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2019

The long game – profits from domestic energy supply

Robert Buckley Head of Retail and Relationship Development

Understanding just how profitable domestic supply is has been a long-term concern about the energy market. Since 2009, the Big Six have had to publish separate financial accounts for their generation and supply businesses. These “segmental statements” must be issued no later than four months after the end of their financial years. Financial years run on a calendar basis for all bar SSE, which uses April to March. So, five of the Big Six have now issued their segmental financial statements for 2018. On average their domestic energy supply EBIT profit margin for 2018 was 1.5%, nearly half the 2.8% average for the six companies recorded in 2017. But, as the chart shows, profit margins have not been earned consistently by the six companies. Until 2016 EDF Energy was loss making but since it has earned EBIT margins of 0.9% in 2017 and 1.8% in 2018. npower has also been loss making each year apart from 2012 to 2014, with a marked deterioration from 2015 when it has struggled to cap losses below 5%. While EDF Energy appears to have steadied the ship, npower’s difficulties implementing a recovery plan have culminated in it being placed for sale by its owner innogy. The proposed merger of npower with the domestic energy supply business of SSE was aborted last December. Had the deal gone through, the merger would have placed the second most profitable of the six retailers with the biggest loss maker. While it has yet to report its 2018-19 figures, SSE has posted domestic energy EBIT margins over 5% each year since 2015, and the company has said it expects 2018-19 to be profitable. Along with British Gas, SSE has been the most consistently profitable domestic energy supplier in the decade of the segmental accounts. We will discuss further thoughts on the segmental statements in a future issue of our weekly Energy Spectrum.

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