Centrica to sell US business for $3.6bn as first-half profit falls
British Gas owner Centrica said it was selling its US energy business to NRG Energy $3.6bn (£2.87bn) as part of a plan to turn the company around.
The sale of Houston-based Direct Energy would allow Centrica to become a “simpler, leaner business” focused on the UK and Ireland, said chief executive Chris O’Shea, adding that the sale would strengthen the company’s balance sheet and “remove a source of earnings volatility”.
The company, which was last month dumped from the FTSE 100 index, also reported a half-year loss of £135m due to the coronavirus pandemic, low commodity prices and warm weather. On an adjusted basis, underlying profit fell by 14% to £56m.
It also took a one-off charge of £1bn, including £251m in restructuring charges and £785m on exploration & production and power assets reflecting a reduction in commodity price forecasts and nuclear plant availability issues. Centrica also pulled full year guidance.
Centrica had been trying to sell its nuclear and oil and gas businesses, but had its plans derailed as energy prices slumped during the pandemic. Shares in the company had been weak because the market expected the company would be unable to offload the assets in the near-future or be forced to accept a low price, analysts said.
Earnings before interest and other costs fell by 19% to £869m in the six months to June 30 as the company also warned of the potential for bad debts in the second half if customers delayed or deferred payments given the impending recession and implications for unemployment.
HITTING THE GAS ON RESTRUCTURE
The company last month said it was axing 5,000 job cuts and changing staff contracts in an bid hit a £2bn cost-cutting target a year early in 2021. It has also cancelled its dividend and suspended financial guidance.
More than 100,000 customers left Centrica’s home heating brands in the last six months, including 62,000 British Gas clients in the UK.
"Looking forward, as lockdowns ease in our core markets we have already seen some recovery in energy demand and more normal sales of services and solutions. We would expect these trends to continue into the second half of the year, assuming a second wave of Covid-19 does not lead to further severe lockdowns in our core markets," the company said.
Centrica acquired Direct Energy in 2000 for $912m in cash as it made its first move into the North American market. The energy supplier has 2.7m customers in the US.
Hargreaves Lansdown analyst Emilie Stevens said the North America disposal gave Centrica stock a boost especially as the price was "at least a billion more than analysts think it’s worth".
"Restructuring and reorganisation has been the story at Centrica for some time now, with agility and simplicity promised. So the sale of the US business is a significant, albeit unexpected, step in the right direction. It also takes the immediate pressure off the drawn out sale of the group’s E&P and nuclear businesses," Stevens said.
"Chops and changes aside, Centrica still has its work cut out. Customer numbers have been falling for a while, although today’s results showed the declines had tempered, growth would be better. We’d like to see the solutions businesses start making their mark too.”
AJ Bell investment manager Russ Mould said the deal "gives Centrica some breathing space with its debt pressures and potentially puts the business further ahead on the road towards restarting dividends, which is very important to shareholders”.