The heat is on, Mr Conn!
After shares plunge 15% in a DAY, pressure grows on British Gas chief...
CENTRICA chief executive Iain Conn is facing mounting pressure to deliver progress on his strategy after the collapse in the British Gas owner’s share price last week.
City sources said Conn must soon provide detailed evidence that the company has a credible plan to stem an exodus of customers.
Investors also want assurance that he can reap more profits from the Connected Home business, which includes switching heating or other appliances on and off remotely or through voice activated systems.
The shares dropped 15 per cent on Thursday, taking the fall since January to 41 per cent. The company is now worth less than at the time of its privatisation in the 1980s.
One City stockbroker said: ‘We need to see some confirmation of progress by February with far more detail than it has provided so far. That’s going to be critical.
‘Shareholders and the investment community will be scrutinising the strategy more carefully after this week and will expect to see more clarity on numbers. Given the share price performance and a massive downgrade of earnings there is now pressure.’
More than 820,000 customers – or 6 per cent – defected from Centrica in just four months. The company said customers signing up to ‘collective-bargaining’ energy supply deals, where large numbers band together and haggle prices down to rock bottom, were partly responsible for the exodus.
Centrica, which owns British Gas, the biggest of the six major energy companies and trading as Scottish Gas north of the Border, now has 13.1million customers in the UK.
In a damning report following the profit warning, Deutsche Bank analyst Martin Brough said last week’s revelation ‘raises existential questions’. The report said that investors – around 600,000 of whom are small shareholders – should brace themselves for a slashed dividend payout in 2019. That would follow the cut in 2015 that Conn made soon after his arrival.
Brough said that the declining share price might even make the firm a ‘bid target’ even though many suitors will be put off by the turbulent political environment.
Last month, the Prime Minister pledged to introduce legislation that would end ‘rip-off energy prices once and for all’ during a speech at the Conservative Party conference. It follows moves to cap bills for vulnerable customers.
Deutsche Bank pointed out that Centrica’s current woes come even before the UK residential price cap has been imposed. It said it was concerned because technology is making it easier and cheaper for new companies to enter the energy market and challenge British Gas and the other large companies.
It added that the new entrants are ‘disruptive’ and ‘unstoppable’ and that Centrica’s attempts to win over customers with its high-tech Connected Home gadgets will not do well enough to compensate.
Centrica is using its Hive Home technology to promote high tech control systems that allow customers to turn on their heating before they get home, and alert them if their boiler breaks down or if a window is left open. It can also use Amazon Echo voice activation to switch heating on and off. Conn, who was at BP for 29 years before he joined Centrica in 2015, was paid £4.2million last year, a big increase on his £3million in the previous year.
He has tried to defend the industry’s use of standard variable tariffs – traditional deals where customers’ bills go up and down, ostensibly in line with the price of energy on wholesale markets.
However, these are among the most expensive for customers and rate rises tend to happen faster than falls. Yet two-thirds of households are still on these arrangements, often because they are automatically put on them when their initial deal expires. Such tariffs, offered by all of the Big Six energy firms, including Centrica, EDF, nPower, E.On, Scottish Power and SSE, often charge in excess of £200 more a year than the cheapest deals available.
Conn said earlier this year that many customers chose to be on them and they offered ‘decent value’. But he will need to work hard to counter the consumer squeeze expected over the next 12 months.
Increasingly cash-strapped customers are expected to hunt around for lower-priced deals as they battle to counter low wage rises and higher inflation.
Analysts told The Mail on Sunday they did not expect the price cap to come into effect until April 2019 once Ofgem had completed its investigation and informed energy firms.
Centrica’s shareholder register still includes hundreds of thousands of small, retail investors – members of the public, many of whom bought shares in the 1980s.
The company was sold from public ownership under Margaret Thatcher’s sweeping privatisation plans and began trading as British Gas Plc in 1986. The sale was made famous by the ‘Tell Sid’ marketing campaign. The value of the company at the time was £9billion — but it has since been separated from gas producer BG Group.
The shares closed last night at 139p, valuing the company at £7.8 billion.
More than 820,000 customers defected from Centrica in just four months