Centrica issued a profits warning yesterday and pledged to step up its cost-cutting campaign after an unusually warm autumn allowed cost-conscious consumers to reduce their energy consumption.
The company said its 2011 earnings "may be marginally lower than current market expectations" because residential gas consumption had plummeted by 17 per cent in the first 10 months and electricity use dropped by 3 per cent.
Centrica, which on Wednesday announced 850 job losses at its British Gas supply unit, said there would be further cuts across the business, starting with its UK power generation division. It declined to be more specific, although its ageing gas-fired plants at Kings Lynn, Norfolk, and Barry, south Wales, which employ nearly 300 people between them, are expected to be among the casualties. Centrica blamed the mild weather and the need for businesses and consumers to save money in a difficult economy.
It conceded that it had lost about 200,000 customers since raising its gas and electricity bills by 18 per cent and 16 per cent in August, although it remains Britain's biggest utility supplier, with 15.9 million customers. The price rises were in response a 30 per cent jump in wholesale gas costs since the start of the year, as the Fuku-shima crisis in Japan sparked an exodus from nuclear power. Centrica defended its price rises, saying: "We protected customers from the effect of higher costs for as long as possible."
It pointed out that rising wholesale prices meant its British Gas residential business had been making a loss since April. It has returned to profitability since bills went up in August. But Centrica acknowledged that its production arm benefited when wholesale prices were rising. The boost from strong wholesale prices means that it "continues to expect growth in full-year earnings, despite significantly lower margins in our downstream residential business."
Angelos Anastasiou, an analyst at Investec, said it was disingenuous to issue such a tiny profits warning, as the big six utility companies face criticism from customers and politicians over rising bills. "It looks slightly politic to say, 'hang on, we may not be doing that well', when everybody is sticking the knife in," he added.
"The consensus forecast for the year was for earnings per share to come in at 26p, compared to 25.2p last year. Now they're saying it might not hit the consensus estimate, but it will be above last year, so it's probably going to be around 25.6p or 25.7p."