TIDMSSE
RNS Number : 7125N
SSE PLC
20 May 2015
SSE plc
Preliminary results for the year to 31 March 2015
20 May 2015
This report sets out the preliminary results for SSE plc for the
year to 31 March 2015. SSE's core purpose is to provide the energy
people need in a reliable and sustainable way and this report
includes updates on operations and investments in its Wholesale,
Networks and Retail (including Enterprise) businesses.
Lord Smith of Kelvin, Chairman of SSE, said:
"The 2014/15 financial year was expected to present a number of
major challenges, and it certainly did. Politics and regulation
loomed large with the first-ever auction for electricity generation
capacity, the CMA investigation into the energy market, final
proposals from Ofgem on the eight-year price control in electricity
distribution and the extended build-up to the recent UK general
election. Market conditions for thermal power stations have been
persistently difficult, requiring us to take the difficult decision
we have announced this morning to end coal-fired generation at
Ferrybridge power station by next March; the new price control in
distribution is driving significant change; and energy supply has
once again proved to be a highly competitive business.
"We have throughout this maintained a strong focus on the needs
of customers, with a significant reduction in the number and
duration of power cuts experienced by our distribution customers; a
price reduction and extended price guarantee for our household
energy customers across Britain; and new, integrated services for
our business customers. This focus on customers has been allied to
strong financial discipline, with the value programme to streamline
and simplify the business delivering significant cost savings and
other efficiencies. As I prepare to step down from the Board in
July, I am confident that SSE is on a very sound footing to
maintain its position as one of the most reliable dividend-paying
stocks in the FTSE 100."
Alistair Phillips-Davies, Chief Executive of SSE, said:
"In 2014/15 we delivered our target of annual dividend growth
and achieved solid performance on adjusted earnings per share* and
profit before tax*. We also invested for the future, through almost
GBP1.5bn of capital and investment spend in the UK and Ireland.
Looking ahead, the expected pressures on adjusted earnings per
share* are likely to make themselves felt to some extent in 2015/16
but the company is well-placed to deliver in 2015/16 and beyond an
annual dividend increase that at least keeps pace with inflation,
while engaging constructively to secure positive outcomes for
customers and investors as the new UK government sets out its
energy priorities and as the CMA's market study moves towards its
conclusion."
SSE has also today published a statement on the outcome of its
review of its coal-fired electricity generation assets.
Finance - SSE Group
The key financial results for the year to 31 March 2015 are in
line with expectations set out in the Notification of Close Period
published on the 26 March 2015 (comparisons with the previous year,
unless otherwise stated):
-- Adjusted earnings per share* increased by 0.6% to 124.1 pence;
-- Adjusted profit before tax* increased by 0.9% to GBP1,564.7m;
-- Reported profit before tax increased by 24.1% to GBP735.2m;
-- Investment and capital expenditure fell by 6.8% to GBP1,475.3m;
-- Adjusted net debt and hybrid capital decreased by GBP74.7m to GBP7,568.1m;
-- Full-year dividend increased by 2% to 88.4 pence per share; and
-- Dividend covered 1.40 times by adjusted earnings per share.
*See Definitions on page 5.
Finance - business-by-business operating profit
Operating Profit* by Segment Mar 15 Mar 14 Mar 13
============================== ======== ========== ==========
GBPm GBPm GBPm
============================== ======== ========== ==========
Restated# Restated#
============================== ======== ========== ==========
Wholesale 473.8 634.6 508.6
============================== ======== ========== ==========
Networks 936.8 920.3 838.3
============================== ======== ========== ==========
Retail 456.8 327.1 445.0
============================== ======== ========== ==========
Corporate Unallocated 14.0 (1.9) (12.9)
============================== ======== ========== ==========
Total Operating Profit 1,881.4 1,880.1 1,779.0
============================== ======== ========== ==========
Operating profit, which is before payment of interest and tax,
for the year to 31 March 2015 is set out above and below.
Comparisons are with the previous financial year, but it should be
noted that year on year comparisons may also reflect the cumulative
impact of issues arising or decisions taken in earlier financial
years. SSE's objective is not to maximise profit in any one year
but to earn a sustainable level of profit over the medium term.
Wholesale - operating profit* of GBP473.8m
-- Energy Portfolio Management and Electricity Generation
operating profit declined from GBP496.1m to GBP433.3m, as a result
of difficult market conditions, and lower output of electricity
from both renewable and thermal sources;
-- Gas Production operating profit declined from GBP130.2m to
GBP36.6m, reflecting lower day ahead prices achieved for gas
produced; and
-- Gas Storage operating profit declined from GBP8.3m to
GBP3.9m; this business continues to be affected by smaller seasonal
and daily differentials in gas prices.
Networks - operating profit* of GBP936.8m
-- Electricity Transmission operating profit rose from GBP136.7m
to GBP184.1m, reflecting the continuing major investment in the
asset base and the resulting higher income;
-- Electricity Distribution operating profit fell from GBP507.0m
to GBP467.7m. In 2013/14 SSE's networks over-recovered revenue by
GBP25m and this was reflected in downward adjustments to its
revenue in 2014/15, during which there was also an under recovery
of revenue of around GBP38m; and
-- Gas Distribution - SSE's share of Scotia Gas Networks'
operating profit rose from GBP276.6m to GBP285.0m, reflecting
continued innovation and efficiencies as well as the timing of
revenue collection.
Retail - operating profit* of GBP456.8m
-- Energy Supply following operational and cost efficiencies
operating profit rose from GBP246.2m to GBP368.7m, thereby
returning it to a level similar to that achieved in 2012/13, when
it was GBP363.2m, and making SSE's average annual profit from
supplying a dual fuel energy customer GBP69, before paying interest
and tax;
-- Energy-related Services operating profit fell from GBP24.1m
to GBP17.7m, reflecting a reduction in customer numbers in
Metering, Telecoms and Home Services; and
-- Enterprise operating profit rose from GBP56.8m to GBP70.4m,
largely reflecting a GBP15.3m profit on the gas pipeline disposal
during the year.
(#) Operating profit for 2013/14 restated in line with
establishment of the Enterprise division, and as set out in the
Notification of Close Period on 29 September 2014 and in the Notes
to the Financial Statements.
Weather - impact on SSE
As SSE has set out previously, the weather in the UK and Ireland
has an effect on its business operations including variations in
customer demand for energy, changes in the volume of electricity
generated and, potentially, disruption to power supplies as a
result of weather-related damage to the electricity networks. As
SSE has also set out, it is one of the principal issues affecting
its results in any financial year.
In the UK, mean temperature was 0.7C above the 1981-2010
average, contributing to lower household consumption of gas.
Average rainfall in the north and west of Scotland was 13% above
average, contributing to a high level of output of electricity from
hydro electric schemes; and wind speeds in Scotland and Northern
Ireland were around average, but lower than the previous year,
contributing to lower output of electricity from wind farms.
Operations - providing the energy people need
In the year to 31 March 2015 (comparisons in brackets with the
previous year, unless otherwise stated):
-- Safety: SSE's Total Recordable Injury Rate was 0.12 per 100,000 hours worked (0.12);
-- Wholesale: total electricity output1 from gas- and oil-fired
power stations was 9.8TWh (10.1TWh); from coal-fired power stations
output was 9.1TWh (16.6TWh);
-- Wholesale: total electricity output1 from renewable sources
(conventional and pumped storage hydro electric schemes, onshore
and offshore wind farms and dedicated biomass plant) was 8.7TWh
(9.3TWh);
-- Networks: the number of Customer Minutes Lost in the Scottish
Hydro Electric Power Distribution area was 69 (77); in the Southern
Electric Power Distribution area it was 57 (67);
-- Networks: the number of Customer Interruptions (power cuts)
per 100 customers in the Scottish Hydro Electric Power Distribution
area was 70 (75); in the Southern Electric Power Distribution area
it was 60 (68);
-- Retail: SSE's number of electricity and gas customer accounts
in markets in Great Britain and Ireland fell from 9.10 to 8.58
million; and
-- Retail: average consumption of electricity by SSE's household
customers in Great Britain was estimated to be 3,842kWh (3,991kWh);
average consumption of gas by SSE's household customers in Great
Britain was estimated to be 438 therms (465 therms).
1 Output from electricity generating plant in which SSE has an
ownership interest (output based on SSE's contractual share).
Investment - maintaining, upgrading and building assets that
energy customers need
In the year to 31 March 2015, SSE's capital and investment
expenditure totalled GBP1,475.3m, compared with GBP1,582.5m in the
year before, which includes:
-- Wholesale: Investment in electricity generation totalled
GBP434.9m. SSE's 461MW CCGT power station development at Great
Island in County Wexford is now in commercial operation;
-- Networks: Investment in electricity networks totalled
GBP794.8m. SSE's subsidiary Scottish Hydro Electric Transmission's
section of the Beauly-Denny replacement line is now close to
completion;
-- Retail (including Enterprise): Investment in Retail totalled
GBP134.7m, including Enterprise. SSE has continued to make
significant investment in new systems to deliver enhanced services
to customers and support the installation of smart meters in the
years to 2020.
Capital and investment expenditure in the Wholesale segment also
included expenditure totalling GBP21m in Gas Production and
GBP14.3m in Gas Storage. Separately, SSE acquired the Energy
Solutions Group, a Manchester-based provider of energy management
services, for GBP66m, with a further GBP6m payable if business
targets are achieved.
SSE's capital investment and expenditure is forecast to total
around GBP1.75bn (gross) in 2015/16 and - although the phasing of
investment and value of disposals are subject to variation - to
total around GBP5.5bn (net of asset and business disposals) in the
four years up to and including 2017/18.
Undertaking a value programme to ensure SSE is well-positioned
for the future
During 2014/15, SSE embarked on a value programme to secure
operational efficiencies and complete asset and business disposals,
with the overall objective of streamlining and simplifying the
business. The programme has achieved key objectives, with
-- transactions to dispose of for consideration of GBP475m completed;
-- the target of GBP100m of annual savings in overheads secured; and
-- the process to dispose of onshore wind farm assets, in order
to realise value to support future investment, getting under
way.
In addition, in line with the principles of its value programme,
SSE has today announced the outcome of its review of its coal-fired
electricity generation assets as a result of which it has been
decided that coal-fired generation operations at Ferrybridge power
station should end by 31 March 2016.
Financial outlook
SSE believes that the quality of its operations, assets and
investment opportunities means it can continue to deliver a
full-year dividend that at least keeps pace with RPI inflation in
2015/16 and in the subsequent years.
It uses adjusted earnings per share* to monitor financial
performance over the medium term because it defines the amount of
profit after tax that has been earned for each Ordinary share. On 8
May 2015, the consensus of 20 sector analysts' forecasts for SSE's
adjusted earnings per share* in 2015/16 was around 115 pence.
Although the nature of energy provision means that its financial
results in any single year are always subject to well-documented
uncertainties, SSE is targeting adjusted earnings per share* for
2015/16 of at least 115 pence.
SSE also continues to recognise that adjusted earnings per
share* is subject to significant uncertainties which mean that its
dividend cover, based on dividend increases that at least keep pace
with RPI inflation, could range from around 1.2 times to around 1.4
times over the three years to 2017/18. Nevertheless, SSE believes
that a long-term target for dividend cover of a range around 1.5
times, also based on dividend increases which at least keep pace
with RPI inflation, is the right one to aim for.
Being a fair tax payer
In October 2014, SSE became the first FTSE 100 company to be
awarded the Fair Tax Mark. The Fair Tax Mark is the world's first
independent accreditation process for identifying companies making
a genuine effort to be open and transparent about their tax
affairs. In complying with the Fair Tax Mark criteria, SSE is
providing information that moves its disclosure well beyond the
current requirements of UK company law and International Financial
Reporting Standards to ensure that it provides all its stakeholders
with the information they need to properly appraise its tax
affairs. SSE is already an accredited Living Wage employer.
Further information
Investor Timetable
Annual report on sse.com/investors 22 June 2015
AGM (Perth) and Q1 Trading Statement 23 July 2015
Ex-dividend date 23 July 2015
Record Date 24 July 2015
Final date for Scrip Elections 21 August 2015
Payment Date 18 September 2015
Notification of Close Period 30 September 2015
Results for six months to 30 September 11 November 2015
2015
Enquiries
Sally Fairbairn - Company Secretary and
Director of Investor Relations, SSE plc + 44 (0)845 0760 530
Lee-Ann Fullerton - Head of Media, SSE
plc + 44 (0)845 0760 530
Website sse.com
Twitter @sse
Webcast facility
You can join the webcast by visiting www.sse.com and following
the link on the homepage or investor pages.
Conference call
UK free phone 0800 279 5004 US free phone 1877 280
2296
UK local +44(0)20 3427 1908 US local +1212 444 0412
When asked please provide confirmation code 3220398
Online information
News releases and announcements are made available on SSE's
website at www.sse.com. You can also follow the latest news from
SSE through Twitter at www.twitter.com/sse.
Definitions
These financial results for 2014/15 are reported under IFRS, as
adopted by the EU.
SSE focuses on profit before tax before exceptional items,
re-measurements arising from IAS 39, excluding interest costs on
net pension liabilities and after the removal of taxation on
profits from joint ventures and associates. These costs are
non-cash and SSE believes that in order to focus on underlying
performance it is appropriate to exclude them from all adjusted
profit measures.
Therefore, throughout this preliminary statement, the following
definitions apply:
Adjusted Operating Profit before tax * describes profit before
tax before exceptional items and re-measurements arising from IAS
39, excluding interest costs on net pension scheme liabilities and
after the removal of taxation on profits from joint ventures and
associates.
Adjusted Earnings Per Share * describes earnings per share after
tax, based on the Adjusted Operating Profit outlined above.
The tables under 'Measuring Adjusted Profit Before Tax'
reconcile SSE's adjusted profit before tax* to its reported profit
before tax and also set out the adjusted position after tax and in
respect of adjusted earnings per share*. The volatility that arises
from IAS 39 and the impact of the adjustment relating to non-cash
interest costs on net pension liabilities can also be observed.
Reported profit measures for the comparative periods have been
restated following a change in the accounting classification of the
Group's joint operation Greater Gabbard Offshore Winds Limited
under IFRS 11. No impact on adjusted profit measures has arisen
from this change.
STRATEGY AND FINANCE
Strategy
Maintaining a clearly-defined strategic framework
SSE's established core purpose is to provide the energy people
need in a reliable and sustainable way. At the heart of its
strategy is delivery of efficient operation of, and investment in,
a balanced range of businesses across the energy sector, in
production, storage, transmission, distribution, supply and related
services, focused on Great Britain and Ireland. In practice:
-- Operating and investing efficiently is how SSE serves its
customers and makes investments to meet customers' long-term energy
needs and also earn the profit that allows it to give a return to
investors;
-- Maintaining a balanced range of businesses across the energy
sector means SSE serves customers and operates assets and does not
become over-exposed to any one part of the energy sector but can
pursue opportunities or contain risk in each of them where
appropriate;
-- Production, storage, transmission, distribution, supply and
related services means that there is diversity of business activity
in SSE but also depth through the focus on a single sector, energy;
and
-- Great Britain and Ireland give SSE a clear geographical
focus, allowing it to maintain and deploy strong experience and
understanding of the markets in which it operates and to focus on
the needs of the customers which it serves.
The financial objective of this strategy is to increase annually
the dividend payable to shareholders by at least RPI inflation.
This is because shareholders have either invested directly in SSE
or, as owners of the company, have enabled it to borrow money from
debt investors to finance the investment, mainly in electricity
generation and electricity networks, that will help to meet the
needs of energy customers in the UK and Ireland over the long term.
In the five years since 1 April 2010, this investment totalled over
GBP7.7bn.
Operating within a clearly-defined financial framework
SSE operates within a clearly-defined financial framework,
focused on the dividend, dividend cover and the balance sheet:
-- Dividend: SSE's financial focus is on the dividend because
the ultimate objective of investing capital in companies is to
secure a return; and receiving and reinvesting dividends is the
biggest source of a shareholder's return over the long term. SSE's
target of annual increases in the dividend of at least Retail Price
Index (RPI) inflation means it is able to look beyond short-term
value and profit maximisation in any one year and maintain a
disciplined, responsible and long-term approach to the management
of, and investment in, business activities.
-- Dividend cover: Ultimately dividends are paid out of earnings
and, over the long term, earnings should increase to support
dividend growth. For this reason, SSE believes that its dividend
per share should be covered by adjusted earnings per share* at a
level that is sustainable. In 2016/17, however, the risks to which
adjusted earnings per share* are subject mean that its dividend
cover could, in some circumstances, be closer to around 1.2 times.
Over the three years to 2018, SSE expects that its dividend cover
could range from around 1.2 times to around 1.4 times. It continues
to believe that a long-term target range for dividend cover of a
range around 1.5 times is the correct one to aim for, and that will
underlie its business decisions in 2015/16 and beyond.
-- Balance sheet: Focusing on the dividend and dividend cover
are appropriate for a business in a long-term sector such as energy
and, as a long-term business, SSE believes that it should maintain
a strong balance sheet, illustrated by its commitment to the
current criteria for a single A credit rating. SSE believes that a
strong balance sheet enables it to secure funding from debt
investors at competitive and efficient rates and take decisions
that are focused on the long term - all of which support the
delivery of annual increases in the dividend of at least RPI
inflation and the maintenance of an appropriate level of dividend
cover.
Earning profit in a responsible way
Companies don't just need to earn profits; they should earn
profits in a responsible way. It is for this reason that SSE
adopted in 2006 the SSE SET of core values: Safety; Service;
Efficiency; Sustainability; Excellence; and Teamwork.
The first value is Safety, which is defined as: 'We believe all
accidents are preventable, so we do everything safely and
responsibly, or not at all'. In 2014/15, SSE's Total Recordable
Injury Rate (TRIR) per 100,000 hours worked by employees was 0.12,
the same as in the previous year. As a result, 42 employees were
injured in the course of their work during the year. Overshadowing
all of this, however, is the fact one employee lost his life as a
result of a road traffic collision on the A9 and the sympathies of
everyone associated with SSE remain with his family and friends.
The correct response to work-related injuries and death is to seek
to achieve injury-free working, and that remains SSE's ultimate
goal.
In addition to safety at work, SSE believes in fairness at work,
and in September 2013 it became the largest (at that time)
UK-listed accredited Living Wage employer. In April 2015, SSE
published a report, Valuable People, which included the first
valuation of human capital undertaken by a leading UK listed
company and which showed that the value of SSE's human capital is
around GBP3.4bn. As well as fairness at work, SSE believes in
fairness in society and in October 2014 became the first FTSE 100
company to be awarded the Fair Tax Mark. There is a greater
expectation on the part of society that companies should be
environmentally responsible and in October 2014 it was announced
that SSE had achieved an 'A' rating in the CDP Climate Change
Index, one of the most important annual assessments of how large
companies are managing their climate change impact.
More broadly, SSE's contribution to UK Gross Domestic Product in
2014/15 totalled around GBP8.8 bn, taking the total for the last
three years to GBP27.4bn. In the Republic of Ireland it was EUR954m
in 2014/15. The company currently employs directly over 19,700
people and supports over 106,000 jobs across the UK and 6,400 jobs
in Ireland.
Engaging constructively in political and regulatory
developments
The energy sector has been the subject of significant political
and regulatory scrutiny since it was privatised, with the Energy
Act 2013 being the most recent legislation to affect the sector.
While political and regulatory change is never without risk, the
formation of a new UK government, along with the forthcoming
conclusion of the Competition and Markets Authority (CMA)
investigation into the supply and acquisition of electricity in
Great Britain, present a major opportunity to achieve a stable
policy and regulatory framework that gives customers confidence,
allows regulators to regulate and encourages investors to invest in
the Great Britain energy market.
SSE therefore welcomes the new UK government's continued support
for the CMA investigation, which should be based on a robust
process, extensive consultation and independent analysis. The CMA
itself is expected to publish provisional findings and possible
remedies (if required) in the next few weeks. There will then be a
further period of stakeholder engagement and analysis before any
final proposals are published.
While SSE understands the new UK government's intention to end
any new public subsidy for onshore wind farms it is an established
and important feature of government in the UK that there should be
open and dynamic policy-making and that there should be substantive
discussion with stakeholders and experts to enable Ministers to
take well-informed and robust decisions that also avoid unintended
consequences and SSE is optimistic that the new UK government will
pursue its energy policy objectives, including those relating to
onshore wind farms, in a measured and constructive way.
In terms of the UK government and the CMA investigation, SSE
will continue to argue for policies and decisions that are: fair to
energy bill payers and investors; and support the delivery of
reliable and sustainable supplies of energy over the long term.
Dividend Per Share and Adjusted Earnings Per Share*
Increasing the dividend for 2014/15
SSE's first financial responsibility to its shareholders is to
give them a return on their investment through the payment of
dividends. The Board is recommending a final dividend of 61.8p per
share, to which a Scrip alternative is offered, compared with 60.7p
in the previous year, an increase of 1.8%. This will make a
full-year dividend of 88.4p per share which is: an increase of 2%
compared with 2014/15, which is in line with RPI inflation; and
covered 1.40 times by SSE's adjusted earnings per share*.
Targeting dividend increases of at least RPI inflation in
2015/16 and beyond
The stated financial goal of SSE's strategy is to deliver annual
increases in the dividend and its target for 2015/16 onwards is to
deliver annual dividend increases of at least RPI inflation
(measured against the average annual rate of RPI inflation across
each of the 12 months to March).
Focusing on Adjusted Earnings Per Share*
To monitor its financial performance over the medium term, SSE
focuses consistently on adjusted earnings per share*, which is
calculated by excluding the charge for deferred tax, interest costs
on net pension liabilities, exceptional items and the impact of
re-measurements arising from International Accounting Standard
(IAS) 39.
Adjusted earnings per share* has the straightforward benefit of
defining the amount of profit after tax that has been earned for
each Ordinary Share and so provides an important measure of
underlying financial performance. In addition to financial
performance, however, SSE's adjusted earnings per share* is
influenced by two specific factors:
-- hybrid capital securities qualify for recognition as equity
and so, in SSE's reported results, charges for the coupon
associated with them are presented within dividends, but this cost
is reflected within adjusted earnings per share*; and
-- the Scrip dividend scheme, approved by shareholders in 2010,
results in the issue of additional ordinary shares.
In the year to 31 March 2015, SSE's adjusted earnings per share*
was 124.1pence, based on 981.8 million shares, compared with
123.4p, based on 965.5 million shares, in the previous year.
SSE continues to recognise that adjusted earnings per share* is
subject to significant uncertainties in 2015/16 and the years
immediately following. On 8 May 2015 the consensus of 20 sector
analysts' forecasts for SSE's adjusted earnings per share in
2015/16 was around 115 pence. The nature of energy provision means
that financial results in any single year are always subject to
well documented uncertainties (see 'Delivering Adjusted Profit
Before Tax in 2015/16 below), meaning it generally seeks to provide
a financial outlook later in the financial year. Nevertheless, SSE
is targeting adjusted earnings per share* for 2015/16 of least 115
pence.
SSE also continues to recognise that adjusted earnings per
share* will remain subject to significant uncertainties which mean
that its dividend cover could range from around 1.2 times to around
1.4 times over the three years to 2018 (based on dividend increases
that at least keep pace with RPI inflation). Nevertheless, and on
that basis, SSE believes that a long-term target for dividend cover
of a range of around 1.5 times is the right one to aim for.
Adjusted Profit Before Tax*
Measuring Adjusted Profit Before Tax*
These financial results for 2014/15 are reported under IFRS, as
adopted by the EU. SSE focuses on profit before tax before
exceptional items, re-measurements arising from IAS 39, excluding
interest costs on net pension liabilities and after the removal of
taxation on profits from joint ventures and associates. These costs
are non-cash and SSE believes that in order to focus on underlying
performance it is appropriate to exclude them from all adjusted
profit measures.
As a result, 'adjusted profit before tax*'
-- reflects the underlying profits of SSE's business;
-- reflects the basis on which the business is managed; and
-- avoids the volatility that arises from IAS 39 fair value measurement.
The tables below reconcile SSE's adjusted profit before tax* to
its reported profit before tax and also set out the adjusted
position after tax and in respect of adjusted earnings per share*.
The volatility that arises from IAS 39 and the impact of the
adjustment relating to non-cash interest costs on net pension
liabilities can also be observed.
Reported profit measures for the comparative periods have been
restated following a change in the accounting classification of the
Group's joint operation Greater Gabbard Offshore Winds Limited
under IFRS 11. No impact on adjusted profit measures has arisen
from this change.
Mar 15 Mar 14 Mar 13
GBPm GBPm GBPm
Restated Restated
======================================== ======== ========= =========
Adjusted Profit before Tax* 1,564.7 1,551.1 1,415.1
======================================== ======== ========= =========
Movement on derivatives (IAS 39) (105.3) (212.0) (199.7)
======================================== ======== ========= =========
Exceptional items (674.6) (747.2) (584.7)
======================================== ======== ========= =========
Interest on net pension liabilities
(IAS19R) (14.0) (28.2) (34.9)
======================================== ======== ========= =========
Share of JVs and Associates tax (35.6) 28.8 (16.6)
======================================== ======== ========= =========
Reported Profit before Tax* 735.2 592.5 579.2
======================================== ======== ========= =========
Adjusted Profit before Tax* 1,564.7 1,551.1 1,415.1
======================================== ======== ========= =========
Adjusted Current Tax Charge (224.8) (236.7) (223.6)
======================================== ======== ========= =========
Adjusted Profit after Tax* 1,339.9 1,314.4 1,191.5
======================================== ======== ========= =========
Less: attributable to other equity
holders (121.3) (122.9) (63.4)
======================================== ======== ========= =========
Adjusted Profit After Tax attributable
to ordinary shareholders 1,218.6 1,191.5 1,128.1
======================================== ======== ========= =========
Adjusted EPS* - pence 124.1 123.4 118.5
======================================== ======== ========= =========
Reported Profit after Tax** 543.1 323.1 402.7
======================================== ======== ========= =========
Basic EPS - pence 55.3 33.5 42.3
======================================== ======== ========= =========
Number of shares for basic and
adjusted EPS (million) 981.8 965.5 952.0
======================================== ======== ========= =========
**After distributions to hybrid capital holders
Delivering Adjusted Profit Before Tax*
Operating Profit by Segment Mar 15 Mar 14 Mar 13
GBPm GBPm GBPm
Restated Restated
============================= ======== ========= =========
Wholesale 473.8 634.6 508.6
============================= ======== ========= =========
Networks 936.8 920.3 838.3
============================= ======== ========= =========
Retail 456.8 327.1 445.0
============================= ======== ========= =========
Corporate Unallocated 14.0 (1.9) (12.9)
============================= ======== ========= =========
Total Operating Profit 1,881.4 1,880.1 1,779.0
============================= ======== ========= =========
Adjusted profit before tax* increased slightly by 0.9%, from
GBP1,551.1m to GBP1,564.7m in 2014/15. SSE's Wholesale, Networks
and Retail segments were all profitable. Although comparisons are
made with the previous financial year, it should be noted that year
on year comparisons may also reflect the cumulative impact of
issues arising or decisions taken in earlier financial years.
Moreover, SSE's objective is not to maximise profit in any one year
but to earn a sustainable level of profit over the medium term.
The decline in operating profit in Wholesale reflects in
particular: lower output of electricity from renewable and thermal
energy sources; and lower day ahead prices achieved for gas
produced. Moreover, very difficult market conditions affecting
thermal plant, such as low 'spark' spreads, have persisted for
several years and resulted in thermal plant being loss-making over
the financial year.
The increase in operating profit in Networks reflects in
particular investment in the asset base of Electricity Transmission
resulting in higher income which was only partly offset by the
negative impact of the timing of revenue recovery in Electricity
Distribution in 2013/14 and 2014/15.
