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Centrica shares feel heat after profits warning

Centrica shares feel heat after profits warning

Shares in British Gas owner Centrica fell sharply after it warned it would fail to meet the City’s expectations for annual profits.

The weaker-than-expected update came as the company said it had been forced into hiking bills for millions of households in order to offset losses in its residential arm.

The firm said overall group earnings, which had been expected to rise by 3% to 4%, were now likely to remain flat on the £2.7 billion reported in 2012 after being affected by challenging conditions in its business supply arm across the UK and United States.

Centrica said it had absorbed rising costs in its British Gas residential business “for as long as possible”, but moved to increase electricity and gas prices by 10.4% and 8.4% respectively from November 23 after the division was loss-making for a number of months.

It said profit margins in the residential business would largely hold firm, edging only slightly lower to just under 5%.

The ‘big six’ supplier became the latest energy group to signal it would undo some of its imminent price rise by promising to pass on an expected cut in Government green levies “in full” to customers.

Nick Luff, group finance director, said: “If there are any changes to the environmental programme that means it reduces our costs then we will pass that benefit back to our customers in full as quickly as possible.”

The group tore up a pledge made earlier this year to use an annual earnings windfall from cold weather to keep a lid on tariffs.

It hiked rates by 6% last November ahead of a bitterly cold period when gas consumption rose 18% in the first four months of this year compared to 2012 helping earnings at its residential arm to rise 3.2% to £356 million for the first half of the year.

Consumption over the first 10 months of the year rose 4%, it added in its latest update.

The company said in May that because of the economic pressures facing many customers, the board had decided that any benefit from the exceptionally cold weather would be used to maintain “price competitiveness”.

But it blamed the increasing cost of Government green and social policies, wholesale prices and energy distribution for its U-turn, which will affect 7.8 million households.

In a move to calm mounting public anger, Centrica chief executive Sam Laidlaw said earlier this month he would donate his bonus to charity.

This bonus could be worth up to £1.7m.

The group said: “Energy suppliers and politicians both have a role to play in helping to minimise the impact of higher costs on bills and improving transparency to restore trust in the industry.”

Centrica said British Gas Business was set to see full-year profits drop “significantly” on 2012, while margin pressures were hitting its North American energy supply division, particularly in power sales to firms.