British Gas profits plunge

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British Gas profits fell by a quarter in the first half of the year, owner Centrica reported today as it came under renewed pressure over household bills.

The group said operating profit for the period was 26% lower than last year at £265 million at its UK residential energy supply arm as earnings were dented by the mild weather.

It said profit margins from the business would be lower for the year, despite new figures from regulator Ofgem suggesting that suppliers were making an increasing amount of money from the typical household, up to £106 for the coming year.

Adjusted operating profit for the wider Centrica group was also hit in the first half, falling 35% to £1.03 billion.

Chief executive Sam Laidlaw said: “With challenging trading conditions on both sides of the Atlantic in the first half, earnings will be lower in 2014 than in 2013. However, the group is well positioned to return to growth in 2015.”

British Gas customers are paying higher tariffs this year after they were hiked 9.2% last autumn, though the rise was scaled back following the Government’s shake-up of so-called green levies on bills.

But Centrica said the average bill was expected to be £90, or 7%, lower this year reflecting warmer weather and energy efficiency measures.

The company reiterated that tariffs were not expected to change during 2014 “recognising competitive conditions in the UK energy supply market”.

It has come under pressure to cut bills after Ofgem pointed to falling wholesale gas and electricity prices - while it is also facing a full-scale competition probe which could see it vulnerable to a break-up.

However latest figures from the regulator suggesting rising pre-tax profit margins from household supply are disputed by industry body Energy UK.

Centrica defended its stance by pointing to the way it buys much of its energy in advance and that the benefit of lower wholesale prices for next year is offset by higher costs elsewhere.

It appeared to rebut Ofgem’s claims about profits by saying post-tax margins for this year were expected to be about 4%, lower than last year and below the 4.5%-5% band it says it needs to support investment in the business.

Meanwhile, the company said British Gas customer account numbers had stabilised over the second quarter, after a 1% decline in the first quarter. They numbered 15.1 million at the end of June.

The supplier also launched a smart meter-based “free Saturday or Sundays” energy tariff trial that has previously been trialled.

In the US, Centrica’s business saw earnings held back as it faced additional power market charges during harsh weather at the start of the year.

Chairman Rick Haythornthwaite said: “The first half of the year has seen challenging market conditions across the group, both as a result of the weather and reflecting the wider political environment.”

He paid tribute to the “exceptional leadership” of Mr Laidlaw, who is to retire at the end of this year. It was announced earlier this week that he will be replaced by BP executive Iain Conn.

Mr Laidlaw conceded during an interview on the BBC Radio 4 Today programme that there was a possibility of a tariff cut before the next year’s General Election.

He said: “I think we have a strong record of being the first company to reduce prices wherever we possibly can and, if we see the opportunity, we would do so before the election or after the election.”

Mr Laidlaw was pressed about the impact of Labour’s pledge to freeze prices but said the costs Centrica incurred would be the key factor in deciding whether or not there could be any reduction.

He said: “If we have had to buy more energy forward as a result of political events, whether international or domestic, then obviously that reduces our ability to reduce prices, not actually just a spectre of what may or may not happen in the election.”

On the company’s first-half performance, he said: “This is a business that is very affected by the weather and we had two unusual phenomena this year.

“Firstly, we had warmer weather in the UK which meant actually our average customer’s consumption of gas was down 24%.

“We also simultaneously had very cold weather in the US - the Polar Vortex - which resulted in generating companies charging us with a lot of additional sort of ancillary costs.

“The combination of those two meant that at the group level the profit was down. We see a much better picture for the second half of the year.”

British Gas serves around 11 million homes.

Separate figures from French-owned EDF - another of the so-called Big Six suppliers, serving around four million households - showed that operating profits in the UK rose 9.5% to £560 million for the first half of the year.

It said the growth was the result of higher output from its nuclear power stations, compared with a period last year when more of its generating capacity was out of service for planned maintenance.

EDF said a decline in gas sales due to milder weather was partly offset by 3.2% growth in customer accounts.

Richard Lloyd, executive director of consumer group Which?, said: “British Gas profits are down because of a warm winter, not lower prices. Ofgem reports that supplier profit margins are set to double, while energy costs continue to be the top consumer concern.

“Energy companies must do everything they can to pass on any savings to their customers including falling wholesale and network costs. That’s why we need the competition authority to establish whether the price we pay for our energy is fair.”

Shadow energy and climate change minister Jonathan Reynolds said: “Ofgem’s forecasts for the industry for the next 12 months is just the latest example of an energy market that is not working.

“Britain’s hard-pressed bill-payers have seen their energy bills rocket, despite falling wholesale costs, while David Cameron sits on his hands and repeatedly fails to stand up to the big energy companies.”

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