SSE Sees `Significant Challenges' as U.K. Price Cap Looms

SSE has played down its growth in full year profits

SSE said Networks' operating profit will fall by around GBP100.0 million on a like-for-like basis in the year to end in 2018 versus the one that ended in March and GBP150.0 million on a reported basis.

Margins increased to 6.9 per cent, up from 6.2 per cent the year before and the highest since it started disclosing the figures in 2009-10.

In retail, the reported operating profit fell to £309.6mln from £437.4mln, primarily as a result of impairments relating to the discontinuation of an energy supply customer billing system.

The huge increase in profits comes as energy companies are under scrutiny in the run-up to the General Election with the prospect of a price cap looming.

Political risks may impact SSE's profitability and the company forecasts dividend cover in the year through March 2018 toward the bottom of its expected range of 1.2 to 1.4 times.

Still, SSE said it believes it can stay within its range, and reiterated several times on Wednesday that "the level of dividend cover is subject to the ongoing factors that influence earnings in SSE's market-based businesses".

It also hinted heavily that it would need to cut its popular dividend payment, which would become unaffordable if a price cap was brought in.

SSE, which raised dual fuel prices by 6.9% on April 28, said United Kingdom and Ireland customer accounts fell from 8.21 million to 8 million in the year to March 31 as it faced competition from smaller rivals, but insisted it was beginning to halt the exodus.

Looking ahead, SSE said it expected to invest about 1.7 billion pounds in building, owning and operating assets, with about two thirds in electricity networks and renewable energy.

"We have been clear for some time that 2017/18 presents challenges, and the need to engage constructively with a new United Kingdom government as it takes forward energy policy will be a key priority for the year ahead and beyond", said Alistair Phillips-Davies, chief executive of SSE.

SSE shares were down another 1% after its results.

It blamed the increase on the rising costs of supplying electricity and Government schemes. This could cause thousands of job cuts in the sector, slash dividends and lead to cuts in credit ratings. This was above analyst expectations of 122-125 pence per share. Shares rose 1% to 1465p.

The board recommended a final dividend of 63.9 pence a share, making a total payout for the year of 91.3 pence a share, up from 89.4 pence a share.

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