The increase in operating profit in Retail, restoring it to a
level similar to that achieved in 2012/13, followed an increase in
household electricity and gas tariffs in November 2013 and reflects
a number of factors, including operational and cost efficiencies,
which were partially offset by the impact of mild weather and a
reduction in the number of customers.
The 'Enterprise' division within the SSE Group brings together
under new leadership SSE's services in competitive markets for
industrial and commercial customers through an integrated approach.
As a result of this change, activities previously reported under
'Other Networks' have been combined with electrical contracting,
previously reported under 'Energy-related Services', to create an
'Enterprise' segment which, as customer-facing businesses in
competitive markets, is reported under 'Retail'.
Impact of the movement on derivatives (IAS 39)
The adverse movement on derivatives under IAS 39 of GBP105.3m
shown in the table above and on the face of the Income Statement
has arisen partly from deterioration in the fair value of forward
commodity purchase contracts of GBP67.8m which are accounted for
under IAS 39. The fair value of such contracts is derived by
comparing the contractual delivery price against the prevailing
market forward price at the balance sheet date. The position at 31
March 2015, primarily electricity and gas, was a liability of
GBP333.3m compared to a liability on similar contracts at 31 March
2014 of GBP265.4m. The actual value of the contracts will be
determined as the relevant commodity is delivered to meets
customers' energy needs, which will predominately be within the
subsequent 12 months. As a result, SSE believes the movement in
fair value of the contracts in the current year is not relevant to
underlying performance.
In addition to this, a net adverse movement on the fair
valuation of interest and currency derivatives of GBP37.5m arising
from the relative strengthening of Sterling and the net position on
interest rate swaps was recognised in the year to 31 March 2015.
SSE sets out these movements in fair value separately, as
re-measurements, as the extent of the actual profit or loss arising
over the life of the contracts giving rise to this liability will
not be determined until they unwind.
Exceptional Items
In the year to 31 March 2015, SSE recognised asset impairment
and related charges totalling GBP674.6m. This includes GBP313.5m in
relation to SSE's coal-fired plants at Ferrybridge and Fiddler's
Ferry, GBP163.9m in relation to the Aldbrough gas storage facility,
and GBP106.1m relating to the Sean North Sea gas production assets.
Further charges of GBP109.9m have been recognised, including the
effect of the rationalisation of SSE's CCGT development options
such as the Seabank 3 development near Bristol and the Abernedd gas
fired generation development in South Wales which did not secure a
capacity agreement in the December 2014 auction.
The valuation of the Ferrybridge power station was impacted by
the 31 July 2014 fire and both of SSE's coal-fired plants have been
subject to increasingly difficult economic conditions which have
been exacerbated by the inability of both units at Ferrybridge and
one unit at Fiddler's Ferry to secure an agreement to provide
capacity from October 2018 to September 2019 in the first of the
capacity auction run by DECC in December 2014. The result of these
factors can be seen in the difficult decision announced today to
end coal fired generation at Ferrybridge power station by next
March.
The North Sea gas production assets have been impaired
predominantly due to declining wholesale gas prices and the gas
storage facility has been impacted by reduced short term price
volatility in the wholesale gas market.
Other exceptional charges of GBP56.0m were recognised in the
financial year in relation to provisions associated with various
contractual and legal disputes. SSE also benefitted from the
recognition of GBP74.8m of exceptional credits in relation to the
disposal of businesses and assets that were held for sale at 31
March 2014 before recognition of related provisions which included
gains in relation to the seven street lighting PFIs sold to Equitix
in November.
Delivering Adjusted Profit Before Tax in 2015/16
SSE believes profit is not an end in itself, but a means to an
end. In addition to enabling it to provide new services for
customers and invest in maintaining, upgrading and building assets
and to pay tax, profit also supports the dividend, which is the key
means through which SSE gives shareholders a return on their
investment. Shareholders require a return on their investment
because they have either invested directly in SSE or, as owners of
the company, have enabled it to borrow money from debt investors to
finance the investment, mainly in electricity generation and
electricity networks, that will help to meet customers' energy
needs over the long term.
Because well-managed economically-regulated networks provide a
relatively stable revenue flow, and because SSE has frozen
household energy prices in Great Britain until at least July 2016,
SSE's adjusted profit before tax* for 2015/16 as a whole is likely
to be determined mainly by issues in its market-based Wholesale and
Retail businesses. An increase in the amount of capacity for
renewable energy in operation is expected to contribute to an
increase in operating profit in EPM and Electricity Generation in
2015/16 compared with the preceding year, while the reduction in
household gas prices in Great Britain in April 2015 is likely to
contribute to a decline in operating profit in Energy Supply. More
broadly, many of the issues in Wholesale and Retail are influenced
by the weather (see above) and SSE's actual level of adjusted
profit before tax in 2015/16 is likely to be determined by:
-- the impact of wholesale prices for energy;
-- electricity market conditions, the ability of its operating
thermal power stations to generate electricity efficiently and the
price achieved for output;
-- the output of renewable energy from its hydro electric stations and wind farms;
-- the output from its gas production assets; and
-- the actual and underlying level of customers' energy consumption.
Investment and Capital Expenditure
Investment and Capex Summary Mar 15 Mar 15 Mar 14
Share % GBPm GBPm
========================================== ======== ======== ========
Thermal Generation 11% 160.6 276.6
========================================== ======== ======== ========
Renewable Generation 16% 239.0 339.9
========================================== ======== ======== ========
Gas Storage 1% 14.3 10.6
========================================== ======== ======== ========
Gas Production 1% 21.0 40.9
========================================== ======== ======== ========
Total Wholesale 29% 434.9 668.0
========================================== ======== ======== ========
Electricity Transmission 32% 467.2 349.2
========================================== ======== ======== ========
Electricity Distribution 22% 327.6 308.3
========================================== ======== ======== ========
Total Networks 54% 794.8 657.5
========================================== ======== ======== ========
Energy Supply and related services 7% 109.6 99.9
========================================== ======== ======== ========
Enterprise 2% 25.1 54.6
========================================== ======== ======== ========
Total Retail 9% 134.7 154.5
========================================== ======== ======== ========
Other 8% 110.9 102.5
========================================== ======== ======== ========
Total investment and capital expenditure 100.0% 1,475.3 1,582.5
========================================== ======== ======== ========
50% of SGN capital/replacement
expenditure 169.9 160.9
========================================== ======== ======== ========
Delivering investment efficiently
Central to SSE's strategy is efficient investment in a balanced
range of economically-regulated and market-based energy businesses.
This means that investment should be:
-- in line with SSE's commitment to strong financial management,
including securing returns which are clearly greater than the cost
of capital, enhance earnings and support the delivery to
shareholders of a return on their investment;
-- complementary to SSE's existing portfolio of assets and
consistent with the maintenance of a balanced range of assets
within SSE's businesses;
-- consistent with developments in public policy and regulation
including the introduction of competition for support for low
carbon electricity through CFDs; and
-- governed, developed, and executed in an efficient and
effective manner, consistent with SSE's Major Projects Governance
Framework and with the skills and resources available within
SSE.
Investing in energy assets that the UK and Ireland need
In March 2014, SSE said that it expected its investment and
capital expenditure will total around GBP5.5bn (net of disposal
proceeds received) over the four years to 2017/18, although the
phasing of capital expenditure and the value of disposals may vary.
During the year there was investment of:
-- GBP160.6m in thermal generation, including investment of
GBP29.5m in the construction of the new Combined Cycle Gas Turbine
at Great Island and GBP40.5m in the construction of the multi-fuel
generation facility adjacent to Ferrybridge power station;
-- GBP239.0m in renewable generation, a significant part of
which was invested in new onshore wind farms such as the 33-turbine
Strathy North wind farm in Sutherland;
-- GBP14.3m in gas storage and GBP21.0m in gas production; and
-- GBP467.2m in electricity transmission, which includes GBP108m
of regulated spend on replacing SSE's section of the Beauly-Denny
replacement line;
-- GBP327.6m in electricity distribution, the majority of which
was spent on system upgrades such as the GBP19m project to install
15km of new underground cables between Isleworth and Ealing;
-- GBP109.6m in energy supply and related services which
includes work associated with preparation with the roll-out of
smart meters and improving digital services for customers; and
-- GBP25.1m in Enterprise, mainly on investments in non regulated networks.
Disposing of assets to support future investment
SSE's programme of disposal of assets which are not core to its
future plans, which result in a disproportionate burden, or which
could release capital for future investment, is well under way.
Agreements with a total value of over GBP475m have already been
reached or concluded to dispose of assets such as SSE Pipelines Ltd
and equity in PFI street lighting contracts. The disposal of such
assets is taken into account in the total expected net capex
referred to above of GBP5.5bn across the four years to March 2018,
although the phasing of capital expenditure and value of disposals
may vary. Proceeds and debt reduction from these planned and
completed disposals are expected to total around GBP500m.
In addition, there are other assets such as onshore wind farms
which present, through disposal, opportunities to release capital
to support future investment. SSE currently envisages securing
proceeds of around GBP500m through disposals of such assets. In
total, therefore, the disposal programme is currently expected to
result in a financial benefit of around GBP1bn including proceeds
received and balance sheet debt reduced. The disposal programme is
also intended to enable SSE to ensure its resources are fully
focused on what is important and relevant to its core purpose of
providing the energy people need in a reliable and sustainable
way.
Allocating capital and investment expenditure in 2015/16 and
beyond
Looking across its Networks, Retail and Wholesale businesses,
SSE expects that its capital and investment expenditure will total
around GBP1.75bn in 2015/16, with the principal reason for the
increase being in Electricity Transmission, where construction work
on the link between Caithness and Moray is getting under way, and
total around GBP5.5bn (net) over the four years to 31 March 2018.
This includes:
-- economically-regulated expenditure on electricity
transmission networks, such as Caithness-Moray, and on electricity
distribution networks;
-- essential maintenance of other assets such as power stations; and
-- expenditure that is already committed to development and
completion of new assets (including around 600MW (construction and
pre-construction) of onshore wind farm capacity) and the
enhancement and deployment of systems to improve customer service
in Energy Supply and Energy-related Services.
SSE's commitment to financial discipline means that it will
monetise value from existing investments and assets in order to
support future investment in other assets to which it decides to
commit over the next few years, where that will enhance adjusted
earnings per share* over the long term.
SSE believes that a capital and investment programme on this
scale, financed in part by recycling of capital through appropriate
asset disposals, and a flexible approach to value-creation, should
position it well for the future and will deliver:
-- well maintained existing and new modern capacity for generating electricity;
-- renewable sources of energy, supporting a reduction in the
CO2 intensity of electricity generated;
-- a hedge against prices for fossil fuels;
-- additions to the asset base in key businesses, including
economically-regulated electricity networks; and
-- additional cashflows and profits to support continuing dividend growth.
Investing in gas distribution through Scotia Gas Networks
(SGN)
In addition to its own capital and investment expenditure
programme, SSE effectively has a 50% interest in SGN's capital and
replacement expenditure, through its 50% equity share in that
business. SGN is self-financing and all external debt relating to
it is separate from SSE's balance sheet. Nevertheless, it is a very
substantial business which gives SSE a major interest in
economically-regulated gas distribution.
In 2014/15, a 50% share of SGN's capital and replacement
expenditure was GBP169.9m, compared with GBP160.9m in 2013/14.
During the year, SGN's RAV increased to GBP4.9bn (SSE share:
GBP2.46bn), up from GBP2.9bn (SSE share: GBP1.45bn) when it was
acquired in 2005.
Financial management and balance sheet
Mar 15 Mar14 Mar 13
Restated Restated
======================================= ========== ========== ==========
Adjusted net debt and hybrid capital
(GBPm) (7,568.1) (7,642.8) (7,347.7)
======================================= ========== ========== ==========
Average debt maturity (years) 9.9 10.7 10.6
======================================= ========== ========== ==========
Adjusted interest cover(1) (excluding
SGN) 5.3 5.1 5.3
======================================= ========== ========== ==========
Shares in issue at 31 March (m) 993.0 974.9 964.3
======================================= ========== ========== ==========
Shares in issue (weighted average)
(m) 981.8 965.5 952.0
======================================= ========== ========== ==========
(1) Including hybrid coupon
Maintaining a prudent treasury policy
SSE's treasury policy is designed to be prudent and flexible. In
line with that, its operations and investments are generally
financed by a combination of: retained profits; bank borrowings and
bond issuance.
As a matter of policy, a minimum of 50% of SSE's debt is subject
to fixed rates of interest. Within this policy framework, SSE
borrows as required on different interest bases, with financial
instruments being used to achieve the desired out-turn interest
rate profile. At 31 March 2015, 83% of SSE's borrowings were at
fixed rates.
Borrowings are mainly made in Sterling and Euro to reflect the
underlying currency denomination of assets and cashflows within
SSE. All other foreign currency borrowings are swapped back into
either Sterling or Euros.
Transactional foreign exchange risk arises in respect of:
procurement contracts; fuel and carbon purchasing; commodity
hedging and energy trading operations; and long-term service
agreements for plant.
SSE's policy is to hedge any material transactional foreign
exchange risks through the use of forward currency purchases and/or
financial instruments. Translational foreign exchange risk arises
in respect of overseas investments, and hedging in respect of such
exposures is determined as appropriate to the circumstances on a
case-by-case basis.
Managing net debt and maintaining cash flow
SSE's adjusted net debt and hybrid capital was GBP7.57bn at 31
March 2015, compared with GBP7.64bn on the same date in 2014,
GBP7.35bn in 2013 and GBP6.76bn in 2012. This means SSE's adjusted
net debt and hybrid capital has increased by just over GBP800m over
the last three years, during which it has undertaken capital and
investment expenditure totalling more than GBP4.5bn.
Fundamentally, the level of SSE's net debt reflects the quantum
and phasing of capital and investment projects to maintain, upgrade
and build new assets in the UK and Ireland that energy customers
depend on and which support annual increases in the dividend
payable to shareholders. In recent years, it has been contained by
a strong focus on value for money in capital investment projects,
effective working capital management, asset disposals (see
'Disposing of assets to support future investment' above) and a
reduced requirement to pay dividends as cash (see 'Keeping SSE
well-financed below').
As the table below sets out, adjusted net debt excludes finance
leases and includes outstanding liquid funds that relate to
wholesale energy transactions. Hybrid capital is accounted for as
equity within the Financial Statements but has been included within
SSE's 'Adjusted net debt and hybrid capital' to aid
comparability.
Adjusted Net Debt and Hybrid Capital Mar 15 Mar 14 Mar 13
GBPm GBPm GBPm
Restated Restated
====================================== ========== ========== ==========
Adjusted Net Debt and hybrid capital (7,568.1) (7,642.8) (7,347.7)
====================================== ========== ========== ==========
Less: hybrid capital 3,371.1 2,186.8 2,186.8
====================================== ========== ========== ==========
Adjusted Net Debt (4,197.0) (5,456.0) (5,160.9)
====================================== ========== ========== ==========
Less: Outstanding Liquid Funds (71.7) (51.2) (55.0)
====================================== ========== ========== ==========
Add: Finance Leases (319.7) (328.9) (330.4)
====================================== ========== ========== ==========
Unadjusted Net Debt (4,588.4) (5,836.1) (5,546.3)
====================================== ========== ========== ==========
Ensuring a strong debt structure through medium- and long-term
borrowings
SSE's objective is to maintain a reasonable range of debt
maturities. Its average debt maturity, excluding hybrid securities,
at 31 March 2015 was 9.9 years, compared with 10.7 years at 31
March 2014.
SSE's debt structure remains strong, with around GBP5bn of
medium/long term borrowings in the form of issued bonds, European
Investment Bank debt and long-term project finance and other
loans.
The balance of SSE's adjusted net debt is financed with
short-term bank debt. SSE's adjusted net debt includes cash and
cash equivalents totalling GBP1,512.3m. Around GBP1,162.0m of
medium-to-long term borrowings will mature in 2015/16.
In addition, an option to extend a GBP500m term loan was
invoked, pushing the maturity out by one year, from September 2014
to September 2015.
Keeping SSE well-financed
Rating Agency Rating
==================== ====================
Moody's A3 Negative outlook
==================== ====================
Standard and Poor's A- Stable outlook
==================== ====================
SSE believes that maintaining a strong balance sheet,
illustrated by its commitment to the current criteria for a single
A credit rating, such as a funds from operations/debt ratio of
20%-23% (Standard & Poor's) and a retained cash flow/debt ratio
of 13% (Moody's), is a key financial principle. In October 2014,
Standard & Poor's revised its outlook on SSE to 'stable' from
'negative ' and affirmed SSE's 'A-' ratings. In February 2015,
Moody's affirmed SSE's A3 rating with 'negative' outlook.
SSE's principal sources of debt funding at 31 March 2015
were:
-- bonds - 38%;
-- hybrid capital securities - 37%;
-- European Investment Bank loans -8%;
-- US private placement - 5%; and
-- index-linked debt, long term project finance and other loans - 12%.
SSE has a long-standing commitment to maintaining financial
discipline and diversity of funding sources and to moving quickly
to select financial options that are consistent with this,
including issuing new bonds and loans. In line with this, in
February 2015, it successfully launched an issue of hybrid capital
securities, an equity financial instrument which is perpetual and
subordinate to all senior creditors. The dual tranche issue
comprised GBP750m and EUR600m with an all-in funding cost to SSE of
4.02% per annum (this compares with the 5.60% all-in funding cost
of SSE's existing hybrid securities issued in 2010 and 2012) with
issuer first call dates of 1 October 2015 and 1 October 2017
respectively.
The Scrip Dividend Scheme approved by SSE's shareholders in 2010
gives them the option to receive new fully paid Ordinary shares in
the company in place of their cash dividend payments. It therefore
reduces cash outflow and so supports the balance sheet.
The Scrip dividend take-up in August 2014, relating to the final
dividend for the year to 31 March 2014, and in February 2015,
relating to the interim dividend for the year to 31 March 2015,
resulted in a reduction in cash dividend funding of just under
GBP255.6m, with 17.1 million new ordinary shares, fully paid, being
issued.
This means that the cumulative cash dividend saving or
additional equity capital resulting from the introduction of SSE's
Scrip Dividend Scheme now stands at GBP875.3m and has resulted in
the issue of 65.9 million Ordinary shares. SSE is seeking
shareholders' approval at the forthcoming Annual General Meeting to
extend the Scrip Dividend Scheme from 2015 to 2018.
Net Finance Costs
The table below reconciles reported net finance costs to
adjusted net finance costs, which SSE believes is a more meaningful
measure. In line with this, SSE's adjusted net finance costs in the
year 31 March 2015 were GBP316.7m, compared with GBP329.0m in the
same period in 2014 reflecting the lower average interest rate in
the period.
Mar 15 Mar 14 Mar 13
GBPm GBPm GBPm
Restated Restated
========================================= ======== ========= =========
Adjusted net finance costs 316.7 329.0 363.9
========================================= ======== ========= =========
add/(less):
========================================= ======== ========= =========
Movement on derivatives 44.2 64.2 (20.3)
========================================= ======== ========= =========
Share of JV/Associate interest (124.2) (137.5) (145.1)
========================================= ======== ========= =========
Interest on net pension liabilities
(IAS 19R) 14.0 28.2 34.9
========================================= ======== ========= =========
Reported net finance costs 250.7 283.9 233.4
========================================= ======== ========= =========
Adjusted net finance costs 316.7 329.0 363.9
========================================= ======== ========= =========
Add/(less):
========================================= ======== ========= =========
Finance lease interest (34.2) (35.7) (37.1)
========================================= ======== ========= =========
Notional interest arising on discounted
provisions (14.0) (9.5) (7.7)
========================================= ======== ========= =========
Hybrid coupon payment 121.3 122.9 63.4
========================================= ======== ========= =========
Adjusted finance costs for interest
cover calculation 389.8 406.7 382.5
========================================= ======== ========= =========
Coupon payments relating to hybrid capital are presented as
distributions to other equity holders and are reflected within
adjusted earnings per share* when paid.
The average interest rate for SSE, excluding JV/Associate
interest, during the year was 4.21%, compared with 4.71% for the
previous year. Based on adjusted interest costs, SSE's adjusted
interest cover was (previous year's comparison in brackets):
-- 5.3 times, excluding interest related to SGN (5.1 times); and
-- 4.8 times, including interest related to SGN (4.6 times).
Excluding shareholder loans, SGN's net debt at 31 March 2015 was
GBP3.55bn, and within the adjusted net finance costs of GBP316.7m,
the element relating to SGN's net finance costs was GBP91.0m
compared with GBP94.4m in the previous year), after netting loan
stock interest payable to SSE. Its contribution to SSE's adjusted
profit before tax* was GBP194.0m compared with GBP182.2m in
2013/14.
Contributing to employees' pension schemes
In line with the IAS 19R treatment of pension scheme assets,
liabilities and costs, net pension scheme liabilities of GBP664.6m
have been recognised in the balance sheet at 31 March 2015, before
deferred tax. This compares to a liability of GBP637.7m at 31 March
2014. During 2014/15, employer cash contributions amounted to:
-- GBP57.6m for the Scottish Hydro Electric scheme, including
deficit repair contributions of GBP29.5m; and
-- GBP92.0m for the Southern Electric scheme, including deficit
repair contributions of GBP58.5m.
Tax
Being a fair tax payer
SSE pays taxes in the United Kingdom and the Republic of
Ireland, the only states in which it has trading operations.
Central to SSE's approach to tax is that it should be regarded as a
responsible tax payer. As a consequence, SSE seeks to maintain a
good relationship with HM Revenue & Customs and with the Office
of the Revenue Commissioners, based on trust and cooperation.
SSE strives to manage efficiently its total tax liability, and
this is achieved through operating within the framework of
legislative reliefs. SSE does not take an aggressive stance in its
interpretation of tax legislation, or use so-called 'tax havens' as
a means of reducing its tax liability. SSE's tax policy is to
operate within both the letter and spirit of the law at all
times.
In the three years to 31 March 2015, SSE's tax paid to
government in the UK, including Corporation Tax, Employers'
National Insurance Contributions and Business Rates totalled
GBP1.25bn, including GBP506.2m in 2014/15. SSE pays taxes in the
Republic of Ireland, in relation to its operations there, and paid
GBP47.7m during the same three years.
In October 2014, SSE became the first FTSE 100 company to be
awarded the Fair Tax Mark. It was launched in February 2014 and is
the world's first independent accreditation process for identifying
companies making a genuine effort to be open and transparent about
their tax affairs. In complying with the Fair Tax Mark criteria SSE
is providing information that moves its disclosure well beyond the
current requirements of UK company law to ensure that it provides
all its stakeholders with the information they need to properly
appraise its tax affairs.
Setting out SSE's tax position
To assist the understanding of SSE's tax position, the adjusted
current tax charge is presented as follows:
Mar 15 Mar 14 Mar 13
==================================== ======== ========= =========
GBPm GBPm GBPm
==================================== ======== ========= =========
Restated Restated
==================================== ======== ========= =========
Adjusted current tax charge 224.8 236.7 223.6
==================================== ======== ========= =========
Add/(less)
==================================== ======== ========= =========
Share of JCE/Associate tax (35.6) 28.8 (16.6)
==================================== ======== ========= =========
Deferred tax including share of JV
and Associates 82.0 141.8 107.8
==================================== ======== ========= =========
Tax on exceptional items/certain
re-measurements (200.4) 260.8 (201.8)
==================================== ======== ========= =========
Reported tax charge /(credit) 70.8 146.5 113.0
==================================== ======== ========= =========
For reasons already stated above, SSE's focus is on adjusted
profit before tax* and in line with that the adjusted current tax
charge is the tax measure that best reflects underlying
performance. The effective adjusted current tax rate, based on
adjusted profit before tax*, is 14.4%, compared with 15.3% in
2013/14, on the same basis.
Priorities and Outlook for 2015/16 and beyond
Setting the right long-term priorities to provide the energy
people need
In addition to the safe and efficient management of assets in
operation or under maintenance or construction and the safe and
efficient delivery of services to Wholesale, Networks and Retail
customers, SSE's priorities for 2015/16 are to:
-- ensure further steps to simplify and streamline its business
are successfully delivered, with further opportunities
identified;
-- adapt successfully to the progressive implementation of the
UK government's agreed energy policies;
-- work for a progressive and enduring outcome from the CMA
investigation into the energy market in Great Britain, for the
benefit of customers and investors alike;
-- ensure that the development and construction of new
electricity generation assets makes good progress;
-- deliver in a timely manner the required investment in the
transmission system in the north of Scotland;
-- make a good start to the new Electricity Distribution Price
Control while monitoring progress of the ED1 Appeal; and
-- ensure that the transformation of systems required under
smart metering makes good progress and continue to develop digital
services to a standard which customers expect.
Conclusion
SSE's three business segments - Wholesale, Networks and Retail
(including Enterprise) - have one core purpose: to provide the
energy people need in a reliable and sustainable way. SSE believes
that success in fulfilling this core purpose enables it to earn a
profit which it can then put to good use for the benefit of
customers, other stakeholders and investors. This helps to ensure
that SSE is in a good position to achieve its first financial
objective for shareholders: annual increases in the dividend that
at least keep pace with RPI inflation in 2015/16 and beyond.
WHOLESALE
March 15 March 14
Energy Portfolio Management (EPM) and Electricity
Generation
=================================================== ========= =========
EPM and Generation operating profit* - GBPm 433.3 496.1
=================================================== ========= =========
EPM and Generation capital expenditure and
investment - GBPm 399.6 616.5
=================================================== ========= =========
GENERATION
=================================================== ========= =========
Gas- and oil-fired generation capacity (GB
and Ire) - MW 5,330 5,330
=================================================== ========= =========
Coal-fired generation capacity (inc. biomass
co-firing) - MW 3,009 3,009
=================================================== ========= =========
Renewable generation capacity GB and Ire
(inc. pump storage) - MW 3,394 3,326
=================================================== ========= =========
Total electricity generation capacity (GB
and Ire) - MW 11,733 11,665
=================================================== ========= =========
Gas power station availability - % 96 92
=================================================== ========= =========
Coal power station availability - % 74 84
=================================================== ========= =========
Onshore wind farm availability % 97 97
=================================================== ========= =========
Hydro storage at end March - % 77 75
=================================================== ========= =========
Gas- and oil-fired (inc. CHP) output (GB
and Ire) - GWh 9,788 10,111
=================================================== ========= =========
Coal-fired (inc. biomass co-firing) output-
GWh 9,143 16,576
=================================================== ========= =========
Total output from thermal power stations
(GB and Ire) - GWh 18,931 26,687
=================================================== ========= =========
Conventional hydro output - GWh 3,726 3,753
=================================================== ========= =========
Wind output (GB and Ire) - GWh 4,677 5,199
=================================================== ========= =========
Dedicated biomass output - GWh 63 67
=================================================== ========= =========
Total output of renewable energy (GB and
Ire) - GWh 8,466 9,019
=================================================== ========= =========
Total output from pumped storage - GWh 190 252
=================================================== ========= =========
Total Generation output all plant - GWh 27,587 35,958
=================================================== ========= =========
Note 1: Capacity is wholly-owned and share of joint ventures.
Note 2: Output is electricity from power stations in which SSE
has an ownership interest (output based on SSE's contractual
share).
Note 3: Capacity includes 735MW of mothballed plant at Keadby
and 1,180MW at Peterhead (while TEC for these stations is zero
and 400MW respectively from 1st April 14) and excludes 464MW
at Great Island (net increase 224MW) operational from 17 April
2015.
Note 4: Capacity excludes Ferrybridge units 1 and 2 (c. 980MW)
and 2 units at Uskmouth (c.230MW) which ceased operations at
the end of March 2014.
