Good Energy Group PLC (GOOD) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Good Energy Group PLC interim results investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses where it is appropriate to do so. Before we begin, as usual, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Good Energy. Nigel, Rupert, good afternoon.

Good afternoon, Jake. Thank you very much. I should sort of introduce us as part of the executive management team of Good Energy. Our colleague, Fran Woodward, isn't with us today. But for those of you who are new to these meetings, I'm Nigel Pocklington. I'm the company's Chief Executive, and I'm joined by Rupert Sanderson, our CFO.

Hello, everybody.

Right. So this is a presentation just to summarize our results for the first 6 months of the calendar year and update shareholders as to the progress in the transformation of Good Energy that has been underway for the last couple of years. I don't normally linger on the title page, but I think it's worth it on this occasion. That is actually a Good Energy installation team at work in a Good Energy-branded equipment. So they're from Good Energy Solar, and they're installing solar panels on the roof of the Sealife Centre in Great Yarmouth and I think a very good visual image really of the transformation in the nature of our business over the last couple of years and the type of customer who we are now attracting. So in terms of what to expect after a couple of summary thoughts from me, I'm going to hand over to Rupert, and then I will take up the reins again and give you an update as to our strategic progress. The whole presentation has fewer than 20 slides in it. So that should, therefore, allow plenty of time at the end of the meeting for Q&A. And as usual, you can leave questions on the tab on the side of the screen. So a couple of overall or summary thoughts, the first of which, frankly, is I want to stress the significant change in the nature of Good Energy's business over the last couple of years. So after the sale of our generation assets in early 2022, we have transformed and strengthened our balance sheet with additional cash to invest, which has been supplemented by a vendor placing. And the business is in a very different shape to the one that it was in 3 or so years ago. And really, we have 4 areas of the business now. Firstly, we remain a supplier of 100% renewable electricity and a green gas proposition. We are one of the very few suppliers derogated from the price stack -- price cap in the U.K. because of our direct support for over 2,500 small generators who provide the power, which we bring to the retail market. We are widely regarded by a lot of third-party accreditations as offering both a very green product. We are 3 times Which? Magazine's Eco Supplier of the year in the U.K., but also by Trustpilot as offering five-star customer service. So we have a distinctive and niche supply proposition, which is popular with green-motivated consumers and businesses. Whilst I would freely accept that we are a niche operator in the supply market, we are a significant player in the world of microgeneration. We are -- we reach more than 180,000 customers in this area either through our administration of feed-in tariff scheme or through our -- through the success of schemes which we support for people who didn't qualify for FIT. In general, whilst we have a very small market share in supply terms, we speak for about 1/5 of the U.K.'s microgenerators. We are fast growing in installation services capability, which at the moment covers the south of England, and we are focusing on installing a premium quality solar storage heat and potentially even EV charging or proposition really across the south with aspirations to keep growing that business. That business very much faces into both a significant trend in terms of the consumer demand and increasingly in terms of government policy in the U.K. And then lastly, through our investment in Zapmap and other product innovation, we are a significant supporter of the electrification of transport in the U.K. So if that is how to think about the business and how should we think about the first half of this year, I think there are 3 highlights I wanted to call out. The first is that Rupert will explain in a moment some of the year-on-year comparator issues with the first half of 2023. But 2024 remark -- marks a return to some sort of normality in at least the seasonal profile of the business. So I'd be the first to acknowledge that power prices are painfully stuck in a higher place than they were 3 or 4 years ago. But we have a less volatile and more normalized market in which we have made a strong and profitable start to the year, and the Board is very clear in reiterating the fact that the business is on track for our full year guidance. We've seen a significant expansion in our capabilities as an installer, mostly through the acquisition of JPS Renewables in Kent in the first 3 months of the year. And we are innovating both in terms of our work with the feed-in tariff with its subsequent products to cement Good Energy's overall position as the U.K.'s microgeneration champion. So with that summary, I will hand over to Rupert, who can explain the first half's financials.

