Trading Statement

Centrica PLC
                  

10 December 2004

CENTRICA 2004 TRADING UPDATE & 2005 OUTLOOK

In line with best practice, Centrica will in future issue pre-close trading
updates ahead of its preliminary and interim results and today issues its first
such statement ahead of entering a close period on 31 December 2004. Centrica
will host a conference call from 8-9am GMT today.

The company will announce its preliminary results for 2004 on 24 February 2005.

Group results

Overall Centrica's 2004 results are expected to be in line with market
expectations. The key operating and strategic themes in the second half have
been:

--  Challenging conditions in energy markets with further rises in wholesale gas
    prices

--  Strong contribution from gas production and from Centrica Storage

--  Improved performance in North America

--  Continued investment in upstream energy assets

--  Completion of the AA disposal and payment of the special dividend to
    shareholders

--  Early commencement of the £500m share repurchase programme

Despite the significant increase in wholesale gas and electricity prices and the
disposal of the AA at the end of September, Centrica expects in 2004 to maintain
its record of delivering double-digit year-on-year percentage growth in earnings
(including JVs and associates, before goodwill amortisation and exceptional
items). Operating profit growth, before exceptionals and goodwill, is also
expected to be double digit with improvements in most business divisions.

British Gas

The second half of 2004 has seen further extraordinary rises in wholesale gas
and electricity prices (32% and 18% higher respectively than the second half of
2003). In early October gas prices for January 2005 peaked at almost 80p/therm,
although they have now fallen back to around 40p/therm. Market prices for Q4
2004 are now around 32% higher than Q4 2003; however, Centrica has no remaining
exposure to wholesale prices in this period.

The retail price increases announced in August and implemented in September
increased turnover in British Gas but also, as expected, led to an increase in
customer churn. To date net energy customer losses in the second half of the
year are 630,000. The level of churn has fluctuated and is starting to fall as
most other suppliers have also now announced similar price increases. British
Gas has continued to sign up new gas and electricity customers with sales back
to around 80% of the level before the price increases were announced.

In the British Gas transformation programme, rollout of the cross-selling
functionality is on track to finish by the end of this year.

Upstream

The level of gas production for the full year is expected to be the same as 2003
due to higher production in the second half to capture the benefits of high gas
prices.

Wholesale gas prices have continued to impact Centrica's Industrial & Wholesale
business. As predicted, losses on the industrial long-term sales contracts have
increased in the second half due to the continued divergence of sales prices and
input costs and second-half Industrial & Wholesale results will be worse than
the first half.

Centrica Storage continues to exceed expectations. Due to the wider
summer/winter price differentials and termination in April 2004 of all legacy
sales at historic prices, full-year profits will be significantly ahead of 2003.

Other downstream businesses

Centrica Business Services (CBS) has focused on maintaining margins against a
background of rising wholesale energy costs. CBS has passed price increases
through to customers at annual contract renewal and through periodic tariff
adjustments. Customer renewal performance has been maintained in the year to
date, but is increasingly challenging in the face of volatility and competition
in the commercial energy market.

In One.Tel the market remains extremely competitive but the business is now
benefiting from the outsourcing of certain operations to India and full-year
profits will be higher than expected.

In North America the second half has shown good recovery with top-line growth
and a more positive pricing environment. Despite the market reconciliation issue
in Texas, which was reported in the first-half results, and the adverse impact
of currency movements, operating profit is expected to be slightly ahead of
2003.

The disposal of the AA was completed at the end of the third quarter.

Financial structure

Payment of the special dividend and the accompanying 9-for-10 share
consolidation were successfully completed. The share buyback programme commenced
ahead of the originally announced timescale and to date Centrica has repurchased
67.4 million shares for cancellation. The weighted average number of shares used
to calculate basic EPS for 2004 is estimated to be approximately 4.22 billion.

Centrica has committed to paying a full-year dividend equivalent to a 40% payout
ratio in 2004, rising to 50% in 2005 under current UK accounting standards.

