Income seeking shareholders of SSE (SSE) can breathe a sigh of relief as the group reassures on its dividend next year despite a squeeze on earnings. The energy supplier says operating profit from its Networks business will be around £100m lower in the year to 31 March 2018 than the previous 12 months.

A series of complex issues are being blamed for the shortfall, including lower income from electricity transmission charges. There is also going to be a revenue hit for its gas distribution unit, in which it sold a 16.7% stake in October 2016.

Complex issues

Operating profit forecasts have been nudged lower, with the consensus now pitched at a little over £1.7bn.

‘The operating environment has presented SSE with a number of complex issues to manage, but in this financial year we have been able to offset the impact of disappointing renewable energy output caused by drier and less windy weather conditions,’ says Gregor Alexander, group finance director.

Importantly, SSE expects dividend cover this year to be within the expected range of around 1.2-times to 1.4-times, albeit towards the bottom end of that range. ‘We are on course to deliver adjusted earnings per share (EPS) of between 122p and 125p,’ spelled out Alexander. City analysts anticipate 123p EPS on a consensus basis, which implies 1.3-times cover of the currently predicted 94.1p dividend this year.

Full year to 31 March 2017 figures will be reported on 17 May.

Big six squeeze

As one of the UK’s so-called big six energy suppliers, SSE has faced stiff competition for customers from a swathe of new and existing independents. The group revealed in January that its customer numbers had dropped to 8.08m from 8.21m at the end of March 2016, although SSE added it had begun to halt the exodus.

This has put profits from the firm’s retail division under pressure. ‘Retail operating profit is expected to be slightly lower than in 2015/16,’ was one of the bullet points of its most recent trading update. The 13 March announcement of a hefty consumer tariff price hike may imply a new wave of customer departures.

The group then unveiled an average 6.9% annual increase in a typical dual fuel bill that included an average 14.9% electricity supply increase thanks to rising wholesale pricing. That came amid a swathe of energy tariff price increases from major providers, including Eon, Scottish Power, Npower and EDF. Centrica (CNA)-owned British Gas has extended its own price freeze until August.

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