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GOOD ENERGY GROUP PLC — Earnings Release 2018
Mar 20, 2019
7680_10-k_2019-03-20_efad1b19-51cf-4d94-b718-32f33063dbfe.html
Earnings Release
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RNS Number : 3716T
Good Energy Group PLC
20 March 2019
Good Energy Group PLC
Un-audited Preliminary Results for the 12 months ended 31 December 2018
Strong 2018 performance reaffirms resilience to changing and challenging markets
100% renewable electricity supplier and localised self-generation power service provider, Good Energy Group PLC ("Good Energy" or "the Company"), today announces its preliminary results for the twelve months ended 31 December 2018.
| Year ended 31 December £m |
2018 Continued operations |
2018 Discontinued operations |
2018 Reported |
2017 Continued operations |
% Change Continued operations |
| Revenue | £116.9m | £0.0m | £116.9m | £104.5m | +11.9% |
| Gross Profit | £32.9m | £0.5m | £33.3m | £29.3m | +12.0% |
| Administration costs | £(26.8)m | £(0.6)m | £(27.4)m | £(23.7)m | +12.9% |
| Operating profit | £6.1m | £(0.2)m | £5.9m | £5.6m | +8.2% |
| Profit before tax | £1.7m | £(0.2)m | £1.6m | £0.7m | +132.6% |
| Net Debt | £40.1m | - | £40.1m | £53.1m | -23.1% |
| Cash balance | £15.7m | - | £15.7m | £13.7m | +14.2% |
| Basic earnings per share (p) | 6.7p | - | 5.4p | 8.1p | -17.8% |
| Full year dividend per share (p) | 3.5p | - | 3.5p | 3.3p | +6.1% |
Juliet Davenport, Founder and Chief Executive Officer of Good Energy, said:
"A period of rapid change is underway in the UK energy market. The trends in both the competitive landscape and the continuing renewable energy revolution leave us extremely well-placed to succeed. In a year where more than a dozen UK energy suppliers went bankrupt, Good Energy has continued to deliver robust growth and cash generation - putting the business on a firm footing for the future.
The year ahead will be an important one for us, as we roll out our SMART meter programme. Technology is changing everyone's relationship with energy. People want to know how much they consume in their home and their business - how much they consume, and how much their home-generation equipment shares with the grid. Your home can become a miniature power station, with the right equipment in place.
The growth of electric vehicles is bringing smart-grid technology to the fore. Our recent investment in Zap-Map accelerates our presence in that market. Good Energy will continue to focus on profitable, sustainable growth - led by supplying power to businesses, and supported by digital investments."
Enquiries:
Good Energy Group PLC
Juliet Davenport, Chief Executive Tel: +44 (0)1249 766795
Charles Parry, Investor Relations
Investec Bank plc (Nominated Adviser)
Jeremy Ellis Tel: +44 (0) 20 7597 5970
Sara Hale
Alexander Ruffman
Smithfield (Financial PR)
Alex Simmons Tel: +44 (0) 20 3047 2543
Notes to editors:
About Good Energy www.goodenergy.co.uk
Good Energy was founded in 1999 by Juliet Davenport OBE with the ambition to tackle climate change by generating and investing in renewable energy. Its purpose is to power the choice of a cleaner, greener future together with its customers, employees and investors.
Since it started, the company has been supplying clean power, sourced from its own generation assets as well as from independent, UK-based renewable generators. Good Energy also pioneered a more localised approach to energy by supporting home generation, launching the HomeGen scheme in 2004, which became the blueprint for the Feed-in Tariff.
Today, it continues to support and invest in localised energy generation, as the only UK energy company with more home-generation customers than supply. From using digital innovation to help UK households and businesses manage their energy usage more efficiently, to empowering more people to generate, store and share clean power, it is leading the charge towards a cleaner, distributed energy system.
Financial highlights - continuing
· Revenue of £116.9m up 11.9% driven by business supply volume growth, a price rise implemented earlier than in prior years and extreme weather conditions at the start of the year
· Gross profit of £32.9m increased 12.0% with a gross profit margin of 28.1% (2017: 28.1%)
· Profit before tax of £1.7m increased 132.6%
· Strong cashflow generation leading to a cash balance of £15.7m at year end (2017: £13.7m), funding investment across the business and repayment of £9.4m debt in the period with operational and billing issues addressed
· Basic earnings per share decreased 17.8% to 6.7p (2017: 8.1p)
· Recommended full year dividend of 3.5p
Operational highlights
· Significant investment across the business in a new Executive team and creating a digital platform for future growth
· Strategic partnerships and new product development in electric vehicles, battery and home storage delivering benefits and SMART meter technology to be rolled out in 2019
· Total volume of all energy delivered to customers grew by 3.0% to 1.09 million MWh (2017: 1.06 million MWh)
· Business volumes increased by 23.2% while domestic volumes were down 1.2% in line with customer numbers. This is a trend that we expect to see continue into 2019
· There are six solar sites and two wind farms, with a total of 47.5MW of installed capacity in our continuing generation portfolio
Chairman's statement
Good Energy delivered strong performance in 2018, further demonstrating our resilience to changing and difficult markets. We accelerated investment in our future strategy, making progress in our transition towards technology enabled energy services for the generation, supply, storage and sharing of 100% renewable clean power for all.
Our market: Opportunities and challenges
In 2018 the challenges facing the UK energy market persisted, as expected. Increased competition, wholesale market volatility and increasing regulation were particularly prevalent in the domestic supply market. This was highlighted by twelve companies going out of business since the start of 2018 as a direct result of these pressures. The strength of our business model, our thoughtful approach to managing risk and our differentiated proposition ensured that, despite these challenges, we ended 2018 as a stronger business with enhanced financial performance, improved customer service and exciting prospects for the future.
We remain committed to our domestic supply business, but we were clear that avoiding the price war in this market was imperative. We gave greater focus to growth in the business supply market, which performed strongly. Whilst both the domestic and business markets face structural challenges, there exists a large opportunity due to the growing societal focus on sustainable and green products. We believe that there are a rising number of 'Eco Worriers' who share our vision for the future. We are well placed to meet their needs.
The introduction of the standard variable tariff price cap by OFGEM, which came into effect on 1 January 2019, was an anticipated layer of regulation aimed at both protecting consumers and creating a more regulated environment for energy supply companies to operate in. We welcome this level of market governance and believe that our ongoing exemption from this price cap reflects our continued material investment in renewable energy, reinforced by our supportive customer base who continue to believe in our purpose.
Strategic development
As a Board, one of our key areas of focus is to create and deliver a strategy which navigates the challenges and opportunities within both our existing and future markets.
As the energy market evolves, so do we. Good Energy is well‐positioned for this new market. We have spearheaded decentralised energy since 2004 with our forerunner offerings to the Feed in Tariff, Home and Smart generations. Today, we are the UK's third largest supplier in this market. We are growing through investment across multiple channels, focused on technology, strategic partnerships and our people. We will continue to have an increased focus on providing a digital experience to our green, 100% renewable offering. The recent announcement of our strategic investment in Zap-Map illustrates our ambition to provide enhanced and complementary services to our current and future customers.
Board update
To support and govern the business we have also invested in our Board of Directors. In July 2018 Will Whitehorn joined the Board as Non-Executive Director and Deputy Chairman. Will has extensive experience across a broad range of sectors with a focus on fast moving and growing companies. Will's experience across technology, digital and branding will be an asset as we continue to reshape the Company, reflecting our view of the changing market, the challenges and the opportunities for Good Energy's future.
In February 2019 Nemone Wynn-Evans also joined the Board as a Non-Executive and will take on the role of Chair of Audit and Risk from April 2019 after her induction programme. Nemone has extensive experience across the financial services sectors and has listed plc and PRA, FCA/FSA regulated experience, having acted as finance director on the main board of a stock exchange. Nemone is also a Fellow of the Chartered Institute of Securities and Investments. Nemone's experience will be an asset to the group as we continue to reshape the company, leading the shift from supplying to sharing energy.