Thank you, Nigel. I wanted to start with just sort of a bit of context in terms of where the P&L result is for the first half of '24. And here, we've got the last 24 months through the back end of '22 through to the end of June of '24, characterized certainly the 18 months during '22 and '23, very volatile in terms of the geopolitical tensions and the energy crisis that the U.K. and a number of other countries endured. And just in terms of sort of graphic here, there's 2 principal data points. The first is the blue bars represent a sort of average cost of input power and gas into our portfolio, and the yellow line is a representation of the sort of tariffs that we are charging to our customers. The picture here will be quite consistent with how other energy companies would have reported, particularly in the first half of 2023. But the lead-up to that was that commodity prices were rising very sharply through the back end of 2022, and tariffs were taking some time to catch up with those very sharp rises in commodity costs. The reverse then happened in the first half of '23. And I think all energy companies in the U.K. would have reported quite similar results, where the sort of margin expansion was quite significant as then commodity prices started to fall relatively sharply, but tariffs remained high. And then the third point is the conversation that I think I probably touched on in March when we did our full year results. The way in which we power -- procure power and gas is generally over a sort of 12-month season, and the majority of those contracts are through sort of October to September. So particularly in Q3 of last year, we had the final tranche, so to speak, of those high-priced power and gas contracts, but we have reduced our tariffs significantly because we saw the competitive environment and we had the benefit of that first half. So the 18 months preceding this period in question are quite unusual and a lot of extremes, a lot of volatility. And as Nigel said, this first half of the year is much more normal. We have seen a greater stability between the commodity prices and the pricing environment out in the marketplace. And again, just in terms of the context for this, so in Q1 of '24 compared to the Q1 of '23, retail tariffs are nearly half or a little under half of where they were. So there's a very significant price movement. And we have had some reduction in the size of our commercial portfolio. Those 2 items combined have driven a near 40% reduction in turnover, but an always identically corresponding reduction in cost of sales. And so it's in that more normal environment that we report gross profit and profitability for the first half of the year. And in reporting the profits for the first half of this year, they were a little over 75% of our full year profit in 2023. So as Nigel said, the majority of our profit being delivered in the first half of the year, we are expecting a second half of profitability, and therefore, we're maintaining our full year guidance today. This is a more simple representation, I think, than we've had in previous years. So the bridge of half 1 profits year-on-year, we touched on the volume reduction, particularly in the commercial segment but the vast majority of the movement relates to that commodity and tariff normalization that we have seen in the first half of '24 compared to the first half of '23. On cash, we've had a very strong performance on cash. The business is cash generative, so about GBP 6 million worth of operating cash flow, and it is more comparable actually with full year '23 than would appear from the page. A number of you, again, will remember in March, we talked about a buildup of credit balances, particularly within our domestic portfolio as those tariffs fell off quite sharply during the second half of '23. And we increased the level of customer credit balances by nearly GBP 7 million in the second half of 2023. And then we have done what again we talked about in March, which was to actively return -- proactively return customers' credit balances where we felt that they were too high and they weren't going to be utilized by consumption in the future months. And so we've actually seen that customer credit balance fall back again by almost exactly as much as they went up in the second half of 2023. Just in terms of the other things to call out, we have made the acquisition of JPS in the first half of the year, a purchase of GBP 7 million, GBP 5 million funded by cash, the other GBP 2 million funded by a vendor placing. And we've made a further investment into the Zapmap business, which Nigel will update the performance on as we go through the presentation. And finally, just a consistent view of how we consider our capital allocation. So the business remains in very strong financial health with a small amount of debt. The company has got net cash at the end of June of GBP 34 million. We have again talked about seeking further opportunities, inorganic M&A opportunities to expand our energy services footprint and capabilities as well as invest in our own internal capabilities to support solar propositions. And again, just in terms of the confidence in our full year outlook, we are making a 10% increase in our interim dividend, and we'll be making a payment of 1.1p per share. I'll hand back to Nigel. Thank you.

