The continued difficult market conditions for Innogy’s UK retail business, Npower, are a reality the company does not want to “ignore”, according to its chief executive.
Speaking at Innogy’s annual general meeting (AGM) in Essen, Germany today (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.
Npower was given the green light to merge with SSE’s retail arm SSE Energy Services but the two companies called off the deal late last year due to “adverse developments” in the retail market and “regulatory interventions” such as the price cap.
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 said.
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.
In December 2018, Innogy adjusted its forecast result for fiscal 2018 downwards.
Adjusted earnings before interest and taxes (EBIT) in the annual financial statements was listed as €2.6 billion.
“Adjusted net income is just over €1 billion. With this in mind, ladies and gentlemen, the executive board and supervisory board are proposing a dividend of €1.40 per share. This represents a mid-point in the indicated range of 70 to 80 per cent of our adjusted net income,” Tigges said.
He added: “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.
“Npower will counter the substantial pressure on its result with a new programme to reduce costs. And we reserve the right to take further measures. Even so, we are still expecting a further decline in earnings for our UK retail business in the current fiscal year.
“However unsatisfactory the situation at Npower may be, in all other respects our business performance is satisfactory.”
The chief executive said the last 12 months have also been marked by the announcement takeover of Innogy by Eon and RWE.
Reassuring stakeholders the deal is a positive move, Tigges said: “First, we are being taken over because we are good. And second, our mission is far from over. Our initiatives and projects will continue – regardless of the company name in future. We as the executive board of Innogy firmly believe this, and we are fighting for it,” he said.
Tigges told the AGM it is both positive and important that Innogy is there at the “negotiating table”.
“That wasn’t the case yet at the time of our last annual general meeting. Even so, the final decisions will not be ours to make, which is standard in a takeover situation such as this.”
Tigges explained he was unable to comment further on how the takeover will proceed.
“Until the transaction is completed, Innogy is an independent company. We are committed to our business. And we are committed to you, our shareholders. That also applies in the unlikely, yet still possible, event that the transaction does not go ahead.
“However long Innogy has left as a company, we are continuing to do our homework.”
Meanwhile SSE is considering future options for its retail arm. At the weekend the company was reported to be in discussions with Talk Talk about a potential tie-up. Both companies have declined to comment on the market speculation.
SSE is expected to provide an update by the end of May.