SSE considers future of retail arm as price cap takes toll

● Home energy margins set to fall by more than half ● Sale of stakes in three Scottish wind farms to cut debts

SSE, the Perth-based utility group, yesterday said it was continuing to look at options for its household supply arm after the collapse of a planned merger with rival Npower last year.

In a trading update ahead of its full year results, SSE also said its supply business is set to see profit margins more than halve as a result of the default tariff price cap introduced by the UK government.

Retail margins are set to fall to between 2 and 3 per cent in the year to 31 March, from 6.8 per cent last year.

However, SSE said its wider energy services division is set to be profitable in 2018-19 and the following year despite the margin hit.

The company also said that the previously announced sales of stakes of three wind farms in Scotland – Clyde, Stronelairg and Dunmaglass – together with telecoms and pipeline interests would generate total cash proceeds of over £1 billion.

That means net debt is now expected to be slightly lower than anticipated at around £9.5bn, down from the previous estimate of £9.8bn.

SSE said it was looking at potential “external collateral arrangements” as it explores a possible demerger and separate stock market listing or sale of the retail supply division. If these options are not workable it will look to keep it.

SSE plans to report back on its preferred option by the end of May.

In its previous trading update SSE said it was considering a standalone demerger and listing, a sale, or ring-fencing of its energy services arm.

It comes after SSE and Npower were last year forced to call off their plans to merge the unit, blaming “challenging market conditions” and the UK government’s price cap.

SSE finance director Gregor Alexander said the year has “clearly presented significant challenges and uncertainty in the operating environment persists”.

But he added: “We are making encouraging progress in our core businesses of regulated energy networks and renewable energy, complemented by flexible thermal generation and business energy sales.

“Our disposals and stake selldowns have generated over £1bn in proceeds, demonstrating our ability to create value for shareholders from developing and operating world class assets.”

George Salmon of Hargreaves Lansdown said although the business has a “great track record” the company currently faced a significant amount of uncertainty.

“Nationalisation has reentered the debate for the first time in a generation, and a trend towards higher interest rates could reduce the appeal of dividend paying stocks like SSE,” Salmon said.

SSE will announce its results for the year ending 31 March on 22 May.