Centrica has revealed its British Gas arm made bumper profits in 2023 thanks to recovering around £500 million via the price cap.
The group has published its preliminary results for the year in which it posted a total adjusted operating profit of almost £2.8 billion, down 20% from £3.3 billion in 2022.
Its retail arm British Gas saw a more than 940% increase in profits to £751 million compared to the £72 million it made in 2022.
The company explained that it had “ramped up investment” in its operations and customer service which resulted in improved performance metrics.
Total retail adjusted operating profit increased to £799 million (2022: £94 million). This was largely thanks to the recovery of the funds from the price cap.
As wholesale energy costs saw huge increases from 2021 onwards, suppliers’ SVTs were cheaper than nearly all fixed price tariffs, resulting in more customers moving onto SVTs than forecast.
This resulted in suppliers having to purchase a portion of their electricity and gas at levels above the cap. Allowances to recover this cost were introduced into the price cap from April 2022, with recovery continuing into H1 2023.
Speaking on Thursday (15 February), the group’s chief executive Chris O’Shea defended the company’s profits.
He said: “I’ve said this before and I want to take this opportunity to say it again, to be sustainable you must make a profit. This is super important because every consumer in the UK is paying £88 for the failure of other energy suppliers in the last few years.
“If more companies fail, these costs go on to customer bills. Now our balanced portfolio is designed to make us a strong, resilient company and we believe that’s how all suppliers should be.”
Through British Gas Energy, the company supplies more than 7.5 million customers, a figure which is broadly in line with 2022. The number of small business customers meanwhile increased by 15% to 552,000.
The company said in its results: “In line with our strategy we have invested further in customer service, including the hiring of 700 additional contact centre colleagues. Reflecting this, we saw lower complaints and a higher NPS, and improving these metrics further will remain a focus.
“The NPS is higher for customers who are on our new platform, and we continue to make good progress on customer migration. A further 2 million customers were migrated in the second half of 2023, taking the total to over 5 million and we aim for our customers’ migration to the new platform to be substantially complete by 2025.
“Reflecting our investment in customer service and migration, our annualised cost per residential energy customer (excluding bad debt) increased by £8, including a £4 increase from dual running IT costs. When combined, the impact from incremental investment in service and from total dual running IT costs was around £100 million in 2023.”
British Gas’ positive performance was however partially offset by a number of other factors which it said was predominantly related to a weak economy and the cost of living crisis.
Bad debt increased by 82% to £541 million, including impacts from pausing field debt collection activity, with an increase in both residential (up £158 million) and small business (up £86 million).
Meanwhile customer consumption was down as bills remain elevated compared to historic levels alongside the reduction of wider government support.
“In addition, 2023 profit was impacted by the increase in cost per customer reflecting our investment in customer service and system migration, and our voluntary commitment of a further £84 million to support customers struggling to pay their bills,” it added.
Elsewhere, Centrica is considering investing in the construction of the Sizewell C nuclear plant in Suffolk.
“It’s no secret that the government and EDF are looking to put together a consortium to construct a new nuclear power station at Sizewell,” O’Shea said.
“We are involved in that process, and we could be interested in investing in that. But the risk and reward return has to be right. I’m pretty limited as to what I can say but that is a possible future investment for Centrica, but it has to be on the right terms.”
O’Shea added: “We’ve done a lot we can be proud of in 2023: we’ve paid over £1 billion in tax; we’ve created over 1,000 new UK based jobs as we continue to invest in customer service; and we’ve improved security of supply through doubling the capacity of the Rough gas storage facility, through extending the life of the Morecambe Bay gas field into the 2030s, and through investing to extend the life of our nuclear power stations.
“All of this has been made possible by the strong financial and operational performance across our balanced portfolio of businesses in 2023 as we deliver the strategy we set out in July. We are pleased to report that this strong underlying operational performance has continued into early 2024.
“As you would expect, sharply lower commodity prices and reduced volatility will naturally lower earnings in comparison to 2023 as we return to a more normalised environment. Our performance over the past year has reinforced our confidence in delivering against our medium-term sustainable profit ambitions and continuing to create value for shareholders.”