SSE profit to take hit from lower networks division contribution

SSE said on Wednesday that it continues to expect first-half and full-year earnings for fiscal 2018 to be hit by a reduction in the contribution from the Networks division.

In a trading update ahead of its half-year results on 8 November, the company said adjusted operating profit for the year in the networks business will be around £150m lower than the previous year.

Nevertheless, half-year adjusted operating profit in the wholesale and retail division is expected to be higher than in the same period a year ago, with Wholesale benefiting from an improved performance in both the Energy Portfolio Management and Generation, and the Gas Production business segments, while Retail gets a boost from an improved performance in Energy-Related Services and Enterprise.

SSE said it continues to target an increase in the full-year dividend of at least RPI inflation and that it will work to keep the dividend cover within the expected range of around 1.2 to 1.4 times, although as previously stated, it's likely to be at the bottom of that range.

In addition, it said adjusted earnings per share for the full year are expected to be lower than in 2016/17.

Finance director Gregor Alexander said: "We are encouraged with what has been achieved in the first half of the financial year, but energy provision is always complex, especially in the autumn and winter period. Our focus is on doing the right things and making the right decisions necessary to secure positive outcomes for customers and investors. That means maintaining our strong commitment to meeting customers’ energy needs and to delivering for shareholders annual dividend increases that at least keep pace with RPI inflation.”

George Salmon, equity analyst at Hargreaves Lansdown, said: "There aren’t many sectors with dividend records to rival the utilities. SSE in particular has a remarkable track record, having increased the dividend every year since 1992. Against that background, its yield of 6.7% is an undeniable attraction.

"However, with customer numbers falling and political pressure for an energy market upheaval growing, we feel in order to keep this impressive dividend growth record going in the years to come, the group must start generating higher returns. Despite having spent around £10bn in the last seven years, mainly on renewable energy projects, net operating cash flows hasn’t moved a great deal.”

At 0935 BST, the shares were down 0.4% to 1,414p.