Picking winners Valuation drivers in energy supply 26 September 2018 Gareth Miller, Chief executive Cornwall Insight HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS
Today’s agenda Experts Themes Anna Moss The bigger picture Tom Goswell and Jacob Briggs Why have suppliers grown? Ed Reed Managing a supply portfolio Jon Smith (Shell Energy Europe) Evaluating risk management and trading Ben Hall Outsourcing in a competitive market Charlotte Farmer Externalities: policy costs and price caps Peter Atherton (Cornwall Insight An investor perspective associate) Robert Buckley Winners and losers: what have we learned so far www.cornwall-insight.com
Who we are RESEARCH D Independent experts across borders and C markets ANALYSIS Trusted by customers B DATA for our unrivalled insight INSIGHTS A www.cornwall-insight.com 3
Our retail market insight Market share surveys - Domestic & business since 2005 Sector intelligence - Supplier insight services - Data analysis Pricing and commercials - Domestic and SME price reports - Route to market analysis - Business plan development Training course - October 2017 www.cornwall-insight.com 4
Our customers Customers for our energy retail market intelligence include Cornwall Insight has customers from all areas of the retail energy market. We are proud to be trusted advisors to Power generators and project • developers Energy suppliers • Regulators, policy-makers and • industry bodies Legal and financial institutions • Brokers, intermediaries and end • users New market entrants • www.cornwall-insight.com
Join our event on Slido Web address: www.sli.do Event name: #pickingwinners Let us know a bit about you - Role - View on retail energy industry investability A) Increasing B) Static C) Decreasing If you want to join the discussion around the event on social media #pickingwinners Visit our website www.cornwall-insight.com www.cornwall-insight.com
Sli.do How do you perceive the retail energy market in three words? HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS 7
The bigger picture Anna Moss, Retail team lead HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS
Picking winners Valuation drivers in energy supply Growing a successful energy retail • business o Values, delivery, knowledge, capital External challenges multiply as barriers • to entry reduce Factors for investment • o Timing, value, investment partner, continuity www.cornwall-insight.com
On their marks … Domestic supplier entry by route All active energy suppliers 10 Q116 68 9 Q216 72 8 Q316 75 7 Q416 81 6 Q117 93 5 Q217 100 4 Q317 109 3 Q417 121 2 Q118 129 1 Q218 137 0 Q318 138 Q117 Q217 Q317 Q417 Q118 Q218 Q318 Fully licensed New white labels 0 50 100 150 Source: Cornwall Insight Source: Cornwall Insight www.cornwall-insight.com 10
… get set … Propositions Delivery Values 98% customers with incumbents in 2013 • Opportunity for new systems/ routes to • market Opportunity for cross-sell of energy • related products Now lower costs of entry with cost to • serve advantage Still need to build a brand • www.cornwall-insight.com 11
… go Competitors to the large suppliers: share of meters End of 2013 50% Large suppliers 45% raise variable prices and SaMS 2017-18 40% make use of Increasing role of brokers in 35% whole of market End of 2016 encouraging switching in SME market requirement Large suppliers 30% respond to rising 25% pressure of new entrants 20% July 2018 15% SaMS grow to 10% >25% domestic share from varied 5% routes to market 0% Domestic energy SME elec SME gas Source: Cornwall Insight energy market share surveys www.cornwall-insight.com 12
Profits and losses EBIT margin in 2017 by company type, average and range for selected energy suppliers 30% 20% 10% 0% EBIT margin -10% -20% -30% -40% -50% -60% -70% Large suppliers Domestic small Domestic medium Business suppliers suppliers suppliers Source: Cornwall Insight analysis of company financial results www.cornwall-insight.com 13
