Centrica prays for snow as warmer weather hits profits

Energy giant Centrica has warned that its 2011 profits may be lower than expected as a result of unusually warm weather, rising wholesale prices and a high customer churn rate.

Subject to weather conditions for the remainder of the year however Centrica, which owns British Gas, said it still expects to see growth in its full year earnings – despite the British Gas residential business being loss making since April.

The news comes one day after British Gas announced plans to cull 850 jobs in the UK in an attempt to reduce its overheads.

Centrica blames British Gas’ fall in profits on rising UK wholesale gas costs, which it claims are 26% higher this winter than in 2010, together with higher non-commodity costs.

The energy company’s decision in July to hike its gas and electricity prices some 18% and 16% respectively meanwhile led to many customers switching to other suppliers. At 15.9 million, customer account numbers have fallen slightly the start of the year.

Customers have also used less energy in the first ten months of this year compared to 2010 due to milder weather and energy efficiency improvements, Centrica said. Average residential gas and electricity consumption fell 17% and 3% respectively compared to the same period last year, while average gas and electricity consumption by business customers dropped some 15% and 12%.

Demand for central heating installations is also down, with the number of installations 10% lower than in 2010.

As a result Centrica said it needed to keep a close control on costs and would be substantially reducing its headcount in residential services businesses – though reassured customers that the cuts would not include consumer facing roles such as engineers and customers service staff. 

‘In light of the challenging commodity price and economic environment, we are undertaking a review to identify cost savings across the Group, to ensure that the business can remain as competitive as possible,’ Centica said in its interim management statement.

Centrica’s (CNA.L) share price fell 3.1p, or 1%, to 292p on the news.

Angelos Anastasiou, an analyst at Investec, however, said he continues to believe the company's outlook remains sound, and that the key is to regain confidence in the supply market.

In July Centrica announced a £1.3 billion operating profit for the first half of 2011. Its British Gas arm meanwhile reported a £270 million profit, down 54% compared to last year.