SSE warns first-half profits to fall by around 50%
Shares fall more than 7%, pulling rival Centrica and National Grid 2% lower
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SSE warned its profits for the first six months of the year would be half that of a year ago as high energy costs, lower renewables production and a drop in consumption combined to cut into the big six energy supplier’s earnings.
The company said its adjusted operating profit for the first five months of the financial year, which started in April, was around £190m lower than plan. Around half of that decline was due to higher than expected gas prices and other commodity price changes, while hotter than usual weather did for the rest.
SSE said its results for the six months to the end of September were expected “to show a significant reduction in adjusted operating profit in generation and an adjusted operating loss of around £100m in energy portfolio management [SSE’s trading business]”, dragging its wholesale business to an operating loss on its adjusted measure.
The group’s shares declined 7.7 per cent after the announcement, while shares in rival Centrica, which owns British Gas, fell 2.2 per cent and National Grid slipped 2.3 per cent.
A price cap on default tariffs proposed by the industry watchdog Ofgem last week was also expected to result in adjusted operating profit for the group’s SSE Energy Services business — which is due to be merged with Npower, Innogy’s UK retail energy arm — being “significantly lower” for the full year to the end of March than SSE had anticipated at the start of the year, the company said.
While its networks business was likely to increase earnings by a mid-single digit percentage for the full financial year, its trading business was expected to incur an adjusted operating loss of more than £300m in the year to the end of March.
“Over time, SSE’s energy portfolio management strategy will evolve to reflect its asset base and operations following the planned SSE Energy Services transaction; and also over time, higher gas, carbon and power prices will support the value of SSE’s assets,” the company said.
Chief executive Alistair Phillips-Davies said SSE’s performance over the first five months of the year had been “disappointing and regrettable.”
He said:
The underlying quality of SSE’s businesses remains strong, with regulated networks and renewables providing the core of what will be an infrastructure-focused SSE group in the years ahead . . . We are on course to reshape and renew the SSE group by the end of our financial year. Reshaping and renewing the SSE group will support the delivery of our five-year dividend plan in the years ahead.