ovo energy annual report 2017...we set out to build a brand people could trust; a company that would...

OVOAnnual Report2016/17

A message from our CEO 04

OVO’S EVOLUTION

Energy system of the future 10Our evolution 12Financial highlights 14OVO in review 16

THE OVO GROUP

Group strategy 20OVO Energy 22Introducing Boost 24VCharge 26IHT and CORGI HomePlan 28Electric vehicles 30OVO Foundation 34OVO Culture 36Reducing environmental impact 38Powering sport and music 39OVO board 40

OVO’S FINANCIALS

Financial statements 44Partners 50

Contents

Annual Report 2016/17 – 3Annual Report 2016/17 – 32

OVO grew out of the belief that there was a better way. We set out to build a brand people could trust; a company that would simplify energy and

offer fair and transparent pricing, underpinned by unrivaled customer service.

Our work is far from over, but during the past eight years we have built OVO into a company people value and trust. OVO now has almost one million customers and has topped the Which? customer satisfaction chart two years in a row. From humble beginnings in a barn in Gloucestershire we have become the UK’s leading independent energy company.

When OVO launched in 2009 it was unheard of for utilities to tell their customers ‘’energy can be simple.” With this focus on transparency and fairness, we challenged the dominance of the Big Six and set the standard for new entrants to the market. But fairness and simplicity are no longer enough- customers expect more value from their energy company.

The industry also faces great changes, driven by the falling cost of renewables and increasing digitisation. As we look forward to further advances in battery technology, the rise of connected devices and the electrification of transport, only companies that offer integrated energy services will thrive. We have spent the last year preparing for the future, investing in our own capabilities and completing a series of strategic acquisitions.

A message from our CEO

“We started off as a simple retail business, and now we are evolving into a group of intelligent energy companies that will harness technology to bring clean, abundant energy to everyone.”

Smart homes

At OVO we were quick to see how smart meters and the explosion of data they offer would transform the energy system. We championed the smart meter rollout, setting up our own engineering team to ensure we learned first hand about the challenges of installing new technology in people’s homes. Getting the customer experience right has been an integral part of our strategy, and with almost 50% of customers now equipped with a smart meter, we are years ahead of the rest of the industry.

The introduction of the OVO Engineering Field Force was a key step in our evolution to a smart energy company, and the addition earlier this year of CORGI HomePlan and its network of 5,000 engineers set us up for large scale growth in home services.

Installing meters is the first step in enabling our customers to benefit from advances in technology, so we are now extremely well placed to help our customers make a full transition to a smart home. We will be offering a range of smart products, including connected boilers, thermostats and batteries, solar panels and heat pumps.

Intelligent energy

In March this year we acquired VCharge and its intelligent energy system, VNet, which automates and orchestrates how connected devices are used within and outside the home: the VNET software transforms smart services to intelligent solutions.

By using VNET’s platform to control home energy storage batteries and other connected devices we can balance the grid and bring flexibility to the energy system. This will ultimately reduce customer bills and support more renewable power on the grid.

Annual Report 2016/17 – 54

Zero carbon transport

The accelerating trend towards electric vehicles is a further opportunity for OVO to offer value to our customers. We have invested in an electrical engineering consultancy, Indra Renewable Technologies, and ChargedEV - an electric vehicle services supplier - with whom we are developing game-changing technology that will unlock the potential of vehicle-to-grid charging.

We have also launched our EV Everywhere product and partnered with Chargemaster to give EV drivers access to the largest national network of EV charging points. Through smart charging capabilities, available on a national scale, electric vehicles will ultimately function as mobile batteries at home and on-the-go.

The customer is always in the room

We started off as a simple retail business, and now we are evolving into a group of intelligent energy companies that will harness technology to bring clean, abundant energy to everyone. The last eight years has brought tremendous change to the energy industry and to OVO, but one thing remains a constant; we always ask ourselves how we can best serve our customers.

Stephen FitzpatrickCEO, OVO Energy


OVO’s evolution

“Excellent online customer account access and a very responsible and green company.”KATIE H – TRUSTPILOT

8 Annual Report 2016/17 – 9

ALL CARS ON

THE ROAD

ARE ELECTRIC

Demand and supply side

response software

TO INTELLIGENTLY

BALANCE THE GRID

Very limited

thermal generation

RENEWABLES ARE

DOMINANT SOURCE

OF ENERGY

HOMES USING RENEWABLE

TECHNOLOGY TO GENERATE

THEIR OWN POWER

for electric vehicles outside

homes and along roads which

can charge and buy back

power to balance the grid CHARGING POINTS to store renewable power

and counter intermitte

ncyHOMES USING

BATTERIESwhich power down

appliances during

peak periods, saving

customers money and

balancing the grid

APPS AND

SMART METERS Energy system of the future


Pre-payment tariffs

Smart meters

Grid balancing

Electric vehicles charging & tariffs

Smart boilers, insurance & maintenance

2009 2013 20172011 2015

SMART ENERGY SERVICES

SMART ENERGY

TRADITIONAL ENERGY

Retail tariffs

Interest reward on account funds

Our evolutionIn a rapidly evolving and increasingly

competitive industry, OVO has set about redefining its business to move

beyond the traditional utility model and become a provider of customer-centric, innovative energy services underpinned by smart technology.

