Energy giant to join £1bn profits club

Published on Sunday 27 May 2007 00:44

SCOTTISH & Southern Energy is poised to join the elite £1bn profits club this week, amid mounting expectations that the group is preparing to push the button and invest in nuclear power.

Analysts expect the Perth utility to confirm its place at the top table of British business by reporting record full-year profits on the back of rising power prices and keeping a close watch on costs.

Chief executive Ian Marchant is likely to be quizzed on reports that the owner of Southern Electric, Scottish Hydro Electric and Swalec in Wales has held talks with British Energy (BE), the nuclear power group, about investing in the next generation of nuclear power stations.

Alistair Darling, the Trade and Industry Secretary, last week announced the findings of the government's long-awaited white paper on energy, which paved the way for nuclear new-builds.

As one of the UK's biggest power suppliers, analysts believe SSE will have to invest in nuclear, as it is expected to have a major role in meeting Britain's rising electricity requirements.

Bill Coley, BE's chief executive, said last week that he had held talks with potential investors about building new power plants, but declined to say if these included SSE.

Analysts expect Marchant to announce a sharp increase in profits, from 842m in the year to the end of May 2006 to between 968m and 1.06bn in the current year.

SSE had 7.7 million energy supply-related customers in March, but this was before an intense period of competition in the sector. All major UK energy suppliers announced price cuts this year, with SSE cutting its average gas bill by 12% and the average electricity bill by 5%.

The group has gained three million customers in five years, including an extra one million in the past year after imposing fewer price rises.

SSE posted underlying pre-tax profits of 455.4m in the six months to September last year, up 35% on the previous period. In March, SSE announced an upgrade to its dividend guidance and the current full-year dividend is now expected to be 55p, an increase of around 18% on last year. Earnings per share of 88p are expected, up from 69.5p last time.

Analysts at Evolution Securities believe SSE is a bid candidate and could attract interest from industrial and infrastructure groups as well as private equity players. Germany's E.ON has been tipped as a potential suitor for SSE following the collapse of its bid for Spain's Endesa.

Separately, British Energy is itself expected to deliver a sharp rise in annual profits on Wednesday, despite a year of problems with the reliability of two of its power stations. Group profits should hit 905m against the 607m seen a year earlier.

Most of BE's sites - eight nuclear power stations, including Torness in East Lothian and Hunterston B in Ayrshire - will have reached the end of their lives by 2023.

Coley told BE's staff last week that the company would be closing its three Scottish offices - including its HQ in Livingston - and relocating to a new HQ in East Kilbride. He stressed there would be no cuts among the company's 200 staff.