Track record Recent energy domestic energy supplier transactions (cost per domestic customer account, £) Investment Cost per account (£) 300 250 Trade 200 Distress 150 100 50 0 Flow Energy/ Co-operative Iresa/Octopus Energy GB Energy/ Co-operative Affect/ Octopus LOCO2/ Solarplicity First Utility/Shell Isupply/Vattenfall Bulb/Magnetar and DST Ovo Energy/ Mayfair Equity Warehouse)/Utility Warehouse Telecom Plus (Utility Energy Energy 2018 2015 2013 2017 Timing: 2018 2018 2016 2018 2017 2016 £60mn £30mn £210mn £25mn £?0mn Value: £10mn £?mn £?mn £?mn £240mn (24.5%) (15%) Source: Cornwall Insight, company and media reports www.cornwall-insight.com 14
Obstacle race Smaller customers More information Data protection More tech Homogenised product? www.cornwall-insight.com 15
Setting course Systems Proposition 18+ months 12-18 months 6-12 months 0-6 months Design Test Evolve Grow Routes to People market www.cornwall-insight.com 16
Key takeaways Many routes to becoming an energy supplier • Specialisation more likely to mean profit • o Ability to execute vision and values o Mass domestic market is not profitable. Why? Most visible activity in domestic supply but business markets have yielded • opportunities earlier and encouraged specialisation Most transactions to date have been trade sales, activity is increasing • www.cornwall-insight.com 17
Sli.do Have we reached peak supplier? HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS 18
Why have suppliers grown? Tom Goswell and Jacob Briggs HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS
Segmentation What do Where Who are How do What else How do they want are they they? they want do they you to buy? located? to pay? want? contact them? Scale—how many such customers? • Complexity—how do they like to buy? • Credit—how do they pay? • Accessibility—how can I reach them? • www.cornwall-insight.com 20
Mapping—B2B Credit Number Complexity SME Infrastructure I&C Accessibility www.cornwall-insight.com
Scale SME I&C Scalability in systems and service Smaller customer numbers but • • crucial in the SME market higher volumes and complexity in I&C o Automation is key to improve efficiency o Personalisation is key to win business SME SME gas I&C electricity I&C gas electricity Contracts 1.52mn 575,000 22,000 20,000 Meters 1.72mn 633,000 782,000 251,000 Volume 64TWh 1.3bn th 138TWh 7.1bn th Source: Cornwall Insight business energy market share surveys 2018 www.cornwall-insight.com 22
Complexity Customer expertise Premium (green, DSR) Flexible Complexity of contract (buy energy in increments – for businesses that manage daily consumption) Pass through (wholesale price fixed) Fully fixed contract Variable (no fixed term) Customer Length of contract inertia Source: Cornwall Insight www.cornwall-insight.com 23
Credit A supplier consolidates the credit • risk of its customers Care needed to ensure payment: • o Deposits o Segmentation and benchmarking of customer base o Contractual terms o Concentration limits o Prepayment meters www.cornwall-insight.com 24
Accessibility Most important sales channels for B2B energy suppliers Engagement and expertise vary • widely 5 Score 5 = most important, 1 = least important Much higher in I&C than • 4 SME Third party intermediaries (TPIs) • 3 fill the gap, but: Interpretation and 2 • reputation 1 Whose customer? • Personal contact key for very • 0 large users: TPIs Renewals Direct sale/ Direct sale/ Other contact from contact from Understand the buyer and customer via customer via • telephone online when they buy Median Mean Source: Cornwall Insight survey of supplier satisfaction with TPIs 2018 www.cornwall-insight.com 25
Case studies – Opus Energy and Smartest Energy Sales growth for SmartestEnergy and Opus Energy 250,000 9 Opus Energy breaks into 8 top six electricity suppliers 200,000 7 Electricity volume (TWh) Opus Energy breaks into Electricity meters top 10 gas suppliers 6 Drax buys 150,000 5 Opus Energy DSR launch 4 John Lewis Partnership 100,000 supply contract 3 SmartestEnergy breaks into 2 50,000 top 10 electricity suppliers 1 SmartestEnergy reaches 1% market share 0 0 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Opus Energy (meters) SmartestEnergy (TWh) Source: Cornwall Insight business energy market share surveys various www.cornwall-insight.com 26
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