The past 12 months mark a step change in the evolution of the OVO business. Acquisitions of like-minded businesses such as VCharge and CORGI HomePlan; investments in tech specialists ChargedEV and Indra Renewable Technologies; coupled with major partnerships, and a move to a portfolio brand strategy with a dedicated pre-pay energy brand, Boost; has seen OVO transform from a top-rated energy retailer into a serious, multi-service player in the smart revolution.

IHT


Revenue (£m)

Gross Profits (£m)

Customers (k)Employees

H1 8

6M

H2 P

ROJE

CTED

103M53

M24M20

M11M3.

5M

Financial highlights

2011

2012

2013

2014

2015

2016

H1 2017

819k67

6k569k41

2k139k13

1k67k

2011

2012

2013

2014

2015

2016

H1 2017

1,20

51,09

899474

228516

1100

2011

2012

2013

2014

2015

2016

2017

H1 4

06M

H2 P

ROJE

CTED

717M51

2M317M17

2M103M46

M

2011

2012

2013

2014

2015

2016

H1 2017

(37M

)

(2M

)

(0.5

M)

FOOTNOTESFinancial results for 2017 are based on OVO Group management accounts.• H1 2017 Profit Before Tax is based on the amount recognised in the first half.• Customer numbers and Employee numbers as at 30 June 2017.

2011

2012

2013

2014

2015

2016

2017

0.3

M

PROF

IT >>

> <

<< LO

SS

(32M

)

Profit Before Tax (£m)

26M24

M


Title sponsor of

TOUR OF BRITAIN and WOMEN’S TOUR and BLUEDOT 2017

TOPPED USWITCH ENERGY AWARDS with 96% customer satisfaction score in 2017

RANKED NO.1 in the Which? energy customer satisfaction survey 2017

OVO in review 2016 REVENUE £717M

65%renewable electricity

45%of customers with smart meters


The OVO Group

“Absolutely love this company. Spot on with billing, would give 6 stars if I could!”ROBIN J – TRUSTPILOT


Group strategyOVO’s strategy is to look beyond the traditional energy retail model and build a group of innovative companies that harness technology to unlock long term value for customers, and ultimately fuel human progress by providing abundant clean energy for everyone.

SMART HOMES

GRID BALANCING

SOFTWARESMART EV

CHARGING

SMART METERS

HOME BATTERIES

FAIR TARIFFS

RENEWABLE ENERGY

DIG

ITISED DEC

ARB

ON

ISED

DECENTRAL ISED

IHT


The global energy market is moving rapidly towards a new era of digitisation, and decentralised clean power generation which will place more control in the hands

of consumers. It means that the opportunities to provide greater value to customers - beyond simply supplying kilowatt hours - have increased exponentially, and that the energy retail market will change beyond recognition.

OVO has positioned itself at the forefront of this change and is well placed to capitalise on opportunities as the business evolves from a top-rated energy retailer to a multi-service, multi-brand energy technology company.

As OVO changes, customers will increasingly benefit from new products and services that harness the disruptive power of technology.

Customers already enjoy many of the benefits of rapid digitisation. The ‘My OVO’ website provides a simple way to manage energy accounts online. Cutting edge products such as OVO Live - a platform that receives data from smart meters every six seconds - provide customers with unprecedented access to information about their own energy consumption. Recent updates to OVO Live include disaggregation monitoring, which pinpoints the energy usage of individual household appliances. This provides a new level of transparency for customers and helps them to manage their energy use accordingly.

The determination to use technology to allow customers to take charge of their energy use, together with fair pricing and unrivalled customer service, has placed OVO Energy at the top of the Which? Customer Satisfaction Survey for the second year in a row. OVO was also named the World’s Best Energy Brand at the CHARGE Awards in 2016 and scooped eleven awards at the 2016 USwitch Awards.

Smart supply

OVO Energy

Intelligent trading

OVO Energy’s trading team has developed a number of tools in-house to purchase commodities as efficiently as possible and reduce trading risks. This helps us to manage the 3.3Terrawatt hours of electricity and 9.1Terrawatt hours of gas OVO Energy purchases every year, passing on savings from intelligent trading through reduced customer bills.

The proprietary demand forecasting model combines regression and machine learning algorithms that analyse data on usage and weather patterns to calculate OVO Energy’s share of Elexon’s standard demand profile, all to a high degree of accuracy. This tool is essential for avoiding volatile and potentially expensive ‘cash out’ penalties, minimising wholesale costs.

Mass penetration of smart meters and a move towards half hourly settlement has considerably improved both the quantity and quality of data available to suppliers. OVO Energy now has accurate live data of real-time usage, which creates a direct link between the cost of supplying electricity to a customer, and how and when they use it.