Thank you, Rupert. That's a summary of the first half financials and a more normal profile for an energy company, although the comparator to 2023 is still distorted by the gas price crisis of the last few years. Strategically, how are we doing? Well, if you've been following our story, you will know that our central strategy is that we are investing to build a significant green energy services capability to sit alongside our renewable supply proposition, because we see that as being both an important way of delivering on Good Energy's founding mission around decentralizing growth and helping people become their own power stations and clean power users, but also because we think there is a substantial business opportunity behind markets which are likely to grow structurally through the rest of the decade in the U.K. So just start with what gave us our brand in the first place, which is our supply business. And it has been, I think, a positive first half of the year for us as a supplier. Just as a reminder to investors, we regard the supply business as something that we can grow in a sustainable sort of mid-single-digit margin profitable way, and we run it to make sure that it is run in a particularly stable way so that we've been able to navigate for the last few years. Highlights here. Well, the first one is that the price cap regime, which had started in 2019, actually formally came to an end in 2023. The regulatory government chose to then roll it on pending decisions around where we're eventually going as a country. But it meant that Good Energy's derogation from the cap had to be reviewed by the regulator on an annual basis. The regulatory reviews our pricing practices and making sure that we are being clear with customers that they are taking on what is a differentiated and different product to the market norm and our direct support to renewable generators and green gas producers from those tariffs. And happy to say that after a detailed exchange with the regulator, they acknowledged and have publicly said that we stuck by our side of the derogation bargain during that period. So we have a good stamp with the regulator that what we are doing is different to the market norm. It's not just the regulator. Several trusted third-party bodies continue to credit us with strong environmental performance, Which? and Uswitch, and also high levels of customer service. That's our own customers crediting us with that. We are 1 of only 2 suppliers with a five-star rating on Trustpilot. We've had that rating for most of the last year. There's been some innovation in this side of the business as well, particularly on the B2B side. So with the larger business customers who consume power often settled on a half-hourly basis in their billing, we are able now to offer a matching product. So on an hourly basis, we can inform our larger customers the proportion of their consumption that is being matched then and there by renewables. We very much think that as a gold standard. We're linking tariffs to actual renewable generation, and our argument would be that has now passed the existing REGO ecosystem as a way of branding power as genuinely green power. And then we are continuing to push for further efficiency in this business. We have been operating 2 billing platforms, one for domestic and one for larger customers. We are consolidating down onto the single one. Kraken project is underway now and should finish by the end of the year. I think what has changed is that the policy environment we are working in is a change one with the change in government in the U.K. And some of the details -- or many of the details, I should say, are still to come out. But I think I read the early months of this government as being one that looks likely to be, A, more stable and sensitive in terms of its treatment of energy policy. And the central argument that renewables are part of this solution are not the problem for the U.K.'s energy security and energy prices, but also that the policy agenda is one that should provide us with a helpful tailwind. There are some headlines there, which we've noticed over the last few weeks, obviously, a lot of attention on the lifting of the de facto ban on onshore wind generation. We are looking to find more about what the government is going to do in terms of heat pump incentives and support for a smaller-scale solar generation. They were gathering headlines a few weeks ago. We're talking about the need for a rooftop revolution, particularly in the Southeast, which they regard as a strategically important area for this. But certainly, if the government is going to get anywhere near its 2030 green energy grid targets, we're going to need a substantial increase in the proportion of roof-carrying solar power. And obviously, we are active in both installation and ongoing services for that marketplace. So if I remind shareholders of the overall proposition we're trying to develop in our services business as a schematic of an estate agency or business on the left and a home on the right there. In the business market, we are able now, I think, to bring quite a strong proposition to the marketplace, which is that we can install solar and, if desired, storage and electric vehicle charging. Solar power for businesses has a higher barrier to entry than domestic solar does. They are larger jobs, which are inherently -- need greater attention to help the safety points. They need more complex work. The buyer is that much more sophisticated if it's some sort of facilities manager. So we're really seeing a real sweet spot above 50 kilowatt and potentially even to 100-kilowatt plus systems for businesses. The second advantage we can bring there is that we are very experienced in buying exported power with small generators. So some of our newest customers are both installing with us and then selling their exports to us as well. So we are seeing increased interest in commercial business energy services to complement the home proposition, which we have. We've talked about this on a couple of occasions now around our ability to provide both electric vehicle, solar storage and heat propositions, along with ongoing maintenance, export and import services. We are increasingly seeing customers becoming interested in our whole home capability, so coming to us for heat, but then also installing solar at the time or getting an EV and then installing solar at the same time to something that is, I think, a very positive development for us. There are a couple of examples, which I'll bring to life in a few moments with a video, but you can see here both on the business and the commercial and the domestic side a couple of real examples. So bigHead are a manufacturer of fasteners for the clothing industry largely. They came to us through word of mouth to do a cellular installation on their business park facility. We've done that. They're very happy with the bill savings they're getting. And actually, they are now also a customer of ours for both energy supply and exporting any spare energy that they make. So they are big proponents of the payback they're getting from solar. Nicholas is a domestic consumer. He's actually a self-build consumer, started the conversation with us on a heat pump, landed up doing a whole home job, including solar and storage, and has an ongoing relationship with us for supply and export. So obviously, they are kind of premium examples, but we're expecting to see a bit more of this, which will, I think, have an economic advantage for us over the next year or so. There are some data there on the slide in terms of what we've seen so far this year. So we're seeing that Good Energy's existing customer base, particularly in supply and FIT, are a reasonable source of leads for further solar installation. So about 18% of our solar installation sales have come from our existing customer base. We are seeing that solar install customers are buying heat pumps as well now. It's about a 1 in 10 addition there. And about 20% of our solar install customers have taken a service from us. So they are coming to us to buy their export power, for example, or coming on supply with us. So if I now hand over to you, Jake, there's a couple of videos which just bring these stories to life. [Presentation]

