Centrica's profits stifled by mild weather

The British Gas owner's profits are up just 1%, as the warm weather leads to a fall in demand.

by Elizabeth Anderson
Last Updated: 05 Jan 2016
Centrica, the UK’s biggest gas supplier, said its British Gas arm was the reason why earnings remained relatively flat. Profits at British Gas slumped by 30% to £522m last year, as the warm weather last spring and autumn drove down heating use in homes.

Overall, Centrica reported a 1% increase in operating profits to £2.4bn. This was mainly because of growth in its oil and gas exploration business and higher profits from its North American business.  

Energy suppliers have had to fend off controversy over their prices in the last year. Centrica announced last August it was putting up the price of gas by 18% and electricity by 16%, which may help explain why the company lost 97,000 customers in 2011 (although it wasn’t the only supplier to put up prices). The spike in energy bills is also likely to have caused people to delay turning on the heating during the relatively mild winter, pushing down usage. Energy companies are now facing a new challenge – how to keep profits up when prices are so high it reduces consumption.

Concerned about the negative publicity over spiralling energy bills, British Gas announced a 5% cut in electricity prices last month. But the price of gas remains unchanged. Centrica argues that wholesale gas prices for next winter are 15% higher than in 2011, so it can’t afford to drop prices. Nevertheless, we don’t often see energy companies reducing bills when wholesale gas prices go down.

Chief executive Sam Laidlaw said it had been a tough year, ‘for Centrica and our customers’. Shares in the company have dropped by more than 10% in the past year, hovering around 296p this morning.

But not all energy companies are feeling the heat when it comes to profitability in the UK market. EDF Energy reported earlier this week that earnings at its UK business jumped 8.5% to £1.6bn in 2011 - although the news wasn’t without controversy. EDF Energy sold less gas because of the milder winter; its profits were helped by the fact that it didn’t pass on lower wholesale energy prices to its consumers. Britain’s energy regulator, Ofgem, described the six biggest energy companies in the UK as ‘greedy' and ‘lazy’ in a report last March. Some might argue that higher profits – helped by rising bills – aren’t doing much to restore their reputation.

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