Centrica cuts profit target, vows to act on bills

Scottish Gas parent company Centrica saw its shares fall sharply today after it warned that its annual profits would fail to live up to City expectations.

Centrica's Chief Executive Sam Laidlaw. Picture: Reuters

The weaker-than-expected update came as the group said it had been forced into hiking bills for millions of households in order to offset losses in its residential arm.

Centrica, headed by chief executive Sam Laidlaw said overall group earnings – which had been expected to rise by 3 to 4 per cent – were now likely to remain flat on the £2.7 billion reported in 2012 due to “challenging” conditions in its business supply arms in the UK and United States.

Shares in the firm fell 5.1 per cent or 18.6p to close at 345.3p.

Today’s alert came as German energy giant RWE, owner of the Npower brand, said it would cut 6,750 jobs across Europe and reduce its costs by £840 million under fresh efficiency measures.

RWE gave no details of where the jobs will be lost, but revealed that its headcount has already fallen by 4 per cent to 67,000 over the past year.

Centrica said it had absorbed rising costs in its residential business “for as long as possible”, but last month moved to increase electricity and gas prices by 10.4 per cent and 8.4 per cent respectively from 23 November after the division was loss-making for a number of months.

The company has 15.7 million residential energy accounts and said full-year margins at its supply business would fall slightly year-on-year to “a little under” 5 per cent after tax.

Along with fellow “big six” energy firms, Centrica has been under intense scrutiny since hiking its bills, but today become the latest supplier to signal it would undo some of its imminent price rise by promising to pass on an expected change in green taxes to customers.

Finance director Nick Luff said: “If there are any changes to the environmental programme that means it reduces our costs, then we will pass that benefit back to our customers in full as quickly as possible.”

Rivals EDF, Npower and SSE have said they would also take action if UK ministers overhaul the controversial levies, designed to help vulnerable consumers install energy-saving measures.

Chancellor George Osborne is expected to use next month’s autumn statement to announce a review of the taxes, potentially saving households £75 each if the costs are removed from customers’ bills and transferred to general taxation.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said today’s profit warning from Centrica did not come as a major surprise and its shares remain “fundamentally attractive” thanks to a strong dividend yield in relation to interest rates.

Centrica is in the process of returning £500m to investors through a share buyback programme, and said today that £412m of stock has been bought so far. It is expected to publish full-year results on 20 February.