Firm says investments in major transmission projects will impact first half earnings

SSE has predicted a drop in profits from its network operations due to the timing of investments and the partial sale of its stake in SGN.

However, the big six utility said the weaker performance of its networks division is expected to be offset by stronger earnings from its wholesale and retail arms.

In a trading update ahead of its first-half results in November, SSE warned investors that adjusted operating profits from Scottish and Southern Electricity Networks over the six months to end of September are set to fall when compared to the same period last year.

The firm said the decline would result from the phasing of investments in major transmission projects along with a reduced share of profits from SGN following the sale of a 16.7 interest in the gas distribution network in October 2016.

SSE reiterated its prediction that reduced network earnings would wipe £150 million from its total adjusted operating profits for the full financial year. Despite anticipating a fall in adjusted earnings per share (EPS) for the period, the company said it is still targeting an increase in the annual dividend at least in line with RPI inflation.

Adjusted EPS for the first six months of the year are expected to fall somewhere 30p and 32p, down from 34.2p in the first half of 2016/17.

SSE finance director Gregor Alexander said: “We are encouraged with what has been achieved in the first half of the financial year, but energy provision is always complex, especially in the autumn and winter period. 

“Our focus is on doing the right things and making the right decisions necessary to secure positive outcomes for customers and investors.  That means maintaining our strong commitment to meeting customers’ energy needs and to delivering for shareholders annual dividend increases that at least keep pace with RPI inflation.”

Analysts at investment firm Jefferies said, even with the warning over the networks division, the update was more confident than expected following a “bearish” first quarter update in July.

“What is most notable to us is that SSE expects to see higher operating profits for retail in the first six months compared to the same period last year, despite ongoing customer losses and margin pressures,” they added.  

“SSE also expects higher year-on-year first half profits in wholesale, despite tough operating conditions for traditional power plants due to low power prices and volumes.”

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