SSE profit £1.55bn, but price cap ‘uncertainty’ ahead

Perth-based energy giant SSE said on Wednesday its adjusted pre-tax profit rose 2.1% to £1.55 billion in the year to March 31 — but warned of uncertainty ahead as the UK government prepares to cap energy tariffs.

Analysts at investment bank Jefferies said in a research note that SSE would not be able to maintain its dividend cover if the UK government introduced a proposed energy price cap.

“Over the last few years, SSE has in effect been investing at record levels in order to stand still from a profit perspective,” wrote the Jefferies analysts.

“With headwinds growing in the retail business, along with low power prices, we see this strategy coming under increasing pressure.”

SSE shares were trading up 1% at 1,466p, giving it a current stock market value of just under £15 billion.

SSE said its recommended full-year dividend was up 2.1% to 91.3p, and adjusted earnings per shares were up 5.2% to 125.7p.

Looking ahead, SSE said it expected to invest around £1.7 billion “in building, owning and operating assets, with around two thirds of this in electricity networks and renewable energy.”

On the price cap, SSE said: “One issue that has been extensively debated in the course of the UK general election campaign is the possible introduction of a ‘cap’ on the energy prices paid by customers on standard variable tariffs (SVTs).

“As at 31 March 2017, of its (SSE’s) 6.76 million GB domestic customer accounts, 4.76 million could be impacted by this.

“While the outcome of the general election won’t be known until 9 June it appears likely that any price cap would be would be set by Ofgem, which regulated retail energy prices until 2002.

“The key features of any price cap are its core objective, the expected role of competition in the market featuring a cap, the methodology used for setting the cap, the frequency with which it is reviewed, the extent of any regional variations, its implications for other administered features of energy supply and its duration.

“The impact of a price cap on any energy supplier can only be fully determined once all of those features are clear and once that supplier has considered its strategy in response, covering the products and services it wishes to offer in a market featuring a price cap, and the cost base it is willing to sustain in order to do so.

“Until the facts are known, the uncertainty around a possible price cap would clearly add to the risk for SSE and other energy suppliers and add to the volume of regulatory changes that need to be addressed and implemented and the significant consequences for finances.”

SSE CEO Alistair Phillips-Davies said: “We have been clear for some time that 2017-18 presents challenges, and the need to engage constructively with a new UK government as it takes forward energy policy will be a key priority for the year ahead and beyond.

“SSE will continue to focus on securing maximum value from our portfolio of wholesale assets, achieving further efficiencies and customer service improvements in our Networks businesses, responding positively to evolution and change in our retail markets and creating long-term value through investment of around £1.7 billion in new assets in 2017-18.

“Across the SSE group, we will continue to take the decisions necessary to secure the right outcomes for customers and investors.

“With a strong and growing asset base, and significant index-linked revenues, we remain committed to delivering annual dividend growth that at least keeps pace with inflation, and to working towards ensuring that dividend cover remains within the expected range.”