Perth-based SSE will merge in a changing energy market
Energy giant SSE has this morning confirmed its plan to merge its household energy and services business in the UK with Innogy’s Npower operations.
It will create a new company with 11.5 million customers and hold a 22% share of the market. SSE Shareholders will hold 65.6% of the new business with Innogy owning the remainder.
The two companies are yet to confirm the top posts of chairman, chief executive and chief financial officer.
“Significant synergies”, or cost savings, are anticipated, largely derived from operational cost efficiencies and capital expenditure savings from a combined IT platform.
The company said it believes a standalone retail business will benefit from its own dedicated board of directors and specialist management team.
It will also have the ability to access and allocate its own capital.
Alistair Phillips-Davies, chief executive, said: “We are very proud of what we’ve delivered as a group over many years; but we have been and remain committed to taking the right decisions in each of our businesses to secure the right outcomes for energy customers and other stakeholders.
“The scale of change in the energy market means we believe a separation of our household energy and services business and the proposed merger with npower will enable both entities to focus more acutely on pursuing their own dedicated strategies, and will ultimately better serve customers, employees and other stakeholders.
“SSE will remain a balanced group of related businesses, specialising in the energy, infrastructure and services needed to support the transition to a lower carbon future, but continuing to serve business and Irish customers; whilst the demerged retail business will build on a history of operational excellence and first-class customer service to pursue its own dynamic strategy for GB customers.
“This process is likely to take some time and in the interim we remain absolutely focused on the critical job of delivering for customers.”
Tony Keeling, chief operating officer, added: “We’re proud of our track record in customer service and have plenty to build on, but there is a huge amount of competition and we need to do more than ever to compete by providing value for money and excellent experiences for customers.
“We have an exciting opportunity to create a major new independent supplier with a single-minded focus on customers, combining the benefits of scale and experience with the ability to be more agile in our decision-making and to invest in meeting customers’ long-term needs.
“This is a new and different model which should leave us well placed to challenge the market, respond to the challenges and capitalise on the opportunities that lie ahead.”
It is currently expected that the transaction will be completed by the last quarter of 2018 or the first quarter of 2019.
The announcement comes as the company grapples with an increasing exodus of customers to rivals.
Adjusted pre-tax profits for the six months to 30 September are down 13.9% to £409.6m.
Chairman Richard Gillingwater said: “The operating environment continues to present a number of complex challenges to manage, with significant political and regulatory intervention an ongoing feature of the energy sector.
“SSE is focused, resilient and adaptable and those qualities continue to stand the company in good stead in responding to such interventions and other key changes.”
Claire Osborne, an energy expert with uSwitch.com said the last two years has seen the number of suppliers double to about 60.
“There are a lot of good deals out there for customers – they don’t need to rely on the big six to get a good deal and get a good service,” she said.
SSE’s interim dividend is up 3.6% to 28.4p, though analysts have questioned whether the company can continue its progressive dividend policy.
In its statement it says it is “continuing to target an increase in the full-year dividend for 2017/18 of at least RPI inflation, with an annual increase of at least RPI inflation also being targeted for 2018/19.
“Thereafter, SSE’s dividend and dividend policy will reflect the quality and nature of its assets and operations, the earnings derived from them and the longer-term financial outlook.”