Note 5: Wind output excludes 268GWh of constrained off generation
in 2014/15 and 243GWh in 2013/14
=========================================================================
GAS PRODUCTION
=================================================== ========= =========
Gas production operating profit* - GBPm 36.6 130.2
=================================================== ========= =========
Gas production - m therms 397.9 414.1
=================================================== ========= =========
Gas production capital investment - GBPm 21.0 40.9
=================================================== ========= =========
GAS STORAGE
=================================================== ========= =========
Gas storage operating profit* - GBPm 3.9 8.3
=================================================== ========= =========
Gas storage customer nominations met - % 100 100
=================================================== ========= =========
Gas storage capital investment - GBPm 14.3 10.6
=================================================== ========= =========
Sustainably sourcing and producing energy
SSE's long-term objective for its Wholesale segment is for it to
make a sustainable contribution to the implementation of SSE's core
purpose and financial goals, through excellence in the provision,
storage and delivery of energy and related services for customers
in wholesale energy markets in Great Britain and Ireland.
This is achieved through maintaining a diverse portfolio of
assets, contracts and innovative energy solutions; and the ability
to respond quickly and effectively to changing market conditions
and opportunities.
SSE's Wholesale segment delivers this through Energy Portfolio
Management (EPM) and Electricity Generation. EPM is responsible for
ensuring SSE has the energy supplies it requires to meet the needs
of customers; procuring the fuel required by the generation plants
that SSE owns or has a contractual interest in; selling the power
output from this plant; where appropriate, securing value and
managing volatility in volume and price through the risk-managed
trading of energy-related commodities; and providing energy
solutions and services.
Electricity Generation is responsible for: the operation and
management of SSE's generation assets, their maintenance and
ensuring these assets are available when required and able to meet
contractual obligations; and developing future opportunities.
In addition, also within Wholesale, Gas Production is
responsible for the efficient delivery of gas from the physical gas
fields that SSE has a shared ownership in and developing future
opportunities; and Gas Storage is responsible for the operation and
management of SSE's gas storage facilities, their maintenance and
ensuring they are available for use by SSE and third parties.
The markets in which SSE's Wholesale businesses operate continue
to be impacted by a number of key long-term trends, including an
uncertain macroeconomic environment; volatile commodity prices;
increasing government intervention and competition; and the
continued journey to a low carbon economy.
This has resulted in an environment that is increasingly
dynamic, but which will in turn give rise to attractive
opportunities for those who have the assets, capabilities and
attributes required by key stakeholders. SSE's Wholesale segment
will therefore continue to review its portfolio in the context of
market and regulatory conditions going forward to ensure it can
continue to meet its objectives.
Market and regulatory conditions could be impacted by the
outcome of the CMA investigation into the supply and acquisition of
energy in Great Britain, which is examining issues in wholesale as
well as retail markets. SSE believes that the energy markets are
generally well-functioning while being supportive of reforms that
produce additional benefits for competition, customers and
participants. The CMA is currently expected to produce its final
report around the end of 2015.
In line with its commitment to transparency in performance
management and reporting; and in keeping with the ongoing evolution
of its business, SSE has completed the incorporation of a new
subsidiary company for energy portfolio management, SSE EPM
Limited, which will sit alongside the separately disclosed Energy
Supply and Generation activities of the Group and will produce
separately audited accounts from April 2015 onwards. SSE is also
ensuring that the financial arrangements between its companies
continue to be clear and transparent.
Financial performance in Wholesale
During the year to 31 March 2015 operating profit* in Wholesale
was GBP473.8m. This comprised (comparisons with the same period
last year):
Wholesale Operating Profit* Mar 15 Mar 14 Mar 13
================================== ======= ======= =======
EPM and Electricity Generation*
GBPm 433.3 496.1 450.6
================================== ======= ======= =======
Gas Production* GBPm 36.6 130.2 39.6
================================== ======= ======= =======
Gas Storage* GBPm 3.9 8.3 18.4
================================== ======= ======= =======
Total Wholesale Operating Profit 473.8 634.6 508.6
================================== ======= ======= =======
The principal issues relating to operating profit in SSE's
Wholesale businesses are as follows:
-- EPM and Electricity Generation - lower output from renewable
energy primarily due to lower average wind speeds compared to the
previous year; lower coal-fired power station output as a result of
the March 14 closure of Units 1 and 2 at Ferrybridge and the
Ferrybridge Unit 4 fire in July 2014; and lower 'dark spreads' (the
difference between the cost of coal and emissions allowances and
the price received for electricity generated) across the year all
contributed to the fall in operating profit;
-- Gas Production - day ahead wholesale gas prices were around
one third lower on average than for the same period last year which
is the main reason for the significant fall in operating profit.
Overheads also increased by c. GBP10m in the year due to additional
costs in the Bacton area; and
-- Gas Storage - continued low gas price volatility has further
reduced the spread between summer and winter gas prices resulting
in a lower Standard Bundled Unit price being achieved.
Energy Portfolio Management (EPM)
Maintaining a diverse energy portfolio
The wholesale price of energy can fluctuate significantly due to
a number of factors including the economy, the weather, customer
demand, infrastructure availability, and world events. EPM seeks to
manage the impact of these variables by maintaining a diverse and
well-balanced portfolio of contracts, trading positions and assets,
both long and short term. In doing so, SSE has:
-- greater ability to manage wholesale energy price volatility,
thereby protecting customers and ensuring greater retail price
stability;
-- lower risk from wholesale prices through reduced exposure to
volatility in any single commodity; and
-- more scope to deliver the investment needed in Generation and
Gas Production because the risks associated with large-scale and
long-term investments are contained by the balanced nature of SSE's
energy businesses.
In recent years, SSE has typically required around seven million
therms of gas per day to supply its customers and to fuel its power
stations, and around 130GWh of electricity per day to supply all
its customers. EPM has three primary routes to competitively and
sustainably procure the fuels and energy it needs to meet this
demand:
-- assets: including upstream gas exploration and production and
thermal and renewable electricity generation;
-- contracts: long-term gas producer contracts, power purchase
agreements (with SSE-owned plant and third parties) and solid fuel
contracts; and
-- trading: where energy contracts are transparently traded on
international exchanges or through 'over the counter' markets.
Managing risks associated with energy procurement across these
three routes is a key challenge for EPM. By optimising energy
procurement through a diverse portfolio, SSE ensures that, to an
extent, its customers are protected from the unavoidable volatility
that exists in global markets.
Responding to market opportunities
A number of key long-term trends, including an uncertain
macroeconomic picture; volatile commodity prices; intense
competition and increasing government intervention; and the
continued journey to a low carbon economy, have resulted in
wholesale markets which are increasingly dynamic. This creates
attractive opportunities for those who have the assets,
capabilities and attributes required by key stakeholders. EPM will
continue to proactively seek out these opportunities through a
range of activities including contractual agreements and the
provision of system services.
Managing market issues in 2014/15
Global energy markets continued to be volatile in 2014/15, with
knock-on impacts for UK markets and customers. Spot and day-ahead
gas prices, which had reduced through the end of the winter 2013/14
period, continued to fall into the summer of 2014/15 and beyond,
with day-ahead prices dropping to below 35p/therm in early July,
their lowest level since September 2010. This trend , broadly,
continued through the winter with prices averaging 50.5p/therm over
Winter 14 compared to 63.8p/therm the previous winter .
This reduction in prices was initially driven by mild weather
over the previous winter period (2013/14) and gas storage levels,
which were at their highest level in five years going into summer
2014. Another mild winter, coupled with geopolitical events, most
notably the fall in the global oil price, has kept downward
pressure on commodity prices.
Changes to the gas price have impacted the profitability of
electricity generation and gas production assets. 2014/15 saw an
uplift in 'spark spreads' - the difference between the cost of gas
and emissions allowances used by a CCGT and the value of the power
produced - compared to the historically low levels of 2013/14 which
had resulted in greater use of coal-fired plant. This uplift in
'spark spreads' combined with the April 2014 increase in the Carbon
Price Support Rate (see below) resulted in greater use of gas-fired
generation relative to coal. The long-term trend points to gas
continuing to enjoy this comparative advantage.
Increasing wholesale market transparency
SSE has led the way in responding to stakeholders' desire for
greater transparency and increased liquidity in the short-term
wholesale market for electricity. For three years it has
consistently placed 100% of its electricity generation and demand
into NASDAQ OMX Group Inc. and Nord Pool Spot AS's N2EX daily
auction. In taking this action SSE has helped to deliver a new
level of market transparency and liquidity which is now sufficient
for independent retailers and does not represent any kind of
barrier to market entry.
EPM priorities for the remainder of 2015/16 and beyond
EPM's priorities include:
-- securing a stable and predictable supply of energy to meet SSE's customers' needs;
-- driving business change to respond effectively to new UK, RoI and EU regulations;
-- responding to market evolution and change;
-- identifying and agreeing new long term opportunities; and
-- continuing to support improved market transparency and liquidity initiatives.
Generation - Great Britain and Ireland Overview
Managing and developing Generation assets to meet key
priorities
SSE's primary objective for its Generation division is to
maintain a diverse generation portfolio, including the largest
amount of renewable energy capacity in the UK and Ireland, that
helps keep the lights on by being available, reliable and flexible.
This objective is underpinned by six principles that direct the
operation of, and investment in, its Generation portfolio:
-- compliance: with all safety standards and environmental and regulatory requirements;
-- diversity: to avoid over-dependency on particular fuels or technologies;
-- capacity: to contribute to the requirements of the GB and Irish electricity systems;
-- availability: to respond to system demand and market conditions;
-- flexibility: to ensure that changes in demand for electricity
and the variability of generation from wind farms can be addressed;
and
-- sustainability: to support progressive reduction in the CO2
intensity of electricity generated through the cost efficient
decarbonisation of its generation fleet.
SSE's generation assets are underpinned by a strong engineering
focus on asset life and ongoing equipment monitoring to maximise
efficiency.
Maintaining a diverse Generation portfolio
In moving towards a lower carbon generation mix SSE will, by the
end of the decade, transition its generation assets from a
portfolio weighted towards gas and coal, towards a portfolio more
weighted towards gas and renewables. SSE's generation portfolio at
31 March 2015 comprised:
Electricity generation capacity March 15 March 14
=============================================== ========= =========
Gas -fired generation capacity (GB) - MW 4,262 4,262
=============================================== ========= =========
Gas- and oil-fired generation capacity (Ire)
- MW 1,068 1,068
=============================================== ========= =========
Coal-fired generation capacity (GB) (inc.
biomass co-firing) - MW 3,009 3,009
=============================================== ========= =========
Renewable generation capacity GB and Ire
(inc. pump storage) - MW 3,394 3,326
=============================================== ========= =========
Total electricity generation capacity (GB
and Ire) - MW 11,733 11,665
=============================================== ========= =========
Capacity excludes Ferrybridge units 1 and 2 (c. 980MW) and 2
units at Uskmouth (c.230MW) which ceased operations at the end
of March 2014.
=====================================================================
With this portfolio SSE continues to have significant fuel
diversity for producing electricity and retains a very flexible
asset fleet. It also makes SSE the largest generator of electricity
from renewables across the UK and Ireland.
Generation - Great Britain (thermal)
GB thermal output March 15 March 14
============================================= ========= =========
Total Gas and oil-fired (inc. CHP) output
(GB) - GWh 9,537 10,085
============================================= ========= =========
Coal-fired (inc. biomass co-firing) output-
GWh 9,143 16,576
============================================= ========= =========
Total output from thermal power stations
(GB) - GWh 18,680 26,661
============================================= ========= =========
Gas and oil-fired (inc. CHP) output (GB)
from fully owned stations included above
- GWh 2,000 4,729
============================================= ========= =========
Managing the impact of marketplace conditions and the public
policy framework
Uncertainty around market conditions and the public policy
framework affecting electricity generation in Great Britain have
continued to create challenging conditions for SSE's thermal and
renewables businesses.
As detailed above changes to commodity prices resulted in the
running hours and relative profitability of gas stations increasing
at the expense of coal stations during 2014/15. There have also
been a number of public policy interventions in recent years that
impact on both the development and operation of thermal plant.
These include:
-- Carbon Price Support: On 1 April 2013 the UK government
increased the Carbon Price Support (CPS) rate in line with the
level confirmed in Budget 2013. This added a cost of GBP9.55/tonne
of CO2 emissions in 2014/15 for fossil-fuelled generation in Great
Britain, on top of the cost of complying with the EU ETS. The CPS
rate has risen to c.GBP18/tonne in 2015/16; but the 2014 Budget
announced that it would then be frozen until 2018/19, instead of
increasing as previously proposed.
-- Capacity Market: In December 2014 the first Capacity Auction
for generation capacity in GB was held. This competitively
determined the volume of plant (49.3GW) which would take on a
capacity obligation, and the level of capacity payment
(GBP19.40/kW) these will receive for successfully providing
capacity. A total of 4.4GW of SSE's 7.2GW pre-qualified plant were
successful in the auction, and will receive a total of GBP85m if
they deliver this capacity in 2018/19.
Contributing to security of electricity supply
Ofgem has consistently maintained that over the coming years
electricity generation capacity margins will be lower than they
were in recent years due to weak market economics and EU
regulations closing down older plant.
The UK Government, together with National Grid (as the System
Operator) and Ofgem, has decided to address this issue in two
ways:
-- in the longer term through the introduction of a Capacity
Market, which will begin in 2018/19; and
-- in the intervening period, through the Supplemental Balancing
Reserve (SBR) which began last winter (2014/15).
In addition to these mechanisms National Grid already has the
ability to manage moments when demand outstrips supply through a
range of different balancing and optimisation tools.
The design, implementation and operation of these mechanisms is
ultimately determined by DECC and National Grid. They will
determine how much capacity is required to ensure security of
supply under each of these mechanisms. Once this volume has been
determined they will signal the market, and then procure the
necessary capacity through a competitive auction/tender
process.
Responsibility for determining the volume of capacity required
to ensure a secure electricity supply, and for the timely
signalling of this to the market, therefore lies with National Grid
and DECC. Both organisations are confident that they will fulfil
this responsibility. SSE will play its part by working with DECC
and National Grid and by focusing on ensuring that its plant, where
practicable, is available to generate at times when demand is
highest. It will also continue to assist the UK government and
National Grid with their policy development and will engage
constructively with all parties on this issue.
Managing gas-fired power stations
SSE has three wholly-owned gas-fired power stations: Keadby
(Lincolnshire; 735MW); Medway (Kent; 700MW) and Peterhead
(Aberdeenshire; 1,180MW). In addition, SSE has a 50% stake in
gas-fired power stations at Marchwood (840MW total capacity) and
Seabank (1,164MW). All of the stations' output is contracted to SSE
and in 2014/15 these stations generated a total of 7.5GWh of
electricity. Each of SSE's three wholly-owned gas-fired power
stations has recently undergone, or is undergoing, an investment
programme:
-- Keadby has been mothballed since March 2014. In March 2015
SSE announced that it would look at options available to return the
station to service for the winter of 2015/16 and intends this to
happen by the end of October 2015; a final decision will be taken
later this year. The station has taken on a capacity obligation for
2018/19.
-- Medway is operational, and has taken on a capacity obligation for 2018/19; and
-- Peterhead reduced its TEC (Transmission Entry Capacity) to
400MW from 1 April 2014, which has prevented the station from
participating in the electricity market since then due to its
current configuration. Previously announced investment to alter
this configuration is under way, and will allow 400MW of
Peterhead's capacity to participate in the market from the end of
October 2015.
In addition Peterhead has secured a number of contracts to
provide support services to National Grid:
-- In May 2014 SSE signed a contract with National Grid to
provide ancillary support services to the electricity system in the
north of Scotland for one year.
-- This contract was terminated on 28 October 2014 when SSE
signed a contract to provide up to 780MW of capacity to National
Grid's Supplemental Balancing Reserve (SBR) service, a contract
which it successfully executed over the winter.
-- In March 2015 Peterhead was awarded a contract to provide
voltage support to the electricity system in the north of Scotland
between April 2016 and September 2017.
Peterhead's ability to successfully support National Grid,
together with the ongoing investment in Carbon Capture and Storage
at the station (see below), illustrates its strategic, long-term
value to the UK. It also demonstrates that there are options for
existing assets outside of the Capacity Market process.
Despite experiencing challenges in recent years, and despite
expected longer-term changes in the way electricity is generated
and used, it is still anticipated that gas-fired power stations
will eventually play an increasingly important role in electricity
generation. As a result, SSE will continue to maintain an option
for CCGT, in Great Britain, at Keadby 2 (Lincolnshire). It will
not, however, make any significant additional commitments to the
project unless it is entered into and is successful in the Capacity
Market auction process. This means SSE will be reviewing its
options for Abernedd (South Wales), and is putting all development
work at Seabank 3 (Bristol) on hold.
Contributing to the development of Carbon Capture and
Storage
SSE is continuing to work with Shell UK as a strategic partner
in the proposed CCS project at SSE's gas-fired power station in
Peterhead. The project aims to create the first commercial-scale
application of CCS technology at a gas-fired power station anywhere
in the world by capturing up to one million tonnes of CO2 annually.
Shell is leading the development of the project, and will take
responsibility for the construction of the CO2 capture plant and
thereafter the operation, transport and storage elements of the
project.
Front End Engineering Design (FEED) work has been ongoing
throughout the 2014/15, and the project team is in discussions with
the UK Government about securing the next stage of support through
its CCS Commercialisation programme.
Managing coal-fired power stations
SSE has two wholly-owned coal-fired power stations: Ferrybridge
(Yorkshire; 1,014MW) and Fiddler's Ferry (Lancashire, 1,995MW):
-- all of the above capacity at Fiddler's Ferry and Ferrybridge
is compliant with the Large Combustion Plant Directive (LCPD) and
able to continue to generate electricity beyond 2015;
-- the capacity at Fiddler's Ferry (as well as all of SSE's
gas-fired power generating plant) has been opted in to the
Transitional National Plan (TNP) for emissions and dust; and
-- the above capacity at Ferrybridge has been opted in to the
Limited Life Derogation option under the Industrial Emissions
Directive (IED)
None of Ferrybridge's capacity was successful in the Capacity
Market auction, whilst 1,294MW (de-rated) of Fiddler's Ferry (3 out
of its 4 units) did take on capacity obligations for 2018/19.
SSE has consistently said that the cost of the Carbon Price
Support, along with the constraints imposed by the Industrial
Emissions Direction, the introduction of full auctioning of EU
emissions allowances, and the age of the stations, have been
weighing heavily on the long-term viability of coal assets.
As a result it announced, in March 2015, that it would carry out
a comprehensive and detailed review of its coal generation assets.
SSE's review examined a number of factors including current and
future economic viability; compliance with emissions regulations;
the existing and likely future policy framework; SSE's own
long-term decarbonisation and business objectives; and the impact
on SSE's employees and the local communities within which the
assets are based.
Based on the conclusions of this review SSE has, regrettably,
made the difficult decision to cease coal-fired electricity
generation at Ferrybridge by 31 March 2016. The emissions abatement
equipment on one of the two units at the station, Unit 4, was badly
damaged during a serious fire at the site in 2014. SSE has been
pursuing options to reinstate this equipment, but this activity
will now stop, although the work to demolish the damaged equipment
will continue. As a result, Unit 4 will be removed from service
with immediate effect. Unit 3 will return to service in August 2015
following successful completion of the planned outage which began
in April 2015.
SSE currently employs 172 people at its coal-fired operations at
Ferrybridge. It is expected that some will be redeployed to
elsewhere in the SSE group, including Keadby power station, or will
have a continuing role beyond March 2016 in managing the closure
and decommissioning of the plant. SSE will also offer voluntary
release on enhanced terms, and seek to avoid compulsory
redundancies.
SSE remains committed to the Ferrybridge site, and the local
community in which it sits. The GBP300m Ferrybridge Multifuel 1
project is due to be fully commissioned in the second half of 2015,
and will provide 50 full-time jobs at the site, with more created
in the supply chain. It supported over 500 jobs at the peak of
construction, and involved around 30 local companies. The
Ferrybridge Multifuel 2 project, currently being developed at the
site, would create similar benefits if it is granted planning
consent (a planning decision is due in 2015, see below).
While factors such as compliance with emissions regulations; the
existing and likely future policy framework; SSE's own long-term
decarbonisation and business objectives apply equally to coal-fired
operations at both Ferrybridge and Fiddler's Ferry, this
announcement does not impact on existing operations at Fiddler's
Ferry. It has a derogation under the Transitional National Plan
which allows it to remain open within specific environmental and
operating constraints; and a contract for the station to provide
1,294 MW of de-rated capacity for one year from October 2018 was
secured in the Capacity Market Auction in December 2014. The
retention of some coal-fired capacity contributes to the diversity
of SSE's generation portfolio and maintains Fiddler's Ferry's
contribution to the security of electricity supplies. The capacity
at the station will, therefore, be entered into the next Capacity
Market Auction, at the end of 2015.
Investing for the future through 'multi-fuel'
SSE's generation strategy is built upon managing risk through
owning a diverse range of assets and fuels from which to meet its
customers' needs. Solid fuel remains an important part of that
strategy.
Multi-fuel plants use waste derived fuels to generate
electricity and therefore benefit from an additional revenue
opportunity in the form of a 'gate fee' for taking the waste. They
offer a sustainable energy solution that has lower carbon intensity
than other solid fuels and which further diversifies the range of
fuels that SSE can deploy in its generation fleet.
As noted above, the SSE and Wheelabrator Technologies Inc. 50:50
joint venture - Multifuel Energy Ltd (MEL) - is currently
commissioning a GBP300m (69MW) multi-fuel generation facility
adjacent to SSE's existing Ferrybridge coal power station.
Construction of the facility is complete , the commissioning
programme is well under way and the plant is expected to be fully
operational in autumn this year. The station has taken on a
capacity obligation for 2018/19.
A Development Consent Order (DCO) Application for a second
multi-fuel facility at the Ferrybridge site has been submitted to
the Planning Inspectorate with a final decision expected by the
autumn.
Generation - Great Britain (renewable)
Producing electricity from renewable sources
SSE continues to be the UK's leading generator of electricity
from renewable sources and the largest generator of electricity
from wind across the UK and Ireland.
Renewable generation (GB) March 15 March 14
============================================ ========= =========
Conventional hydro capacity- MW 1,150 1,150
============================================ ========= =========
Onshore wind capacity - MW 1,008 940
============================================ ========= =========
Offshore wind capacity -MW 355 355
============================================ ========= =========
Dedicated biomass capacity - MW 38 38
============================================ ========= =========
Renewable capacity - MW 2,551 2,483
============================================ ========= =========
Renewable capacity qualifying for ROCs - c.1,900 c.1,900
MW
============================================ ========= =========
Pumped storage capacity - MW 300 300
============================================ ========= =========
Pumped storage output- GWh 190 252
============================================ ========= =========
Conventional hydro output - GWh 3,726 3,753
============================================ ========= =========
Onshore wind output - GWh 2,219 2,511
============================================ ========= =========
Offshore wind output - GWh 1,191 1,338
============================================ ========= =========
Biomass output GB - GWh 63 67
============================================ ========= =========
Renewable output - GWh 7,199 7,669
============================================ ========= =========
Wind output excludes 268GWh of constrained off generation in
2014/15 and 243GWh in 2013/14
==================================================================
Managing the impact of market conditions and the public policy
framework
SSE continues to operate under the policy support regime for
renewable generation capacity in GB, currently delivered through
the Renewables Obligation (RO) (the RO applies also in Northern
Ireland); and the recently introduced Contracts for Difference
(CfD) mechanism.
SSE believes the CfD to be a viable, long-term support mechanism
for low carbon generation. However, the mechanism's design changes
the way that investments in renewables are evaluated by both
developers and providers of finance, including SSE. Absolute
support for low carbon technologies is limited by the Levy Control
Framework budget which has the reasonable objective of controlling
costs to customers from government energy policies. This also means
that there is competition for support contracts. In addition, the
contract terms will impact the way in which renewable projects are
developed and constructed.
SSE chose not to participate in the first CfD auction round, but
will continue to analyse its portfolio with a view to participating
in future.
Optimising the renewable development portfolio
Since April 2007, SSE has invested nearly GBP4bn in renewable
generation. As it moves forward to the next phase of its renewable
energy development pipeline, it is focusing on projects that best
allow the efficient allocation of resources and economies of
scale.
In order to support future investment in onshore wind assets SSE
will, as outlined in March 2014, recycle capital by adding to its
established programme of selective disposals of operational onshore
wind assets and those in development. Recent activity includes the
agreement to sell Langhope Rig, a 16MW construction project, to GE
Financial Services in March 2015.
Developing renewable energy schemes onshore
Onshore wind farm development pipeline (GB) March 15 March 14
============================================= ========= ===========
In operation - MW 1,008 940
============================================= ========= ===========
In construction or pre-construction - MW 457 246
============================================= ========= ===========
With consent for development - MW 475 358
============================================= ========= ===========
In planning - MW over 150 over 500
============================================= ========= ===========
Pre-planning - MW over 200 around 300
============================================= ========= ===========
In addition to projects in development (see below), the
following projects were in construction at 31 March 2015 and are
key components of SSE's portfolio of strategic onshore wind
projects in GB:
-- Strathy North (67MW) - Located in Sutherland, main site
construction is under way and the site is due for completion in
2015.
-- Dunmaglass (94MW) - Main construction at this site south of
Inverness is progressing well; the site is scheduled for completion
in 2016.
SSE has a number of projects at different stages in the
development cycle. These include:
-- Clyde Extension (pre-construction) (up to 172MW)- this
project, an extension of SSE's operational Clyde wind farm, was
consented by Scottish Ministers in July 2014. In May 2015 a final
investment decision (FID) was taken to proceed with the project. It
is expected to be fully operational by the end of 2016.
-- Stronelairg (with consent) (up to 240MW) - located in the
Great Glen in the Highlands the project was consented by Scottish
Ministers in June 2014. In August the John Muir Trust announced it
had lodged a petition to the Court of Session asking for this
decision to be judicially reviewed. SSE is participating fully in
the legal process and a decision is expected before the end of the
year.
-- Bhlaraidh (pre-construction) (up to 108MW) - located in the
Great Glen this project was consented by Scottish Ministers in
January 2014. SSE is progressing the project towards a final
investment decision in 2015.
-- Viking (with consent) (up to 457MW - SSE share 50%) - located
in Shetland the project has been involved in a prolonged legal
dispute since it was consented by Scottish Ministers in April 2012.
In February 2015 the Scottish Supreme Court dismissed the legal
challenge. SSE, along with its Joint Venture partner, will now
continue to develop the project in 2015.
-- Strathy South (in planning) (up to 133MW) - in July 2014 the
Highland Council's Northern Planning Committee raised an objection
to the project, which is located in Sutherland, adjacent to SSE's
Strathy North site. This objection is now being examined further at
a Public Local inquiry, and SSE is participating fully in this
process.
Whilst current policy and market signals do not favour
investment in new pumped storage, SSE continues to explore the
conditions for investment to allow progress with its 600MW
consented pumped storage scheme at Coire Glas in the Scottish
Highlands.
Developing renewable energy capacity offshore
In 2014/15 SSE's efforts and resources have been focused on
progressing the Beatrice project (up to 664MW) planned for the
outer Moray Firth; and obtaining consents for the Dogger Bank
(Forewind Phase 1 and 2 ) and Seagreen Phase 1 projects. It has
successfully achieved these objectives.
The scale of offshore wind, and its long-held commitment to
maintaining a diverse portfolio of generation assets, means SSE
does not currently believe it is prudent to construct multiple
offshore wind projects in parallel. In the near term SSE will
therefore continue to focus on progressing the Beatrice project. It
will continue to minimise development spend on the other projects
in which it has an interest but will review the position if a
positive final investment decision (FID) for Beatrice is made in
early 2016.
