SCOTTISH Hydroelectric owner SSE has slashed the valuation of its North Sea portfolio by 15 per cent to reflect falling gas prices in a year it grew profit margins on the supply of energy while losing customers.
Announcing annual results, SSE said it increased profit margins on the supply of energy to domestic and business customers to 5.2 per cent in the year to 31 March, from 4.6 per cent the preceding year. Margins averaged 4.1 per cent over the past five years.
The Perth-based giant revealed it had cut £162m off the value of its portfolio of North Sea fields which supply some of the gas it sells, citing declining wholesale gas prices.
The bulk of the charge, £121m, relates to the stake in the giant Laggan Tormore gas development off Shetland that SSE bought into during the year. The company acquired a 20 per cent stake in July for £669m in what chief executive Alistair Phillips-Davies described as a timely move amid a period of low gas prices.
SSE said it had passed on the benefit of falling gas prices to customers.
“SSE's household energy customers have not seen a price increase since November 2013 and SSE's new gas prices are now 12 per cent lower for a typical household customer than they were in 2013,” said the company.
SSE said in electricity the situation is more complicated due to cumulative costs associated with the long-term upgrade of the country's electricity system that began a decade ago.
Total energy customer numbers fell by 370,000 during the year, to 8.21 million from 8.58m.
SSE said the amount of profit it made from the supply of household energy fell in absolute terms as a result of declining customer numbers and lower energy consumption.
The company said: “SSE is focused on addressing the decline in customer numbers it has experienced in recent years and is aiming to reduce significantly the rate of customer losses during the coming year.”
However, the company said it offered market-leading deals to new and existing customers amid intense competition.
It renewed criticism of the Competition and Markets Authority’s proposal for a cap on the bills of domestic customers with prepayment meters, which followed a two year review of the market and which it says could stifle competition.
However, the utility reckons the CMA’s findings generally reflect the position that GB energy markets are generally competitive and well-functioning.
Mr Philips-Davies said: “After a period of regulatory and legislative uncertainty … during the course of the year there has been increasing visibility around the shape of the future policy and regulatory framework affecting energy markets in Great Britain.”
Priorities for the current year include making efficient and disciplined investment in assets to maintain the balance of the business and the delivery of a full-year dividend increase that at least keeps pace with RPI inflation.
The company said it had met that objective in the year to March by recommending a 1.1 per cent increase in the annual dividend to 89.4p.
Adjusted profit before tax fell to £1.51 billion before exceptionals, from £1.57bn last time.
Increased output from renewable energy assets helped offset the impact of lower wholesale prices for the generation arm.
SSE recorded £843m exceptional charges, up from £675m.
The company wrote £287m off the value of coal generating assets, noting the challenging economic and regulatory conditions facing such plants in the UK. SSE's longer-term strategic involvement in coal-fired generation and coal procurement is under review.
But expansion on the North Sea could be on the cards.
“SSE had regularly set out its intention to seek new opportunities to increase its asset base to help meet gas demand requirements, with the UK and north-west Europe the focus for this activity due to the relatively stable tax and fiscal regime and proximity to SSE's domestic energy supply markets,” said the company.
Directors expect the Laggan Tormore acquisition will create value over the long term, despite the current impact of lower gas prices.
Shares in SSE closed down 22p at £15.25.
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