We are proud that we continue to live our values as a company and our board composition has a 50% female representation. Inclusivity is a belief which we are passionate about and continue to promote throughout the company.
After our AGM in June 2019, I will formally step down as Chairman of Good Energy. Since my appointment to the Board in 2012, I have witnessed the business grow steadily, while adapting to the continual change within the renewable energy market. We have always demonstrated the resilience of the business to the challenges in the energy supply and generation markets and have stayed true to our purpose of making clean energy the natural choice. We are well positioned for the future market opportunities and changes and I am excited for what the future holds for Good Energy. Technology, changing customer behaviours and attitudes, and the people making up the Good Energy team mean we can continue to lead the shift from old energy to new generation.
We now have a Board in place to guide and oversee the company to meet its strategic objective and goals and I am delighted that Will Whitehorn will succeed me as Chair of the company following the AGM. I would like to wish the team well on their journey.
Dividend
Good Energy aims to deliver a progressive dividend policy. The policy has the objective of increasing the dividend over time as profitability grows to provide an appropriate return to shareholders while also maintaining and balancing the ability to invest in long term growth opportunities.
Following a strong performance in 2018 and reflecting our confidence in the ongoing business, the Board has recommended an increased final dividend for 2018 of 2.5p per ordinary share, taking our full year dividend to 3.5p. The Board is pleased to confirm the continued operation of the Good Energy's scrip dividend scheme and will confirm the timetable for payment of the final dividend alongside circulating notice of Good Energy's annual general meeting in coming weeks.
Looking ahead
In 2019 we expect to experience growth driven by business volumes and continued digital investment supported by a cash generative business model. We aim to realise a return on our investments made to date and take advantage of further strategic and commercial growth opportunities. We will make further investments across the business as we continue our evolution as an integrated clean energy supplier, building on our long and successful history in this market.
John Maltby,
Chairman
Chief Executive Officer's review
Given our ambition, 2018 was going to be transformational. With significant investment across our business and a strong pipeline of opportunities for 2019 and beyond, we are looking forward to 2019 and hope that you, our shareholders and customers are too.
I want to tell you a little more about:
· Our plan
· Our progress
· Our future
Our plan
Like every CEO, my role is to create and maximise value; for our shareholders, for our customers, for our employees and for our future holders. All while staying true to our values and purpose - making clean energy the natural choice.
Since 1999, Good Energy has supplied clean power, sourced from its own generation assets and independent, UK-based renewable generators. We pioneered localised energy generation, launching the HomeGen scheme in 2004, the blueprint for the Feed-in Tariff. And today, as the only UK energy company with more self-generation customers than supply, we continue to support and invest in localised power. From deploying digital technology to help UK households and businesses efficiently manage energy usage, to empowering more people to generate, store and share clean power. We are leading the charge towards a cleaner, distributed energy system.
Good Energy, creating value
Today we are changing the way we operate, to reflect a changing market. With increasing focus on customer experience, we are focusing on people, technology and partnerships to deliver our plan for the future.
Technology
· SMART meters are the foundation of a new energy world, but the data they produce provides the real customer value.
· Data that empowers homes and businesses to realise the value of new energy technologies, usage control, storage, electric vehicles and renewable energy.
People
· Investment in our people throughout the organisation. Including a new Executive team, developing in‐house digital and data expertise and modernising our customer care capabilities.
· Our New Product Development team is spearheading new technology choices for customers.
Strategic partnerships
· Good Energy is perfectly placed to help customers navigate, manage and benefit from this low carbon, connected energy world. We will continue to lead it by investing in three core areas.
• Strategic partnerships and investment
• Research and innovation
• Development of digital platform and data insight
Our progress
Building on our investments throughout the business, 2018 was one of Good Energy's most successful and rewarding years, as we delivered a strong financial performance and progressed against our strategic objectives. We made significant investment in technology and our people, dramatically improved customer service and rolled out our new brand fostering greater customer engagement.
In 2018 we set out a clear list of objectives designed to help us adapt and thrive in a changing energy market.
What we said
Our performance in 2018 was especially pleasing, as we continued to deliver on the objectives that we set as a business.
Deliver a sustainable financial performance
We made good financial progress in 2018 as we saw PBT increase by over 130% to £1.7m, while our billing cycles returned to over 99% after the disruption in 2017. This led to strong cashflow generation, which allowed us to not only pay down debt, but to continue to invest across the business. Our trading and forecasting team allowed us to maintain our domestic tariff in 2018 through good risk management of our power and gas positions, despite the rising wholesale cost pressures in the industry; pressures that led to a number of companies, without the necessary capabilities, process and controls, going out of business.
Invest in our people
In 2018, we made significant investment in our people across the entire organisation. New customer services, marketing and IT directors were brought in and we now have a full Executive team in place. We also made further investment into our business sales team and we are already seeing the benefits flow through. Business customer numbers increased by almost 5% and business volumes increased by over 23%. We continued to build our digital and developer capability in order to provide the platform for our future growth plans. We also developed plans for our new HQ which is now in planning and will be completed in 2020.
Develop a digital platform for future growth
We have reshaped the way we operate across our IT function by implementing an 'Agile' operating model, to deliver on our future business requirements. Alongside this, we rolled out a new Salesforce CRM platform and Power BI, a data led business intelligence tool. Our focus on digital was also seen in our marketing campaign which is engaging existing and future customers and has had over 34 million impressions on social media. Our digital improvements have also led to a seamless customer experience, which is beginning to show through in our TrustPilot score, which increased from 3* to 4* in 2018.
Build a new product development pipeline
New generation SMART technology will be the future enabler for our energy as a service business model. In 2018 we partnered with a SMART meter provider and began piloting our scheme ahead of wider rollout in 2019 with the more advanced SMETS2 technology. This will be the cornerstone for our EV, storage and home solutions, which we continue to develop at pace. Partnerships will be key to delivering these new technologies and in 2018, we continued our work with Honda and the University of Salford on our work on the home as a virtual network, the Eden Project on battery storage and BestRes on household energy management. We will continue to develop these propositions in 2019 as we build on our future services.
Our focus for 2019
In 2019, we aim to maximise market opportunities, whilst ensuring we remain true to our green credentials and purpose. We expect to experience growth driven by business volumes and continued digital investment supported by our cash generative business model. In the domestic market, improved cost per acquisition and lower churn rates, alongside great customer awareness and engagement will drive performance, and we expect to maintain strong growth and a build on our market position in the FIT administration business; the bedrock for our energy as a service.
Our business model is focused on developing technology, people and partnerships in order to deliver growth for our customers.
Technology
We will continue our investment in IT infrastructure and systems, as well as building on our digital and data capabilities. Our new app will work to make the customer experience more seamless and data will help to digitise the customer services experience. The roll out of our next generation SMART meters in 2019 will be the next major step on our technological journey, and the enabler for our future energy services for customers.
People
Investment in our people is a fundamental part of sustainable growth. We will work to embed our new people promises and leadership behaviours across the Group and giving our people a job that they can believe in. We will live our values, as evidenced by being a living wage employer and our Board of Directors having 50% female representation. We will develop our new HQ, ahead of completion in 2020, providing Good Energy's people with an inspiring home to be proud of.
Partnerships
Strategic partnerships will remain crucial to our new product development strategy and pipeline of future investments. In 2019 we will roll out an EV proposition for both domestic and business customers. Our investment in Zap-Map will facilitate our growth in this sector, alongside building our expertise and propositions for energy storage and home generation.
New product development and investments
In March 2019, we completed a strategic investment in Zap-Map's parent company, Next Green Car Ltd, with an option to take a majority stake in the next two years. Zap-Map is the go-to app for Britain's 200,000 electric vehicle ("EV") drivers - planning routes, identifying charge points, checking their availability and sharing power.
