SSEZY SSE PLC (PK)

By Jaime Llinares Taboada

SSE on Wednesday reported higher earnings for the six months through the end of September. Unfavorable weather hurt renewable generation, but this was offset by a better performance from its transmission and distribution networks. Here is what the Scotland-headquartered electricity company had to say:

On 1H group performance:

"Reported EPS up 65% to 103.6 pence, mainly due to mark-to-market revaluation gains on operating derivatives of circa GBP1.2 billion in the period, a result of recent market volatility."

"As previously announced, renewables profitability in the first half was adversely impacted by exceptionally unfavorable weather conditions (25% or 1.1 terawatt-hours below the comparative period), and the associated requirement to buy back hedges in volatile markets."

"This was more than offset by higher volumes and revenue allowances in regulated networks, and a strong performance from non-core businesses, notably gas storage."

"The group has enjoyed a strong start to the second half of the year, with renewables volumes above plan in October, and thermal and hydro plant in particular achieving strong prices in the market."

On transmission business:

"Adjusted and reported operating profit increased by 58% to GBP181.7 million, compared with GBP115.2m, mainly due to phasing of allowed revenue as the business enters the first year of the RIIO-T2 price control, partially offset by increases in operating costs and depreciation charges as capital investment progresses."

On distribution business:

"Adjusted and reported operating profit increased by 34% to GBP153.3m in HY22, compared to GBP114.3m which includes the effects of coronavirus in HY21."

On renewables business:

"Adjusted operating profit reduced by 82% to GBP25.4m, compared with GBP141.6m, reflecting lower output which was around 25% or 1.1TWh below the comparative period and around 30% or 1.2TWh below current year plan. The financial impact of this reduction in output includes the adverse impact from buying back hedged volume in volatile markets."

On market conditions:

"Whilst the group reduces direct exposure to short-term commodity price volatility through its business mix, its disciplined application of clearly defined hedging policies and low VAR trading limits, the recent relatively high and volatile gas and power market prices have had varying degrees of impact upon several of SSE's businesses in the six months to Sept. 30, which can be summarized as follows:"

"Within SSE Renewables, significantly lower-than-expected volume output has meant that excess forward sale contracts have had to be 'bought back' in the market at higher prices, further reducing the trading result."

"For SSE Thermal and Gas Storage, higher market prices and volatility is generally positive for these businesses albeit this is dependent upon plant availability and plant merit order during the period in SSE Thermal's case."

"Both EPM and Gas Storage, through their respective exposure to unsettled commodity contracts and physical gas inventory, have experienced significant positive unrealized mark-to-market remeasurement gains in the period."

"SSE's Business Energy and Airtricity businesses aren't subject to a regulated price cap and therefore variable tariffs are adjusted dynamically and fixed tariff rates are reset for new acquisitions as wholesale costs increase or decrease."

Write to Jaime Llinares Taboada at jaime.llinares@wsj.com; @JaimeLlinaresT

(END) Dow Jones Newswires

November 17, 2021 03:59 ET (08:59 GMT)

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