Profits hit at SSE as as customers leave ahead of shake-up

Perth-based group provides clarity on dividends after merger deal with Npower

giant SSE saw profits hit after shedding 430,000 customers last year and counting the cost of preparations for the merger of its domestic supply business with Npower.

Operating profits at the Perth-headquartered company’s household supply business were flat at £260.4 million, despite higher energy consumption in the final quarter thanks to the Beast from the East.

Overall the group suffered a 6 per cent fall in adjusted pre-tax profit to £1.45 billion in the year to 31 March despite revenue rising 8 per cent to £31.2bn.

SSE blamed competitive pressures for the number of domestic energy accounts falling from 7.23 million to 6.8 million. The group also recognised £213.3m worth of exceptional charges, including more than £60m in IT costs related to its deal with Npower.

Chairman Richard Gillingly water said the year had seen a number of “complex challenges” but he described SSE’S operational performance as “generally very robust”.

“The challenges will continue in 2018/19, which is also expected to be a year of major transition for SSE.”

The group also outlined its future dividend plans, a key issue for its shareholders who invest in the firm for reliable payouts. SSE is recommending a final dividend of 66.3p, taking the full-year dividend to 94.7p, an increase of 3.7 per cent.

The group is targeting a full-year dividend of 97.5p in 2018/19, followed by 80p per share in 2019/20, a figure then expected to rise in line with RPI inflation.

George Salmon of Hargreaves Lansdown said the reduction to 80p after the splitting off of the retail arm “was fair enough when you’re a smaller business”.

“All that remains to be seen now is whether the new customer-focused operation will be making up the 17.5p shortfall. It should be a strongenergy cash generative business, and a sole focus on retail will be a positive, but customer account losses and the introduction of price caps bring headwinds,” he said.

The deal to merge Npower and SSE’S retail operations is undergoing a competition investigation after the two energy giants failed to address concerns. Under the proposed deal, SSE shareholders will holding 65.6 per cent of the new retail company.

The group also said it was planning a £6bn investment in infrastructure over the next five years, with a focus on increased efficiency, renewables and network improvements.

David Hunter of consultancy Schneider Electric said the spend highlights the shift in the way the energy supply market is changing.

“As it becomes increasingly fragmented and less predictable we believe there will need to be a much greater focus on efficiency. Currently there are huge inefficiencies in both the energy generation and supply side of the market and in the way businesses and consumers use energy,” he said.

businessdesk@scotsman.com