Would any other chief executive have done things differently? The question has been the topic of conversations in the energy industry since Iain Conn, Centrica’s chief executive, said last week that he would step down. The boss of British Gas’s parent company will move early next year, leaving a company shaken by seismic shifts in Britain’s energy industry and facing an existential crisis. Conn garnered little sympathy after pocketing fat pay packets while Centrica’s shares plummeted and thousands lost their jobs. He remained defiant even as he cut the dividend for a second time last week, and the share price hit 22-year lows. Grudgingly, many admit that the odds were stacked against him. The UK’s biggest energy supplier has been hardest hit by the government’s decision to cap standard energy tariffs, and by the regulator’s bid to encourage more energy startups into the market to compete against the big six. “He didn’t play the perfect innings, but the field was tipped against him,” a City source said. Conn inherited the wrong kind of company, at the worst possible time. In 2015 he stepped into the shoes of former BP executive Sam Laidlaw, who had loaded the company with oil and gas fields and made only cautious inroads into burgeoning energy renewables. Conn’s tenure started as oil prices began a precipitous decline to 12-year lows and the economic case for renewable energy accelerated. “The truth is that if Sam Laidlaw had spent his time investing in wind power rather than snapping up oil and gas assets, then the company would be in a very different place,” a senior industry source said. Conn’s strategy was to shift the company away from high-cost energy projects to focus on supplying more homes with gas and electricity, and selling them more “smart” home products and services. It was widely supported by investors and analysts in the summer of 2015, but the bet has failed to pay off. The board has already agreed plans to flog its one-fifth stake in EDF Energy’s UK nuclear reactors, and sell off its oil and gas business Spirit Energy. If Centrica’s share price continues to fall, the incoming chief may face a tougher choice: to trade the most profitable parts of the business for a short-term financial reprieve. Selling energy to homes through British Gas made up about a third of Centrica’s operating profit before the government’s cap on tariffs came in. Today, that business accounts for only 15% of its profit. The same is broadly true of Centrica’s nearest rival, SSE, which is hoping to sell off its home energy business to focus on more straightforward returns from running wind farms and energy networks. The difference is that Centrica has no fallback plan; the dwindling customer numbers are still core.
Observer 3rd Aug 2019 read more »