SSE

The business
SSE is one of Britain’s largest gas and electricity companies. It owns more than 11,000 megawatts of electricity capacity, generated from gas, coal, hydro, wind and biomass. It supplies gas and electricity to more than ten million customers in Britain and Ireland, along with other services, such as boiler and central heating maintenance, and telecoms and broadband. SSE owns the regulated electricity transmission and distribution network for the north of Scotland, electricity distribution in southern England, and 50% of the gas distribution networks in Scotland and southern England. It also operates two gas storage facilities in East Yorkshire and an 11,100km telecoms network.

The history
Formed in 1998 by the merger of Scottish Hydro Electricity and Southern Electric, SSE has been one of Britain’s most successful utility companies, more than doubling its share of the British energy supply market in the last decade. In that time, it has also been one of the best dividend payers in the FTSE 100, growing its payments by an average of 9.6% a year. Investments such as the 2004 purchases of the Fiddlers Ferry and Ferrybridge coal-fired power stations, and its investment in gas networks in 2006, have paid off, with earnings from the low-risk, regulated network assets balancing out the more volatile power-generation business. In 2008, SSE also began making significant investments in wind power, with the acquisition of Airtricity.

The leadership
Ian Marchant, formerly finance director, has been chief executive since 2002. He was paid £1.2m in 2010/2011. Lord Smith of Kelvin (who also chairs oil services group Weir) has been chairman since 2005. Gregor Alexander is finance director.

The outlook
SSE still expects a very small rise in full-year profits, which might be ambitious, given the 25% decline seen in its first half. It also says it is on target to grow dividends by 2% above inflation until 2013. Beyond that, SSE should continue to earn reasonable returns from its regulated network assets, but its big investments in renewable energy are far less secure: these are expensive and power prices need to stay high to make them pay. If the British economy stays in the mire, then SSE’s returns could disappoint, and perhaps threaten its ability to keep growing dividends.