A Very Quick Look at Centrica's Earnings

LONDON -- Right now I'm trawling through the FTSE 100 (UKX) and double-checking for blue chips that may be flattering their profits.

You see, many companies these days report "underlying" earnings, which are calculated by excluding costs the firm deems to be "exceptional." Trouble is, some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.

Today I'm looking at Centrica  (LSE: CNA.L  ) to see if its reported earnings have been distorted significantly by exceptional, one-off or unusual items. I've extracted the following statistics:

Year to Dec. 31






Profit before unusual items (£m)






Restructuring charges (£m)






Asset writedowns (£m)






Other unusual items (£m)






Source: S&P Capital IQ

While annual figures can provide some insight into how a business has performed, I reckon looking back over several years provides a better view of possible problems in relation to one-off costs.

So between 2007 and 2011, my stats tell me Centrica reported cumulative profits before exceptional items and tax of £9.5 billion. However, aggregate exceptional costs came to £1.7 billion -- equivalent to a notable 18% of cumulative "underlying" profits.

I was somewhat surprised by the sheer number of one-off items peppering Centrica's profit and loss account. For example, its most recent results list the re-measurement of energy contracts (rather topical, given current allegations of price fixing in the wholesale market), a withdrawal from Europe, impairment costs against its U.K. generation assets and a large-scale, cost-reduction program.

Re-measurement of energy contracts appear to be main culprit, however, and account for the majority of the two large "other unusual items" figures in 2008 and 2010. This is certainly an area shareholders will want to keep an eye on. On the surface, Centrica may appear to be a relatively simple business, but the pricing structures relating to how it purchases gas and electricity can be fiendishly complex.

Somebody who always studies earnings numbers in detail is Neil Woodford, the U.K.'s leading equity income fund manager. Woodford's portfolios thrashed the FTSE 100 during the 15 years to 2011 and this exclusive Motley Fool report -- which can be downloaded free today -- reviews his favorite blue-chip shares for 2013 and beyond.

Stuart Watson does not own any share mentioned in this article. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2110732, ~/Articles/ArticleHandler.aspx, 10/21/2016 11:24:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,083.80 -78.55 -0.43%
S&P 500 2,137.20 -4.14 -0.19%
NASD 5,249.61 7.78 0.15%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes