Centrica cuts earnings view on UK and U.S. headwinds

LONDON Thu Nov 14, 2013 12:15pm GMT

The deck section of Centrica's York platform is seen at the Heerema plant in Hartlepool, northern England March 6, 2012. REUTERS/Nigel Roddis

The deck section of Centrica's York platform is seen at the Heerema plant in Hartlepool, northern England March 6, 2012.

Credit: Reuters/Nigel Roddis

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LONDON (Reuters) - Centrica, one of the big six British utilities under fire from politicians for hiking bills, has cut its 2013 earnings forecast, citing not only rising costs in the UK but also intensifying competition in the United States.

The company, which blamed higher wholesale energy, transportation and environmental costs when it raised prices at its British Gas unit by 9.2 percent in October, said on Thursday adjusted earnings per share were likely to be flat this year, compared with previous hopes for growth of 3-4 percent.

Its shares, down sharply since Britain's opposition Labour party said it would freeze prices for 20 months if it won an election due in 2015, dropped a further 4 percent.

"In particular the weakness in the U.S. will be a concern, given this is one of the supposed growth platforms of Centrica," Royal Bank of Canada analyst John Musk said.

"With the headwinds highlighted today and the ongoing political debate in the UK, we believe the share price will remain challenged in the near term."

While Britain has emerged from a long and deep recession, average earnings are still running well below inflation, keeping the pressure on household budgets and creating a headache for the ruling Conservative-Liberal coalition, particularly following inflation-busting increases in energy prices.

Centrica made adjusted earnings per share of 26.6 pence in 2012 and analysts' had been expecting a 2013 figure of 27.81 pence, according to Thomson Reuters data.

"(It) reflects the margin pressure we're seeing in the business energy supply both in UK and U.S.," finance director Nick Luff told reporters, explaining the reduced expectations.

Over the last couple of years, Centrica has increasingly looked to the United States for growth opportunities and in July spent around $1 billion adding Hess Corp's U.S. energy retail arm to its North American portfolio which includes Direct Energy, one of region's biggest providers.

On Thursday, the group highlighted increased competition in Texas which has reduced its margins.

Shares in Centrica, Britain's biggest household energy supplier, were down 4.3 percent to 348.4 pence at 1150 GMT, after hitting their lowest level for eight months and making the company the top-faller on Britain's bluechip index.

CORE MARKET

Britain is still the company's core market accounting for the bulk of its energy supply profits.

Labour's threat to freeze energy prices there wiped 1.5 billion pounds ($2.4 billion) off Centrica's market value in two days in September. The shares have since failed to recover that, having now retreated around 12 percent since Labour's announcement on September 24.

"These are unprecedented times for the energy sector in the UK, with intense public and political debate over rising bills," Centrica said.

Energy bills have topped Britain's political agenda over the last two months with the government and Labour competing to be seen as tough on utility companies after this winter's average 8 percent price rise.

The government has said it will make an announcement in December on the plan to shift some of its environmental and social charges away from companies.

"If there are any changes to the environmental programmes that mean it reduces our costs then we'll pass that benefit back to our customers in full as quickly as we can," Luff said.

EDF Energy undercut the competition on Tuesday by announcing a bill hike of 3.9 percent, pre-empting the government's promise to reduce the green taxes that the big six blame for their need to raise prices.

($1 = 0.6254 British pounds)

(Editing by Paul Sandle and Mark Potter)

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