SSE posts 41% drop in interim profit; to create new renewable energy business

Energy group SSE posted a drop in interim profit on Wednesday as it announced the creation of a renewable energy business.

In the six months to 30 September, adjusted pre-tax profit slumped 41% to £246.4m. Still, the interim dividend was lifted by 3.2% to 29.3p a share and the company said it still plans to recommend a full-year dividend of 97.5p per share and to deliver the five-year dividend plan it set out in May.

Chairman Richard 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.

"This is a company with a clear strategy for its core businesses and highly valuable assets in a sector that's yielding investment opportunities that go with the grain of political, economic and environmental focus on decarbonisation, and it is this that will support the delivery of our dividend plan in the years to come."

The company also announced plans to consolidate the development, operation and ownership of its renewable energy assets in the UK and Ireland under a single entity to be known as SSE Renewables.

The business will comprise SSE's existing operational assets and assets under development and construction in onshore wind, offshore wind, flexible hydro electricity, run-of-river hydro electricity and pumped storage.

Chief executive Alistair Philips-Davies said: "The creation of SSE Renewable is the latest step in our strategic goal to give greater focus to renewable energy, give investors greater visibility of assets and earnings in the future and give each of the businesses in SSE the best platform for success.

"Success will mean maximising SSE's contribution to the ongoing decarbonisation of the electricity system and creating value for shareholders and society in a sustainable way, with a clear focus on maximising future growth opportunities."

SSE - which announced last week that its merger with Npower would be delayed following the government's introduction of an energy price cap - said there is now some uncertainty as to whether the transaction can be completed as originally contemplated.

"Nevertheless, the board believes that the best future for SSE Energy Services, including its customers and employees, will continue to lie outside the SSE group," it said.

SSE and Npower parent Innogy said last Thursday that the merger between the two would be delayed beyond the first quarter of next year as they renegotiate the terms.

George Salmon, equity analyst at Hargreaves Lansdown, 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."