LONDON, Feb 19 (Reuters) – The new head of Centrica, Britain's largest utility company, cut its annual dividend by 21 percent and signalled further cuts to payouts in response to lower energy prices.
Iain Conn, who took over as Centrica chief executive in January, also announced a review of strategy to be completed by the time the company publishes interim results in July.
Ahead of that review, Centrica said on Thursday it was cutting its 2015-2016 exploration and production (E&P) budget by 400 million pounds ($618 million) after weak energy prices drove down full-year profit.
Centrica, which owns energy supplier British Gas, has also slashed its dividend, to 13.5 pence per share, from 17 pence last year, and said future payments would be cut by 30 percent.
The dividend cut was "to make sure the company has a solid credit rating going forward," Conn said on a conference call after the results.
Shares in the FTSE 100 company traded 7.5 percent lower at 0855 GMT.
"For investors, and in the current ultra-low interest rate environment, the cut to the dividend payment is a major blow," said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.
"The search for income yield is becoming ever harder," he added.
Centrica reported a 35 percent fall in 2014 adjusted operating profit, with the lower energy prices eating into earnings at both its production and supply units.
"2014 was a very difficult year for Centrica and the recent fall in oil and gas prices creates further challenge," said Conn, who was formerly BP's head of downstream activities.
"We are cutting investment and costs in response."
The low commodity prices led to post-tax impairment of 1.385 billion pounds on its E&P and power assets Centrica said.
The firm had already announced a tighter 2015 capital expenditure programme in November, when it also prepared investors for lower than expected 2014 earnings due to mild weather and lower output at nuclear plants.
Since then, low oil prices have had a knock-on effect on Centrica's upstream business, which mainly produces gas.
Plans to sell three of its large combined-cycle gas turbine (CCGT) power plants, announced last May have also been dropped after the company said bids it received for the plants fell short of expectations. ($1 = 0.6470 pounds)
(Reporting by Karolin Schaps and Susanna Twidale; Editing by Pravin Char and Keith Weir)
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