We had both a strategic and commercial rationale for our investment. A shared vision for accelerating the adoption of EVs in the UK, including development of power sharing solutions for customers, both household and commercial; and an opportunity to partner with a leading EV service provider, and enhance our proposition from day one, reinforcing Good Energy's focus on power sharing.
Our investment reflects the fast-changing way in which people live with energy; harnessing power rather than simply consuming it. More and more households and businesses are beginning to generate, store, sell and share. Good Energy is at that forefront of the shift towards localised power - self-generation, storage, selling and sharing.
Our new product development pipeline is key to our future. By addressing tomorrow's changes, today, we can position ourselves to maximise shifting industry trends. Zap-Map is just one example. As we continue to evolve into an energy services business, our ability to roll out products for EV, battery storage and home solutions will be crucial. SMART technology is the key for this and 2019 will be its biggest year yet.
What are we worried about
We evaluate the inherent market risks constantly. While we had a strong 2018, there are areas we continue to be alert to in 2019:
· Competition
· Regulatory and political changes
· Technological investment, implementation and management
These material risks also opportunities for Good Energy. The energy market remains highly competitive, especially in the domestic supply sector. As a 100% renewable electricity supplier, price is not our key selling point due to the cost of truly clean, local renewable energy. But for most other providers, price is key. We are aware of this and means we must work harder to attract new customers - our message is more complex. Service, quality and our purpose are the foundation of our offer and there are a growing trend of customers who have a greater focus on sustainable and ethical shopping (Ethical Consumer annual report).
The pace of both regulatory and technological change in the energy market is something that we are evaluating constantly. The introduction of the SVT price cap in January 2019 highlights the step change in regulation.
Ever more powerful technologies will drive the future of our industry and our business, but managing this change is a challenge. We believe that providing a localised sharing economy for our customers and the nation, working alongside new technologies, is the future of energy, and that we can work with the right partners to accelerate this.
Board succession
John Maltby, who has been Chairman of the Board since 2012 has announced his intention to step down at our AGM in June. I want to thank John for his great contribution over the past seven years. He has helped Good Energy navigate some tricky times and has always supported Good Energy to allow it the ability to respond to a strategically changing environment.
Will Whitehorn, our current Deputy Chairman, will be appointed as Chairman subject to shareholder approval at our AGM. As a founder shareholder of Purplebricks Group plc and with over 20 years at Virgin Group, Will's customer-centric business experience is invaluable. His straightforward approach will fit in well at Good Energy, and we look forward future success with Will in the Chair.
The future
Our future is exciting. Our plans are clear, straightforward and on track. We have the right people, equipped with the right tools and the right mentality to deliver on our plans.
We're optimistic too. Aware of the challenges facing our fast-changing industry, we have the operational nous and financial foundations to weather any storm, growing as we do, and being aware that change is always on the horizon.
Juliet Davenport
Chief Executive Officer
Strategic review
2018 was a pivotal year in the energy industry. A shifting landscape in the competitive market, the introduction of further regulations and the continued development and introduction of new technologies all lead to a further evolution of our operating environment.
Energy, or rather the consumption and control of it, is shifting. It is not simply about the proliferation of new energy suppliers and tariffs; the future is about the way we will use and generate energy in our own homes and businesses. This means that the energy market is changing. More suppliers and more choice, but with a fundamental shift at its core, decentralisation.
Decentralised energy flips the power, as households and businesses begin to generate, store, manage and sell energy rather than simply consume it. People are increasingly energy aware. Solar panels are more affordable. SMART (Self-Monitoring Analysis and Reporting Technology) innovations are allowing homes and businesses to track and manage consumption. Newsworthy price hikes, and a proliferation of price comparison sites and switching services, mean more than ever they're paying more attention to their bills too. There is an environmental and ethical awakening happening across society, with greater awareness of personal and corporate environmental footprints.
We continue to support and invest in localised energy generation, as the only UK energy company with more home-generation customers than supply. From using digital innovation to help UK households and businesses manage their energy usage more efficiently, to empowering more people to generate, store and share clean power, we are leading the charge towards a cleaner, distributed energy system.
Our market
Competitive landscape
The wholesale market continued to be volatile, driven by rising costs and significant demand spikes at the beginning of the year as the Beast from the East took hold.
This trend of rising wholesale costs continued what we saw at the end of 2017, driving our decision to implement a price rise earlier in 2018 than in prior years. This not only allows us to plan for the full year ahead and purchase our power accordingly but enables us to maintain our ambition to provide our customers with clarity for the year ahead, rather than implementing multiple price rises reacting to commodity market movements.
The price competitiveness in the domestic retail market that erupted in 2017 continued in the early stages of 2018. This, alongside continued rising commodity costs, resulted in several suppliers increasing their price multiple times throughout 2018. Their customers faced rising bills and limited service. Despite this, 12 suppliers have gone out of business since the beginning of 2018. Whilst this result is not entirely unexpected, it is customers who have lost out significantly. We have always believed that customers should be protected in this market, ensuring that suppliers have the right levels of experience, expertise and desire to operate in this market.
A shifting focus on business
Customer numbers remained broadly flat in the period, increasing by 0.2% to 259,863. Within that, we saw a continued shift in customer mix in line with our ambitions to focus on the business sector. Domestic customer numbers fell by 3.4%, whilst business customer numbers increased 4.6%.
This shifting focus from domestic to business customers resulted in our overall volumes increasing by 3% in 2018. Domestic volumes were down 1.2% in line with customer numbers, while business volumes increased by 23%. This is a trend that we expect to see continue into 2019.
Our overall customer mix was split 53% of domestic customers and 47% business customers. This has shifted from a 55% to 45% split in 2017. Domestic supply volumes represent 73.9% of total volumes, down from 77.1% in 2017, while business supply volumes represent 26.1% up from 21.8% in 2017. This is as expected, and we believe that business customers and volumes will continue to grow in 2019 and beyond. The business market is driven more by customer services, quality renewable product and our ability to deliver a more sophisticated solution for businesses. This creates a wide range of potential customers to engage with, particularly in the SME sector of the market. While we are not moving away from our historic core business of domestic supply, volume and customer number growth will be driven by the business market. We have a clear policy focused on delivering profitable growth, built around a fair price and better service.
Regulatory and political changes
Standard variable tariff price cap
The domestic market saw one of the most significant regulatory changes confirmed in 2018. Effective from January 2019, consumer prices for electricity and gas supplied through variable tariffs have been capped at rates set by the energy regulator, OFGEM. The first capped period is 1st January 2019 to 31st March 2019. OFGEM has already implemented a further price rise of over 10%, effective as of 1 April 2019 and will continue to review this at six monthly intervals thereafter.
As with all its tariffs, Good Energy's variable electricity and gas tariffs directly support renewable generation across the UK. In acknowledgement of this, among other factors, OFGEM agreed that the price cap did not apply to Good Energy's variable tariffs for electricity and gas for the first capped period. OFGEM is continuing its work to assess whether the price cap should apply to Good Energy's variable tariffs in future and has confirmed an extension of Good Energy's exemption until at least 1 September 2019.
Good Energy will continue to work with OFGEM with the aim of securing confirmation that the price cap will not apply to Good Energy's variable tariffs for subsequent capped periods.
FIT scheme
On 19 July 2018, the Government confirmed that the FIT scheme will be closing its doors on 31 March 2019. While FIT payments will continue for existing customers for up to 20 years (25 years in some cases), it will be closed to all new entrants.
We will continue to administer the scheme for both our domestic and business FIT customers. The FIT proposition, in which we have one of the largest market positions, remains an important aspect of our business as it is the foundation of energy as a service in our business model.
Our future strategy
In 2018, we described how the old model of energy production is evolving to a new generation of energy services, with customers and technology driving this change. We believe this is an opportunity to invest further in our proven capability and skill sets, to lead into this new energy world.
