SSE on track despite uncertain market conditions

Energy wholesaler and retailer SSE posted its half-year results for the six months to 30 September on Wednesday, with its interim dividend increased by 1.9% to 27.4p per share.

The FTSE 100 company’s adjusted earnings per share fell by 25.5% to 34.2p, reflecting lower profits in wholesale and retail and an unusually high proportion of hybrid bond coupon payments made in the first half of the financial year.

Adjusted profit before tax declined by 13.3% to £475.8m, though the board pointed out it was still the second highest first half profit before tax delivered by SSE.

Reported earnings per share increased 143% to 47.2p, reflecting the cumulative impact of positive mark-to-market valuations on commodity and financial derivatives.

The company’s reported profit before tax increased by 167% to £615.9m, also reflecting the cumulative impact of positive mark-to-market valuations on commodity and financial derivatives.

Investment and capital expenditure rose 3.3% to £782.4m, while adjusted net debt and hybrid capital increased by 7.2% in the half year to £8,995.4m as a result of the phasing of capital expenditure and movements in foreign exchange rates.

For the financial year as a whole, SSE said it expects to deliver an annual increase in the dividend that at least keeps pace with RPI inflation and which is covered in the range from around 1.2 times to around 1.4 times.

It also expects to achieve a return to growth and deliver adjusted earnings per share of at least 120p, and undertake capital and investment expenditure of around £1.85bn.

That would be the highest annual investment and capital expenditure by the company to date, following the decision to invest in the 225MW Stronelairg onshore wind farm - a decision which means SSE has 1GW of wind farm capacity in construction or pre-construction.

In the period to December 2017, SSE’s board said it intends to use the proceeds from the sale of part of its stake in SGN - around £600m, net of transaction costs - to create value for shareholders by directing around £100m to support investment in Stronelairg.

It currently intends to return value to shareholders by way of an on-market share buy-back of around £500m.

After that, the ongoing adjusted EPS impact of the sale and the use of the proceeds should be broadly neutral, the board reported.

Looking even further ahead, SSE’s directors said the company remains on course to deliver annual dividend increases that keep pace with RPI inflation, and achieve dividend cover within a range of around 1.2 times to 1.4 times over the three years to March 2019.

It was also on track to undertake capital and investment expenditure totalling almost £6bn over the four years to March 2020.

“SSE continues to focus on the fulfilment of its core purpose of providing the energy people need in a reliable and sustainable way,” said SSE chairman Richard Gillingwater.

“In this financial year so far we have again delivered what we said we would, particularly with the sale of one third of our stake in SGN; further disciplined investment in networks and renewables; delivering high quality customer service; and the efficient operation of our assets.”

Gillingwater said the operating environment presents some challenges, notably with changes to the UK Government and macroeconomic uncertainty, with the added issue of Brexit.

“There have, however, been some welcome developments, particularly the UK Government's recent reforms to the Capacity Market in GB.

“SSE continues to engage constructively with governments and regulators to help them achieve their aims for the energy market.”

He explained that, whilst there “should always be” a degree of caution about interpreting half-year results, the company has made a satisfactory start to the financial year.

“Looking to the challenges that lie ahead, our long-term focus will continue to be on operating our balanced range of energy businesses safely and efficiently and maintaining disciplined financial management.

“This long-term approach puts SSE on course to achieve our financial objective of delivering an increase in the full-year dividend at least equal to RPI inflation.”