Preparing Beatrice for a final investment decision
In April 2014, the UK government announced that Beatrice had
been successful in securing an Investment Contract (or early CfD).
Securing this contract has enabled SSE and its partners to continue
to invest in the engineering and procurement work required to
maintain progress towards a final investment decision (FID) in
early 2016.
In November 2014, SSE agreed to sell 25% of the Beatrice
Offshore Wind Farm (BOWL) to fund management company Copenhagen
Infrastructure Partners (CIP). The sale was consistent with SSE's
strategic approach to the project announced in March 2014, and
secured a strong additional partner to take the project forward.
After the divestment, SSE owns a 50% share of the BOWL project; CIP
owns 25% with Repsol maintaining its ownership of the remaining
25%.
A final investment decision (FID) will only be made if the
project provides the return on capital investment required to be
compatible with the risks involved.
Other offshore projects being managed
In addition to Beatrice, SSE has an interest in three further
offshore wind farm developments. In the near-term, SSE will
undertake minimal development work on these projects now that
relevant planning consents have been secured.
Galloper (340MW, 50:50 partnership between SSE and RWE Innogy).
In September 2014 SSE announced it would exit the project on
pre-agreed terms once RWE Innogy has made a Final Investment
Decision. SSE is working with RWE Innogy to explore alternative
opportunities for the project.
Seagreen (3,500MW - a 50:50 partnership between SSE Renewables
and Fluor Limited). Consent for the Phase 1 in the zone (totalling
1,050MW) was granted by Scottish Ministers in October 2014.
Forewind (7,200MW - a four-way partnership with RWE Innogy,
Statoil and Statkraft). Consent for the first two projects within
the development - Creyke Beck A & B (2,400MW) - was granted in
February 2015, with a decision on the next two projects expected in
August.
Generation - Ireland
SSE Irish Generation Capacity and Output Mar 15 Mar 14
============================================== ======= =======
Onshore wind capacity (NI) - MW 88 88
============================================== ======= =======
Onshore wind capacity (ROI) - MW 456 456
============================================== ======= =======
All Ireland wind capacity - MW 544 544
============================================== ======= =======
Thermal capacity (ROI) - MW 1,068 1,068
============================================== ======= =======
All Ireland generation capacity - MW 1,612 1,612
============================================== ======= =======
Excludes 464MW at Great Island (net increase
224MW) operational from 17 April 2015.
============================================== ======= =======
Onshore wind output (NI) - GWh 212 208
============================================== ======= =======
Onshore wind output (ROI) - GWh 1,055 1,142
============================================== ======= =======
All Ireland wind output - GWh 1,267 1,350
============================================== ======= =======
Thermal output (ROI) - GWh 251 25
============================================== ======= =======
All Ireland generation output - GWh 1,518 1,375
============================================== ======= =======
Producing electricity for the Single Electricity Market
Through the last months of 2014/15 SSE carried out final
commissioning tests on the new 464MW Great Island CCGT unit (grid
connection capacity set at 431MW), with the station being handed
over for commercial operation on 17 April 2015. The commissioning
of the new unit coincided with the retirement of the old 240MW HFO
unit.
The new CCGT station, which is now among the cleanest and most
efficient natural gas power plants on Ireland's national grid, will
generate enough electricity to power the equivalent of half a
million Irish homes and the transition from heavy fuel oil to gas
improves the carbon intensity of SSE's fleet.
SSE is the third largest generator by capacity on the island and
also trades across the interconnectors between GB and Ireland.
Delivering and developing new capacity for electricity
generation
Onshore wind farm development pipeline (All March 15 March 14
Ireland)
============================================= ========= =========
In operation - MW 544 544
============================================= ========= =========
In construction or pre-construction - MW 152 116
============================================= ========= =========
With consent for development - MW 33 56
============================================= ========= =========
In planning - MW c. 80 c. 100
============================================= ========= =========
Pre-planning - MW over 150 over 150
============================================= ========= =========
Galway Wind Park (in construction) (174MW) - project with JV
partners Coilte has started construction and, once completed, will
be the Ireland's largest wind farm. This completion date will
qualify the project to be supported under the REFIT II support
scheme.
Tievenameenta (in construction) (32MW) - Located in County
Tyrone, this 32MW project is due to be commissioned in 2017,
thereby qualifying for NIRO support.
Slieve Kirk Extension (consented) (9MW) - SSE recently received
planning for the extension, which will bring the total installed
capacity at the site to 83MW in 2017.
Engaging in the ISEM reform process
Reform of Ireland and Northern Ireland's SEM market is required
in order to comply with the EU Electricity Target Model. The
regulators in each jurisdiction have progressed the Integrated SEM
(I-SEM) project over the course of 2014/15, with the new market due
to be introduced by the end of 2017. SSE has been heavily involved
in all stages of the consultation process and will remain engaged
throughout the project, advocating an optimum design for customers
and industry stakeholders. Separately to reform of the market
arrangements, the regulators and System Operators are involved in a
project to review the ancillary services necessary to achieve
Ireland's 2020 target.
Generation priorities in 2015/16 and beyond
-- Comply fully with all safety standards and environmental requirements;
-- Ensure power stations are available to respond to customer
demand, market conditions and contractual obligations;
-- Operate power stations efficiently to achieve the optimum
conversion of primary fuel into electricity;
-- Manage effectively the transition of Ferrybridge power
station towards closure and decommissioning; and
-- Ensure new assets are commissioned and operate successfully.
Gas Production
GAS PRODUCTION Mar 15 Mar 14
========================================== ======= =======
Gas production operating profit* - GBPm 36.6 130.2
========================================== ======= =======
Gas production - m therms 397.9 414.1
========================================== ======= =======
Gas production capital investment - GBPm 21.0 40.9
========================================== ======= =======
Producing from North Sea assets
SSE's upstream portfolio is 100% gas weighted, and at 31 March
2015, it was estimated to hold in excess of 2.2 billion therms of
reserves.
Total output in the year to 31 March 2015 was 397.9 million
therms, compared with 414.1 million therms in the previous year.
This slight fall in production in 2014/15 was due to a natural
decline in the field output.
The reduction in operating profit (GBP36.6m compared to
GBP130.2m) from gas production during the period was mainly a
result of lower day ahead wholesale gas prices which were around
one third lower than the previous year. Overheads also increased in
the year due to additional costs in the Bacton area.
SSE continues to seek new opportunities to increase its reserve
base to meet portfolio demand requirements. The UK and north west
Europe remains the focus for this activity, as it provides a
relatively stable tax and fiscal regime and is near to SSE's
domestic energy supply markets. SSE has not set a target scale for
its upstream business and will continue to evaluate opportunities
in line with its investment criteria and financial discipline.
Monitoring developments gas production
SSE currently has no involvement in any shale gas operations. It
is, however, continuing to monitor the development of shale gas in
the UK and the proposed fiscal and tax regimes surrounding its
potential exploitation.
Gas Production priorities for 2015/16 and beyond
Gas Production priorities for the 2015/16 financial year
include:
-- ensuring the safe operation of all the assets in which it has an ownership interest;
-- stringent cost control on operator budgets and enhanced
monitoring and reporting of operator work programmes; and
-- continuing the robust investment appraisal process to
identify potentially suitable acquisition targets.
Gas Storage
GAS STORAGE Mar 15 Mar 14
========================================== ======= =======
Gas storage operating profit* - GBPm 3.9 8.3
========================================== ======= =======
Gas storage customer nominations met - % 100 100
========================================== ======= =======
Gas storage capital investment - GBPm 14.3 10.6
========================================== ======= =======
Delivering Gas Storage Services from Hornsea and Aldbrough
Both sites have continued to operate to meet the needs of its
customers through 2014/15:
-- Hornsea (Atwick) again met 100% of customer nominations with
the site 98% available during the winter period except in instances
of planned maintenance and 87% available over the full year;
-- Aldbrough met 100% of customer nominations and was 87%
available overall except in instances of planned maintenance.
Following temporary removal of two of the site caverns during the
previous year, these were both in commercial operation by the end
of the year.
However, the economic environment for gas storage facilities has
continued to be challenging during the year - as illustrated by the
significant reductions in operating profit reported by SSE's gas
storage business. Operators have been faced with low operating
returns due to unfavourable market conditions, combined with an
increasing cost base as a result of ageing asset investment
requirements and the decision by the Valuation Office Agency during
the period to effectively double business rates for most gas
storage facilities in the UK.
In the light of these challenges, alongside the requirements to
continue to invest to ensure the highest standards of asset
management are maintained, SSE has been reviewing its gas storage
business on an ongoing basis to ensure that it continues to provide
valuable flexibility and hedging services to its customers and
hence the wider UK gas market, while being as well positioned as
possible to take advantage of future market developments.
SSE has, as a result, identified that the costs of operating,
maintaining and upgrading the older withdrawal plant at its Hornsea
(Atwick) facility are not currently supported by market returns
and, as such, announced in March 2015 its decision to mothball 33%
of the withdrawal capacity of the site (6mcm/d) with effect from 1
May 2015. This change to the site's capability will alter the shape
of the storage service it can offer, creating a greater value
product for SSE's gas storage customers.
As previously announced, this decision will result in a
reduction in Gas Storage employee numbers of around 12. SSE is
currently working with affected employees in order to achieve this
reduction through voluntary means where possible, with good
progress being made.
Gas Storage priorities in 2015/16 and beyond
Gas storage priorities for the financial year and beyond
include:
-- ensuring on-going high safety standards for operation of the
facilities at Hornsea and Aldbrough and the compliant and effective
operation of the Gas Storage business; and
-- continuing to listen to existing and potential customers,
working with them to shape flexible products which add value to
their portfolios.
Wholesale - Conclusion
Creating sustainable, long-term value from wholesale markets for
SSE and its customers is at the heart of SSE's Wholesale
businesses. The responsible production, storage and delivery of
energy and related services; a focus on meeting the needs of its
customers; ongoing rigour in the development and delivery of new,
and re-evaluation of existing, assets to optimise its portfolio,
mean that SSE's activities across its Wholesale businesses continue
to support the group's core purpose and first financial objective
of annual growth in the dividend payable to shareholders.
NETWORKS
Networks Key Performance Indicators
Mar 15 Mar 14
ELECTRICITY TRANSMISSION
========================================== ======= =======
Operating profit* - GBPm 184.1 136.7
========================================== ======= =======
Regulated Asset Value (RAV) - GBPm 1,732 1,330
========================================== ======= =======
Capital expenditure - GBPm 467.2 349.2
========================================== ======= =======
Connection offers provided in required
period 97 54
========================================== ======= =======
ELECTRICITY DISTRIBUTION
========================================== ======= =======
Operating profit* - GBPm 467.7 507.0
========================================== ======= =======
Regulated Asset Value (RAV) - GBPm 3,159 3,050
========================================== ======= =======
Capital expenditure - GBPm 327.6 308.3
========================================== ======= =======
Electricity Distributed TWh 39.6 40.4
========================================== ======= =======
Customer minutes lost (SHEPD) average
per customer 69 77
========================================== ======= =======
Customer minutes lost (SEPD) average
per customer 57 67
========================================== ======= =======
Customer interruptions (SHEPD) per
100 customers 70 75
========================================== ======= =======
Customer interruptions (SEPD) per 100
customers 60 68
========================================== ======= =======
SCOTIA GAS NETWORKS
========================================== ======= =======
Operating profit* (SSE's share) - GBPm 285.0 276.6
========================================== ======= =======
Regulated Asset Value (SSE's share)
- GBPm 2,459 2,440
========================================== ======= =======
Capital and replacement expenditure
(SSE's share)- GBPm 169.9 160.9
========================================== ======= =======
Uncontrolled gas escapes attended within
one hour % 98.7 98.7
========================================== ======= =======
SGN gas mains replaced - km 1,042 1,088
========================================== ======= =======
Owning, operating and investing in Networks
The performance of SSE's economically-regulated electricity
networks businesses is reported within Networks, as is the
performance of SGN in which SSE has a 50% stake.
Economically-regulated network companies with a growing
Regulated Asset Value
SSE has an ownership interest in five economically-regulated
energy network companies:
-- Scottish Hydro Electric Transmission (100%);
-- Scottish Hydro Electric Power Distribution (100%);
-- Southern Electric Power Distribution (100%);
-- Scotland Gas Networks (50%); and
-- Southern Gas Networks (50%).
SSE estimates that the total Regulated Asset Value (RAV) of its
economically-regulated businesses is GBP7,350m, up GBP530m from
GBP6,820m at 31 March 2014, comprising around:
-- GBP1,732m for electricity transmission;
-- GBP3,159m for electricity distribution; and
-- GBP2,459m for gas distribution (being 50% of SGN's total RAV).
SSE is the only energy company in the UK to be involved in
electricity transmission, electricity distribution and gas
distribution. Through Price Controls, Ofgem sets the index-linked
revenue the network companies can earn through charges levied on
users to cover costs and earn a return on regulated assets.
Although the Price Control mechanism is complex and demanding,
these lower-risk, economically-regulated, geographically-defined
businesses provide a financial backbone and operational focus for
SSE and balance its activities in the competitive Wholesale and
Retail markets.
The Networks businesses are core to SSE's strategy in the
short-, medium- and long-term but they face challenges of
increasing scale and complexity in the years ahead. To ensure they
get the level of senior management input they need to address those
challenges, the leadership of these businesses was re-shaped in
December 2014, including the appointment of a new Managing
Director.
Financial performance in Networks
During 2014/15 operating profit* in Networks was GBP936.8m,
contributing 49.8% of SSE's total operating profit. This comprised
(comparisons with the same period last year):
Networks Operating Profit Mar 15 Mar 14 Mar 13
============================================ ======= ======= =======
Transmission operating profit* - GBPm 184.1 136.7 92.6
============================================ ======= ======= =======
Distribution operating profit* - GBPm 467.7 507.0 511.6
============================================ ======= ======= =======
SGN operating profit* (SSE's share) - GBPm 285.0 276.6 234.1
============================================ ======= ======= =======
Total Networks Operating Profit* - GBPm 936.8 920.3 838.3
============================================ ======= ======= =======
Electricity Transmission
Mar 15 Mar 14
=============================================== ======= =======
Operating profit* - GBPm 184.1 136.7
=============================================== ======= =======
Regulated Asset Value (RAV) - GBPm 1,732 1,330
=============================================== ======= =======
Capital expenditure - GBPm 467.2 349.2
=============================================== ======= =======
Connection offers provided in required period 97 54
=============================================== ======= =======
Increasing operating profit* for Scottish Hydro Electric
Transmission
In SHE Transmission, operating profit* increased by 34.7% to
GBP184.1m. This reflects the increase in regulated revenue as a
result of the major programme of capital investment undertaken in
recent years. Since the current RIIO T1 Price Control started in
April 2013, SHE Transmission's capital investment has totalled
GBP816.4m. For 2015/16 as a whole, SHE Transmission expects to
invest over GBP600m, including the first full year of construction
on the Caithness to Moray transmission link.
Managing SHE Transmission through a period of rapid growth
SHE Transmission is responsible for maintaining and investing in
the transmission network that serves around 70% of the land mass of
Scotland, including remote and island communities. As the licensed
transmission company for an area with a significant amount of
generation from renewable sources seeking to connect to the
electricity network, SHE Transmission is required to ensure that
there is sufficient capacity for projects committed to generating
electricity.
As a result of the requirement to connect large volumes of
dispersed renewable energy generation, SSE has committed to a major
programme of investment in electricity transmission infrastructure
in the SHE Transmission area to support the transition to lower
carbon electricity generation, increase security of supply and
promote economic growth.
SSE maintains a significant portfolio of work to develop and
construct local connections for new generation sites across SHE
Transmission's licence area. In the year, 97 new connection offers
were provided in the required period.
Delivering the Beauly-Denny line
Transmission Investment for Renewable Generation (TIRG) is a
mechanism that preceded Strategic Wider Works (see below) to
provide a framework for funding large transmission projects. SHE
Transmission has one project in construction under this mechanism -
the replacement of the Beauly-Denny line between Beauly and Wharry
Burn, near Dunblane. It is on programme to complete the majority of
its outstanding works associated with the Beauly-Denny network
reinforcement in the summer of 2015. SHE Transmission has, to date,
successfully constructed 537 new towers along its section of the
220km overhead line route and has safely energised and integrated
127km of overhead line between Beauly and Tummel Bridge
substations.
In February 2014, The Highland Council served SSE with a noise
abatement notice regarding the substation at Beauly. SSE announced
in August 2014 that it would invest around GBP2.5m in noise
abatement equipment. This equipment has been installed and SSE and
The Highland Council are continuing to monitor its impact.
Construction of two remaining towers and fitting a further 16km
of overhead conductor will complete the 400kV works in SHE
Transmission's area. Energisation of the final 93km section is
dependent on completion of Scottish Power Transmission works to the
south of Wharry Burn, which SP Transmission reports are scheduled
to be completed in November 2015. The remaining rationalisation
schemes located at Beauly, Amulree and in the Cairngorms National
Park remain on course to be completed during 2015. Works to
dismantle the original 132kV overhead line and to reinstate land
used during construction are progressing with a target completion
date in 2016.
Based on expenditure to date GBP616.3 m and known issues,
including the interface with SP Transmission's section of the line,
the forecast cost is now not expected to exceed GBP680m. Further
discussions continue to take place with SP Transmission and Ofgem
on coordination with the networks in the south of Scotland; and the
timescales and full cost of completion. SHE Transmission is in
discussion with Ofgem regarding recovery of efficiently incurred
costs following completion of the construction works.
Delivering under Strategic Wider Works
SHE Transmission is now two years into the RIIO-T1 Price
Control. Under this framework Ofgem recognises the requirement for
SHE Transmission to significantly expand its network over the
period of the price control to facilitate the growth of renewable
generation in the north of Scotland in order to meet national
renewable energy targets. The exact timing and scale of growth can
be fluid and dependent on the changing requirements of
developers.
To allow these projects to be delivered in this dynamic
environment, Ofgem developed the Strategic Wider Works mechanism
whereby it considers on a case-by-case basis the evidence presented
by SHE Transmission to decide whether a project is needed. It then
considers SHE Transmission's proposed solution in detail,
scrutinises the costs and approves funding. SHE Transmission is
currently delivering three major projects under the Strategic Wider
Works mechanism:
Caithness-Moray:
In December 2014, Ofgem announced its approval of capital
funding of GBP1,118m (2013/14 prices) for the upgrade of SHE
Transmission's network between Caithness and Moray, including a
High Voltage Direct Current (HVDC) subsea cable beneath the Moray
Firth. The project will enable the connection of up to 1,200MW of
additional generation capacity in the north of Scotland and the
islands. It is scheduled to be operational by the end of 2018.
Contracts have now been awarded for all main elements of the work.
Enabling works are under way at converter station sites in
Caithness and Moray; and at substation sites in Caithness,
Sutherland and Ross-shire. Early exploratory drilling at the Noss
Head landfall of the subsea cable in Caithness has helped to
identify the optimal location to minimise risk during the
installation process. Manufacture of the specialised subsea and
onshore cables required is under way. Enabling works for onshore
cable installation in Caithness are due to begin later in 2015. The
first revenues will be received in 2015/16.
Kintyre-Hunterston:
Construction of the new substation building at Crossaig is
complete and transformer deliveries took place in March and April
2015. All 50 steel towers between Crossaig and Carradale have been
constructed and onshore cable installation in Kintyre was completed
in April 2015. Marine cable installation and remaining onshore
works at Hunterston, in conjunction with SP Transmission, are
scheduled to allow energisation by the end of 2015. Ofgem has given
capital funding approval of GBP207m (nominal prices).
Beauly-Mossford:
All substation and underground cable works are now complete. The
replacement overhead line is on schedule to be completed in late
2015. Ofgem has given capital funding approval of GBP68m (nominal
prices) for the works.
Working on future transmission links
SHE Transmission has a number of further projects at advanced
stages in the development process. These projects will be submitted
for consideration by Ofgem once the necessary conditions are in
place to support a needs case.
Western Isles:
SHE Transmission continues to work with all stakeholders on the
development of grid links to the Scottish Islands, particularly
through the work of the Scottish Islands Renewables Delivery Forum.
In order to enable generation developers to commit to funding
island connections, the UK and Scottish Governments are actively
working on the delivery of an islands onshore wind strike price
with associated budget allocation. The UK Government is expected to
confirm the position (including EU State Aid approval) this summer,
enabling developers to bid for CfDs in the auction scheduled to
open in October. SHE Transmission already has well-developed
proposals for a cable connection between Beauly and the Isle of
Lewis. Work is under way with Ofgem to allow submission of a needs
case in December 2015 to enable delivery of this potential
project.
Shetland:
The delivery of a transmission connection between Shetland and
mainland Scotland is subject to the same conditions that are being
addressed through the work of the Scottish Island Renewables
Delivery Forum. As in the case of the Western Isles connection, SHE
Transmission has a well-developed proposal for the installation of
an HVDC circuit between Noss Head in Caithness and Upper Kergord in
Shetland. An option exists with a preferred supplier to deliver the
cable within generation developers' timescales. Subject to
resolution of the policy issues affecting island generators, SHE
Transmission is working with Ofgem to prepare a needs case for
submission in December 2015 to allow timely delivery of the
connection.
East Coast:
SHE Transmission is planning to undertake works on the existing
275kV East Coast Transmission line to increase the capacity
available from these circuits. The line runs from Blackhillock in
Moray to Kincardine in Fife. Development of a needs case submission
is under way for what is envisaged to be the first phase of works.
This will also consider the optimal timing for longer-term
investment to upgrade the assets to 400kV as further generation is
connected.
SHE Transmission has a number of additional potential SWW
reinforcements at earlier stages in the planning and development
process. It continues to work with communities and other interested
parties to identify the best available options to progress the
necessary consent applications in order to meet the needs of
generators.
Responding to proposed regulatory changes for electricity
transmission
In its Final Conclusions on Integrated Transmission Planning and
Regulation (ITPR) published in March 2015, Ofgem confirmed its
position on significant changes proposed to the regulation of
electricity transmission, and that it will take steps to
implement:
-- an enhanced role for the System Operator in identifying
system needs and development of options to meet them;
-- measures to mitigate the conflict of interest with the System Operator's role;
-- a broad framework for the regulation of transmission asset delivery; and
-- expanded use of competitive tendering where Ofgem believes it
can drive efficiency, with a focus on new substantial assets that
can be easily identified and separated from the surrounding
network.
Ofgem issued its formal consultation on the licence
modifications to enhance the role of the System Operator and
mitigate arising conflicts of interest in April 2015, with these
modifications currently envisaged to take effect later this year.
The other changes remain subject to further, more detailed
development by Ofgem and DECC (the Department of Energy and Climate
Change). SHE Transmission will continue to engage with these
parties as their proposals develop in order to understand at the
earliest opportunity the potential impact on SHE Transmission's
future investment programme.
Supporting sustainable growth
SHE Transmission is committed to maximising the positive
economic and social impact of its work and the lasting benefits it
can deliver for the communities it works in. In the course of the
efficient delivery of its construction programme, it actively
promotes opportunities for the local supply chain and supports a
diverse range of training and employment opportunities in the local
and regional economies. To measure and enhance its impact, SHE
Transmission has commissioned work which showed that the
Beauly-Denny project is delivering Gross Value Added for the UK of
around GBP528m (2010 prices) and has supported an average of 2,000
jobs each year over seven years.
Electricity Transmission priorities for 2015/16 and beyond
For SHE Transmission, the core activity for the rest of this
decade will be construction. Against this background, its
priorities for the rest of 2015/16 and beyond are to:
-- meet key milestones in projects under construction, in a way
that is consistent with all safety and environmental
requirements;
-- provide an excellent service to all generation and demand
customers who rely on its network;
-- continue to implement the new operational regimes for the
2013-21 Price Control and maintain high levels of system
availability;
-- work within the changing policy and regulatory framework and,
where appropriate, achieve regulatory approval for new links in an
efficient and timely manner;
-- make progress with projects in development, including
implementing the programme of consulting with, and updating,
interested parties;
-- maintain and develop effective stakeholder relationships; and
-- ensure it has the people, skills, resources and supply chain
relationships that will be necessary to support growth.
Electricity Distribution
Performance in Scottish and Southern Energy Power Distribution
(SSEPD)
The performance of SSEPD's two electricity distribution
companies, Scottish Hydro Electric Power Distribution (SHEPD) and
Southern Electric Power Distribution (SEPD), during the year to 31
March 2015 was as follows (comparisons with the same period in
2014):
ELECTRICITY DISTRIBUTION Mar 15 Mar 14
======================================= ======= =======
Operating profit* - GBPm 467.7 507.0
======================================= ======= =======
Regulated Asset Value (RAV) - GBPm 3,159 3,050
======================================= ======= =======
Capital expenditure - GBPm 327.6 308.3
======================================= ======= =======
Electricity distributed TWh 39.6 40.4
======================================= ======= =======
Customer minutes lost (SHEPD) average
per customer 69 77
======================================= ======= =======
Customer minutes lost (SEPD) average
per customer 57 67
======================================= ======= =======
Customer interruptions (SHEPD) per
100 customers 70 75
======================================= ======= =======
Customer interruptions (SEPD) per 100
customers 60 68
======================================= ======= =======
In a year of relatively mild weather which included several
periods of high winds affecting in particular the north of
Scotland, SSEPD's networks achieved a reduction in both the number
of supply interruptions and the average time each customer was
without power.
The decrease in operating profit principally results from a
reduction in revenue across the two networks compared with 2013/14
and higher ongoing depreciation charges.
If, in any year, regulated networks companies' revenue is
greater (over recovery) or lower (under recovery) than is allowed
under the relevant Price Control, the difference is carried forward
and the subsequent prices the companies may charge are varied. In
2013/14 the two networks over-recovered regulated revenue by GBP25m
and this was reflected in the 2014/15 tariffs. During 2014/15 there
was an under recovery of approximately GBP38m, meaning the year on
year comparison has been impacted by around GBP63m as a result of
timing of revenue collection. Due to a change in the regulatory
framework the GBP38m under recovery in 2014/15 will not be
reflected in customer charges until 2016/17.
Volume of electricity distributed
The total volume of electricity distributed by the two companies
in the year to 31 March 2015 was 39.6TWh, compared with 40.4 in the
previous year. Under the electricity Distribution Price Control for
2010-15, the volume of electricity distributed does not affect
companies' overall allowed revenue (although it does have an impact
on the timing of revenue collection).
Investing in distribution network resilience
Capital expenditure in electricity distribution networks was
GBP327.6m in the year to 31 March 2015, taking the total for the
2010-15 Price Control to GBP1,441m. The RAV of SSE's electricity
distribution networks at the end of the 2010-15 price control is
estimated at GBP3,159m.
SSEPD's network in the north of Scotland includes 111 subsea
distribution cables which are critical to serving customers in 59
island communities. During 2014/15, SSEPD invested GBP6.9m in the
replacement of the cable connecting the Scottish mainland with
Jura, which also supplies the islands of Islay and Colonsay. It
expects to complete remaining work to protect the new cable during
2015. It has engaged actively with the development of Scotland's
National Marine Plan to ensure that marine licensing arrangements
recognise the interests of customers in a secure and cost efficient
energy network serving the islands.
Investment also included the widespread roll-out of innovative
new technology capable of delivering significant benefits to
customers. For example, during 2014/15 SSEPD installed 2,100
Bidoyng smart fuses on its low voltage networks. Under certain
fault conditions, the smart fuse allows automatic restoration of
customer supplies within three minutes. It also allows faster and
more efficient location of underground cable faults and can allow
detection of imminent faults before they result in unplanned power
interruptions. SSEPD is currently the largest user of this
technology in Great Britain, reflecting its commitment to the
timely application of innovations that enhance customer service and
deliver operational efficiencies.
