Centrica (LON:CNA) has entered into an agreement to sell its North American energy supply, services and trading business, Direct Energy, to NRG Energy for $3.625 billion in cash.
The owner of British Gas will sell its US business in a move to reduce its net debt significantly and salvage the group’s defined benefit pension schemes.
In doing so, the group said it will create ‘a simpler and leaner energy services and solutions company, focused on delivering for its customers and enabling the transition to a lower carbon future.’
The move will enable the group to focus on its core home markets in the U.K. and Ireland, strengthen its balance sheet and reduce earnings volatility, it said.
"The transaction provides Centrica with an opportunity to realise significant value for our shareholders at an attractive valuation,” said Chris O'Shea, Chief Executive of Centrica.
“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.”
Shares in Centrica were trading 18.26% higher at 47.83p on Friday morning.
Separately in its half-year report to 30 June 2020, O’Shea said the group had delivered ‘a resilient performance’ against the unprecedented backdrop of the Covid-19 crisis during the first half of the year.
Last month, Centrica said it planned to cut around 5,000 jobs - almost 20% of its global workforce - as part of the company’s efforts in the wake of the COVID-19 pandemic.
Today it reported a 14% drop in operating profit to £343m (1H19: £399m) due to reduced energy consumption, weakened commodity prices and higher balancing costs.
However, overall cash flows were robust and despite a reduced EBITDA which was down £206m or 19% to £869m, the group said it retains ‘significant access’ to liquidity and as at the end of June, it had £1.3bn of cash and cash equivalents and £2.9bn of undrawn credit facilities.
The group said as lockdown begins to ease across its core markets that it is already seeing some recovery in energy demand and more normal sales of services and solutions.
“Our mission now is to turn around the Company by putting customers at the heart of everything we do and creating a simpler, leaner, more modern and more sustainable company.
The sale of Direct Energy is a fundamental step towards this, and although we have a lot more to do, we have the people, the brands and the market positions to deliver a successful turnaround,” added O’Shea.
The Direct Energy agreement is subject to customary approvals and is expected to close in the fourth quarter of 2020.
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