Alongside in-line profits, Scottish and Southern Energy has announced a boost to its wind farm business.
It is buying the Keadby wind farm in North Lincolnshire from Renewable Energy Systems, and it has also acquired the Skykon turbine manufacturing and assembly plant at Machrihanish in Scotland from the administrators. As part of its wind farm strategy it has also sold its stakes in three operating wind farms in Scotland and Northern Ireland. SSE finance director Gregor Alexander said:
We have said that we will pursue both acquisitions and disposals in order to optimise our wind farm portfolio in the UK, and the acquisition of Keadby wind farm, with is SSE's first consented wind farm in England, is completely in line with that strategy. It adds to the diversity of our wind portfolio and the site's proximity to our existing power station helps make this an appealing project to take forward to construction [expected to be completed in early 2014].
As for the figures, SSE's full year profits rose 1.6% to £1.321bn, and its shares have added 17p to £13.44. But lower than expected renewable energy output and rising wholesale gas prices put pressure on profits, and the company was cautious about the economic outlook. Angelos Anastasiou at Investec said:
Having once been the safe, steady play in the sector, in recent times, Scottish & Southern Energy has disappointed the market with relatively poor earnings per share growth (2% in each of the past three years). This disappointment is compounded by the fact that the group has sought accelerated growth by increasing its investment expenditure by 2.5 times , from a total of £2.7bn in the five years to March 2008, to £6.7bn in the following five years (to March 2013). This has led to consistent cash outflows and increasing net debt. Following the recent good run - the share have risen 12% over the past couple of months - we would be tempted to take profits at these levels.
In particular, the fall in generation and supply profits had already been signalled and the resulting 1.5% fall is a little better than we had thought. We think this is largely due to modest but positive gains in customer numbers during the period. Much of the fall was due to one-offs, with low wind and low rain hitting the renewable portfolio. This should reverse in the current year, but April has been difficult, with the warm weather reducing demand and low rainfall restricting hydro output.
With this broadly uncertain outlook, we think the shares are up with events, although we still think the company is well placed in the longer run for expected changes in the UK power market. The company remains committed to growing the dividend at RPI+2% to 2012 and at a rate above RPI thereafter. This is not new, but should continue to provide support for the shares.
But consumer groups were upset about suggestions of price rises for customers. Audrey Gallacher, head of energy at Consumer Focus, said:
Hard-pressed consumers will be grinding their teeth in frustration as the second of the Big Six hints at price rises while reporting increased profits. Customers simply don't have faith that they are being asked to pay a fair price and Ofgem has shown this lack of trust has firm foundations.
As suppliers move to put up prices the regulator Ofgem faces its first major test since its market review. If it isn't satisfied that price rises are fair, and that suppliers are making the changes on transparency and service needed, the threat of a Competition Commission enquiry must become a reality.
