AGM Statement

Centrica PLC
19 May 2006

19 May 2006





Centrica 2006 AGM Statement



At the Centrica Annual General Meeting to be held today, Chief Executive Sir Roy
Gardner will update shareholders on the Group's trading position in the
year-to-date and on the outlook for the remainder of the year.



Period Review



The first two months of the year were particularly challenging with the positive
financial effect of the recent retail tariff increase in British Gas not being
felt until March.  Even after our pricing announcement the wholesale cost of gas
and electricity continued to escalate.  This adversely impacted the
profitability of British Gas Residential Energy, which will be loss-making in
the first half, and the large industrial contracts.  The relatively cold winter
also placed exceptional demand on our engineers within British Gas Services and
the resulting additional costs reduced profitability in the period.



Having started 2006 with a period of customer growth in British Gas Residential
Energy, as anticipated we experienced an increase in churn following the
announcement in February of our price rise.  However, sales of energy accounts
remained strong as a result of our sales and marketing activity and recovered
within 4 weeks to pre-price rise levels.  Sales of our 2009 fixed price product
were particularly strong with around 700,000 sold, taking the total number of
fixed price accounts to around 2.5 million.  In the year to date, we have
experienced a net loss of 350,000 energy accounts.  Over recent weeks net losses
have slowed substantially.



In parallel with the increased sales activity, after a number of successful
migrations British Gas now has over 6 million customer accounts on the new
billing system and we remain confident of completing the migration by the end of
the year.  All newly acquired energy accounts are also being placed directly on
to the new system.  We have also successfully begun operations in India with the
outsourcing of certain non-customer-facing activities to our partners.



British Gas Business grew its customer base over the first few months of the
year.  Despite rising prices its strong contract renewal rate has continued,
coupled with improved electricity account sales in the SME sector.



Upstream businesses have performed well, with the high wholesale prices bringing
a year-on-year increase in profit levels in gas production.  In March we
announced progress on our upstream investment plans with the acquisition of a
further stake in the Statfjord oil and gas field.  Earlier this month we
announced that we were bringing forward and extending the maintenance period at
the South Morecambe field in order to carry out remedial work on the cooler
units.  We currently expect overall gas production volumes in 2006 to be down by
around 15% on 2005.



Centrica Storage operations at Rough suffered a major interruption caused by a
fire in February.  Our investment in new emergency shutdown systems and prompt
management action mitigated the damage to ensure no loss of life.  Following a
full assessment of the work needed to restore operations, and given our ongoing
commitment to the customers of Centrica Storage, we now predict that the direct
cash cost of the recent incident will result in an exceptional charge of around
£40 million being recognised in the Interim results.  Even after this charge,
the forecast full year results for Centrica Storage remain in line with market
expectations due to increased space availability and higher SBU prices, which
averaged 65.6p for 2006/7, up 74% on the prior year.



Internationally our North America operations performed well.  We added to our
position in Texas with the acquisition of a third power station and a small
customer block and continued to grow our Business markets operation in all
regions.  Profits in the year-to-date have been above management expectations.
In Europe we saw signs of real progress in the regulatory landscape with the
European Commission beginning to take steps against several companies over the
slow progress towards competition and, in the Netherlands, the lower house voted
in favour of separating monopoly network assets from commercial supply and
generation activities.



As anticipated, the higher retail pricing has led to a rise in absolute customer
debt levels and contributed to increased working capital requirements within the
group.  A restructuring of our upstream operations which was completed in late
2005 should result in a reduction in the group effective tax rate in the year
from the previous estimate of 58% to a current estimate of 54%.



Outlook



Looking forward, with effect from 1 July, Sam Laidlaw will take up the role as
Chief Executive following the retirement of Sir Roy Gardner.  Over the past nine
years, Sir Roy has led the transformation of Centrica into a successful energy
business, delivered considerable shareholder value and created a strong platform
for future growth. He leaves with the grateful thanks of the Board for his
considerable dedication.



Through the remainder of the year, the group will benefit financially from the
higher retail prices implemented in March, the effect of the continued strength
of wholesale energy prices on our upstream activities and a return to service of
the Rough storage platform.



Management will continue to reduce costs and increase efficiencies in the
Residential Energy business, while investing in the further development and
promotion of innovative customer offerings, designed to stabilise market share
and maximise value.   Additionally, the successful migration of all residential
customers to our new billing system will reduce ongoing costs and improve our
customer service capabilities.



These positives must be viewed against the background of record oil prices and
continued high prices in the wholesale gas and electricity markets.  There is
still considerable volatility in the forward cost curve with wholesale gas
prices in the fourth quarter currently 17% higher than at the time of the
company's last retail tariff pricing announcement.  At current retail tariff
levels and without a drop in wholesale energy prices, British Gas Residential
Energy would be loss-making in 2006.



As we said at the time of our last pricing announcement, whilst we will
endeavour to hold residential price levels during the year, we will not be
immune from these external pressures and remain committed to our policy of fully
recovering costs over time to return the business to acceptable levels of
profitability.



Summary



In summary, it has been a tough start to the year and at the operating level the
Group has to date traded below its expectations due primarily to higher than
expected commodity costs.  This is partially offset at the earnings level by
lower forecast tax charges.  Overall these factors, combined with the one-off
impacts of extending the South Morecambe maintenance period and the inability to
withdraw gas from the Rough storage field, will mean that group earnings for the
full year are forecast to be towards the lower end of market expectations.



However, operationally and strategically the group has made progress.  We have
also seen good industry progress towards bringing onstream further UK gas
infrastructure, which should apply downward pressure on gas prices over the
coming winters.  We will continue to seek ways to mitigate the impact of the
current high wholesale prices on our customers through rigorous operating cost
control and innovative product offerings.





Enquiries:





Centrica Investor Relations [phone] [e-mail]


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