We have seen a societal change in customers through an energy awakening. Our target market is broadening, based on market research. Caring about ethics and the environment is not just for "Eco Warriors". A growing number of "Eco Worriers", both customers and businesses, want to be part of a movement to "do the right thing", but in a way that is straightforward and efficient. The customer experience is therefore crucial. A broader proposition using digital technology to deliver simple, straightforward service is the answer.
A brand delivering on our purpose
In the second half of 2018 we released a new marketing campaign, as part of our ongoing investment across the business. Most of us want to be good. We recycle, avoid single-use plastics, use reusable shopping bags. That's what our new marketing campaign is all about. We want switching to clean power to be another simple way to be good.
For our customers, that's already the case. But it turns out there's a lot of us who try to do the right
thing when it comes to the environment, but for whatever reason, don't. Research revealed in the campaign shows that 85% of people have good 'green intentions', but only a minority of people - 49% - describe themselves as 'Eco
Warriors', who actively do their bit.
That leaves more than a third of us in 'The Good Gap' - people who want to help tackle climate change, but don't.
We think that's because sometimes it's just too difficult. Making lifestyle changes like changing your car, home or diet can be really challenging to do for many reasons. But switching to clean power is not only the easiest thing you can do to help tackle climate change, it's also one of the most significant things.
The campaign has been highly successful having a great impact in a short space of time. It has had over 34 million impressions across social media channels, 7 million views on YouTube, an incremental 95,000 visits to our website and over 7,000 further quotes as a result. All helping to reach a wider audience and spread our story, purpose and passion.
Our aim is to make the entire experience as straightforward as possible for our customers. We are bringing our purpose to life, by making clean energy the natural choice.
Whether that is through making the switching and billing service as seamless as possible, having simple and clear tariffs or integrating all your energy needs through one provider. We are making steps to implement this for all our customers. In 2018, we saw our billing cycle return to over 99%, our new app was launched with a pilot set of customers and our investment in Zap-Map was another step to integrating our customers energy journey, making the future seamless from the home, to the car and back again.
As we look towards 2019, this is a theme which we will continue to develop and bring to life for all our customers, employees, shareholders and stakeholders as we continue to provide a wider range of energy services.
Energy services - the business model
The shift from the old world of energy generation and supply towards energy services has seen a continued evolution of our business model over time. We see the future of our business being focused on energy services, enabled by technology to facilitate the sharing of clean power for all.
Our journey has taken us from a business built on generation and supply to making the first steps into the future of energy as a service. Our vertically integrated model allows us to interact with customers throughout the entire chain. From generating power, to consuming clean energy all the way through to how they utilise, interact and enhance their individual energy consumption. We are at the heart of this change.
In 2019, we will continue to build on our new product development, roll out SMART technology and drive into complementary markets to bring this business model to life.
New product development and technology
This SMART technology is the enabler for us to be able to develop our future suite of energy services and 2019 will see this rolled out to our customers. We are now approved to be in pre-pilot and will be rolling out to the full customer base later in the year.
We had previously decided not to roll out SMETS1 meters due to the commercial interoperability challenges this technology faces. It isn't environmentally responsible to install meters that could turn 'dumb' when a customer switches and potentially be scrapped and replaced.
Instead, our planned SMART programme, based on second generation, 'SMETS2' meters and other advanced integration technology, will give our customers the option to monitor energy usage via an app on their smartphone. This will eliminate the need for a display in the home, further reducing waste and the associated environmental footprint.
Our vision for the future is to see energy as a service, enabled by SMART technology. Our pipeline of new products will continue to enhance our overall customers propositions; in 2018 we made great progress with our strategic partners, some of which are detailed below:
Eden Project
In 2018 we extended our partnership with the environmental educational charity, the Eden Project to include a battery storage trial. We are the official energy partner of the Eden Sessions - a series of live concerts held each summer. This means as well as powering the events, we set up an experiential feature for people to engage with and learn about renewable clean energy and climate change. This battery storage trial project is allowing us to test and bring to market a scalable battery storage proposition for businesses.
London School of Economics
LSE have teamed up with us to run a field experiment to test the effects of promotional images, peer effects, and referral incentives on community adoption of green energy. LSE will identify hotspot groupings of our domestic supply customers to create communities of potential participants for the programme. These customers will be invited to join the research project to promote their choice of renewable energy to the rest of their community, using advertising items such as garden signs and front door/ window stickers. The aim of the research is to determine the effects of this visibility in driving community adoption of green energy.
HAVEN - Home as a virtual energy network
Working together with Honda, Upside Energy and Salford University to test how EVs can impact home energy efficiency. The tests are taking place at Salford University's Energy House - the only full-scale building built inside a fully environmentally controllable chamber in Europe. The project will explore how an EV battery could be attached to home energy systems such as solar panels, heating and hot water. This is a key proof point in the development of our battery storage and home energy services proposition for domestic customers.
BestRes
Exploring household energy management. Our Home Innovation Trial is part of the European-wide BestRes project, which is researching how to better integrate renewable generation into energy grids. We provided each household that signed up to the trial with a smart hub and linked app, which measured energy usage by different types of appliance. We then analysed the data to establish baseline consumption profiles, which allowed us to see the savings each household could make by changing their usage behaviour. Throughout the trial, we used the data to create engaging content to educate people about where they were using the most energy. The trial entered its final stage at the end of 2018, in which the households were encouraged to turn their new insight into energy-saving action. This is the pillar of our belief in empowering customers through knowledge with SMART technology.
Zap-Map
In March 2019, we announced a strategic investment in Zap-Map, a Bristol based EV data platform. This is an investment that supports the growth of EV's in the UK and allows us to be part of that market.
Zap-Map is the go-to app for Britain's 200,000 electric vehicle drivers - planning routes, identifying charge points, checking their availability and sharing power. Its 70,000 regular monthly users have more than 11,000 charging devices to choose from across the UK, all easily navigable from its intuitive app - from service stations to car parks, retail sites to private driveways. And as the network continues to increase rapidly, so too does the number of Zap-Map registered EV drivers in its thriving community, who actively log the status and availability of the national charging network.
Our investment reflects the fast-changing way in which people live with energy; harnessing power rather than simply consuming it. More and more households and businesses begin to generate, store, sell and share.
We are at that forefront of the shift towards localised power - self-generation, storage, selling and sharing. We are the only UK energy company with more customers generating their own power than those buying it. EVs are a huge catalyst for that change, supporting the home user to manage their energy usage and give them more control, in their own homes.
Alongside our localised power strategy, Zap-Map's Zap-Home feature also highlights selected private charging locations, where households and businesses have chosen to share electricity with other Zap-Map registered drivers. Access times and charging costs are set by the owner - or supplier - of each one, with some choosing to offer electricity for free. Where peer-to-peer payments apply, these can also be securely made within the Zap-Map app.
In the future, we will be working with the Zap-Map application to integrate this seamlessly alongside energy tariffs, billing process and overall energy consumption analysis. Our ability to integrate both the supply and energy services solution for our customers, is a vital next step on our energy journey.
Data and digital capability linked to new energy technologies will be the key to the future low carbon market, and we are looking to build on our existing position by continue to invest in this both in 2019 and beyond.
Operating review
What we do
We were founded in 1999 by Juliet Davenport OBE with the ambition to tackle climate change by generating and investing in renewable energy. Our purpose is to power the choice of a cleaner, greener future together with our customers, employees and investors.
Since we started, we have been supplying clean power, sourced from our own generation assets and power from independent, UK-based renewable generators. We pioneered a more localised approach to energy by supporting home generation, launching the HomeGen scheme in 2004, which then became the blueprint for the Feed-in Tariff.
Today, we continue to support and invest in localised energy generation, as the only UK energy company with more home-generation customers than supply customers. From using digital innovation to help UK households and businesses manage their energy usage more efficiently, to empowering more people to generate, store and share clean power, we are leading the charge towards a cleaner, distributed energy system.
