SSE still exploring options for retail supply arm, says wholesale profit to drop

SSE said on Thursday that it expects a "significant" reduction in 2018/19 adjusted operating profit in its wholesale business as it continues to assess "all options" for its retail supply arm, SSE Energy Services, following the collapse of the merger with Npower last year.

In an update ahead of its full-year results in May, the company said the decline in wholesale operating profit reflects the previously communicated losses incurred in Energy Portfolio Management, the cessation of power purchase agreements and a lower hedged price for renewable output.

Meanwhile, the networks business is expected to see a mid-single digit increase in adjusted operating profit, while profit in the business energy, SSE Airtricity and Enterprise arm will see broadly flat profits.

The company also said it was working on the future options for SSE Energy Services, including progress on potential "external collateral arrangements" that may support the opportunities for a future outside the group.

"Should these options not be viable, SSE would expect to retain Energy Services as a separate entity within the SSE Group. All options are being assessed with the interests of customers, employees and shareholders being given full consideration," it said.

SSE intends to give an assessment of its preferred option by the end of May.

The group also reaffirmed its guidance, saying it expects to deliver adjusted earnings per share of between 64p and 69p, a full-year dividend of 97.5p a share and cash proceeds of more than £1bn from asset disposals.

Finance director Gregor Alexander said: "We are making encouraging progress in our core businesses of regulated energy networks and renewable energy, complemented by flexible thermal generation and business energy sales. Our disposals and stake sell-downs have generated over £1bn in proceeds, demonstrating our ability to create value for shareholders from developing and operating world class assets.

"This year has clearly presented significant challenges and uncertainty in the operating environment persists, but our optionality and agility mean we are well placed to deliver on the strategy we presented last year to create value for shareholders and society from developing, owning and operating energy and related infrastructure in a sustainable way, as well as delivering against our five-year dividend plan."

RBC Capital Markets said it sees longer-term benefits in SSE, as it reckons the business ex-retail should be an attractive proposition to investors, with visible cash flows from a mixture of networks and renewables.

"However, continued uncertainty around the sale of the retail business and UK Capacity Markets, risks to consensus estimates and a relatively full valuation mean we see more attractive propositions elsewhere in the UK."