Gas firm warns of new price rise

British Gas group Centrica today signalled household bills may have to rise for a second time this year as it battles against rising energy costs.

Centrica, which sold its AA business for £1.75bn (€2.6bn) earlier this month, warned the rest of 2004 was likely to be “even more challenging” with margins set to be considerably lower following a 28% rise in wholesale gas prices.

The company last raised household bills by almost 6% in January but then saw its share of the residential gas market fall to 60% by the end of June – down from 63% a year earlier – with 12.3 million customers.

Chairman Roger Carr said: “Some companies in our industry have already responded with consumer price rises and it is very likely, at these levels, that more will be forced to follow.”

Despite the margin pressure, Centrica still exceeded market forecasts for half-year figures with a 10% rise in operating profits to £763m (€1.1bn). Shareholders will receive an interim dividend of 2.5p a share, an increase of 47%.

Investors can also expect a 23p a share special dividend – equivalent to around £1bn (€1.5bn) – following the agreement to sell the AA roadside business to a group of venture capitalists for £1.75bn (€2.6bn) earlier this month.

The sale, which should be completed by September, comes as Centrica looks to focus on its energy business and One.Tel telecoms operation.

In order to protect itself from the volatility in energy prices, Centrica has signalled its intention to spend £5bn (€7.5bn) on boosting its own gas production and electricity generation assets.

This is likely to include a substantial sum on investment in liquefied natural gas (LNG), which will be brought to the UK by a tanker ship from places like North Africa, the Middle East and South East Asia.

Mr Carr added: ``The UK has traditionally been a major exporter of gas but, with North Sea gas reserves diminishing, within the next few years it will need to start to importing gas through new pipelines and other means including LNG.

“We will commit significant upstream investment to secure competitive supplies of gas and electricity for our customers in all of our chosen markets.”

Today’s figures from Centrica show the January price hike helped turnover at the British Gas Residential division rise 11% to £3.7bn (€5.6bn). Operating profits lifted 37% to £274m (€412m) with further efficiencies expected next year following the announcement last month of 1,100 job cuts.

At One.Tel, Centrica said cost efficiencies and a 19% rise in turnover to £100m (€150.5m) helped operating profits grow to £6m (€9m) from last year’s break-even. Sales at the AA rose 8% to £420m (€622m) with profits up 49% at £58m (€87.3m).

Across the group, which also includes energy businesses in North America, turnover from continuing operations was up 3% at £6.3bn (€9.5bn) while bottom-line pre-tax profits rose to £582m (€875.8m) from £576m (€867m) last time.