Centrica profits hit by wholesale price rises; gas output down 29%
UK multi-utility Centrica has posted a 38% fall in first half earnings, commensurate with the third gas and power price rise for customers in less than a year.
Operating profit across the group hit fell 29%, year-on-year, in the first six months of 2006 to £692 million (EUR 1,012 million), although Centrica received a much-needed fillip from its North American arm, which turned in a profit of £121 million in H1, an increase of 39% year-on-year. Turnover increased by 32% year-on-year to £8.7 billion for the period.
Fitch, the ratings agency, revised its outlook for Centrica from “stable” to “negative” after the results, adding that the impact of high wholesale prices was worse than expected. Centrica’s share price at 16:30 was 0.17% lower on the day at 292p.
Now the most expensive energy retailer in the UK, Centrica blamed “unprecedentedly high” wholesale prices, although the group underlined its confidence that wholesale prices would begin to drop in 2007/8. Despite raising domestic tariffs in the UK (see separate story), Centrica has increased its interim dividend by 2% to 3.15p per share.
“It is clear why British Gas have needed to raise their prices. The failings of the wholesale gas market have hurt British Gas and punished consumers for three years and there is no clear sign of an end,” campaign group energywatch said on Thursday.
British Gas Residential Energy had delivered a “significant loss” in the first six months of 2006 — £143 million compared with an operating profit of £165 million in H1 ’05 — which Centrica’s chairman, Roger Carr, described as “unacceptable”. This loss and even higher forward energy wholesale prices necessitated the tariff increase, Centrica said.
However, Carr said in a statement: “We continue to believe that downward pressure on wholesale prices will be more apparent in 2007 as a substantial amount of gas import infrastructure comes on-stream at the end of this year,” highlighting the Langeled, BBL and Interconnector expansion projects which together will add the equivalent capacity of almost half the UK’s current demand.
In power generation, Centrica is to build an 885MW gas-fired plant in Devon, to be completed by the winter of 2008/9 and capable of supplying 70% of forecast peak British Gas residential electricity customer demand.
In the upstream gas sector, Centrica has been at a relative disadvantage to its competitors, a position it is working hard to reverse. However, after the explosion on the Rough storage platform in February this year (which in itself has cost Centrica Storage £42 million so far), work had to take place at the South Morecambe field to replace cooler units. This unplanned maintenance remains on-track, with Morecambe scheduled to restart production in September, the company said.
Work on Morecambe this summer will mean a 15% year-on-year fall in production from the maturing asset, more than offset by the higher selling price, Centrica said.
Gas production at Morecambe fell 42% in H1 ’06 to 2.55 billion cubic metres (Gm3), while output from other assets rose 43% to 1.2 Gm3, compared with the same period in 2005. Total output for the half fell 29% year-on-year, to 3.7 Gm3.
In June, Centrica doubled its stake in Norway’s Statfjord field to 9.68%. The company’s total reserves at Statfjord are estimated at 3.5 Gm3. The multi-utility also signed an extra gas delivery contract for the six months of this winter with Norway’s Statoil for 1.5 Gm3. The gas is expected to reach the UK through the Langeled pipeline.
Operating profit at Centrica Storage Ltd (CSL) climbed 21% to £69 million, despite the financial impact of the Rough’s four-month closure. However, the sale of storage units at record prices boosted profits and CSL has also completed the forward sale of 2006/7 storage at an average price of 65.6 p/SBU, a rise of 78% on the previous year.
Centrica achieved an average sales price for its gas of 59.20 p/th in the first half, up 77% from 33.50 p/th in 2005. Profits at Accord, Centrica’s energy trading arm, slumped 70% in H1 ’06 to £7 million, from £23 million in the first six months of 2005. “The prior year had been particularly positive as the business took advantage of exceptional volatility of the wholesale market,” Centrica said.
Centrica Energy’s operating profits rose 7% to £579 million in the first half, though higher gas production was largely offset by losses from I&C sales contracts. I&C losses will peak in 2006, the company said. BF
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