5,000 jobs set to be axed as Centrica announces restructure

Centrica has announced plans for a dramatic restructure which will see around 5,000 jobs axed and half its senior leadership team depart.

The company proposes having fewer customer-facing business units, with all of them reporting directly to chief executive Chris O’Shea.

As a result, Sarwjit Sambhi, chief executive of Centrica Consumer and Richard Hookway, chief executive of Centrica Business, will step down from the board today (11 June) and leave the company by the end of July. Neither role will be replaced.

The British Gas owner said its restructure will lead to a more customer-focused business model, with three management layers being removed to create a “flatter, less bureaucratic organisation”.

As a result of the changes, around 20 of its current 40-strong senior leadership team will leave the group by the end of August.

Centrica says its revised operating model is expected to accelerate the delivery of targeted cost savings and lead to a reduction of around 5,000 roles across the group, with more than half of the departures expected to come from management layers.

The majority of the restructuring is expected to take place in the second half of this year, following consultation on the proposals with staff.

In addition to the proposals, Centrica will now begin consultation to simplify contract terms and conditions for its UK employees. It has more than 80 different employee contracts, each with multiple variants, with many of the agreements dating back more than three decades.

The company says it needs to modernise these to enable it to best serve the changing expectations of customers while retaining the quality of its services.

O’Shea said: “Since becoming chief executive almost three months ago, I’ve focused on navigating the company through the Covid-19 crisis and identifying what needs to change in Centrica. We’ve learnt through the crisis that we can be agile and responsive in the most difficult conditions and put our customers at the heart of our decision making.

“However, I believe that our complex business model hinders the delivery of our strategy and inhibits the relentless focus I want to give to our customers. We have great people, strong brands that are trusted by millions and leading market positions, but the harsh reality is that we have lost over half of our earnings in recent years. Now we must bring focus by modernising and simplifying the way we do business.

“I truly regret that these difficult decisions will have to be made and understand the impact on the colleagues who will leave us. However, the changes we are proposing to make are designed to arrest our decline, allow us to focus on our customers and create a sustainable company.”

Board changes

In addition to the organisational restructure, Centrica has also announced a series of changes to its board.

Johnathan Ford, joining as chief financial officer, was previously chief operating officer and chief financial officer of Homeserve and before that he was chief financial officer of NWF Group. Earlier in his career Ford worked in the energy sector for both Powergen and Transco having qualified as a chartered accountant with PwC.

Former Deloitte senior partner Carol Arrowsmith joins as a non-executive director and will also sit on the audit committee and nominations committee, and become chair of the remuneration committee, replacing Stephen Hester who will continue to be a member of the remuneration committee.

Arrowsmith is currently a non-executive director of Compass Group and Vivo Energy. She was also a global partner at Arthur Andersen and managing director at New Bridge Street Consultants.

Sambhi’s departure comes after almost 20 years with the company and a year as a board member.

O’Shea said: “Sarwjit has had a distinguished career over 19 years at Centrica, holding a number of senior leadership positions in strategy, finance, trading, power generation and exploration and production. As CEO of our Consumer businesses, Sarwjit has broadened our capabilities to enable the launch of innovative new products and services as we look to return to growth.”

On Hookway, he said: “Under Richard’s leadership we have increased our capabilities across a range of activities focused on delivering lower-carbon solutions for business customers, in particular in route to market services and distributed energy solutions.”

He added: “I’d like to thank Sarwjit and Richard both for their service to Centrica and the support they have given me personally since being appointed Group CEO, and on behalf of everyone at Centrica, to wish them well in the future.”

O’Shea added that Ford has a “proven track record” in driving growth and efficiency and has deep experience in Centrica’s core in-home servicing business as well as experience of working in regulated industries.

Scott Wheway, Centrica chairman, said: “Johnathan brings deep and relevant experience and Carol brings extensive FTSE advisory experience, especially of advising boards on executive remuneration across a range of sectors and has a deep understanding of how the energy sector operates in a commercial setting.

“I would also like to extend my thanks, on behalf of the board, to both Sarwjit and Richard for their service to Centrica and to wish them every success in the future.

“These appointments complete a significant refresh and re-sizing of the Board which will enable Centrica to focus on delivering competitively priced, high quality services and products for our customers.”

In recent years, Centrica has been beset with financial losses. In February the company blamed the price cap when it posted an almost £1 billion loss for the year to 31 December 2019.

Furthermore, its preliminary financial results showed group adjusted operating profit was down 35 per cent, from £1.3 billion to £901 million.

There was a 13 per cent decrease in earnings before interest, tax, depreciation, and amortisation (EBITDA) from £2.4 billion to £2.1 billion.

Adjusted operating cash flow of £1.8 billion was within the group’s 2019 targeted range of £1.8-£2 billion and net debt of £3.1 billion was within the targeted range of £3-£3.5 billion.

The group also revealed it was vying to become the cheapest energy supplier on the market by 2022 as numerous challenger energy brands continue to erode the dominance of the more-established players.