British Gas: mammoth profits to fund future investment

                                                                                         

Although unions and consumer groups have slated the large profit increase posted by British Gas, the company is by no means the only UK consumer giant to announce a huge turnover. Furthermore, analysis shows that Centrica, the parent company of British Gas, is investing more revenue back into its operations than many other UK industry leaders.
UK energy firm Centrica has announced provisional year-end results for 2007 that included a GBP571 million profit for the residential arm of British Gas. Consumer energy association Energywatch and unions have been particularly vocal in their disapproval of the large turnover, branding the profits as obscene, especially given the increase in retail prices that was recently announced by British Gas.
However, while the profit is a substantial increase from the GBP95 million reported in 2006, the volatile nature of wholesale energy prices means that British Gas reportedly made the vast majority of its yearly profit in the first six months of 2007. Companies involved in purchasing from wholesale markets are subject to a great deal of risk, and while it can be reduced by fixed-price purchase contracts, firms deserve to be rewarded for taking on such risk.
Furthermore, when compared to members of the retail banking industry, for example Barclays bank, British Gas's profit looks remarkably small. Barclays recently revealed profits of GBP1.28 billion from its UK retail banking section. Based on stated customer current and savings accounts numbers of 22.4 million, this revenue equates to a profit of GBP57 per account. Meanwhile, British Gas's profit of GBP571 million is a smaller GBP36 per account, based on its 16 million electricity and gas accounts.
In addition, despite increasing its dividend payout, Centrica also appears to be investing more of its profits into its future than Barclays does. Barclays's stated full-year dividend of GBP0.34 per share equates to a payout ratio of 49. This extra funding can be used to build new power generation facilities and energy infrastructure such as wind power and LNG terminals, which would help to service the ever increasing energy demand in the UK. Thus, while consumer groups and unions have slated British Gas for its financial performance, comparative companies in customer facing industries such as Barclays are enjoying a higher rate of profit than companies like British Gas.

About the author:
Velimir Lackovic runs internet portal "Energetika" ( http://www.energetika.co.yu )
dedicated to renewable energy sources,oil gas and energy efficiency. Velimir has
completed gratuadte studies in power systems engineering and
has industry experiance of over 20 years in this field.

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