Shareholders to be offered final bonanza before SSE dividend cut
BIG Six energy supplier SSE will make its first ever dividend cut following its exit from the supply market to refocus on generating and distributing gas and power.
The FTSE 100 giant will offer shareholders one last payout bonanza, despite tumbling profits and the loss of 430,000 customers, before cutting the payouts for the first time in its history at the end of the decade.
Its dividend for the last financial year will climb 3.7pc to 94.7p per share and shareholders will enjoy another 3pc rise to 97.5p per share in 2018-19. But in the last financial year of the decade its payouts will slump to 80p a share to reflect its retreat from Britain’s embattled energy supply market.
SSE said 2018 would be a “transition year” as the company pushes forward plans to spin off its supply arm and merge it with rival Big Six company Npower to create a new listed supplier.
Meanwhile, the core company will plough £6bn of investment into its plants and power lines by 2023. The spending will include a £350m investment in a new 840MW gas-fired power station at Keadby in Lincolnshire.
SSE has decided to begin building the plant without a supply contract in the hope of securing one in auctions to be held by National Grid in the coming three years. The bold bet is the first green light for a major British gas-fired power plant in more than five years.
Roshan Patel, of Investec, said SSE’S dividend cut was “at the positive end of possible scenarios” given its investment pledges and falling cash flows from the loss of its supply operations.
SSE’S supportive shareholders believe that in the long run the move will protect its core energy generation and infrastructure business from the rising political and competitive pressure facing retail suppliers.
SSE lost 430,000 customers last year amid a flood of new entrants to the market and its chairman warned it would continue to face “complex challenges” this year after its annual profits fell by almost 40pc.
Slumping earnings in the energy giant’s transmission and distribution arms were the main cause of the drop after it spent more on capital investment, offsetting higher profits in its retail arm.
Overall pre-tax profits were down 39pc to £1.1bn, despite 8pc growth in revenues to £31.2bn.
Richard Gillingwater, SSE’S chairman, said “operational performance was generally very robust” but that it would continue to face difficulties in what he described as “a year of major transition”.
“The changes we are making as we renew SSE are intended to have longterm positive outcomes for customers, stakeholders and investors,” he added.
“For investors, by giving clarity on the dividend up to March 2023, SSE is demonstrating that remunerating them for their investment is and will remain its first financial objective.”