- Earnings guidance reduced
- Full year EPS expected to fall 13.5-17 per cent y-o-y
- Mild weather hits UK, cold hits North America
- Positive portfolio moves
Energy company Centrica, owner of British Gas in the UK and Direct Energy in the US, downgraded it full-year earnings guidance due to challenging conditions on both sides of the Atlantic.
Milder weather has hit consumption in the UK downstream business, with a highly competitive supply environment adding further headwinds. Full year UK residential energy supply revenue is expected to be around 10% below 2013 levels and post-tax margins are expected to be around 4% this year, lower than long-term expectations.
In North America, extreme weather conditions resulted in significant one-off additional costs in the first quarter.
The combined effect, offset slightly by a lower depreciation charge, is that full -year adjusted earnings per share are expected to be in the range 22-23p, a fall of between 13.5-17.3% year-on-year.
Chief Executive Sam Laidlaw said: "The decisions and actions that management is taking across the group will leave the business well-placed for the long term. While earnings are anticipated to fall in 2014, we expect an improvement in 2015, assuming more normal weather conditions and reflecting the prospects for underlying growth in Direct Energy, UK gas storage, British Gas Services and British Gas Business."
Residential gas and electricity consumption in the UK for the first four months of 2014 was 25% and 10% lower respectively year-on-year, meaning customer average bills were 10% lower.
The number of residential supply accounts fell by 180,000 in the year-to-date and service contracts dropped by over 100,000.
Centrica said it did not expect to be able to increase residential energy prices this year due to the politicised and competitive market and wholesale price environment.
Elsewhere in the business, management stressed the importance of maintaining its focus on capital discipline and said capital expenditure was expected to be £950m in 2014.
It followed recent disposals of Texas gas turbine plants and the non-core North Sea exploration and production (E&P) assets with the announcement a number of further portfolio moves upstream and downstream.
With the impact of lower wholesale gas and oil prices, Centrica lowered its operating profit expectations for its exploration and production business, "but with limited impact on post-tax earnings".
Looking ahead to 2015, the company said earnings could return to growth in 2015 as there was upward pressure on the market cost of power.
Broker Killik said the update was "mixed", with upside being the portfolio changes in the UK and North America and a reaffirmed commitment to real dividend growth.
"Although the yield is attractive, the group's trading outlook remains uncertain and we don't see any let-up in the political pressure on the industry in the run-up to next year's General Election," Killik said.
"As a result, we are retaining our 'neutral' recommendation, and would encourage investors to look elsewhere for equity income."
Shares in Centrica were down 2.14% to 319.8p at 15:35 on Thursday.