SSE earnings fall, plans merger of retail arm with npower

Energy generator and retailer SSE performed in line with its recently-published expectations in its first half, it reported on Wednesday, with adjusted earnings per share falling 8.8% to 31.2p and adjusted operating profit falling 8% to £586.2m.

The FTSE 100 company said adjusted profit before tax for the six months to 30 September was 13.9% lower year-on-year at £409.6m, with investment and other capital expenditure in the period “slightly lower” at £779.5m.

Adjusted net debt and hybrid capital investment was up 9% to £9.2bn over the six months, with on market share buybacks totalling £270.5m made during the period, following £131.5m of share buybacks made in the entire 2016 financial year.

On a reported basis, operating profit was down 30.9% at £549.4m, with reported profit before tax falling 40.4% to £402.2m and reported earnings per share 43.9% lower at 29.8p.

The board declared an interim dividend of 28.4p, a 3.6% improvement year-on-year.

Looking at the rest of the financial year, SSE said it was “expecting to report full year earnings per share at a level which is at least in line with the current consensus of sector analysts' forecasts of 116p.”

It was also targeting an annual increase in the full-year dividend that is at least equal to RPI inflation.

Additionally, SSE said it was working to keep dividend cover “within the expected range” of around 1.2x - 1.4x, although it said it wais “likely to be towards the bottom of this range”.

The board said it was expecting to invest around £1.7bn in building, owning and operating assets, with around two thirds of this in electricity networks and renewable sources of energy, in the full year.

Looking beyond the current year, SSE said it was targeting delivery of annual dividend increases that at least kept pace with RPI inflation, and was still working towards achievement of dividend cover within a range of around 1.2x - 1.4x.

It was also focussing on progress in its capital and investment expenditure totalling around £6bn across the four years to 2020, mainly in electricity networks and renewable energy, and was targeting an increased RAV of its economically-regulated networks businesses to close to £9bn, up from £8bn at September 2017.

The board was also targeting an increased amount of renewable capacity, including pumped storage, of 4.3GW, up from 3.7GW at September 2017, which should then be capable of generating around 12TWh of electricity in a typical year.

Finally, SSE said it was working to deliver “enhanced customer experience” of retail energy markets through the installation of smart meters and the provision of digital services.

“The operating environment continues to present a number of complex challenges to manage, with significant political and regulatory intervention an ongoing feature of the energy sector,” said chairman Richard Gillingwater.

“SSE is focused, resilient and adaptable and those qualities continue to stand the company in good stead in responding to such interventions and other key changes.”

Gillingwater said the board had been, and remained, committed to taking the decisions necessary to secure the “right outcomes” for customers and for investors.

“In line with this, our priorities for the rest of this financial year are clear.

“For customers, it's energy provision that meets their current and future needs; for investors, its annual growth in the dividend that keeps pace with inflation.”

SSE to spin off retail operation in merger proposal with npower

In a separate announcement on Tuesday morning, the board of SSE confirmed that it has entered into an agreement with Innogy over a proposed demerger of SSE's household energy and services business in Great Britain and combination with Innogy's subsidiary npower Group, to form a new independent UK incorporated company to be held by SSE shareholders with minority participation by Innogy.

This transaction would create an “efficient new independent energy supply and services business” in Great Britain, the SSE board said, and help create a new market model by combining the resources and experience of two established players with the focus and agility of an independent supplier.

It said the shares of the combined retail company would be admitted to the premium listing segment of the Official List and to trading on the main market of the London Stock Exchange on completion of the combination.

Completion of the transaction remained subject to necessary shareholder and regulatory approvals and other conditions, and was expected to be completed by the last quarter of 2018 or the first quarter of 2019.

“We are very proud of what we've delivered as a group over many years; but we have been and remain committed to taking the right decisions in each of our businesses to secure the right outcomes for energy customers and other stakeholders,” said SSE chief executive Alistair Phillips-Davies.

“The scale of change in the energy market means we believe a separation of our household energy and services business and the proposed merger with npower will enable both entities to focus more acutely on pursuing their own dedicated strategies, and will ultimately better serve customers, employees and other stakeholders.”

Phillips-Davies said SSE would remain a “balanced group” of related businesses, specialising in the energy, infrastructure and services needed to support the transition to a lower carbon future, but continuing to serve business and Irish customers.

“The demerged retail business will build on a history of operational excellence and first-class customer service to pursue its own dynamic strategy for GB customers.

“This process is likely to take some time and in the interim we remain absolutely focused on the critical job of delivering for customers.”