2018 performance highlights
In 2018, we delivered a good performance against both our wider business objectives and our customer promises. Putting customers at the heart of our business is crucial to sustainable growth, and our customer promises focus on engagement, onboarding, service and retention as the underlying principles to achieve this.
Engage
Grow business sales in the SME and medium business sector, with an upskilled team, better systems and data and improvements in customer experience. This year the marketing team will focus on lead generation for the business sector and away from the retail sector.
The business supply market performed well, as we increased investment in our team, resources and overall capabilities. Our performance in the business sector was good, as overall business customer numbers grew by 4.6% to 122,210. Our focused growth in the SME sector saw our business supply customers increase by 39.8% to 6,347.
Alongside this, we implemented a new Customer Relationship management (CRM) system from market leader Salesforce, which has enabled the team to make a more targeted approach to growing our customer base. Retention rates continue to be high as the business focuses on profitable and sustainable growth.
Looking ahead, growth in the supply business will be focused on acquiring both domestic and business customers in a targeted manner and enhancing our overall customer experience through an improved digital proposition. Our aim is to sustainably grow our customer base, whilst improving retention rates and maintaining margin. We will achieve this by having a clear and effective marketing plan and brand promise aimed at driving customer engagement and brand awareness. Our digital proposition will be enhanced through the launch of our new app and improvements to our online portal and customer switching tool.
Onboard
Grow our FIT services business through organic growth for retail customers, and portfolio switching for business customers and portfolios.
Our FIT services business had a strong year, with customer numbers increasing by 6.0% to 152,244. Our domestic FIT business increased by 16% to 36,471 customers, while our business FIT increased by 3.2% to 115,773 customers. This has been a pleasing performance as we have continued to deliver enhanced services for our customers, including the roll out of digital self-serve on boarding platform. With the FIT scheme closing on 1 April 2019 for new entrants, we will continue to serve our existing customers, enhance our propositions and continue to grow our market share.
Service
Bigger focus on digital platforms and data strategy to underpin our customer offering.
In 2018, we made significant investment in our digital capabilities. David Ivell was appointed as Chief Technology Officer in June 2018. David's experience and expertise in technology transformation is helping to deliver Good Energy's new digital strategy. Driving the investment into new technologies and systems to improve our digital products and services, operating systems and the customer experience.
The IT and digital team have been transformed with a move to an agile operating model. New roles, processes and skills leading to a highly motivated workforce.
Internally, we launched Microsoft Office 365 and the Skype service and upgraded equipment. This is changing the way we work and has improved and enhanced collaboration opportunities both internally and externally.
The introduction of Power BI, a business intelligence tool, is helping us to see our data across the business in a new way and enables fast, informed decisions. It is enhancing collaboration and translating big data into simple, understandable metrics allowing us to provide increased service for our customers. Alongside this, we continued to roll out improvements across our website, switching tool, app which have improved our overall customer journey.
Service
Develop a product delivery team dedicated to bringing new propositions for energy services to the market.
Our product development team has continued to build on our energy services capability whilst building a pipeline which makes tomorrows opportunities possible.
Smart technology will be the enabler for us to be able to develop our future suite of energy services and 2019 will see this rolled out to a wide range of our customers. We are now approved to be in pre pilot and will be rolling out to the full customer base later in the year.
We delayed the roll out of our 'SMETS2' Smart meters to ensure that our customers have the best available technology, which can integrate throughout their home. It is this advanced integration technology, which will give our customers the option to monitor energy usage via an app on their smartphone. This will eliminate the need for a display in the home, further reducing waste and the associated environmental footprint.
Alongside our investment in smart technology, we have been working hard with our partners to build a pipeline of future products. These range from battery storage projects, where we have partnered with the Eden Project, to working with Honda and the University of Salford on exploring the possibilities of the home as a virtual energy network and how EV batteries could be attached to home energy systems and working on a European wide Best-Res project researching how to better integrate renewable generation into energy grids.
Retain
Retain customers through better proposition, customer service to enhance the brand and customer experience
Total customer numbers increased marginally in 2018, by 0.2% to 259,863. This was in line with our overall expectations. Our focus in 2018 was on growing our business customer base, which grew by 4.6% in the period. Our domestic retail customer base decreased by 3.4% in the period. The domestic retail supply market remained highly price competitive, having previously outlined that we would not be actively engaged in a price war for customers and we have seen our domestic customer numbers decrease as a result.
We invested in our customer service proposition in 2018 in both people, skills and technology. Sarah Morgan joined us in June 2018 as Customer Services Director. Sarah came to Good Energy from Ovo, where she performed a similar role. Before that, Sarah was part of the team that transformed the digital customer experience at ASOS.
The tangible result of Sarah's work can be seen in customer feedback, reviews and our Trustpilot score, which has increased to 4*. Alongside this, our billing consistency increased to over 99%, following the initial system implementation issues from November 2017.
Similarly, we upweighted our investment in both our content and communications. Paul Tavener joined as Marketing Director in May 2018. Paul has brought proven experience from the retail sector, most recently in his role as Group Brand Director at WHSmith. Paul led Funky Pigeon's UK launch and was previously Head of Marketing at Sainsbury's. Paul's extensive customer marketing experience helped develop the new marketing campaign in H2 2018.
Performance highlights in 2018
Supply
Supply revenue increased by 13.7% to £113.0m driven by strong growth in business customer volumes. Electricity revenue increased by 16.5% to £80.1m, gas revenue grew by 9.7% to £28.0m, while FIT administration revenue fell by 3.0% to £4.9m, despite customer number growth, reflecting a large number of initial customer registrations in 2017.
Supply operating profit increased by 60.8% to £5.7m (2017: £3.5m) driven by supply volumes following extreme weather conditions at the start of the year and by business and domestic gas volumes and the implementation of the domestic price rise earlier in the year.
In 2018, the total volume of all energy delivered to customers grew by 3.0% to 1.09 million MWh (2017: 1.06 million MWh). We achieved significant growth in business electricity supply volumes of 19.9%%. The competitive environment and high switching rates across the market led to broadly flat growth in the retail business by volume and by meters. Our strong customer service and reputation in the FIT market enabled us to grow FIT customer numbers by 6.0%, to 152,244 in total.
Generation
Good Energy owns and operates eight renewable energy facilities across the UK that deliver 100% renewable electricity to the UK electricity grid. There are six solar sites and two wind farms, with a total of 47.5MW of installed capacity in our continuing generation portfolio.
As outlined in 2017 we discontinued our activities in the development of further renewable assets. While we have been successful in creating, utilising and monetising energy generation assets, the market has moved in favour of large-scale developers with better purchasing power for renewable assets and access to low-cost finance.
The removal of government subsidies for many renewable energy technologies does not affect the financial performance of Good Energy's existing generation sites.
In 2018, revenue from continuing Generation operations decreased by 6.4% to £8.3m (2017: £8.9m). Operating Profit in Generation decreased by 1.1% to £3.6m (2017: £3.7m) following the sale of operational sites in 2017.
Finance Directors review
Profit and loss
Revenue increased by 11.9% in the period to £116.9m (2017: £104.5m) driven by business supply volumes and domestic gas volumes following extreme weather conditions at the start of the year, while gross profit increased 12.0% to £32.9m (2017: £29.3m) driven primarily by the implementation of the domestic price rise earlier in the year.
Cost of sales increased by 11.8% to £84.1m (2017: £75.2m). This was predominantly driven by a market wide increase in the wholesale commodity prices.
Gross profit margin remained at 28.1% (H1 2017: 28.1%) and operating margin decreased slightly to 5.2% (2017: 5.4%).
Administration costs increased 12.9% to £26.8m (2017: £23.7m) primarily because of continued investment in overall capabilities and resourcing. This included a one-off bad debt provision increase of £1.4m and the one-off aged customer credits release of £1.0m. Finance costs decreased by 10.6% to £4.3m, as we saw the impact of lower borrowing rates and a reduction in overall net debt.
