British Gas profits hit by weather

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Published: Thursday 20th November 2014 by The News Editor

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British Gas owner Centrica has warned of lower earnings this year, partly as result of milder weather helping to cut annual household bills by around £100.

Warmer temperatures compared to 2013 meant average residential gas consumption for the first 10 months of this year was 21% lower, with electricity 7% lower, bringing down the average dual-fuel bill.

Centrica said it had lost 50,000 British Gas residential energy accounts since the end of June, taking the total exodus for the year to date to 250,000 as industry figures show record switching to smaller suppliers.

But the group said it had stemmed the losses with account growth in recent weeks after launching a more competitive tariff under the Sainsbury’s Energy brand.

In its latest trading update, the company said earnings per share for the year were now expected to be about 2p lower than it had guided at the time of half-year results in the summer.

Profit margins for British Gas residential were expected to be around 4%, lower than the business’s long-term expectations.

Centrica’s earnings mark-down reflected the impact of the mild weather as well as tougher conditions for its British Gas Services businesses, which installs boilers, as customers opted for lower-price products.

Profits have also come under pressure from the shutdown of four EDF nuclear reactors at Heysham, in Morecambe, and at Hartlepool, for safety inspections – after a crack was found in one. Centrica has a 20% stake in the operations.

It said three of the reactors were due back online shortly with a fourth to restart around the end of the year, with all four running at three-quarters capacity until modifications take place in 2015 and 2016.

Centrica said its “upstream” production business would be hit by falling gas and oil prices but still expected to deliver earnings growth in 2015.

Today’s trading update is the last under outgoing boss Sam Laidlaw, who will be replaced by BP executive Iain Conn in January.

Mr Conn will have to deal with continuing political pressure over household bills as next year’s general election approaches, while a full-scale competition inquiry is also under way.

Falling wholesale gas prices have resulted in regulator Ofgem calling on the so-called Big Six energy suppliers, including British Gas, to explain why they are not cutting household tariffs. They argue that they buy gas much further in advance.

British Gas and other suppliers announced above-inflation price hikes this time last year – though these were later scaled back after Government policy changes.

But Centrica pledged earlier this year it would leave tariffs unchanged in 2014.

Recent data from industry body Energy UK showed a customer exodus from the Big Six – which also include SSE, Scottish Power, E.ON, EDF and npower – to smaller suppliers.

There were a record 138,000 net switches to smaller suppliers in October, the industry figures said.

SSE recently said it lost 100,000 customers since June, adding up to half a million accounts in the past year.

Centrica’s warning on earnings today comes after it said in May that profits would be lower than expected, partly due to the mild winter and the loss of customers.

British Gas serves around 11 million homes. Shares fell 1%.

Published: Thursday 20th November 2014 by The News Editor

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