MSE News: British Gas profits up, months after hiking prices

spikyone

ashleyriot wrote: »

A profit margin is the marginal profit on each unit; it doesn't matter how many units are sold (this only affects total profit) but if the number of units sold decreases then the profit margin on each unit must increase if a company wishes to make more profit - or the same profit.

It can do this by increasing the gross price of the unit or by reducing the costs involved in the unit being sold (whilst keeping the gross price the same) - or a mixture of both.

If a company is making 11% more profit it is either increasing the cost of the unit or reducing the costs associated with the unit.

Or the company is selling more units. Which is what Nada666 was talking about. It does not say anywhere in any report that profit margin has increased by 11% - profit has increased by 11%.
Let's say you make a product that costs £100 to make. You sell it for £150, so your profit is £50. If you sell ten of those, your profit has increased to £500 (+900%), whilst your difference in profit margin has not changed.

ashleyriot wrote: »

The margin between how much the units cost and how much people paid for those units increased by 11%.

What Nada666 points out is that units sold increased by more than the profit, which if it is true means margin must have gone down for the units sold. The total profit has increased by 11%, but in isolation that doesn't tell you anything about margin.

ashleyriot

spikyone wrote: »

Or the company is selling more units. Which is what Nada666 was talking about. It does not say anywhere in any report that profit margin has increased by 11% - profit has increased by 11%.
Let's say you make a product that costs £100 to make. You sell it for £150, so your profit is £50. If you sell ten of those, your profit has increased to £500 (+900%), whilst your difference in profit margin has not changed.



What Nada666 points out is that units sold increased by more than the profit, which if it is true means margin must have gone down for the units sold. The total profit has increased by 11%, but in isolation that doesn't tell you anything about margin.

Ah, I see where I was going wrong now - many thanks for clarifying :T.

Cardew

ashleyriot wrote: »

If a company is making 11% more profit it is either increasing the cost of the unit or reducing the costs associated with the unit.

The margin between how much the units cost and how much people paid for those units increased by 11%.

Now, if I'm wrong then show me how:

Surely that principle is not correct.

Take a case I am selling wigits at £10 each and making £1 profit on each.

If I sell 100 wigits I make £100 profit.

If I then decide to cut the price to £9.50 each I am making just 50p profit i.e. my margin has reduced by 50%.

However I sell 400 wigits and my profit is now £200 so by cutting my margin I have doubled my profit.

It seems to me that Nada666 was making the same point. That they sold 12% more energy and profits increased by 11%.

Edit - post crossed!!

Nada666

There is a case for Ashley's position - but the position is far more unprogressive and anti-consumer than they may anticipate. And it is not, I think, how most would interpret the vocabulary used (at least for a consumer story or forum).

Yes, selling 22,000 units per year is not linearly profit-to-cost more than sellling 20,000 units. Most of the costs will be built into the projections at selling 20,000 units. But then, if it is colder and an extra 2,000 units are used then one hundred pecent above the purchase price is profit - there is no money to be taken off for extra customer service staff or infrastructure costs. But that means the declared profits should be HIGHER not lower than the increase in units sold.

The trouble is is that Ashley seems to be arguing that, instead of paying £6 to £18 for a monthly standing charge/tier 1 excess, we should be paying £120 as a MONTHLY standing charge and only a tenner or five for the kWhs used. That is one way to charge for the utilities. But I am not sure how popular it would be. (Of course, we are partly heading that way as most of the announced costs are going to be heavily weighted towards the new compulsory standing charges).

cepheus

The Great energy price rip off

...the disparities between the two accounts are striking. Below are six statements extracted from the press release that announced the price rise, followed by a summary of Centrica’s latest comments. 1) Even after this increase, our margins after tax in 2012 will only be 5p in the pound
The actual figure for 2012 was 6.6%, over 30% greater than British Gas said. In cash terms, operating profit was up 11% to £606m for the UK domestic energy supply business.
2) Prices in the wholesale market for gas this winter are around 13% higher than those paid to secure gas for last winter
According to Centrica, the average price of gas was 58 pence per therm in 2012, unchanged on 2011’s figure.
3) The cost of the Government’s policies, including: CERT, CESP, ECO, FIT, the Renewables Obligation and the Warm Home Discount have added around £25 to the cost of supplying the average household in 2012
The figure quoted by Centrica is actually £19, just under a quarter less than the figure used in the price announcement. The error was compounded by the failure to acknowledge that ECO (the Energy Company Obligation) didn’t actually exist at the time of the price rise.
British Gas, along with several other suppliers, used forecasts of higher future environmental costs as pre-emptive justification for its cost hikes. The government denies that the new policies coming into force in 2013 will be any more costly than the old schemes.
4) On average, the cost of delivering energy to the home has increased by around £25 in 2012
Actually, the figure was £34 a home, 35% more than British Gas said. The point is not the amount of the increase, which is relatively trivial as a fraction of the typical domestic bill, but the wish to play down the part played by necessary capital investment in forcing up prices.
British Gas exaggerated the cost of environmental and low-carbon measures while underplaying the importance of the improvements in the electricity and gas grids.
5) The company is making every effort to reduce its own operating costs, which are falling
Centrica says that the operating costs per British Gas domestic customer rose from £102 to £104 a year during 2012.
6) Despite the increase in prices announced today, assuming seasonally normal weather conditions, British Gas Residential profits in the second half of 2012 are expected to be around 15% lower than for the same period of 2011
Second half year profits from serving UK residential customers fell not by 15% but by 0.8%. The fall was from £263million to £261m.

MillicentBystander

Interesting article. Any BG supporter/employee care to have a good luck at the findings and comment here?

antrobus

Cardew wrote: »

To buy what share?

Well that would up to you.

I'm presuming it would be either BG Group plc (LSE: BG) or Centrica plc (LSE:CNA) See http://markets.ft.com/research/Markets/Tearsheets/Summary?s=BG.:LSE and http://markets.ft.com/research/Markets/Tearsheets/Summary?s=CNA:LSE

bob_bank_spanker

trumpeter8888 wrote: »

The big companies will always do well, they are not interested in Joe Public. I always compare my domestic energy prices and have found a great site to compare my business energy costs called businessenergyonline.com Any way you can save money you have to try, you can use the savings to use elsewhere- probably petrol!

Your business energy comparison site is largely irrelevant to this discussion, and I'm fairly certain that outright touting for business isn't allowed on here.

As an aside, business energy is even more of a minefield than domestic, see this for an insight (scroll down to Sun, 22 Apr 2012).

Somniac

Ludicrous to have a Foreign private company with ownership of any essential utility.
Gas, Electric, water, should all be re nationalised.

SwanJon

Somniac wrote: »

Ludicrous to have a Foreign private company with ownership of any essential utility.
Gas, Electric, water, should all be re nationalised.

Obviously that is your opinion, but it's not relvant to this thread.
British Gas (Centrica) & SSE are British companies listed on the FTSE.
The rest of the big 6 all employee thousands of people here.