Centrica, the major UK utility and the biggest supplier of energy to British homes, on June 11 said it would cut 5,000 jobs as part of a cost-cutting effort. CEO Chris O’Shea, who took over the company three months ago, said he also wants to simplify the utility’s business model.
The company Thursday said the changes would fast-track cost savings as part of its plan to cut $2.54 billion from the business by 2022. Centrica is the parent of British Gas, and the company in a February financial report said it lost £849m ($1.07 billion) in 2019. It blamed the loss on the UK’s cap on energy prices, and falling prices for natural gas. The government price cap weighed on the company’s profits, and many of the utility’s customers have left to find smaller and cheaper suppliers.
O’Shea in announcing the cuts said the coronavirus pandemic had shown the company could be “agile and responsive” at a time of crisis. The CEO, the company’s former chief financial officer who took over from Iain Conn in March, said most of the job cuts would occur in the UK, with about 2,500 of the positions eliminated from the ranks of senior leadership, management, and corporate staff. The company said half of the senior leadership team of 40 people will leave the company by the end of August.
“Since becoming chief executive almost three months ago, I’ve focused on navigating the company through the COVID-19 crisis and identifying what needs to change in Centrica,” O’Shea said. “We’ve learned through the crisis that we can be agile and responsive in the most difficult conditions and put our customers at the heart of our decision making.”
O’Shea added: “I truly regret that these difficult decisions will have to be made and understand the impact on the colleagues who will leave us. However, the changes we are proposing to make are designed to arrest our decline, allow us to focus on our customers and create a sustainable company.”
Stock Price Down 86%
The company has about 27,000 workers, with about 20,000 based in the UK. The company prior to the pandemic had explored the sale of its upstream gas business, but has put that move on hold. The utility’s stock price has dropped 86% since the beginning of 2015; it was demoted from the FTSE-100 UK benchmark stock index earlier this month after 33 years.
GMB, the trade union representing Centrica workers, said it would challenge the job cuts. Justin Bowden, a GMB spokesman, told BBC News the union would “fight for every job.”
Said Bowden: “A combination of the [energy price] cap and too little, too late management decisions have left a once proud brand crippled and weak. Slashing thousands more jobs is not the answer. You cannot just cut your way out of a crisis.”
Centrica’s action Thursday comes on the heels of Ovo Energy’s announcement last month that it would cut 2,600 jobs. Ovo became the UK’s second-biggest domestic electricity and gas supplier after buying SSE’s retail division earlier this year.
Top Executives Leaving
“I believe that our complex business model hinders the delivery of our strategy,” O’Shea said in his statement Thursday, adding that it “inhibits the relentless focus I want to give to our customers. We have great people, strong brands that are trusted by millions and leading market positions, but the harsh reality is that we have lost over half of our earnings in recent years. Now we must bring focus by modernizing and simplifying the way we do business.”
Two of the company’s top executives leaving include Richard Hookway, who leads the utility’s Business unit, and Sarwjit Sambhi, CEO of the Consumer division. The company said Hookway and Sambhi will leave their positions by the end of July, and will not be replaced on the utility’s board.
The company Thursday also said it will start a consultation to simplify the working terms and conditions for its remaining UK workforce. Centrica currently has more than 80 different employee contracts.
Some analysts on Thursday said they expect Centrica will eventually sell off its operations in North America. The company in 2018 launched Centrica Business Solutions in North America, a division “established to help customers harness the power of distributed energy across three key strategy areas—energy insight; energy optimization; and energy solutions, including combined heat and power (CHP), solar, battery storage and standby generators.”
Centrica also is the parent of Houston, Texas-based Direct Energy, which the company acquired in 2000. Direct Energy is a residential, and commercial and industrial retail electricity and natural gas provider, operating across the U.S. and Canada.