The FTSE 100-listed firm said yesterday that it was in talks with its rival, owned by Germany’s Innogy, as it reported a big fall in its adjusted pre-tax profits of 13.9% in the six months to September.

In a statement to the London Stock Exchange this morning, SSE said it has entered into an agreement with Innogy “in respect of a proposed demerger of SSE’s household energy and services business in Great Britain and combination with Innogy’s subsidiary Npower Group”.

SSE said the new firm was expected “to deliver enhanced value” and that savings in costs and combined IT platforms would “ultimately enable the company to be an efficient competitor in its markets”.

SSE chief executive, Alistair Phillips-Davies, said: “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.”

SSE’s shareholders will hold 65.6% of the new company, with Innogy, which owns Npower, holding the rest.

Innogy will also receive a break fee of £60m if SSE’s shareholders fail to approve the deal by 31 July 2018.

Meanwhile, SSE today unveiled an 8% drop in annual operating profit during the six months to 30 September, from £637.2m to £586.2m, and a 13.9% reduction in pre-tax profit, to £409.6m from £475.8m.