SSE blames high gas prices for 40 per cent collapse in profits

SSE saw profits suffer a 41 per cent drop this morning, driven by “persistently high” gas prices, as the energy firm cast doubt over its merger with rival Npower.

The figures

Adjusted pre-tax profits were down 40.9 per cent year on year to £246.4m in the six months to the end of September, the company announced today.

SSE increased the interim dividend per share by 3.2 per cent to 29.3p and said it continues to recommend a full-year dividend of 97.5p per share. 

Why it matters

Chairman Richard Gillingwater said the profit plummet, which was anticipated following a September trading update, is “well short” of what the group had hoped to achieve in January.

In September the so-called Big Six energy firm warned that dry, still and warm weather and high gas prices had led to high cost of energy, lower than expected renewable energy output and lower volumes of energy consumed.

It also revealed that the proposed merger of SSE’s retail division with Npower, which is owned by Germany’s Innogy, was facing delays.

Today the firm confirmed that “there is now some uncertainty as to whether this transaction can be completed, as originally contemplated, but we continue to believe the best future for SSE Energy Services lies outside the SSE group.”

What the chairman said

Commenting on the results, Gillingwater said: “Although our half-year results are slightly ahead of the position we set out in September, they fall well short of what we hoped to achieve at the start of the year.

“This is disappointing and regrettable, but important changes are now being made to the way SSE manages its exposure to energy commodities."

He added that merging with Npower remains the company's goal, saying: "The board believes that the best future for SSE Energy Services, including its customers and employees, lies outside the SSE group.

“Looking ahead, we are taking forward the strategy we set out in May to position SSE as a leading energy company in a low carbon world, with a focus on regulated networks and renewables, complemented by flexible thermal generation and business energy sales. Material progress is being achieved in these businesses, which make up most of the value in SSE.”

What analysts said

Hargreaves Lansdown equity analyst George Salmon said: "SSE has an enviable track record of dividend increases, but investors might be worried about the group’s next five year plan. SSE needs to reinvest huge amounts back into running its energy network.

"That means there’s not always enough cash left over to cover the payout to shareholders.

"Taking on debt to pay the dividend can only tide you over so long, so if SSE is to make its dividend as sustainable as its energy generation, it needs to make improvements.

"That’ll start with changes to its hedging strategy, and after adverse price movements saw the division that includes commodity trading flip last year’s half year profit of £9m into a loss of £86m this time out, it’s easy to see why.

"The new strategy will try and smooth over those commodity-induced ups and downs, which feels like no bad thing to us. However, that doesn’t mean it’s all plain sailing from here.

"Adverse commodity prices haven’t been the only thorn in the group’s side recently. SSE is increasingly focused on renewables, and as we’ve seen this year the unpredictability of the weather on and around these shores will impact profits.”