Centrica Reports North America Customer Growth In Home Energy Supply Segment

Reports "Significant Improvement" In North America C&I Retail Power Margins, Lifting Segment Earnings

Centrica "Exits" North America Connected Home Business

February 13, 2020

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Centrica, the parent of Direct Energy, reported customer growth in its North America Home Energy Supply segment, as it reported preliminary results for the year 2019

As of December 31, 2019, Centrica's North America Home Energy Supply segment was serving 2.760 million customer accounts, up from 2.688 million as of June 30, 2019, and 2.545 million a year ago

Centrica said that the growth was driven in part by winning, "some energy supply aggregation auctions in the US North East."

The net growth of 72,000 customer accounts in the North America Home Energy Supply segment since June 30, 2019 compares to net growth of 143,000 customer accounts from December 31, 2018 to June 30, 2019, and the year-ago net growth of 8,000 customers from June 30, 2018 to December 31, 2018

"We also delivered an increase in sales to customers on fixed price contracts," the company said

A breakdown of Centrica's North America Home Energy Supply customer count is below:

Centrica
North America Home Energy Supply
Customers (In Thousands)

As of     12/31/18   6/30/19   12/31/19
Texas         628       643       627
Northeast   1,010     1,143     1,231
Canada        907       902       902
Total       2,545     2,688     2,760

In providing an update to investors on New York regulatory developments, Centrica said that it has about 140,000 energy supply customers in New York, which Iain Conn, Group Chief Executive for Centrica, said is a, "relatively small proportion of our North America customer base."

Adjusted operating profit for the North America Home Energy Supply segment was $188 million for the year 2019, up from $181 million a year ago.

Centrica also reported that its North America Home Services segment was serving 608,000 customer accounts as of December 31, 2019, versus 622,000 as of June 30, 2019 and 799,000 a year ago. The Home Service customer data was redefined to exclude minor contract add-ons on home warranty contracts; the 2018 data has been restated accordingly.

In the broader North America Home reporting segment (both Energy Supply and Services), Centrica said that energy digital marketing and web sales were up 30% compared to 2018 and made up 21% of total energy sales. The proportion of transactions completed online increased to 49% in 2019 compared to 45% in 2018 and call volumes dropped by 93,000 or 2%, despite growth in customer accounts.

During an earnings presentation, Centrica executives described the company's "exit" from the Connected Home business in North America

As previously reported, Centrica had in July 2019 said that it was "refocusing" its Home Solutions business to focus on the U.K. and Ireland, stating at that time that it had not achieved expectations for growth in the Home Solutions business in other geographies. However, Centrica had not, in such July interim results announcement, described the situation as an "exit" from the Connected Home business in North America

According to the U.S. website of Hive (Centrica's Connected Home brand), Hive has discontinued the direct sale of its products and related services in the United States and Canada effective December 31st, 2019. "We value our customers and plan to continue to support our products. We will notify our active customers of any changes to how we support their app and devices," Hive states on its U.S. website

North America Business (C&I) Segment

Centrica's North America Business (C&I) Segment reported higher adjusted operating profit of $121 million for 2019, up from $109 million a year ago, as the company saw a, "significant improvement in achieved power retail margins in North America."

Centrica further said, concerning the North America Business (C&I) segment, that, "Actions taken to improve margin delivery and customer quality, reduce costs and optimise capital employed have resulted in an improvement in post-tax economic returns to 9% in 2019 from 6% in 2018."

"Further actions underway are expected to result in post-tax average economic returns of 10-12%, which we are targeting to achieve in 2020, and no worse than 8% at the bottom of the cycle," Centrica said of the North America Business (C&I) segment

The North America Business (C&I) segment reported total adjusted gross margin of $557 million for 2019, up from $543 million a year ago.

The segment's power retail and wholesale adjusted gross margin was $297 million in 2019, up from $209 million a year ago. The segment's gas retail and wholesale adjusted gross margin was $260 million in 2019, versus $334 million a year ago.

The North America Business (C&I) segment was serving 475,000 customers as of December 31, 2019, versus 495,000 as of June 30, 2019 and 505,000 a year ago. The decline reflects Centrica's decision to focus sales and retention activity on, "higher value, higher consuming customers."

Electric volumes for Centrica's North America Business (C&I) segment were 80,683 GWh in 2019, versus 84,255 GWh a year ago.

Gas volumes for Centrica's North America Business (C&I) segment were 7,753 mmth in 2019, versus 7,064 mmth a year ago.

Strategy

Centrica reiterated its previously reported strategy to reposition Centrica towards the customer and become, "an international Energy Services and Solutions provider which will focus on its distinctive strengths of energy supply and its optimisation, and services and solutions centred around energy, with a major emphasis on helping our customers transition to a lower carbon future."

"In addition to pursuing the planned divestments of Spirit Energy and Nuclear, our focus in 2020 is on continuing to grow customer relationships, delivering further efficiencies, continuing to build on our customer-facing capabilities and maintaining financial discipline," Centrica said

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