British Gas hit by big decline in pre-tax profits

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BRITISH GAS has announced a sharp fall in pre-tax profits to pounds 1.05bn last year from pounds 1.71bn a year earlier. The company is cutting 3,200 jobs in the UK gas supply business in addition to the 1,200 job losses among headquarters staff announced last month.

Cedric Brown, chief executive, said further job losses would depend on the outcome of an inquiry into the company being conducted by the Monopolies and Mergers Commission.

British Gas blamed warm weather, tighter regulation and increasing competition for the drop in profits. There were improvements in the exploration and production business and in overseas gas supply, which now accounted for 20 per cent of profits.

However, this failed make up for the decline in the core UK gas operations or for pounds 320m in exceptional charges to cover restructuring and environmental costs.

The operating profit of the UK gas supply business fell to pounds 1.23bn - pounds 276m less than in 1991. About pounds 140m of the fall was blamed on warm weather and a further pounds 50m on tighter price controls introduced last April.

In the industrial and commercial gas contract market, competitors, including North Sea companies, account for about 27 per cent of total sales compared with a share of 5 per cent two years ago. Under an agreement with the Office of Fair Trading, British Gas must reduce its share of this market to 40 per cent by 1995.

Despite the 'very difficult' year, the company increased its dividend by 6 per cent to 14.2p but said that future dividend policy depended on the outcome of the MMC inquiry. 'Do not let us forget that the first question they have to address is whether a monopoly in gas trading or transportation acts against the public interest,' Mr Brown said.

He launched a thinly veiled attack on the regulator, Ofgas, for making public statements concerning the MMC inquiry.

'There is a strict limit to what I can say about this (MMC) process, although not everybody has adhered to this understanding,' he said. Sir James McKinnon, director-general of Ofgas, has called openly for the MMC to recommend the break-up of British Gas.

The Gas Consumers' Council said the 1992 results were a 'dramatic change in British Gas fortunes' but the company deserved no concessions on domestic gas prices. 'In a bid to recapture revenues, British Gas has recently raised installation and service charges by as much as 13 per cent and will be looking for more opportunities to squeeze its customers,' the council said.