In 2015 OVO launched Smart PAYG+, the first truly smart prepayment platform in the UK, removing the need for

inconvenient card or key top-up systems, and instead letting customers add credit through a smartphone app linked to a smart meter. Customers using Smart PAYG+ can easily track their energy usage and spending, and set up automatic top ups, making their lives easier and reducing cost through the use of technology.

In 2017, following the success of the Smart PAYG+ platform, OVO has decided to focus on growing its prepay customer base further by creating a standalone brand that better resonates with consumers with prepay meters. Launched in September 2017, Boost offers the same game-changing technology and unparalleled levels of customer service as before with a fresh new look and the strapline: ‘Power in your hands.’

OVO’s PAYG customer base currently represents 4% of the overall market of five million UK homes with prepay meters, meaning there is a significant growth opportunity for Boost given its strong product and service differential. These standout elements will be even more important now that regulation has been introduced to cap PAYG prices. Boost is in a great position to offer PAYG customers a better energy service in a rigid, antiquated and commoditised product category.

The launch of Boost signifies a key step in OVO’s evolution towards becoming a multi-brand, multi-service energy company, with a suite of products and services appealing to different customer needs and requirements, collectively underpinned by market-leading customer service and an unwavering commitment to providing innovative and valuable ways for customers to engage with energy.

Introducing Boost


Boost is in a great position to offer PAYG customers a better energy service in a rigid, antiquated and commoditised product category.

24

OVO’s mission is to transform energy from the other end of the wire by utilising new technologies to put the needs of the customer and the planet at the

heart of future energy systems. It is about creating smart energy solutions - which can help address the complex challenge of providing reliable, affordable and renewable energy at scale.

To create those solutions, OVO acquired VCharge, an energy technology company working to solve the problem of renewables intermittency in order to accelerate the transition to a zero carbon future.

VCharge has developed a groundbreaking technology solution that uses advanced algorithms to balance grid requirements with individual user requirements, through remote control of energy storage devices.

The first application of VCharge’s pioneering VNet technology has focused on controlling electric storage heating in social housing to better manage resident comfort and to address the issue of fuel poverty, while simultaneously supporting

Smart solutions

VCharge

the widespread adoption of renewable energy by providing valuable grid balancing services.

But that’s just the start. VCharge’s technology has the potential to aggregate limitless numbers of storage devices - such as in-home batteries and electric vehicles - to produce a massive flexible electrical load. The VNet platform responds in fractions of a second to strain on the grid to increase or decrease the demand side, and help to stabilise the frequency of electricity; using smart grid technology to create a ‘virtual power plant’.

Essentially VCharge intelligently controls storage devices to provide a similar frequency response service as gas turbines do by ramping up and down according to demand. And it does this within the constraints of the customers’ needs and comfort.

By applying the VCharge technology at scale, OVO will be able to intelligently harness the enormous potential of energy storage in reducing dependency on fossil fuels, while helping to make energy more affordable for all.


As the transition to a truly smart energy system gathers pace, customers will increasingly demand timely and trusted access to the technical hardware

that will power the shift to a digitised future.

OVO has long been at the vanguard of suppliers driving the installation of smart meters through its In Home Technology (IHT) business. Those smart meters are the gateway to a range of products and services that will transform the energy system in the future.

IHT installed 137,000 smart meters in OVO customers’ homes in 2016 and almost 90,000 in the first half of 2017. 45% of customers now benefit from having a smart meter, including over two in three prepayment customers, who are able to use the Smart PAYG+ smartphone app to better manage their energy needs.

The increase in smart meter installation rates has been supported by the expansion of the OVO Field Force team of in-home engineers, launched in 2015 and now totalling over 140, which consistently delivers leading levels of customer satisfaction.

Building on the success of IHT and Field Force, OVO this year acquired CORGI HomePlan to enable more customers to realise the benefits of relentless technological progress in their own homes.

Founded in 2011, CORGI HomePlan is the UK’s third largest home services provider with approximately 150,000 customers across the UK. The company’s values mirror OVO’s focus on delivering exceptional customer service at fair prices, and have helped build high levels of consumer trust.

In addition to providing insurance services, CORGI HomePlan operates a proprietary technology platform supporting a network of 5,000 independent engineers across the UK providing installation and home emergency servicing.

Adding CORGI HomePlan to the OVO portfolio provides significant additional capabilities and scale through which it will install and maintain a wide range of in-home technologies, hardware and services.

The combination of OVO and CORGI HomePlan’s trusted brands and innovative technology platforms offers customers increased access to intelligent energy services and the opportunity to create truly smart homes.

Smart homes

IHT and CORGI HomePlan


OVO has long considered electric vehicles (EVs) a potential game changer for the energy sector and has focused much of the past 12 months

exploring what kind of technologies would be necessary to make mainstream EV adoption feasible.

