SSE Plc (LON:SSE) in its Trading Statement on 19 July 2018 SSE plc stated that dry, still and warm weather in the financial year so far and persistently high gas prices had negatively impacted its adjusted operating profit in Q1 2018/19 by around £80m compared with plan. It also said that this would potentially impact on its full-year results, dependent on the range of factors that apply in its market-based businesses, in which it said Energy Portfolio Management is a major influence.
First five months
SSE has now completed its assessment of its financial performance in the first five months (to 31 August 2018) of the financial year and what it is expected to mean for its businesses for the remainder of the financial year.
Relatively dry, still and warm weather has continued as have persistently high gas prices. This has continued to result in a higher cost of energy than expected, lower than expected output from renewable sources, lower volumes of energy being consumed and a negative impact in relation to Energy Portfolio Management.
SSE’s adjusted operating profit for the first five months of the financial year has therefore been negatively affected by around £190m compared with plan. The net impact of higher than expected gas prices and other commodity price changes has accounted for just under half of this; with the impact of the weather accounting for most of the remainder.
Six months to 30 September 2018
The net result is that SSE currently expects its adjusted operating profit for the six months to 30 September 2018 will be around half of that delivered in the same period in 2017.
As a result of the factors set out above, and other factors set out in SSE’s Preliminary Results Statement on 25 May 2018, SSE’s results for the six months to 30 September 2018 are currently expected to show a significant reduction in adjusted operating profit in Generation and an adjusted operating loss of around £100m in Energy Portfolio Management. Although Gas Production is currently expected to show an increase in adjusted operating profit, SSE expects to report an adjusted operating loss across its Wholesale businesses.
Financial performance in SSE’s Networks businesses is currently in line with plan, and they are on course to deliver a mid-single digit increase in adjusted operating profit for the first six months of the financial year, compared with the same period in 2017.
In respect of its Retail businesses, SSE currently expects adjusted operating profit for the first six months of the financial year to be around break-even. Within this, SSE Energy Services is expected to incur an adjusted operating loss.
Outlook for the year to 31 March 2019
Ofgem’s proposed default tariff cap, associated methodology and input data, if implemented on 1 January 2019, is expected to result in adjusted operating profit for SSE Energy Services in 2018/19 being significantly lower than SSE expected at the start of the financial year. Unlike other suppliers, SSE Energy Services has implemented only one increase in standard household energy prices in Great Britain in the course of 2018.
Looking ahead, because it is the subject of the planned transaction with npower (which remains subject to necessary approvals) SSE Energy Services is likely to be deemed to be held for sale in SSE’s financial statements. This means it will be excluded from the calculation of SSE’s adjusted earnings per share for 2018/19.
As set out in May 2018, adjusted operating profit for SSE’s Networks businesses is expected to increase by a mid-single digit percentage for 2018/19 as a whole, mainly as a result of the phasing of income recovery in Electricity Transmission and a higher expected contribution from SGN.
The performance of SSE’s Wholesale businesses across 2018/19 as a whole will continue to be dependent on the range of factors set out most recently in SSE’s Trading Statement on 19 July 2018. At this stage, Energy Portfolio Management is currently expected to incur an adjusted operating loss in excess of £300m for the financial year as a whole.
Over time, SSE’s Energy Portfolio Management strategy will evolve to reflect its asset base and operations following the planned SSE Energy Services transaction; and also over time, higher gas, carbon and power prices will support the value of SSE’s assets.
Dividend for 2018/19 and beyond
SSE continues to expect to recommend a full-year dividend of 97.5 pence per share for 2018/19 and to deliver the five-year dividend plan set out in May 2018.
Alistair Phillips-Davies, Chief Executive of SSE, said:
“Lower than expected output of renewable energy and higher than expected gas prices mean that SSE’s financial performance in the first five months has been disappointing and regrettable.
“The underlying quality of SSE’s businesses remains strong, with regulated networks and renewables providing the core of what will be an infrastructure-focused SSE group in the years ahead.
“This year’s £1.7bn programme of capital investment, mainly in regulated networks and renewables, has continued to go well in recent months; and we are very pleased that the CMA’s provisional findings in relation to the planned SSE Energy Services transaction means we are on course to reshape and renew the SSE group by the end of our financial year.
“Reshaping and renewing the SSE group will support the delivery of our five-year dividend plan in the years ahead.”