Utility Warehouse has suggested small independents acquiring customers at a loss will not last long, predicting further insolvencies.
Reporting financial results for the year to 31 March, parent firm Telecom Plus posted an adjusted pre-tax profit increase of £54.3m (up 1.8%) and a marginal statutory pre-tax profit increase on 2017 of £100,000 to £41.0m.
Chairman Charles Wigoder offered a bullish outline of the firm’s prospects. He said the looming retail price cap would work in Utility Warehouse’s favour and suggested the proposed Npower-SSE merger could provide an opportunity to revisit its commercial terms with Npower.
Wigoder painted a bleaker picture for the firm’s smaller competitors.
Rising forward costs for energy, up around a fifth since January, and rising non-commodity costs do not appear to be reflected in many challenger brands’ acquisition tariffs, Wigoder suggested.
Their strategy “appears to rely upon having a retail price position at (or towards) the top of price comparison site results, irrespective of the impact this will have on their profitability and/or cashflow”, he stated.
“This is clearly not sustainable, as has been demonstrated by the number of smaller independent suppliers who have ceased trading recently,” he continued. “In the absence of strong balance sheets to absorb the losses they will be making, and/or a collapse in commodity prices, further insolvencies seem inevitable.”
Wigoder also welcomed a perceived change in mood music around exemptions for smaller suppliers from some policy costs. Those under 250,000 do not currently have to take responsibility for policies such as the Warm Home Discount or Energy Company Obligation.
While implemented to help level the playing field for small suppliers, who faced challenges securing the energy they need due to wholesale credit and collateral requirements and a limited availability of suitable ‘clip sizes’ for energy, the plethora of independent suppliers entering the market in recent years suggests many of these barriers have been circumnavigated.
Large suppliers believe exemptions give smaller suppliers a competitive advantage and Utility Warehouse shares that view.
Exemptions “create significant distortions and widespread consumer detriment, and we are encouraged that a consensus seems to be building that these exemptions are no longer serving the purpose for which they were conceived, and ought to be scrapped”, said Wigoder.
The firm’s domestic electricity and gas customers inched up around 1% to 556,000 and 450,000 accounts respectively.
In contrast, chief executive Andrew Lindsay, said its business customer proposition was “extremely difficult to grow in the current energy wholesale pricing environment”.
Business customers fell around 5% to 79,000.
Lindsay said the company has installed more than 207,000 smart meters, representing around 21.6% of its domestic customer base.
New targets for so-called SMETS2 meters – which are reported to actually work with the central comms infrastructure – has been met with “considerable scepticism” by industry with regards to its achievability, noted Lindsay.
He added the firm remains “broadly supportive” of the government’s smart meter programme.
However, expressed concern over “the significant additional costs that are being incurred as a result of an ill-conceived and sub-optimum rollout strategy co combined with unrealistic deadlines – a cost that will ultimately be met by consumers”.
See the full statement here.