Octopus Energy to Spin Off $8.65bn Tech Arm Kraken
Octopus Energy is set to launch its innovative technology arm, Kraken Technologies, as an independent entity following a significant valuation of $8.65 billion (£6.4 billion). This move signals a bold step in the energy sector, particularly as it emphasizes the potential for growth within tech-driven energy solutions.
Key Highlights of the Spin-Off
– Valuation and Investment:
– Octopus has sold a $1 billion stake in Kraken to a consortium led by New York-based D1 Capital Partners.
– This deal positions Kraken for a bright future, possibly leading to a public stock market listing.
– Leadership Insights:
– Founder and CEO Greg Jackson shared insights with the BBC, stating there is “every chance” that Kraken will list its shares “in the medium term”.
– The precise location of this potential flotation is being considered between London and the US, highlighting Kraken’s global reach.
The Role of Kraken Technologies
Kraken Technologies leverages AI to revolutionize customer service and billing processes for energy companies. Key features include:
– Automating customer interactions and billing cycles.
– Managing energy consumption to incentivize customers to reduce their usage during peak hours.
Initially developed for Octopus Energy’s needs, Kraken has since attracted a variety of clients, including EDF, E.On Next, TalkTalk, and National Grid US, effectively managing accounts for 70 million households and businesses globally.
Financial Implications and Future Prospects
– The majority of the $1 billion investment will enhance Octopus Energy’s expansion efforts, while Kraken will utilize the remaining funds to fuel its independent growth.
– Kraken’s CEO, Amir Orad, emphasized that this spin-off would provide the necessary “focus and freedom” to expand its market reach, particularly as they adapt to compete more effectively with Octopus’s rivals.
Jackson pointed out that a listing in London would mark a departure from the trend of UK firms favoring US exchanges. He expressed a desire for Kraken to list in the UK, contingent on the support from investors and the stock exchange.
Employment Impact
– Octopus Energy has created 12,000 jobs in the UK, with approximately 1,500 directly associated with Kraken.
– The company’s headquarters will remain in the UK, reinforcing its commitment to the region.
Current Performance and Market Challenges
The demerger comes as Octopus Energy solidifies its position as the UK’s largest energy supplier, surpassing British Gas with 7.7 million households served. However, they are also facing challenges:
– Octopus did not meet regulator Ofgem’s financial resilience targets this year.
– The cash injection from the Kraken investment is expected to significantly bolster Octopus Energy Group’s balance sheet.
– Recent financials revealed a £260 million loss before tax for the year ending in April, contrasting a £78 million profit the previous year, despite a 10% increase in sales to £13.7 billion.
The company noted that an unusually warm spring—recorded as the hottest since 1885—significantly decreased energy demand, negatively affecting profits.
Conclusion
The spin-off of Kraken Technologies is a pivotal moment for Octopus Energy, marking its transition into an even more competitive tech-driven landscape within the energy sector. With substantial backing and an eye on future growth, Kraken is poised to thrive independently, potentially revitalizing interest in the UK stock market and demonstrating how technology can transform energy services. As the company navigates its challenges, its commitment to innovation and sustainability remains a cornerstone of its strategy moving forward.