Profit before tax increased by 132.6% to £1.7m (2017: £0.7m).
Cash Flow and Cash Generation
The business generated £17.5m cash from operations in a period of billing improvement, a significant increase following resolution of the operational and billing issues in the corresponding period in 2017. Working capital in the second half of the year have benefitted from a warmer than average autumn and early winter.
There was a net outflow of £9.5m from financing activities as a result of the partial redemption of Good Energy Bond I following the sale of Newton Downs solar site in 2017, and the repayment of the bank facility supporting the discontinued development business.
Following the strong operational cash performance and repayment of our first bond, overall cash and cash equivalents increased 14.2% to £15.7m (2017: £13.7m) whilst reducing our overall levels of net debt. Strong cash generation provides the platform for ongoing investment across the business.
Financial position and capital management
The Group continues to maintain a robust financial position. We look to ensure we optimise our use of capital by continually reviewing the returns on our assets, balancing operating requirements, investment for growth, and payment of dividends back to shareholders.
Funding and Debt
Good Energy continues to have good access to a range of funding on good terms to support our growth.
Good Energy Bond I was partially redeemed in 2018, with £3.6m continuing in Good Energy Bond I at a lower rate of 4.25% and £4.3m was repaid in March 2018. Following the repayment of Bond I, the reduced interest cost on Bond II will be around £0.3m lower on a comparable annualised basis and is a positive step towards lowering the Company's ongoing financing costs and reducing the gearing ratio over the medium term.
Total net debt decreased 23.1% to £40.1m (2017: £53.2m) following the bond repayment and strong cash generation. The gearing ratio decreased to 67.8% down from 75.4%.
Billing & Customer Debt
Following the implementation issues of 2017, the billing system is now fully operational with overall billing cycles operating at over 99% and cash collection rates have improved and normalised.
Overall customer receivables have remained flat at £27.5m throughout the twelve-month period. Additional billing from higher overall customer volume, with the domestic price rise implemented at the start of 2018, has been offset by the collection of debt, the billing of which was delayed through to the start of 2018.
A systematic review of all outstanding customer balances was undertaken in the first half of 2018, following the billing delays in 2017.
In order to address these outstanding balances, we have utilised both internal and specialist collections agency resources, as well as improving internal customer services procedures to accelerate our collections. This review highlighted the impact the billing delays had in the deterioration in the collection rates of certain customer accounts where debt was outstanding at the end of 2017.
As a result of this activity, we increased the bad debt provision by a one off £1.4m in the first half of the year, in respect of these specific segments, reflecting the level of risk outstanding above our normal bad debt provision. We have continued to take a prudent approach by providing for bad debts at around 2% of electricity and gas revenue and will continue to monitor the adequacy of the provision.
In the second half of 2018, a new policy for credit write backs was approved by the Board. This states that all credits on final customer accounts will be written back after all reasonable and economic endeavours have been made to contact the customer. The exceptional credit in 2018 incorporates remaining credit balances from previously utilised systems and covers the period from 2003 to 2016. On an ongoing basis, the release of credits will be included within administrative costs.
Earnings and dividend
Basic Earnings per share decreased to 6.7p from 8.1p. Profit attributable to shareholders in 2017 included an incremental £0.6k as a tax credit following a provision against the discontinued generation business.
Good Energy aims to deliver a progressive dividend policy. The policy has the objective of increasing the dividend over time as profitability grows to provide an appropriate return to shareholders while also maintaining and balancing the ability to invest in long term growth opportunities. As a result, a final dividend of 2.5p has been recommended, increasing the full year dividend to 3.5p.
Good Energy continues to offer a scrip dividend scheme and will confirm the timetable for payment of the final dividend alongside circulating notice of its annual general meeting in coming weeks.
Financial outlook
In 2019, profits are expected to be weighted towards the first half of the year, in line with cyclical trends assuming seasonally normal weather and stable commodity cost environment. Continued investment is planned across the business, including digital and online capabilities, our new HQ and new propositions in EV and battery storage, in order to drive future growth.
Overall, we continue to expect 2019 to be another year of financial and strategic progress for the Group.
Notes:
To present the performance of the company in a clear and consistent format, unless otherwise stated, all references to revenue, profit, costs, tax and EPS refer to the continuing operations.
Consolidated Statement of Comprehensive Income (Unaudited)
For the year ended 31 December 2018
| 2018 | 2017 | |
| £000's Unaudited |
£000's Audited |
|
| REVENUE | 116,915 | 104,509 |
| Cost of Sales | (84,062) | (75,178) |
| GROSS PROFIT | 32,852 | 29,331 |
| Administrative Expenses | (26,427) | (23,739) |
| Exclusive of: | ||
| - Exceptional doubtful debt provision increase | (1,400) | - |
| - Exceptional customer credits write back | 1,027 | - |
| Total Administrative Expenses | (26,800) | (23,739) |
| OPERATING PROFIT | 6,052 | 5,592 |
| Finance Income | 16 | 2 |
| Finance Costs | (4,361) | (4,860) |
| PROFIT BEFORE TAX | 1,707 | 734 |
| Taxation | (633) | 566 |
| PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS | 1,074 | 1,300 |
| DISCONTINUED OPERATIONS | ||
| (Loss)/Profit from discontinued operations, after tax | (210) | (4,033) |
| PROFIT/(LOSS) FOR THE PERIOD | 865 | (2,733) |
| OTHER COMPREHENSIVE INCOME: | ||
| Other comprehensive loss for the year, net of tax | - | - |
| TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY |
865 | (2,733) |
| Earnings per share from profit for the year - Basic | 5.4p | (17.1p) |
| - Diluted | 5.3p | (17.1p) |
| Earnings per share from profit for the year - Basic | 6.7p | 8.1p |
| (continuing operations) - Diluted | 6.6p | 7.7p |
Consolidated Statement of Financial Position (Unaudited)
As at 31 December 2018
| 2018 | 2017 | |
| £000's | £000's | |
| Unaudited | Audited | |
| ASSETS | ||
| Non-current assets | ||
| Property, plant and equipment | 50,377 | 52,973 |
| Intangible assets | 3,586 | 3,544 |
| Long term security deposits | 4,166 | 3,220 |
| Investments | - | 500 |
| Total non-current assets | 58,129 | 60,237 |
| Current assets | ||
| Inventories | 8,579 | 9,881 |
| Trade and other receivables | 31,724 | 32,698 |
| Cash and cash equivalents | 15,662 | 13,720 |
| Current assets held for sale | 6,599 | 5,553 |
| Total current assets | 62,564 | 61,852 |
| TOTAL ASSETS | 120,693 | 122,089 |
| EQUITY AND LIABILITIES | ||
| Capital and reserves | ||
| Called up share capital | 829 | 826 |
| Share premium account | 12,719 | 12,652 |
| EBT shares | (810) | (946) |
| Retained earnings | 6,690 | 5,553 |
| Total equity attributable to members of the parent company | 19,428 | 18,085 |
| Non-current liabilities | ||
| Deferred taxation | 844 | 145 |
| Borrowings | 54,464 | 56,044 |
| Provisions for liabilities | 1,424 | 1,250 |
| Total non-current liabilities | 56,732 | 57,439 |
| Current liabilities | ||
| Borrowings | 6,263 | 13,894 |
| Trade and other payables | 38,282 | 32,671 |
| Current liabilities held for sale | (12) | - |
| Total current liabilities | 44,533 | 46,565 |
| Total liabilities | 101,265 | 104,004 |
| TOTAL EQUITY AND LIABILITIES | 120,693 | 122,089 |
Consolidated Statement of Changes in Equity (Unaudited)
For the year ended 31 December 2018
| Share Capital | Share Premium | EBT Shares | Retained Earnings | Total | |
| £000's | £000's | £000's | £000's | £000's | |
| At 1 January 2017 | 825 | 12,546 | (1,015) | 8,689 | 21,045 |
| Loss for the year | - | - | - | (2,733) | (2,733) |
| Other comprehensive income for the year | - | - | - | - | - |
| Total comprehensive income for the year | - | - | - | (2,733) | (2,733) |
| Share based payments | - | - | - | 263 | 263 |
| Tax charge relating to share option scheme | - | - | - | (106) | (106) |
