British Gas Parent Centrica To Cut 5,000 Jobs, With Heavy Impact On Management

Centrica plc, the parent of British Gas, said it plans to cut 5,000 jobs this year.

Chris O'Shea, who became Centrica’s CEO in April of this year, said the restructuring will involve the removal of three layers of management. Overall, one half of the job cuts will affect management and corporate staff, including half of the senior leadership team of 40 who will step down by August.

The expected departures will include Sarwjit Sambhi, chief executive officer of Centrica’s consumer division, and Richard Hookway, chief executive of the business unit -- both will leave by the end of July.

Centrica presently has about 27,000 employees --20,000 of them based in the U.K.

"Since becoming chief executive almost three months ago, I've focused on navigating the company through the Covid-19 crisis and identifying what needs to change in Centrica," O'Shea said. "We've learnt through the crisis that we can be agile and responsive in the most difficult conditions and put our customers at the heart of our decision making. I truly regret that these difficult decisions will have to be made and understand the impact on the colleagues who will leave us. However, the changes we are proposing to make are designed to arrest our decline, allow us to focus on our customers and create a sustainable company."

Even prior to the pandemic, Centrica was struggling due to falling gas prices and a price cap on electricity and gas bills that was imposed by former Prime Minister Theresa May.

In 2019, Centrica incurred a loss of £849 million ($1.07 billion), versus a £987 million profit ($1.25 billion) in the prior year.

Profits at British Gas plunged by 71% to £137 million ($173 million) last year, the lowest figure in its history. Customers also fled British Gas for smaller, cheaper energy suppliers.

The company’s financial problems led to serious repercussions -- in March, Centrica pushed out its former chief executive Iain Conn, paving the way for O’Shea. Centrica also reduced shareholder payouts.

In April, Centrica halted the planned sale of its North Sea oil and gas assets and withheld its final dividend payment.

Centrica also said it wants to simplify its employee terms and conditions – the company has up to 80 different types of employee contracts, with some agreements more than 35 years old.

O’Shea complained that the company’s “complex business model hinders the delivery of our strategy.”

“The harsh reality is that we have lost over half of our earnings in recent years. Now we must bring focus by modernizing and simplifying the way we do business,” he added.

Centrica’s stock price has plummeted by more than 50% year-to-date. Since the beginning of 2015 shares have dropped by 86%.

Analysts were less than impressed by the restructuring moves.

“The sharper focus is welcome, but investors are likely to want much more clarity on the new simpler customer-focused business model before passing judgment,” said John Musk, an analyst at RBC Europe Ltd. “We think there is still too much uncertainty in the investment case.”

Now the proposed job cuts have been criticized by the GMB trade union, which represents many British Gas employees.

"A combination of the [energy price] cap and too little, too late management decisions have left a once proud brand crippled and weak," said GMB National Secretary Justin Bowden. "Slashing thousands more jobs is not the answer. You cannot just cut your way out of a crisis."

Other U.K. energy companies have also been forced to retrench.

Last month, Ovo Energy, an energy supply company based in Bristol, said it will cut 2,600 jobs.

Elchin Mammadov, an analyst at Bloomberg Intelligence, warned of the energy industry that a “recovery won’t be swift amid weak commodity markets. Earnings battered by the roiling commodity markets should bottom in 2021, and the outlook may improve thereafter.”