To address industry challenges, such as consumer range anxiety, charge point infrastructure installation, off-peak and urban charging, grid stability, and customer engagement, OVO has sought to acquire businesses and establish partnerships that will drive forward the transition to a zero carbon, smart transport system.

New smart charging technology will make electric cars an important energy storage resource on the grid while also giving drivers the ultimate control over their energy and the ability to make money from their vehicle as an energy storage device.

To accelerate the transition to smart charging, OVO has invested in EV charge point specialist ChargedEV and Indra Renewable Technologies, an electric vehicle components and services supplier, harnessing their technical expertise to develop a game-changing vehicle-

to-grid (V2G) charger, due to be launched to market in early 2018.

The OVO V2G charger will utilise VCharge’s proprietary VNet technology platform to provide grid balancing services and automatically optimise charging patterns to take advantage of off-peak energy pricing. The charger will enable EVs to function as mobile batteries, balancing renewable energy on the grid and allowing drivers to sell back unused energy.

Through a new partnership with Chargemaster, the UK’s biggest provider of electric vehicle charging infrastructure, OVO is supplying one hundred percent renewable energy to the POLAR network, the largest EV charging network in the UK. OVO will begin to introduce its proprietary VNet technology across the network, unlocking smart charging capabilities on a national scale.

OVO launched its first EV offering for consumers in August 2017. EV Everywhere, a unique energy bundle, features 100 percent renewable household electricity and free membership to the POLAR network of more than 5,000 UK EV charge points, offering a one-stop zero carbon energy solution both at home and on the road.

Smart transport

Electric vehicles

Key EV Technology

Demand side response (DSR) solutions work by reducing or increasing electricity demand by end users to help maintain a balance of supply and demand during unforeseen fluctuations in the electricity system, usually attracting a reward for participating end users.

‘Smart charging’ technology automatically regulates energy drawn down from (and in some cases, exported to) the grid by electric vehicles. When networks are smart, charging can then be regulated using demand side response technology, regardless of when drivers choose to charge.

‘Vehicle to grid’ technology enables energy stored in electric vehicles to be fed back into the national electricity network (or ‘grid’) to help supply energy at times of peak demand.

VNet technology uses proprietary algorithms to remotely control thousands of assets to respond to grid demand changes within 1/200th of a second, smoothing peak demand and preventing blackouts.


EVs and a Smart GridEDMUND REID PARTNER AT LAZARUS PARTNERSHIP

EVs are potentially a significant source of flexibility for the power network. Current slow chargers are c.3.5kW, but these are likely to be replaced by faster 7kW chargers. A million 7kW chargers is 7GW of additional flexible load on the system. The ability to manage and integrate that additional load on a VNet type platform is highly valuable.

If we assume an average battery size of 40kWh, then one million EVs would represent a total installed battery capacity of 40GWh. This compares to the UK’s largest pumped storage power station, Dinorwig, which can store the equivalent of 9.4GWh of power.

In order to offer a smart EV charging tariff, energy suppliers will need to make sure that their customers have smart meters, that they can settle domestic load half hourly, that they have an aggregation platform to manage EV load, and finally that they have smart chargers.

“We believe OVO is the only energy supplier with the technical capabilities, infrastructure and industry relationships able to deliver a comprehensive EV charging proposition for UK customers today.”EDMUND REID PARTNER AT LAZARUS PARTNERSHIP


In 2016 OVO also developed partnerships with two primary schools in Bristol where 55 OVO mentors attend weekly 20-minute learning sessions to help build children’s ability and confidence in maths and reading.

Throughout the year, OVO Foundation continued to support Cool Earth by bringing 225 energy-efficient stoves to communities in the Democratic Republic of Congo. OVO also continued to host CoderDojo coding clubs in its London and Bristol offices, which are run by OVO volunteers and have so far been attended by almost 200 local children.

OVO Gives Back

OVO Gives Back is a brand new scheme that sees four local charities benefit from all-year-round volunteering as well as a share from OVO Foundation’s £100,000 Community Chest each year.

Future Builders

Future Builders is an exciting new scheme helping to transform the lives of homeless young people in Bristol by offering them the chance to refurbish semi-derelict Council properties that will then become their home. By focusing on combining practical skills development with access to affordable housing, the scheme has not only provided education and employment opportunities, but has also brought unused housing stock back into use. The scheme addresses issues that contribute to the cycle of youth homelessness, including the lack of affordable housing and current move-on options for young homeless people, as well as the lack of opportunity for young people who have been out of education or employment for a period of time.

OVO Foundation was created in 2014 with the mission of supporting inspiring organisations with smart ideas to give young people across

the world a better and brighter future. OVO Foundation develops projects in three programme areas: energy and the environment, youth poverty and education.

OVO Foundation is funded partly from customer donations, and partly from the OVO business: at the end of 2016, 65,000 customers donated to OVO Foundation each month, a 43% increase from 2015. All customer donations are matched by OVO, with a further endowment from the business ensuring an annual income of £1m. As all overheads are covered by OVO, 100% of donations go to OVO Foundation’s projects and partners.

