8th May 2014 07:49
LONDON (Alliance News) - Centrica PLC saw its shares drop Thursday morning after the firm cut its earnings outlook for the full-year as market conditions remain challenging, overshadowed by an "unprecedented focus on the energy sector."
Centrica has reduced its outlook for earnings in 2014, with full-year adjusted earnings per share expected to be in the range 22-23 pence. The firm said earnings growth is expected to return in 2015.
The firm said market conditions have been challenging for during the year-to-date on both sides of the Atlantic. In the UK, the downstream business has experienced lower consumption due to mild weather, an unprecedented focus on the energy sector and a highly competitive environment for energy supply.
The FTSE 100-listed firm said that the average British Gas residential energy bill was around 10% lower this winter than last, reflecting mild weather conditions, and said that no change is expected in residential energy prices this year, reflecting the competitive market and wholesale price environment. UK residential energy supply post-tax margins expected to be around 4% this year, lower than long-term expectations, said Centrica.
The company said it continues to invest in technology and service, as it refocuses investment in UK power generation, and also announced a strategic relationship with Qatar Petroleum International.
The deal with QPI sees Centrica strengthen the relationship through the sale of 40% of Centrica?s gas assets in North America into joint venture partnership for CAD200 million.
Centrica said large-scale Cygnus and Valemon gas developments are on track, with GBP60 billion of commitments in place to procure gas and power for customers.
Investment in UK gas-fired power generation on a flexible smaller plant will see Centrica release capital from larger power stations with a book value of around GBP500 million, it said.
UK market prices for gas and electricity have declined since the start of the year, said the firm, although political tensions in the Ukraine have focused attention on security of supply and the potential impact on European energy prices. Assuming that energy market conditions remain benign, and recognising the competitive conditions in the UK energy supply market, Centrica said it does not currently expect to change residential energy prices during 2014.
Looking ahead, the firm said it remains committed to helping customers "reduce and control their energy consumption through our leadership in smart connected homes and innovation."
When considering consumption, the company expects full-year residential energy supply revenue to be around 10% below 2013 levels and the post-tax margin to be around 4%. Including additional costs associated with the exceptionally cold weather in the US, offset by a lower depreciation charge on Centrica's UK gas-fired power generation fleet, 2014 full-year adjusted earnings per share for the group is expected to be in the range of 22-23 pence per share.
The proposed energy market independent competition review by the Competition and Markets Authority announced in March was welcomed by Centrica Thursday; it is hoped that an this will help to restore trust in the sector, with the company stating it is "important that all aspects of the bill are examined."
The firm also said that it remains committed to real dividend growth for investors.
Beyond full-year figures, Centrica said the outlook for gas prices in 2015 is currently benign, though notes that there is upward pressure on the market cost of power, including an increase in network charges, and higher costs associated with renewable energy. Therefore, assuming similar or higher levels of operating profit for British Gas Residential in 2015 compared to 2014, and with underlying growth and normal weather conditions in North America and the prospect for improvements in UK gas storage, British Gas Services and British Gas Business, Centrica expects a return to earnings growth in 2015.
?The combination of mild weather, and our expectation that we will not change energy prices this year, means the average British Gas household energy bill is expected to be lower in 2014 than in 2013," said Sam Laidlaw, Chief Executive.
?Investment in security of supply remains a key priority... We are also refocusing our UK power generation investment towards more flexible plant, with a view to bidding into the capacity market. The decisions and actions that management is taking across the Group will leave the business well-placed for the long term. While earnings are anticipated to fall in 2014, we expect an improvement in 2015, assuming more normal weather conditions and reflecting the prospects for underlying growth in Direct Energy, UK gas storage, British Gas Services and British Gas Business,? Laidlaw added.
Centrica shares dropped in early trading Thursday, trading 2.62% lower at 318.237 pence per share, the second biggest faller on the FTSE 100.
By Alice Attwood; [email protected]; @AliceAtAlliance
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