LONDON (Alliance News) - Centrica PLC, the parent company of British Gas, Thursday said its pretax profit dropped in its first half as higher revenues were offset by a jump in costs due to extreme weather in the US and a fall in performance at British Gas.
Centrica said its pretax profit fell 40% to GBP890 million for the six months ended June 30 from GBP1.49 billion the previous year, with a decline expected by shareholders after two separate profit warnings by the company earlier in 2014.
In May, the company said extreme weather in the US, mild conditions in the UK, and the intense pressure that has been put on energy providers in the UK in recent months by politicians and consumer groups has led to lower adjusted earnings per share, which excludes exceptional items.
On Thursday, Centrica said revenue increased 15% to GBP15.75 billion in the half from GBP13.65 billion. The company's Direct Energy business more than doubled its revenues following its acquisition of Hess Energy Marketing, and its Residential Energy Supply Business saw a gross revenue increase of 7% due to higher numbers of customers and additional gas and power volumes.
However, the company said its cost of sales increased 26% to GBP13.62 billion from GBP10.78 billion due to higher volumes and costs related to bad weather in the US at the start of the year.
Centrica said British Gas's adjusted operating profit fell 20% to GBP455 million with lower consumption due to warmer-than-normal weather in the UK leading to lower consumption rates.
Despite this, the company increased its interim dividend by 4% to 5.10 pence.
?The first half of the year has seen challenging market conditions across the group, both as a result of the weather and reflecting the wider political environment. We have continued our efforts to engage with our stakeholders, particularly our customers, working to restore their trust. And we are taking the steps to position the business for growth in 2015 and beyond," Chairman Rick Haythornwaite said in a statement.
The company said it expects to return to earnings growth in 2015, due to improving margins and more normal weather conditions in the US, expected account growth in UK residential energy and services operations, and its cost reduction programmes.
Thursday's news comes days after the company said that it has appointed Iain Conn to replace Chief Executive Sam Laidlaw, who will retire from the board at the end of the year.
Conn's appointment comes after BP PLC said that he would step down from his role as the oil and gas major's chief executive for its refining and marketing division, after seven years in the job. Conn had been a BP board member since 2004.
Conn is joining Centrica at a challenging time for the energy company. Last month, UK regulator Ofgem referred the UK energy market to the Competition and Markets Authority for a full investigation, asking it to investigate the barriers to competition inherent with the "big six" suppliers. Labour leader Ed Miliband has said that his party will introduce a two-year energy price freeze if elected at the next UK General Election in 2015.
"I am excited to be joining Centrica, a company which is leading the way in the provision of secure and reliable energy and services to customers in the UK and North America," Conn said in a statement on Tuesday.
The incoming CEO also noted Centrica's "major responsibility" for long-term energy supplies, particularly for the UK.
"I recognise the challenges which we face in rebuilding customer trust in the sector and helping to create an effective and sustainable approach to energy markets," Conn said at the time.
Centrica shares were down 0.4% to 313.10 pence on Thursday.
By Tom McIvor; tommcivor@alliancenews.com; @TomMcIvor1
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