British Gas owner Centrica's share price drops after revealing plans to cut 4,000 jobs as it focuses on "simplification"

 
Catherine Neilan
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British Gas parent Centrica said it would focus on "consumer-facing activities" (Source: Getty)
British Gas parent company Centrica's share price fell this morning as the energy giant revealed it was cutting 4,000 jobs as part of a strategic review.

The figures

Group adjusted profits were down three per cent in the first half of the year, as lower profit from upstream gas and power businesses dampened the higher profit from its consumer facing divisions.
Revenues were down two per cent to £15.5bn.
However within its British Gas business, adjusted operating profits were up 44 per cent to £656m.
The outlook for the full year is broadly unchanged, but Centrica said there were uncertainties around “continued low wholesale commodity prices and a competitive environment for our customer-facing businesses, as well as the ongoing resolution of British Gas business energy supply billing issues”.

Why it's interesting

Its strategic review, which came about as a result of “significantly changed circumstances”, has found that Centrica should focus on its customer-facing business. Other priorities will be Centrica Energy, group functions including its corporate centre and procurement and supply chain optimisation of third party costs.
This was a “focus on simplification, consolidation, automation and support function transformation”, the group said. That means 6,000 job cuts, about half of which will come through redundancies. Allowing for growth in other parts of the business, the total headcount reduction will be 4,000.
It will reduce the size of its exploration and production arm, cutting investment by £1.5bn over the next five years and lowing the group's capital intensity as a result.
Centrica will also exit its remaining wind joint ventures.
By 2017, it should be able to released between £500m and £1bn from the two arms.
On top of this it is hoping to save £750m a year by 2020 with about two-thirds of the savings expected to be delivered by the end of 2018.

What Centrica said

Chief executive Iain Conn said: “The conclusion of our strategic review provides a clear direction for the business. Centrica is an energy and services company. Our purpose is to provide energy and services to satisfy the changing needs of our customers, and as such we will focus our growth ambitions on our customer-facing activities.
“Serving our customers is what we are known for, what we are good at and where we already have distinctive positions and capabilities.Alongside a major group-wide efficiency programme, this will underpin long-term shareholder value, as we target operating cash flow growth of three to five per cent each year and deliver a progressive dividend policy.
“With Centrica delivering solid financial and operational performance in the first half of the year, and making good progress in strengthening its balance sheet and reducing net debt, the group is well placed to compete materially against the emerging long-term trends in global energy markets.”

In short

Centrica's strategic review is all about focusing on its core strengths in a competitive market. But investors are unsure if it's the right approach: Centrica's share price was down two per cent in early trading.

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