Centrica is wrapping up an annus hornbills at the bottom of the FTSE 100 leaderboard, its shares having fallen by just over 40 per cent since the beginning of the year.
That’s quite a kicking and it will be fascinating to see how the company’s remuneration committee responds when it comes to calculating the executive committee’s bonuses.
You may be aware of the background to its woes, but just in case you’ve missed it, here’s a quick refresher: At a time when wholesale energy prices were falling, Centrica abandoned its price freeze, leaving millions of its customers on variable tariffs facing sharply higher bills.
Its rationale for this was that its competitors had also increased prices, and it wasn’t making enough money. It also said the Government was being mean by making it pay for things like green energy.
Hundreds of thousands of consumers were sufficiently unimpressed to walk, although Centrica’s British Gas still has plenty on its books. Faced with restive shareholders, it decided to lobby the government to fix the energy market in its favour. It doesn't seem to be working all that well as a strategy.
To be fair, if we’re kicking Centrica for its end of year showing, we should save some of our energy (sorry, couldn’t resist the pun) for taking a shot at the way that government’s ministers have blown hot, and cold, and then hot again over their plans to reform a misfiring market by introducing price caps.
Such dithering makes business planning difficult for new entrants with aggressive pricing strategies that benefit the consumer as much as it does for the likes of Centrica.
But it’s hard to feel any real sympathy for the latter.
In many ways it's lucky that it still has a consumer business. Millions remain with British Gas largely through inertia, and because switching sometimes makes people nervous: Better the devil you know rather than that other lot with their fancy cheapie tariff that might blow up in our faces like a gas leak.
Nonetheless, it looks like the company will endure steady attrition as people respond to the squeeze on household budgets by saying, hey, maybe its worth the risk after all.
There is, of course, an alternative strategy that Centrica could adopt that, in the short term, would probably end up with the shares taking a further kicking but in the longer term might see it emerging as a winner.
The company could tell its investors they’ll have to settle for still lower returns for a while because it’s going to slash its prices, and its margins, and aggressively chase volume.
All of a sudden no one would need to talk about price caps, and the company could find itself making net gains rather than net losses.
Sometimes, competition can be good for your business.
I don’t imagine CEO Iain Conn is the sort of leopard who’ll suddenly change his spots likes this. But it is the festive season, so we can live in hope.