Responding to feedback from customers
SSEPD recognises the particular importance of its performance
when exceptional weather events cause widespread disruption to
customer supplies. Following extensive consultation in the first
half of 2014 and via constructive engagement with DECC and Ofgem
storm reviews, SSEPD's 'Reconnecting with Customers' initiative has
resulted in faster electricity supply restoration, enhanced
customer welfare support and clearer communications during storm
events.
These improvements were recognised by stakeholders following
exceptional weather events which affected the north of Scotland
during 2014/15. The most recent of these events occurred in early
March 2015 and resulted in the fastest ever restoration of supplies
following a 'Category 2' event in the north of Scotland, with over
110 high voltage faults tackled and all customers' supplies
restored within 24 hours. SSEPD has also heavily promoted its
Priority Services for vulnerable customers and worked with other
agencies to identify customers with medical or other needs that
require special attention during a power outage.
In addition it has invested in improved customer communications
by:
-- further developing the industry-leading Power Track app,
which gives real time information on outages by postcode;
-- introducing a new rolling news website for up-to-the-minute information during storms; and;
-- delivering more and earlier information through customer
contact centres and social media channels about power restoration
times.
SSEPD remains focused on listening to its customers and
delivering continuing improvements, both to the resilience of its
network and to the service it provides when power cuts occur. This
work is in line with the new RIIO-ED1 price control, under which
financial incentives for customer satisfaction will be an
increasingly significant contributor to revenues.
Keeping costs down and improving customer service for RIIO
ED1
The DPCR5 price control period came to an end on 31 March 2015
and SSEPD is starting to tackle the challenges and earn the
potential rewards of the new RIIO-ED1 regime which began on 1 April
2015 and will run until 31 March 2023.
SSEPD has long supported the incentive-based RIIO framework for
networks' price controls given the clear benefits to customers of
increased transparency and greater focus on outputs and innovation.
It is clear from the reduction in network allowed revenue under the
RIIO-ED1 settlement, the subsequent fall in underlying 2015/16
charges and the service improvements required that customers will
benefit from this process.
On 3 March 2015 British Gas lodged an appeal with the CMA on the
RIIO-ED1 final determination affecting five Distribution Network
Operator groups, including SSEPD.
SSEPD is focused on achieving the efficiencies required by the
new price control and ensuring that investors receive a fair return
on the funding needed to operate and invest in the distribution
networks for customers' benefit. It will engage with the CMA as
required to help ensure that any outstanding issues are addressed
in the right way and that the GB energy sector continues to benefit
from a stable and transparent regulatory framework. The CMA's
determination of the appeal will not have an impact on distribution
companies' base revenues in 2015/16.
Co-operating with investigation
On 20 January 2015, SSE plc was notified that the Gas and
Electricity Markets Authority had launched an investigation into
whether SSE plc and the energy companies in SSE plc's group which
provide electricity connections services had breached Chapter II of
the Competition Act 1989 and/or Article 102 Treaty on the
Functioning of the European Union in respect of the provision of
non-contestable connections services in the Southern Electric Power
Distribution area. The investigation is ongoing.
Working for a new energy solution for Shetland
Since April 2014 SSEPD has been working closely with Ofgem to
prepare an open competitive process to obtain from the market the
lowest cost and most efficient solution to meet the future energy
needs of customers on its network in Shetland from 2019. The future
solution will take into account learning and enduring elements from
the Northern Isles News Energy Solutions (NINES) project, which was
developed to reduce maximum demand and enable the connection of
more renewable energy generators in the context of the isolated
island network. SSEPD is also working with Ofgem to determine the
best approach in considering the timing and potential impact of a
mainland transmission cable link.
Following public consultation with customers and market
participants, final preparations for the competitive process are at
an advanced stage. The Pre-Qualification Stage began in April 2015
and, subject to final agreement with Ofgem, an invitation to tender
will be issued in June 2015. SSEPD is committed to working with
Ofgem, communities and interested parties to conduct the required
process and to deliver long-term, timely arrangements to meet the
future needs of its Shetland customers.
Electricity Distribution priorities in 2015/16 and beyond
During 2015/16 and beyond SSE's priorities in Electricity
Distribution are to:
-- comply fully with all safety standards and environmental requirements;
-- place customers' needs at the centre of plans for the
networks, particularly by improving reliability so that the number
and duration of power cuts is kept to a minimum;
-- ensure that the networks are managed as efficiently as
possible, delivering required outputs while maintaining tight
controls over day-to-day operational expenditure;
-- implement the changes required to deliver the cost
efficiencies and customer service improvements to deliver a fair
return to investors under the new RIIO-ED1 price control;
-- ensure that there is adequate capacity to meet challenging
demand on the electricity system; and
-- continue progress on the deployment of innovative technology.
Gas Distribution
SGN Mar 15 Mar 14
========================================== ======= =======
Operating profit* (SSE's share) - GBPm 285.0 276.6
========================================== ======= =======
Regulated Asset Value (SSE's share)
- GBPm 2,459 2,440
========================================== ======= =======
Capital and replacement expenditure
(SSE's share)- GBPm 169.9 160.9
========================================== ======= =======
Uncontrolled gas escapes attended within
one hour % 98.7 98.7
========================================== ======= =======
SGN gas mains replaced - km 1,042 1,088
========================================== ======= =======
Performance in SGN
SSE receives 50% of the distributable earnings from Scotia Gas
Networks (SGN), in line with its equity holding, and also provides
some, but reducing, level of support through a managed service
agreement.
The increase in SGN's operating profit* reflects the timing of
allowed revenue recovery, continued good operational performance
and efficiencies. In terms of operational performance, 98.7% of
uncontrolled gas escapes were attended within one hour of
notification, the same as last year, both exceeding the Ofgem
standard of 97%.
A small but growing part of SGN's operating profit* is derived
from non-GB regulated activities. In February 2015, SGN and its
partner Mutual Energy were awarded conveyance licences for the
Northern Ireland Gas to the West project. This investment of around
GBP250m will involve the construction of 200km of high and
intermediate pressure pipeline and 500km of gas mains and services,
bringing natural gas to around 40,000 customers in eight
medium-sized towns west of Belfast for the first time. Construction
is planned to begin during 2015 and continue into 2017, with the
first connections planned towards the end of 2016 and first revenue
earned in 2017.
Implementing the new Gas Distribution Price Control
SGN is focused on ensuring its outputs under the new RIIO
framework are met, incentives are maximised and innovation is
delivered effectively while running an efficient, safe and reliable
network.
SGN's investment programme is key to this and, within overall
cost allowances of over GBP4.6bn (at 2012/13 prices), Ofgem has
allowed around GBP2.8bn over the eight year price control which
runs until 2021 to cover new investment and to manage the risks
relating to SGN's existing assets. This investment will allow SGN
to:
-- deliver a safe and reliable network for its customers;
-- minimise the impact on the environment and better communicate
its work to customers and communities; and
-- deliver new customer-driven initiatives to help reduce fuel
poverty and increase awareness of the dangers of carbon
monoxide.
Investing in gas networks and securing growth in its RAV
At 31 March 2015, SGN's total RAV is estimated at GBP4.9bn (SSE
share GBP2.46bn). During 2014/15, SGN invested GBP339.8m (SSE share
GBP169.9m) in capital expenditure and mains and service replacement
projects, compared with GBP321.8m (SSE share GBP160.9m) in 2013/14.
The majority of the mains replacement expenditure was incurred
under the Iron Mains Risk Reduction Programme (IMRRP) which was
started in 2002. This requires that iron gas mains within 30 metres
of homes and premises must be replaced over a 30 year period. In
2014/15, SGN replaced 1,042km of its metallic gas mains with modern
polyethylene plastic pipe.
Innovating to deliver sustainability and efficiency
SGN continues to extend the delivery of biogas through its
network, with 10 working biogas plants connected to date. Biogas is
expected to play a key role in meeting 2020 decarbonisation
targets, while also contributing to the security and affordability
of the UK's energy supply. During the year, SGN opened its first
biomethane injection site at Portsdown Hill, Hampshire, enabling
highly efficient use of biogas with potential for wider application
of conditioning technology to other forms of gas in the future. SGN
aims to supply 250,000 customers with green gas by 2021 and
currently supplies around 67,000 homes.
Through Ofgem's Network Innovation Competition, SGN is also
delivering two pioneering projects with potential to deliver
substantial benefits to customers in the years ahead. The 'Opening
up the gas market' project will deliver a 12 month trial to explore
widening the range of gases that can be delivered through the
network, with potential to enhance security of supply and deliver a
significant annual saving for UK gas customers.
During 2014/15, SGN became the first UK gas distribution company
to use the innovative robotics tool CISBOT, which allows inspection
and maintenance tasks to be carried out inside a live gas main,
minimising associated road excavations and removing the need for
disruption to customer supplies.
Gas Distribution priorities
During 2015/16, SGN's priorities are to:
-- deliver excellent levels of safety and operational performance;
-- create an inclusive and engaged team, proud to work for SGN;
-- shape the future of a low-carbon environment by leading the
way in the development of green gas;
-- minimise its effect on the environment and have a positive impact on local communities;
-- meet regulatory outputs and maximise incentives, while
continuing to deliver value for all stakeholders;
-- deliver a strong financial performance and an acceptable shareholder return; and
-- grow unregulated income to support the core business and
build a diversified portfolio of assets in the UK.
Networks - Conclusion
The continuing success of SSE's economically-regulated Networks
will be founded on efficiency and innovation in operations, such as
restoring power supplies following interruptions; and investments,
such as upgrading the transmission network in the north of
Scotland. This efficiency, innovation and investment, in turn,
underpin SSE's ability to target annual dividend increases of at
least RPI inflation.
RETAIL
Retail Key Performance Indicators
Mar 15 Mar 14
Restated
Energy Supply
======================================== ======= =========
Operating Profit * - GBPm 368.7 246.2
======================================== ======= =========
Electricity customer accounts (GB
domestic) - m 4.37 4.66
======================================== ======= =========
Gas customer accounts (GB domestic)
- m 2.96 3.21
======================================== ======= =========
Energy customers (GB business sites)
- m 0.45 0.42
======================================== ======= =========
All-Island energy market customers
(Ire) - m 0.80 0.81
======================================== ======= =========
Total energy customer accounts (GB,
Ire) - m 8.58 9.10
======================================== ======= =========
Electricity supplied household average
(GB) - kWh 3,842 3,991
======================================== ======= =========
Gas supplied household average (GB)
- th 438 465
======================================== ======= =========
Household/small business aged debt
(GB, Ire) - GBPm 106.2 117.8
======================================== ======= =========
Customer complaints to third parties
(GB)2 1,528 1,208
======================================== ======= =========
2 Energy Ombudsman, Consumer Focus
and Consumer Direct
======================================== ======= =========
Energy related services
======================================== ======= =========
Operating profit*# - GBPm 17.7 24.1
======================================== ======= =========
Home Services customer accounts (GB)
- m 0.35 0.37
======================================== ======= =========
Meters read - m 13.0 14.1
======================================== ======= =========
Enterprise
======================================== ======= =========
Operating profit*# - GBPm 70.4 56.8
======================================== ======= =========
SSE Contracting Order Book - GBPm 97 85
======================================== ======= =========
# Operating profit for the year to March 2014 restated in line
with establishment of Enterprise division and as set out in the
Notification of Close Period on 29 September 2014
Supplying energy and essential services across the Great Britain
and Ireland markets
SSE is one of the largest energy suppliers in the competitive
markets in Great Britain and in Ireland. At 31 March 2015, it
supplied electricity and gas to 8.58 million household and business
accounts. It also provides other energy-related products and
services to 350,000 household and business customers.
As an energy and essential services supplier, the principal
purpose of the Retail business is to meet the needs of its
customers in a reliable and sustainable way; in doing so, it is
focused on attracting and retaining customers by offering
industry-leading customer service, value for money and strong
energy and non-energy propositions under a recognised and
differentiated brand.
Financial performance in Retail
During the year to 31 March 2015 operating profit* in Retail was
GBP456.8m. This comprised (comparisons with the same period last
year):
Operating Profit * Mar 15 Mar 14 Mar 13
Restated Restated
================================= ======= ========= =========
Energy Supply* - GBPm 368.7 246.2 363.2
================================= ======= ========= =========
Energy related services* - GBPm 17.7 24.1 29.3
================================= ======= ========= =========
Enterprise* - GBPm 70.4 56.8 52.5
================================= ======= ========= =========
Total Retail Operating Profit* 456.8 327.1 445.0
================================= ======= ========= =========
In 2014/15, SSE's profit margin (operating profit as a
percentage of revenue) in Energy Supply was 4.6% (before tax)
compared with 2.9% in 2013/14 and 4.2% in 2012/13. Energy Supply
profit margin has averaged 3.9% over both the past five and three
years.
The recovery in Retail performance follows an increase in
household electricity and gas tariffs in November 2013 and a
sustained focus on operational efficiency through 2014/15,
particularly in the Energy Supply business, which, after a
difficult 2013/14, earned a profit margin closer to the more
typical level reported for 2012/13. Profit in Energy Supply is
naturally volatile and, in fact, SSE expects to see a reduction in
Energy Supply profit during 2015/16 following its reduction in
household gas prices in Great Britain in April 2015.
SSE is an efficient energy supplier committed to maintaining
relatively low operating costs in order to make a fair profit.
Early analysis of the Consolidated Segmental Statements submitted
to Ofgem by other obligated energy suppliers suggests that SSE's
indirect costs per customer are around 20% lower than the average
across the rest of the major suppliers. On the strength of running
its business efficiently for customers, SSE aims to earn a
medium-term (i.e. three to five years) average profit margin of
around 5% across the whole of its Energy Supply business.
As demonstrated by the extension of its unconditional freeze on
standard household energy prices in Great Britain, originally
introduced in March 2014 and now extended until at least July 2016,
SSE is responding to customer concerns over future increases in the
cost of energy. Guaranteeing such unprecedented price stability and
peace of mind for customers would not be possible without taking a
longer-term approach to managing costs. Costs and therefore
profitability in Energy Supply are inherently volatile and SSE
therefore continues to focus on performance over the medium term,
i.e. a three to five year average.
Operating profit for Energy Related Services fell by GBP6.4m,
reflecting a reduction in customer numbers in Metering, Telecoms
and Home Services. Some of the activities within Energy-related
Services also support SSE's aim to be a supplier of energy and
essential services, offering customers energy and non-energy
propositions.
Operating profit for the new Enterprise division was GBP13.6m
higher than that reported in 2013/14, due to the one-off benefit of
the disposal of the gas connections business on 1 September
2014.
Preparing Consolidated Segmental Statements
Since 2010, Ofgem has required the leading energy suppliers in
Great Britain to publish a Consolidated Segmental Statement (CSS)
setting out the revenues, costs and profits or losses of their
electricity generation and energy supply businesses.
SSE expects to publish its CSS for 2014/2015 before 31 July. The
CSS, which will be reviewed by SSE's auditors KPMG under guidelines
set by Ofgem and reconciled to SSE's published financial statements
for absolute transparency, is expected to show that SSE's profit
margin in its domestic electricity and gas supply business in Great
Britain was 6.0% (before tax) in 2014/15.
This means that SSE's operating profit from the supply of
electricity and gas to a household in Great Britain was an average
of GBP69 during 2014/15. From this profit, SSE is required to pay
tax and interest. Across the six years since the CSS was introduced
in 2009/10, up to and including March 2015, SSE expects to have
made an average profit margin of 5.1%.
Particularly for asset-light businesses like Energy Supply, SSE
firmly believes that profit margin earned before interest and taxes
(EBIT margin) is the most effective way to measure profitability
because:
-- it is widely accepted as the most appropriate measure for
this sector, and is relied upon by both industry analysts and
investors;
-- it takes into account all costs associated with the supply of
energy, including overhead and non-variable costs, depreciation and
amortisation; and
-- there is greater availability of data on an EBIT basis,
increasing the robustness of any benchmarking analysis and enabling
simple like-for-like comparisons to improve transparency and
understanding.
Energy Supply and Energy Related Services
Fulfilling SSE's responsibilities as an energy supplier
SSE appreciates that its customers rely on its core products of
electricity and gas to power and heat their homes in order to live
comfortably. It takes this responsibility very seriously and has
therefore sought first and foremost to offer all its customers
peace of mind about their future energy costs at a time when energy
affordability remains a serious concern.
In March 2014, SSE became the only energy supplier in Great
Britain to offer an unconditional commitment not to increase
standard household energy prices until 2016, and in January 2015
extended this promise further still, until at least July 2016. This
is the longest price commitment of its nature the GB energy market
has ever seen. By July 2016, SSE's standard household prices will
not have gone up for more than two and a half years; prices will
have, in fact, been cut at least twice in that period.
Guaranteeing not to increase prices for such a long period of
time requires a responsible, long-term approach to managing all of
the costs of supplying energy; SSE therefore continues to believe
that its commitment should also be judged over the long term. In
the meantime, SSE will continue to pass on savings where possible
and make the most competitive offers it can, whilst providing
absolute peace of mind for those customers who prefer the
flexibility of a standard variable tariff.
SSE would like to extend its price freeze again, or even cut
prices if further costs can be taken out of energy supply, and will
work with the new UK government or indeed any stakeholder to find
such solutions. It believes further savings for consumers worth
around GBP100 - forecast to rise to around GBP200 by 2020 - could
be made with political action to end the practice of levying policy
costs on energy bills. Recouping the cost through energy bills
takes no account of an individual's ability to pay and is therefore
socially regressive, with the impact likely to worsen as policy
costs on energy bills increase into the latter part of this decade.
SSE has therefore continued to call for more of these levies to be
moved into general taxation, making bills cheaper and fairer for
those less able to pay.
Supplying energy to customers across Great Britain and
Ireland
In the year to 31 March 2015, SSE's energy customer accounts in
Great Britain and Ireland fell from 9.10 million to 8.58 million.
This comprised:
SSE Energy Supply customer account Mar 15 Mar 14
numbers
Electricity customer accounts(GB domestic)
- m 4.37 4.66
============================================ ======= =======
Gas customer accounts (GB domestic)
- m 2.96 3.21
============================================ ======= =======
Energy customers (GB business sites)
- m 0.45 0.42
============================================ ======= =======
All-Island energy market customers
(Ire) - m 0.80 0.81
============================================ ======= =======
Total SSE Energy Customers 8.58 9.10
============================================ ======= =======
SSE's total customer base is now the same size as it was in
2008, having peaked at 9.65 million in March 2011. The decline in
customer account numbers reflects the increasingly challenging and
highly competitive market conditions in Great Britain, in which
there are 10 suppliers of scale (with over 250,000 customers)
competing to retain and gain customers. This is in addition to a
growing number of smaller suppliers, who are exempt from the cost
of certain government social and environmental policies, and
therefore have a competitive advantage, and a strong focus by other
suppliers on Internet Comparison Sites. At the same time, the
dynamics of the energy market are undergoing a fundamental
transformation with the rise of digital technologies and smart
metering.
For SSE, the corollary of this has been a period during which it
has focused on offering both new and existing customers stability
and peace of mind while laying the foundations for future growth.
Having driven further operational efficiencies through 2014/15, SSE
is now making significant investments in improving the customer
experience with new, state-of-the-art digital platforms, an
enhanced customer relationship management (CRM) system and more
engaging communications. With these tools in place, SSE is well
placed to compete for customers.
All of this reaffirms SSE's view, which it has put to the
Competition and Markets Authority (CMA) that the retail energy
market in Great Britain is working in the interests of consumers.
Whilst SSE recognises that the CMA's analysis of the retail market
is still in development, its characterisation of the retail sector
so far does not reflect SSE's experience or market realities. It is
clear that customers are very engaged with the market and are
exercising their ability to switch and benefit from supplier
competition in a tough and evolving marketplace.
SSE continues to have an appetite for change that is in the
genuine interest of customers and is engaging constructively with
the CMA to help identify ways in which the market can be further
improved for customers, as well as seeking to ensure that analysis
of important issues such as sector profitability or the potential
savings available to customers by switching is conducted robustly,
fairly and representatively.
Meeting customers' need for energy
SSE estimates its household customers in Great Britain used, on
average in the year to 31 March 2015:
Mar 15 Mar 14
======================================== ======= =======
Electricity supplied household average
(GB) - kWh 3,842 3,991
======================================== ======= =======
Gas supplied household average (GB)
- th 438 465
======================================== ======= =======
Relatively low consumption was driven by a continuation of the
mild weather conditions that have characterised the two years to
March 2015. This is illustrated by the fact that in the year to 31
March 2015, the UK mean temperature was 0.7 degrees Celsius above
the 1981-2010 climatology (based on provisional Met Office
data).
While annual consumption varies considerably based on the
weather, customers' use of electricity and gas is now more than 13%
lower than it was five years ago (measured on an underlying
year-on-year basis), largely due to the impact of structural,
technological and behavioural energy efficiency improvements. The
impact of ongoing efforts to help customers use energy more
efficiently is also reflected in the fact that, on a
weather-corrected basis, energy consumption by SSE's household
customers in 2014/15 was the lowest since 2006.
Putting customers first
At the same time, SSE is doing what it can to provide customers
with value for money, peace of mind and industry-leading customer
service. To that end, in the year to 31 March 2015, SSE has:
-- announced a 4.1% average reduction in standard household gas prices from 30 April 2015;
-- committed to cap these prices at their new level until at
least July 2016, extending its already unprecedented freeze on
standard household energy prices;
-- launched an industry-leading offer of two years' free
unlimited broadband to give customers additional value and deepen
customer relationships;
-- introduced 'continuous improvement hubs' through which
customer service advisers, who help customers every day, are
encouraged to identify ways in which the customer experience can be
enhanced;
-- began identifying repeat callers so that their queries can be
picked up immediately by the appropriate teams and resolved more
swiftly; and
-- decided to introduce a new system to tackle call waiting by
enabling customers to request a call back rather than holding on in
a queue.
This focus on continuous improvement and putting customers first
has been acknowledged by three independent reports in 2014/15:
-- in June 2014, SSE was named best major energy supplier for
customer service satisfaction for the fourth year in a row in the
National Customer Satisfaction Index UK (NCSI-UK);
-- in September 2014, Ofgem published the results of its
Complaints to Energy Companies report, which found SSE was the only
major supplier to improve its performance since their last survey
two years earlier; and
-- Citizens Advice reported that SSE was again the best
performing major energy supplier for complaints in the Energy
Supplier Performance report with a score of 44.5 per 100,000
customers for the period from October to December 2014. To put this
into context, the next best performing supplier had a score of
72.3.
Although disappointingly the overall number of complaints to
third parties increased during 2014/15, SSE continues to perform
far better than the rest of the industry, accounting for around 2%
of all Ombudsman complaints in March 2015 despite having a market
share of over seven times that amount. That said, SSE is determined
to improve its complaints performance and, partly through the
initiatives outlined above, aims to reduce the overall number of
customer complaints in 2015/16.
Treating customers fairly
Underpinning SSE's approach to dealing with customers is the
principle, now enshrined in energy supply licences, of treating
customers fairly. The Treating Customers Fairly standards continue
to be embedded in SSE's decision-making, from the Board through to
the Executive Committee and throughout the organisation. SSE
published its updated Treating Customers Fairly Statement in August
2014 and has since been working on further improvements for
customers, which will help form the basis of its TCF statement for
2015. These include:
-- being among the first energy suppliers to reduce voluntarily
the amount of time it takes to switch supplier to just 17 days,
inclusive of the two-week 'cooling off' period;
-- committing to refer customer complaints to an internal
'centre of excellence' whenever a same-day resolution is not
possible;
-- the joint publication with the Dementia Services Development
Centre at Stirling University of a handbook offering heating and
lighting tips to people living with dementia and their carers;
-- a commitment to roll out enhanced disability and equality
training to ensure customer service advisers can provide the best
possible support to elderly or disabled customers;
-- the introduction of new video call facilities to enable
real-time, face-to-face conversations with customers who have
impaired hearing; and
-- an end to charges for the removal of prepayment meters,
subject to customers successfully completing a credit check.
Working with customers to manage energy-related debt
At 31 March 2015, the total aged debt (i.e. debt that is overdue
by more than six months) of SSE's domestic and small business
electricity and gas customers in Great Britain and Ireland was
GBP106.2m, compared with GBP117.8m at 31 March 2014. A bad debt
charge of GBP65.3m was recognised in the period (compared to
GBP67.8m in the same period last year).
Debt levels have stabilised following an increase in 2013/14,
reflecting the lower consumption of energy during this period, as
well as SSE's efforts to engage with customers with arrears as
early as possible, agreeing payment arrangements that have lower
balances from the outset and helping to spread the cost of energy
across the year. SSE will continue to work sympathetically and
constructively with customers who are struggling with debt, making
better use of data and insight to target proactive customer contact
more effectively.
Helping vulnerable customers
SSE helps customers in need to manage their energy costs in a
number of other ways:
The Warm Home Discount (WHD) scheme enables pensioners and
vulnerable customers to receive help with their fuel bills in the
form of a GBP140 rebate. As part of the WHD Scheme, SSE's Priority
Assistance Fund provides additional support to low income and
vulnerable customers, including debt relief, free energy efficient
appliances, and help with bespoke payment arrangements. More than
330,000 customers received assistance from SSE worth over GBP51.3
million through these initiatives and partnership projects with
National Energy Action (NEA), Citizens Advice and the Home Heat
Helpline.
SSE also operates a free Careline priority service, dedicated to
helping customers who are elderly, disabled or have special medical
needs. It takes a proactive approach to monitoring top-up behaviour
of its prepayment customers to minimise the risk of
'self-disconnection'. Between the start of December and the end of
February (or longer if the weather is unseasonably cold), SSE has a
no-disconnection policy covering all household customers.
In September 2014, SSE announced, along with other suppliers,
that it would use any future unclaimed credit balances which cannot
be returned to customers to help provide additional support for
vulnerable customers. It committed, in advance, a total of GBP8.8m
to cover the next two years and has already spent more than GBP8m
providing relief to vulnerable customers struggling with debt.
Working to reduce customers' energy consumption
Helping customers use energy more efficiently is the most
sustainable way to keep bills low over the longer term. With that
in mind, SSE was pleased to meet, ahead of the 31 March 2015
deadline, all of its targets under the first phase of the Energy
Company Obligation (ECO), which mandates energy suppliers with more
than 250,000 customer accounts to install energy efficiency
measures in customers' homes. SSE is now focused on delivering
against its targets for the final phase of the current ECO scheme
before 31 March 2017.
In the first two years of ECO ending 31 March 2015, SSE has:
-- promoted the installation of almost 250,000 energy efficiency
measures, including loft, cavity and solid wall insulation and
boiler replacements;
-- helped improve the energy efficiency of over 210,000 homes across Great Britain;
-- delivered energy efficiency improvements equivalent to 4.59 MtCO2 saved; and
-- provided around GBP850m of notional lifetime bill savings for vulnerable customers.
In December 2014, SSE agreed a settlement with Ofgem under which
it made a contribution of GBP1.75m to support vulnerable customers
after it did not meet on time its targets under the previous
Community Energy Saving Programme (CESP). SSE committed to learning
from this and to working hard to ensure that other obligations such
as ECO are delivered on time.
It is clear that, beyond 2017, the UK will need to continue to
improve the energy efficiency of its building stock. With the
existing ECO scheme coming to an end in 2017 and no successor
scheme currently in place, this represents a valuable window of
opportunity to review and improve upon previous initiatives to
drive take-up of energy efficiency measures. SSE is keen to engage
constructively with the new UK government and any interested
parties on ways to achieve this, but believes that in principle any
scheme should:
-- be funded progressively through taxation, taking into account
an individual's ability to pay;
-- be as cost-effective as possible;
-- ensure that the benefits are targeted primarily at the most vulnerable households;
-- minimise administrative complexity, for example by introducing deemed scoring;
-- minimise the risk to customers of fraud; and
-- be designed to ensure a smooth transition between schemes.
