One of the UK’s big six energy suppliers has reported a slide in profits as milder weather hit consumption and rising wholesale prices squeezed earnings.
E.ON said its UK retail business, which supplies electricity and gas to 4.8 million homes in the UK, saw underlying earnings fall 7.6 per cent to £304 million in 2011.
The lower profits came despite E.ON hiking its electricity bills by 11.4 per cent and gas prices by 18.1 per cent in September. The group announced a 6 per cent cut to electricity bills in February, but this falls outside the reporting period.
German utility giant E.ON reported a group loss of £1.6 billion in 2011, compared to a £5.3 billion profit the previous year, after the German government shut down several nuclear power plants.
E.ON, which employs around 12,000 people in the UK, said the drop in earnings came despite its profit margin on its home supplies in the UK climbing to 1.68 per cent in 2011, compared with 0.5 per cent in 2010.
The group said it invested £61 million in 2011, including its programme to install more than one million smart meters - which remove the need for less reliable estimated bills – by 2014.
Outside of its retail business, E.ON made £972 million from its other UK operations, which include power generation, gas storage and gas exploration, compared with £1 billion in 2010.
The company has invested £986 million in its other businesses, including a new gas-fired power station at Isle of Grain in Kent which can power up to 750,000 homes, and the development of the world’s largest offshore wind farm, London Array.
The group recently announced the end of power generation at its 42-year-old Kingsnorth power station in 2013, as a result of EU legislation.
Tony Cocker, E.ON UK chief executive, said: “My main priorities are both to earn the trust of our customers and to earn a fair profit because I recognise that in the long term no company can be sustainable without both.
“We understand that our customers want to know they are paying a fair price for the energy they buy from us.”
Dr Cocker said in a typical E.ON bill last year around 50 per cent covered the cost of energy, about 25 per cent covered the cost of transporting and metering the energy, and operational running costs made up about 13 per cent.
Elsewhere, 5 per cent was used to aid the elderly and vulnerable and produce more sustainable energy, two per cent was profit and VAT made up the final five per cent.
E.ON’s recent bill changes will reduce the average dual fuel bill paid by direct debit by £30 to £1,160, while a dual fuel customer paying by quarterly cash or cheque will see their bill fall by £31 to £1,223.
Although all the big six have cut prices, including the largest supplier British Gas, the falls do not compensate for recent increases.
All six put prices of gas and electricity up over the summer or autumn following increases last winter, blaming rising wholesale costs.
E.ON said the forced shutdown of some of its atomic reactors in Germany in the wake of Japan’s Fukushima nuclear disaster cost the company £2.1 billion.
The company said a new tax on nuclear fuel, lower earnings in its power generation unit and declining margins in the natural gas business also contributed to the group loss.
However, E.ON said sales were up by 22 per cent from £77.9 billion to £94.7 billion and expects a profit for 2012 of up to £2.3 billion.