Innogy is considering “alternative options” for its subsidiary Npower following the collapse of the planned merger with SSE’s retail arm in December.
The company gave the update in its financial results for 2018 which revealed the loss of more than 650,000 customers by Npower over the course of the year.
Innogy said the “tough competitive situation” in the UK and associated customer losses eroded the supplier’s profit margins, “especially in the residential business”. The number of gas and electricity customers on its books fell by 293,000 to 1.64 million and 364,000 to 2.45 million respectively.
Along with higher costs related to the smart meter rollout, this resulted in a €9 million drop in adjusted earnings before interest and tax (EBIT) to minus €72 million. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) plunged by €54 million to minus €21 million and revenues remained broadly level at just under €7.1 billion.
Innogy was forced to take a €1.5 billion write-down on the value of Npower, partly in anticipation of Ofgem’s market-wide price cap on default tariffs which came into effect at the beginning of 2019.
Npower responded at the end of January by announcing plans to cut 900 positions from its workforce of more than 6,000. The supplier began initial talks with employees and unions in February.
Innogy said although “natural fluctuations” will account for many of the redundancies, the cost cutting programme will incur short-term expenses amounting to tens of millions of euros. It also warned that Npower is expecting “significant losses” for the current financial year.
The supplier recently announced a hike of more than 10 per cent in the typical annual bill for customers on its standard variable tariff to reflect Ofgem’s decision to increase the level of the price cap by £117 from the beginning of April.
Adjusted EBIT for the whole of the Innogy group fell almost 7 per cent year-on-year to €2.63 billion, whilst pre-tax profits dropped by around four fifths to €333 million.
Last month, the Competition and Markets Authority launched an investigation into the proposed asset swap between Eon and Innogy’s parent company RWE. Eon said in January it does not expect the scrapping of the merger between Npower and SSE to have “any material effect” on the deal.