Rolling out smart meters to customers across Great Britain
The rollout of smart meters to every home in Great Britain
represents a unique opportunity to transform the relationship
between customers and the energy they use. Empowering customers
with real-time data about their energy usage, providing them with
more accurate bills and unlocking innovation in tariffs and
propositions, smart meters have the potential to drive ever greater
consumer engagement with energy.
In preparation for the introduction of the critical
infrastructure that will enable mass rollout to begin, SSE has been
focused primarily on building and testing systems and gradually
ramping up delivery, in line with its strategy of 'doing it once
and doing it right'. At 31 March 2015, SSE had installed over
40,000 smart meters in customers' homes. In the coming year ending
31 March 2016, it expects to install a further 210,000 smart meters
to bring the cumulative total to 250,000.
With the cost of the rollout being levied on customer bills, and
with the net benefit of smart meters largely dependent on consumers
embracing the technology, it is critical that the programme is
delivered in a way which is both cost-effective and
customer-centric. In other words, if the cost of the programme
increases, or consumers become disengaged with the technology, the
business case will be eroded and the opportunity will have been
missed.
SSE has consistently stated that achieving a cost-effective and
customer-centric rollout will require a delivery window of five
unconstrained years. However, despite ongoing delays to critical
infrastructure such as that provided by the Data Communications
Company (DCC), and other constraints still inhibiting suppliers'
ability to install smart meters at volume, the end target of 100%
of homes by 2020 has not moved. This means that the delivery window
is shrinking; with less time to achieve the same target, the only
logical outcome is that costs will increase and the customer
experience will be worse than it would otherwise have been.
In order to ensure that the crucial smart opportunity is not
missed, while remaining supportive of the role of DCC, SSE is
calling for:
-- delays to the front end of the delivery window to be
reflected at the back end such that suppliers have a period of five
years unconstrained in which to deliver their obligations;
-- a reversion to the EU requirements to deliver smart meters to
80%, rather than 100%, of homes by 2020 in order to prevent cost
escalations; and
-- the programme to be subject to a review to provide sufficient
assurance that it is being delivered in a way which achieves its
aim of being cost-effective and net positive for customers.
Investing in becoming a market-leading retailer of energy and
essential services
In the context of a fiercely competitive market for energy, SSE
has a clear strategy to differentiate itself and create value by
becoming a market-leading, digital and diversified retailer of
energy and essential services. With energy, telephone, broadband,
gas boiler and electrical maintenance and installation offers
already in place, it is uniquely positioned to offer a complete
suite of essential services in the home. Throughout this period of
consolidation, SSE has been investing in laying the foundations for
growth in an integrated GB 'domestic' business, bringing together
its energy and non-energy businesses to create broader, deeper and
more valuable customer relationships.
To that end, in the 12 months to March 2015, SSE has:
-- launched a new brand campaign in both Great Britain and Ireland;
-- continued to invest in a fundamental overhaul of its digital
channels in order to create a simple, seamless and intuitive
customer experience and provide the best possible service at the
lowest possible cost;
-- introduced a new customer relationship management (CRM)
platform to enable it to make better use of data, understand more
fully its customer base and tailor communications and propositions
to the needs of different customers;
-- invested in new systems to support the national expansion of its home services offering;
-- developed and reopened sales channels and processes that will
facilitate assured and compliant growth.
Building a brand that customers know and trust
In order to become a market-leading, digital and diversified
supplier of energy and essential services, SSE needs to be a
household brand that customers know and trust. The launch in
October 2014 of the company's first-ever national television
advertising campaign was therefore a significant step on this
journey.
Complementing the brand campaign and further enhancing the value
it offers customers, SSE has continued to develop its sponsorship
activities and in March was announced as one of the official
sponsors of ITV's coverage of the 2015 Rugby World Cup.
Having increased awareness of SSE as a leading national brand,
SSE's brand campaign and sponsorship activities provide SSE with a
valuable platform from which to launch new products and services as
it seeks to attract and retain customers. This is especially
important for home services, where a new national offering,
underpinned by improved CRM capabilities and market-leading
propositions, mean the business is well positioned for growth
having already begun to stabilise customer numbers.
Providing tailored services for business customers
SSE has made good progress with its strategy for developing
Business Supply, as it seeks to become a business that offers
solutions across the energy value chain to its customers, working
with them as their energy partner rather than simply their energy
supplier.
In 2014/15, SSE has continued to drive improvements for its
small business customers, ending the practice of automatic contract
rollovers for small business customers, as well as extending to
these customers its existing commitment not to back-bill
micro-business customers for more than 12 months where they have
previously been under-billed due to a genuine billing error on
SSE's part. Unlike some suppliers, SSE also publishes its Variable
Business Rates clearly on its website to help smaller businesses
benchmark and compare prices simply.
SSE is continuing to engage positively with the UK government,
the Federation of Small Businesses and leading Third Party
Intermediaries (TPIs) in order to understand better the needs of
its customers and identify further ways in which it can make
improvements for small business customers.
Looking ahead, as it moves into the delivery stage of its
development plan, SSE will be launching a new portfolio management
and energy analytics tool which will allow customers direct access
to their data, as well as providing the opportunity for data
hosting. In 2015/16, it is also looking to accelerate its growth as
a business gas supplier by entering the daily metered sector.
Supplying energy and energy-related services to customers in
Ireland
SSE's retail brand SSE Airtricity is the second largest energy
provider in Ireland and the only energy supply brand to operate in
all of the competitive gas and electricity markets across the
island. At 31 March 2015, SSE Airtricity supplied electricity and
gas to 802,000 household and business accounts in the Republic of
Ireland (ROI) and Northern Ireland (NI).
In addition to being the largest single provider of wind power
in the all-island Single Electricity Market (SEM), with 40% of the
electricity it supplies coming from renewable sources, SSE
Airtricity is also a market-leader in award-winning digital service
with around 65% of all customer interactions performed via the
company's online, digital and mobile platforms.
Highly competitive market conditions, in particular in the
Republic, which has seen the emergence of new domestic market
entrants in the deregulated gas and electricity markets, led to a
reduction in SSE Airtricity customer numbers in the first half of
the year. The launch of its new brand campaign in October marked a
return to growth, however, and by year end SSE Airtricity continued
to have an all-island share by customer numbers of 21% of the total
combined gas and electricity markets.
In addition to electricity and gas, SSE Airtricity offers
energy-related products and services including natural gas boiler
and heating services such as repair and installation. During the
year the company completed a buyout of its successful joint venture
SSE Airtricity Energy Services. This company is positioned for
future expansion and to that end has been fully integrated into
SSE's existing operations.
In early 2015 SSE Airtricity announced changes to its standard
energy prices in each of the markets in which it operates in
Ireland and Northern Ireland:
-- Northern Ireland (gas): The setting of SSE Airtricity's
regulated gas prices, including any changes to those prices,
requires the formal approval of Northern Ireland's Utility
Regulator under a defined annual Price Control review process. From
1 April 2013 SSE Airtricity's natural gas prices have been frozen,
providing customers stability and peace of mind for a period of two
years. In February 2015, SSE Airtricity announced it was reducing
its regulated natural gas prices for its household and small
business customers by 7.8% on average with effect from 1 April
2015, saving GBP53 for a typical household natural gas customer.
The next interim Price Control review will be conducted by the
company and the NI Utility Regulator in October 2015.
-- Northern Ireland (electricity): Also in February 2015, SSE
Airtricity announced it was reducing its standard electricity
prices by 8% from 1 April 2015, saving GBP55 for a typical
household electricity customer.
-- Republic of Ireland: In January 2015 SSE Airtricity announced
it was reducing its prices for around 440,000 household customers
in Ireland's highly competitive and deregulated energy markets by
4% for natural gas and by 2% for electricity. The price cuts, which
took effect from 1 April 2015, equate to a typical annual saving of
EUR58 for customers on SSE Airtricity's most popular Direct Debit
and eBilling Dual Fuel Standard tariffs.
Operating a national metering business
SSE's metering business undertakes meter reading operations and
meter operator work in all parts of the UK. Because metering
currently involves being at customers' premises, there are
significant operational issues and risks associated with this
activity. The number of SSE electricity and gas supply customers
who receive bills based on actual meter readings stands at 96.2%,
compared to 96.7% last year. SSE Metering has also installed over
25,500 AMR (automatic meter reading) meters which are read
remotely. In the 12 months to 31 March, SSE collected 7.8 million
electricity readings and 5.2 million gas readings.
Energy Supply and Energy Related Services priorities in 2015/16
and beyond
For 2015/16, SSE's key priorities in Energy Supply and Energy
Related Services remain to:
-- acquire and retain customers through competitively priced,
compelling propositions, industry-leading customer service, and
enhanced Customer Relationship Management (CRM) driven by better
use of data and segmentation;
-- build successfully the new brand and maximise the opportunity
this presents to engage with customers, the public and all of SSE's
stakeholders and illustrate that SSE is committed to progressive
reform in energy;
-- engage constructively with the CMA with a view to delivering
the right outcomes for energy customers and investors;
-- take the digital opportunity by creating an effortless online
customer experience and developing best-in-class applications,
products and services; and
-- take costs out of supplying energy, both internally by
driving operational efficiencies and externally, working with the
new government to ensure that energy policies are as cost-effective
as possible and, ultimately, funded more progressively through
taxation.
Enterprise
Introduction
SSE Enterprise provides services in Mechanical & Electrical
Contracting, Energy Solutions, Lighting, Utilities and Telecoms. It
helps businesses achieve energy savings and provides knowledge and
expertise which enables businesses to become more sustainable. SSE
Enterprise has a significant self-delivery capability enabling it
to provide engineering excellence in sensitive environments
including hospitals, data centres, refineries and core utilities.
Its solutions are designed, engineered and delivered to the
particular needs of the customer.
Financial performance in SSE Enterprise
SSE Enterprise's businesses were previously reported under
'Other Networks and 'Energy-related Services'. In 2014/15, this
Enterprise segment, including SSE Enterprise Energy Solutions for
eight months (see below), delivered operating profit of GBP70.4m,
compared with GBP56.8m in 2013/14. This followed the disposal of
the gas connections business in September 2014.
Enabling SSE Enterprise to focus on core opportunities
In order to enable SSE Enterprise to focus on the opportunities
which are core to its future plans, SSE sold during 2014/15 its gas
transportation business, a data centre in Hampshire and its equity
interest in special purpose entities for the delivery of seven
street lighting projects for a total of around GBP390m, including
proceeds received and debt reduced. SSE is progressing the sale of
equity in its two remaining streetlighting PFI projects.
Building a new division focused on business customers
SSE Enterprise brings together the services SSE offers to
compete in competitive markets for industrial, commercial and
public sector customers. SSE Enterprise seeks to provide 'essential
services for business, delivered with energy'. As a nationwide
business, SSE Enterprise employs 3,500 skilled engineers and
technicians, serving more than 250,000 customers, across more than
50 locations.
SSE Enterprise has an established track record of delivering
solutions for customers in energy and related services for the
retail, financial, public and utilities sectors. The acquisition of
the energy management company Energy Solutions Group (ESG), since
re-named SSE Enterprise Energy Solutions, in July 2014, added new
capabilities to the business.
Creating a 'shared value' philosophy with customers is a driving
force within SSE Enterprise. It focuses on creating a long-term
relationship through key account managers for its larger and more
complex customers.
SSE Enterprise's principal businesses are:
SSE Enterprise Contracting (SSEC) is one of the UK's leading
mechanical and electrical contractors, delivering services ranging
from small works to major design and build projects. SSEC is also
the largest street lighting contractor responsible for managing
over one million lamps in 24 local authorities located across
England, Wales and Scotland, and a further 28 authorities in the
Republic of Ireland.
SSE Enterprise Telecoms (SSEET) provides class-leading
connectivity and data centre services from a 13,800km private fibre
optic network connected to more than 65 data centres and 240 points
of presence spanning the UK. With its extensive telecoms and data
centre operational expertise, it offers commercial security with
unrivalled in-house engineering teams. It also offers modern
businesses the bespoke connectivity and communication solutions
they need to succeed.
SSE Enterprise Utilities (SSEEU) is a multi -utility service
provider with extensive experience and expertise in working with
all domestic, retail and commercial industry sectors. It works with
developers in England, Scotland and Wales providing infrastructure
solutions, carbon reduction and capital investment, from major
electrical, gas and water infrastructure to extensive heat
networks. It is firmly established as one of the country's largest
operators of an Independent Gas Transporter network with over
140,000 connections; and it now runs 12 district heating schemes
throughout the UK with more to follow.
SSE Enterprise Energy Solutions (SSEES) is the UK`s leading
supplier of building control solutions. It designs, installs and
optimises building management technologies which deliver efficient
operating environments for its customers. Customers benefit from
reduced cost of technology deployment, increased comfort and
productivity of their employees and more effective management of
escalating energy costs. The business previously traded as The
Energy Solutions Group and was acquired by SSE in July 2014. It is
now committed to becoming the UK`s leading provider of energy
management solutions for business customers. In line with
increasing pressures on customers to understand and comply with
changing legislation, such as the Energy Saving Opportunity Scheme
(ESOS), reduce costs and understand multiple complex data sources,
the business has invested significantly in the development of new
customer propositions and services.
Setting the right priorities for SSE Enterprise
The focus for Enterprise in 2015/16 is on realising the benefits
from consolidation of activities and developing effective customer
relationship management and thereby laying the foundations for
sustainable business growth in the period to 2020 and beyond.
Retail - Conclusion
The energy market in Great Britain and Ireland continues to face
great competitive, political and regulatory pressure. However, as a
progressive company, SSE is responding positively to these
challenges - delivering for customers with a two and a half year
price freeze while getting its own house in order by driving
through operational efficiencies and making the investments
required to thrive in the future energy market.
SUMMARY FINANCIAL STATEMENTS 2014/15
Consolidated Income Statement
for the year ended 31 March 2015
2015 2014
Exceptional Before Exceptional
Before items exceptional items
exceptional and items and
items certain and certain Total
and re-measure-ments certain re-measure-ments restated
certain (note re-measure-ments (note (note
re-measure-ments 7) Total restated 7) 3)
Note GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 6 31,654.4 - 31,654.4 30,585.0 - 30,585.0
Cost of sales (28,801.3) (432.8) (29,234.1) (27,732.3) (560.2) (28,292.5)
Gross profit
/ (loss) 2,853.1 (432.8) 2,420.3 2,852.7 (560.2) 2,292.5
Operating
costs (1,361.5) (358.5) (1,720.0) (1,316.0) (303.0) (1,619.0)
Other
operating
income 47.2 74.8 122.0 17.3 - 17.3
Operating
profit /
(loss)
before joint
ventures
and
associates 1,538.8 (716.5) 822.3 1,554.0 (863.2) 690.8
------------- ---- ----------------- ----------------- ---------- ---------------- ----------------- ----------
Joint
ventures and
associates:
Share of
operating
profit
/ (loss) 342.6 (25.9) 316.7 326.1 (34.9) 291.2
Share of
interest (124.2) - (124.2) (137.5) - (137.5)
Share of
movement on
derivatives - 6.7 6.7 - 3.1 3.1
Share of tax (34.2) (1.4) (35.6) (33.8) 62.6 28.8
-----------------
Share of
profit /
(loss)
on joint
ventures and
associates 184.2 (20.6) 163.6 154.8 30.8 185.6
----------------- ----------------- ----------
Operating
profit /
(loss) 6 1,723.0 (737.1) 985.9 1,708.8 (832.4) 876.4
Finance
income 8 95.9 - 95.9 122.7 - 122.7
Finance costs 8 (302.4) (44.2) (346.6) (342.4) (64.2) (406.6)
Profit before
taxation 1,516.5 (781.3) 735.2 1,489.1 (896.6) 592.5
Taxation 9 (271.2) 200.4 (70.8) (407.3) 260.8 (146.5)
----------------- ----------------- ---------- ---------------- ----------------- ----------
Profit for
the year 1,245.3 (580.9) 664.4 1,081.8 (635.8) 446.0
----------------- ----------------- ---------- ---------------- ----------------- ----------
Attributable
to:
Ordinary
shareholders
of the
parent 1,124.0 (580.9) 543.1 958.9 (635.8) 323.1
Other equity
holders 121.3 - 121.3 122.9 - 122.9
Basic
earnings per
share
(pence) 11 55.3 33.5
Diluted
earnings per
share
(pence) 11 55.2 33.3
Interim
dividend
paid
per share
(pence) 10 26.6 26.0
Final
dividend
proposed
per share
(pence) 10 61.8 60.7
---------- ----------
88.4 86.7
The accompanying notes are an integral part of the financial
information in this announcement.
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2015
2014
restated
(note
2015 3)
GBPm GBPm
Profit for the year 664.4 446.0
Other comprehensive income:
Items that will not be reclassified to profit
or loss:
Actuarial (losses)/gain on retirement benefit
schemes (79.3) 19.0
Taxation on actuarial gains/(losses) on defined
benefit pension schemes 16.3 (23.5)
------- ---------
(63.0) (4.5)
------- ---------
Share of joint ventures actuarial losses on retirement
benefit schemes (2.1) (29.2)
Share of joint ventures taxation of actuarial
losses on retirement benefit schemes 0.2 6.2
------- ---------
(1.9) (23.0)
------- ---------
Items that will be reclassified subsequently
to profit or loss:
Losses on effective portion of cash flow hedges (41.9) (54.5)
Transferred to assets and liabilities on cash
flow hedges (4.5) (0.8)
Taxation on cashflow hedges 8.8 12.6
------- ---------
(37.6) (42.7)
------- ---------
Share of joint ventures gain on effective portion
of cash flow hedges (9.4) 13.2
Share of joint ventures taxation on cashflow
hedges 1.9 (3.3)
------- ---------
(7.5) 9.9
------- ---------
Losses on revaluation of available for sale investments,
net of taxation (3.2) (5.1)
------- ---------
Exchange difference on translation of foreign
operations (119.7) (22.6)
Gain on net investment hedge 61.7 16.2
Taxation on net investment hedge (13.0) (3.7)
------- ---------
(71.0) (10.1)
------- ---------
Other comprehensive loss, net of taxation (184.2) (75.5)
Total comprehensive income for the period 480.2 370.5
Attributable to:
Ordinary shareholders of the parent 358.9 247.6
Other equity holders 121.3 122.9
------- ---------
480.2 370.5
------- ---------
Consolidated Balance Sheet
as at 31 March 2015
2014
restated
2015 (note 3)
Note GBPm GBPm
Assets
Property, plant and equipment 11,303.9 11,085.2
Intangible assets:
Goodwill 598.0 585.1
Other intangible assets 170.4 304.2
Equity investments in associates
and joint ventures 875.2 826.7
Loans to associates and joint ventures 559.4 521.6
Other investments 26.4 42.3
Deferred tax assets 270.2 207.3
Derivative financial assets 566.8 368.4
Non-current assets 14,370.3 13,940.8
-------- ---------
Other intangible assets 433.5 433.7
Inventories 342.3 393.0
Trade and other receivables 4,527.0 4,300.6
Cash and cash equivalents 14 1,512.3 458.9
Derivative financial assets 1,999.9 1,261.2
Current assets held for sale 13 110.3 332.5
Current assets 8,925.3 7,179.9
-------- ---------
Total assets 23,295.6 21,120.7
-------- ---------
Liabilities
Loans and other borrowings 14 732.8 618.7
Trade and other payables 5,277.1 4,960.8
Current tax liabilities 308.4 315.2
Provisions 99.5 134.3
Derivative financial liabilities 2,297.3 1,470.2
Liabilities held for sale 13 11.1 19.2
-------- ---------
Current liabilities 8,726.2 7,518.4
-------- ---------
Loans and other borrowings 14 5,367.9 5,676.3
Deferred tax liabilities 716.0 757.5
Trade and other payables 424.6 416.2
Provisions 382.4 313.4
Retirement benefit obligations 18 664.6 637.7
Derivative financial liabilities 933.4 681.7
-------- ---------
Non-current liabilities 8,488.9 8,482.8
-------- ---------
Total liabilities 17,215.1 16,001.2
-------- ---------
Net assets 6,080.5 5,119.5
-------- ---------
Equity:
Share capital 16 496.5 487.4
Share premium 862.7 861.5
Capital redemption reserve 22.0 22.0
Hedge reserve (72.1) (27.0)
Translation reserve (69.5) 1.5
Retained earnings 1,469.8 1,587.3
Equity attributable to ordinary
shareholders of the parent 2,709.4 2,932.7
Hybrid capital 15 3,371.1 2,186.8
-------- ---------
Total equity attributable to equity
holders of the parent 6,080.5 5,119.5
-------- ---------
The accompanying notes are an integral part of the financial
information in this announcement.
Consolidated Statement of Changes in Equity
for the year ended 31 March 2015
Statement of Total
changes Share Capital attributable
in equity Share premium redemption Hedge Translation Retained to ordinary Hybrid
capital account reserve reserve reserve earnings shareholders Capital Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2014 487.4 861.5 22.0 (27.0) 1.5 1,587.3 2,932.7 2,186.8 5,119.5
Profit for the
year - - - - - 543.1 543.1 121.3 664.4
Other
comprehensive
income - - - (37.6) (71.0) (66.2) (174.8) - (174.8)
Share of
jointly
controlled
entities
and
associates
other
comprehensive
income - - - (7.5) - (1.9) (9.4) - (9.4)
----------- -------- ------------
Total
comprehensive
income for
the year - - - (45.1) (71.0) 475.0 358.9 121.3 480.2
-------------- --------- -------- ----------- -------- ------------ --------- ------------- --------- -------
Dividends to
shareholders - - - - - (854.1) (854.1) - (854.1)
Scrip dividend
related
share issue 8.6 (8.6) - - - 255.6 255.6 - 255.6
Distributions
to
hybrid
capital
holders - - - - - - - (121.3) (121.3)
Issue of
shares 0.5 9.8 - - - - 10.3 - 10.3
Issue of
hybrid
capital - - - - - - - 1,184.3 1,184.3
Credit in
respect
of employee
share
awards - - - - - 15.0 15.0 - 15.0
Investment in
own
shares - - - - - (9.0) (9.0) - (9.0)
At 31 March
2015 496.5 862.7 22.0 (72.1) (69.5) 1,469.8 2,709.4 3,371.1 6,080.5
--------- -------- ----------- -------- ------------ --------- ------------- --------- -------
Statement of
changes Total
in equity Share Capital attributable
Share premium redemption Hedge Translation Retained to ordinary Hybrid
capital account reserve reserve reserve earnings shareholders Capital Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2013 482.1 857.9 22.0 5.8 11.6 1,982.7 3,362.1 2,186.8 5,548.9
Profit for the
year - - - - - 323.1 323.1 122.9 446.0
Other
comprehensive
income - - - (42.7) (10.1) (9.6) (62.4) - (62.4)
Share of
jointly
controlled
entities
and
associates
other
comprehensive
income - - - 9.9 - (23.0) (13.1) - (13.1)
Total
comprehensive
income for
the year - - - (32.8) (10.1) 290.5 247.6 122.9 370.5
-------------- --------- -------- ---------- -------- ------------ ---------- ------------- --------- -------
Dividends to
shareholders - - - - - (819.6) (819.6) - (819.6)
Scrip dividend
related
share issue 4.8 (4.8) - - - 130.2 130.2 - 130.2
Distributions
to
hybrid
capital
holders - - - - - - - (122.9) (122.9)
Issue of
shares 0.5 8.4 - - - - 8.9 - 8.9
Credit in
respect
of employee
share
awards - - - - - 15.5 15.5 - 15.5
Investment in
own
shares - - - - - (12.0) (12.0) - (12.0)
At 31 March
2014 487.4 861.5 22.0 (27.0) 1.5 1,587.3 2,932.7 2,186.8 5,119.5
--------- -------- ---------- -------- ------------ ---------- ------------- --------- -------
Consolidated Cash Flow Statement
for the year ended 31 March 2015
2014
restated
(note
2015 3)
Note GBPm GBPm
Cash generated from operations before
working capital movements 12 2,080.7 2,134.2
(Increase) in inventories (8.5) (104.1)
(Increase) / Decrease in receivables (243.1) 312.4
Increase) in payables 394.0 216.2
(Decrease) in provisions (66.2) (18.9)
Cash generated from operations 2,156.9 2,539.8
--------- ---------
Dividends received from joint ventures
and associates 110.1 104.1
Interest received 95.9 113.8
Interest paid (227.8) (284.1)
Income taxes paid (164.8) (147.1)
Payment for consortium relief (12.0) (26.4)
Net cash from operating activities 1,958.3 2,300.1
--------- ---------
Cash flows from Investing activities
Purchase of property, plant and equipment (1,345.3) (1,475.1)
Purchase of other intangible assets (241.8) (403.8)
Deferred income received 2.9 7.2
Proceeds from sale of held for sale
assets 13 167.2 -
Proceeds from sale of property, plant
and equipment 13 25.3 158.6
Proceeds from sale of business and subsidiaries 13 5.3 3.2
Proceeds from sale of other investments 13 36.0 -
Loans to joint ventures and associates (33.9) (83.9)
Purchase of businesses and subsidiaries 13 (66.0) (109.6)
Loans and equity repaid by joint ventures 15.0 19.4
Investment in joint ventures and associates (20.0) (10.0)
Increase in other investments (0.1) (0.7)
Net cash from investing activities (1,455.4) (1,894.7)
--------- ---------
Cash flows from financing activities
Proceeds from issue of share capital 10.3 8.9
Dividends paid to company's equity holders 10 (598.5) (689.4)
Issue of hybrid capital 15 1,184.3 -
Hybrid capital dividend payments 15 (121.3) (122.9)
Employee share awards share purchase (9.0) (12.0)
New borrowings 151.1 1,815.8
Repayment of borrowings (66.3) (1,514.8)
--------- ---------
Net cash from financing activities 550.6 (514.4)
--------- ---------
Net increase/(decrease) in cash and
cash equivalents 1,053.5 (109.0)
--------- ---------
Cash and cash equivalents at the start
of year 458.6 567.6
Net increase/(decrease) in cash and
cash equivalents 1,053.5 (109.0)
Cash and cash equivalents at the end
of year 1,512.1 458.6
--------- ---------
Cash and cash equivalents in balance
sheet 14 1,512.3 458.9
Bank overdrafts (i) (0.2) (0.3)
--------- ---------
Cash and cash equivalents as above 1,512.1 458.6
--------- ---------
(i) Bank overdrafts are reported on the balance sheet as part of
current loans and borrowings. For cash flow purposes, these have
been included as cash and cash equivalents.
Notes to the Preliminary Statement
for the year ended 31 March 2015
1. Financial Information
The financial information set out in this announcement does not
constitute the Group's consolidated financial statement for the
years ended 31 March 2015 or 2014, but is derived from those
accounts. Consolidated financial statements for the year ended 31
March 2014 have been delivered to the Registrar of Companies, and
those for the year ended 31 March 2015 will be delivered in due
course. The auditors have reported on those accounts and their
reports were (i) unqualified; (ii) did not include a reference to
any matters to which the auditors drew attention by way of emphasis
without qualifying their report; and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006 in
respect of the accounts for 2015. This preliminary announcement was
authorised by the Board on 19 May 2015.
2. Basis of preparation
The financial information set out in this announcement has been
extracted from the consolidated financial statements of SSE plc for
the year ended 31 March 2015. These consolidated financial
statements were prepared under the historical cost convention,
excepting certain assets and liabilities stated at fair value and
in accordance with International Financial Reporting Standards and
their interpretations, as adopted by the European Union (adopted
IFRS). This consolidated financial information has been prepared on
the basis of accounting policies consistent with those applied in
the consolidated financial statements for the year ended 31 March
2014, with the exception of the newly effective accounting
standards, amendments and interpretations disclosed in Note 3. The
Directors consider that the Group has adequate resources to
continue in operational existence for the foreseeable future. The
financial information has therefore been prepared on a going
concern basis. The financial statements are presented in Pounds
Sterling.
