FRANKFURT (Reuters) - German utility Innogy (IGY.DE) cut 480 million euros (£427 million) off the value of its British electricity and gas supply business npower on Monday, warning more impairment charges could come after this month’s deal to merge the unit with rival SSE’s (SSE.L) bigger retail arm.
Power suppliers in Britain have been under pressure from the emergence of small and aggressive rivals as well as being threatened by a price cap on retail prices proposed by Prime Minister Theresa May’s government.
“For some time now our business in the UK is facing immense competition and regulatory risks. Therefore, the associated book values have had to be adjusted accordingly,” Innogy Chief Financial Officer Bernhard Guenther said on Monday.
“Market conditions are currently extreme,” he added.
The goodwill impairment charge, which cuts npower’s value by 10.5 percent to 4.08 billion euros, comes less than a week after Innogy and SSE announced plans to merge their UK retail power businesses and list the new entity on the stockmarket.
Innogy said the planned tie-up with SSE had not changed the assessment of the impairment. SSE declined to comment on the news, saying npower remained a competitor for now.
Analysts have warned that the stockmarket listing of the demerged entity, in which Innogy will hold a 34.4 percent stake, could result in additional charges.
Guenther said this might happen if the market environment in Britain deteriorated further.
“The competitive landscape in the UK retail business remains very tough and pressure on margins is very high,” Innogy said. Britain is the second-largest market for Innogy, Germany’s biggest energy firm by market value.
Also plagued by billing issues unrelated to the market environment in Britain, npower reported a nine-month adjusted loss before interest and tax of 102 million euros, up from an 81 million-euro loss in the same period last year.
“The UK retail business has been a well-known drag and it is positive that Innogy tackles this problem,” a trader said.
Shares in Innogy, which have increased by 15 percent since it was demerged as the renewables, networks and retail power division of German energy group RWE (RWEG.DE) last year, were down 1.2 percent at 40.81 euros at 1115 GMT, when shares in SSE were down 0.7 percent at 1,350 pence.
Npower added 47,000 customers in the third quarter, the group said, but cautioned that some customers could be retained only by offering cheaper contracts, further eroding margins.
Its end-September total of 4.804 million UK electricity and gas customers was down 2.4 percent from the end of 2016.
Additional reporting by Susanna Twidale in London; Editing by Jason Neely, Greg Mahlich