Wednesday, 26 May 2021

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 announced plans to invest £15bn over the coming decade aiming to become Britain's first global windfarm business. The focus will be on projects in the US, Europe and Japan as well as further expansion in the UK.

SSE are a principal parter of the COP26 climate summit taking place later this year and has joined the Race to Zero campaign pledging net zero emissions by 2050 at the latest and align the business to limit global warming to 1.5C.

SSE Renewables

In late 2019, the company consolidated 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 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.

Last year, renewable accounted for almost one half of profits however over the coming decade they plan to at least treble renewable output to 30TWh per year which would be enough to power the whole of Scotland. This was the main reason for adding this company to my green portfolio last year.

Dogger Bank - World's largest offshore wind project

Results

The company have this week released results for the full year to end March 2021 (link via Investegate).

They appear to be making progress in restructuring the business to focus on the core electricity networks and renewable energy. Disposals of non-core assets will bring in £1.5bn with more to come from the sale of SGN.

Despite the Covid pandemic, adjusted profits before tax are up 4% to 1.06bn and adjusted earnings per share up 5% to 87.5p which supports the full year dividend of 81p. A final dividend of 56.6p will be paid in September. They confirm a target of RPI  inflation for the coming year which gives a fwd yield of  5.3% based on the current share price.

It is pleasing to note that profits from the renewables arm increased by 29% to £731m (last year £567m & 2019 £456m) however this is mainly due to disposals of a 51% share in Seagreen and 10% stake in Dogger Bank. This now represents almost half of SSE profits compared to 30% in 2018. Renewables are on track to generate the lion's share of profits in the future with a target of 1GW of renewables assets each year during the second half of the decade.

Commenting on the results Sir John Manzoni, Chair of SSE, said:

"Looking ahead, a strong balance sheet, underpinned by world-class assets, gives us a firm footing from which to capitalise on the considerable future growth opportunities we are creating in the transition to net zero.

"Our ESG credentials continue to grow and, as a Principal Partner of COP26, we are focused on creating value for shareholders and society. We are reducing emissions, investing in a green recovery, creating over a thousand new jobs, making a major contribution to GDP and, financially, continuing to remunerate shareholders through delivery of our dividend plan to 2023."  

Covid has obviously had an impact on over the year with profits taking a hit of £170m (13p per share) which was at the lower end of estimates. However, the management are fully aware that the consequences of failing to tackle climate change will be far greater than those of the coronavirus.

Conclude

The IEA have recently set out their new global pathway to net zero which calls for no new oil, gas or coal from 2021 and a huge investment into renewable energy over the coming decade and beyond. This will inform the debates at the COP 26 gathering later this year. 

The UK Government are leading the way on plans to reach net zero emissions with its recent announcement to reduce emissions by 78% by 2035, phase out the sale of new petrol and diesel vehicles by 2030 and 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 Share Price past 3 years

SSE confirm their pledge to invest £7.5bn in new and upgraded infrastructure by 2025, and indeed most of this is already contracted. 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 ever increasing share of the core business moving to SSE renewables will provide value for its shareholders. It also offers some new opportunities for expanding the renewable energy business in Europe, N America and Japan

The shares were added to my ISA in two tranches last year at an average price of £15.00 and currently stands at £15.40. They make up around 2% of my green portfolio.

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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