Power group Ovo warned of monetary peril earlier than UK authorities assist

Ovo Group, the proprietor of the UK’s third-largest power provider, feared breaching its monetary covenants within the months earlier than the federal government introduced unprecedented help for British households and companies to pay hovering power payments.

Newly launched accounts for Ovo present it was vulnerable to not with the ability to meet its lending necessities this 12 months, because it feared a pointy rise in dangerous debt if households have been unable to afford document electrical energy and gasoline payments.

The enterprise warned that it anticipated to breach banking covenants throughout 2022 due to hovering costs, in accordance with accounts filed for 2021 and printed by Firms Home on Sunday.

“Excessive power costs resulted in [an] over 50 per cent enhance in payments in April 2022, which signifies that tens of millions extra households will wrestle to warmth their properties in winter”, the corporate mentioned, with “an additional enhance in dangerous debt” anticipated through the 12 months.

Breaching its covenants would danger placing the viability of the enterprise, whose core operations are nonetheless lossmaking, in “materials uncertainty”, Ovo mentioned in its accounts.

Its warnings show the fragility of the UK’s power provide business, which has seen greater than 30 companies stop buying and selling prior to now two years due to rising prices.

Earlier this month ministers unveiled an estimated £150bn package deal designed to partially protect households from power costs which have spiralled since Russia’s full-scale invasion of Ukraine. The measures will restrict the worth per unit that power suppliers can cost clients, with the federal government making up the distinction between that and the precise price of offering electrical energy and gasoline to their clients at present wholesale costs.

The pledge is designed to restrict home power payments to a mean of £2,500 a 12 months per family, though precise payments will rely upon utilization.

In a press release on Sunday following the discharge of its accounts, Ovo mentioned: “We’ve got not breached any covenants and we don’t anticipate to breach any covenants within the subsequent 12 months.

“On the time of signing our accounts [in June 2022], Russia’s warfare on Ukraine despatched power costs rising even additional and our auditors have been proper to flag issues concerning the influence of those market uncertainties. 

“Because the finish of our monetary 12 months, we’ve seen important steps by the federal government and the regulator to create extra certainty for purchasers and for firms.”

The corporate added: “Our auditors have made clear that regardless of the unprecedented challenges we face within the power markets, they’re assured in our capability to function.”

The corporate reported a pre-tax revenue of £370mn for 2021, in contrast with a lack of £176mn a 12 months earlier, the accounts present.

Nonetheless, the quantity was boosted by a £372mn revaluation of its power spinoff contracts, which don’t mirror the corporate’s buying and selling. Ovo mentioned its underlying enterprise made a pre-tax lack of £2mn, which compares with a lack of £66mn throughout 2020.

Weeks after closing its books on 2021, the corporate reduce 1,700 jobs in January, a few quarter of its workforce.

This got here on prime of the two,600 roles it shed throughout 2020 within the midst of the coronavirus pandemic. The 2020 cuts have been made to ensure that it to hurry up the mixing of the UK power retail arm of SSE, a deal that propelled Ovo, based in 2009 by former Metropolis dealer Stephen Fitzpatrick, to the highest flight of Britain’s power suppliers.

The 2021 accounts additionally confirmed that the highest-paid director — believed to be Adrian Letts, who stepped down as chief govt in February — acquired a 50 per cent pay enhance, from £379,000 to £573,000. 

Ovo additionally paid £21mn through the 12 months to Creativeness Industries, a holding firm owned by Fitzpatrick, for branding rights.