Direct Energy Revenue Up 28% in 2013

Product innovations, acquisitions drive customer growth

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Feb 20, 2014, 02:15 ET

HOUSTON, Feb. 20, 2014 /PRNewswire/ -- Direct Energy, North America's largest competitive energy and energy-related services company, today announced gross revenue for the full year 2013 of US $11.4 billion (£7.3 billion), an increase of 28 percent, and an operating profit of US$436 million (£276 million). Direct Energy is the North American subsidiary of Centrica plc (LSE: CNA). Centrica reported full year 2013 revenues of US$41.6 billion (£26.6 billion) with an operating profit of US$4.2 billion (£2.7 billion).

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For the full year 2013, Direct Energy reported that profits fell 11% from US$492 million (£310 million) for the full year 2012, primarily due to lower margins in our commercial and industrial energy supply business and increased competition across most of our markets. The operating profit in 2013 includes US$21 million of integration costs and US$32 million of additional customer amortization related to the Hess Energy Marketing acquisition announced in July.

Badar Khan, President and CEO of Direct Energy, said: "Direct Energy is poised for significant growth as we further integrate Hess Energy Marketing, continue accelerating residential customer growth via our digital platform from the Bounce Energy acquisition, and introduce innovative products and services across our energy and home services offerings. Despite competitive pressures and rising gas and power prices impacting our margins, we operated more efficiently, and grew our customer base to deliver significant, albeit slightly reduced, profit. We also saw impressive customer growth in most of our businesses."

Direct Energy reorganized in late 2013 creating a Chief Operations Officer position focused on reducing costs through operational synergies. The company is also bringing creative products and services to market to drive customer growth. Additionally, Direct Energy recently completed the disposal of three Texas-based power stations, sold to Blackstone in December for US$687 million (£420 million).

In 2014, cost competitiveness and customer innovation will be key priorities. The home services business will continue to see organic growth in its protection plan offering and will also begin a transition to a single operating system. A new residential energy billing platform will launch in Alberta, and new consolidated call centers in Phoenix and Tulsa already are generating efficiencies. Building on innovations, such as the 'Power to Go' prepaid and 'Free Power Saturdays' products, Direct Energy recently launched new mobile web-enabled smart thermostats in Texas and Canada, and expects to continue to expand our product and services offerings across energy and services.

"We are taking bold steps to leverage efficiencies across our lines of business and through further integration of acquisitions, so that we can deliver customer-engaging innovations that add value, convenience and more options for our customers," said Khan.

Full year 2013 highlights from Direct Energy's lines of business include:

Direct Energy Residential

Gross revenue increased to US$3.948 billion (£2.517 billion).
Operating profit for the business increased to US$258 million (£$163 million).
The total number of residential energy customers declined slightly in 2013 to 3.4 million, as Direct Energy ceased renewing or signing new customers in Ontario due to energy policy changes, and as a result of increased competition in Texas and the U.S. North East
The successful integration of Energetix and NYSEG Solutions acquisitions resulted in an increase in profitability in the U.S. North East. In Texas, sales of the prepayment product, Power to Go, increased 30 percent.
The acquisition of Bounce Energy, added 80,000 accounts to Direct Energy's Texas business, and, importantly, provided a leading digital and e-commerce platform for marketing new product innovations over time.

Direct Energy Business

Gross revenue increased by 52 percent to US$6.6 billion (£4.2 billion) due to higher wholesale commodity prices on retail prices and increased sales.
Operating profit for the business declined 36 percent to US$122 million (£77 million) from US$192 million (£121 million) in 2012. The operating profit in 2013 includes US$21 million of integration costs and US$32 million of additional customer amortization related to the Hess Energy Marketing acquisition announced in July.
Operating margin fell to 1.8 percent (2012: 2.8 percent).
The acquisition of Hess Energy Marketing was completed November 1, helping drive a more than doubling of gas volumes to 1,839mmth (2012: 793mmth). Electricity volumes increased 24 percent to 63.9TWh (2012: 51.4TWh).

Direct Energy Services

Gross revenue increased seven percent to US$890 million (£$570 million), primarily due to increased sales from owned stores and franchise operations.
Operating profit increased to US$57 million (£$36 million) from US$51 million (£33 million) in 2012.
Market share grew in 2013; 293,000 accounts were added in part resulting from the acquisition of AWHR, with 80,000 residential customers in the U.S. Midwest, Northeast, and Florida.
AWHR provides expanded products and services offerings, including water heater rentals, along with heating, air conditioning, plumbing, and electrical services.
The Home Warranty of America acquisition in 2012 also produced additional accounts, with 100,000 current whole-home warranty plans in effect, up from 70,000 at the time of acquisition.

Notes: The results reported in British pounds are expressed in U.S. dollars (based on monthly average FX rates) except where noted. For reference average full year rates are: For 2013: £1 = US$1.5650; 2012: £1 = US$1.5896;

About Direct Energy
Direct Energy is one of North America's largest energy and energy-related services providers with six 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 46 U.S. states plus the District of Columbia and 10 provinces in Canada. To learn more about Direct Energy, please visit www.directenergy.com.

SOURCE Direct Energy