November 14, 2018 / 7:28 AM / a month ago

SSE to consolidate renewables business as profits dive

(Reuters) - British energy supplier SSE Plc (SSE.L) plans to create a new company that will include its renewable energy assets in the UK and Ireland in order to improve transparency and help it raise investment, it said on Wednesday.

FILE PHOTO: People walk past an SSE vehicle parked outside the Pitlochry Dam hydro electric power station in Pitlochry, Scotland, November 8, 2017. REUTERS/Russell Cheyne/File Photo

The move comes as SSE reported a 41 percent slump in adjusted pre-tax profit, as losses widened at its energy supply business.

The new company, to be known as SSE Renewables, will comprise around 4 gigawatts (GW) of SSE’s existing renewable assets such as hydropower, onshore wind and several stakes in offshore wind projects.

SSE said creation of the new entity will provide greater visibility of assets and future earnings for investors and improve its ability to raise finance for projects.

SSE said it had begun looking at potential opportunities for onshore and offshore wind investments outside the UK and Ireland.

Adjusted pretax profit at the company, which includes energy supply and networks as well as generation, slumped almost 41 percent to 246.4 million pounds for the six months to Sept. 30.

The company warned in September that profit would be hit as calm weather cut renewable output and a summer heatwave curbed demand.

RETAIL BUSINESS

SSE’s UK household energy supply division, reported a widening loss of 68.7 million pounds from 17.8 million.

SSE plans to merge the struggling unit with rival Innogy’s (IGY.DE) UK retail business npower.

The two companies said earlier this month the tie-up would be delayed beyond the first quarter of 2019 due to market developments such as the looming implementation of a price cap.

“There is now some uncertainty as to whether this transaction can be completed as originally contemplated,” SSE said on Wednesday.

“The Board believes that the best future for SSE Energy Services ... will continue to lie outside the SSE group,” it said.

British energy regulator Ofgem from Jan. 1 will cap average annual household electricity and gas bills at 1,137 pounds, a level well below the most-used tariffs set by the country’s big six suppliers.

Ofgem has said the move should save British households around 1 billion pounds a year.

Margins at SSE’s supply business are expected at 2-3 percent for the year ending March 2019, less than half the 6.8 percent achieved the previous year, partly due to the price cap it said.

“Given this, and Innogy’s update on npower yesterday ... it is no surprise the terms of the merger are being re-negotiated,” analysts at Bernstein said.

Innogy said on Tuesday it has lost nearly half a million customers in Britain since the start of the year.

Despite the weak results SSE said it continued to recommend a full-year dividend of 97.5 pence per share for 2018/19, a move welcomed by analysts.

SSE shares were up 3 percent at 1109 GMT.

By Susanna Twidale, additional reporting by Muvija M in Bengaluru; editing by Jason Neely and David Evans

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