Direct Energy

Direct Energy

February 26, 2009 08:06 ET

Direct Energy Continues to Grow in North American Energy Markets

Operating profit up 3 per cent in 2008

TORONTO, ONTARIO--(Marketwire - Feb. 26, 2009) - Direct Energy, one of North America's leading competitive energy and related services companies, today announced a 3 per cent increase in profit for the full-year 2008 to $417 million(1). The Company is the largest competitive residential energy retailer and became the third largest commercial and industrial energy retailer in North America in 2008. It also has operations in energy related services for homes and businesses, as well as upstream gas and power assets.

Headquartered in Toronto, Direct Energy grew its revenues by 32 percent to $11.4 billion in 2008, as a result of the acquisition of Strategic Energy, a key competitor in the commercial and industrial segment, increased activity in wholesale auctions and growth in retail energy.

"Direct Energy weathered the challenges that faced North American energy markets and the broader economy in 2008, and delivered strong results," said Deryk King, Chairman and CEO, Direct Energy. "We continue to grow our presence in North America, and serve as a stable energy partner for millions of residential, commercial and industrial customers in Canada and the United States."

Direct Energy, the 44th largest company in Canada(i), is not publicly traded, but Centrica plc reports the financial performance of its North American subsidiary. Centrica, which trades on the London Stock Exchange (LSE:CNA), reported full-year 2008 revenues(iv) of Pounds Sterling 21.3 billion (C$41.8 billion). Net earnings were Pounds Sterling 904 million(iv)(v) (C$1,775 billion). Centrica also announced changes to executive team responsibilities, including Deryk King's retirement as Chairman and CEO of Direct Energy as of July 1, 2009.

"I want to thank Deryk King personally for the commitment he has shown over many years in building Direct Energy from scratch into a very successful business," said Roger Carr, Chairman of Centrica.

Chris Weston, Managing Director of British Gas Services and a member of Centrica's Executive Committee, will replace Deryk as President and CEO of Direct Energy. Additionally, Chris has been appointed to Centrica's Board of Directors. Chris joined Centrica in 2001 and over the last three years, transformed the operational and financial performance of British Gas Services.

"There are significant opportunities for Direct Energy's continued growth in North America's $500 billion energy and services market," said Weston. "We intend to manage the risks associated with the current economic climate, and further enhance our stability by moving ahead with a vertical integration strategy that will see us invest in additional generating capacity in North America, as well as in our upstream gas positions. This strategy will allow Direct Energy to continue providing a stable source of energy to millions of customers across North America, while taking on less exposure to volatile commodity markets."

Mass Markets Energy

- US North East and Midwest customer numbers grew by 20 per cent to more than 400,000

- Competitive customer numbers grew in Canada by 11 per cent

- Gained market-share in Alberta where 250,000 customers moved from the regulated tariff to competitive products

- Financial performance improved in the second half, but was adversely impacted by Hurricane Ike and spikes in intra-day electricity balancing costs caused by transmission congestion in the second quarter, which resulted in a slight decline in customer numbers.

For the Mass Markets energy segment, which comprises natural gas and electricity sales to residential and small commercial customers, excluding the favorable impact of the exchange rate, revenue was relatively flat at $5.2 billion with operating profit of $265 million.

"While 2008 was a challenging year, Mass Markets Energy continued to hold its position as North America's largest competitive electricity retailer based on customer numbers, while improving our sales effectiveness and significantly reducing our cost to acquire," said Phil Tonge, President, Mass Markets Energy."

Commercial and Industrial Energy

- Integration of Strategic Energy doubled revenues

- 97 per cent growth in electricity volumes

- Supplies more than 200,000 meter points

The commercial and industrial energy segment, encompassing natural gas and electricity sales to small, medium and large-sized businesses, public institutions and government benefited from strong organic growth, the acquisition of Strategic Energy in June, and higher contract prices, which resulted in nearly a doubling of revenue to $3.9 billion. Operating profit was up substantially year over year to $22 million.

"We successfully integrated Strategic Energy into our business, reaching our initial forecasts for synergies," said Maura Clark, President, Direct Energy Business. "Despite the impact of integration costs, our profitability rose substantially in 2008, as we moved the business towards the scale required in this market sector."

Home and Business Services

- Grew Canadian customer base for Home Protection Plans by 5 per cent

- Reduced costs to offset decline in sales

Home and Business Services had a difficult year, as a result of the economic climate, particularly the decline in the US housing market. Revenue was relatively flat at $735 million and operating profit was down by 11 per cent to $31 million.

"The ongoing economic challenges, particularly in the US, impacted our services division in 2008," said Lois Hedg-peth, Chief Operating Officer, Direct Energy. "To offset these challenges, we took steps to reduce costs and streamline our back office operations."

Upstream and Wholesale energy

- Completed acquisitions of Rockyview Energy and the Canadian assets of TransGlobe Energy, contributing to an 18.4 per cent increase in annual gas reserves and annual production volume growth of 23 per cent

- Expanded proprietary trading across commodities and geographies

- Power generation volumes dropped by 7 per cent due to an outage at the Bastrop Energy Centre

Upstream and Wholesale Energy comprises Direct Energy's upstream and midstream activities which include upstream gas, power generation, gas storage and transportation leases, wholesale power and gas transactions, wind power purchase agreements and proprietary trading. Annual production volumes grew by 23 per cent to 38.97 bcfe. Operating profit was down 1 per cent to $100 million.

"As part of our strategy to create greater vertical integration for our business, we intend to pursue further growth in our upstream and wholesale business in North America," said Bill Cronin, President, Wholesale Energy. "We continue to evaluate opportunities to build or acquire additional assets for our portfolio."

About Direct Energy

Direct Energy is one of North America's largest energy and energy-related services providers with over 5 million residential and commercial customer relationships. Direct Energy provides customers with choice and support in managing their energy costs through a portfolio of innovative products and services. A subsidiary of Centrica plc (LSE:CNA), one of the world's leading integrated energy companies, Direct Energy operates in 21 states plus DC and 10 provinces in Canada. To learn more about Direct Energy, visit www.directenergy.com.

Notes:

The results reported in British pounds were impacted by the weakness of sterling against the US Dollar and to a lesser extent, against the Canadian dollar in the year. Here they are expressed in Canadian dollars (based on monthly average FX rates) except where noted. For reference average full year rates are: For 2008: Pounds Sterling 1 equals C$1.9638; 2007: Pounds Sterling 1 equals C$2.1532.

(1) All values are in Canadian dollars, except where otherwise noted

(i) 2006 Financial Post 500; ranked by revenue

(2) Exchange rate used Pounds Sterling 1 equals C$1.9767 (Bloomberg Benchmark Rate 15 February 2008)

(3) Ibid

(iv) from continuing operations

(v) including joint ventures and associates net of interest and taxation, and before exceptional items and certain re-measurements

Contact Information

  • Direct Energy
    Hillary Marshall
    (416) 590-3210