3. Standards, amendments and interpretations
3.1 Effective in financial year ended March 2015
(i) IFRIC 21
The Group has adopted IFRIC 21: 'Levies' in the current
financial year. The interpretation clarifies that an entity should
recognise liabilities for qualifying levies on the occurrence of an
activity that triggers an obligation to the relevant authority.
Qualifying levies fall within the scope of IAS 37 'Provisions,
contingent liabilities and contingent assets', but not within the
scope of IAS 12 'Income taxes' or other standards. The adoption of
the interpretation has had no impact on the Group's accounting
policies or on the results of the Group for the financial year
ending 31 March 2015. The interpretation will be applied by the
Group in relation to its mandated funding, as a licenced energy
supplier, of the Contracts for Difference ('CfDs') scheme
introduced by the UK Government on 1 April 2015.
(ii) IFRS 10, 11 and 12
IFRS 10: 'Consolidated financial statements', IFRS 11: 'Joint
arrangements', IFRS 12: 'Disclosures of interests in other
entities', and revisions to IAS 27: 'Separate financial statements'
and IAS 28: 'Investments in associates and joint ventures' have
been adopted by the Group in the financial year ended 31 March
2015.
The most significant impact for the Group relates to the
adoption of IFRS 11. Under this standard, the Group has assessed
its joint arrangements in order to identify those which require to
be classified as joint operations rather than joint ventures. Joint
operations arise where the venturers are deemed to have joint
control and have rights to the assets and obligations for the
liabilities of the arrangement as opposed to having rights to the
net assets of the arrangement. Accordingly, a joint operator will
recognise its share of the operation's assets, liabilities, revenue
and expenses in the consolidated financial statements rather than
its net share of the result of the venture. The Group has assessed
that its investment in Greater Gabbard Offshore Winds Limited falls
within this category under the standard, but that all other joint
arrangements held by the Group are classified as joint ventures,
which will continue to be equity accounted.
This has resulted in the restatement of the Group's Consolidated
Income Statement, Consolidated Balance Sheet, Consolidated
Statement of Comprehensive Income and Consolidated Cash Flow
Statements for the year to 31 March 2014. These restatements are
summarised below.
It should be noted that as the Group currently reports its
adjusted profit measures including its respective shares of
operating profit, interest and tax of the affected investments, no
change arises in respect of the measures reported internally and in
the Annual Report in respect of underlying performance.
The restatement impact on the Group can be summarised as
follows:
Notes to the Preliminary Statement
for the year ended 31 March 2015
3. Standards, amendments and interpretations effective in 2015
(continued)
Extract of Consolidated Income Statement Year ended 31 March
2014
IFRS
Reported 11 Restated
GBPm GBPm GBPm
Operating profit before jointly ventures and
associates 611.0 79.8 690.8
---------------------------------------------- --------- ------- ---------
Joint ventures and associates:
Share of operating profit 371.0 (79.8) 291.2
Share of interest (147.9) 10.4 (137.5)
Share of movement on derivatives 3.1 - 3.1
Share of tax 11.6 17.2 28.8
---------------------------------------------- --------- ------- ---------
Share of profit/(loss) on joint ventures and
associates 237.8 (52.2) 185.6
--------- ------- ---------
Operating profit 848.8 27.6 876.4
Finance income 133.1 (10.4) 122.7
Finance costs (406.6) - (406.6)
--------- ------- ---------
Profit before taxation 575.3 17.2 592.5
Taxation (129.3) (17.2) (146.5)
--------- ------- ---------
Profit for the year 446.0 - 446.0
--------- ------- ---------
Extract of Consolidated Balance Sheet Year ended 31 March
2014
IFRS
Reported 11 Restated
GBPm GBPm GBPm
Property, plant and equipment 10,316.6 768.6 11,085.2
Equity investments in associates and joint
ventures 1,543.5 (716.8) 826.7
Loans to associates and joint ventures 521.6 - 521.6
Cash and cash equivalents (including bank overdrafts) 442.5 16.4 458.9
Deferred tax liabilities (709.6) (47.9) (757.5)
Provisions (395.7) (52.0) (447.7)
Other balance sheet items (6,599.4) 31.7 (6,567.7)
---------- -------- ----------
Net assets 5,119.5 - 5,119.5
---------- -------- ----------
Extract of Consolidated Cash Flow Statement Year ended 31 March
2014
IFRS
Reported 11 Restated
GBPm GBPm GBPm
Cash generated from operations 2,408.1 131.7 2,539.8
Dividends received from joint ventures and
associates 364.3 (260.2) 104.1
Other items (344.0) 0.2 (343.8)
---------- -------- ----------
Net cash from operating activities 2,428.4 (128.3) 2,300.1
---------- -------- ----------
Purchase of property, plant and equipment (1,432.3) (42.8) (1,475.1)
Proceeds from sale of property, plant and equipment - 158.6 158.6
Other items (578.2) - (578.2)
---------- -------- ----------
Net cash flows from investing activities (2,010.5) 115.8 (1,894.7)
Net cash flows from financing activities (514.4) - (514.4)
Net decrease in cash and cash equivalents (96.5) (12.5) (109.0)
Cash and cash equivalents at start of the year 538.7 28.9 567.6
Net decrease in cash and cash equivalents (96.5) (12.5) (109.0)
---------- -------- ----------
Cash and cash equivalents at the end of the
year 442.2 16.4 458.6
---------- -------- ----------
Notes to the Preliminary Statement
for the year ended 31 March 2015
3. Standards, amendments and interpretations effective in 2015
(continued)
(iii) Other amendments effective in the financial year
The Group has also adopted a number of amendments to IFRSs as
issued by the IASB in the financial year. These amendments included
amended disclosures and requirements in relation to IAS 32, IAS 36
and IAS 39. There was no material impact on the Group's financial
statements arising from the adoption of these amendments.
3.2 Effective in financial year ended 31 March 2016 and in
future
At the date of authorisation of these financial statements,
there are no other IFRSs or IFRIC interpretations that are
effective for the first time for the financial year ended 31 March
2015 that have had a material impact on the Group. The Group has
not early adopted any standard, interpretation or amendments that
have been issued, but are not yet effective.
IFRS 15 'Revenue from contracts with customers' is effective on
1 January 2017 at the earliest, subject to European Union (EU)
endorsement; the amendments to IFRS 11 'Accounting for acquisitions
of interests in joint operations', which are effective on 1 January
2016, subject to EU endorsement; IFRS 9: 'Financial instruments',
which will be effective on 1 January 2018, subject to EU
endorsement, and a number of disclosure and requirement changes,
including recommendations from the IASB's Annual Improvement
Projects.
The Group has not fully assessed the impact of adopting IFRS 9
and IFRS 15 and it is not practicable to provide a quantified
assessment of the effect of these standards in these financial
statements. The Group will provide this assessment of the financial
impact in future financial statements.
4. Change of Reportable Segments
4.1 Establishment of Enterprise segment
Following changes to the structure of the Group's internal
organisation, and subsequent changes to the way in which financial
and management information is presented to both the Board and the
Executive Committee, the composition of the Group's Reportable
Segments changed in the financial year ended 31 March 2015.
The change to the Group's organisation structure was the
establishment of the Enterprise business in order to bring together
a number of activities under single leadership. The change allows
the energy and related needs of the Group's industrial and
commercial customers in competitive markets to be better met
through an integrated approach. The services being provided to
these customers include electrical contracting, private energy
networks, lighting services and telecoms capacity and
bandwidth.
As a result of this change, activities previously reported under
Other Networks have been combined with electrical contracting,
previously reported under Energy-related Services, to derive the
reported revenue and operating profit of the Enterprise segment. As
these are customer-facing businesses in competitive markets, these
results are reported as part of the Retail business. In the year to
31 March 2014, this Enterprise segment delivered adjusted operating
profit of GBP56.8m. The remaining part of the Energy-related
Services segment (metering, home services and other products),
which will also continue to be reported separately under Retail,
delivered adjusted operating profit of GBP24.1m in the year to 31
March 2014.
The changes to reported segments can be summarised as
follows:
The Revenue by segment disclosure note for the year to March
2014 will be amended as follows:
(i) Revenue by segment
Year ended 31 March 2014
Total Revenue Reported Adjustment Restated
GBPm GBPm GBPm
Networks
Other Networks 346.1 (346.1) -
-------- ---------- --------
Retail
Enterprise - 594.7 594.7
Energy-related Services 467.1 (248.6) 218.5
-------- ---------- --------
467.1 346.1 813.2
35,226.
Other segments unchanged 1 - 35,226.1
Total 36,039.3 - 36,039.3
-------- ---------- --------
Notes to the Preliminary Statement
for the year ended 31 March 2015
4. Change of Reportable Segments (continued)
(ii) Operating profit by segment (1)
Year ended 31 March 2014
Reported Adjustment Restated
GBPm GBPm GBPm
Networks
Other Networks 2.1 (2.1) -
Retail
Enterprise - 14.4 14.4
Energy-related Services (12.1) (12.3) (24.4)
-------- ---------- --------
(12.1) 2.1 (10.0)
Other segments unchanged 886.4 - 886.4
Total 876.4 - 876.4
-------- ---------- --------
(1) Operating profit including exceptional items and certain
re-measurements and share of joint venture and associate interest
and tax and after restatements in Note 3.1(ii).
4.2 Change in measurement basis
The Group announced in March 2014 that it intended to reorganise
its activities so that there were separately auditable legal
entities responsible for its Energy Supply, Energy Portfolio
Management (EPM) and Electricity Generation activities. This change
had been made in order to enhance the transparency of the
measurement and reporting of the performance of these
activities.
As a result of the changes announced and subsequently
implemented, the Group's basis of inter-segmental pricing and
consequential internal reporting has been changed in the year to 31
March 2015. The revised methodology ensures greater market
reflectivity, closer alignment with the operational decision-making
in the respective businesses and has been informed by the Group's
engagement with the Competition and Markets Authority during the
financial year. The Group will provide comprehensive detail on the
basis of the composition of the Great Britain components of these
segments in its Consolidated Segmental Statement (CSS), an audited
mandatory regulatory document produced in accordance with Standard
Licence Condition 16B of Electricity Generation Licences and
Standard Licence Condition 19A of the Electricity and Gas Supply
Licences. The CSS will be published by 31 July 2015.
The activities conducted in EPM and Electricity Generation will
continue to be reported to the Board as a single reportable
operating segment.
Notes to the Preliminary Statement
for the year ended 31 March 2015
5. Critical accounting judgements and key sources of estimation
uncertainty
In the process of applying the Group's accounting policies,
management necessarily makes judgements and estimates that have a
significant effect on the amounts recognised in the financial
statements. Changes in the assumptions underlying the estimates
could result in a significant impact to the financial statements.
The Group's key accounting judgement and estimation areas are noted
with the most Significant Financial Judgement areas as specifically
discussed by the Audit Committee being highlighted separately.
5.1 Significant Financial Judgements
The Financial Statements have been prepared considering the
following Significant Financial Judgements which include areas of
estimation uncertainty and accounting judgement:
(i) Revenue recognition - Estimation Uncertainty
Revenue from Retail energy supply activities includes an
estimate of the value of electricity or gas supplied to customers
between the date of the last meter reading and the year end. This
estimation will comprise of values for billed revenue in relation
to consumption from unread meters based on estimated consumption
taking account of various factors including usage patterns and
weather trends (disclosed as trade receivables) and for unbilled
revenue (disclosed as accrued income). The volume of unbilled
electricity or gas is calculated by assessing a number of factors
such as externally notified volumes supplied to customers, amounts
billed to customers and other adjustments. Unbilled income is
calculated by applying the tariffs relevant to the customer type to
the calculated volume of electricity or gas. This estimation
methodology is subject to an internal corroboration process that
provides support for the judgements made by management. This
process requires the comparison of calculated unbilled volumes to a
benchmark measure of unbilled volumes which is derived using
independently verified data and by assessing historical
weather-adjusted consumption patterns and actual meter data that is
used in industry reconciliation processes for total consumption by
supplier. This aspect of the corroboration process, which requires
a comparison of the estimated supplied quantity of gas and
electricity that is deemed to have been delivered to customers and
the aggregate supplied quantity of gas and electricity applicable
to the Group's customers that is measured by industry system
operators, is a key judgement. The experience of the Group is that
following the reconciliation procedures the industry deemed
supplied quantities in gas have historically been higher than
actual metered supply. As a result, and through a continuous
process of investigation into
root cause, the Group applies a further judgement being a
percentage reduction to unbilled consumption volumes to the
measurement of its unbilled revenue in the financial
statements.
(ii) Valuation of trade receivables - Estimation Uncertainty
The basis of determining the provisions for bad and doubtful
debts are considered to be appropriate. Changes in estimation basis
or in economic conditions could lead to a change in the level of
provisions recorded and consequently on the charge or credit to the
income statement.
(iii) Impairment testing and valuation of certain Non-Current
Assets - Estimation Uncertainty
The Group reviews the carrying amounts of its goodwill, other
intangible assets and property, plant and equipment to determine
whether there is any indication that the value of those assets is
impaired. In conducting the reviews, the Group makes judgements and
estimates in considering the recoverable amount of the respective
assets or cash-generating units (CGUs). The key assets under review
are goodwill, thermal power generation assets, wind farm CGUs and
specific assets, gas storage assets and exploration and production
(E&P) assets. Changes to the estimates and assumptions on
factors such as regulation and legislation change, power, gas,
carbon and other commodity prices, volatility of gas prices, plant
running regimes and load factors, expected 2P reserves, discount
rates and other inputs could impact the assessed recoverable value
of assets and CGUs and consequently impact the Group's income
statement and balance sheet.
(iv) Treatment of disputes and claims - Accounting Judgement
The Group is exposed to the risk of litigation and contractual
disputes through the course of its normal operations. The Group
considers each instance separately in accordance with legal advice
and will provide or disclose information as deemed appropriate.
Changes in the assumptions around the likelihood of an outflow of
economic resources or the estimation of any obligation would change
the values recognised in the financial statements.
(v) Retirement benefits - Estimation Uncertainty
The assumptions in relation to the cost of providing
post-retirement benefits during the period are based on the Group's
best estimates and are set after consultation with qualified
actuaries. While these assumptions are believed to be appropriate,
a change in these assumptions would impact the level of the
retirement benefit obligation recorded and the cost to the Group of
administering the schemes. The value of scheme assets are impacted
by the asset ceiling test which (a) restricts the surplus that can
be recognised to assets that can be recovered fully through refunds
and (b) may increase the value of scheme liabilities where there
are minimum funding liabilities in relation to agreed
contributions.
5.2 Other key accounting judgements
Other key judgements and policy decisions applied in the
preparation of these Financial Statements include the
following:
Notes to the Preliminary Statement
for the year ended 31 March 2015
5. Critical accounting judgements and key sources of estimation
uncertainty (continued)
5.2 Other key accounting judgements
Other key judgements and policy decisions applied in the
preparation of these Financial Statements include the
following:
(i) Exceptional items and certain re-measurements
As permitted by IAS 1 'Presentation of financial statements',
the Group has disclosed additional information in respect of joint
ventures and associates, exceptional items and certain
re-measurements on the face of the income statement to aid
understanding of the Group's financial performance.
An item is treated as exceptional if it is considered unusual by
nature and scale and of such significance that separate disclosure
is required for the financial statements to be properly understood.
These items will be non-recurring and may include items such as
asset or CGU impairment charges, restructuring costs or contractual
settlements. Certain re-measurements are re-measurements arising on
certain commodity, interest rate and currency contracts which are
accounted for as held for trading or as fair value hedges in
accordance with the Group's policy for such financial instruments.
This excludes commodity contracts not treated as financial
instruments under IAS 39 where held for the Group's own use
requirements.
(ii) Adjusted measures
The Directors assess the performance of the reportable segments
('Operating profit/(loss) by segment', note 6) based on an
'adjusted profit before interest and tax' measure. This is the
basis used for internal performance management and is believed to
be appropriate for explaining underlying performance. The adjusted
profit before interest and tax is reconciled to reported profit
before interest and tax by adding back exceptional items, the net
interest costs associated with defined benefit schemes,
remeasurements arising from IAS 39 and after the removal of
taxation on profits from joint ventures and associates. In
addition, adjusted profit after tax will be reported on a basis
consistent with this change.
The Directors also present details of an 'adjusted earnings per
share' measure, which is based on basic earnings per share before
exceptional items, the net interest costs associated with defined
benefit schemes, remeasurements arising from IAS 39 and after the
removal of deferred taxation. The adjusted measures are considered
more reflective of the Group's underlying performance, are
consistent with way the Group is managed and avoids volatility
arising from IAS 39 fair value measurements. This measure is also
deemed the most useful for the ordinary shareholders of the
Group.
The financial statements also include an 'adjusted net debt and
hybrid capital' measure. This presents the information on the basis
used for internal liquidity risk management. This measure, which
excludes obligations due under finance leases, represents the
capital owed to investors, lenders and equity holders other than
the ordinary shareholders. As with 'adjusted earnings per share',
this measure is considered to be of particular relevance to the
ordinary shareholders of the Group as well as other stakeholders
and interested parties.
(iii) Business Combinations and acquisitions
Business combinations and acquisitions require a fair value
exercise to be undertaken to allocate the purchase price to the
fair value of the identifiable assets acquired and the liabilities
assumed. The determination of the fair value of the assets and
liabilities is based, to a considerable extent, on management's
judgement. The amount of goodwill initially recognised as a result
of a business combination is dependent on the allocation of this
purchase price to the identifiable assets and liabilities with any
unallocated portion being recorded as goodwill.
(iv) Energy Company Obligation (ECO) costs
The Energy Company Obligation ('ECO') legislation, in force
since 1 January 2013, requires qualifying energy suppliers to meet
defined targets by providing measures to improve the energy
efficiency of, and level of carbon emissions from, UK domestic
households. The targets for the Group's Energy Supply business are
set based on historic customer information, with delivery of the
measures being required by 31 March 2017. The Group believes it is
not technically obligated to provide those measures until the end
of the delivery period. As a consequence, and applying applicable
accounting standards, the costs of ECO are recorded when measures
are delivered or other qualifying expenditure has been
incurred.
5.3 Other areas of estimation uncertainty
(i) Provisions and contingencies
The assessments undertaken in recognising provisions and
contingencies have been made in accordance with IAS 37. Provisions
are calculated based on estimations. The evaluation of the
likelihood of the contingent events has required best judgement by
management regarding the probability of exposure to potential loss.
Should circumstances change following unforeseeable developments
this likelihood could alter.
(ii) Decommissioning costs
The estimated costs of decommissioning at the end of the useful
lives of the assets are reviewed periodically. Decommissioning
costs in relation to gas exploration and production assets are
based on expected lives of the fields and costs of decommissioning
and are currently expected to be incurred predominantly between
2017 and 2030.
Notes to the Preliminary Statement
for the year ended 31 March 2015
5. Critical accounting judgements and key sources of estimation
uncertainty (continued)
5.3 Other areas of estimation and uncertainty (continued)
(iii) Gas and liquids reserves
The volume of proven and probable gas and liquids reserves is an
estimate that affects the unit of production depreciation of
producing gas and liquids property, plant and equipment. This is
also a significant input estimate to the associated impairment and
decommissioning calculations. The impact of a change in estimated
proven and probable reserves is dealt with prospectively by
depreciating the remaining book value of producing assets over the
expected future production. If proven and probable reserves
estimates are revised downwards, earnings could be affected by
higher depreciation expense or an immediate write-down (impairment)
of the asset's book value.
6. Segmental information
The Group's operating segments are those used internally by the
Board to run the business and make strategic decisions. The Group's
main businesses and operating segments are the Networks business,
compromising Electricity Distribution, Electricity Transmission and
Gas Distribution; the Retail business, compromising Energy Supply,
Enterprise and Energy-related Services; and Wholesale, comprising
Energy Portfolio Management and Electricity Generation, Gas Storage
and Gas Production.
The types of products and services from which each reportable
segment derives its revenues are:
Business Area Reported Segments Description
-------------- -------------------------------------------------- --------------------------------------------------
Networks Electricity Distribution The economically regulated lower voltage
distribution of electricity to customer premises
in the North of Scotland and the South of England
-------------- -------------------------------------------------- --------------------------------------------------
Electricity Transmission The economically regulated high voltage
transmission of electricity from generating plant
to the distribution network in the North of
Scotland
-------------- -------------------------------------------------- --------------------------------------------------
Gas Distribution SSE's share of Scotia Gas Networks, which
operates two economically regulated gas
distribution
networks in Scotland and the South of England
-------------- -------------------------------------------------- --------------------------------------------------
Retail Energy Supply The supply of electricity and gas to residential
and business customers in the UK and Ireland
-------------- -------------------------------------------------- --------------------------------------------------
Enterprise The integrated provision of services in
competitive markets for industrial and commercial
customers including electrical contracting,
private energy networks, lighting services and
telecoms capacity and bandwidth
-------------- -------------------------------------------------- --------------------------------------------------
Energy-related Services The provision of energy-related goods and
services to customers in the UK including meter
reading and installation, boiler maintenance and
installation and domestic telecoms and broadband
services
-------------- -------------------------------------------------- --------------------------------------------------
Wholesale Energy Portfolio Management and Electricity The generation of power from renewable and
Generation thermal plant in the UK, Ireland and Europe and
the optimisation of SSE's power and gas and other
commodity requirements
-------------- -------------------------------------------------- --------------------------------------------------
Gas Storage The operation of gas storage facilities in the UK
-------------- -------------------------------------------------- --------------------------------------------------
Gas Production The production and processing of gas and oil from
North Sea fields
-------------- -------------------------------------------------- --------------------------------------------------
As noted in Note 5 Critical accounting judgements and key
sources of estimation uncertainty, the internal measure of profit
used by the Board is 'adjusted profit before interest and tax' or
'adjusted operating profit' which is arrived at before exceptional
items, the impact of financial instruments measured under IAS 39,
the net interest costs associated with defined benefit pension
schemes and after the removal of taxation and interest on profits
from joint ventures and associates.
Analysis of revenue, operating profit, assets and other items by
segment is provided below. All revenue and profit before taxation
arise from operations within the United Kingdom and Ireland.
Notes to the Preliminary Statement
for the year ended 31 March 2015
6. Segmental information (continued)
a) Revenue by segment
Intra-segment Intra-segment
External revenue External revenue, Total revenue,
revenue (I) Total revenue revenue restated (I) restated
2015 2015 2015 2014 2014 2014
GBPm GBPm GBPm GBPm GBPm GBPm
Networks
Electricity
Distribution 735.6 288.0 1,023.6 704.1 311.7 1,015.8
Electricity
Transmission 246.7 0.2 246.9 185.2 - 185.2
982.3 288.2 1,270.5 889.3 311.7 1,201.0
--------------- --------------- -------------- --------------- -------------- ---------------
Retail
Energy Supply 7,961.2 30.3 7,991.5 8,465.0 26.7 8,491.7
Enterprise 495.7 155.4 651.1 451.1 143.6 594.7
Energy-related
Services 112.6 97.3 209.9 106.5 112.0 218.5
--------------- --------------- -------------- --------------- -------------- ---------------
8,569.5 283.0 8,852.5 9,022.6 282.3 9,304.9
--------------- --------------- -------------- --------------- -------------- ---------------
Wholesale
Energy
Portfolio
Management and
Electricity
Generation 22,023.7 4,015.4 26,039.1 20,608.5 4,246.0 24,854.5
Gas Storage 9.7 211.8 221.5 9.0 82.6 91.6
Gas Production 1.3 177.5 178.8 7.8 255.7 263.5
--------------- --------------- -------------- --------------- -------------- ---------------
22,034.7 4,404.7 26,439.4 20,625.3 4,584.3 25,209.6
--------------- --------------- -------------- --------------- -------------- ---------------
Corporate
unallocated 67.9 225.8 293.7 47.8 276.0 323.8
--------------- --------------- -------------- --------------- -------------- ---------------
Total 31,654.4 5,201.7 36,856.1 30,585.0 5,454.3 36,039.3
--------------- --------------- -------------- --------------- -------------- ---------------
I. Significant intra-segment revenue is derived from use of
system income received by the Electricity Distribution business
from Energy Supply; Energy Supply provides internal heat and light
power supplies to other Group companies; Enterprise provides
electrical contracting services and telecoms infrastructure charges
to other Group companies; Energy-related Services provides metering
and other services to other Group companies; Energy Portfolio
Management and Electricity Generation provides power, gas and other
commodities to the Energy Supply segment; Gas Storage provides the
use of Gas Storage facilities to Energy Portfolio Management; Gas
Production sells gas from producing North Sea fields to the
Electricity Generation and Energy Portfolio Management segment.
Corporate unallocated provides corporate and infrastructure
services to the operating businesses. All are provided at arm's
length basis.
Revenue within Energy Portfolio Management and Electricity
Generation includes revenues from generation plant output and the
gross value of all wholesale commodity sales including settled
physical and financial trades. These are entered into to optimise
the performance of the generation plants and to manage the Group's
commodity risk exposure. Purchase trades are included in cost of
sales.
Revenue from the Group's investment in Scotia Gas Networks (SSE
share being: 2015 - GBP541.3m; 2014 - GBP535.0m) is not recorded in
the revenue line in the income statement.
Revenue by geographical location is as follows:
2015 2014
GBPm GBPm
UK 30,923.3 29,727.9
Ireland 731.1 857.1
--------- ---------
31,654.4 30,585.0
--------- ---------
Notes to the Preliminary Statement
for the year ended 31 March 2015
6. Segmental information (continued)
b) Operating profit/(loss) by segment
2015
Adjusted operating JV / Associate share Before exceptional Exceptional items Total
profit reported to of interest and tax items and certain and
the Board (I) re-measurements certain
re-measurements
GBPm GBPm GBPm GBPm GBPm
Networks
Electricity
Distribution 467.7 - 467.7 - 467.7
Electricity
Transmission 184.1 - 184.1 - 184.1
Gas Distribution 285.0 (137.1) 147.9 5.3 153.2
936.8 (137.1) 799.7 5.3 805.0
Retail
Energy Supply 368.7 - 368.7 (34.2) 334.5
Enterprise 70.4 - 70.4 30.3 100.7
Energy-related
Services 17.7 - 17.7 15.6 33.3
-------------------- -------------------- -------------------- -------------------- -------
456.8 - 456.8 11.7 468.5
Wholesale
Energy Portfolio
Management and
Electricity
Generation 433.3 (21.3) 412.0 (483.8) (71.8)
Gas Storage 3.9 - 3.9 (163.9) (160.0)
Gas Production 36.6 - 36.6 (106.0) (69.4)
-------------------- -------------------- -------------------- -------------------- -------
473.8 (21.3) 452.5 (753.7) (301.2)
Corporate unallocated 14.0 - 14.0 (0.4) 13.6
Total 1,881.4 (158.4) 1,723.0 (737.1) 985.9
-------------------- -------------------- -------------------- -------------------- -------
2014
Adjusted operating JV / Associate share Before exceptional Exceptional items Total
Restated (note profit reported to of interest and tax items and certain and certain
4.1(ii)) the Board (I) re-measurements re-measurements
GBPm GBPm GBPm GBPm GBPm
Networks
Electricity
Distribution 507.0 - 507.0 (7.1) 499.9
Electricity
Transmission 136.7 - 136.7 (1.0) 135.7
Gas Distribution 276.6 (163.1) 113.5 68.9 182.4
920.3 (163.1) 757.2 60.8 818.0
Retail
Energy Supply 246.2 - 246.2 (43.2) 203.0
Enterprise 56.8 (0.1) 56.7 (42.3) 14.4
Energy-related
Services 24.1 - 24.1 (48.5) (24.4)
-------------------- -------------------- -------------------- -------------------- -------
327.1 (0.1) 327.0 (134.0) 193.0
Wholesale
Energy Portfolio
Management and
Electricity
Generation 496.1 (8.1) 488.0 (607.4) (119.4)
Gas Storage 8.3 - 8.3 (137.7) (129.4)
Gas Production 130.2 - 130.2 - 130.2
-------------------- -------------------- -------------------- -------------------- -------
634.6 (8.1) 626.5 (745.1) (118.6)
Corporate unallocated (1.9) - (1.9) (14.1) (16.0)
Total 1,880.1 (171.3) 1,708.8 (832.4) 876.4
-------------------- -------------------- -------------------- -------------------- -------
I. The adjusted operating profit of the Group is reported after
removal of the Group's share of interest, fair value movements on
financing derivatives and tax from joint ventures and associates
and after adjusting for exceptional items (see Note 7). The share
of Scotia Gas Networks Limited interest includes loan stock
interest payable to the consortium shareholders (included in Gas
Distribution). The Group has accounted for its 50% share of this,
GBP33.3m (2014 - GBP33.3m), as finance income (Note 8).
