Comment on the British Gas results…

British Gas today (25 February 2010) reported preliminary results for the year ended 31 December 2009.
 
The key operating and financial figures for British Gas Retail, the domestic energy supply business in the UK, are summarised below.

British Gas Financial Results Summary FY 2009

British Gas Financial Results Summary FY 2009


Overall, a slight growth in customer numbers was offset by a small reduction in average energy usage leaving revenues broadly flat. Given lower energy purchase costs operating profit came in substantially higher at a record £595m. It is worth noting however that at the overall group level the profit increase of £219m in the retail business was offset by an even larger fall of £356 in the profits of the upstream business.
 
The key issue on consumers’ minds, given the significant divergence between wholesale energy prices (which have plummeted) and retail energy prices (which have come down a bit) (see graph below) is whether bills should have come down more. In this respect, the key figure to track is the net operating margin. This came in at the top end of Centrica’s target range but more importantly, in the second half of 2009 came in at a very healthy 8.7%.
British Gas Retail Operating Margin 2004-2009

British Gas Retail Operating Margin 2004-2009


Wholesale Energy Prices January to December 2009

Wholesale Energy Prices January to December 2009


Wholesale Energy Gas Prices Graph 2009

Wholesale Energy Gas Prices Graph 2009

What we think:
 
The high margin earned by British Gas in its energy retail business in the second half of 2009 suggests that British Gas could have cut its prices sooner. However it is unfair to be too critical of British Gas given its recent record. Not only has it cut its retail prices more quickly, more often and more significantly than any of the other Big 6 energy suppliers, but it also offers the cheapest overall tariff in the market, to both existing as well as new customers. The real question is, why are the other energy suppliers not cutting their standard energy prices?
 
It now seems inevitable that the other energy suppliers will be forced to cut standard bills, probably by around £50 or so. But whether they do or not is not the critical issue for customers. The real issue is that if you are still on a Standard tariff then you are getting a lousy deal. All suppliers now offer discounted tariffs which undercut their standard prices by an average £216 a year. That’s an immediate saving of 20%. Customers shouldn’t be waiting for modest price cuts; they should go and get some real savings by going for a discounted tariff.

 
Standard v Best Deals (25 February 2010 – Monthly Direct Debit)

Standard vs Best Deals (25 February 2010)

Standard vs Best Deals (25 February 2010)


Latest Price Changes
Please note that this table uses bill calculations based on analysis from TheEnergyShop.com and represent the average cut for customers paying by monthly direct debit and Cash/Cheque. These numbers may vary from the headline rates provided by the energy suppliers.
Latest British Gas Energy Price Changes February 2009

Latest British Gas Energy Price Changes February 2009


Aggregate Increase 2008
Big 6 Aggregate Energy Increases 2008

Big 6 Aggregate Energy Increases 2008


Source; www.TheEnergyShop.com
The increase shown is for the average of Monthly Direct Debit and Cash/Cheque bills (excluding any prompt payment discounts) for the relevant suppliers’ Standard tariff based on an average usage profile.

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