Energy giant Innogy has booked a 480 million euro (£428 million) charge on utility provider NPower as it grapples with the commercial and regulatory pressures in the UK market.
The German firm said it was confronted by a “difficult situation” in the UK, driven by “very tough” competition, squeezed margins and a proposed move by the Government to cap poor value energy tariffs.
The hefty writedown comes as the Big Six energy firms look likely to become the Big Five after SSE and NPower announced last week that they had reached an agreement to merge their operations to create a new energy supplier in the UK.
However, Innogy said the deal would have no impact on the impairment charge.
The firm added: “The competitive landscape in the UK retail business remains very tough and pressure on margins is very high.
“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.
“As part of the annual impairment test, a goodwill impairment of 480 million euro for the UK retail business was recognised. This 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% to 4.99 billion euro (£4.45 billion).
Adjusted earnings for the group rose 5% to 3.1 billion euro (£2.8 billion) over the period, despite losses on UK earnings deepening to 33 million euro (£29 million), down from a loss of 6 million euro (£5 million) last year.
Innogy’s group revenues also dropped 2.1% to 30.79 billion euro (£27.4 billion) 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 will see a new company listed on the London Stock Exchange with SSE shareholders holding 65.6% and Innogy 34.4%.
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.