The OVO Foundation approach entails extensive research into pressing social issues, followed by collaboration with relevant experts and organisations to create and launch innovative solutions. In this way, OVO Foundation has the capacity to pioneer high-impact, solution-led projects that have the potential to radically improve people’s lives and 2016/17 saw the design and delivery of several new initiatives.

Smart ideas

OVO Foundation


OVO aims to create a dynamic and inspiring work culture where ambition thrives, and its people aspire to achieve real change on behalf of OVO’s

customers, the energy industry and society as a whole. Transparency and communication are key to OVO’s culture. Monthly ‘Town Halls’ are open forums where any member of employees can question senior management, and everyone can hear more about OVO’s vision and purpose first hand.

All employees are kept up-to-date through a newly relaunched intranet - the Kitchen Table - which operates as a one-stop shop for OVO news, views and useful information. The team is encouraged to share their experiences of working at OVO using #OVOAdventures across social media.

OVO continues to focus on ensuring all employees are engaged in its three core values: find a way, be the good guys, and build something great. These values are ingrained in OVO’s culture, from recruitment (testing values before ability), to an annual awards ceremony celebrating the people who truly demonstrate this behaviour.

OVO culture

OVO’s values-led approach also mean the company believes passionately in giving back to the communities in which it operates. Through its ‘OVO Gives Back’ initiative, over 1,000 volunteer hours are donated every year to charity partners, selected through a employees nomination and voting process. OVO is serious about attracting and investing in the best talent and has recently invested heavily in increasing its technology and product resource, creating an in-house team of developers, product managers and UX and design experts who are united in their passion to use the power of technology to change energy for the better. The company also offers leadership and coaching qualifications to all employees through OVO University (an Institute of Learning Management accredited centre), flexitime for non-customer facing employees, a competitive reward package, wellbeing support via an external partner and much, much more - including twice yearly parties to say thank you to employees for all their hard work. It is this unique offering that makes OVO a great place to work, which in turn attracts great people who deliver the best for OVO’s customers, and who are motivated to play their part in building an innovative, future-facing energy company.

PEOPLE-FOCUSED

CEO OF THE YEAR

HR Distinction Awards (2017)

TOP 20SUNDAY TIMES

100 Best Companies

To Work For (2017)

Sunday Times


Over the course of the last 12 months, OVO Energy has ensured its brand connects with new audiences

by presenting major sponsorships in both sport and music, reflecting a shared passion for innovation, science and sustainable living.

OVO Energy became the title sponsor of the Women’s Tour and the Tour of Britain in 2017. The sponsorship of the two top elite cycling events in the UK - which together cover 1,900 kilometres and boast more than 200 competitors, two million spectators and 14 million television viewers - linked the OVO Energy

brand with an intrinsically sustainable mode of transport and innovation-led sport, and enabled a free-to-view sporting event to be brought to more fans across the country.

In July 2017, OVO Energy was the headline sponsor of Bluedot, an award-winning festival combining a stellar line-up of music with a ground-breaking programme of live science experiments, expert talks and immersive artworks. Bluedot saw OVO Energy position itself at the intersection of innovation and progress, and connect with music and science fans new and old.

Powering sport and music

OVO was the first top ten supplier to remove coal from its fuel mix in 2015 and has since gone further

in its efforts to reduce its environmental impact and to offer its customers more renewable electricity.

In 2016/17, OVO’s fuel mix was 64.7% renewable, 35.3% gas, which equates to a 31% reduction in carbon intensity on the previous year.

OVO’s ‘Greener’ tariff offers 100% renewable electricity and all of OVO’s other tariffs have at least 33% renewable electricity as standard.

Reducing environmental impact

OVO’s newly launched ‘EV Everywhere’ bundle offers 100% renewable electricity both at home, and on the road, through Chargemaster’s POLAR network of 5,000 chargepoints nationwide.

Through its ‘I Dig Trees’ partnership with the Conservation Volunteers, OVO Energy planted 250,000 saplings over the last year on behalf of its ‘Greener’ customers. Since the launch of the partnership in 2015, OVO has enabled 400,000 native trees to be planted in urban spaces and communities all over the UK.


OVO board

CEO AND FOUNDER

Stephen Fitzpatrick

Stephen founded OVO in November 2008 and has built it into a leading challenger brand. Following personal dissatisfaction from being an energy customer himself, Stephen saw an opportunity to develop a new approach based on a proposition of openness, honesty, high ethical standards and strong environmental credentials.

Prior to OVO he was a trader with Societe Generale and JP Morgan. Stephen has an MA in Business and Finance from the University of Edinburgh.

CHAIRMAN

Stephen Murphy

Stephen joined as Chairman of the OVO board in January 2015. He currently serves as principal of his own advisory business.

Stephen is also Chairman of GYG plc, an AIM listed superyacht services company, London & Capital Ltd, an international wealth management business and a Non-Executive Director at The Business Growth Fund, a £2.5bn investment fund founded by the main UK clearing banks. He is also an adviser to Ashcombe Advisers – a boutique corporate finance house and a Director of Get Living London Ltd.

