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September 6, 2000

Energy: What next for Centrica

The increased profits will undoubtedly fall in the short term, and Centrica's probable continued expansion into new services and the US may well see an impact in profits in the medium term also. However, as these moves come to fruition, Centrica will see excellent rewards in the long term.

By CBR Staff Writer

Centrica’s half-year profits have increased by 69%.

Centrica’s move into the bundled household goods and services market appears to be reaping significant dividends. The aggressive move into the domestic electricity market and its incorporation of the AA into its accounts for the six months to June 2000 has resulted in an increase in pre-tax profits to GBP373 million ($537 million).

However, as the company itself accepts, this growth will not be sustained in the short-term as the costs of assimilating its newly acquired Canadian energy supply business Direct Energy Marketing and its further investment in its telecommunications and financial services products will affect its profit levels.

Nevertheless, Centrica is ideally placed to grow profits as it is putting together a formidable armory of services with which it should be able to increase returns from its existing customer base, whilst adding new customers to its portfolio with its increased product range. The only thing that may impact on its mid-term profitability will be the associated costs of developing further services to its UK offerings, or another purchase of a North American supplier to provide it with critical mass across the Atlantic. Both seem likely, but given Centrica’s track record of picking well-matched product fits, these will only increase its profitability in the longer term.

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