27th Apr 2015 10:01
LONDON (Alliance News) - Centrica PLC Monday reiterated its full-year guidance, after the cold winter boosted energy consumption in its British Gas business despite a broadly flat number of residential accounts and lower numbers of business customers, but the company noted its outlook is clouded by the upcoming General Election and the regulatory review of the UK gas and electricity market.
"Overall, the group continues to trade in line with the guidance provided at the time of its 2014 preliminary results in February, with improved year-on-year profitability downstream expected to be more than offset by the impact of lower commodity prices on the upstream business," said the company in a statement.
The FTSE 100-listed company said residential gas consumption through British Gas was 10% higher in the first three months of 2015 than a year earlier with electricity consumption increasing by 2%, which Centrica said was due to colder temperatures than normal during the period.
Although gas consumption rose, the company said it had around the same amount of residential energy accounts as a year ago at 14.8 million. The company's British Gas Business division saw the number of accounts slightly fall to 826,000 from 854,000 due to a "competitive marketplace".
In Ireland, customer accounts also remained fairly flat at about 800,000, with energy consumption also rising due to colder weather, and the Whitegate gas-fired power station "operated in line with expectations," it said.
Centrica said it has also installed 1.4 million residential smart meters in the UK, and has sold nearly 200,000 smart thermostats, mostly under its Hive Active Heating brand. In March, Centrica acquired AlertMe, the provider of the technical platform that underpins the Hive Active Heating brand.
The Direct Energy division, operating in North America, "remains on track to deliver material operating profit growth in 2015" compared with a "weak" performance last year. Total Direct Energy gas consumption in the first quarter was 1% higher than the same period last year, also due to the colder-than-expected weather.
A combination of more stable physical infrastructure, market re-design and management action meant Centrica did not see a repeat of the additional costs in the division that were incurred last year, it said.
"We continue to make good progress in building our brand in North America. In March it was announced that Direct Energy was joining a range of well-known brands to launch Plenti, the first United States-based coalition loyalty programme, where consumers can earn and use reward points for purchasing a wide range of products," said the company.
The Direct Energy Business is now benefiting from increased unit margins on contracts sold in prior periods, while average commercial and industrial sold unit margins again improved in the first quarter of 2015, and were higher than in the second half of 2014 for both gas and electricity.
The number of accounts in the Direct Energy business fell 42,000 in the quarter to 855,000, but Centrica also said it installed 42% more solar panels in the period following its acquisition of Astrum Solar in 2014. Astrum Solar was rebranded as Direct Energy Solar in April.
Centrica Energy, its upstream gas and power business, is on track to meet the company's target of reducing capital expenditure by about 25%, totalling GBP800 million in 2015, and a 40% reduction to around GBP650 million in 2016. Centrica has also identified a number of initiatives to reduce costs and remain on track to achieve a GBP100 million reduction in cash production costs by 2016.
However, Centrica Energy continues to be impacted by the low commodity price environment, and the company said that although changes made to the UK upstream tax rates by the government in March have benefited the company, it said it does not expect it to have an impact on 2015 earnings due to "low levels of profitability".
"Overall production was in line with our forecasts in the first quarter, and we continue to expect full-year output of around 75 million barrels of oil equivalent in 2015. This includes production from the large-scale Valemon project, which came onstream in January," it said.
In UK power generation, the company's share of nuclear output in the first three months of the year was 3.2 terrawatt hours, up 5% compared with the same period in 2014. This reflects good operational performance, despite the Heysham 1 and Hartlepool power stations only running at 75-80% power.
However, in gas-fired generation, market spark spreads remain low, while generation volumes were lower in the first quarter than in the same period in 2014.
Centrica said operations at the Killingholme power station have ceased as planned and the company continues to review the Brigg power station after reducing its capacity. On Monday, Centrica said it has also decided to reduce capacity at the South Humber plant until March 2017 in response to current market conditions.
"The group?s earnings remain subject to the usual variables of commodity prices, weather and asset performance, and the uncertain outcomes of the UK General Election and the Competition and Markets Authority investigation into the UK energy market," said Centrica.
Analysts have raised concerns about the impact that the General Election could have on Centrica and its peers. The two main parties, Conservatives and Labour, are running neck-and-neck in the polls, and Labour has pledged to cap energy prices and to force companies to split energy supply and distribution arms if they form the next government.
On top of that, the Competition and Markets Authority has launched a new probe into the UK energy market that could also pile pressure on the companies if it finds the markets aren't working competitively.
Centrica shares were up 0.3% to 265.17 pence per share on Monday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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