British Gas brushes away calls for lower margins as it posts £516m profit

BRITAIN’S biggest household energy supplier British Gas has defended its profit levels as “perfectly normal” after making £516m in the first half of 2016, despite losing almost 400,000 customer accounts.

Iain Conn, chief executive of parent company Centrica, said British Gas expected to make a similar profit margin this year to previous years, in which it made about 6pc or 7pc pre-tax, and he dismissed the Competition and Markets Authority’s verdict that a margin of just 1.25pc was appropriate.

“Although people will have opinions about unit margins, there’s no point in picking a number unless you’re going to price regulate, which they have clearly decided they are not going to do,” Mr Conn said.

“I believe in customer-facing businesses it’s very common to end up with 10pc pre-tax margins. Most retailers make a 20pc margin on sales. I think it’s perfectly normal.”

Roger Witcomb, chairman of CMA’s energy inquiry, has said margin levels should drop if competition improves as a result of its reforms to the market.

But Mr Conn said he believed British Gas would be able to “retain some pretty decent margins and returns”.

Profits in the British Gas residential division fell only 7pc in the first half of the year – despite the customer losses, a 5.1pc gas price cut and lower energy usage – and are still at historically high levels.

The company said it had lost a further 175,000 accounts since April, on top of 224,000 in the first three months of the year, but that it started gaining customers again in June after launching a new cheaper fixed-price deal.

Mr Conn played down the account losses, saying it was “not obsessed by customer numbers”.

Parent company Centrica’s adjusted operating profits fell by 12pc to £853m in the first six months of the year, dragged down by a halving of profits in its North American energy supply business as customers used less energy in one of the warmest winters on record.

Profits in its exploration and produc- tion and power generation businesses also fell.

Despite this the results beat analysts’ expectations, sending shares up more than 2pc in morning trading.

Centrica said the immediate impact on the business of Britain’s vote to leave the EU would be “limited” although “like everybody” it had seen an increase in its pension deficit.

“The result creates general uncertainty which adds to challenges for UK businesses in all sectors, with implementation plans as yet unclear,” it said.

Mr Conn highlighted uncertainty over the future regulatory regime, saying: “It’s a little bit like a bomb disposal exercise really, in terms of cutting all the wires that join the UK and Europe – which ones do you cut, which ones do you want to keep? And how do you go about stepping along that path?”

Mr Conn added: “The first half of the year has been demanding for Centrica, but the response has been strong and I am encouraged by the progress we have made.”

Centrica’s shares closed down ½p at 241½p yesterday.