Weather evaporates pounds 244m of BG profits

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The Independent Online
BG, the demerged pipeline arm of British Gas, warned yesterday that global warming could have serious ramifications for the health of its shareholders as its profits wilted in the unseasonably warm weather.

The company's 19 million domestic customers turned down the central heating in their droves as the thermometer went up, punching a pounds 244m hole in operating profits last year.

The impact of the warm weather was made worse by price cuts introduced on 1 October which reduced revenues at its pipeline arm Transco by a further pounds 130m. In the final quarter of the year Transco's operating profits slumped by 45 per cent to pounds 253m.

However, cost reductions in the main gas business and a pounds 170m turnaround in BG's exploration and production arm more than compensated to leave 1997 operating profits pounds 127m higher at pounds 1.148bn.

David Varney, BG's chief executive, described last year's warm weather as "a big surprise and disappointment", but added that it was a cyclical fluctuation.

The company had not abandoned its long-term view of weather patterns and said global warming could only be measured in fractions of degrees.

The new price curbs, under which BG's pipeline charges are falling by 13 per cent, will wipe pounds 400m from revenues this year. BG will also have the additional costs, currently running at pounds 200m a year, of preparing its network for full competition in the domestic gas market this year.

Disposals during the year raised pounds 811m from which BG netted a pounds 288m profit and further asset and property sales this year are set to bring the total raised to well over pounds 1bn.

Staff cuts are expected to yield a further pounds 50m in savings this year on top of the pounds 48m achieved last year. BG is reducing the 16,000 strong workforce by 2,500 and has so far identified 700 job cuts.

Mr Varney indicated BG had further scope for share buybacks following the pounds 1.3bn share repurchase completed last year. But he said the company would wait to see the Government's Green Paper on utility regulation, due out next month, before deciding whether to change its capital structure further.

BG has authority to buy back another 10 per cent of its capital which, at last night's closing price of 310p, down 13.5p, would cost it another pounds 1.3bn.