UK-based integrated energy company Centrica has said that its earnings for the year are in line with market expectations, with lower gas production volumes and profitability being offset by a lower effective group tax rate and the strong performance from the UK downstream business.
Assuming normal weather patterns, and based on current forward commodity prices, the group’s adjusted earnings are expected to be in line with current consensus, the company said in a statement.
The company added that between the end of June and the end of October, the number of residential energy accounts on supply rose by around 200,000, and now stands at 15.7 million, and the number of services accounts were up by around 100,000 to 8.3 million.
With the integration of British Gas progressing well, Centrica expects to exceed its target of GBP100m of cost savings, allowing it to re-invest in the business as it builds on the strength of the British Gas brand, and establish the platform to develop growth areas further.
The company is in-sourcing meter installation operations as it prepares for smart meter roll out, and is developing capabilities across energy services, energy efficiency and micro-generation that will allow to offer customers a range of products and services. Some one-off costs will be incurred as it integrates British Gas, with a charge of around GBP50m expected in 2009, and additional exceptional costs expected in 2010 as it drives for further ongoing savings.
The company acquired a controlling interest in Venture Production at the end of August and it now owns 100% of the issued share capital. Integration of Venture and Centrica’s existing UK upstream business is progressing well.
During the third quarter, Centrica’s gas production, including one month’s production from the Venture assets, was 209 million therms, down 50% on the same period in 2008. With wholesale gas markets well supplied, it has been able to conserve its own reserves.
Full year gas production, including four months’ production from the Venture assets, is expected to be down around 25% against 2008, although oil and condensate production volumes will be around 35% higher. Combined with lower average selling prices, this lower production will lead to profits from the upstream business this year being less than half of those recorded in 2008, despite the four month contribution from Venture, the company said.
In power generation, the operating performance of Centrica’s gas fired power stations (CCGTs) and wind farms has been good. Low gas prices have led to higher spark spreads, and the company has responded by increasing running hours for the CCGT fleet. As a result, generation volumes in the third quarter were 6.8TWh, 15% ahead of the same period in 2008. Subject to the outturn for spark spreads in the last two months of the year, the power generation segment is expected to record profits ahead of current consensus.
At the end of October, the company revealed the sale of a 50% equity stake in three of its existing wind farms, Glens of Foudland, Lynn and Inner Dowsing.
Commissioning of the 885MW GBP400m Langage CCGT plant located near Plymouth is underway. Commercial operation is anticipated around the end of the year. With a thermal efficiency of 52%, Langage will raise the installed capacity of Centrica’s CCGT fleet to 5GW.
A decision from the European Commission on the sale of Centrica’s 51% stake in Belgian business SPE to EDF is due imminently. Approval will allow the sale to complete, simultaneous with the acquisition by Centrica of a 20% stake in British Energy.
At the end of the third quarter, net debt stood at GBP2.5 billion, with net margin cash held by counterparties of GBP700m. Net debt includes the debt within Venture at the time of acquisition, with GBP340m of this now having been refinanced, utilising some of Centrica’s cash balances.