Previously, Stephen was CEO of Virgin Group from 2005 to 2011 having succeeded the founder, Sir Richard Branson.

Stephen went to university in Liverpool where he received a BA Hons and later qualified as a chartered management accountant. His early career was in fast moving consumer goods and retail with roles at Unilever, Mars Group, Burton Group and Quaker Oats Inc.

CFO, OVO GROUP AND MD, OVO ENERGY

Chris Houghton

Chris was appointed Chief Financial Officer in October 2014 and Managing Director of OVO Energy in January 2017. He previously served as Financial Director of Telecom Plus plc where he oversaw significant growth in market capitalisation and led a number of fundraising rounds.

Chris is a Chartered Accountant, qualifying with PwC and working within their corporate finance team. Chris has a BA in Human Sciences from Oxford University.

NON-EXECUTIVE DIRECTOR

Daniel Sasaki

Daniel joined the OVO board in April 2015, following an investment from Mayfair Equity Partners, of which he is a founder and the Managing Partner. He has been investing in TMT and Consumer businesses globally for the past 20 years having completed some high profile investments such as Fever-Tree and uSwitch. Prior to founding Mayfair, he ran the London office of Lloyds Development Capital, the private equity arm of Lloyds Banking Group, following senior private equity roles at Softbank and Credit Suisse. Raised in the US and Japan, Daniel has degrees from Stanford and Cornell Universities.


Niall Wass

Niall joined the OVO board as a Non-Executive Director in December 2015. He is currently a Partner at Atomico, the venture capital firm run by Skype founder Niklas Zennstrom and is a board member / advisor for a number of early stage tech companies at Jobandtalent, Uniplaces, OnTruck, Clutter, Lendinvest and Property Partner.

Previously Niall ran the international business at Uber across 52 countries. Prior to this he was COO and then CEO of Wonga, and was Chief Commercial Officer of Betfair Group plc. Before his executive career he worked in strategy and technology consulting for eight years.

Niall has an MBA from INSEAD, and degrees in Economics from Birmingham University and Oxford University.


Jon Owen

Jon joined the board as a Non-Executive Director in December 2015. Jon is about to take up a position as CCO of LPG, a global digital travel business. He previously was CEO of Ribble Cycles, and before that held senior roles at Shop Direct where he oversaw the substantial growth of very.co.uk and held a board position as Retail and Trading Director. Earlier roles include Asda and Walmart as UK Marketing Director.

Jon has a first class degree in Mathematics and Management Studies from Cambridge University.


OVO’s Financials

“Extremely helpful, & honest. Your shown whether you need to pay a little more, or in credit to be paid a little back.”RICHARD J – TRUSTPILOT


Financial statements

Smart investments resulting in record profits

2016 was a landmark year for OVO. The Group posted record full-year profits before tax of £23.8m, benefitting from its strategy of investing early in smart meter technology.

The Group’s underlying financial performance also continues to improve with adjusted EBITDA•, increasing to £7.2m in 2016, compared with a £14.3m loss in 2015. H1 performance improved from £11.1m in 2016 to £30.1m in 2017. Customer usage is typically weighted 55% between January and June and 45% between July and December, meaning OVO expect profits to be slightly weighted to the first half.

During the past year, OVO has continued to invest heavily in technology in line with its commitment to driving future operational efficiencies and delivering the energy system of the future that customers want. Despite increasing investment, administration costs as percentage of revenue saw a reduction from 15.1% to 14.7% in the first halves of 2016 and 2017 respectively as operational efficiencies started to come through.

*Adjusted EBITDA excludes one-offs, including the sale of the SMA business in 2016 for £38.2mand net customer acquisition costs, representing those costs resulting from growing OVO’s customer base.

CORGI HomePlan

OVO acquired CORGI HomePlan in May 2017 adding an additional 145,000 distinct customers to the group. The acquisition is another step in OVO’s transition from core energy supplier towards a truly integrated energy services company. Adding CORGI HomePlan expands OVO’s network of services - which currently installs smart meters and smart-grid services such as VCharge - to include the capability to install and maintain boilers, thermostats and other technology.

Hybrid Energy Solutions and Indra Renewable Technologies

Two smaller investments were made at the end of first half of 2017. OVO purchased 51% of the share capital of Hybrid Energy Solutions (which trades under the ChargedEV brand), a specialist in electric vehicle charging point technology, as well as 24.9% of Indra Renewable Technologies, an electric vehicle components and services supplier.

Smart investments underpinning growth and expanding OVO’s offering

OVO continued its transformation this year with four key strategic investments. These acquisitions will help OVO achieve its long-term vision of building the energy system of the future as well as well as boosting OVO’s customer numbers from 559,000 at the start of 2016 to 819,000 by 30 June 2017.

