O’Shea must plot a new course for Centrica

After less than a month in the role on an interim basis, Centrica’s Chris O’Shea has been confirmed as the company’s new chief executive. Recently appointed chairman Scott Wheway hailed O’Shea as “comprehensively the best candidate for Centrica”. Utility Week speaks to industry sources to find out what issues the new chief will be expected to tackle during a difficult time for the sector.

Following Chris O’Shea’s appointment as Centrica’s interim chief executive last month, speculation was rife as to whether he would become the ultimate successor to Iain Conn or if he was keeping the seat warm for a FTSE veteran itching for a challenge.

Few commentators expected the answer to come so quickly but new chairman Scott Wheway has clearly seen enough to give him confidence that O’Shea has all the right qualities to take Centrica forward.

Now the succession question has been firmly put to bed, observers are keen to see how O’Shea will tackle immediate challenges and what his long-term strategic vision will be.

He knows he will be judged on his actions in responding to the coronavirus pandemic and also in attempting to salvage the company’s financial position after a turbulent period under his predecessor.

O’Shea has a strong financial background and joined Centrica as group chief financial officer in November 2018. He previously served as group chief financial officer of both Smiths Group and Vesuvius as well as holding a non-executive role at Foseco India, an Indian-listed supplier to the foundry industry, as well as a number of senior roles with Royal Dutch Shell.

Nigel Hawkins, an analyst at Hardman & Co, believes O’Shea’s experience as company finance director will have bolstered his credentials.

“If you are a finance director of a FTSE 100 company you have got some pretty good qualities, and I suspect they feel the chief executive obviously needs finance knowledge and at the same time to be reasonably strong on the operational side.”

Getting Centrica back on track was already a huge ask but coronavirus has made the task both immeasurably harder but also clouded in uncertainty. Bad debt has been cited as a key concern in the energy retail sector as millions of customers struggle to pay their bills.

One source tells Utility Week that this landscape of risk was one reason why Centrica had to act swiftly and ensure the person leading the company had a mandate for action.

“You’ve had an oil price that is incredibly weak, they’ve still got an exposure with their Spirit asset, and now they are going to have weaker cash flows relating to the domestic market and bad debt issues. Clearly they have got a difficult environment.”

In addition to the all-encompassing effects of the pandemic, there remains the issue of Centrica’s ailing financial health. Earlier this year the company announced it had made an almost £1 billion loss in the year to 31 December 2019. Furthermore, there have been concerns raised over the company’s strategy of focusing on its home solutions business rather than its energy supply business.

Former Npower boss Paul Massara tells Utility Week that he believes the new chief executive has both short and long-term issues to resolve and that there is an opportunity for Centrica to take a leading role in the UK’s decarbonisation efforts.

Massara says: “There is a short-term issue of a weak market environment which they have got to get through and then there is a medium to long-term issue which means they need a strategy and a vision going forward.”

“I think Centrica needs to redefine what role it can play in the move to the energy transition to a zero-carbon economy. I think it can play a really pivotal role but I don’t think that has been laid out clearly or has been communicated well, or that capital has necessarily followed it in the way that it needs to,” he adds.

Following consistently poor financial results and the plummeting share price, industry voices have suggested Centrica will want to refocus its core strategy on retail, an area which Hawkins believes is the company’ greatest strength.

Hawkins believes O’Shea will need to focus on three key factors as he begins his tenure including tackling coronavirus, creating stability and coming up with a clear strategy for the next five years from which it will not deviate.

He adds: “They have got millions of customers. I accept they have been messed around by price caps and I accept that there are a number of competitors but having said that, some of the larger competitors are less interested in retail than they might have been – as we have seen with SSE.

“Other retailers are much smaller and their financial stability in certain cases is suspect. One thing Centrica does have is the use of the British Gas name in the UK. That is a tremendous advantage.”