Competition hits challenger energy provider First Utility  

Fierce price competition in the UK’s domestic energy market has caused a drop in customer numbers at First Utility, one of the largest challengers to the big six electricity and gas suppliers.

Customer numbers dipped 6 per cent to 826,000 in the six months to June, compared with the end of December, the private company said. Its gross margin recovered to 14.4 per cent from 9.9 per cent.

First Utility also revealed its full-year results for 2016, which showed a pre-tax loss of £12.7m compared with a £1.7m profit in 2015, despite revenues rising more than 7 per cent to £908.4m.

Customer numbers over the course of 2016 were flat year-on-year. The group had experienced strong growth in 2015, when its customer base swelled by 25 per cent.

Darren Braham, chief financial officer, blamed the difficult trading last year on the big six offering lossmaking tariffs to stem the flow of customers to challenger brands. 

Many of the smaller entrants, which are exempt from policy costs such as the “warm-home discount” scheme for vulnerable households, responded with cut-price deals, he said, forcing all suppliers to offer competitive tariffs.

First Utility is no longer trying to match the cheapest deals but is chasing profitable growth, Mr Braham added.

The company returned to a pre-tax profit of £14.3m at the end of June, as it shifted away from using price comparison sites to attract customers. It is instead targeting households on expensive, standard variable tariffs with one of the big six — the most common rate in the market — through telesales and face-to-face marketing. 

Such customers may be willing to switch if offered a steep discount to their existing rate but may not shop around for the very cheapest deal, Mr Braham said.

“We don’t need to have a million customers to enhance our profitability, we need to grow profitability,” he said, although he acknowledged the company had hoped to expand its customer numbers last year.

First Utility is also trying to earn more per customer by offering additional products such as broadband.

The number of domestic gas and electricity suppliers in the UK has risen to more than 50 from just 10 in 2006, as ministers and regulators have sought to encourage competition. 

However the collapse of GB Energy, an independent utility, last winter raised questions about the financial robustness of many of the smaller entrants.

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