Direct Energy Reports Higher Operating Profit on Acquisitions, Customer Growth

Direct Energy today announced operating profit for the full year 2011 of $500 million, up 38 percent from the year-ago $362 million.

The increase in profit at Direct Energy was driven by operational improvements and cost efficiencies, both upstream and downstream, and the impact of recently completed acquisitions. The company said that it also experienced "strong organic growth" in customer numbers, partly as a result of 22 new market entries in the U.S. Northeast.

Direct Energy's residential energy supply customer base stood at 3.364 million accounts as of December 31, 2011, up from 2.966 million as of June 30, 2011 and 2.855 million a year ago.

The acquisitions of Gateway Energy Services, First Choice Power, and Vectren Retail added over 750,000 customer accounts in 2011, "and built on a successful strategy of acquiring smaller suppliers, increasing our market share in deregulated markets, leveraging our existing systems and removing costs."

"In the US North East, the acquisitions of Gateway in the first half of the year and Vectren Retail in December have contributed to an almost doubling of the size of our customer base, enhancing our scale in the key states of New York and Ohio, and further consolidating our top three market position in this important region. Our investment in the US North East is delivering returns well in excess of our cost of capital," parent Centrica said.

"[Direct's] Texas business performed well despite price spikes during extremely cold weather in February and the hottest August on record. After taking account of higher prices and load factors achieved in our upstream power business, profitability in Texas was not materially impacted by the weather," Centrica said.

Centrica reported that in Texas, Direct Energy is making more efficient use of sales channels, and reducing bad debt through its prepaid offering and consolidated billing platform. Centrica also said that Direct Energy has improved levels of customer satisfaction and reduced customer churn in Texas.

"Our enhanced segmentation approach has also contributed to improved returns in Texas and we are expanding this approach to our other markets," Centrica said.

U.S. growth has been partially offset by customer losses in Ontario, where Centrica said that the market structure is, "no longer conducive to competition."

For 2011, operating profit for Direct's residential energy supply business fell by 9% to £161 million (2010: £177 million), reflecting less favorable market conditions, particularly in Ontario, and the spikes in Texas power prices. These impacts were partially offset by U.S. customer growth and operational efficiencies across all core geographies.

Direct Energy's commercial and industrial energy supply business saw operating profit grow to £110 million for 2011, up from £88 million in 2010.

Volumes for the business energy supply unit increased by 17% to 46.4TWh (2010: 39.7TWh).

Centrica said that competition in the business energy supply segment is intensifying, "as competitors continue their pursuit of vertical integration and increasingly focus on the small business segment."

Direct Energy's year-over-year revenue increased from $9.3 billion in 2010 to $9.8 billion in 2011.

"We have continued to pursue an aggressive growth strategy for North America with US$600 million in acquisitions completed in the past 12 months," said Chris Weston, President and CEO of Direct Energy. "Additionally, we're continuing to build our existing base and strengthen key market positions while driving operational improvements throughout the company."