SSE's underlying operating profit for the half year was up 90% to £716.0m. This largely reflected the benefits of higher gas prices and included a 178% jump to £100.4m in SSE Thermal. Gas Storage saw a five-fold increase to £147.8m.
Underlying operating profit in Renewables was down 11% to £22.5m, with energy price volatility, project delays and adverse weather being called out as the main drivers.
Free cash flow was negative at £108.9m down from an inflow of £168.2m. This reflected record levels of investment as SSE rolls out its Net Zero Acceleration Plan.
Underlying net debt was up 3.9% to £10.0bn.
The interim dividend was raised 13.7% to 29p per share.
SSE continues to expect full year underlying earnings per share of at least 120p.
The shares fell 1.1% following the announcement.
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Our view
SSE's accelerating its pivot towards renewable energy. It's trimming its exposure to traditional utility work - transmitting and distributing electricity to millions of UK homes - in a multi-billion-pound disposal programme.
Turbo-charging efforts to renewables is a bold move, many would say admirable. But so far SSE's renewables division has left something to be desired. That means the onus is on the traditional business for now.
That brings us to Networks, delivering electricity across Scotland and Southern England. This is classic utility territory - with revenues predictable and profits closely regulated. Historically utilities have been able to pay attractive dividends, and SSE has been no exception. Remember dividends are variable and not guaranteed.
Regulated profits tend to be relatively predictable because prices are set in-line with wholesale costs. The group's benefiting from regulators' decision to increase the energy price cap as the crisis in Ukraine sends the cost of power higher. But the trade-off for this stability is minimal growth.
But the push for renewables puts utilities in a unique position to potentially enjoy steeper growth ahead.
Renewables made up less than half of underlying operating profits last year, but the plan is to more than treble installed generation capacity to 13GW by 2031. This requires a substantial £12.5bn investment over the 5 years to 2026. SSE's 40% interest in the Dogger Bank project (SSE 40%), expected to be the world's largest offshore windfarm is a key part of the plan.
The shift to renewables comes with a hefty dose of risk. SSE's pouring money into a yet unproven part of the business. The group needs to strike a delicate balance between positioning itself for future growth and keeping the cash coffers from running dry.
Cash has been something SSE has found hard to come by in the past. It hasn't always generated enough to cover its enormous infrastructure bill, and fund the dividend as well. As a result, keeping net debt to adjusted cash profits (EBITDA) in line has relied on asset sales. At some point there'll be no more fat to trim.
A moderate level of debt is no bad thing, especially for a business with such reliable revenues, but it's still important to keep liabilities in check. The scrip dividend, where dividends are paid in shares rather than cash, is helping ease the burden short term, but has been capped at 25%.
There are external threats as well. Regulatory challenges loom, particularly as ballooning energy prices compound the cost-of-living squeeze that most are enduring at present. Weaning the UK off its gas dependency may help to mitigate this in the future.
The combination of reliable networks and growing renewable energy businesses sounds attractive, but it's costly and adds a layer of risk until SSE starts generating cash more reliably. If SSE gets this transition right investors could enjoy a more sustainable dividend with the potential to grow over time, but "if" is doing a lot of the work.
SSE key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
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