Energy giant SSE, one of the UK’s ‘Big Six’ energy supply firms, reported a 6% fall in profits in 2017 as it lost nearly 500,000 customers.
The company reported that its customer base had shrunk from 7.23 million to 6.8 million in the period March 2016 – March 2017. In the same period, operating profits declined from £1.9bn to £1.8bn, with pre-tax profits down from £1.55bn to £1.45bn.
Richard Gillingwater, SSE’s chairman, acknowledged the slump but was cautiously optimistic, saying: “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.”
The results demonstrate that even for the largest energy companies in the Big Six, increased competition, especially from smaller firms, has the potential to hit profits as they are forced to reduce rates for customers.
The government’s intention to introduce price caps for certain rates, announced from late 2017, has also hit the profits of companies such as SSE, with billions wiped off their stock market valuations. Prime Minister Theresa May announced that the bill intended to “bring an end to rip-off energy prices once and for all.”
The greatest fear on the investment front has been the looming merger with Npower, another of the Big Six firms, which would lead to the creation of the UK’s second largest energy supplier, with 11.5 million customers, behind British Gas. This deal is, however, under fire from the Competition and Markets Authority (CMA), the UK’s Acquisitions & Mergers watchdog, citing concerns over the lack of competition and price fixing. The proposed deal would see SSE shareholders holding 65.7% of the new company’s stocks, and Innogy (Npower’s German owners) holding the remaining 34.4%. SSE claims that the deal is likely to go ahead in the final quarter of 2018 or the first quarter of 2019. Alistair Phillips-Davies, chief executive of SSE, said: “We remain confident that the proposed merger will deliver benefits for customers and for the energy market as a whole and that we will be able to demonstrate this to the CMA in due course.”
The CMA has requested additional information about the companies’ plan to reduce monopolisation. Rachel Merelie, the CMA’s senior director, said: “We know that competition in the energy market does not work as well as it might. However, competition between energy companies gives them a reason to keep prices down. We have found that the proposed merger between SSE Retail and Npower could reduce this competition, and so lead to higher prices for some customers. We therefore believe that this merger warrants further in-depth scrutiny.”