Energy giant SSE‘s profits slumped almost 40 per cent as it lost 430,000 customers last year.
The group’s pre-tax profits fell 39 per cent to £1.09billion and were down six per cent to £1.45bn on an adjusted basis in the year to March 31.
SSE cited increased competition as the reason for the decline as it saw its domestic energy accounts decline to 6.8million from 7.23m during the same period.
Profit fall: Energy giant SSE’s profits slumped almost 40% as it lost 430,000 customers last year
The company was also hit with £213.3m in exceptional charges, including more than £60m in IT costs from the merger of its retail arm with rival Npower.
However, revenue climbed eight per cent to £31.2bn and operating profit was flat at £260.4m despite higher energy consumption in the final quarter because of plunging temperatures caused by the Beast from the East.
SSE said that ‘while electricity tariffs increased to recognise rising non-energy costs, overall profits were also impacted by customer account losses and the introduction of price caps for certain customer groups, offset by ongoing efficiency savings’.
Chairman Richard Gillingwater said: ‘As expected, 2017/18 presented a number of complex challenges to manage, but SSE’s operational performance was generally very robust.
‘The challenges will continue in 2018/19, which is also expected to be a year of major transition for SSE.
‘For investors, by giving clarity on the dividend for the five years to March 2023, SSE is demonstrating that remunerating them for their investment is and will remain its first financial objective.’
SSE added that ‘significant progress’ had been made in ‘key aspects of the company’s capital investment programme’, and that the results had been better than it had expected at the start of the financial year in April 2017.
Helal Miah, investment research analyst at The Share Centre, said: ‘Part of the decline in profits is down to the competition in the sector with customers switching their accounts to cheaper alternatives which has been an ongoing theme for a number of years.
‘Price caps already introduced for certain types of customers also had an impact.
Revenue freeze: Revenue climbed 8% to £31.2bn and operating profit was flat at £260.4m despite higher energy consumption in the final quarter because of the Beast from the East
‘The group profits were also impacted by rising non-energy costs and increased capital expenditures in its energy transmission and distribution business.
‘The previous year’s profits would have been hard to match given the sale of its gas distribution business.’
The deal to merge Npower and SSE’s retail operations is subject to a competition investigation after the two energy giants failed to address concerns.
Under the proposed deal, the new company will be listed on the London Stock Exchange, with SSE shareholders holding 65.6 per cent and Npower owner Innogy holding 34.4 per cent.
SSE said the deal remains on track for completion in the last quarter of 2018 or the first quarter of 2019.
Merger charges: The company was hit with £213.3m in exceptional charges, including more than £60m in IT costs from the merger of its retail arm with rival Npower
The group, formerly known as Scottish and Southern Energy, is Britain’s second biggest energy supplier and the merged group will serve around 11.5m customers.
Centrica, Iberdrola (Scottish Power), E.On and EDF make up the remainder of the Big Six.
The deal has come as the UK energy market is already under pressure amid concerns over unfair tariffs, with a Government-enforced price cap set to be introduced on standard variable tariffs later this year.
Legislation to tackle high energy bills is making its way through parliament and expected to be in force for the winter of 2018-19, on top of limits on certain vulnerable groups already introduced.
The government crackdown is expected to hit SSE particularly hard, since it has the highest proportion of customers on standard variable tariffs — the type of energy tariff targeted by the government — of the big six suppliers.
SSE said it expected to increase its dividend three per cent to 97.5p a share next year, after which it would fall to 80p because of the spin out of its domestic arm, before increasing annually for the following three years.
After the spin-off of its household energy supply business, the dividend would fall to 80p a share, it said, before increasing at a level that at least kept pace with the RPI measure of inflation for the three following years.
Shares in SSE were broadly flat in today’s early morning trading at £14.20.