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Centrica Gains Most in 9 Months as Residential Unit Profit Jumps

  • British Gas Residential profit rose 31 percent in 2015
  • Falling wholesale commodity prices reduce retail costs

Centrica Plc climbed to the highest since May as the biggest energy provider to U.K. households reported a 31 percent jump in full-year profit at its residential supply business.

Profit at the retail unit climbed to 573 million pounds as costs fell and colder weather increased demand, the Windsor, England-based company said in a statement Thursday. Shares jumped as much as 6.9 percent as the group’s adjusted earnings beat the estimate of 18 analysts surveyed by Bloomberg.

Earnings at British Gas Residential returned to “more normal levels” in 2015, Chief Executive Officer Iain Conn said, as wholesale U.K. natural gas prices slid 33 percent last year and average temperatures fell. Britain’s utilities have come under increasing pressure from Energy Secretary Amber Rudd to cut retail bills as consumer lobby groups criticize the companies for not passing on falling gas prices.

“The clear standout result” was the increase in British Gas Residential operating profit “driven by falling wholesale commodity prices”, Peter Atherton, utilities analyst at Jefferies International Ltd said in an e-mailed note.

Shares in Centrica rose 6.9 percent to close at 207.4 pence in London, making the stock the biggest gainer on benchmark FTSE 100 index of U.K. stocks today.

Centrica’s adjusted earnings dropped 4 percent from the previous year to 863 million pounds. Adjusted earnings per share fell to 17.2 pence compared to a 17.1 pence average estimate of 22 analysts surveyed by Bloomberg.

Wholesale fuel costs make up 40 percent of customer bills and “we have passed on the impact of falling gas prices to customers,” CEO Conn said on a conference call with reporters. Centrica was the penultimate of the nation’s six biggest utilities to cut household gas tariffs, announcing on Feb. 11 a 5.1 percent reduction from March 16.

Centrica, which gets more than a third of its income from oil and gas production, incurred post-tax impairments of 1.5 billion pounds on exploration and production assets and 485 million pounds on its power plants. The full-year dividend was cut by 11 percent.

Operating profit from the company’s U.K. exploration and production business fell 61 percent to 255 million pounds as Brent crude plunged 35 percent and natural gas prices fell. Centrica can balance its cash flows for the next three years even if oil prices stay at $35 a barrel, Conn said.

“The steep falls in wholesale commodity prices will continue to have a material impact on the operating cash flows from our E&P and central power generation businesses in 2016 and beyond, if current levels persist,” the company said in the statement.

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