Centrica Profit down on Mild US Winter

Centrica, the UK's biggest supplier of gas and electricity, reported a 12% cut in its operating profit in 1H 2016 to £853mn ($1.12bn), owing to record warm winter weather in North America.

According to a company statement, the overall revenue fell 13% because of warm weather patterns in North America and the knock-on effect of low commodity prices on energy tariffs. With one-off effects taken in to consideration – disposal of oil and gas assets – the company's operating profits rose 31% to £1.8bn. The company is trying to build up its service businesses amid a downturn in fossil fuel prices that has hurt its oil and gas exploration and production arm.

Centrica CEO Iain Conn, addressing an audience in Brussels earlier this year (Credit: Centrica)

"The first half of the year has been demanding for Centrica, but the response has been strong and I am encouraged by the progress we have made. We are delivering underlying performance improvement and are building a robust platform for customer-focused growth," said CEO Iain Conn. "I remain confident in our ability to deliver both attractive returns and underlying cash flow growth, as we continue to implement our strategy," he added.

Its' first-half profit attributable to shareholders, which is equivalent to net profit, was £1.14bn, up from £1.05bn for the comparable period last year. It has recorded £13.38b revenue compared with £15.4bn recorded a year earlier.

"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," the company said in the statement. 

Meanwhile, Centrica's supply arm British Gas lost 400,000 residential supply customers in the first half, compared to 120,000 lost over the whole of calendar 2015. The losses are running at 5% annualized though Centrica said that it had return to customer growth in June. "While rising UK gas and power prices may help upstream profits we worry that retail margins may be vulnerable if suppliers need to return to price increases in 2017," said Martin Brough, an analyst at Deutsche Bank, wrote in a note to clients.

Murat Basboga