SSE tipped to unveil slump in profits after delay in passing on price rises

Published Date: 09 November 2008
By William Lyons

IAN Marchant, chief executive of Scottish & Southern Energy (SSE), is expected this week to reveal a dramatic fall in profits despite hiking retail gas prices by nearly 30% in the summer.
In August the UK's second biggest supplier was one of the first of the UK's 'big six' suppliers to raise prices, increasing gas charges by 29.2% and average electricity costs by 19.2%.But Marchant is expected to tell investors on Wednesday that profits in the six months to September 30 will be "substantially lower" than previous years, as the firm absorbed the cost of higher wholesale gas prices for months before passing them on to customers. He will look to reassure investors by saying the majority of its profits will be made between October and March as the impact of price hikes comes through.SSE has also suffered delays with the installation of new gas de-sulphurisation equipment at Fiddler's Ferry and Ferrybridge, which limited the stations' output in the first half of the year. These factors are set to knock the company's pre-tax profits back by more than half to £293m from £665m."Generation and supply profitability needs to be significantly higher in the second half in order to meet full-year expectations. "Most of the ground should be made up by the average 24% increase in retail tariffs effective at the end of August, however, which should restore supply margins," said Merrill Lynch's energy analyst Fraser McLaren.In June Scotland on Sunday revealed that SSE was stepping up its investment in wind farm technology by opening a research and development office in Beijing. The office focuses on procurement of technology from Chinese companies to be used in the UK and the development of wind farms in Asia.Meanwhile, SSE has warned that a swathe of problems in developing wind farms threatens to blow the Government's renewable energy targets off course. SSE, which is involved in developing the £1.3bn 504-megawatt Greater Gabbard farm in the North Sea off the coast of East Anglia, said Britain would need about four schemes the size of Gabbard per year if it is to achieve the 2020 target."We've made significant progress with a number of key projects in the last six months, but there's still much more to do to hit the 2020 target," an SSE spokesman said.