| Issue of ordinary shares | 1 | 106 | - | - | 107 |
| Exercise of options | - | - | 69 | (31) | 38 |
| Dividend paid | - | - | - | (529) | (529) |
| Total contributions by and distributions to owners of the parent, recognised directly in equity | 1 | 106 | 69 | (403) | (227) |
| At 31 December 2017 | 826 | 12,652 | (946) | 5,553 | 18,085 |
| At 1 January 2018 | 826 | 12,652 | (946) | 5,553 | 18,085 |
| Profit for the year | - | - | - | 865 | 865 |
| Other comprehensive income for the year | - | - | - | - | - |
| Total comprehensive income for the year | - | - | - | 865 | 865 |
| Share based payments | - | - | - | 621 | 621 |
| Tax credit relating to share option scheme | - | - | - | (177) | (177) |
| Issue of ordinary shares | 3 | 67 | - | - | 70 |
| Exercise of options | - | - | 136 | (127) | 9 |
| Dividend paid | - | - | - | (462) | (462) |
| Other reserves movement | - | - | - | 418 | 418 |
| Total contributions by and distributions to owners of the parent, recognised directly in equity | 3 | 67 | 136 | (146) | 60 |
| At 31 December 2018 | 829 | 12,719 | (810) | 6,690 | 19,428 |
Consolidated Statement of Cash Flows (Unaudited)
For the year ended 31 December 2018
| 2018 | 2017 | |
| £000's | £000's | |
| Unaudited | Audited | |
| Cash flows from operating activities | ||
| Cash generated from operations | 17,500 | 27 |
| Finance income | 16 | 2 |
| Finance cost | (4,361) | (5,125) |
| Income tax received | (5) | 167 |
| Net cash flows from operating activities | 13,150 | (4,929) |
| Cash flows from investing activities | ||
| Reclassification of asset held for sale | (666) | - |
| Purchase of property, plant and equipment | (329) | (4,828) |
| Purchase of intangible fixed assets | 201 | (752) |
| Disposal of assets | - | 9,769 |
| Long term security deposits | (946) | (389) |
| Net cash flows used in investing activities | (1,740) | 3,800 |
| Cash flows from financing activities | ||
| Payments of dividends | (393) | (459) |
| Net proceeds / (repayments) from borrowings | (8,764) | 9,128 |
| Capital repayments of finance lease | (447) | (147) |
| Proceeds from issue of shares net of share issue costs | - | - |
| Sale of own shares | 136 | 38 |
| Net cash flows from financing activities | (9,468) | 8,560 |
| Net increase in cash and cash equivalents | 1,942 | 7,431 |
| Cash and cash equivalents at beginning of year | 13,720 | 6,289 |
| Cash and cash equivalents at end of year | 15,662 | 13,720 |
Notes to the Financial Information
1. Basis of Preparation
Good Energy Group plc is an AIM listed company incorporated and domiciled in the United Kingdom under the Companies Act 2006.
The principal activity of Good Energy Group plc is that of a holding and management company to the Group. Fuller information on the Group's activities is set out in the Chairman's statement, Chief Executive's review and the Finance Director's review.
The unaudited Preliminary Report has been prepared under the historical cost convention and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and interpretations in issue at 31 December 2018.
The Preliminary Report was approved by the Approvals Committee and the Audit Committee and adopted by the Board of Directors. The Preliminary Report does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006 and has not been audited.
Statutory accounts for the year to 31 December 2017 have been delivered to the Registrar of Companies. The audit report for those accounts was unqualified and did not contain statements under 498 (2) or (3) of the Companies Act 2006 and did not contain any emphasis of matter.
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2017, as described in those financial statements. New standards or interpretations which came into effect for the current reporting period did not have a material impact on the net assets or results of the Group.
The Preliminary Report is presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.
The Preliminary Report will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 20 March 2019. Copies will be available to members of the public upon application to the Company Secretary at Monkton Reach, Monkton Hill, Chippenham, Wiltshire, SN15 1EE.
2. Segmental Analysis
The chief operating decision-maker has been identified as the Board of Directors (the 'Board'). The Board reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports. The Board considers the business from a business class perspective, with each of the main trading subsidiaries accounting for each of the business classes. The main segments are:
· Supply Companies (including electricity supply, FIT administration and gas supply);
· Electricity Generation Companies (including wind and solar generation companies);
· Generation Development (including early stage development companies);
· Holding companies, being the activity of Good Energy Group PLC
The Board assesses the performance of the operating segments based primarily on summary financial information, extracts of which are reproduced below. An analysis of profit and loss, assets and liabilities and additions to non-current asset, by class of business, with a reconciliation of segmental analysis to reported results follows:
Segmental Analysis: 31 December 2018
| Electricity Supply | FIT Administration | Gas Supply | Total Supply Companies | Electricity Generation | Holding Companies/Consolidation Adjustments | Total - Continuing Operations | Generation Development (Discontinued) | Total | |
| £000's | £000's | £000's | £000's | £000's | £000's | £000's | £000's | £000's | |
| Revenue | |||||||||
| Revenue from external customers | 80,120 | 4,857 | 27,998 | 112,975 | 3,940 | - | 116,915 | 9 | 116,924 |
| Inter-segment revenue | - | - | - | - | 4,369 | (4,369) | - | - | - |
| Total revenue | 80,120 | 4,857 | 27,998 | 112,975 | 8,309 | (4,369) | 116,915 | 9 | 116,924 |
| Expenditure | |||||||||
| Cost of sales | (60,239) | (873) | (18,575) | (79,687) | (4,375) | - | (84,062) | 462 | (83,600) |
| Inter-segment cost of sales | (4,369) | - | - | (4,369) | - | 4,369 | - | - | - |
| Gross Profit | 15,512 | 3,984 | 9,423 | 28,919 | 3,934 | - | 32,853 | 471 | 33,324 |
| Administrative expenses | (22,172) | (315) | (3,087) | (25,574) | (123) | (25,697) | |||
| Tidal write off | - | - | 500 | 500 | (500) | - | |||
| Depreciation & amortisation | (1,082) | - | (645) | (1,727) | - | (1,727) | |||
| Operating profit/(loss) | 5,665 | 3,619 | (3,232) | 6,052 | (152) | 5,900 | |||
| Net finance income/(costs) | 12 | (3,574) | (783) | (4,345) | - | (4,345) | |||
| Profit/(loss) before tax | 5,677 | 45 | (4,015) | 1,707 | (152) | 1,555 | |||
| Segments assets & liabilities | |||||||||
| Segment assets | 65,767 | 99,289 | (61,842) | 103,214 | 17,478 | 120,692 | |||
| Segment liabilities | 53,604 | 104,837 | (74,122) | 84,319 | 16,945 | 101,264 | |||
| Net asset/(liabilities | 12,163 | (5,548) | 12,280 | 18,895 | 533 | 19,428 | |||
| Additions to non-current assets | 440 | 34 | 6 | 480 | (4) | 476 |
Segmental Analysis: 31 December 2017
| Electricity Supply | FIT Administration | Gas Supply | Total Supply Companies | Electricity Generation | Holding Companies/Consolidation Adjustments | Total - Continuing Operations | Generation Development (Discontinued) | Total | |
| £000's | £000's | £000's | £000's | £000's | £000's | £000's | £000's | £000's | |
| Revenue | |||||||||
| Revenue from external customers | 68,801 | 5,006 | 25,517 | 99,324 | 5,185 | - | 104,509 | 17 | 104,526 |
| Inter-segment revenue | - | - | - | - | 3,688 | (3,688) | - | - | - |
| Total revenue | 68,801 | 5,006 | 25,517 | 99,324 | 8,873 | (3,688) | 104,509 | 17 | 104,526 |
| Expenditure | |||||||||
| Cost of sales | (52,139) | (505) | (17,710) | (70,354) | (4,824) | - | (75,178) | (3,700) | (78,878) |
| Inter-segment cost of sales | (3,688) | - | - | (3,688) | - | 3,688 | - | - | - |
| Gross Profit | 12,974 | 4,501 | 7,807 | 25,282 | 4,049 | - | 29,331 | (3,683) | 25,648 |
| Administrative expenses | (20,529) | (391) | (1,436) | (22,356) | (328) | (22,684) | |||
| Depreciation & amortisation | (1,229) | - | (154) | (1,383) | (1) | (1,384) | |||
| Operating profit/(loss) | 3,524 | 3,658 | (1,590) | 5,592 | (4,012) | 1,580 | |||
| Net finance income/(costs) | (32) | (4,947) | 121 | (4,858) | - | (4,858) | |||
| Profit/(loss) before tax | 3,492 | (1,289) | (1,469) | 734 | (4,012) | (3,278) | |||
| Segments assets & liabilities | |||||||||
| Segment assets | 59,756 | 106,195 | (52,315) | 113,636 | 8,453 | 122,089 | |||
| Segment liabilities | 52,348 | 111,947 | (72,741) | 91,554 | 12,450 | 104,004 | |||
| Net asset/(liabilities | 7,408 | (5,752) | 20,426 | 22,082 | (3,997) | 18,085 | |||
| Additions to non-current assets | 817 | 5,677 | 159 | 6,653 | - | 6,653 |
All turnover arose within the United Kingdom.
