The confidence in the air was almost palpable in April 2018 when SSE and Innogy made the bold move to name Katie Bickerstaffe as the chief executive of a company yet to be formed.
Back then the proposed merger between SSE’s retail arm, SSE Energy Services, and Innogy’s UK supplier, Npower, hadn’t even been given the go-ahead by the Competition and Markets Authority (CMA).
The deal was expected to transform the big six into the big five and would have created the UK’s second-largest energy supplier after British Gas. The new company would have been owned up to 65.58 per cent by SSE shareholders, while Innogy was going to hold 34.42 per cent of the shares on completion.
Unsurprisingly, the proposed merger was subject to an investigation to determine whether it would be detrimental to competition and, ultimately, customers. So, it felt a tad premature when the companies announced the first appointment to the new entity’s board before such a hurdle had been cleared.
But cleared it was – provisionally by the inquiry group of independent CMA panel members at the end of August, then receiving final clearance in October.
With the wheels in motion and further appointments to the senior team for the new retailer – including Gordon Boyd as designate chief financial officer and Dr Martin Read as designate chair – it seemed that nothing could stop the touted transaction from moving forward.
However, the merger came grinding to a halt before the year was up due to “adverse developments” in the retail market and “regulatory interventions” such as the price cap, according to the companies.
After failing to reach an agreement, the two parties decided to call the whole thing off in December.
With the prospect of a new energy retailer now seemingly a distant memory, SSE and Innogy were in effect left in limbo as to what to do with their respective retail arms in Britain.
And naturally, speculation started to mount about what would become of the designated senior team for the company that on paper appeared to have such promise but was ultimately never to be.
An official name for “Merge Co” was never publicly revealed, but its mission was. It was expected to “create a new market model”, deliver greater operating efficiencies and provide better customer service.
No stranger to the top job, Bickerstaffe gave up her role as chief executive of the UK and Ireland division of multinational electrical and telecommunications retailer Dixons Carphone, a position she had held since 2015, to take the helm of the mooted retailer.
It was this customer-facing experience gained at corporations such as Dyson, PepsiCo and Unilever, that formed part of SSE and Innogy’s rationale for hiring her. SSE praised Bickerstaffe for her “invaluable understanding of customers’ needs”.
While revealed as CEO designate in April 2018, Bickerstaffe didn’t assume the role until 24 September.
“Appropriate arrangements” were agreed at the time of her appointment to compensate her in the event of the transaction not going ahead. Under the terms of her appointment, she was to receive a basic annual salary of £650,000, as well as health insurance for her and her spouse and dependent children and an annual car allowance of £15,000.
The transaction was due to be finalised and the new retail energy company listed in the last quarter of 2018 or the first quarter of 2019.
Alistair Phillips-Davies, chief executive of SSE plc, said the decision to halt the merger at the end of last year was not an easy one to make, but the “right one”.
New mandate for Bickerstaffe
Since then Bickerstaffe has been advising SSE on the future options of its retail arm including a “sale” or an “alternative transaction”, but she has had “no involvement” in the day-to-day running of SSE Energy Services.
That’s about to change.
Bickerstaffe now has a mandate to deliver a new future for the GB household energy supply business outside of the SSE group in her new role as executive chair of SSE Energy Services. News of her appointment coincided with the publication of SSE’s financial results on 22 May.
The company revealed SSE Energy Services is “held for sale” as profit for the supply business fell from £287.7 million to £89.6 million due to a challenging price cap and lower customer numbers.
Overall adjusted pre-tax profit for the group slumped by 38 per cent to £725.7 million.
Richard Gillingwater, chairman of SSE, commented: “While our financial results clearly fell well short of what we hoped to achieve at the start of the year, we’ve made significant progress towards our ambition to be a leading energy company in a low carbon world.”
As executive chair of SSE Energy Services, Bickerstaffe is tasked with continuing to progress towards a listing or new, alternative ownership by the second half of 2020.
She will take up the new role on 23 June alongside Boyd, who joins as interim chief financial officer.
Bickerstaffe will form a separate, dedicated board, which is expected to have executive and non-executive representation from the SSE group, as well as an independent non-executive director.
The new board will “help create a more independent, sustainable business” that will be able to operate with greater day-to-day autonomy, yet still being subject to oversight by the SSE plc board while it remains within the group.
Stephen Forbes and Tony Keeling have joined the board and executive committee as managing directors, having run the business since 2017 as co-heads. Their priority will be to ensure the business has the “strongest possible track record” as it approaches a future outside the group.
Bickerstaffe says: “This is a business with huge potential. With a strong customer service track record, a unique product mix and a great team in place, it has all the raw materials to overcome the challenges facing the sector.
“The steps being taken to increase the independence and autonomy of the business will, in the short term, enable it to strengthen its focus on customers, respond with greater agility in a fast-moving market, and deliver the progress that will underpin a future outside the SSE group.
“The leadership team is clearly committed to its plan to turn this business around to unlock its potential for customers, employees and shareholders, and I believe it is well positioned to meet the evolving needs of customers as the energy sector transitions to a smarter, cleaner future.”
Phillips-Davies adds: “Over the past 18 months, we’ve made significant progress in terms of physical, legal and structural separation of SSE Energy Services from the rest of the SSE group.
“At the same time, the business has performed well operationally. The steps we’re now taking through Katie’s appointment, the creation of a new dedicated board and a potential deal for provision of independent collateral and trading facilities mean SSE Energy Services could operate on a stand alone basis and will therefore be well prepared for a future outside the SSE group.
“We will continue to take account of the interests of customers, employees and shareholders as we seek to deliver that future.”
Difficult market conditions
James Smith, a fund manager at Premier Global Infrastructure Trust, says: “Following the abandonment of SSE’s proposed merger of its retail business with Npower, SSE will need to develop a new strategy for this business.” But he warns that in the meantime “trading remains tough”.
And the continued difficult market conditions for fellow retailer Npower, are a reality its parent Innogy does not want to “ignore”, according to Innogy’s chief executive.
Speaking at the German company’s annual general meeting in Essen on 30 April, Uwe Tigges said that operationally Innogy is “on track” and the business is progressing as planned. “The only exception, which unfortunately cast a major shadow over fiscal 2018, is our UK retail business,” he said.
Tigges said Innogy had a “good plan” for Npower, which “came close” to being achieved. “We wanted to merge our UK retail subsidiary Npower with the household energy and energy services business of SSE. This undertaking failed, however, due to a further worsening of the market environment,” he added.
The “drastically worsened outlook” for the new combined company would have made “substantial extra financing” necessary. And follow-up negotiations with SSE “came to nothing”. The failed transaction meant Innogy had to reincorporate Npower into its accounts, which “impacted” the company.
Npower lost 103,000 customers in the first three months of 2019 and reported a loss before interest and tax of €45 million (£39 million). The company blamed the introduction of the price cap in the UK for its poor performance, which compared with a profit of €43 million for the same period last year.
Tigges said: “The introduction of a price cap this year is having a significant impact. The UK regulatory authority expects that five of the ‘big six’ energy retailers will post losses or generate lower profits in 2019.”
Change is a-coming in the energy market again. And it may well take a different form before next year.