Centrica's customers hit the gas

Centrica, the utilities company which trades under the British Gas and Scottish Gas name, is on track to achieve earnings growth in line with expectations, provided the weather and commodity prices play ball.

Average UK residential gas consumption for the first ten months of 2012 was 9% higher than for the same period of 2011, while average electricity consumption was 1% lower. This reflects colder than normal weather in the year to date following an unusually warm 2011, but also underlying reductions in demand due to energy efficiency measures undertaken by customers.

In UK residential services the group is on schedule to deliver double digit percentage profit growth, primarily due to the delivery of cost efficiencies across the business. The number of residential services accounts has remained broadly flat since the half year, while the weak UK economy continues to have an impact on Centrica's central heating installation business, with the number of installations down 16% in the first ten months of 2012 compared to last year.

The weak economy is also hitting the UK business energy supply division, where the competitive environment also remains challenging. As a result, the number of business supply points has fallen by 43,000 since the end of June.

In North America, Direct Energy Residential continues to perform well and profitability in 2012 is expected to be broadly in line with last year, despite the impact of warmer than average weather in the first half of the year and the challenging regulatory environment in Ontario.

The Direct Energy Business also continues to perform well Stateside, with power volumes 10% higher in the first ten months of the year than over the same period in 2011, reflecting continued growth in the small business segment.

Continued low natural gas prices across North America are making conditions challenging for Centrica's upstream and wholesale business. However, it is benefiting from the impact of forward sales from its Alberta assets and from a higher proportion of liquids production, while the group's power station optimisation performance remained good, allowing it to capture peaks in Texas power prices during the summer.

Centrica has in recent years embarked on a policy of securing its own supplies of energy to reduce dependence on the wholesale markets. It said that in total, production is expected to increase by nearly 20% in 2012 and by a further 12-15% in 2013.

At the end of October, group net debt stood at £4.3bn. The group's interest charge is expected to be around £190m in 2012, which includes the impact of the issuance of £750m of bonds in March and a further £500m in August.

Based on current pre-tax profit expectations, the group's effective tax rate is expected to be around 45%, reflecting the higher proportion of operating profit from the upstream gas and oil business.

JH