Roy Gardner’s Centrica Legacy

Centrica chief executive Roy Gardner is to leave the UK utility group by the summer of 2006, after nearly ten years. During his tenure, which began when the group was formed from the breakup of British Gas in 1997, "shares have quadrupled", said Robert Cyran on Breakingviews.com.

The group has bought into businesses "as varied as telecoms, road assistance and credit cards", with the idea that "Centrica could sell customers anything". But this was "more easily said than done."

Centrica has spent the past two years selling its acquisitions but "unlike most strategic U-turns" this has been profitable. It managed to sell the AA for almost £1bn more than it paid for the road recovery group, and is now looking to sell its One.Tel telecoms operation.

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But despite the sell-offs, the label of utility group is "somewhat misleading", said Lex in the FT. In the past four years, more than 50% of operating profits have come from "drilling for gas".

First-half profits for 2005 "were no different: 56% came from gas production" offsetting a 24% slide in its energy-supply unit. Management have also been "upfront about a difficult second-half". Full-year margins at its residential energy business are "set to fall below last year's already thin 3.6%".

This margin squeeze has lead to pressure on Gardner to replenish the group's shrinking gas supplies, said Cyran. "Had Centrica bought gas a few years ago when it was cheaper, the group would be in a much better position."

But the UK is "building a huge infrastructure for the importation of natural gas". Gas prices could "easily plummet" between now and when Gardner is due to retire. Should that happen, "his one failure may be hailed as brilliance"