'Big six' energy firm SSE issues price cap profit warning

SSE (LSE: SSE.L - news) , the "big six" energy firm, has issued a profit warning amid Theresa May's looming price cap on the industry's default tariffs.

The company said earnings at its household supply business for the year to 31 March will likely be "significantly lower" if Ofgem implements its curbs on standard variable tariffs (SVTs) as expected in January.

The wider business, SSE said, had already endured a £190m hit on adjusted operating profit for the first five months of the financial year.

It cited lower than expected renewable energy output among several factors.

The trading statement said: "Relatively dry, still and warm weather has continued as have persistently high gas prices.

"This has continued to result in a higher cost of energy than expected, lower than expected output from renewable sources, lower volumes of energy being consumed and a negative impact in relation to energy portfolio management."

Energy shares led the fallers when the FTSE 100 opened on Wednesday - with SSE down 8%. It closed the session down 8.3%.

SSE had forecast adjusted operating profit for the six months to 30 September to be around half the £586m reported in the same period last year.

It issued the profit alert just a fortnight after the Competition and Markets Authority (CMA) gave provisional clearance to SSE's planned household supply merger with rival Npower.

That deal is expected to complete early next year.

SSE chief executive, Alistair Phillips-Davies, said his company's financial performance during the first five months of 2018-19 had been "disappointing and regrettable".

He added: "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 £1.7bn 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.

"Reshaping and renewing the SSE group will support the delivery of our five-year dividend plan in the years ahead."

George Salmon, equity analyst at Hargreaves Lansdown (Frankfurt: DMB.F - news) , said of the weather impact: "Investors should remember that SSE can't control any of these factors, and a business increasingly focused on renewable energy will have good years and bad.

"With (Other OTC: WWTH - news) that longer-term outlook in mind, the board says it intends to stick to pre-existing dividend plans.

"Pledging to make good its promise on the dividend will sugar the pill of another profit warning, but with earnings falling and investment requirements stretching well into the billions, SSE can ill-afford more slip ups."