Oil price plunge continues to chill Centrica

Centrica, the UK utilities and energy group that owns British Gas, has failed to benefit from the cold snap this winter, stating that improved profits from its residential business were being "more than offset" by lower commodity prices.

In a trading update on Monday, the UK's largest energy supplier said that average gas consumption by British Gas residential customers rose by 10 per cent in the first three months of 2015, due to colder than normal weather.

Direct Energy, its North American consumer business, also saw a 1 per cent increase in gas use in the same period.

However, its 'upstream' business in extracting oil and gas out of the ground continues to suffer from the slump in the oil price, which has already forced the company to trim investment and write down the value of its North Sea assets.

Brent crude prices have fallen from almost $116 per barrel last June to around $65.

"Improved year-on-year profitability downstream is expected to be more than offset by the impact of lower commodity prices on the upstream business," the group said on Monday, adding that current trading was "in line" with guidance provided at its full-year results in February.

It said that the group's earnings "remain subject to the usual variables of commodity prices, weather and asset performance, and the uncertain outcomes of the UK General Election and the Competition and Markets Authority investigation into the UK energy market."

Credit rating agency Moody's cut its rating on Centrica's debt in March, and the company continues to control its costs to try and boost its financial profile.

Centrica said that it was on track to meet its target of reducing capital expenditure to around £800m in 2015, with a 40 per cent reduction to £650m in 2016.

However, it said on Monday that it would invest £50m in boosting customer services at British Gas creating 350 new jobs over the next three years in Manchester, Leeds, Cardiff and Edinburgh.

In February, Centrica reported a £1bn pre-tax loss for 2014, mainly because of impairments of production assets, and proposed cutting its dividend by 30 per cent in order to protect its investment-grade credit rating.

Mark Hodges is due to join as managing director of British Gas in June. Formerly the chief executive of Towergate, the specialist insurance broker, he spent more than 20 years at insurers Norwich Union and Aviva.

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