5th May 2016 06:58
LONDON (Alliance News) - Centrica PLC on Thursday said it intends to issue a considerable amount of shares to institutional investors to raise funds, so the company can reduce debt and accelerate its strategy by funding two acquisitions.
The FTSE 100-listed company said it plans to issue around 350.0 million shares, which is equal to around 7.0% of its current issued share capital. It will be conducted through a bookbuild process which will determine the price, but Centrica has already hinted it wants to raise at least GBP750.0 million. At Centrica's closing price of 231.10 pence on Wednesday, 350.0 million shares would fetch GBP808.5 million.
Centrica said the placing will allow it to complete two acquisitions worth a total of GBP350.0 million and to lower net debt by a further GBP400.0 million, which in turn will reduce the pressure on Centrica's targeted strong investment grade credit ratings in a continuing uncertain environment.
The two proposed acquisitions, one of which has been announced, are part of Centrica's customer-facing strategy, which will see the company re-allocate around GBP1.50 billion of capital and operating resources between now and 2020 from its exploration & production business, which pumps oil and gas out of the ground.
That money is being channelled instead to areas such as energy supply, services, connected home, distributed energy and power and energy marketing and trading.
"Although the company could operate effectively with lower credit ratings, it continues to believe that the targeted strong investment-grade credit ratings are most efficient for Centrica's business model, given the scale of its energy procurement activities and the resultant need for access to cost-effective short-term sources of liquidity to manage collateral requirements," said the company.
"While the group continues to explore all options for repositioning its E&P business, the external environment means this is not straightforward, and reallocation of resources towards its customer-facing businesses is currently running below targeted levels," said Centrica.
Centrica said it remains on track to cut investment into the E&P business by GBP500.0 million this year and remains on track to deliver GBP200.0 million worth of cost efficiencies in the year, partly driven by the loss of 3,000 jobs.
Through execution of its strategy, Centrica expects to deliver sustainable adjusted operating cash flow growth of 3 to 5% per annum over the period from 2015 to 2020. That growth will be delivered through investing in its customer-facing strategy and in part through a GBP750.0 million per annum cost-efficiency programme, which is expected to be fully delivered by 2020.
"The group expects to deliver a progressive dividend, linked to its confidence in sustainable adjusted operating cash flow growth," said Centrica.
Adjusted operating cashflow for the year is forecast to be "in excess" of GBP2.00 billion, Centrica said.
Centrica said any further acquisitions moving forward will be less than GBP100.0 million each, and said it has set itself an annual GBP1.00 billion budget for acquisitions in 2016 and 2017.
However, with less money being drawn away from the E&P business to its new focus areas than expected, Centrica wants to acquire two businesses, Neas Energy AS and a "further customer-facing acquisition" which is "nearing completion" using funds from the placing.
"The company would expect sources and uses of cash to remain balanced in 2016 even after these two acquisitions. However, the credit metrics required for the current strong investment grade credit ratings are under pressure," said Centrica.
By Joshua Warner; [email protected]; @JoshAlliance
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