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Centrica announces job cuts after profit drop

Centrica will cut around 4,000 jobs in the next few years as the company recorded a ‘significantly reduced profit’ in its business supply division.à‚ Up to 1,000 of those jobs will be lost this year.

Management cited damaging uncertainty to the business as a result of political and regulatory intervention in the UK energy market, concerns over the loss of energy customers in the UK, and performance issues in North America.
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Adjusted group operating profits had fallen 17 per cent to à‚£1.25bn for the year ended December 2017. It said it would cut costs further by à‚£500m per year to reach a target of à‚£1.25bn by 2020. Overall, it said it expected the new “cost efficiency programme” to involve a reduction in like-for-like headcount of around 4,000 by 2020.

Iain Conn, chief executive of the British Gas owners said: “The combination of political and regulatory intervention in the UK energy market, concerns over the loss of energy customers in the UK, and the performance issue in North America have created material uncertainty around Centrica and, although we delivered on our financial targets of for the year, this resulted in a very poor shareholder experience. We regret this deeply, and I am determined to restore shareholder value and confidence.”

Centrica also announced it would look to sell its 20 per cent stake in Britain’s fleet of nuclear power stations by 2020. It added that it did not intend to pursue any major growth acquisitions over the next two years, “reflecting the uncertainty surrounding the UK energy supply market” and its desire “to maintain balance sheet strength”.

The poor performance comes after Centrica warned last November that it annual profit would miss market expectations due to poor performance at its business energy supply division, sending its shares to an 18-year low. At the same time it reported hundreds of thousands of lost customers in the UK.

Despite the disappointing results, there has been some promising news for the company in the area of distributed energy

“We continue to develop our capabilities in our DE&P business, which delivered increased revenue, customer sites, secured revenue and capacity under management in 2017. We are beginning to see real momentum.”

The company reported that its sales ramped up materially in the sector IN q4 2017, much helped by the acquisitions of Panoramic Power, ENER-G Cogen and REstore. The company is targeting ‘at least’ a 50% increase in revenue for distributed energy in the coming year.

“Since the formation of the DE&P business unit in H2 2015, we have grown our capability both organically and inorganically. The targeted acquisitions of Panoramic Power, REstore and ENER-G Cogen provide us with strong positions in each of the three strategic pillars and enable us to capitalise on the global trend towards distributed energy and to develop a range of products and services to meet the needs of customers.”

The subscription-based Panoramic Power energy insight product provides customers with real-time visibility of their energy usage plus actionable insights.

“We now have 53,000 sensors deployed across more than 1,800 sites in 30 countries and are collecting around 14bn data points per month. It has proved successful in changing the dynamic of the conversation with customers and provides opportunities to cross-sell energy optimisation and solutions services.”

Meanwhile REstore, Europe’s leading demand response aggregator, was acquired in November and provides key capabilities in energy optimisation and provides over 850 MW of flexible power capacity to grid operators.

Meanwhile in energy solutions, DE&P now has over 1,400 long-term contracted sites and active solutions, mostly CHP-based, in 13 countries, having sold both off-the-shelf and bespoke end-to-end solutions, including an expanded distributed solutions offering in North America,which will be a major focus area for growth.

In total, the number of DE&P active customer sites has increased by 22% over the past 12 months, with growth particularly strong in Q4 2017.

“We will continue to make further investment to drive this growth and therefore expect the current year operating loss to be similar to 2017,” the report said.

Meanwhile, Fiona Cincotta, a senior market analyst at www.cityindex.co.ukà‚ told Power Engineering International that, “Fears that Centrica would cut its dividend have proven to be overblown, offering investors some respite after what has nevertheless been a horror 2017.”

“Management has also attempted toà‚ provideà‚ some reassurance on the dividend going forward, supported by a new round of cost reductions and a proposed sale ofà‚ UK nuclear assets.”

“Cost cutting can only go so far, though, and it willà‚ be tougher to recharge income growth in such aà‚ competitive marketà‚ ifà‚ Centrica slicesà‚ too close to the bone. With politicians on both sides of the UK ideologicalà‚ divide urging for price caps on electricity bills by next winter, the outlook for cash flow is far from certain.”