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Centrica Sees Lower 2014 Profit as Gas Margins Squeezed

Feb. 20 (Bloomberg) -- Centrica Plc, the biggest energy supplier to U.K. households, forecast lower earnings in 2014 as its gas-fired power generation business continues to lose money.

Adjusted earnings per share, which were unchanged in 2013 at 26.6 pence (44 cents), will fall this year, the Windsor, England-based company said today in a statement.

“Market conditions are set to remain challenging in 2014,” Chief Executive Officer Sam Laidlaw said in the filing. He cited “unusual weather,” higher extraction costs in the North Sea and “weak economics” for gas-fired power generation.

Centrica’s gas-fueled plants were unprofitable in 2013 as carbon costs increased after free emission permits ended, while milder-than-usual weather in Britain cut demand for heating. The utility also lost U.K. household customers, leading to a 1.7 percent drop in adjusted operating profit to 2.7 billion pounds.

Adjusted EPS may fall below 25 pence this year, said John Musk, an analyst at RBC Capital Markets who has an outperform rating on the stock. That’s lower than the 26.7-pence average estimate of 20 analysts surveyed by Bloomberg.

Centrica plans to cut capital spending by about 900 million pounds, or 20 percent, in the next three years. The company is targeting a return to growth in U.K. residential accounts this year after losing 100,000 customers amid price changes in 2013.

The operating loss from gas-fired power plants widened to 133 million pounds last year from 4 million pounds in 2012. Centrica has dropped 9 percent in London in the past 12 months, and traded up 2.1 percent to close at 320.6 pence today. That values the company at 16 billion pounds.

Tariff increases from U.K. utilities have sparked political wrangling, with opposition Labour Party leader Ed Miliband saying in September he would freeze prices until the start of 2017 if he wins the next election. Energy Secretary Ed Davey this month said Centrica’s British Gas unit could be broken up.

To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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