Direct Energy Names New CEO, Says Bolt-On Acquisitions Remain a Focus, in Announcing Earnings

Direct Energy announced earnings today, and named a new President and CEO.

Direct Energy formally announced that Chris Weston, current President and CEO of Direct Energy, has been appointed Managing Director of Centrica's international downstream business with authority over British Gas and all of Direct Energy except its upstream gas assets. Weston will relocate from Houston to the United Kingdom for his new position.

Current Direct Energy Upstream and Trading President, Badar Khan, will succeed Weston as President and CEO of Direct Energy effective April 1, reporting to Weston. Khan joined Direct Energy in 2003 and has served in several roles at Centrica and Direct Energy including Managing Director of British Gas Business. Khan is a veteran of the North American retail energy markets having been involved since 1999.

In an earnings presentation, Centrica said that it remains focused on "bolt on" acquisitions to grow Direct Energy.

"[T]he continued liberalisation of markets in the United States, and the undeveloped nature of energy services provision, offer an opportunity to grow our customer base, both organically and through acquisition. We will continue to evaluate both bolt-on and larger acquisitions but remain focused on returns and will only transact where we see value. We will use our UK expertise and experience to develop our protection plan offerings in North America and we will increase the level of energy and services bundling over time. Over the next 3-5 years we are targeting a doubling of profitability in the North America downstream business, through a combination of organic growth and acquisitions, with Direct Energy downstream becoming a more material part of the Group," Centrica said.

Centrica also raised the potential for investment in further North America natural gas supply production, including both conventional and unconventional assets (e.g. shale).

Direct Energy announced an operating profit of $526 million for the full year 2012, up from $500 million for 2011.

The 5% growth was driven by operational efficiencies across business segments, including the move of the company's North American headquarters to Houston.

Direct Energy said that solid growth in residential and small business customers segments due in part to the successful integrations of recently completed acquisitions in the U.S. Northeast, including Vectren Source and New York-based energy retailers Energetix and NYSEG Solutions, helped offset the planned, gradual exit of the Ontario business and an increasingly competitive commercial and industrial segment.

Chris Weston, outgoing President and CEO of Direct Energy, said: "We saw solid customer gains in the U.S. Northeast region and home energy services segment throughout 2012. Although weakened economic conditions, the operating environment in Ontario and low wholesale prices posed challenges to parts of the business, we were able to achieve organic and acquisitive growth in many of our downstream and upstream segments, and successfully implement operational efficiencies across the business. We are well positioned to continue to build our company to create scale, stability and value for our customers across North America."

Full year 2012 highlights from Direct Energy's lines of business include:

Direct Energy Residential

• Operating profit for the business was broadly flat at $249 million

• U.S. customer numbers increased to 3.5 million following organic growth and the successful integrations of Gateway Energy and Vectren Source in addition to the acquisition of an additional 245,000 residential and small business customers from New York-based energy retailers Energetix and NYSEG Solutions.

Direct Energy Business

• Operating profit for the business increased 16% to $205 million

• Operating margin increased to 4.8% reflecting the positive impact of operational efficiencies achieved in competitive market conditions.

• Sales channel optimization and headroom in key markets are driving the small business sector. The commercial and industrial segment is increasingly competitive, however we are holding market share through competitive price offerings.