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Date: Monday 12 May 2008

LONDON (ShareCast) - British Gas owner Centrica said, as expected, overall operating profit for the first half is will be materially lower than the same period last year, adding that for the full year wholesale gas and power prices remain “stubbornly high”.

The group said wholesale gas price for the second half is double of the same period last year, driven higher by record oil prices, demand in Asia for Liquefied Natural Resources and lack of imports from Europe.

“At current forward wholesale gas prices operating profit in the upstream gas production business will be very strong, although this will be partially offset by the additional losses in the industrial and commercial gas sales contracts. This shift in profit mix will increase the Group effective tax rate, which is currently forecast to be around 55%,” said the group.

The group said following its retail price increase in January, wholesale gas prices continued to rise, causing profit margins in British Gas to be squeezed to levels below its expectations in the first half.

Sales of energy accounts have slowed following the price rise, with British Gas ending April with 15.9m customer accounts on supply.

In Centrica Energy, the gas production business saw both production volumes and selling prices well ahead of the previous year.

“However the high wholesale gas costs have further impacted the legacy industrial and commercial gas sales contracts. Losses here are currently expected to be materially higher than previous guidance,” said the group.

Centrica said performance across the remainder of the group has been good.

“While the current outlook for gas prices does create a challenging environment for energy suppliers, we will take the necessary action to deliver reasonable margins in the retail business,” it added.

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