VCharge Group

The acquisition of the VCharge group in December 2016 was the first acquisition in OVO’s seven year history and the Group’s first investment in overseas technology. VCharge has developed a proprietary technology platform (‘VNet’) that uses advanced algorithms to balance the grid with individual user requirements. The acquisition underlines our focus on developing solutions that harness the disruptive power of technology to solve the problems facing the energy sector.


Adjusted EBITDA (14,253) 7,157 11,102 30,086

Unrealised gains/(losses) on derivatives 2,553 - - -

Net customer acquisition costs (11,493) (11,196) (9,690) 240

Gains - 38,246 35,817 -

EBITDA (23,193) 34,207 37,229 30,326

Depreciation and Amortisation (7,606) (10,554) (6,887) (3,855)

Operating profit / (loss) (30,799) 23,653 30,342 26,471

Profit / (loss) before tax and net customer acquisition costs (20,202) 35,008 40,089 25,773

Net customer acquisition costs (11,493) (11,196) (9,690) 240

Profit / (loss) before tax (31,695) 23,812 30,399 26,013

FOR THE PERIOD ENDED

ALL VALUES IN £ ‘000S

12 MONTHS31 DECEMBER

2015


2016

6 MONTHS30 JUNE

2016

6 MONTHS30 JUNE

2017

Customer numbers 559,000 676,000 681,000 819,000

Revenue 512,967 716,980 362,860 405,937

Cost of sales (459,699) (613,784) (313,581) (319,583)

Gross Profit 53,268 103,196 49,279 86,354

Administrative expenses (83,986) (117,789) (54,754) (59,883)

Other profit (81) 38,246 35,817 -

Operating profit / (loss) (30,799) 23,653 30,342 26,471

Net finance costs (896) 159 57 (458)

Profit / (loss) before tax (31,695) 23,812 30,399 26,013

Taxation 3,960 1,754 396 (5,005)

Profit / (loss) for the year (27,735) 25,566 30,795 21,008

Profit and Loss AccountCustomer economics and accounting for customer acquisition costs

OVO invests in customer acquisition and growth based on a long-term view of a customer’s lifetime value. OVO is committed to building customer loyalty through exceptional customer experience and value for money. Customer churn is closely monitored with sophisticated models to estimate the average lifetime of a customer.

As illustrated below, the acquisition of each new customer gives rise to an accounting loss at the point of acquisition. However, the profit generated by a customer over their expected lifetime far exceeds the initial costs.

OVO is focused on increasing profitability by expanding operational efficiencies, delivering innovative new propositions and increasing customer lifetime.

Management of customer payments

Customer payments are an important component of OVO’s working capital cycle and OVO takes a unique approach in this area. New customers on standard credit tariffs pay one month’s direct debit (DD) payment upfront. The upfront payment is recognised in OVO’s accounts as deferred income and unwinds (i.e. becomes recognised) as revenue as customers use energy. In return for making payments upfront, customers receive the OVO Interest Reward which pays 3% - 5% interest on credit balances throughout the year, depending on how long they have been with OVO, a benefit which is highly valued by our customers.

While a customer’s DD amount reflects a flat monthly payment profile, their balance will fluctuate significantly as energy usage is highly seasonal. OVO carefully monitors balances during the year to ensure that DD amounts are appropriately set to cover a customer’s anticipated usage.

Individual customer profitability

1. Initial costs of acquiring a new customer and the overheads associated with bringing them on board results in an initial cash loss. For OVO, this also results in an initial accounting loss because OVO takes the prudent approach of expensing acquisition costs immediately, unlike some peers who spread them over a number of years.

2. The longer a customer remains with OVO the greater the total profitability at an individual customer level.

3. The season in which a customer joins OVO has a large effect on their profitability. Customers who join OVO in autumn become profitable six months earlier than those who join in spring.

Year 1Loss (£)

Profit (£)

Year 2 Year 3 Year 4 Year 5

3.

1.

2.

1. The financial results for the first half of 2017 are based on management accounts.2. ‘Net customer acquisition costs’ represents acquisition costs related solely to growing OVO’s net customer base.


FOR THE PERIOD ENDED

ALL VALUES IN £ ‘000S


2015


2016

6 MONTHS30 JUNE

2016

6 MONTHS30 JUNE

2017

CASH FLOWS FROM OPERATING ACTIVITIES

Loss for the year (27,735) 25,566 30,795 21,008

Adjustments to cash flows from non-cash items

Depreciation and amortisation 7,606 10,554 6,887 3,855

Financial instrument net losses through profit and loss (2,553) - - -

Profit on disposal of non-current assets - (38,246) (35,817) -

Foreign exchange loss - 3 - -

Finance income (135) (159) (57) -

Finance costs 1,031 - - 459

Share based payment transactions 339 518 - -

Income tax expense (3,310) (1,754) (396) 5,005

(24,757) (3,518) 1,412 30,327

Working capital adjustments

Decrease/(increase) in inventories 1,024 (4,553) (428) 701

Increase in trade and other receivables (1,162) (16,668) (40,439) (28,080)

