Q:
The gas provider Centrica has seen its half-year profits fall by 20% to £992 million. Despite this it has decided to increase its dividend to shareholders to 3.9p per share. The rise in energy prices released before the announcement of Centrica's profits was designed, said the company, to restore "reasonable profitability". The chief executive, Sam Laidlaw, said, "We produced a good set of results in tough market conditions... we will continue to concentrate on improving customer service in British Gas..." This is an interesting statement given the record rise in prices to households. The announcement of profits which are not far off one billion pounds, a day after the announcement of the rise in price and the increase in dividend to shareholders, is likely to provoke angry reaction. Many will question the extent of the market power that Centrica possesses. There will also be those that will question what the phrase 'reasonable profitability' means in the context of profits of nearly one billion pounds.
Question: 1) Announcing large profits, soon after announcing price rises, is likely to provoke angry reaction.
Question: 2) Companies increase shareholder dividends when profits fall.
Question: 3) One way companies can restore profitability is to increase prices.
Answer
Answer 1) True
Answer 2) Cannot tell
Answer 3) True
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= 3 × 108/106 = 300 m