Thank you, Jake. So a couple of videos to bring those examples to life there really of customers who we have worked with successfully in both the business and the domestic side of the business. So a lot of this sits on our ability to deploy new and exciting propositions that will particularly appeal to early adopter customers in these markets. And we've had, I think, a strong track record so far this year and an exciting pipeline still to come. So I would highlight our work for export customers, particularly FIT customers. We remain the only supplier able to pay FIT customers on the actual metered usage, sort of metered export that they provide. For nearly all FIT customers, that is a net gain in the payment they will receive from us. It's not necessarily that substantial for an individual. But for anyone who's got a portfolio of FIT sites, it can become a meaningful amount of money, very little additional work, just the work involved in switching fixed sites to us. We're also increasingly trying to work in the market for people who missed out on the FIT scheme, and we are now confident we have the best export rate in the marketplace for people who actually install with us. So it is undoubtedly a loss-leading rate, but we will pay up to 40p a kilowatt-hour for exported electricity for somebody who has installed with us for the first year of their use of those panels. So some good innovation for exporters and solar customers. On the supply side, we continue to look for niche propositions that appeal to customers who are particularly environmentally aware or aware of adopting new technologies in the energy transition. We are signed and announced and about to go live with Ripple Energy, for example, which will allow people to part own actual generating assets and then see some dividend effectively through reduced bills, depending on the performance of those assets. On the services side, we are one of the few players that actually monitors heat pumps after they go in, which means that we can offer individualized winter tips to consumers about how to use them at the most efficient way possible whilst maintaining heat in the home. And then in terms of flexibility, which is very much the future trend we're excited by in terms of greening the energy grid and saving people money, we have launched a new electric vehicle tariff, which is settled on a half-hourly basis as a time-of-use tariff that relies on smart metering and new systems there. And as we touched on already, we have an industry-leading hourly matching product in the market for business customers. Where am I expecting this to go? Looking at a number of areas to enhance these propositions. So let's stay on flexibility. I think this winter, we will step outside from the National Grid's early experiments in this area, which whilst they were exciting to see how consumers engage with them, weren't particularly high paying. And we'll be focusing on a flexibility offer for battery customers, which should offer meaningful savings through the winter, and a heat pump trial backed with some academic research, which again is focused on how can you most effectively use the heat pump whilst maintaining heat in the home. On the services side, we are exploring sort of slightly a more niche proposition of high-temperature heat pumps for people who can't make changes to their existing home setup if necessary. We may well end up looking at financing options for heat pumps and certainly enhancements to those monitoring services for heat pumps. On the supply side, the ability to settle on a half-hourly basis opens the door to any number of tariffs aimed at people who are adopting green energy technology. So we currently have the cheapest off-peak electric vehicle tariff rates in the market. We're going to be following that up soon with rates for heat pump owners, for example. And then lastly, on the export side, after the innovation around payments, we're looking to improve our service level further to the FIT market by enhancing the way in which we can use mobile phone images to deliver accredited meter readings. I should touch also on Zapmap, into which we put some additional funds this year. Zapmap continues to maintain a very high penetration of the U.K.'s electric vehicle market. So it reaches about 75%, we think, of the U.K.'s EV parc. Its download rate and its registered user number, particularly its active user numbers, have continued to keep pace with the growth of their vehicle parc despite the fact that we don't spend very much money on marketing there. We're seeing good levels of penetration in terms of particularly fast-charging charge points being both on the maps and available through Zappay. And I think the business lines I'm most pleased by the progress on is in terms of the insights business, so selling data based on driver behavior. That's now a proper digital product with mapping and other deep resources for people who need this, and it's growing very nicely. We have 2 licensees who are licensing data from us. We're seeing a growing subscriber base using the more -- some of the more enhanced functionality, and Zap are in several conversations with some large and significant partners to help increase their speed to market. So Zapmap continues to be an exciting digital play and an exciting way for us to reach electric vehicle drivers. I should also touch on some very recent news, which is that Good Energy is now an accredited B Corp. So as you can see from the slide, and as I was confident in, our environmental founding roots, if you like, and the way in which we do business meant that we achieved a very high score through the B Lab's accreditation process, comfortable of the 80 points you need for a B Lab score, and we're way above the median score in this marketplace. So the team have worked very hard on this and I know are very proud of our becoming a certified B Corp. We're one of the very few energy suppliers and still the only domestic energy supplier with this accreditation. And we're very pleased by the stamp it gives in terms of our underlying purpose, but also the fact that it creates a commercial opportunity for us to be introduced to a number of B Corps and B Corp-minded consumers in the U.K. I should note that to retain this for any period of time, we do need to adjust the articles of association of the company to reflect the B Corp triple bottom line locks of people, planet and profit, which is really how we run the company anyway. That needs at least 75% of the shareholders who vote to support it. This resolution has failed at the last couple of AGMs, in part because it was a slightly hypothetical resolution. We didn't have the accreditation to resort to. We have it now, and we would intend to return to a subsequent AGM to look for full shareholder support again for that resolution. So in summary, you've heard from both of us here that we have begun the year in a strong and profitable way and that we are maintaining our guidance for the full year. And we're doing that while investing considerably behind our new propositions in energy services, which will increasingly provide a whole greener home and business to our customers. We think the change in government is a net positive for Good Energy. We're seeing good progress in terms of integration. It's not an accident that we are showing a picture of one of our team there wearing Good Energy-branded workwear. The business he works for is Good Energy Solar. The sales, the marketing, the finance operations are largely integrated already. And we are, I think, doing a lot to really cement our positioning within the U.K. energy market as the microgeneration champion and specialist. And with that, Jake, I shall hand back to you, and you can begin to run the Q&A.

