‘He always seemed a BP man at heart’ – the legacy of Centrica’s Iain Conn

This week British Gas owner Centrica announced the company’s chief executive Iain Conn would be stepping down after next year’s AGM. Conn has overseen a monumental drop in share prices, customer losses and financial woes. But with such a complex energy market, would anyone else have avoided the same fate? With insight from industry sources, Adam John looks at what sort of legacy Conn will leave behind.

Government intervention, price caps and an increasingly competitive and volatile consumer market – all have contributed to the changing fortunes of the incumbent large energy suppliers.

Throughout his tenure as Centrica’s chief executive, Iain Conn has had to contend with them all.

The result has been a falling share price, job cuts and rapidly declining customer numbers – all of which look to have contributed to Conn’s impending departure, expected after next year’s AGM.

Despite his mostly cheery tone in a media conference call on Tuesday (30 July), the company’s half-year results make for grim reading and Conn has had little to smile about.

With his rough departure date set, what then is the legacy of Iain Conn?

Conn’s background at BP set him out as a player comfortable with the big stage but industry sources who spoke to Utility Week say it is difficult to pull out many positives from his four-and-a-half-year tenure at the helm of Centrica.

As one former chief executive of another big six supplier puts it, both Conn and Centrica have not done enough to adapt to the future, namely the transition to net zero.

The ex-energy chief tells Utility Week that Conn has placed too much emphasis on services as opposed to the core business and as a result Centrica needs a “reset”.

He says: “I think Centrica has been strategically challenged and it needs now a complete reset.

“I think that should be around Centrica’s role in the transition to a net-zero economy, that has to be around investing in more offshore wind, it has to be about solar, it has to be about other forms of new renewable generation which they haven’t done that much of compared to other players.”

Furthermore, he says, newer suppliers are challenging the long-held dominance of larger players with seemingly devastating effect.

“They have got expensive overhead costs and new incumbents can come in with cheaper billing systems and better services and offerings and people are no longer willing to pay the premium of being with British Gas”, the source argues.

With the rise of medium-sized challenger suppliers flexing their competitive muscles, Centrica, as well as other large suppliers, has haemorrhaged customers in recent years.

In November 2017 the company issued a profit warning after revealing British Gas had lost no less than 823,000 energy customers since the previous June.

A raft of problems between June and the end of 2017 caused Centrica’s share price to fall by more than 15 per cent and Conn admitted that “some aspects” of the company’s delivery in the second half were disappointing.

In addition, last year 742,000 customers departed the company while Tuesday’s results revealed customer accounts were down by 178,000.

On top of customer losses, Conn has presided over thousands of job cuts as part of a drive to cut annual operating costs by £750 million between 2015 and 2020.

In 2018 he revealed the group has achieved this target three years ahead of schedule but added it will slash another 4,000 jobs, the majority of them in the UK, as it seeks to make £500 million of further cost savings over the next three years.

He said the cumulative job cuts of 9,500 by 2020 would be partially offset by the addition of roughly 2,000 new positions, around half of which have already been created over the three preceding years.

As with other major issues, fierce competition from the market, as well as the price cap, were blamed as well as the trend towards online interactions with customers.

“We are not blaming anybody, we’re not in a blame game here. But we’re a business. We’ve got to respond to the circumstances”, Conn said.

One insider mulls over the company’s strategy and says it is unquestionable that market developments meant British Gas would not be the “engine room” of the retail market forever and that things needed to change.

He says: “It was his major objective as CEO to get the share price back up. And his strategy has not delivered that.

“Iain never really appreciated the importance of the loyal customer base British Gas had, especially with the older generation.

“There is certainly a logic in being a digital brand but not if such a large part of your customer base don’t want that.

“Perhaps he should have created new sub brands for targeting new demographics.”

Another source agrees and says Conn’s strategy of entering a contested market where services are involved quickly unravelled.

“I think they wanted to be a pure play services business, the reality is if you go into services that is not an uncontested space, if you are going into digital services and smart homes, there is a bunch of people who want to play in that space that might be way better than you at being digital and using data and tech and other things that are going to contest that space”, he says.

Many national newspapers are this week focusing on the cuts to shareholder dividends which have been slashed several times during Conn’s tenure.

Share prices in the company have plummeted since 2015.

On 31 December 2014, the eve of Conn’s stewardship, they stood at 279p. On 29 July this year, one day before Conn’s departure was announced, they stood at just 90.84p – around a 67 per cent decrease.

In the latest round of results interim company dividends have been slashed by 58 per cent to 1.5p, undoubtedly adding more woe to shareholders who have invested in the company since the Thatcher-era “Tell Sid” campaign.

Dividends are expected to be rebased to 5.0p per share reflecting “changed circumstances”, including the price cap and additional pension deficit contributions and restructuring charges.

Despite mixed results and falling share prices, last year Conn received a 44 per cent pay rise.

His total pay packet for the year was £2.4 million compared to £1.7 million in 2017. His base salary increased by £4,000 to £940,000 – something which a former energy boss source says does not do Conn “any favours”.

“If I’m a shareholder, you’ve halved my money, you’ve given yourself a 44 per cent share rise and you’ve halved the dividend twice, something’s wrong”, he says.

Perhaps now more than ever the topic of executive pay stokes such strong feeling amongst industry bodies and the general public. During Tuesday’s media call Conn stressed his bonus was reinvested into the company.

“Every single pound of bonus that I have received from this company whether in shares or in cash since 2015 I have reinvested into this company.

“I do share the pain of where the share price is. I do understand there are very big differences between what some people are paid and executive pay is a very big, emotive topic and I get it completely.

“I just want to be clear though that 80 per cent of my pay is performance related and that is how it should be”, he said.

Business strategy aside, to some in his company Conn never seemed to shake off his BP past.

A source says: “He always seemed a BP man, his time at BP really moulded him and stayed with him.”

Interestingly some observed that when Centrica formed its new values, they were virtually the same as BP’s. However, the source adds, there was a robust process in place to form them which involved input from across the business.

The former employee says that while they had never heard anyone criticising Conn’s integrity, the outgoing chief executive was seen as a “remote leader”.

“He was never seen in the canteen, he didn’t seem accessible to employees”, he adds.

Despite Tuesday’s gloomy results, Centrica did insist it is focusing on becoming a “simpler, consumer-facing business” while helping both business and domestic customers transition to a low carbon future.

It announced it would sell its investment in oil and gas exploration and production as well as complete the sale of nuclear.

Furthermore, a partnership with Ford was announced to deliver a dedicated home charging installation service and EV tariffs from British Gas and Bord Gáis Energy.

Iain Conn’s legacy as Centrica’s group chief executive will be marred by losses, both of the customer and financial variety. Yet he is optimistic about the future and says the company is now becoming “in tune” with the changes to the market.

“As I haven’t left yet and I don’t intend to for some time, I don’t really want to look back and talk too much about what we’ve done except to say that I’m very proud of what Centrica’s team has achieved in turning this company from one which was relatively ill-suited to the changes taking place in the energy system to the point where we are becoming in tune with it and are going to become fit for it as a customer facing company in energy services and solutions”, he said.

The energy sector is rapidly changing and it is clear Centrica is responding to these changes, albeit relatively slowly. For Iain Conn however, the sluggish response has quite clearly come too late.