24th Mar 2016 12:06
LONDON (Alliance News) - SSE PLC on Thursday pledged to increase its dividend for the current financial year despite warning that its adjusted earnings per share are expected to have fallen and that those earnings continue to face "significant uncertainties".
The energy and utility firm said it expects to report adjusted earnings per share to be in the range of 117.0 to 119.0 pence for the financial year to the end of March, which would be down from the 124.1p reported in the previous year.
That means adjusted earnings, which exclude certain items and used to measure the underlying performance of the business, will fall in the region of 4.1% to 5.7% this year.
SSE said profits from its retail business, which supplies electricity and gas to UK households and businesses, will be lower year-on-year whilst its wholesale division covering the production and storage of gas alongside electricity generation is expected to report broadly flat profits.
The division housing SSE's networks that distribute electricity in the UK is expected to see profits experience a slight rise this year.
Still, SSE pledged to report an increase its dividend for the year "at least" equal to RPI inflation, which is currently expected to be around 1%.
"In view of the wider energy sector conditions, SSE continues to recognise that adjusted earnings per share is subject to significant uncertainties. This means that its dividend cover, based on dividend increases that at least keep pace with RPI inflation, could range from around 1.2 times to around 1.4 times over the three years to 2017 to 2018," said the company.
SSE paid a dividend of 88.4 pence per share in the last financial year, which was up 2% year-on-year and covered 1.4 times by its adjusted earnings per share that year.
A 1% rise in the dividend this year implies the dividend will come in at around 89.28 pence.
SSE's adjusted net debt and hybrid capital is expected to around GBP8.50 billion at the end of March, which would be up from GBP7.90 billion at the end of the first half in September. That is mainly due to the acquisition and resulting investment in new gas production and plant assets acquired in October 2015, and unfavourable movements in foreign exchange rates, it said.
"The operating environment remains challenging, due to factors including falling commodity prices and increased retail market competition, and the Competition & Markets Authority's provisional decision on remedies represents a substantial and in places challenging package," said Finance Director Gregor Alexander.
Of SSE's three divisions, its transmission networks are the biggest driver of operating profit, accounting for just under half of the group's operating profit in the last financial year whilst the wholesale and retail units roughly contributed 25% of overall operating profit each.
The company said the network unit will see operating profit rise in the current financial year after growing the busines, following major capital investment in the period, but said the boost in profit caused by that investment will be partly offset by new price controls and a fall in profit from its interest in SGN.
SSE holds a 50% stake in SGN, the UK's second largest gas distribution network company, giving it exposure to gas networks covering Scotland and southern England. SSE said profits from SGN will experience a "slight reduction" this year.
Overall, the network division delivered an operating profit of GBP936.8 million in the last financial year after rising 1.8% from the previous year.
The wholesale unit is expected to report broadly flat operating profit for the year, as an increase in output of electricity from renewable sources offset by a reduction in gas production profits to around breakeven, reflecting the challenging market conditions.
The wholesale unit delivered an operating profit of GBP473.8 million last year, which was down more than 25% year-on-year.
The retail unit will report a fall in profit after SSE lost customers during the year and because the Enterprise segment, which brings together the company's energy services, contracting, lighting, utilities and telecoms businesses, is expected to contribute less to profits than the previous year.
The retail unit produced operating profit of GBP456.8 million last year, after rising 40% year-on-year.
SSE also waded into the EU referendum to be held in a few months time, stating it recognises the potential political and regulatory changes that may be born out of the referendum are one of its principal risks moving forward.
"The forthcoming referendum on the UK's membership of the EU is a matter for voters. The result of the EU referendum presents no immediate risk to how SSE serves its customers or to the investment that it continues to make in order to fulfil its core purpose," said SSE.
"The level of risk may, however, increase if, following the referendum, there is a prolonged period of uncertainty about the legislative or regulatory framework that SSE operates within," it added.
Regardless of the result, SSE said collaboration with other European countries on energy matters is important for UK consumers, and said it is possible for a country to participate in the internal energy market while not being in the EU.
"SSE will not take a view on whether the UK should 'Remain' or 'Leave'," the company stressed.
SSE will publish its full year results on May 18.
SSE shares were trading up 0.1% to 1,462.0 pence per share on Thursday.
By Joshua Warner; [email protected]; @JoshAlliance
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