Increase in trade and other payables 25,550 32,706 31,559 25,483

Increase/(decrease) in deferred income 6,315 (13,195) 2,335 (3,844)

Net cash flows generated from/(used in) operating activities 6,970 (5,228) (5,561) 24,587

CASHFLOWS FROM INVESTING ACTIVITIES

Interest received 135 159 57 -

Acqusition of subsidiary, net of cash acquired - (99) - (68,296)

Aquisitions of property plant and equipment (17,186) (9,861) (7,691) (1,617)

Acquisition of intangible assets (6,252) (7,576) (3,577) (1,389)

Proceeds from disposal of subsidiaries - 38,187 35,758 -

Net cash flows generated from/(used in) investing activities (23,303) 20,810 24,547 (71,302)

CASHFLOWS FROM FINANCING ACTIVITIES

Interest paid (1,031) - - (459)

Proceeds from issue of ordinary shares 28,604 46 55 155

Proceeds/(repayments) from finance leases 9,674 - - -

Proceeds from borrowing - - - 34,945

Net cash flows generated from/(used in) financing activities 37,247 46 55 34,641

Net increase in cash and cash equivalents 20,914 15,628 19,041 (12,074)

Cash and cash equivalents at 1 January 30,388 51,302 51,302 66,930

Cash and cash equivalents at 31 December 51,302 66,930 70,343 54,856

Cash Flow StatementAS ATALL VALUES IN £ ‘000S

31 DECEMBER 2015

31 DECEMBER 2016

30 JUNE2016

30 JUNE 2017

NON-CURRENT ASSETS

Property, plant & equipment 30,457 4,436 3,937 4,633

Intangible assets 8,581 11,578 11,134 78,369

Goodwill 4,588 7,448 - 7,448

Deferred tax assets 12,316 14,130 12,985 8,890

Total non-current assets 55,942 37,592 28,056 99,340

CURRENT ASSETS

Inventories 78 4,702 - 4,002

Trade and other receivables 33,389 57,794 56,117 81,655

Cash and cash equivalents 51,302 66,930 70,343 54,856

Total current assets 84,769 129,426 126,460 140,513

TOTAL ASSETS 140,711 167,018 154,516 239,853

CURRENT LIABILITIES

Trade and other payables 72,001 98,330 88,723 109,435

Loans and borrowings 1,243 - - -

Deferred income 88,145 74,950 70,223 70,572

Total current liabilities 161,389 173,280 158,946 180,007

NON-CURRENT LIABILITIES

Deferred consideration - 2,786 - 12,786

Loans and borrowings 14,602 101 - 35,046

Total non-current liabilities 14,602 2,887 - 47,832

TOTAL LIABILITIES 175,991 176,167 158,946 227,839

CAPITAL AND RESERVES

Share premium 28,655 28,702 28,710 28,813

Other reserves 490 1,008 490 1,052

Retained earnings (64,425) (38,859) (33,630) (17,851)

Total equity (35,280) (9,149) (4,430) 12,014

TOTAL LIABILITIES AND EQUITY 140,711 167,018 154,516 239,853

Balance Sheet


Shell

OVO entered into a structured commodity trading arrangement with Shell Energy Europe Limited (SEEL) in December 2014. SEEL, a trading division of Royal Dutch Shell plc, provides OVO access to the wholesale power and gas markets in addition to a working capital facility. The arrangement enables OVO to purchase commodity in advance in the forward markets, providing a hedge against its commitments to customers.

Partners

Mayfair

In April 2015 OVO completed its first external equity fundraising with Mayfair Equity Partners (MEP). The investment team at MEP were formed by seasoned investors previously at Lloyds Development Capital, who completed previous transactions in uSwitch and Fever-Tree.

The transaction saw MEP invest £51m for a 17% stake in the business.

SMA

OVO entered into a relationship with Brookfield Utilities UK (Brookfield) in February 2016 to dispose of Smart Meter Assets 1 Ltd, an entity established to own and finance smart meters. The transaction was conducted to support OVO’s initial roll-out of the smart metering programme.

Brookfield was a new entrant into the smart metering market and acquired circa 200,000 already installed gas and electricity smart meters and the future pipeline, with the portfolio expected to grow to circa 800,000 by the end of 2017. Brookfield is part of Brookfield Asset Management, a global alternative asset manager with approximately $250 billion in assets under management.

Chargemaster

Chargemaster Plc is the UK’s leading provider of electric vehicle charging infrastructure and operates POLAR, the largest electric vehicle charging network in the UK, with more than 5,000 public charge points. Benefitting from over 25 years of experience working within the telematics and vehicle-orientated industry, Chargemaster provides a comprehensive, flexible and practical range of electric vehicle charging solutions. Its charging stations are specially developed to accommodate new technological advances and the growing demands of the electric vehicle industry.


Annual Report 2016/17

ovo energy annual report 2017...we set out to build a brand people could trust; a company that would...

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