Powergen profits fall

Powergen will see its profits hit by the falling price of electricity

Shares in gas and electricity group Powergen fell on Wednesday, as its profits were hit by the poor performance of its electricity division.

Pre-tax profits for the half-year to July fell to £300m from £322m in the same period last year.

The fall in profits can in part be attributed to the sale of some of its generating assets, the money from which will be used to help finance its $3.2bn purchase of US firm LG&E.

Profits are also expected to head lower later in the year, as falling electricity prices in the first part of the year are reflected on the company's balance sheet.

Turnover in the first half of the year increased to £2.05bn from £1.9bn.

Shares in Powergen fell 5% to 520 pence in early trade, amidst disappointment that dividend payments to shareholders were unchanged at 10.8 pence.

Profits have been squeezed in the UK by the increasingly tough stance of the regulator who wants to reduce the price of electricity to the consumer, and increasing competition from other electricity companies.

Upheaval at Powergen

The company is in a state of upheaval. It hopes to complete its purchase of Kentucky-based LG&E by the end of the year.

When this deal is completed, it - like Scottish Power and National Grid - will see an increasingly large part of its earnings coming from the US.

Powergen is in the process of selling some of its power stations to finance the US deal.

"The result of this strategic activity will be a business focused on the UK and United States, providing a lower risk, higher quality and more diversified earnings base with a reduced dependency on profits from UK generation," chairman and chief executive Ed Wallis said.

Powergen was created from the privatisation of the Central Electricity Generating Board (CEGB).

It has since grown from an electricity generator into a gas and telephone services supplier as well as a producer, distributor and retailer of electricity in the UK and abroad.