May 12, 2017 / 5:35 AM / 3 years ago

Innogy signals further costs cuts at UK business Npower

FRANKFURT (Reuters) - Innogy (IGY.DE), Germany’s largest energy group, lost another 200,000 customers in Britain and warned of further cost cuts at its Npower business, which is no longer expected to make a profit this year because of growing competition.

A sign hangs outside the building of electricity provider npower in Solihull, Britain, March 7, 2016. REUTERS/Darren Staples/File Photo

Smaller German rival E.ON (EONGn.DE) this week also warned of tougher conditions in the British retail market, where Prime Minister Theresa May has pledged to cap household energy prices if she is re-elected on June 8.

The industry argues that competition is increasing and that a price cap could reverse that trend and choke off investment as well as further erode already low margins.

Nowhere in mainland Europe was Innogy operating “in a political climate remotely as hostile to utilities as the UK is”, Chief Financial Officer Bernhard Guenther told analysts on Friday after presenting first-quarter results.

He added any price cap in Britain would be taken into account in the company’s next impairment test, suggesting that Npower’s book value could potentially be revised downwards.

Innogy said it was looking at a number of different options, including strategic, for the business, which has been a headache since billing problems and rapid customer losses first surfaced in 2015.

Guenther told Reuters in late 2015 that an exit from Britain could not be ruled out if a turnaround at Npower failed.

Npower accounts for less than 3 percent of Innogy’s operating profit but has become the group’s single biggest problem, leading to 2,400 job cuts, more than a fifth of the total at the business.

“Further efficiency improving measures at Npower are being examined,” Innogy said.

Despite the problems at Npower, Innogy maintained its full-year outlook. It expects adjusted EBIT of 2.9 billion euros (£2.4 billion), adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of about 4.4 billion and adjusted net income of more than 1.2 billion.

During the first three months of the year, Npower lost 211,000 residential and commercial clients, a decrease of 4.3 percent, bringing their number down to 4.686 million, Innogy said in e-mailed comments.

First-quarter adjusted earnings before interest and tax (EBIT) at the unit plunged 74 percent to 34 million euros, Innogy said, adding it no longer expected the business to make a profit in 2017.

“The negative update on UK retail (Npower) raises a number of questions on the ability of the company to weather even rougher storms such as the proposed... price cap,” Deepa Venkateswaran, senior analyst at Bernstein, wrote.

Editing by Georgina Prodhan and Keith Weir

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