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COVID-19 hits SSE profit by £170m but strong renewables help steady results

Image: SSE plc.

Image: SSE plc.

The COVID-19 pandemic hit SSE’s operating profit by £170 million in the full year ending 31 March 2021.

However, this was towards the lower end of the guided range, and has been reflected in the company’s adjusted and reported preliminary financial results for 2020/21.

Going forwards into the next year, SSE expects the pandemic to have an ongoing impact, but has said this is likely to be mainly restricted to the performance of Enterprise and Business Energy – over the past year Business Energy’s operating profits were hit by approximately £80 million due to reduced demand, increased bad debt and £24 million of losses due to early settlement of excess commodity hedges, while Enterprise was hit by £40 million due to a reduced contracting order book and lower activity overall.

In these segments the impact of COVID-19 will now be assumed within normal performance and not reported separately in the next year’s results.

Throughout the last year, the company did not draw on government support in the form of either furlough payments or rates relief, and was able to boost employment both directly and through its supply chain.

SSE reported an adjusted operating profit of £1,506.5 million, up 1% on the previous year – this slow growth was due to the impact of COVID-19 SSE noted.

While the company’s Transmission arm has grown slightly over the last year – with operating profit increasing from £218.1 million to £220.9 million – its Renewables arm has jumped substantially from £576.3 million to £731.8 million. This 29% jump includes profits of £226 million from the sale of a 51% stake in the Seagreen offshore wind farm as well as the sale of a 10% stake in the Dogger Bank wind farm.

If you exclude these two sales however, operating profit actually decreased due to the disposal of the Group’s £188.8 million financial interest in the Walney offshore wind farm and a 10% decrease in output due to adverse weather in comparison with the previous 2019/20 period. Whilst Q1 of 2021 saw wind generation records broken again, it also saw the longest period of reduced generation in a decade due to a weather phenomena called Dunkelflaute in March; a new report from Imperial College London warned this week that weather is becoming increasingly changeable and such periods must be a key consideration as the UK progresses to net zero.

SSE is exploring options to build a huge pumped hydro storage station called Cloire Glas to help balance intermittency, which would be able to power three million homes for up to 24 hours. Additionally it is working with Equinor across CCS projects in Humber and Petershead and looking at the potential of a hydrogen power station.

This strong renewables performance overall helped balance out some of the impact of its Distribution arm falling from £356.3 million to £267.3 million. This drop of 25% was predominantly due to the reduction in volumes across non-domestic tariffs due to the lockdowns in the UK, as well as reduced new connections activity and depreciation charges driven by poor capital.

Additionally, the phased changes in tariffs and volumes meant an over-recovery of £37 million in the previous full year results, which was replaced with a £28 million net under recovery in 2020/21.

The company’s Thermal Generation arm saw its adjusted operating profit increase by 5% to £160.5 million, compared to £152.7 million. This was driven by higher utilisation as it was called upon to keep the grid stable during periods of low generation or high demand – driven both by increased intermittent renewables and lockdowns.

SSE pointed to significant strategic progress in its existing £7.5 billion capital expenditure programme to 2025 focused on driving the UK’s decarbonisation. Its Dogger Bank offshore wind farm – set to be the world’s largest – is progressing well it noted, and through SSE’s offshore wind supply chain it led more construction than any other company in the world currently, it claimed.

As part of the company’s full year results, SSE highlighted its plan to invest around £2 billion in low carbon power projects in 2021, as part of this wider £7.5 billion investment. It re-emphasised its target of a run-rate of 1GW of new renewable assets a year from 2025, as well as looking at further opportunities to export renewables and engineering expertise.

“This is a pivotal year for the planet in our fight against climate change and as a Principal Partner of COP26, we are supporting the UK government’s efforts to drive more urgent and ambitious climate action,” said Alistair Phillips-Davies, SSE chief executive.

“At the same time we are focused on ensuring equitable social outcomes from the net zero transition; and through our investment programme we are building projects that will not only help tackle climate change but will create green jobs and revitalise communities along the way.”

As part of its continued focus on net zero, the company is undertaking a programme of one-off disposals of non-core businesses. This led to reported operating profit jumping 185% to £2,743.5 million in the full year to 31 March 2021, while adjusted earnings per share increased 5% to 87.5p.

It is targeting in excess of £2 billion from the disposal of these assets, and is expecting its next sale to be of SGN later in 2021. While the gas arm of the company has a strong foundation for increased hydrogen, it is run largely independently of SSE and the synergies with the company’s low carbon goals are less clear, it stated.

SSE continued to say it remains committed to its five-year dividend plan to March 2023 but is not providing full guidance for 2021//22 at this stage, pointing to its capital expenditure plans of £2 billion as well as the SGN sale instead as key highlights of the coming year.

“Looking ahead, a strong balance sheet, underpinned by world-class assets, gives us a firm footing from which to capitalise on the considerable future growth opportunities we are creating in the transition to net zero,” Sir John Manzoni, chair of SSE added.

“Our ESG credentials continue to grow and, as a Principal Partner of COP26, we are focused on creating value for shareholders and society. We are reducing emissions, investing in a green recovery, creating over a thousand new jobs, making a major contribution to GDP and, financially, continuing to remunerate shareholders through delivery of our dividend plan to 2023.”

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