SSE shares plunge on price cap profit warning – Herald

MARK WILLIAMSON
SHARES in Scottish Hydroelectric Owner SSE have plunged around eight per
cent after the power firm warned the price cap on tariffs would hit profits
following a “disappointing and regrettable” performance in the first five
months.
The Perth-based utility said the price cap that Ofgem has proposed to
implement from 1 January will result in annual profits for the division
that serves households being significantly lower than expected at the start
of the financial year.
Ofgem last week said it would impose a £1,136 cap on the annual bills of
dual fuel customers paying by direct debit following repeated complaints
about the prices charge by the big six energy firms.
The introduction of the cap will pose fresh challenges for SSE following a
difficult first half.
SSE said profits for the six months to September 30 would be around half
the level achieved last time, with warm summer weather and increased gas
prices taking a heavy toll on the business.
The sunny summer resulted in lower than expected output from the wind farms
and hydro plants operated by SSE’s core renewables business. The group’s
customers used less energy.
SSE said persistently high gas prices had continued to result in a higher
cost of energy than expected.
“Adjusted operating profit for the first five months of the financial year
has therefore been negatively affected by around £190m compared with plan,”
it told investors.
The unscheduled update came weeks after SSE warned that weather and gas
price effects had left first quarter profits £80m below forecast.
“SSE’s financial performance in the first five months has been
disappointing and regrettable,” Mr Phillips-Davies said yesterday.
However, he said the underlying quality of SSE’s businesses remains strong,
with the networks and renewables operations forming the core of what will
be an infrastructure-focused group in the years ahead.
Mr Phillips-Davies emphasised SSE still expects to deliver the five-year
dividend plan set out in May helped by the reshaping of the group.
SSE is set to quit the retail business. The company plans to merge its
retail arm with npower, through a deal that will result in the big six
energy retailers that dominate the household market being reduced to five.
Unions and consumer groups have expressed concern about the impact on gas
and electricity prices and on jobs. However, the Competitions and Markets
Authority last month signalled it would clear the deal. It has concluded
that SSE and npower do not compete closely on the kind of standard variable
tariffs that have stirred controversy.
Shareholders in SSE will own 65.6% of the new retail business created by
the merger, which is expected to complete by March 31.
SSE continues to expect to recommend a full-year dividend of 97.5 pence per
share for 2018/19.
“Pledging to make good its promise on the dividend will sugar the pill of
another profit warning, but with earnings falling and investment
requirements stretching well into the billions, SSE can ill-afford more
slip ups,” said George Salmon, equity analyst at Hargreaves Lansdown.
SSE’s transmission networks business appears to have been its best
performing operation in the year to date.
The division is expected to deliver a mid-single digit increase in adjusted
operating profit for the full year.
The Energy Portfolio Management arm, which ensures SSE has the supplies
needed to meet customer demand, is expected to lose £300m this year.
SSE achieved £586.2m adjusted operating profit in the first half last year,
down 8% on the same period in the preceding year.
In July SSE said total energy customer numbers for Great Britain and
Ireland stood at 7.45 million at June 30, compared with 7.77m on June 30
last year.
Shares in SSE closed down 103.5p at 1147p.

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