Centrica: seven years of struggle, only to be caught by Covid | Business

Britain’s biggest energy supplier faces a “lost year” due to the coronavirus outbreak, which threatens to erode demand for gas and electricity and leave many homes and businesses unable to pay their bills.

Investors are braced for Centrica, the owner of British Gas, to lay bare the toll of the pandemic on the struggling business this week, amid tense talks with trade union representatives over plans to cut 5,000 employees from its workforce.

The interim results on Friday will mark the first time that Centrica’s new chief executive, Chris O’Shea, and chief financial officer, Johnathan Ford, have faced investors in their new roles, just months after the company revealed a record £1.1bn loss for 2019 and suspended the dividend.

Martin Young, a utilities analyst at investment bank Investec, said he would be looking for the new executive team to “put flesh on the bones” of Centrica’s restructuring plans in what he warned could be a “lost year” for the company.

The financial woes which have dogged Centrica for the past seven years – including falling customer numbers and a cap on standard energy bills – are expected to be compounded by the pandemic, which has dramatically reduced the demand for energy and could mean homes and businesses will be slower to pay their bills, if they pay them at all.

The British Gas division supplying business energy users is expected to be hardest hit in the first six months of the year, and may report a loss after companies closed workspaces for lockdown.

The home energy supply division could face tougher days in the second half of the year as the government’s furlough scheme comes to an end, potentially leaving many unable to pay their bills on time.

Mark Freshney, an equities analyst at banking group Credit Suisse, said the executive presentation could be the “most important event in five years” for Centrica.

Since the last chief executive strategy statement in 2015, by former boss Iain Conn, the company has crashed out of the FTSE 100 as its share price has plummeted from 275p a share to less than 40p.

Freshney has estimated that the company may take a £300m net hit due to the pandemic, as unpaid bills wipe out about £250m from underlying earnings this year and lower energy demand is expected to deal a further blow to the balance sheet.

The financial pain wrought by the pandemic could be partially offset by £100m of cost savings, he added, from Centrica’s plans for a radical restructuring of the business, including plans to sweep away three layers of management.

The company’s talks with unions have been marred by accusations that Centrica has tried to use the pandemic as a “smokescreen” to significantly erode the employment terms offered to its 20,000-strong workforce to help cut costs.

Last week, union representatives said Centrica was preparing to issue a “fire and rehire” notice which could force thousands of workers to accept worse contracts or lose their jobs.

A representative from the company assured employees that the notice would only be issued as “a last resort” if talks with the unions fell apart, and that no changes would be made to basic pay or pensions.

British Gas is under increasing pressure from a growing number of low-cost challenger brands which have steadily eroded its market share, while Centrica has struggled to sell off legacy assets in nuclear power and in the North Sea oilfields. In recent weeks it has unveiled plans to challenge its cut-price competitors by setting up a new digital energy brand, British Gas X, to offer discounted deals on electricity and gas. The online-only spin-off will compete directly with the challengers, which have lured millions of customers away from the company.

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