20th May 2015 11:47
LONDON (Alliance News) - SSE PLC on Wednesday reported annual results that were in line with analyst expectations, with profit experiencing a lift, as all of the power company's divisions remained profitable despite its wholesale division experiencing a fall in profit.
SSE's retail division, which caters for UK household customers, reported the largest rise in earnings, benefiting from cost efficiencies and an increase in household electricity and gas tariffs in November 2013, partially offset by a loss of retail customers in the period and a fall in average energy consumption.
The FTSE 100 company reported an pretax profit before exceptional items and remeasurements of GBP1.56 billion for the year ended March 31, up 0.9% year on year from GBP1.55 billion a year. SSE's wholesale, networks and retail segments were all profitable, leading to a total operating profit of GBP1.881 billion, experiencing a tiny lift from GBP1.880 billion.
Both pretax profit before exceptional items and remeasurements and operating profit were in line with analyst consensus, whilst pretax profit including exceptional items and remeasurements came in at GBP735.2 million, up from GBP592.5 million in the last financial year.
In the year, SSE booked GBP674.6 million in impairments and related charges, including a GBP313.5 million impairment to two coal-fired power plants, one of which it will close, a GBP163.9 million impairment against the Aldbrough gas storage facility, and GBP106.1 million in impairments and charges relating to the Sean North Sea gas production assets. A further GBP109.9 million in further charges were recorded, related to the Seabank 3 development near Bristol and the Abernedd gas fired generation development in South Wales. These were partially offset by exceptional credits.
Revenue for the period totalled GBP31.65 billion, also up from GBP30.58 billion the year before.
The wholesale division reported an operating profit of GBP473.8 million, down from GBP634.6 million as it experienced a lower output of electricity from renewable and thermal energy sources and lower gas prices. SSE also said "very difficult market conditions" affecting thermal plants have continued to "persist for several years".
The wholesale division's operating profit mainly fell due to gas production achieving an operating profit of only GBP36.6 million in the year, down from GBP130.2 million the year earlier, reflecting lower day-ahead prices achieved for gas produced. The division's energy portfolio management and electricity generation segment posted a GBP433.3 million operating profit, down from GBP496.1 million the year before. The gas storage segment reported an operating profit of GBP3.9 million, down from GBP8.3 million.
Total wholesale electricity output from gas and oil fired power stations totalled 9.8 terrawatt hours, down from 10.1 terrawatt hours, whilst gas fired stations generated 9.1 terrawatt hours, also down from 16.6 terrawatt hours. Electricity output from renewable sources fell to 8.7 terrawatt hours from 9.3 terrawatt hours.
The retail division offset the weaker wholesale performance, reporting a substantial lift in operating profit to GBP456.8 million from GBP327.1 million a year earlier, which SSE said restored the division to a "similar level to that achieved in 2012/2013".
Earnings were restored to the former level after "an increase in household electricity and gas tariffs in November 2013 and reflects a number of factors, including operational and cost efficiencies, which were partially offset by the impact of mild weather and a reduction in the number of customers," SSE said.
The retail division's energy supply benefited from operational and cost efficiencies, boosting operating profit to GBP368.7 million from GBP246.2 million, making SSE's average annual profit from supplying a dual-fuel energy customer GBP69 per year, before paying interest and tax, it said.
That rise came despite SSE losing UK electricity and gas customers in the period, falling to 8.6 million from 9.1 million at the end of the last financial year. Also, average electricity consumption fell to 3,842 kilowatt hours per customer from 3,991 kilowatt hours, and gas consumption dropped to 438 therms per customer from 465 therms.
The retail division's enterprise segment reported an operating profit of GBP70.4 million in the period, up from GBP56.8 million, which was partially offset by the energy-service related segment posting a GBP17.7 million operating profit, down from GBP24.1 million.
The networks division reported a small rise in operating profit to GBP936.8 million from GBP920.3 million, reflecting investment in the asset base of electricity transmission, resulting in higher income.
SSE raised its dividend for the full year by 2% to 88.4 pence per share, and said it "believes that the quality of its operations, assets and investment opportunities means it can continue to deliver a full-year dividend that at least keeps pace with [retail prices index] inflation in 2015/16 and in the subsequent years."
In the year, investment and capital expenditure fell by 6.8% to GBP1.47 billion compared to GBP1.58 billion a year earlier. Of that capital expenditure, GBP434.9 million was invested in wholesale electricity generation, GBP794.8 million in the network division's electricity networks, and the remaining GBP134.7 million in the retail division.
In the current financial year, capital expenditure is expected to be around GBP1.75 billion, SSE said.
In a separate statement on Wednesday, SSE said it had completed an assessment of the longevity of its remaining coal-fired generation capacity that it announced in March, and concluded that it should close the remaining 1,014 megawatts of capacity at the coal-fired Ferrybridge plant in Yorkshire by the end of March 2016.
"Market conditions for thermal power stations have been persistently difficult, requiring us to take the difficult decision we have announced this morning to end coal-fired generation at Ferrybridge power station by next March," it said in a statement.
SSE will retain the 1,995 megawatts of capacity at the Fiddler's Ferry plant in Lancashire, which will be entered into the auction for electricity generation at the end of 2015 for the period starting in 2019/20. Current operations at Fiddler's Ferry remain unaffected, it said.
"The retention of some coal-fired capacity contributes to the diversity of SSE's generation portfolio and maintains Fiddler's Ferry's contribution to the security of electricity supplies," SSE said.
"The outcome of the review is consistent with SSE's long-standing objective to transition its generation assets from a portfolio weighted towards gas and coal towards a portfolio more weighted towards gas and renewable sources of energy," it said in a statement.
SSE said the age and economic viability of its coal fired stations was a factor in its decision, with some stations approaching 50 years old, meaning they require increasing levels of capital expenditure to maintain, as well as struggling to meet environmental regulations and carbon reduction targets. It also cited the gas price "enjoying a comparative advantage over coal".
"Looking ahead, the expected pressures on adjusted earnings per share are likely to make themselves felt to some extent in 2015/16 but the company is well-placed to deliver in 2015/16 and beyond an annual dividend increase that at least keeps pace with inflation, while engaging constructively to secure positive outcomes for customers and investors as the new UK government sets out its energy priorities and as the Competition and Market Authority's market study moves towards its conclusion," said Chief Executive Alistair Phillips-Davies.
SSE shares were down 1.7% to 1,668.00 pence per share on Wednesday morning,
By Joshua Warner; [email protected]; @JoshAlliance
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