Centrica: Reward for owners, pain for customers

  • 28 July 2011
  • From the section Business
  • comments
Tsunami waves gush into a complex near the Unit 4 reactor at the Fukushima Dai-ichi nuclear complex in Okuma
The Fukushima disaster in Japan has had knock-on effects for Centrica

The reason Centrica's British Gas business recently pushed up what it charges for gas and electricity - by 18% and 16% respectively - is clear from its results for the first half of the year.

Operating profits are down 19% to £1.3bn and statutory profits are down 64% to £468m.

But what may upset financially squeezed customers and energy campaigners is that Centrica's dividend has been increased by 12% - and the group's chief executive says that with the help of the recent price rises profits for the year as a whole should rise.

So 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.

However, we are not talking about boom times ahead for Centrica. It faces plenty of challenges - as it makes clear.

There's the higher tax recently imposed by the Chancellor on gas taken out of the North Sea.

Centrica is explicit that there will be an indeterminate delay to the building of new nuclear power plants following the Fukushima disaster in Japan.

And the group isn't overjoyed at the plans of the regulator to force energy companies to simplify and make more transparent how they charge for gas and electricity.

As for Centrica's vast number of employees, they'll note that the group says "significant management action will be required to ensure that the business remains competitive" - which is normally the sort of thing companies say prior to announcing that costs and jobs are being cut.

What will also be interesting is whether the owners of the business, the shareholders, see that statement about "significant management action" being needed as a coded warning about the prospects for future profits.

Update 09:33: On the dividend increase, which will be controversial (have a look at my @peston Twitter stream for evidence of that), Centrica says that the 12% rise is semi-automatic - because they have a policy of setting the interim on the basis of the previous year's final dividend payment.

The board of course always retains discretion to change a dividend policy, and chose not to exercise it on this occasion.

Centrica adds that it first warned that the nuclear construction programme would be delayed, when giving evidence to MPs on the Energy Select Committee in June.

It will be some months before it can say how long the delay will be and when precisely the new nuclear plants should be generating power.