Utility Week

UTILITY WEEK | 28TH FEBRUARY - 5TH MARCH 2020 | 13 Finance & Investment growth from Centrica's remote boiler diag- nostics proposition, BoilerIQ, and its cloud storage offer. In short, the message was that the turna- round strategy was beginning to bear fruit. Yet the market remains to be convinced and the shares slumped to a 22-year low. In fact, since Conn took the reins, the share price has plummeted by almost 75 per cent – from 280p in early 2015 to 72p in February 2020. There has even been speculation that the company could find itself a takeover tar- get for a large multinational firm, such as an oil giant seeking to diversify and buy what is still perceived by many to be a good brand. Home services doldrums Meanwhile, the venture into home services and the connected home (a "£15 billion start- up" was how Conn described Centrica in 2017) has not taken off in the way the com- pany hoped. Replacing the steady profits of supplying energy with cash flow from ser- vicing boilers, selling Hive thermostats and supplying tradespeople via its Local Heroes website has resulted in heavy losses, and this has also been scaled back. It slashed the headcount in this part of the business by 40 per cent and with it, its high expectations – though sales are rising steadily. It is now expected to deliver revenues of between £150 million and £200 million by 2022, down from a target of £1 billion. Lakis Athanasiou, a utilities analyst at Agency Partners, believes the 40 per cent cut is a step towards ditching the home solu- tions business entirely. He tells Utility Week there is no silver bullet for Centrica's strategy and that it should refocus and ditch its home solutions arm altogether. "Centrica should get rid of its home solu- tions business. It provides no competitive advantage and has been a strategic error, losing them close to £100 million a year. They are up against large companies with high technical expertise such as Amazon and Google. It is not an area where Centrica has especial expertise." Some observers also question the strategy of beating rivals on price. One source says there needs to be more clarity from Centrica when it says it wishes to define itself as the cheapest supplier in the market by 2022. Specifically, they question whether all its tariffs will be the cheapest, or only its stand- ard variable tariff (SVT). "The statement doesn't mean much in a world where there are very different prices for customers," one source adds. Others say Centrica should be playing harder to the green agenda and showing greater leadership in terms of its environ- mental aims. One industry source asserts that Centrica "needs to put its flag in the ground and say 'this is what we are going to see'". "Over the next 20 years the UK will have to adapt; there will be a huge amount of fun- damental change in services and products. Centrica has a fundamental role to play in that. It needs to lead the transformation – invest money, time and effort to lead this transformation to net zero and take them- selves from the pariahs of the industry to part of the solution." The source adds that Centrica is in a position to lead the way in areas such as solar installations and electric vehicle (EV) charging. At its financial results briefing, the company did say it was preparing itself to "benefit from new market opportunities", such as EV integration. Conn said Centrica's new deal with Ford to provide EV tariffs and charge points was an example of "where we are moving to" in the future. To that end, it has upskilled around 100 of its engineers to install EV charging points in 2019. Though welcome to some, to others it is mere tinker- ing around at the edges. One thing in the company's favour is its core brand, as one source points out: "Every- body has heard of British Gas. A household name is worth hundreds of millions on the balance sheet." Cometh the hour… Some people expected a new CEO to be announced at the recent financial results. The fact it wasn't perhaps suggests the diffi- culty of filling Conn's shoes. The focus may turn now to an internal candidate, someone who is already familiar with Centrica and its board. An internal candidate would "make sense", says one insider, who adds the com- pany "does engender real loyalty". One name that has been mooted is Sarwjit Sambhi, chief executive of Centrica Consumer, who is seen as fairly cautious and unlikely to rush into change, intui- tively understanding what can and can't be changed at this stage. A former senior employee said: "I worried slightly when Iain came in and his first deci- sion – investing in the Hive platform – made real waves across the business. He overruled Ian Peters [former British Gas interim man- aging director] almost immediately. He saw the future business in tech and IoT [Internet of Things]." Furthermore, the source says, an internal candidate like Sambhi will have a "subtle understanding of what needs fixing". Sambhi has a long history with Centrica, having joined the company almost 20 years ago. He stepped up to the board in March last year. Prior to Centrica, he worked for the management and technology consult- ing company Booz Allen and Hamilton. He is said by those in the know to be forward- thinking, customer-focused and capable of making big decisions. Says one observer: "He understands the complexities of the business. He already sits on the board and it feels like he has got enough of a bal- ance between skills and experience, and he has relationships across the most senior echelons of the business." Athanasiou agrees, saying Sambhi would be a "welcome successor" and if appointed would show Centrica is not looking for a "quick fix such as gimmickry in terms of developing new businesses". A source close to the company describes Sambhi as "very smart, unassuming but con- fident, brave and bold and with the stamina to keep going". And yet there are those who believe Centrica should be hunting for a new chief executive from outside the organisation. One source tells Utility Week: "I think they need some new blood. Sarwjit has been there 20 years. He is part of the problem, not part of the solution." Another contender for the top job is Chris O'Shea, chief financial officer, who previ- ously worked in technology-led engineering and services industries. He was group chief financial officer of both Smiths Group and Vesuvius, and a non-executive director of Foseco India, an Indian-listed supplier to the foundry industry. Whoever takes the baton from Iain Conn will know they have a massive job on their hands and some very unforgiving critics watching their every step. The company has clearly outlined its intentions to become the cheapest supplier on the market by 2022 but in an era where many challenger brands have done just that before failing, there are some questioning whether this is the right road to follow. Adam John, reporter, Utility Week Strong candidate: Sarwjit Sambhi, chief executive of Centrica Consumer

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