(Alliance News) - Energy supplier Centrica PLC on Friday said is to sell its North American business Direct Energy for USD3.63 billion in cash, as part of an ongoing business restructuring programme and to focus back on the UK and Ireland businesses.
Shares in Centrica were up 24% at 49.86 pence each in London, easily the top performer in the FTSE 250 index.
The British Gas parent has agreed to sell Direct Energy to Houston, Texas-based energy company NRG Energy Inc on a debt free, cash free basis.
The disposal increases the long-term strength of its balance sheet, Centrica said, with proceeds intended to be used to reduce net debt significantly and to make a contribution to the defined benefit pension schemes.
The sale is also expected to result in a more stable financial profile for Centrica, with an increased proportion of its cash flows generated from contracted services, and removal of volatility that is inherent within Direct Energy business, the company added.
"This disposal is aligned to our strategy to become a simpler, leaner business and in addition it will materially strengthen our balance sheet and remove a source of earnings volatility from the group. Combined with our focus on completing our intended exits from Spirit Energy and Nuclear at the appropriate time, this is expected to lead to a more predictable and high-quality earnings stream moving forward," said Chief Executive Officer Chris O'Shea.
The sale, which will have a dilutive effect on Centrica's earnings per share, is expected to close in the fourth quarter of 2020.
Centrica initially announced plans for a significant restructure to its operating model in June to create a simpler and leaner company following years of underperformance.
The revised operating model is expected to accelerate the delivery of the company's targeted annualised cost savings of GBP1 billion between 2019 and 2022, with the majority of the remaining restructuring expected to take place in the second half of 2020. It is planned to lead to a reduction of around 5,000 roles across the company.
Houston, Texas-based Direct Energy provides electricity and gas to homes and businesses in North America. In 2019, Direct Energy contributed GBP105 million profit to Centrica.
Separately, Centrica said it delivered a resilient first half performance overall against the backdrop of the Covid-19 pandemic.
For the six months to June 30, the company's revenue fell to GBP10.70 billion from GBP11.57 billion last year and its pretax loss narrowed to GBP264 million from GBP569 million.
Earnings before interest, tax, depreciation and amortisation fell 19% year-on-year to GBP869 million.
The company saw a 2%, or 226,000, fall in UK Home energy supply customers as some core sales channels unavailable during Covid-19 related lockdowns. Business customers fell by 19,000, or 3%, in the six months to June-end.
Centrica said it will not declare any specific 2020 guidance given continuing Covid-19 related uncertainties.
The Windsor, Berkshire-based firm has also decided against declaring an interim dividend, having paid out 1.5p last year.
By Tapan Panchal; tapanpanchal@alliancenews.com
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Centrica (CNA)