Cut to distribution profit expectations, but the wind is blowing again SSE has issued a 1H trading statement this morning, ahead of its close period. The overall outlook for FY adjusted operating profit across a number of businesses remains unchanged, although lower-than-expected Distribution Use of System electricity volumes and a greater number of network faults mean that SSEN Electricity Distribution's adjusted operating profit is now expected to be around £25m lower than first forecast, at around £375m vs. our estimate of £410m. However, recent favourable weather conditions mean that output of renewable energy as at mid-September 2019 is in line with the forecast annual total for the year, compared with the shortfall of around 4% as at June 2019. We expect pressure on consensus earnings SSE currently expects its adjusted earnings per share for 2019/20 to be around 85p-90p. SSE collates consensus, and has indicated this is within the range of analysts' forecasts, albeit that the midpoint is below our 89.6p and Factset consensus of 89.3p. The guidance assumes receipt of the suspended Capacity Market (CM) payments totalling £148m and normal weather conditions in the last seven months of the financial year. 1H expectations increase 2H challenge As far as 1H is concerned, the usual split is c.35% of annual adjusted operating profit being earned in 1H. SSE is guiding to around 20% of FY expectations being earned in 1H20 due to over 90% of the expected £115m +/-£15m Energy Portfolio Management (EPM) loss being incurred in the first half of the financial year, and the continuing suspension of the CM means SSE is unable to recognise the outstanding CM payments that SSE expects to receive in H2. Progress in gas disposal positive, but will hit adjusted EPS SSE has indicated it is making good progress with the planned disposal of its interests in gas production, and that its Gas Production segment is likely to be deemed to be held for sale in SSE's financial statements, an accounting change that would have the effect of reducing forecast adjusted earnings per share for 2019/20 by up to 5p. On balance, we view today’s statement as a slight negative Although the 80p FY dividend has been reiterated, we view the statement as a minor disappointment, both in respect of likely pressure on consensus, and the ask of delivering 80% of FY adjusted operating profit in 2H.