* Higher taxes to lead to more modest earnings growth
* Sees effective tax rate for 2011 at 45 percent
* Residential energy supply mkt more challenging than 2010
* Residential gas use down 19 pct, electricity down 4 pct
* Shares down 3 percent, hit nine-month low
(Adds details on prior UK investment plans, analyst comment)
By Adveith Nair
LONDON, May 9 British utility Centrica Plc
(CNA.L) warned that rising taxes on North Sea oil and gas
production would erode profit growth this year and prompt it to
scale back investments, sending its shares to a nine-month low.
In March, Britain unexpectedly raised a supplementary tax
charge on North Sea oil and gas producers to 32 percent from 20
percent to help lower fuel duty for motorists. [ID:nLDE72M1PB]
"We continue to expect growth in our 2011 group earnings but
at a more modest rate than anticipated at the time of our last
results announcement as upstream profits have become more highly
taxed," the company said in a statement on Monday.
The company, which planned to spend about half its 1.5
billion pounds ($2.46 billion) 2011 capital expenditure budget
on UK upstream, no longer expects to maintain those "high levels
of investment" in the UK.
Centrica shares were down 3.3 percent at 305 pence at 0909
GMT, the top percentage loser on Britain's blue-chip FTSE 100
.FTSE index and hitting their lowest since August.
Last week, Britain's Economic Secretary to the Treasury
Justine Greening acknowledged the impact of higher taxes on
investments in the UK and said the government would work with
the oil and gas industry to limit the impact of the unexpected
tax hike on marginal North Sea fields. [ID:nLDE7431TD]
Centrica had said a week ago it may shut one of its gas
fields as the tax rise made it unprofitable to run, echoing a
decision by Norway's Statoil (STL.OL) in March to put some
developments on hold. [ID:nLDE72S1J0] [ID:nLDE73T092]
On Monday, the company said the higher tax rates would lead
to reduced cash flow and higher fiscal uncertainty.
The group expects an effective tax rate of about 45 percent
for 2011 -- an increase of nearly 300 million pounds in the tax
charge over last year -- and sees "significant" one-off deferred
tax charges due to the increase in upstream tax rates.
Investec analyst Angelos Anastasiou, however, said he was
still positive on the company's prospects and maintained a "buy"
recommendation. He said the statement suggested a relatively
tough trading environment, but most factors were already known.
"Despite higher taxation, earnings are still set to grow,"
he said, and kept his 424 pence price target on Centrica shares,
35 percent higher than the stock's Friday closing price.
According to Thomson Reuters StarMine, which weighs
analysts' forecasts according to their track record, the company
is expected to report earnings of 27.22 pence per share for
2011, 17 percent higher than last year.
Centrica, which owns Britain's biggest household energy
supplier British Gas, said the number of residential energy
accounts on supply has grown to about 16 million, slightly above
the level reached at the end of 2010.
But the company warned market conditions for its residential
energy supply business were significantly more challenging than
last year, due in part to warmer weather.
Average residential gas consumption in the first four months
of the year was 19 percent lower, while electricity consumption
was down 4 percent, Centrica said.
(Editing by Matt Scuffham and Mike Nesbit)