Centrica is to cut 6,000 jobs, slash gas exploration and sell off its wind farms in a dramatic restructuring ordered by its new boss and former BP executive, Iain Conn.
The move comes despite a doubling in profits at its British Gas residential power supply business in the first half of the year despite a further 45,000 customers being lost to rivals along the way.
Conn promised Centrica would in future be more “customer facing” in its scaled down form but his eye is clearly on finding more favour with the City after a period when the share price has suffered badly.
“Alongside a major group-wide efficiency programme, this (new strategy) will underpin long-term shareholder value, as we target operating cash flow growth of 3-5% per year and deliver a progressive dividend policy,” he said.
The Centrica chief executive said he was hopeful of creating 2,000 new jobs in the energy services side which should reduce the overall scale of redundancies to 4,000, largely in the UK and mostly before the end of 2017. This would represent around 10% of the group’s total.
The jobs cull is part of a wider move to reduce annual spending by £750m come 2020 – helped by a plan to cut in half exploration and production from 80million barrels of oil equivalents to between 40m and 50m.
The company said foreign assets in Trinidad and elsewhere are more likely to be sold off than North Sea fields although it admitted that its small but significant interest in UK onshore shale exploration is “under review.” The remaining wind farms it owns are also to be hived off.
The restructuring came after a six months review by Conn and while group adjusted operating profits for half year fell 3% at £1bn. But earnings at British Gas residential doubled to £528m.
Conn defended the British Gas results against immediate criticism from consumer groups. He said the company had cut its prices twice this year and while profit margins were high in the first half they would be all but wiped out again in the second.
But Richard Lloyd, the executive director of Which? said the rising profits at British Gas made it imperative that the company household power bills further.
“While it’s good to see the new commitment from Centrica to focus on serving customers, with British Gas profits high and wholesale prices low, customers will no doubt wonder why cuts to their bills haven’t gone further, and haven’t included electricity, “ said
“The Competition and Markets Authority has confirmed that household bills should be lower if the energy market was truly competitive. Following the CMA’s blistering assessment of this sector, we expect big suppliers to pass on falling costs to their customers quickly and fairly.”
But there was a more positive reaction from City energy analysts at Jefferies investment bank. They concluded: “Centrica’s strategic review reflects the reality of a cash constrained world. Implementation will be challenging with no guarantee of success. But Centrica’s management have at least now given shareholders a plausible business plan that offers a chance that the business can survive, and possibly flourish in the very challenging environment Centrica now operates in.”
The changes in job numbers at Centrica came on a bad day for those employed at energy companies with Shell also announcing plans to cut 6,500 staff and contractors worldwide.
The price of oil has halved over the last 12 months has forced oil and gas companies onto the defensive and spending to be slashed. Shell saw its second quarter profits slump by 35% to £3.36bn.