Centrica First-Half Cash Flow Rises Amid Weaker Commodities

  • Cash flow climbs 19 percent, helping reduce net borrowing
  • Profit from energy supply slumps as consumption decreases

Centrica Plc, the biggest energy supplier to U.K. households, said first-half cash flow climbed 19 percent, helping to reduce net debt as weaker commodity prices and warmer weather in North America dented earnings.

Adjusted earnings fell 14 percent to 507 million pounds ($669 million) in the six months to June 30, the Windsor, England-based company said Thursday in a statement. Operating cash flow rose to 1.4 billion pounds. Centrica shares climbed to the highest since August.

U.K. natural gas prices are about 17 percent lower than this time last year, when Centrica set out a cost-reduction strategy that involved cutting its workforce and shrinking its exploration and production operations. Shares in Centrica have recovered about 18 percent since May 5, when the company announced a 700 million-pound share sale.

“These results are positive versus our, and market, expectations,” said John Musk, a utilities analyst at RBC Capital Markets, who estimated earnings before interest and tax of 809 million pounds compared with the 853 million pounds Centrica reported. “The improved commodity outlook, progress on efficiencies and strengthening cash flows and balance sheet all support” a buy recommendation, he said.

Centrica rose as much as 2.2 percent to 247.2 pence, the highest intraday level since Aug. 25, before trading at 244.1 pence by 3:23 p.m. in London.

“The shares have recovered well following the unexpected 7 percent share placing in May, and we still see good value in the shares for the medium term,” Angelos Anastasiou, an analyst at Whitman Howard Ltd., said by e-mail.

Exploration & Production

Operating profit from the company’s U.K. exploration and production business dropped 17 percent to 88 million pounds. Adjusted operating cash flow fell by 25 percent as the impact of lower commodity prices was “partially offset” by lower cash production costs, Centrica said.

“Commodity prices remain at low levels despite recent increases, and this will inevitably have an impact on the earnings and cash flow from our E&P and central power generation businesses in the second half of 2016, as historic hedges roll off,” Centrica said in the statement.

Profit earned from supplying energy to homes and businesses was also lower, falling 2 percent in the U.K. and Ireland. The number of energy supply contracts to U.K. homes fell by about 400,000. In the U.S., mild weather drove adjusted operating profit down by 50 percent as household demand dropped, according to the statement.

Centrica reduced net borrowing by 23 percent from last year to 3.8 billion pounds in the six months through June from 4.7 billion pounds at the end of 2015, the company said. Its debt is ranked BBB+ by S&P Global Ratings and Baa1 at Moody’s, the ratings companies’ third-lowest investment-grade levels.

Adjusted operating profit at Centrica’s gas storage business slumped 69 percent amid reduced availability at its U.K. Rough facility, which ceased all injection and withdrawal operations in July for further testing of well integrity. The utility incurred a 144 million-pound post-tax charge relating to Rough, “reflecting updated assumptions on asset availability in the near term,” according to the statement.

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