8th May 2014 15:35
LONDON (Alliance News) - Centrica PLC, the parent company of British Gas, Thursday issued its second profit warning so far in 2014, blaming extreme winter weather in the US, mild conditions in the UK, and the intense pressure that's been put on energy providers in the UK in recent months by politicians and consumer groups.
Centrica said it now expects adjusted earnings per share expected to be between 22 pence and 23 pence in 2014, down from 36.6 pence in 2013. In February, the company said it expected full-year earnings per share to be lower, but didn't give a specific range. Centrica's adjusted figures exclude exceptional items and some other items.
However, the firm said earnings growth is expected to return in 2015 as long as more normal weather conditions return.
The company said harsh winter weather in the US had resulted in additional costs for its business there, while mild weather had reduced demand in the UK. It also said the "unprecedented focus" on energy companies in the UK had resulted in intense competition between suppliers, weighing on its results.
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, but said it does not plan to increase its prices during 2014 to offset lower revenues.
This year will be the first year it has not raised prices since 2009 and its post-tax profit margin is expected to drop to 4%, below the 4.5% to 5% it believes is necessary to underpin investment in the business.
The big six energy suppliers in the UK, including British Gas have been under scrutiny for increasing energy prices in the winter amid dwindling household budgets and protests from consumer groups.
Energy prices are turning into a political football ahead of the next UK election. Stagnant household budgets are set to become one of the main features of party campaigns as wage growth remains low while expenses such as energy prices have been increasing at rates well above inflation.
Centrica and its peers have defended the price hikes, saying they were required to make much-needed investments in infrastructure.
UK market prices for gas and electricity have declined since the start of the year, Centrica said, 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". However, the company noted that it has already lost 180,000 customer accounts in 2014 as households move to cheaper accounts.
The proposed UK energy market competition review by the Competition and Markets Authority announced in March was again welcomed by Centrica Thursday. It said it hopes the review will help to restore trust in the sector, and said it is "important that all aspects of the bill are examined".
The company said that it now plans to sell its loss-making Langage, Humber and Killingholme UK gas-fired stations, which represent almost half of Centrica's UK power generating capacity. It will refocus its investment in UK gas-fired power generation on flexible smaller plants, releasing capital from its larger power stations with a book value of roughly GBP500,000.
?We are also refocusing our UK power generation investment towards more flexible plant, with a view to bidding into the capacity market," Centrica Chief Executive Sam Laidlaw said in a statement.
The company noted that its large-scale Cygnus and Valemon gas field developments in the UK North Sea are on track, with GBP60 billion of commitments in place to procure gas and power for customers.
Centrica also announced the sale of 40% of its gas and liquids assets in Canada to Qatar Petroleum International for CAD200 million, strengthening its relationship with the Qatari major. It said the two companies are looking at investing in further energy-related projects together, on either side of the Atlantic.
Centrica said that once the partnership deal in Canada is completed, the two parties will have 2P reserves of 1,664 billion cubic feet equivalent and have current production of 390 million cubic feet equivalent per day.
The company predicted that it will return to earnings growth in 2015 as long as it isn't hit by more extreme weather and operating profit at its residential British Gas business doesn't decline further. It said the outlook for gas prices next year is currently benign, though it noted that there is upward pressure on the market cost of power, including an increase in network charges and higher costs associated with renewable energy.
"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 said.
The company also said that it remains committed to real dividend growth. In February, it had increased its full year dividend for 2013 to 17.0 pence, from 16.4 pence in 2012.
Centrica shares were down 2.2% to 319.50 pence Thursday, making it the third-biggest faller in the FTSE 100 Thursday.
By Tom McIvor; tommcivor@alliancenews.com; @TomMcIvor1
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