SSE has today (Wed) announced a 5.6% rise in adjusted profit before tax to £1.410.7m and a 5.1% increase in the full-year dividend to 84.2p per share.
The company invested £1,485.5m in 2012/13, including major investments in gas production, storage and distribution and electricity generation, transmission and distribution, all of which will help protect the UK’s energy security in future years. 2012/13 was the fifth consecutive year in which SSE has invested more than it has made in adjusted profit before tax.
Networks
SSE’s economically regulated Networks business saw operating profit rise by 18.9% to £876.1m. In Networks, SSE expects to continue investing in and constructing modern transmission and distribution infrastructure in the coming year, as well as working swiftly and tirelessly when exceptional weather hits supplies, as was the case on Arran and Kintyre in March.
Retail
SSE’s energy supply business within Retail made an annual profit margin (ie adjusted operating profit as a percentage of revenue) of 4.2%, less than the company’s expected average profit margin of 5% and below that of other retailers of essential products, like supermarkets.
Operating profit in Retail as a whole rose by 27.5% to £410.1m, mainly as a result of cold weather leading to a 21% increase in household consumption of gas and a 5% increase in household consumption of electricity. In light of the £10.5m fine levied by Ofgem for breaches of standard licence conditions, a top priority for SSE’s Retail business will be the redoubling of efforts to build trust among energy supply customers. The company’s sector-leading Customer Service Guarantee, backed up by a payment to customers if standards are not met, is one example of the action being taken.
In April, SSE accepted a £10.5m fine levied by Ofgem for breaches of two standard licence conditions relating to the sale and marketing of energy, mainly between 2009 and 2011. SSE apologised unreservedly to any customer affected by sales activities which ran counter to the values and culture of the company during the period in question. It has since been working hard to process claims made under its unique Sales Guarantee, under which a £5m fund was set aside to make good any financial loss suffered by customers as a result of the breaches.
Yesterday, SSE announced that it would be donating any of the £5m still remaining after 31 August 2013 to energy-related charities. The Sales Guarantee remains open and will be an additional, enduring safeguard for SSE customers – the only one of its kind in the energy supply industry.
Wholesale
Finally, operating profit in the Wholesale segment, including electricity generation, fell by 16.2% to £509.5m due to difficult market conditions and a 33% reduction in output from hydro electric schemes as a result of lower rainfall. In March, we set out plans to stop operations at 2,000MW of our thermal generation plant, and electricity generation capacity continues to be a key issue as the uncertainty created by the prolonged electricity market reform process threatens to jeopardise security of electricity supply in the second half of this decade.
The Retail business contributed 22.8% of the total SSE adjusted profit before tax, the Wholesale segment accounted for 28.4%, and the economically regulated Networks business made up the remaining 48.8%.
The rise in dividend is in line with SSE’s target of an increase of 2% above RPI inflation. It is the fourteenth successive above-inflation dividend increase, making SSE now one of just five companies to have delivered better-than-inflation dividend growth every year since 1989.
SSE Chairman Lord Smith of Kelvin said: “The ability to deliver consistently increases in the full-year dividend and in adjusted profit before tax shows the resilience inherent in SSE’s balanced model of economically regulated and market-based energy businesses and the robustness of its strategy of focusing on operations and investments in each of those businesses.
“A carefully maintained, balanced business model and a clear, strategic emphasis on operations and investments, including learning lessons from the past to improve performance in the future, have been consistent features of SSE since the company was formed in 1998.”
SSE’s Full Year Results announcement is the last for Chief Executive Ian Marchant, who will stand down on July 1 and be succeeded by Deputy Chief Executive Alistair Phillips-Davies.