[Operator Instructions] But just while the company take a few moments to review those questions that were submitted already, I would just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can all be accessed via your investor dashboard. Rupert and Nigel, which you can see there, we have received a number of questions throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. But guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And then I'll pick up from you at the end.

Thank you, Jake. So I will take control of the mouse at this point and, therefore, call out the questions and try and divide them up between Rupert and myself. Alex' question is around the cash and cash equivalents number there of just shy GBP 40 million on the balance sheet at the half year. What are we going to do with the cash? Are there any specific investment areas, other acquisitions, R&D? And what are we prioritizing? Rupert, do you want to sort of give that breakdown of how we look at that?

Yes, of course. Yes. So as you know, we've got a little under GBP 40 million worth of gross cash. We still have a small amount of the legacy Good Energy bonds debt that's on the balance sheet. That's about GBP 5 million. So we think about the business as having around GBP 30 million to GBP 35 million over the course of the second half of this year. At least half of that, having seen how the energy markets can and potentially might operate in the future, our first port of call is to ensure that we have sufficient working capital and sufficient risk capital to be able to operate in markets that can change at relatively short notice. There is a considerable amount of that capital, though, that we would consider available for use in terms of future investment. It's probably a little under half of that total capital of the sort of GBP 30 million to GBP 35 million after the debt. And the things that we are continuing to actively consider, we touched on a little bit within the presentation. So we touched on a sort of real sweet spot around some of the wider services that we can support to sort of medium-sized commercial customers. The bigHead example was a great example of that, so potentially expanding our solar installation capability with a weighting towards commercial. Certainly considering the geographic reach of our existing installation businesses as well, we are very much focused on the south at the moment. So those are likely to be the sort of 2 routes for potential investment, along with some of the internal developments that Nigel highlighted in terms of our sort of 12-month forward pipeline in terms of propositions. But we are active in ensuring that we are utilizing our capital both to run the business and to further grow the business.