British Gas reports slump in profits

Owner of British Gas, Centrica has reported a 35 percent slump in profits, prompting speculation that energy prices will remain low, with the possibility of further cuts coming this year.

The company reported that profits had fallen to £1.7 billion in 2014 due to the drop in gas and oil prices worldwide. Customers used a fifth less energy last year, the warmest on record, causing further problems for British Gas.

Iian Conn, chief executive of parent company, Centrica, said: “lower wholesale prices will persist for all of 2015 and potentially 2016 and into 2017”.

“If prices do stay low then, as we are buying ahead, the average price we have been buying ahead will also fall and if it stays low there is the possibility of further reductions we could pass through to our customers.”

He also said it was “absolutely feasible” that we would see further cuts in the price for oil and gas this year. Mr Conn announced Centrica would be cutting its dividend payments as well as writing down £1.4 billion post tax in the value of its power plants and assets in the North Sea. Centrica will also drastically reduce investment in the North Sea, by 40 percent.

Shares in the company fell eight percent, worse than analysts expected. Mr Conn said: “2014 was a very difficult year for Centrica and the recent fall in oil and gas prices creates further challenge. We are cutting investment and costs in response.” British Gas, which is still the UK’s largest energy supplier continues to lose customers to rivals offering very competitive deals. The problem has been exacerbated by reports from the Competition and Markets Authority, finding millions of hosueholds could save up to £234 a year by switching supplier.

“The market remains highly competitive, with recent reductions in standard tariffs and most suppliers also offering a range of fixed price products,” said Centrica.

The FTSE fell from a 15 year high as a result of the sharp decline in the share price of Centrica. “Centrica is another energy company that is suffering from a low oil price. Also, the fact that they’ve cut their dividend by such an amount will mean that some investors will now look elsewhere for better yields,” said Dafydd Davies, partner at Charles Hanover Investments.

The wholesale price of gas is currently down 20 percent on last year. The big six energy firms, (SSE, Scottish Power, RWE Npower, Centrica, EDF and E.on) which together account for 95% of the UK energy market, insist that the gas price only accounts for 45% of the final bill for consumers, the rest accounting for administration, network maintentance, supploy costs and profit.

Wholesale gas is bought on the futures market by energy companies to hedge their purchases in order to protect themselves from price rises. As a result, they argue that they cannot pass on savings to customers with immediate efffect to reflect the fall in oil and gas prices.
The Procurement Group

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