An exceptionally cold winter, rising wholesale gas prices and the loss of one million residential British Gas customers dented Centrica’s figures, amounting to a 5% drop in operating profit for the year ended 31 December 2006. But the energy giant said it had made steady progress by offsetting adverse trading conditions to report an earnings increase of 8% (due in part to a lower Group tax rate) and 22% higher turnover of £16.5 billion.
A £331m charge was taken for systems write-down and restructuring following a review of existing and required future functionality undertaken by the new chief executive, Sam Laidlaw when he joined the company in July 2006.
“The business finished the year strongly as the changes we made to systems, management and processes improved both operational and service measures,” said Laidlaw.
“We carried out an initial review of the costs and processes in our business. As a result we took an exceptional non-cash charge of £196m, which reflects the write-down of our IT systems. We also took an exceptional cash charge of £87m for the initial restructure of parts of the corporate centre, British Gas Residential and British Gas Services resulting in around 1,550 job losses. Together these charges reduce ongoing costs with around £50 million saved in 2007.”
The £87m related mainly to streamlining the back-office systems of the British Gas Residential business and migration to new billing systems, the planned closure of the British Gas headquarters building at Stockley Park, a restructuring of the British Gas Services team and a further streamlining of the Group corporate structure including the outsourcing of parts of finance and HR, resulting in around 1,550 job losses.
On the occasion of Laidlaw’s arrival, chairman Andy Carr set out a strategy to cut costs through the outsourcing of selected back-office processes to India.
“The Board and management view continued losses in our residential energy business as unacceptable and it is our firm intention to restore profitability in that business through a combination of cost reductions, increased efficiency and retail pricing,” said Carr in his half-year results comments last July.