stage a year earlier. The institution made payments of £100 to more than 3.4 million members in June at a total cost of £344m to help ease the pressure on households from inflation and rising interest rates.

Up, up and away

Travel companies roared back into profit in 2023 as the industry continued to rebound from pandemic lockdown restrictions.

EasyJet, which has been expanding its presence at Glasgow Airport, defied higher fuel costs to report a pre-tax profit of £455m for the year to the end of September following a loss of £178m previously. This was propelled by a 19% hike in passenger numbers. The Luton-based budget carrier rewarded its investors with the resumption of dividend payments pegged at 4.5p per share.

Earlier this month Tui, Europe’s biggest package holiday operator, reported that profits more than doubled to €977m (£836m) during the year to September 30 as revenues surged to €20.6bn. Passenger numbers in the fourth quarter along rose by 200,000 to 7.8 million.

Tough times for London equity markets

Tui also said that it is considering delisting from the FTSE 250 index in favour of Germany’s equivalent MDax in yet another blow to the London Stock Exchange’s reputation as a global financial centre.

The UK bourse has lost some of its lustre after FTSE 100 giants Ferguson and CRH moved their primary listings from London to the US. In March UK chip designer ARM bypassed London in favour of floating on the Nasdaq in New York, while venture capital groups have been taking advantage of low valuations in London to take vulnerable FTSE constituents into private ownership.

Tui cited a “notable liquidity migration” to the Frankfurt exchange as one of the main reasons for its potential departure from London. Lower volumes of trading relative to other major global exchanges have been blamed for suppressed valuations across the FTSE.

To help alleviate this, the Financial Conduct Authority (FCA) has proposed new rules to make the UK’s listing regime “more accessible, effective, and competitive” with a single listing category and streamlined eligibility requirements. The watchdog is now taking feedback on its detailed proposals, which could go live in the second half of next year.

“Serious failings” in Farage affair

In October state-backed NatWest Group, owner of the Royal Bank of Scotland, admitted “clear shortcomings” in how its private bank Coutts closed down the accounts of former UKIP leader Nigel Farage.

The Herald: Alison RoseAlison Rose (Image: PA)

Like other banks the group’s financial performance has been boosted by higher interest rates, but this was overshadowed throughout much of 2023 by events which in July forced the departure of former NatWest chief executive Alison Rose after she admitted to being the source of stories that appeared in the BBC about the closure of Mr Farage’s accounts. The affair triggered supervisory work by the Financial Conduct Authority into the governance, systems and controls at both NatWest and Coutts to identify and address any shortcomings.

Shock exit at BP

Another corporate executive shown an early exit this past year was former BP boss Bernard Looney after he failed to disclose past relationships with colleagues to the oil giant’s board of directors.

Mr Looney’s surprise resignation in September came after he admitted he had not been “fully transparent” when asked about his previous relationships by the board. This led to a three-month review in which it was determined that Mr Looney’s actions amounted to “serious misconduct”. He was formally fired in December, meaning he will lose out on £32.4m in pay.

The Herald: Bernard LooneyBernard Looney (Image: Agency)

All that glitters is not…

Scotgold Resources, owner of the Cononish gold and silver mine near Tyndrum, fell into administration in November after an extended series of setbacks at the site in Argyll.

The AIM-listed company poured first gold at Cononish in November 2020 but was unable to produce in the volumes needed to be commercially viable. In late September Scotgold put the majority of its 80-strong workforce on unpaid leave, then warned on November 7 that it was “considering the appointment of administrators over the coming days”.