Centrica's 1H Profit is 'Roughed' Up (Update)
(Updates with price increase reaction in last paragraph)
Centrica’s net first half profit fell by 96% year on year to £44mn ($58mn), down from £1.15bn last year.
That was net of a £268mn ($352mn) post-tax exceptional charge, mainly relating to an impairment of its UK North Sea ageing Rough storage facility which the firm in June announced would close definitively. The low profit also took into account re-measurements of open commodity positions, it said.
On a business performance metric, pre-tax earnings (Ebitda) were up 2% at £1.29bn, although adjusted operating profit was down 4% at £816mn.
It announced a 12.5% increase from September in its standard UK residential electricity prices, a hike criticised by the opposition Labour Party’s energy spokesman. But CEO Iain Conn justified it on the basis of higher regulated network costs and government-imposed green charges on suppliers.
Conn added: “Centrica delivered a solid first half financial performance despite reduced energy demand due to warm weather and strong competitive pressures, and we remain on track to achieve the 2017 targets we set out in February. We have made further significant strategic progress, continuing to reallocate resources away from our asset businesses towards our customer-facing businesses.” He cited recent E&P disposals, and the new joint E&P venture with Bayerngas Norge.
Residential energy use per household was down 8% in Centrica’s key UK market, but up 8% in the US. Upstream production fell by 7% to 194,500 barrels of oil equivalent/day, chiefly thanks to divestments.
The company said it had completed or announced over £800m of power generation/E&P asset sales, taking disposals to over £900mn since 2016, at the upper end of its target of £0.5bn-£1bn.
Responding to the price rise, the Energy Networks Association said that electricity network costs have increased by £10 since 2014, as companies have invested in energy networks. "This forms only part of the £76 increase that British Gas has announced. Network costs are expected to remain broadly flat in the coming years and in some cases fall and Ofgem analysis shows that between 1990 and 2006 the total cost of running the GB electricity and gas networks fell 45%. Despite significant planned investment between 2006 and 2017 they are still 17% lower.”
Mark Smedley