SSE pre-tax profits jumps but outlook “challenging” amid UK energy policy and low commodity prices
The figures:
SSE's adjusted profit before tax rose by 48.2 per cent to £548.8m for the six months ending 30 September.
The UK's second-biggest energy supplier's total operating profit jumped 32.5 per cent to £701.9m from £529.8m during the same period a year earlier.
The increase was driven by its wholesale business segment, where operating profit rose almost six-fold to £159.6m, while its retail division swelled from £37.3m to £101.5m.
"We’ve seen a return to a more typical level of profit in our wholesale and retail businesses however market conditions continue to be challenging in domestic energy supply," Alistair Phillips-Davies, chief executive of SSE, said.
Its interim dividend rose 1.1 per cent to 26.9p per share.
Shares in the company were last down 1.21 per cent to 1,474p per share this afteroon.
Why it's interesting:
SSE is awaiting the outcome of an investigation by Ofgem, the UK watchdog which looks after the UK's gas and electricity market, into whether it restricted competition in the electricity connections market.
Another headwind it faces at home are changes to the government's energy policies such as renewables subsidies as well as possible changes to the carbon price floor (CPF) mechanism after 2020.
And on a global scale its production and exploration capabilities must contend with low commodity prices.
"The generally negative trend in commodity prices and the generally challenging outlook for market conditions could continue to impact in the second half of the financial year," SSE said in its results.
What SSE said:
"In the first half of this financial year SSE expected to deal with a number of challenging issues, such as the outcome of the UK Government's legislative programme and investigations by the Competition and Markets Authority," Richard Gillingwater, chairman of SSE, said.
"SSE has always acknowledged that there is uncertainty associated with these developments. The road ahead is becoming clearer, however, and there are grounds for cautious optimism that a stable long-term framework can be achieved," he added.
What the analysts said:
"Reiteration of full-year guidance and a relatively optimistic tone on the political/regulatory landscape ought to be greeted with some relief given persistently difficult energy market conditions," Fraser McLaren, research analysts at Bank of America Merrill Lynch, said in a note.
"Nevertheless, as hedges roll off, we think that the current weak commodity macro makes it difficult to avoid some earnings per share erosion next year."