British energy group Centrica posts tumbling profits

28th July 2011, Comments 0 comments

British utility Centrica said Thursday that first-half net profits plunged 66 percent on the back of higher wholesale energy and non-commodity costs, and lower consumption.

The London-listed firm, which owns domestic energy supplier British Gas, was also hit after the government ramped up taxation on energy companies operating in the North Sea earlier this year.

Earnings after taxation collapsed to £468 million ($764 million, 534 million euros) in the six months to June, compared with £1.25 billion in the same part of last year, Centrica said in a results statement. Revenues slid two percent to £11.51 billion.

"Global events have resulted in a steep increase in commodity prices, with UK wholesale gas prices 30 percent higher than last winter," said Chief Executive Sam Laidlaw in the earnings release.

"In this challenging market, the resilience of our integrated business model has enabled Centrica to continue to perform well. We are focused on reducing costs and ensuring disciplined deployment of capital, to maintain our competitive position and drive long-term shareholder returns."

Adjusted operating profit, or earnings before interest and taxation, slid 19 percent to £1.26 billion. That was in line with market expectations for £1.3 billion.

Centrica added that British Gas saw adjusted operating earnings nosedive 54 percent to £270 million.

However, its upstream gas exploration and production arm -- which is boosted by higher wholesale energy prices -- posted a 14-percent jump in profits to £414 million.

The company came under fire from consumer pressure groups over the profits announcement, which came just weeks after it lifted domestic energy tariffs at British Gas.

Centrica stoked further criticism by lifting its interim shareholder dividend by 12 percent to 4.29 pence per share.

"Centrica seem to win whether wholesale costs are high or low," said Audrey Gallacher, director of energy at independent lobby group Consumer Focus.

"Retail profits margins may have been reduced by recent increases in wholesale prices -- but as they (Centrica) are also major gas and electricity wholesalers, they can still make healthy profits at the other end."

"Given Centrica profits remain strong, consumers are bound to question whether recent large price hikes were necessary."

But Centrica also revealed on Thursday that British Gas was selling energy at a loss since April. Gas usage plunged 18 percent and electricity consumption by three percent in the first half, as the unit was hit by warmer winter weather.

Earlier this month, the division said it would lift domestic gas and electricity prices by an average of 18 percent and 16 percent respectively from August 18.

The move, which will affect about nine million customers, was blamed on rocketing wholesale energy prices.

The results were meanwhile published one day after energy regulator Ofgem slapped British Gas with a hefty £2.5-million fine for failing to properly deal with customer complaints.

© 2011 AFP

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