Centrica blames fuel efficiency for profit slide at British Gas

Centrica blamed warm weather, rising wholesale prices, bigger taxes and its customers' increasing energy efficiency as its British Gas subsidiary reported a 54 per cent dive in first-half profits.

The group said its 9 million residential customers used 18 per cent less gas and 3 per cent less electricity in the first half, as unseasonably warm April weather combined with a growing trend among its customers to become greener and more cost-conscious.

The group as a whole recorded a 19 per cent decline in pre-tax profits to £1.2bn, as a 9 per cent increase in operating profits at Centrica's "upstream" gas and oil production and exploration business – helped by rising wholesale prices – partially offset weak British Gas revenues.

Centrica's unit supplying energy to businesses saw a 7 per cent decline in operating profit to £137m, while its British Gas division recorded an operating profit of £270m.

Nick Luff, Centrica's group finance director, pointed yesterday to the slide in profits at British Gas as he defended its decision to raise gas and electricity bills by 16 per cent and 18 per cent, respectively, from next month.

The energy price rise was announced in response to a 30 per cent increase in wholesale gas prices this year.

Mr Luff said: "Without the price rise British Gas would make a loss in the second half of the year. We had a profit margin of plus 7 per cent in the first half as wholesale prices rose, which would have turned into minus 11 per cent in the second half if we [hadn't increased] our prices."

Mr Luff added: "With events in the Middle East, events in Japan, strong Asian demand pushing up commodity prices and an increase in taxes, the energy market review and the retail market review, this has been a significant period for companies in the industry."

The company said it would take a £204m charge for the period as a result of the Government's recent decision to increase taxes on oil and gas production in the North Sea

Audrey Gallacher, the director of energy at independent lobby group Consumer Focus, said: "Retail profit margins may have been reduced by recent increases in wholesale prices, but they are also major gas and electricity wholesalers: they can still make profits at the other end. Consumers will be more worried by their increasing bills than which part of an energy company makes the most money."

Ofgem, the energy regulator, is reviewing whether the dominance of the so-called big six energy providers, including British Gas, distorts the market and allows for profiteering.

Mr Luff denied this was the case, pointing out that there have been "15 different reviews in the last 10 years and none have concluded Britain was anything other than a competitive market".

Centrica increased its dividend by 12 per cent to 4.29p a share. The group's shares fell by 7.3p, or 2 per cent, to close at 313p.

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