Utility Week

12 | 28TH FEBRUARY - 5TH MARCH 2020 | UTILITY WEEK Finance & Investment E ven judged by the recent catalogue of corporate woes, Centrica's announce- ment earlier this month that it had plunged into a loss of more than £1 billion must have been hard to take for outgoing chief executive Iain Conn. The parent com- pany of Britain's biggest energy supplier, British Gas, delivered its worst financial results since 2015, reporting a pre-tax loss of £1.1 billion for last year, massively down from a £575 million profit in 2018. Adjusted operating profits generated by British Gas fell by 71 per cent to £137 million, the lowest in the supplier's history. It's not the way any departing boss wants to be remembered. But as he set out the interim results, Conn, who has been at the helm of the firm for the past five years, was nevertheless put- ting a brave face on proceedings. It had been a tough year, the introduction of the price cap and falling gas prices had dealt heavy blows – but his message was positive. "Against this backdrop, Centrica delivered growth in customer accounts, higher net pro- moter scores, significant cost efficiencies in excess of our target, and full year adjusted operating cash flow and net debt within its target ranges," he said. "As expected, perfor- mance during the second half was much improved compared to the first half, demonstrat- ing momentum as we enter 2020," he added, point- ing to increased customer sat- isfaction and efficiencies. He high- lighted inroads in cost savings pledged at the interim results in July 2019, where he set out an aim for £1 billion of annual sav- ings by 2022, on top of £1 billion already delivered. British Gas also has the inten- tion to become the cheapest supplier in the market. Conn said that in 2019, £315 million of cost efficiency savings were made, with a significant proportion of these coming from transforming its customer and field operations. The only way is up? So, has Centrica reached its lowest ebb, or is there still some way to fall? And will the person who steps into Conn's shoes when he finally departs feel that the direction of travel is the right one? Is the aim of becoming the cheapest energy supplier on the market by 2022 either achievable or advisable, given the losses that challenger brands are notching up? Or is it a business model that is doomed to extinction? All these are questions the market is ask- ing, with speculation growing as to who would want to take on such a daunting challenge. Sources say that one external candidate has already turned down the role of chief executive because of concerns about the flak they would likely attract. Conn has cer- tainly had his share. A pay rise of 44 per cent in 2018 to take his salary to £2.4 million, in what he described as a "challenging year", was always going to attract opprobrium. And when it was announced in the summer of 2019 that he would be stepping down – but not until a—er the company AGM in 2020 – he and his chair were blasted in a Times leader. "It is hard to think of a more egregious record of failure in recent British corporate history than that of Iain Conn," it thundered, perhaps harshly given the hand he was dealt when he joined from BP five years earlier and the strong head winds that have blown through the sector ever since. Also, let's not forget his big move to focus on technology was praised at the time. At the results presentation earlier this month, Conn was keen to claim that the criti- cism was misguided, and that remaining in post to see through a fightback strategy was paying dividends – albeit not literally. Conn highlighted the performance of the businesses it plans to keep, describing them as "relatively stable". And he said that achieving "cost leadership" would enable sustainable customer and margin growth. A key focus, as in previous years, will be to bring the customer cost to serve down. It stood at £109 per British Gas customer in 2019, up 6 per cent from £103 the year previ- ously, which also includes a one-off bad debt credit of £8 per customer. Though British Gas is still losing custom- ers, the latest results show the rate of loss has slowed considerably. British Gas said goodbye to 286,000 customers in 2019 com- pared with the 742,000 it haemorrhaged the year before. The company reported its overall consumer customer accounts were up 3 per cent to 722,000 on the back of bundling up products with energy and growth in cumu- lative home solutions customers, including Can Centrica rise again? Further heavy losses reported for 2019 continue to put Centrica under the spotlight. Adam John assesses its prospects for the future and looks at who might be the best person to lead it. Analysis Outgoing CEO Iain Conn: failed focus on home services CENTRICA SHARE PRICE OVER FIVE YEARS 300 250 200 150 100 50 pence per share 2016 2017 2018 2019 2020

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