‘Uncertainty’ over Npower deal, says SSE as profits drop

The Perth-based group has flagged doubts after admitting the impact of the income tariff cap. Picture: contributed.
The Perth-based group has flagged doubts after admitting the impact of the income tariff cap. Picture: contributed.
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Energy giant SSE has admitted that there is “some uncertainty” over its merger with rival Npower after the pair delayed the tie-up due to the incoming cap on default tariff prices.

It comes as SSE revealed widened losses for its household gas and electricity supplier and the loss of another 460,000 customer accounts as competition takes its toll.

The Perth-based group said the incoming price cap coming into force in January will put further pressure on retail division profits for the full year and in 2019/20.

The impact of the cap saw SSE and Innogy-owned Npower announce last week that they were having to postpone their merger to renegotiate the terms of the tie-up.

Some analysts at the time viewed the step as likely backed by the need for a cash injection into the new entity.

SSE said today: “There is now some uncertainty as to whether this transaction can be completed as originally contemplated. Nevertheless, the board believes that the best future for SSE energy services, including its customers and employees, will continue to lie outside the SSE group.”

The two firms had been hoping to seal the merger of their retail operations in the first quarter of 2019.

In half-year results also released today, SSE reported a 41 per cent fall in underlying pre-tax profits to £246.4 million, stripping out its energy services division.

That arm, which is split out from the main numbers due to the Npower deal, saw operating losses widen to £62.1m from £7.1m a year ago. It said annual profit margins in the energy services arm is set to tumble to between 2 per cent and 3 per cent, down from 6.8 per cent in the previous year, due to the price cap and “competitive pressures”.

“Margins are expected to be lower still in 2019/20,” it added.

SSE added: “The market for energy and related services in Great Britain remains intensely competitive, with over 70 suppliers competing for customers and around three million customers switching their electricity provider in the six months to 30 September.”

SSE also announced plans to create a new company called SSE Renewables that will include its renewable energy assets in the UK and Ireland.

David Barclay, head of office at Brewin Dolphin Aberdeen, flagged a “tough” year for SSE, and things are unlikely to “get easier any time soon”.

He also said its shares are down around 18 per cent in the past six months – and nearly a quarter on two years ago.

“Despite being slightly ahead of its predicted position after September’s profit warning, SSE will be hoping that the establishment of SSE Energy Services and the consolidation of its renewable operations will be enough to sustain the company in the long-term.”

And George Salmon, equity analyst at Hargreaves Lansdown, commented that investors “might be worried about the group’s next five-year plan”.

SSE shares closed up by 5.3 per cent at 1,191p.