Consolidation adjustments relate to intercompany sales of generated electricity and the elimination of intercompany balances.
3. Finance Income & Cost
| Finance Income: | 2018 | 2017 | |
| £000's | £000's | ||
| Bank and other interest receivables | 16 | 2 | |
| Finance Cost: | 2018 | 2017 | |
| £000's | £000's | ||
| On bank loans and overdrafts | 3,051 | 3,082 | |
| On corporate bond | 1,092 | 1,345 | |
| Other interest payable | 25 | 203 | |
| Amortisation of debt issue cost | 193 | 230 | |
| Total finance costs | 4,361 | 4,860 | |
| Less: amounts capitalised on qualifying assets | - | - | |
| Total | 4,361 | 4,860 | |
4. Earnings per Ordinary Share
Basic
Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary shares during the year after excluding 403,270 (2017:463,239) shares held by Clarke Willmott Trust Corporation Limited in trust for the Good Energy Group Employee Benefit Trust.
| 2018 | 2017 | |
| Profit attributable to owners of the Company (£000's) | 865 | (2,733) |
| Basic weighted average number of ordinary shares (000's) | 16,109 | 16,006 |
| Basic earnings per share | 5.4p | (17.1p) |
| Continuing operations | 2018 | 2017 |
| Profit attributable to owners of the Company (£000's) | 1,076 | 1,300 |
| Basic weighted average number of ordinary shares (000's) | 16,109 | 16,006 |
| Basic earnings per share | 6.7p | 8.1p |
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to assume conversion of all potentially dilutive ordinary shares. Potentially dilutive ordinary shares arise from awards made under the Group's share-based incentive plans. Where the vesting of these awards is contingent on satisfying a service or performance condition, the number of potentially dilutive ordinary shares is calculated based on the status of the condition at the end of the period. Potentially dilutive ordinary shares are actually dilutive only when the average market price of the Company's ordinary shares during the period exceeds their exercise price (options) or issue price (other awards). The greater any such excess, the greater the dilutive effect. In accordance with IAS 33 'Earnings per share', for the purposes of calculating diluted loss per share, the effect of potentially dilutive ordinary shares has not been taken into account for the year ended 31 December 2017 due to there being a loss for the year. The average market price of the Company's ordinary shares during the year was 126p (2017: 230p). The dilutive effect of share-based incentives was 289,262 shares (2017: nil shares). The dilutive effect of share-based incentives for continuing operations was 289,262 shares (2017: 918,989 shares).
| 2018 | 2017 | |
| Profit attributable to owners of the Company (£000's) | 865 | (2,733) |
| Weighted average number of diluted ordinary shares (000's) | 16,399 | 16,066 |
| Diluted earnings per share | 5.3p | (17.1p) |
| Continuing operations | 2018 | 2017 |
| Profit attributable to owners of the Company (£000's) | 1,076 | 1,300 |
| Weighted average number of diluted ordinary shares (000's) | 16,399 | 16,006 |
| Diluted earnings per share | 6.6p | 7.7p |
5. Assets and Liabilities Classified as Held for Sale
| 2018 | 2017 | |
| £000's | £000's | |
| Property, plant and equipment | 4,457 | 4,288 |
| Inventories | 2,142 | 1,265 |
| Total assets | 6,599 | 5,553 |
| Deferred taxation | 12 | - |
| Total liabilities | 12 | - |
| Carrying value | 6,611 | 5,553 |
The property, plant and equipment assets held for sale at 31 December 2018 relate to Good Energy Brynwhilach Solar Park Limited, sale contracts were exchanged before the balance sheet date.
Held for sale inventory costs relate to a wind development project held within Good Energy Development (No.7) Limited, residential property, and a transformer. These were actively marketed for sale in the year ended 31 December 2018.
6. Borrowings
| 2018 | 2017 | ||||
| £000's | £000's | ||||
| Current: | |||||
| Bank and other borrowings | 2,668 | 5,606 | |||
| Bond | 3,595 | 8,288 | |||
| Total | 6,263 | 13,894 | |||
| 2018 | 2017 | ||||
| £000's | £000's | ||||
| Non-Current | |||||
| Bank and other borrowings | 37,297 | 39,378 | |||
| Bond | 17,167 | 16,666 | |||
| Total | 54,464 | 56,044 | |||
The Group has undrawn bank overdraft facilities of £10,000,000 (2017: £10,000,00) as at 31 December 2018 and undrawn revolving credit facilities of £nil (2017: £822,140).
At 31 December 2018, £6,193,641 (2017: £6,834,591) of the bank loans relate to the Company's subsidiary, Good Energy Delabole Wind Farm Limited and is secured by a mortgage debenture on that Company.
At 31 December 2018, £34,990,240 inclusive of £605,731 of accrued interest (2017: £35,704,211 inclusive of £617,341 of accrued interest) of the bank loans relate to the Company's subsidiary, Good Energy Generation Assets No. 1 Limited. Repayments of capital and interest are scheduled quarterly over a period of 18 years. Interest is payable at 6.85% and the outstanding principal balance is partially exposed to annual RPI inflation over 3%. Costs incurred in raising finance were £2,754,299 (2017: £2,754,299) and are being amortised over the life of the loan in accordance with IAS39.
Good Energy Bond I was partially redeemed in 2018, with £3.6m continuing in Good Energy Bond I at a lower rate of 4.25% and £4.3m was repaid in March 2018.
7. Cash flows
| 2018 | 2017 | |
| £000's | £000's | |
| Profit before income tax - continuing operations | 1,707 | 734 |
| Loss before tax - discontinuing operations | (153) | (4,012) |
| Profit before tax | 1,554 | (3,278) |
| Adjustment for: | ||
| Depreciation | 2,948 | 3,329 |
| Amortisation | 867 | 1,008 |
| Gain on asset disposals | 495 | (1,048) |
| Write down of generation development work in progress Share based payments |
- 358 |
3,651 263 |
| Finance costs - net | 4,345 | 4,858 |
| Changes in working capital (excluding the effects of acquisition and exchange differences on consolidation) | ||
| Inventories | 348 | (4,998) |
| Trade and other receivables | 974 | (16,494) |
| Trade and other payables | 5,611 | 12,736 |
| Cash generated from operations | 17,500 | 27 |
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