Investment progress

Since the announcement of its 2004 interim results, Centrica has made further
investments in upstream assets by acquiring a 50% share in the Horne and Wren
gas fields in the Southern North Sea and an onshore wind farm project in North
East Scotland. It has exercised its option to acquire Wainstones Power Limited
giving it the potential to develop a new 1,000MW CCGT power station in South
West England. This month it acquired a second power station in Texas, the 447MW
CCGT Frontera station. In August Centrica also entered into its first LNG
contract with a 15-year supply deal with Petronas for a total of over 45 billion
cubic metres of gas.

Recent activity in the upstream gas environment confirms the Group's view that
patience, financial discipline and a consistent view of the market fundamentals
will continue to be key to success in building both an appropriate gas supply
portfolio and shareholder value.

The Group has continued to invest for growth downstream with the acquisition in
the UK of DynoRod and Telco Global and, in North America, Residential Services
Group and two small energy automation and control companies which enhance the
offering to the business sector.

2005 Outlook

Wholesale gas and electricity prices continue to dominate the outlook for 2005.
Based on current and projected forecast wholesale gas price levels, the Group
has decided to balance the level of margin in the short term with the need to
maintain a competitive position in order to preserve value in the longer term.
It is therefore the Group's intention in 2005 to not pass through to customers
immediately the full impact of the forecast increase and to offset a portion by
undertaking a programme of cost reductions where these can be achieved without
compromising growth or customer service. In the light of this the British Gas
profit margin will be similar to 2004 and will increase in 2006 as gross margins
improve and the full-year impact of cost reductions takes effect. Centrica
continues to believe that 8% is an appropriate and achievable net profit margin
target for the British Gas business.

The key focus of the British Gas transformation programme in 2005 is on delivery
of the SAP billing system which is now going through test, with the first
new-format bills expected in the first half of 2005. The estimated cost of the
systems elements of the programme has increased from £400 million to £430
million, including the cost of additional staff back-filling now planned to
support rollout of the billing system in the light of experience to date. In
addition, implementation of the home services engineer deployment system is
progressing to budget (£40m) and is expected to complete by the end of 2005. As
previously advised, although the benefits from the Siebel/SAP implementation are
delayed, the overall transformation programme in British Gas will deliver the
expected level of benefits in 2005.

Gas production in 2005 is now expected to be at least 10% higher than previously
indicated. As a result of this and the higher wholesale prices, the effective
corporate tax rate for 2005, excluding any changes to the accounting treatment
of petroleum revenue tax, is expected to be around 33%.

In the absence of a considerable decline in wholesale prices, losses on the
industrial long-term sales contracts will continue to increase and Industrial
and Wholesale results will therefore deteriorate further in 2005.

To the end of November, Centrica Storage had sold 84% of all standard bundled
units (SBUs) available to non-Centrica Group companies for the 2005/06 storage
year. The prices achieved are higher than 2004/05 which will result in a
significant year-on-year operating profit increase in 2005.

Operating profit in North America will be further enhanced by improved
performance in Texas and business markets underpinned by the value generated
from recent acquisitions.

In summary, the key issue facing Centrica in 2005 is the current level of UK
wholesale energy prices. As a result operating margins are now expected to be
lower than previously anticipated in British Gas, Centrica Business Services and
Industrial and Wholesale. A significant proportion of this will be offset by
forecast improved results from gas production, Centrica Storage and North
America, such that the operating results in aggregate will be in line with the
consensus of current market expectations. The change in mix, however, will lead
to a higher tax charge which will be reflected at the earnings level.

International Financial Reporting Standards (IFRS)

Centrica's 2004 preliminary results announcement in February 2005 will be on a
UK GAAP basis. Clarification is still required on the interpretation of IAS39
(embedded derivatives) and the treatment of petroleum revenue tax. The intention
is to restate the 2004 results and hold a briefing for analysts and investors in
May 2005 to explain in more detail the key impacts of IFRS on the Group's
results.

Trading update conference call details

As this is the first time Centrica has issued a trading update, the Company will
host a conference call from 8-9am GMT today with Group Finance Director, Phil
Bentley, who will answer any questions arising from the statement. The telephone
number for UK callers is 0845 245 3471. Overseas callers should dial +44 1452
542 300. The password for the call is 2332467. A recording of the call will be
available on the Investor Relations section of the Centrica website
(www.centrica.com/investors) from 2pm GMT today.

Enquiries:

Centrica Investor Relations     01753 494900
Centrica Media Relations        01753 494085