Energy giant Centrica unveils £1.3 billion profits
Thursday 28 July 2011
Utility giant Centrica came under fire from consumer groups today after it unveiled £1.3 billion in half-year profits - including £270 million for its residential arm British Gas - just weeks after announcing a price hike.
Centrica said adjusted operating profits in the six months to June 30 at British Gas fell by 54% compared to the same period last year, as it battled with a 30% increase in wholesale gas prices and lower consumption.
But independent lobby group Consumer Focus said customers did not care which parts of the business were making money - they are just worried about paying the bills.
British Gas, the UK's biggest energy supplier, plans to lift gas and electricity prices by an average of 18% and 16% respectively from August 18 to counteract soaring costs.
Centrica, which posted a 19% decline in adjusted operating profits from £1.6 billion in the same period last year, said the hikes were essential if British Gas was to make a profit this year.
But its upstream gas exploration and production arm - which benefits from higher wholesale prices and includes assets in the North Sea and Trinidad and Tobago - posted a 14% increase in profits to £414 million.
Audrey Gallacher, director of energy at Consumer Focus, said Centrica "seems to win whether wholesale costs are high or low".
She said: "Retail profit margins may have been reduced by recent increases in wholesale prices - but as they are also major gas and electricity wholesalers, they can still make healthy 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.
"Given Centrica profits remain strong, consumers are bound to question whether recent large price hikes were necessary."
Some nine million customers will be hit when British Gas raises the average dual fuel bill by £190 a year to £1,219, pushing the average monthly bill to £101.58p.
The hike comes at a time when household incomes are becoming increasingly squeezed by high inflation and muted wage growth.
Richard Lloyd, executive director of Which?, said: "Many people are struggling with rising energy costs and when they see suppliers announcing these profits they're bound to question whether we're paying a fair price for our energy."
But Centrica said British Gas saw an 18% year-on-year decline in gas usage in the period, as well as a 3% drop in electricity consumption.
The FTSE 100-listed company said British Gas profits were made in the first quarter of the year - with energy being sold at a loss since April. Centrica said without the pending price rise in August, it will make a loss in the second half of the year.
Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: "It's been a tough half year for Centrica. Rising wholesale gas prices have pressured its doorstep supply business, whilst unexpected changes in UK tax legislation have hit its production business.
"Ongoing and almost constant regulatory changes continue to overhang, while the group competes in what is regarded by many as Europe's most competitive market place."
But British Gas did record an increase in customers in the period - up 159,000 to 16.1 million accounts.
Centrica said it was investing £1.3 billion this year alone in securing new sources in energy.
However, the company said it was "now clear" the UK's programme for new nuclear generating capacity will be delivered later than originally hoped. Centrica now expects clarity on the revised timetable towards the end of the year.
Nick Luff, Centrica group finance director, said: "With events in the Middle East, events in Japan, strong Asian demand pushing up commodity prices, an increase in taxes, the energy market review, the retail market review - this has been a significant period for companies in the industry."
Despite today's drop in profits at Centrica, the group said it was on track to deliver full-year earnings growth. However, full-year profit for its residential arm are still expected to be lower than last year.
Centrica said investment this year had been focused on its Lincolnshire offshore wind farm and the Ensign gas field near York.
Ofgem has said £200 billion of investment is required between now and 2020 to secure Britain's energy supply.
The company said it had taken a £204 million tax charge relating to the increase in supplementary corporation tax rate on gas and oil producing assets introduced by the Government in March.
In North America, its Direct Energy business saw a 25% increase in operating profits to £174 million and is "well placed to grow".
Centrica also increased its interim dividend by 12% to 4.29p.
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