Higher network costs and the need to sell excess contracted power back has resulted in Good Energy’s gross profit taking a hit.
Releasing its H1 2020 results, the supplier revealed that its gross profit came in at £14.8 million, a 13.3% decrease compared to 2019, and its gross profit margin fell from 26.9% in H1 2019 to 22%.
Whilst it said that this was in line with its strategic shift towards longer term, lower gross margin business supply, it also said that this was a result of selling back excess contracted power and having to pay higher network reconciliation costs.
Decreases in demand caused by COVID-19 resulted in the need to sell power back, and the drop in wholesale power prices – with electricity falling 42% during lockdown from H1 2019 and as 52% - resulted in Good Energy selling back at a loss.
The supplier went on to detail how it witnessed business energy supply demand reduce by almost 35% compared to its expectations due to COVID-19, with the UK lockdown forcing many business premises to close, as well as a 15% increase in domestic demand.
However, the unusual shift in demand is now showing signs of evening out, with domestic demand now trending around 7.5% above normalised levels and business demand now closer to a 15% reduction, Good Energy said.
Alongside the decreases in gross profit, the company also recorded an underlying loss before tax of £0.5 million, compared to a £2.5 million profit in H1 2019. Of this, £3.1 million comes from increased non-cash costs driven by an incremental £1.9 million expected credit loss and £1.2 million resulting from the revaluation of its generation portfolio and write down in value of one of its solar sites.
During H1, Good Energy’s generation portfolio – consisting of 47.5MW split into six solar sites (30.1MW) and two wind sites (17.4MW) – was revalued, resulting in a £19 million uplift in asset valuation. Included within this was a one-off £0.5 million write down relating to its smallest site, the Creathorne solar site, which was the only generation asset to not exceed its P50 performance over the summer due to transformer issues.
Revenues did, however, increase by 6.2% to £67.5 million from £63.5 million in H1 2019, which Good Energy put down to business supply volume growth offset by lower domestic supply customers.
Overall, it saw customer numbers increase by 4.3% to 272.6k. Total business customers increased 8%, with business feed-in tariff (FiT) customers increasing 7.9%, while total domestic customers increased marginally by 0.9% with domestic FiT customers growing by 16.8%.
The supplier also recorded a “strong operating cashflow” of £7 million, which led to a gross cash balance of £18.2 million compared to £13.7 million in 2019.
And net debt decreased 12.3% to £36.5 million compared to the £41.6 million recorded in Good Energy’s 2019 full year results, which it said was due to further debt repayment and good cash generation.
Juliet Davenport, founder and CEO of Good Energy, said that despite “significant challenges” the company has made “good progress with our strategy and continued to invest across the business”.
"Amid economic uncertainty, Good Energy is financially and operationally resilient with a strong cash position.
“Therefore, Good Energy is well positioned to play a key role in the green recovery and help businesses and customers to "build back better". We look forward to continuing our strategy to provide people and organisations with the tools to have a zero-carbon footprint across electricity, transport and heat."
The supplier also gave an update on the integration of its customers onto Octopus' Kraken platform, which was announced in October 2019.
This is nearly complete, it said, with over 85% of Good Energy customers now migrated over onto the platform, with the remainder to be completed in late Q3 and early Q4 of 2020.
The total forecast investment in Kraken of £4 million is to be split approximately equally between cash and non-cash elements, with operating cost savings expected to achieve payback of the forecast investment within 18 months of the full implementation from April 2020.