SSE, Innogy To Merge Retail in GB
UK energy group SSE and German rival Innogy said November 8 they have agreed to merge their domestic retail operations in Great Britain, today branded respectively SSE and npower.
At end-September, the two retail arms supplied 11.5 households in Britain, just behind the market leader Centrica. The new business will not be controlled by either Innogy or SSE. Instead, Innogy will hold a minority stake of 34.4% in the new combined retail company, while SSE plans to demerge its stake of 65.6% to its shareholders upon completion of the transaction.
No power generation assets are to be included in the new business, nor will SSE's upstream or its business retail (B2B) and its Ireland businesses be included. Completion of the transaction and the listing of the new retail energy company are expected to occur in the 4Q 2018 or 1Q 2019, if all necessary approvals are achieved by then. Until effective, the business operations of both npower and SSE will remain completely independent.
SSE said the estimated gross value of its retail arm was £819mn (excluding cash) at end March 2017, while npower’s gross value was £2,128mn (net of goodwill of £1,773m). SSE’s share price fell on the news in opening trades November 8. One reason may be that Npower sales and customer retentions have struggled in recent years and it ranked 5th or 6th among Britain’s ‘Big Six’ energy retailers, whereas SSE has consistently been 2nd.
SSE group said it – rather than the new venture – would continue to supply energy and provide energy and infrastructure services to business customers throughout the UK and Ireland, and to household customers in Northern Ireland and Ireland.
Tony Keeling, SSE Retail chief operating officer, told BBC Radio that a planned introduction by the government of a retail price cap in Britain was not a factor behind the merger announcement. However Innogy CEO Peter Terium said: "When we look at the competitive landscape and the uncertain political environment for energy retailers in Great Britain, it is clear that npower would be better placed to offer value to our customers and our shareholders as part of a new company with the ability to succeed in the face of the challenges that lie ahead." The new merged retail business would a similar customer count to rival the market leader Centrica, which at end-June 2017 had 13.873mn energy customers in Great Britain.
The merged retail entity would effectively reduce the number of major competitors from six to five, and for that reason may face scrutiny by energy regulator Ofgem.
SSE also November 8 announced six-month net profits to September 30 2017 of £299.8mn, down from £535.3mn in the prior year period. Adjusted net profit was £314.2mn, down from the year-before £344.8mn.
Mark Smedley