Wednesday, 17 June 2020

SSE - Full Year Results

SSE (formerly Scottish & Southern Energy) is a FTSE 100 company operating in the energy business across the UK and Ireland. Tackling climate change is at the centre of their operations and their aim is to be a leader in a low carbon world through significant investment in renewable energy.

At the start of this year they disposed of their Energy Services arm to Ovo and going forward the bulk of operating profits will be generated from regulated electricity networks and renewables which are core elements of their low carbon strategy.

SSE Renewables

In late 2018, the company announced it would consolidate its renewable energy assets under the single entity of SSE Renewables. The current portfolio has around 4GW of both offshore and onshore wind as well as hydro which includes 300MW of pumped storage and 750MW of flexible hydro. It has the largest offshore wind pipeline of future projects in the UK and Ireland of over 7GW.

SSE in partnership with Equinor are engaged in the construction of the world's largest offshore windfarm at Dogger Bank in the North Sea which will generate 3.6GW of clean electricity, sufficient to power 4.5m homes and using the world's most powerful turbines, the GE Halidade-X. The windfarms are due to start operations in 2022.

Over the coming decade they plan to treble renewable output to 30TWh per year which would be enough to power the whole of Scotland. This is the main reason for adding this company to my green portfolio earlier in the year.

Results

The company have today released results for the full year to end March 2020 (link via Investegate). They appear to be making progress in restructuring the business to focus on the core electricity networks and renewable energy.

Adjusted profits before tax are up 49% to 1.0bn and adjusted earnings per share up 35% to 83.6p which supports the full year dividend of 80p. A final dividend of 56p will be paid in September (xd 23rd July). They confirm a target of 80p plus inflation for the coming year which gives a fwd yield of just under 6% based on the current share price.

It is pleasing to note that profits from the renewables arm increased by 24% to £567m (2019 £456m) due to more favourable weather conditions and the additional capacity from Beatrice offshore wind farm. This represents around 38% of the total compared to 30% in 2018. Renewables are on track to generate the lion's share of profits in the future.
Richard Gillingwater, Chair of SSE, said:

"2019/20 was a year of progress for SSE.  Financially, there was a solid recovery from the previous year.  Strategically, we reshaped the Group with the sale of Energy Services and increased our focus on our core businesses of regulated electricity networks and renewable energy.  Operationally, these businesses made significant progress towards our strategic priorities and ambition to be a leading energy company in a net zero world.

Climate change remains a critical issue and we see significant opportunities to create sustainable value for shareholders and society through contributing to a much-needed green economic recovery and supporting the transition to net zero emissions."
Share Price past 3 years  (click to enlarge)

Covid is expected to have some impact on profits over the coming year and the current assessment is in the range of £150m to £250m before mitigation. However, the management are fully aware that the consequences of failing to tackle climate change will be far greater than those of the coronavirus. They have published their 'greenprint' for a cleaner more resilient recovery from Covid and are pressing the government for greater ambition and an increase in offshore wind to 75 GW by 2050.

Conclude

SSE will be pleased to have disposed of its retail energy service arm to Ovo following the failed attempt to offload to nPower last year. The plans to wind down coal and gas, decarbonise the business model and focus on renewables is clearly the way to go in my book - I would not have added to my portfolio otherwise!

The new Government have pledged to increase the UK's offshore wind capacity from 8.5GW to 40GW over the coming decade. This is a very significant shift in our approach to energy as we move away from fossil fuels and should give confidence to the renewables industry and provide profitable opportunities for the established operators such as SSE and Orsted.


SSE have pledged to invest £7.5bn in new and upgraded infrastructure over the coming 5 years. 90% of this will be allocated to the core business of renewables and electricity network. Spend on renewables infrastructure projects include Seagreen, Dogger Bank and the new 443MW Viking onshore wind farm in Shetland - the largest in the UK. They have increased the target for cuts in carbon emissions from 50% to 60% by 2030.

It is clear SSE will play a significant part in the UK's transition to a net zero emissions economy and I am hoping the increasing share of the core business moving to SSE renewables will provide value for its shareholders.

The share price has been under pressure in recent years and certainly during the past few months but these results appear to have received a good reception from the markets with the shares up 9% to £13.82 at the close.

The shares were added to my ISA in two tranches earlier this year at an average price of £15.00. My timing was not great and had I waited just a couple more weeks I could have picked them up for £11.00 per share!


As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

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