Innogy finance chief: winding down Npower an option

Innogy CFO, Bernhard Günther

Innogy chief finance officer Bernhard Günther said all options are on the table for Npower, including winding down the business.

On an analyst call, Günther said Innogy expected a negative Ebit contribution from UK retail of around €250m in 2019 and perhaps €150m in 2020.

“Based on the current market situation, we don’t give any guidance on when this business on a standalone basis will turn positive,” he said, adding that “irrational pricing behaviour” from other energy retailers hampers forecasting.

“We observed towards the end of 2018 that some are offering [tariffs] at negative gross margins and gaining customers by doing so. We always said we would not try to buy customers at a loss.”

As such, the company expects more customer losses, which will create further drag.

Asked why Npower has performed consistently badly compared to the rest of the Big Six in recent years, Günther was frank:

“Because on our way to restructuring, we have lost so many customers. In retail, B2C at least, a significant part is cost-driven,” he said. “The larger the customer base, the [greater the contribution to] covering fixed costs.

“Our fixed cost base is relatively similar to [the other Big Six competitors]. But we [now] have around 4m customers. Eon has 7m, Centrica has about 10m. We just lack the critical mass to be on an equal level of profitability as they are. It is a typical fixed cost dilemma that we are in.”

Günther declined to quantify the number of roles that would be required at a combined Eon-Npower retail entity, should that eventuate.

Should Innogy decide to close Npower, the “all-in” cost would be “significant” triple digit millions of pounds, said Günther.

“We do not exclude any option. Of course the strategic option … selling the customer book and winding down the operation of the business is one of the various options and the wind down scenario would include some significant costs,” said Günther.

Whether those costs are considered “prohibitive … is in the eye of the beholder”, Günther suggested. He said the cost of closure would be taken into account in weighing up other options for Npower, but added that making assumptions about how much a prospective buyer might be prepared to pay for customers was a “very volatile ‘unknown unknown’”.

Asked to make a comparison with the sale of 770,000 customers to Utility Warehouse for £216m in 2013, at around £300 per customer, Günther said those days were long gone.

“We would be happy to consider any offer based on those multiples,” he suggested.

Listen to a recording of the call here.

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Eon and RWE strike major deal

Supplier debt crisis creating “house of cards”

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