Rising costs hit Centrica profits

28 July 2011 Last updated at 12:25 GMT British Gas says it has been selling at a loss British Gas owner Centrica has reported operating profits of £1.3bn in the six months to 30 June, down 19% on the same period last year.

The results include a 54% fall in operating profits at its residential energy division, British Gas, to £270m.

British Gas says higher wholesale gas prices and lower energy use are responsible for the fall in profits.

The news comes as the firm prepares to raise gas prices by 18% and electricity prices by 16% in August.

Higher bills

The planned bill increases will push up the average bill for around nine million customers by £190 a year.

It comes as the group announces a 12% increase in its dividend to shareholders.

Richard Lloyd from consumer group Which? warned that customers would be angry.

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Pain for customers is a reward for shareholders. Now these are not two distinct groups: millions of people hold British Gas shares indirectly through their pension schemes. But, if asked, many of those saving for a pension would probably sacrifice the dividend for lower energy prices.”

End Quote Robert Peston Business editor, BBC News "These profits come at a terrible time for people who are being clobbered by these 18% rises in gas bills and 16% rises in electricity bills," he said.

British Gas says it has been selling gas at a loss since April due to the rising cost of gas on the wholesale markets.

"UK wholesale gas prices have risen by around 30%, reflecting unrest in the Middle East and North Africa and increased global demand for gas, in part due to closures of nuclear plants in Japan," the company said.

The company said that without the August price rises, it would have made a loss in the second half of the year, "wiping out" the £270m profit its residential business made in the first six months of the year.

Overseas investment

Centrica says it expects to invest £1.3bn to secure new sources of energy this year - much of this investment will be outside the UK.

The company has confirmed it will scale back its future investment in UK gas production partly due to new taxes on oil and gas production in the North Sea.

The new taxes cost the company £204m in the six months to June 30 according to its results. It has already mothballed some North Sea production.

Profits from its own operations, which include production in the North Sea and Trinidad, increased by 14% to £414m.

Some analysts have suggested the tax rise still allows Centrica to make a profit in the North Sea.

"Whilst none of these companies will like a tax rise at the same time it is still enormously profitable to invest in the North Sea and I think some of these companies may be overplaying how unattractive the tax rise makes it," said David Hunter, an energy analyst at M&C Energy.

Centrica also said it plans to slow down its investment in new nuclear power stations in the UK.

"Investors are putting pressure on them specifically around the nuclear project where they are a junior partner, some are saying they shouldn't touch it with a barge pole," said Mr Hunter.

Warm weather

In its core business of home gas supply British Gas lost customers and market share compared with the same period last year.

Customer accounts for gas were down 0.7% from last year and market share down 0.5%, though it picked up customers for electricity supply.

That helped overall customer numbers at British Gas, which trades as Scottish Gas in Scotland, to rise - up 159,000 to 16.1 million accounts.

Warmer weather also saw a big fall in residential gas use, down 18% on the previous year, and a 3% drop in electricity consumption, further hurting profits.

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