Centrica profit falls nearly 20% as it expands cost-cutting drive to save extra £500m a year
Centrica, the owner of British Gas, will shed a further 4,000 jobs by 2020 as part of a cost-cutting programme, which it blamed on the government’s energy price cap and fierce competition in the market.
Britain’s largest energy company reported on Thursday a fall of 17% in operating profit to £1.25bn in 2017, owing to poor performance in its business energy supply and North America divisions.
Iain Conn, the Centrica chief executive, said: “The only thing I regret is we are going to see 4,000 more colleagues leaving Centrica and it’s partly due to this price cap and competitive pressures.”
The majority of the 4,000 jobs lost will be in the UK, where 30,000 of its 35,000-person global workforce are based.
The first thousand will go this year through natural attrition and compulsory redundancies.
The new cuts of 4,000 staff are on top of an existing plan to reduce headcount by 5,500 by 2020, which will be partly offset by the creation of 2,000 jobs, so total losses are set to be 7,500.
Conn refused to rule out additional job losses under the cost-cutting plan, which has deepened from £750m to £1.25bn a year.
Matt Lay, the national energy officer at the union Unison, said: “Although Centrica has already shed thousands of jobs, it’s nowhere near out of the woods, and there’s much more misery to come.
“British Gas staff shouldn’t be feeling the heat today. It should be Iain Conn.”
GMB, the union for gas workers, said the job cuts were an inevitable part of a “failing plan” implemented by Conn. National officer Stuart Fegan said: “Iain Conn must immediately learn from the failure of other, now departed, battlefield generals that you cannot cut your way out of a crisis – GMB will fight these unnecessary job cuts.”
British Gas lost about 750,000 customers, 10% of its total, over the year. However, Conn argued that the company was resilient and more than half of the accounts were loss-making, so the impact was limited. British Gas made a profit margin per customer of 5.5%, or £59 out of a typical £1,101 dual fuel bill.
The government’s price cap is expected by the end of the year and will limit the bills of millions of British Gas customers on standard variable tariffs. Conn admitted this would dent profit margins.
The company also faces a new rival in the form of a merged npower and SSE, as well as new entrants with financial muscle such as Shell, which bought First Utility last year.
Despite these threats, Conn said he was confident things would get better, citing the company’s strategy, cashflow and balance sheet. “I don’t agree the worst is yet to come, I believe the best is yet to come,” he said.
The company had warned last November of a weak performance in the second half of 2017, which was laid bare in the results announced on Thursday.
Operating profit at the unit that supplies energy to businesses was down 67% to £161m. Its consumer energy supply arm dropped 1% to £890m, despite a price cap on 4 million vulnerable households and warmer weather.
Conn said he was considering management changes at Centrica’s North American division.
He said he deeply regretted the overall impact on shareholders, who saw the share price fall more than 40% last year.
The company also announced that by 2020, it would sell its 20% stake in EDF Energy Nuclear Generation, which owns Britain’s existing eight nuclear power stations. “We are not a natural owner and it’s a minority stake with limited control,” said Conn, adding that buyers might include infrastructure funds.
The company’s share price rose 4.46% to 138.10p, which was seen as a result of Centrica pledging to keep shareholder dividends steady.
Analysts at Hargreaves Lansdown said cost-cutting would help, but overall, political pressure and rising competition meant the company faced “more headwinds than tailwinds”.