Profit warning from Scottish Gas owner

Centrica said its upstream production business would be hit by falling gas and oil prices

The group said warmer temperatures compared with 2013 meant average residential gas consumption for the first ten months of this year was 21 per cent lower, with electricity down by 7 per cent, lowering the average dual-fuel bill.

However, the firm is also being hit by a customer exodus amid a trend for switching to smaller suppliers, while its “upstream” gas production arm is suffering from lower resource prices.

Centrica said earnings per share for the year were now expected to be about 2p lower than it guided at the time of half-year results in the summer, at between 19p and 20p.

John Musk, an analyst at RBC Capital Markets, said he had “lost count of the number of downgrades issued by Centrica this year”. He added: “More importantly we also interpret the statement as containing a warning growth into 2015 will not be as great as expected by the market.

“The removal of 2014 one-offs of the polar vortex in the US, mild weather in the UK, higher nuclear output and the full year impact of Bord Gáis [acquisition] in Ireland are all expected to contribute to growth. However, Centrica has highlighted these improvements may be ‘significantly offset by the impact of lower oil and gas prices on our upstream business’.”

He estimated the City’s profit expectations for the firm next year may have to come down by 10 per cent.

Centrica said it lost 50,000 residential energy accounts since June, taking the total exodus for the year to date to 250,000 amid record levels of 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.

Profit margins for its residential business were expected to be around 4 per cent, again lower than its own long-term expectations.

Centrica’s earnings’ mark-down reflected the impact of the mild weather as well as tougher conditions for its services business, 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 per cent 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, which trades as British Gas south of the Border (advertising slogan “Looking after your world”), said its “upstream” production business would be hit by falling gas and oil prices but still expected to deliver earnings growth in 2015.

The trading update was the last under outgoing boss Sam Laidlaw, who will be replaced by BP executive Iain Conn in January.

Conn will have to deal with continuing political pressure over household bills as next May’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 Big Six energy suppliers, including Scottish Gas, to explain why they are not cutting tariffs. They argue that they buy gas much further in advance.

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