SSE blames low gas prices and mild winter for profit drop

SSE has reported pre-tax profits of £593.3 million for the year ending March 2016 - a 19.3 per cent fall on the previous 12 months (£735.2 million).

The big six supplier said the decrease was the result of lower wholesale gas prices and the mild winter. Domestic customer numbers fell by around 370,000 over the year to 8.21 million.

Adjusted pre-tax profits were down 3.3 per cent from £1,564.7 million to £1,513.5 million. SSE took an £889.8 million write-down on the value of its assets mainly due to the depreciation of its coal and gas-fired plants and the closure of Fiddler’s Ferry.

Adjusted operating profits before tax were down across all three of SSE’s divisions. The biggest fall came from the wholesale division which saw its profits fall by 6.6 per cent to £442.5 million (2014/15: £473.8 million) “reflecting very poor market conditions”.

SSE said reduced revenue from electricity distribution in the first year of the RIIO ED1 price control was the main driver behind a 1.1 per cent drop in profits at networks division to £926.6 million (2014/15: £936.8 million).

Earnings from retail were down 0.4 per cent to £455.2 million (2014/15: £456.8 million). A rise in profits from its business supply sales was offest by a decline in profits from both its domestic sales – due to reduced consumption and the fall in customer numbers – and its business services arm SSE Enterprise.

Chief executive Alistair Phillips-Davies said:  “The operating environment presented a number of complex issues, including the impact of low wholesale gas prices and intense retail market competition.

“Some of the mist is beginning to clear around the legislative, political and regulatory environment and SSE will continue to invest for the future.”

After investing £1.6 billion over the past year, SSE said it plans to invest a further £5.5 billion to £6 billion over the next four years.

Philips-Davies added: “Today’s announcement of our plan to invest up to £6bn in the next four years will help deliver secure, low carbon and affordable energy for the UK and Ireland’s energy customers and the investment in new energy infrastructure for the decades to come.”

SSE said around two thirds of the investment will be focused on building new power lines, upgrading old ones and developing renewable projects. It said it will also develop plans for two potential new gas-fired plants at Keadby in Lincolnshire and Seabank 3 near Bristol following Decc’s proposed changes to the capacity market.

Analysts at Jefferies said: “SSE continues to tough out the current harsh market conditions. But it is having to invest heavily to essentially stand still on earnings, which means that the capital intensity of its earnings is rising. SSE has, once again, put through a large asset write-down. The company has now written-off nearly £4bn of assets in the past six years.”

They added: “SSE will continue to struggle so long as UK power prices remain around £40/MWh. Even a modest move up in prices to the £45-50/MWh range would alleviate much of the pressure. But if that doesn’t happen, then SSE’s ability to maintain investment at this rate and its dividend will be called into question.”