Ovo Group investors raise stake after ‘challenging’ year for energy supplier

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Ovo Group shareholders have invested an extra £200mn into the owner of Britain’s third-largest energy supplier following a “challenging” year for the sector in which the company’s profits shrank 90 per cent. 

The company said on Friday that Mayfair Equity Partners and Morgan Stanley Investment Management had increased their stake by an undisclosed amount. 

Raman Bhatia, chief executive of Ovo’s retail division, said the backing showed the company’s “potential for growth” despite challenges in the market following last year’s energy crisis.

Ovo Group, whose retail arm supplies energy to about 4mn households, made adjusted earnings before interest, tax, depreciation and amortisation of £20mn in the year ending December 2022, down from £159mn in 2021, according to accounts published on Friday. 

However, its unadjusted results showed a swing from a £335mn profit in 2021 to a £1.3bn loss in 2022.

It put most of this down to a change in the value of energy it had bought in advance to hedge its supply commitments, while saying this had “no cash impact” and “will reverse in future periods when customers use this energy”. 

The figure highlights the huge volatility in commodity markets that suppliers have grappled with since gas prices started surging in summer 2021 as Russia started squeezing supplies to Europe in the run-up to its invasion of Ukraine. 

The market disruption triggered the collapse of 30 energy suppliers in late 2021 and early 2022, and forced the government to step in to subsidise all household energy bills between October 2022 and the start of this month. 

The Financial Times reported in September that Ovo Group had feared breaching its financial covenants in the months before the government stepped in to support the sector, due to concerns about a rise in bad debts if households could not afford to pay their bills. 

In its financial report, Ovo Group said it expected to “be compliant with financial covenants” even under a further increase in bad debts. As well as the energy supplier, Ovo Group owns a technology arm, Kaluza, which licences software to energy companies. 

Ovo Group was founded in 2009 by entrepreneur Stephen Fitzpatrick as part of a new group of challenger suppliers aiming to take on the dominance of the Big Six suppliers such as EDF and British Gas.

It vaulted to its current market position in 2019 when it bought the retail division of FTSE 100 company SSE, adding about 3.5mn customers. 

Both Mayfair Equity Partners and Morgan Stanley Investment Management have backed Ovo Group since 2015. They have raised their stake by buying shares from existing investors. Other investors include Mitsubishi Corporation, which took a 20 per cent stake in 2019. 

Daniel Sasaki, at Mayfair Equity Partners, said the company “maintains a challenger mindset” and “continues to innovate and redefine the energy market”. 

Suppliers’ finances are under scrutiny now the energy crisis had eased, with wholesale energy prices having fallen but energy bills for households still far higher than pre-crisis levels. 

Jonathan Brearley, chief executive of Ofgem, wrote to energy suppliers this month warning them not to pay dividends unless they are financially stable, as it seeks to avoid a repeat of last year’s collapses. 

Ovo Group paid no dividends during the year. However, it owes £33mn to Imagination Industries, a company owned by Fitzpatrick, for branding rights during 2022, according to its accounts. 

“We are in a solid position to create further value for customers,” said Bhatia.