Comment: Centrica profit rise seems chilling

Martin Flanagan. Picture: Contributed
Martin Flanagan. Picture: Contributed
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SCOTTISH Gas owner Centrica may be weary at the knee-jerk nature of the phenomenon, but its hints of possible further price rises for customers already under the cosh is bound to spark more anger.

This can only be aggravated in the public’s eyes by the group also revealing yesterday that profits from its residential arm rose 3 per cent in the first half of this year due to the freezing weather, the coldest spring in half a century.

The stock, and not entirely unreasonable answer, is that Centrica has to cover its investment costs across a range of businesses, including a flourishing North American arm that helps with Britain’s long-term energy ­security.

But, even so, the argument, for both emotional and financial reasons, is likely to be given short shrift by angry consumers. They simply see Centrica and its rivals’ profits going up inexorably while their prices are heading remorselessly in the same direction.

British/Scottish Gas’ first-half residential energy earnings came in at a tidy £356 million, the day after profits at French rival EDF rose to a record £900m-plus. Centrica’s revenues from household supply of gas were up 16 per cent on the same period of 2012.

The very cold spring weather led to average residential consumption rising 13 per cent for gas and 1 per cent for electricity.

As profits have jumped 9 per cent at British Gas’s parent company to almost £1.6 billion it would be strange now if the company did not come under severe pressure from politicians, unions and consumer groups to put a lid on tariffs in austerity Britain.

Centrica’s arguments about the need for investment and achieving greater energy security are relevant, as are its increasing costs for going green, but those arguments often seem to suffer from being intellectual and commercial in the face of the strong emotion from its critics.

It is these green costs, including making customers’ homes more energy-efficient, which Centrica is saying must eventually feed through to increased utility bills.

The company is promising little more than to say it will delay the bad day for as long as possible. Giving some credibility to the group’s arguments is that profit margins in its residential business are falling – from 7.2 per cent to 6.5 per cent, and that it was only the weather this time round that led to the profits increase.

If margins were going up at this time, all hell really would break loose. However, one still feels that union calls yesterday for energy giants to give a commitment to cut prices to customers for this coming winter are unlikely to be met.

It seems a row without any prospect of resolution, one that will be regurgitated every time results reporting time comes around.

Rise of middle class can only cheer Diageo

THE story remains much the same at Diageo, the world’s biggest spirits company.

As has been the case for several years now, the group has more than compensated in its latest trading year to June for flat UK and mainland European markets with solid performances in the US – responsible for about 40 per cent of its profits – and emerging markets such as Africa, Asia, Latin America and Russia.

There is every reason why this trend should continue, as spirits consumption follows the way of the world economy. Emerging markets full of burgeoning middle-classes with aspirational leisure habits should provide plenty of growth opportunities.