British Gas owner raises profit forecast - after price hike

It's just put up gas prices by 7%. Now Centrica says it will make more money than expected this year. What are the chances?

by James Taylor
Last Updated: 19 Aug 2013
Centrica seems to be having a good time of it at the moment; in a statement today, the British Gas owner said its operating profit for this year was likely to be 'slightly ahead of market expectations', which are currently about £2.2bn. Good news for shareholders (though much of this extra wedge will be offset by higher interest and tax costs). But it's gone down like a lead balloon with consumer groups, who can't quite work out why this is happening just days after British Gas announced a 7% price hike. The two issues may be separate - but you have to say, the timing isn't ideal...

Centrica said that this upturn in forecast profits was due to a strong showing across the board: its number of customer accounts continues to rise, while it has installed 29% more boilers so far this year compared to last. Its business services division is apparently on track to deliver 'substantially increased year on year profit', helped by the acquisition of a division from Connaught Compliance. And its upstream business is apparently producing half as much oil and gas again in 2010 as it did last year, while it sounds as though its development projects are coming along well. A pretty rosy picture all round then.

In which case, why that controversial jump in energy bills? Centrica ascribes it to 'significantly higher' forward gas and power prices for 2011 - in other words, the cost of buying in the stuff wholesale has gone up, so it has no option but to pass this on to customers.

That might sound reasonable enough, but it isn't washing with consumer groups. One, Concumer Focus, points out that wholesale prices are around half of their peak in 2008 - and yet during that period prices came down by less than 10%. But as soon as prices start inching up again, it's a different story, they claim: 'Consumers will feel that suppliers didn’t make cuts when conditions allowed it, but are covering their profit margins as wholesale prices nudge up.'

It's not unreasonable for our gas prices to fluctuate depending on the cost of buying it wholesale - as long as it goes down as well as up. British Gas and Centrica will argue that they're doing as much as they can - and that their prices are still among the lowest around. But it's slightly awkward timing to announce a profit hike straight after a price hike.

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