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SSE issues profit warning amidst warm, still weather and looming price cap

Image: SSE.

Image: SSE.

Utility SSE has warned that its H1 profit for 2018/19 will fall by around half year-on-year against a backdrop of warm, still weather.

And, SSE added, Ofgem’s looming energy price cap looks set to have a “significant impact” on various facets of its business if it is imposed as planned from 1 January 2019.

In a statement to the market issued this morning, SSE said that after analysing its financial performance in the first five months of its financial year (running until 31 August 2018), it was forecasting adjusted operating profit for those five months to have been negatively impacted to the tune of around £190 million.

This has primarily been caused by a prolonged period of warm, still weather in the UK and its knock-on effects. Persistently high gas prices, combined with lower than expected renewables output, has resulted in a higher cost of energy than expected according to SSE, which has also come at a time of lower consumption.

The net result of this period, the company says, is for H1 2018 operating profit to stand at around half of that delivered in the same period in 2017.

SSE now expects both its wholesale and retail operations to report a significant reduction in adjusted operating profit and its SSE Energy Services unit to incur an operating loss.

The firm’s networks business is, however, on course to deliver a mid-single digit increase in adjusted operating profit in the first six months of the financial year, in line with expectations.

SSE also issued words of warning surrounding the potential impact of energy price cap legislation, which stands to be implemented from 1 January 2019. Should it be passed as currently proposed, SSE expects its Energy Services operating profit to be “significantly lower” than forecast.

Alistair Phillips-Davies, chief executive at SSE, described the performance as “disappointing and regrettable”.

“The underlying quality of SSE’s businesses remains strong, with regulated networks and renewables providing the core of what will be an infrastructure-focused SSE group in the years ahead.

“This year’s £1.7 billion programme of capital investment, mainly in regulated networks and renewables, has continued to go well in recent months; and we are very pleased that the CMA’s provisional findings in relation to the planned SSE Energy Services transaction means we are on course to reshape and renew the SSE group by the end of our financial year.”

At the end of last month SSE and Npower’s plan to merge their respective supply units was given the preliminary go-ahead after an inquiry from the Competition and Markets Authority deemed it to have little impact on energy prices or choice in the market.

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