Npower’s £427m hit for German owner ahead of SSE tie-up

● Tough competition and looming price cap are blamed for writedown by Innogy

The owner of Npower has taken a £427 million hit on the value of the lossmaking utility just days after striking a deal with Scotland’s SSE to merge their operations to create a new energy supplier in the UK.

The writedown by Germany’s Innogy came amid what it described as “very tough” competition and as gas and electricity suppliers brace themselves for the UK government’s introduction of a price cap on domestic energy tariffs. Innogy said it was confronted by a “difficult situation” in the UK.

“The competitive landscape in the UK retail business remains very tough and pressure on margins is very high,” it said.

“The UK government has initiated recently the legislative process to introduce a general price cap for standard variable tariffs and is proposing an expansion of the existing price cap for vulnerable households.” Innogy said the goodwill impairment “reflects the deterioration in commercial assumptions and tougher regulatory conditions”.

The comments came as part of Innogy’s results for the nine months ending in September, where it reported UK retail revenues had tumbled 17 per cent to €4.99 billion (£4.45bn).

Adjusted earnings for the group rose 5 per cent to €3.1bn over the period, despite losses on UK earnings deepening to €33m compared to a loss of €6m last year. Innogy’s group revenues also dropped 2.1 per cent to €30.8bn for the nine months.

Bernhard Gunther, Innogy’s chief financial officer, said: “The past nine months show that our earnings position has continued to show robust development.

“And we are making good progress, also in the UK. Despite the difficult situation on the UK market, Npower is a strong part of the planned combined retail company with SSE.”

The deal to bring together operations at SSE and Npower would see a new company listed on the London Stock Exchange with SSE shareholders holding 65.6 per cent and Innogy 34.4 per cent. Shareholders in SSE will vote on the deal by July next year, while Innogy has committed to seek the approval of its supervisory board by the end of 2017.

SSE has said that the merger will help the firms compete in a “competitive and regulatory environment” as well as realise efficiency savings. SSE, formerly known as Scottish and Southern Energy, is Britain’s second biggest energy supplier and the merged group will serve around 11.5 million customers. Centrica, Iberdrola (Scottishpower), E.ON and EDF make up the remainder of the “big six” players. All have also come under recent pressure from smaller rivals who have been taking customers and market share.

Confirmation of the merger came as SSE last week reported a slump in profits for the first half of the year. Profit before tax was down 40.4 per cent to £402.2m, with the firm blaming increased spending and customer losses.