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SSE warns of halving first-half adjusted operating profit due to warm summer, high gas prices

The FTSE 100-listed company said the relatively dry, still and warm weather has continued to impact on the group as have persistently high gas prices resulting in a higher cost of energy than expected
SSE sign
The energy provider pointed out that adjusted operating profit for the first five months of the financial year has therefore been negatively affected by around £190mln

SSE PLC (LON:SSE) has warned that it 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 due to the warm summer and high wholesale gas prices.

In a trading statement, the FTSE 100-listed company said the relatively dry, still and warm weather has continued to impact on the group as have persistently high gas prices resulting in a higher cost of energy than expected.

READ: SSE “pleased” UK regulator has provisionally cleared planned merger of its energy retail business with Npower

It also cited lower than expected output from renewable sources, lower volumes of energy being consumed and a negative impact in relation to Energy Portfolio Management.

The energy provider pointed out that adjusted operating profit for the first five months of the financial year has therefore been negatively affected by around £190mln compared with its plan.

It said the net impact of higher than expected gas prices and other commodity price changes has accounted for just under half of that total, with the impact of the warm weather accounting for most of the remainder.

The firm added that, 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.

Although within this, its SSE Energy Services unit - which looks set to be merged with German firm Innogy's Npower unit after being provisionally cleared last month -  - is expected to incur an adjusted operating loss.

Looking ahead to the full-year, SSE said regulator 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 its Energy Services business in 2018/19 being significantly lower than the group expected at the start of the financial year. 

The company pointed out that, unlike other suppliers, SSE Energy Services has implemented only one increase in standard household energy prices in Great Britain in the course of 2018.

Dividend plan still on track

SSE said it continues to expect to recommend a full-year dividend of 97.5p per share for 2018/19 and to deliver the five-year dividend plan set out in May 2018.

Alistair Phillips-Davies, SSE’s chief executive of SSE commented: "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.”

But, he added: “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.”

George Salmon, equity analyst at Hargreaves Lansdown commented: “While most of us enjoyed day after day of blissful sunshine earlier this year, it wasn’t such a great summer for SSE. Hardly any rain or wind meant output from its hydro and wind assets wilted in the heat, and with nobody putting the heating on, customer meters just didn’t tick over. All the while, the price of gas in the wholesale market has kept on rising.”

He added: “Investors should remember that SSE can’t control any of these factors, and a business increasingly focussed on renewable energy will have good years and bad. With that longer-term outlook in mind, the board says it intends to stick to pre-existing dividend plans.”

In early afternoon trading, SSE topped the FTSE fallers, down 7.9% at 1,151.5p, with other energy providers also dragged lower – British Gas owner Centrica PLC (LON:CNA) losing 2.9% at 146.15p and National Grid PLC (LON:NG.) falling 1.1% to 799p.

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