SSE Warns of Earnings Risks After Full-Year Profit Rises

SSE Plc, the U.K.’s second-biggest energy supplier, said annual profit jumped 9.6 percent while the utility warned of risks ahead amid lower margins.

Adjusted pretax profit increased to 1.55 billion pounds ($2.6 billion) in the year through March from 1.4 billion pounds a year earlier, the Perth, Scotland-based company said today. That beat the 1.49 billion-pound estimate from 13 analysts in a Bloomberg survey. SSE raised its dividend by 3 percent to 86.7 pence a share.

SSE plans to sell 1 billion pounds in assets and cut jobs as part of annual savings forecast to 2016. It froze power and gas prices and legally split its retail and wholesale units this year in anticipation of government action against the so-called “Big Six” utilities. SSE said today that its ability to deliver increases in adjusted earnings per share is subject to “greater risk” in the next two to three years.

“Rising costs and its price freeze, combined with a possible government freeze if the Labour Party comes into power next year, will translate into lower margins for the company going forward,” Angelos Anastasiou, an analyst at Whitman Howard in London, said in an e-mail.

The shares declined 0.5 percent to 1,560 pence at the close in London trading, valuing the company at 15 billion pounds.

The company cut its investment in renewable energy by 11 percent to 340 million pounds in the period, while increasing spending on thermal generation to 277 million pounds from 228 million. SSE plans capital expenditure of 5.5 billion pounds in the four years to 2018, it said.

‘Very Challenging’

Ofgem, the U.K.’s energy regulator, asked for an inquiry that may force the breakup of the Big Six, which include Centrica Plc, the country’s largest supplier. The probe comes amid concern across all political parties that utilities are raising prices faster than inflation. The opposition Labour Party has pledged to freeze prices if elected next year.

“The issues facing the energy sector are very challenging,” Chairman Robert Smith said in a statement. “We are committed to giving investors a fair return through an annual dividend that at least keeps pace with inflation.”

Following a review, the value of its Ferrybridge and Fiddler’s Ferry coal-fired power stations are at “specific risk” because of rising uncertainty over running the plants and forecasts of low operating margins, SSE said.

Gas production operating profit more than tripled to 130 million pounds, mainly because of acquisitions last year, the company said. Proceeds and debt reduction from some disposals reached 500 million pounds, it said.