Price row over record profits at British Gas

Calls for price cuts as profits soar 58 per cent at Centrica's retail division

British Gas was last night defending itself against a barrage of calls for further price cuts after record profits led to charges that energy companies are "out of control".

Yesterday's annual results showing British Gas spiking 58 per cent to a record £595m, despite a 7 per cent fall in consumption, sparked outrage from consumer groups.

The revelation came just days after industry regulator Ofgem accused the so-called "big six" energy companies of earning an average 40 per cent more in profits per household over this winter, as net margins soared from £75 per customer to £105.

Government-backed watchdog Consumer Focus was yesterday calling for "immediate and significant price cuts" from both British Gas and its competitors. "Energy companies have no excuses for not cutting bills," Philip Cullum, the deputy chief executive, said. "It is clear the problems in the energy market are profound and that it requires fundamental reform."

Simon Hughes, the Liberal Democrat Energy spokesman, said: "These massive profits show that the energy companies are out of control and their regulator is out of action."

In its defence, Centrica stressed that British Gas has cut its prices three times over the past year. Its retail business cut its prices by 7 per cent earlier this month. Not only is it now the cheapest of all the UK's energy suppliers, but it has added another 141,000 residential customers in the last 12 months, taking the total to 15.7 million.

The company also emphasised yesterday that the high profits from its retail division were not the whole story. The group's power generation business also saw a major boost – rocketing up from £11m to £147m – as falling gas prices made its gas power stations more competitive against coal-fired rivals. But the same low prices sent operating profits at the company's oil and gas production business crashing by 62 per cent.

The company's North American business also saw profits down by 29 per cent to £153m, thanks to tough economic conditions and a one-off £61m charge from its residential business. Taken together, Centrica's group revenues grew by 5 per cent to £22bn but adjusted operating profits fell by 7 per cent to £1.86bn.

Chief executive Sam Laidlaw also defended his company's profit margins, which were coming in for particular flak. Over the year as a whole, margins were 7.6 per cent, not far from the 6-7 per cent target range. But in the second half, they jumped to 8.7 per cent, fuelling claims that prices should have been cut both earlier and lower.

"The reality is that a 7.6 per cent margin is not an exceptional return," Mr Laidlaw said. "This is a business with big working capital and capital requirements, where we have to produce gas in hostile environments, ship it across the world, liquefy it and transport it to customers' homes, and our margins are low compared with BT's 15 per cent or the 8.5 per cent at Marks & Spencer."

The group also has massive investment commitments as it attempts to expand its upstream business to shield itself from the price volatility in the open market, Mr Laidlaw said.

Last year the group upped its UK oil and gas reserves by 50 per cent with the purchase of Venture Production, and spent £3bn buying a 20 per cent stake in nuclear giant British Energy. It is also investing in wind energy and gas storage facilities. "At the end of the day, these profits go on ensuring that we keep the lights on," Mr Laidlaw said.

Some commentators say the issue is not British Gas, but its rivals. Joe Malinowski, the founder of the price comparison website TheEnergyShop.com, said: "It is unfair to be too critical of British Gas given its recent record of price cuts. The real question is, why are the other energy suppliers not cutting their standard energy prices?"

Alongside yesterday's results, Centrica announced it is hiring 1,100 people in its insulation business and buying gas assets in Trinidad and Tobago to take it into LNG for the first time.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...