Centrica Interested in Small Acquisitions to Meet Growth Targets

  • U.K. power supplier considering expansion into new regions
  • CEO Conn reiterates utility's robust cash flow position

Centrica Plc, the biggest energy supplier to U.K. homes, may expand to new regions to maintain growth targets in the face of low oil and gas prices.

Centrica is interested in buying up companies that can help boost customer numbers in the U.S. at its subsidiary Direct Energy in Texas, Iain Conn, Centrica’s chief executive officer, said in an interview. The Windsor, England-based utility reported last week a 31 percent increase in full-year profit at its U.K. residential supply business.

“We’re interested in making small acquisitions,” Conn said Wednesday in Houston. There is the possibility of “us growing into new geographies.”

Centrica is aiming for growth of 3-5 percent a year in adjusted operating cash flow even as oil trades near the lowest for 12 years and U.K. natural gas is close to the weakest since 2009. The utility, which gets more than a third of its income from oil and gas production, is seeking potential buyers for its Canadian natural gas assets to cut costs.

Centrica was said to be bidding for Northern Irish power company Viridian Group Ltd. before exiting the process after the first round, the Irish Independent reported on Feb. 20.

“We don’t comment on individual rumors of mergers and acquisitions,” Conn said when asked about Viridian.

Cash Flow

Centrica can maintain its cash flows even if oil prices stay at $35 a barrel, U.K. gas is at 35 pence a therm ($4.90 a million British thermal units) and U.K. power trades at 35 pounds a megawatt-hour, Conn said when he presented the company’s preliminary earnings for 2015 last week.

“We would be able to finance everything we do, pay our shareholders their dividend, pay a growing dividend if we chose to do so, and continue to pay down debt levels,” he said Wednesday. “Clearly below $25 oil, the world gets even harder. But I actually think we are very capable of handling a range of environments."

Moody’s Investors Service put Centrica’s Baa1 credit rating on review for possible downgrade on Feb. 13 along with nine other companies due to their “significant exposure to declining commodity and power prices.”

“We will be in conversations with the rating agencies over the next couple of months,” Conn said. “It’s not fundamental to the group if we were to be downgraded.”

Before it's here, it's on the Bloomberg Terminal.