Centrica warns on profits after mild winter switch-off
Centrica issued its second profits warning in six months yesterday, after admitting 180,000 households had quit its domestic arm British Gas, and the mild winter meant its remaining customers turned their heating down.
The Big Six supplier said it would not raise prices for British Gas customers this year. However, despite admitting that wholesale energy costs had fallen, it made no offer to cut prices.
Last autumn, British Gas raised bills for dual-fuel customers by 9.2 per cent; 2014 looks set to be the first year since 2009 that Britain's biggest domestic supplier has not raised bills.
Shares in Centrica fell 6.4p to 320.4p as it admitted group profit will be 10 per cent lower than City expectations this year. The energy giant blamed the drop on both warmer weather in the UK – which meant gas consumption was down 25 per cent in the first four months of the year, and electricity usage was lower by 10 per cent. It also said that extremely cold weather in the US "resulted in significant one-off additional costs".
The energy provider conceded that the exodus of 180,000 customers from British Gas this year was because of "fierce" competition, "particularly from smaller suppliers who are benefiting from an exemption from some environmental obligations".
British Gas's finance director Nick Luff hinted that its price freeze could continue next year. Mr Luff – who is leaving Centrica for the same job at Reed Elsevier later this year – said: "The market looks reasonably well supplied… in a competitive environment you'll see that reflected in retail prices, potentially."
Centrica also announced plans to sell three of its biggest UK power stations – Langage, Humber and Killingholme – for about £500m. Mr Luff said that the power stations were losing a "significant" amount of money.
The three plants provide more than half of its power generation in this country but Mr Luff defended the sell-offs yesterday: "What matters is the total amount of generation capacity available and if it is sufficient to meet peaks in demand… These big new efficient plants will be there from the country's point of view, regardless of who owns them.
"From our point of view, freeing up the capital tied up there puts us in a position to invest in older plants that, in the absence of investment, would be coming to the end of their lives. The net effect is to provide more capacity overall for the country."
Centrica is also hunting for a new chief executive after £2m-a-year boss Sam Laidlaw indicated that he wants to step down this year.
However, Angelos Anastasiou, a utilities analyst at Whitman Howard, suggested Centrica's profit warning could help ease one of the energy giant's problems. "A profit warning is never good news, but it will perhaps highlight that UK energy supply is not just a 'money for old rope' business – a fact that might be welcome ahead of the Competition investigation set to start in July."
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