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Innogy, the German energy company, said it expected to make a loss on its UK retail business this year, due to a “worsening market environment” and “extremely fierce competition”.

The company, which like other UK energy suppliers is trying to digest Tory plans for a price cap on standard tariffs, reported a rise in profits in the first quarter on the back of a strong performance in its grid business. But it saw a 13 per cent drop in earnings in its renewables division, amid reduced plant utilisation at its wind farms due to lower wind levels.

Profits at its retail arm also declined due to a drop in customer numbers and sales in the Netherlands and Belgium and a fall in earnings in its UK retail business, which is branded as Npower.

Innogy said its recovery plan for Npower, launched in early 2016, “continues to make progress as scheduled”. It said it had implemented measures that already cover more than half of the £200m in cost savings envisaged up to the end of 2018.

But it said the savings achieved were “far from sufficient to make up for the continued deterioration in market conditions and reduced marigins”. It said it was therefore examining further efficiency measures at npower.

Innogy said adjusted earnings before interest, tax, depreciation and amortisation was €1.62bn, up 4 per cent year on year. Revenues were €12.4bn, down 7 per cent on a year ago.

The company said earnings before interest and tax for its grid and infrastructure division increased by 29 per cent, to €708m, as cooler weather in Eastern Europe drove up volume on its gas distribution networks, especially in the Czech Republic. Adjusted ebit for the renewables arm declined by 13 per cent to €134m, and in the retail division by 9 per cent to €490m.

Innogy was formed last year from the cleaner, greener businesses of German utility RWE — renewables, power grids and retail energy services. Its initial public offering in October raised €4.6bn, making it Germany’s largest flotation since 2000.

The company confirmed its outlook for 2017, saying adjusted ebitda for the year would stand at €4.4bn and adjusted net income at €1.2bn. Chief financial officer Bernhard Guenther said the targeted increase in net income “will certainly be of particular significance to our shareholders, since our dividend is based on adjusted net income, of which we intend to continue paying out 70 per cent to 80 per cent in dividends”.

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