Higher supplementary tax hurts Centrica's profit

28th Jul 2011 08:35

Energy giant Centrica reported a 24% drop in half-yearly earnings, as the company wrestled with higher supplementary tax rates and challenging economic conditions in the United Kingdom, but said it is on course to deliver full year earnings growth."Economic conditions are increasingly challenging, particularly in the UK, with lower household disposable income impacting our residential services activities and with business customers coming under increasing pressure to reduce costs. In March, the Chancellor of the Exchequer announced an increase in the supplementary tax rate on UK oil and gas production which has impacted Centrica's earnings and reduced the benefits of vertical integration," Centrica said in its statement. For the half year ended 30 June, the company reported adjusted earnings of £673m, compared with adjusted income of £886m, last year. Revenue fell slightly to £11.5bn, down from £11.7bn.Centrica said wholesale gas prices have increased by approximately 30%, reflecting the unrest in the oil-rich Middle Eastern and North African countries, rising global demand for gas and also partly due to the closures of nuclear plants in Japan following the tsunami.Centrica added that the increase in wholesale prices resulted in higher operating profit for the period, but was offset by the negative impact of higher gas and oil tax rates, announced in the UK government's budget in March.The parent company of British Gas, UK's largest household energy supplier, said the combination of higher commodity prices and significantly lower consumption due to milder weather conditions resulted in operating profit in the residential energy segment "being less than half the level" recorded in the corresponding period last year. Looking ahead, Centrica expects to spend about £1.3bn on organic capital expenditure with reduced spend on UK upstream projects, which are subjected to higher supplementary tax rates and slow down pre-construction spend on new nuclear. Shares of Centrica slid 0.8% to 317.6p in early trading session in London.AR