The Group's share of operating profit from joint ventures and
associates has been recognised in the Energy Portfolio Management
and Electricity Generation segment other than that for Scotia Gas
Networks Limited, which is recorded in Gas Distribution, and PriDE
(South East Regional Prime), which is recognised in Enterprise
(GBP0.7m before tax; 2014 - GBP0.6m before tax).
Notes to the Preliminary Statement
for the year ended 31 March 2015
7. Exceptional items and certain re-measurements
2015 2014
GBPm GBPm
Exceptional items (i)
Asset impairments and related charges (667.5) (574.9)
Provisions for restructuring and other liabilities (56.0) (137.4)
Net gains on disposals of businesses and other assets 74.8 -
-------- --------
(648.7) (712.3)
Impairment of investments in joint ventures and associates (share of result) (25.9) (34.9)
-------- --------
(674.6) (747.2)
Share of effect of change in UK corporation tax on deferred tax liabilities and assets of
associate and joint venture investments - 63.3
(674.6) (683.9)
-------- --------
Certain re-measurements (ii)
Movement on operating derivatives (note 17) (67.8) (150.9)
Movement on financing derivatives (note 17) (44.2) (64.2)
Share of movement on derivatives in jointly controlled entities (net of tax) 5.3 2.4
-------- --------
(106.7) (212.7)
-------- --------
Exceptional items before taxation (781.3) (896.6)
-------- --------
Taxation (iii)
Effect of change in UK corporation tax rate on deferred tax liabilities and assets 15.6 59.8
Taxation on other exceptional items 145.6 137.3
-------- --------
161.2 197.1
Taxation on certain re-measurements 39.2 63.7
-------- --------
Taxation 200.4 260.8
-------- --------
Exceptional items after taxation (580.9) (635.8)
-------- --------
2015 2014
Exceptional items categorised as: GBPm GBPm
Property, plant and equipment impairments (478.8) (370.3)
Intangible asset and goodwill impairments (95.6) (122.9)
Joint venture and associate investment impairments (25.9) (34.9)
Provisions (56.0) (105.3)
Net gains on disposals of businesses and assets 74.8 -
Other impairments and charges (93.1) (113.8)
-------- --------
Total before taxation (674.6) (747.2)
-------- --------
Notes to the Preliminary Statement
for the year ended 31 March 2015
7. Exceptional items and certain re-measurements (continued)
Exceptional items are disclosed across the following categories
within the income statement:
2015 2014
GBPm GBPm
Cost of sales:
Exceptional charges relating to Ferrybridge
and Fiddler's Ferry (313.5) (238.4)
Other impairments relating to Generation assets (51.5) -
Exceptional charges relating to wind impairments - (125.4)
Exceptional charges relating to contractual
settlements - (45.5)
Movement on operating derivatives (note 17) (67.8) (150.9)
-------- --------
(432.8) (560.2)
Operating costs:
All other exceptional charges (358.5) (303.0)
Operating income:
Net gains on disposals of businesses and other
assets 74.8 -
Joint ventures and associates:
Impairment of investments (25.9) (34.9)
Share of movement on derivatives in jointly controlled entities (net of tax) 5.3 65.7
-------- --------
(20.6) 30.8
Operating loss (737.1) (832.4)
-------- --------
Finance costs
-------- --------
Movement on financing derivatives (note 17) (44.2) (64.2)
Loss before taxation (781.3) (896.6)
-------- --------
(i) Exceptional items
In the year to 31 March 2015, the Group recognised asset
impairment and related charges totalling GBP667.5m and provisions
of GBP56.0m. These consisted of impairments and charges in relation
to the Group's coal-fired plants at Ferrybridge and Fiddler's Ferry
(GBP313.5m), the Aldbrough gas storage facility (GBP163.9m), the
North Sea gas production assets (GBP106.1m) and certain other
assets. The valuation of the Ferrybridge power station was impacted
by the 31 July 2014 fire and both coal plants have been subject to
increasingly difficult economic conditions which was also reflected
by the inability of both units at Ferrybridge and one unit at
Fiddler's Ferry to secure an agreement to provide capacity from
October 2018 to September 2019 in the first of the capacity auction
run by DECC in December 2014. The North Sea gas production assets
have been impaired predominately due to declining wholesale gas
prices and the gas storage facilities have been impacted by reduced
short term price volatility in the wholesale gas market and the
announcement in March 2015 of redundancies at the facilities. In
addition to these charges, the Group recognised exceptional charges
in relation to the impairment of certain thermal generation
development assets including the Abernedd gas-fired generation
development in South Wales, which also did not secure a capacity
agreement for winter 2018 in the December 2014 auction. Other
exceptional charges were recognised in relation to the impairment
of investments in thermal power generation joint ventures and
associates (GBP25.9m).
The Group benefitted from the recognition of GBP74.8m of
exceptional credits in relation to the disposal of businesses and
assets that were held for sale at 31 March 2014, before recognition
of associated provisions. This included gains in relation to the
seven street lighting PFIs sold to Equitix in November and the
Group's share of the dividend from the Environment Energy Fund's
disposal of its stake in Anesco. Details of the disposals in the
year are included at Note 13.
In the previous financial year, the Group recognised exceptional
charges arising from and related to asset impairments amounting to
GBP574.9m. This consisted of impairment charges in respect of
thermal and renewable generation plant of GBP363.9m which included
the impact of the decision to scale back the Group's involvement in
certain offshore wind developments. The total also included
impairment charges against gas storage facilities of GBP137.7m and
charges of GBP73.3m in relation to recognition of losses and costs
arising from the decision to exit from certain non-core businesses
following the announcement of its restructuring and disposal
programme on 26 March 2014. This latter item also includes
impairment charges of GBP36.2m in relation to system and software
development across the energy supply and metering businesses.
Other exceptional charges of GBP137.4m were recognised in the
previous financial year. This included charges of GBP91.0m in
relation to the March 2014 restructuring announcement, including a
restructuring provision primarily relating to the scheme of
employee voluntary early release of GBP52.9m and provisions
associated with business closures and contractual disputes of
GBP84.5m.
Notes to the Preliminary Statement
for the year ended 31 March 2015
7. Exceptional items and certain re-measurements (continued)
(ii) Certain re-measurements
Certain re-measurements arising from IAS 39 are disclosed
separately to aid understanding of the underlying performance of
the Group. This category includes the movement on derivatives (and
hedged items) as described in note 17. Only certain of the Group's
energy commodity contracts are deemed to constitute financial
instruments under IAS 39. As a result, while the Group manages the
commodity price risk associated with both financial and
non-financial commodity contracts, it is only commodity contracts
that are designated as financial instruments under IAS 39 that are
accounted for on a fair value basis with changes in fair value
reflected in the income statement (as part of 'certain
re-measurements') or in other comprehensive income. Conversely,
commodity contracts that are not financial instruments under IAS 39
are accounted for as 'own use' contracts.
(iii) Change in UK corporation tax rates
Finance Act 2015, which received royal assent on 26 March 2015,
announced that the rate of Supplementary Charge (SCT) was reduced
to 20% (previously 32%), with effect from 1 January 2015. This
results in a hybrid SCT rate of 29% for the Group's upstream oil
and gas operations for the year to 31 March 2015 (2014 - 32%).
Finance Act 2015 also enacted a reduction in the rate of Petroleum
Revenue Tax (PRT) to 35% from 1 January 2016 from the current 50%.
As these changes have been substantively enacted they have the
effect of reducing the Group's deferred tax liabilities by
GBP15.6m.
The Group has also separately recognised the tax effect of the
exceptional items and certain re-measurements summarised above.
8. Finance income and costs
2015 2014
Before Exceptional
Before Exceptional items and
Exceptional Exceptional items and certain
items and items and certain re-measure
certain certain re-measurements ments Total (restated,
re-measurements re-measurements Total (restated) (restated) note 3)
GBPm GBPm GBPm GBPm GBPm GBPm
Finance income:
Interest income
from short term
deposits 1.1 - 1.1 1.7 - 1.7
Foreign exchange
translation of
monetary assets
and liabilities - - - 19.3 - 19.3
----------------- ---------------- ---------------- -------- ---------------- ---------------- -----------------
Other interest
receivable:
Scotia Gas
Networks loan
stock 33.3 - 33.3 33.3 - 33.3
Other joint
ventures and
associates 14.8 - 14.8 11.7 - 11.7
Other receivable 46.7 - 46.7 56.7 - 56.7
----------------- ---------------- ---------------- -------- ---------------- ---------------- -----------------
94.8 - 94.8 101.7 - 101.7
Total finance
income 95.9 - 95.9 122.7 - 122.7
---------------- ---------------- -------- ---------------- ---------------- -----------------
Finance costs:
Bank loans and
overdrafts (23.9) - (23.9) (18.5) - (18.5)
Other loans and
charges (262.5) - (262.5) (310.8) - (310.8)
Interest on
pension scheme
liabilities (25.1) - (25.1) (26.8) - (26.8)
Notional
interest
arising on
discounted
provisions (14.0) - (14.0) (9.5) - (9.5)
Foreign exchange
translation of
monetary assets
and liabilities (0.5) - (0.5) - - -
Finance lease
charges (34.2) - (34.2) (35.7) - (35.7)
Less: interest
capitalised 57.8 - 57.8 58.9 - 58.9
Total finance
costs (302.4) - (302.4) (342.4) - (342.4)
---------------- ---------------- -------- ---------------- ---------------- -----------------
Changes in fair
value of
financing
derivative
assets or
liabilities at
fair value
through
profit or loss - (44.2) (44.2) - (64.2) (64.2)
Net finance
costs (206.5) (44.2) (250.7) (219.7) (64.2) (283.9)
---------------- ---------------- -------- ---------------- ---------------- -----------------
Presented as:
Finance income 95.9 - 95.9 122.7 - 122.7
Finance costs (302.4) (44.2) (346.6) (342.4) (64.2) (406.6)
Net finance
costs (206.5) (44.2) (250.7) (219.7) (64.2) (283.9)
---------------- ---------------- -------- ---------------- ---------------- -----------------
The capitalisation rate applied in determining the amount of
borrowing costs to capitalise in the period was 4.21% (2014 -
4.88%).
Notes to the Preliminary Statement
for the year ended 31 March 2015
8. Finance income and costs (continued)
Adjusted net finance costs are arrived at after the following
adjustments:
2014
2015 restated
GBPm GBPm
Net finance costs (250.7) (283.9)
(add)/less:
Share of interest from joint ventures and associates:
Scotia Gas Networks loan stock (33.3) (33.3)
Other joint ventures and associates (90.9) (104.2)
-------- ----------
(124.2) (137.5)
Interest on pension scheme liabilities 25.1 26.8
Share of interest on net pension liabilities in joint ventures (11.1) 1.4
Movement on financing derivatives (Note 17) 44.2 64.2
-------- ----------
Adjusted net finance costs (316.7) (329.0)
Notional interest arising on discounted provisions 14.0 9.5
Finance lease charges 34.2 35.7
Hybrid coupon payment (Note 15) (121.3) (122.9)
-------- ----------
Adjusted net finance costs for interest cover calculations (389.8) (406.7)
-------- ----------
9. Taxation
Analysis of charge recognised in the income statement:
Before Before Exceptional
Exceptional Exceptional Exceptional items and
items and items and items and certain
certain certain certain re-measure-
re-measure ments re-measure ments 2015 re-measure ments ments 2014
(restated) (restated) (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
Current tax
UK corporation tax 231.4 (25.1) 206.3 248.1 (24.8) 223.3
Adjustments in
respect of
previous years (29.8) - (29.8) (21.4) - (21.4)
----------------- ----------------- -------- ----------------- ----------------- -----------
Total current tax 201.6 (25.1) 176.5 226.7 (24.8) 201.9
----------------- ----------------- -------- ----------------- ----------------- -----------
Deferred tax
Current year 52.7 (159.7) (107.0) 162.2 (162.0) 0.2
Effect of change
in tax rate - (15.6) (15.6) - (59.8) (59.8)
Adjustments in
respect of
previous years 16.9 - 16.9 18.4 (14.2) 4.2
----------------- ----------------- -------- ----------------- ----------------- -----------
Total deferred tax 69.6 (175.3) (105.7) 180.6 (236.0) (55.4)
----------------- ----------------- -------- ----------------- ----------------- -----------
Total taxation
charge 271.2 (200.4) 70.8 407.3 (260.8) 146.5
----------------- ----------------- -------- ----------------- ----------------- -----------
In October 2014, SSE became the first FTSE 100 listed group to
be accredited with the Fair Tax Mark. As a consequence, these
financial statements include a number of areas of enhanced
disclosure which have been provided in order to develop stakeholder
understanding of the tax the Group pays. The table below reconciles
the tax which would be expected to be paid on SSE's reported profit
before tax to the reported current tax charge and the reported
total taxation charge:
Notes to the Preliminary Statement
for the year ended 31 March 2015
9. Taxation (continued)
2015 2015 2014 2014
(restated)
GBPm % GBPm %
Group profit before tax 735.2 592.5
Less: share of results of associates and jointly controlled entities (163.6) (185.6)
-------- ------- ----------- -------
Profit before tax 571.6 406.9
Tax on profit on ordinary activities at standard UK corporation tax rate of
21% (2014 - 23%) 120.0 21.0 93.6 23.0
Tax effect of:
Depreciation in excess of capital allowances 86.0 15.1 67.4 16.6
Increase in restructuring and settlement provisions 2.6 0.5 34.4 8.3
Non-taxable gain on sale of shares (13.8) (2.4) - -
Fair value movements on derivatives 23.6 4.1 48.0 11.8
Pension movements (11.0) (1.9) (11.6) (2.9)
Relief for capitalised interest and revenue costs (22.3) (3.9) (25.4) (6.2)
Hybrid capital coupon payments (25.5) (4.5) (27.8) (6.8)
Corporation tax relief on PRT paid (4.5) (0.8) (5.5) (1.4)
Expenses not deductible for tax purposes 7.7 1.3 15.6 3.8
Impact of higher current tax rates on E&P profits 42.1 7.4 35.2 8.7
Impact of foreign tax rates 1.4 0.2 (0.6) (0.1)
Adjustments to tax charge in respect of previous years (29.8) (5.2) (21.4) (5.2)
-------- ------- ----------- -------
Reported current tax charge and effective rate 176.5 30.9 201.9 49.6
Depreciation in excess of capital allowances (68.5) (12.0) (48.5) (11.9)
Increase in restructuring and settlement provisions (2.6) (0.5) (34.4) (8.5)
Fair value movements on derivatives (23.6) (4.1) (48.0) (11.8)
Pension movements 11.0 1.9 11.6 3.0
Relief for capitalised interest and revenue costs 22.3 3.9 25.4 6.2
Impact of higher deferred tax rates on E&P profits (34.8) (6.1) 45.6 11.2
Impact of foreign tax rates (4.2) (0.7) (2.5) (0.6)
Adjustments to tax charge in respect of previous years 6.5 1.1 27.8 6.8
Change in rate of UK corporation tax (15.6) (2.7) (59.8) (14.7)
Other items 3.8 0.6 27.4 6.7
Reported deferred tax credit and effective rate (105.7) (18.6) (55.4) (13.6)
-------- ------- ----------- -------
Group tax charge and effective rate 70.8 12.3 146.5 36.0
-------- ------- ----------- -------
The adjusted current tax charge is arrived at after the
following adjustments:
2015 2015 2014 2014
GBPm % GBPm %
Group tax charge and effective rate 70.8 12.3 146.5 36.0
Less: reported deferred tax credit and effective rate 105.7 18.6 55.4 13.6
------ ------- ------ -------
Current tax charge and effective rate 176.5 30.8 201.9 49.6
Effect of adjusting items (see below) - (19.6) - (36.5)
------ ------- ------ -------
Current tax charge and effective rate on adjusted basis 176.5 11.3 201.9 13.1
add/(less):
Share of current tax from joint ventures and associates 23.2 1.5 10.0 0.6
Current tax on exceptional items 25.1 1.6 24.8 1.6
------ ------- ------ -------
Adjusted current tax charge and effective rate 224.8 14.4 236.7 15.3
------ ------- ------ -------
Notes to the Preliminary Statement
for the year ended 31 March 2015
9. Taxation (continued)
The adjusted effective rate is based on adjusted profit before
tax being:
2014
2015 (restated)
GBPm GBPm
Profit before tax 735.2 592.5
Add/(less):
Exceptional items and certain re-measurements 781.3 896.6
Share of tax from jointly controlled entities and associates before exceptional items and
certain re-measurements 34.2 33.8
Interest on pension scheme liabilities 25.1 26.8
Share of interest on net pension liabilities in jointly controlled entities and associates (11.1) 1.4
-------- -------------
Adjusted profit before tax 1,564.7 1,551.1
-------- -------------
The adjusted current tax charge can therefore be reconciled to
the adjusted profit before tax as follows:
2015 2015 2014 2014
GBPm % GBPm %
Adjusted profit before tax 1,564.7 1,551.1
Tax on profit on ordinary activities at standard UK corporation tax rate 328.6 21.0 356.7 23.0
Tax effect of:
Capital allowances in excess of depreciation (42.1) (2.7) (57.0) (3.7)
Non taxable gain on sale of shares (6.3) (0.4)
Increase in restructuring and settlement provisions 3.9 0.2 19.6 1.3
Pension movements (13.9) (0.9) (17.5) (1.1)
Relief for capitalised interest and revenue costs (15.2) (1.0) (25.4) (1.6)
Hybrid capital coupon payments (25.4) (1.6) (27.8) (1.8)
Corporation tax relief on PRT paid (4.4) (0.3) (5.5) (0.4)
Expenses not deductible for tax purposes 10.1 0.7 13.5 0.9
Relief for brought forward losses (23.6) (1.5) (32.9) (2.1)
Impact of higher current tax rates on oil and gas profits 42.1 2.7 35.2 2.3
Impact of foreign tax rates 1.4 0.1 (0.6) (0.1)
Adjustments to tax charge in respect of previous years (30.4) (1.9) (21.6) (1.4)
-------- ------ -------- ------
Adjusted current tax charge and effective rate 224.8 14.4 236.7 15.3
-------- ------ -------- ------
Notes to the Preliminary Statement
for the year ended 31 March 2015
10. Dividends
Ordinary dividends
Year ended 31 Pence per Pence per
March 2015 Settled via ordinary Year ended 31 March Settled via ordinary
Total scrip share 2014 Total scrip share
GBPm GBPm GBPm GBPm
Interim - year ended
31 March 2015 262.6 81.6 26.6 - - -
Final - year ended 31
March 2014 591.5 174.0 60.7 - - -
Interim - year ended
31 March 2014 - - - 251.0 112.4 26.0
Final - year ended 31
March 2013 - - - 568.6 17.8 59.0
854.1 255.6 819.6 130.2
------------- ------------- ------------- --------------
The final dividend of 60.7p per ordinary share declared in the
financial year ended 31 March 2014 (2013- 59.0p) was approved at
the Annual General Meeting on 25 July 2014 and was paid to
shareholders on 19 September 2014. Shareholders were able to elect
to receive ordinary shares credited as fully paid instead of the
cash dividend under the terms of the Company's scrip dividend
scheme.
An interim dividend of 26.6p per ordinary share (2014 - 26.0p)
was declared and paid on 20 March 2015 to those shareholders on the
SSE plc share register on 23 January 2015. Shareholders were able
to elect to receive ordinary shares credited as fully paid instead
of the interim cash dividend under the terms of the Company's scrip
dividend scheme.
The proposed final dividend of 61.8p per ordinary share (which
equates to a dividend of GBP613.7m) based on the number of issued
ordinary shares at 31 March 2015 is subject to approval by
shareholders at the Annual General Meeting and has not been
included as a liability in these financial statements.
11. Earnings per Share
Basic earnings per share
The calculation of basic earnings per ordinary share at 31 March
2015 is based on the net profit attributable to Ordinary
shareholders and a weighted average number of ordinary shares
outstanding during the year ended 31 March 2015. All earnings are
from continuing operations.
Adjusted earnings per share
Adjusted earnings per share has been calculated by excluding the
charge for deferred tax, interest on net pension liabilities under
IAS 19R and the impact of exceptional items and certain
re-measurements (Note 7).
Year ended 31 March Year ended 31 March Year ended 31 March Year ended 31 March
2015 2015 2014 2014
Earnings Earnings per share Earnings Earnings per share
GBPm pence GBPm (restated) Pence (restated)
Basic 543.1 55.3 323.1 33.5
Exceptional items and
certain
re-measurements (Note
7) 580.9 59.2 635.8 65.8
---------------------- ---------------------- ---------------------- ----------------------
Basic excluding
exceptional items and
certain
re-measurements 1,124.0 114.5 958.9 99.3
Adjusted for:
Interest on net
pension scheme
liabilities (Note 8) 25.1 2.5 26.8 2.8
Share of interest on
net pension scheme
liabilities in joint
venture (Note 8) (11.1) (1.1) 1.4 0.1
Deferred tax (Note 9) 69.6 7.1 180.6 18.7
Deferred tax from
share of joint
ventures and
associates 11.0 1.1 23.8 2.5
Adjusted 1,218.6 124.1 1,191.5 123.4
---------------------- ---------------------- ---------------------- ----------------------
Basic 543.1 55.3 323.1 33.5
Dilutive effect of outstanding share options - (0.1) - (0.2)
----- ----- ----- -----
Diluted 543.1 55.2 323.1 33.3
Notes to the Preliminary Statement
for the year ended 31 March 2015
11. Earnings per Share (continued)
The weighted average number of shares used in each calculation
is as follows:
31 March 2015 31 March 2014
Number of shares Number of shares
(millions) (millions)
For basic and adjusted earnings per share 981.8 965.5
Effect of exercise of share options 2.1 6.1
----------------- -----------------
For diluted earnings per share 983.9 971.6
----------------- -----------------
12. Notes to the Consolidated Cash Flow Statement
(a) Reconciliation of Group operating profit to cash generated from operations
2014
Restated
2015 (note 3)
Note GBPm GBPm
Profit for the year 664.4 446.0
Add back: taxation 9 70.8 146.5
Add back: net finance costs 8 250.7 283.9
Operating profit 985.9 876.4
Less share of profit of joint ventures and associates (163.6) (185.6)
Operating profit before joint ventures and associates 822.3 690.8
Movement on operating derivatives 67.8 150.9
Pension service charges less contributions paid (77.5) (75.9)
Exceptional charges 648.7 712.3
Depreciation of assets 656.7 649.4
Amortisation and impairment of intangible assets 3.4 18.1
Impairment of inventories 1.4 2.0
Release of provisions - (0.7)
Release of deferred income (16.9) (16.8)
Charge in respect of employee share awards 15.0 15.5
(Profit) on disposal of assets and businesses - non exceptional (40.2) (11.4)
Cash generated from operations before working capital movements 2,080.7 2,134.2
(b) Reconciliation of net increase in cash and cash equivalents
to movement in adjusted net debt and hybrid capital
2015 2014
GBPm GBPm
Increase/(decrease) in cash and cash equivalents 1,053.5 (109.0)
Add/(less):
Issue of hybrid capital (1,184.3) -
New borrowings (151.1) (1,815.8)
Repayment of borrowings 66.3 1,514.8
Non-cash movement on borrowings 269.8 89.5
Increase/(decrease) in cash held as collateral 20.5 (3.8)
Movement in adjusted net debt and hybrid capital 74.7 (324.3)
The non-cash movement on borrowings includes a decrease in loans
of GBP228.8m in relation to the disposal of seven street lighting
PFI companies as well as the revaluation of fair value items,
exchange movements and accretion of index-linked bonds.
Cash held as collateral refers to amounts deposited on commodity
trading exchanges which are reported within Trade and other
receivables on the face of the balance sheet.
Notes to the Preliminary Statement
for the year ended 31 March 2015
13. Acquisitions, disposals and held for sale assets
a. Acquisitions
On 31 July 2014, the Group through its wholly owned subsidiary,
SSE Contracting Group Limited, acquired 100% of the share capital
of Energy Solutions Group Limited ('ESG'). The consideration for
the business was GBP71.9m, consisting of cash of GBP66m and
deferred consideration of GBP5.9m. The acquisition provided the
Group with cash and working capital of GBP5.1m and resulted in the
recognition of goodwill, including related deferred tax, of
GBP80.0m. The acquisition of ESG complements and enhances SSE's
services in competitive markets for industrial and commercial
customers and the contribution from the business will be reported
as part of the Enterprise reportable segment. The acquired
business, which was subsequently renamed SSE Enterprise Energy
Solutions, contributed GBP30.9m to revenue, GBP2.2m to operating
profit and GBP1.4m to profit after tax for the period to 31 March
2015.
b. Disposals
On 11 November 2014, the Group completed the disposal of seven
street lighting Private Finance Initiative ('PFI') vehicles to
Equitix Infrastructure 3 Limited ("Equitix") for cash consideration
of GBP97.5m. The result of these activities had been reported
within the Enterprise business and the net assets had been
recognised as 'held for sale' at 31 March 2014. The contracts held
by the companies had been treated as service concession
arrangements. The Group's Enterprise business has retained
sub-contracts to provide capital and maintenance services to the
PFI contract holders. This disposal provides the benefit of
reducing the Group's debt by GBP324.0m (being cash of GBP95.2m and
debt reduction of GBP228.8m). The Group recorded a gain on disposal
of GBP38.0m after provisions associated with the retained
sub-contracts were recognised. The pre-disposal contribution to the
Group from the disposed activities in the financial year was
GBP1.4m.
On 26 November 2014, CBPE Capital acquired the shareholdings of
Anesco Limited including 100% from the Environmental Energy Fund in
which the Group holds a 49% stake. Accordingly, on completion a
payment of GBP22.2m cash dividend in relation to the Group's share
of the investment by the fund was received, the Group recognised a
gain on disposal of GBP19.6m. This investment was not 'held for
sale' at 31 March 2014. Both this transaction and the Equitix
transaction were treated as exceptional items in the Financial
Statements.
During the year, the Group disposed of a number of other
businesses and assets for the combined net cash consideration of
GBP116.4m and deferred consideration of GBP12.1m. This included the
disposal, on 1 September 2014, of its previously 'held for sale'
gas connections business, to the Environmental Energies Fund, in
which the Group has a 49% interest and in respect of which the
Group recognised a gain on disposal of GBP15.3m. The following
table summarises all businesses and assets disposed of, including
those not previously 'held for sale' and including other assets and
investments disposed of as part of the normal course of
business.
Held for sale at March 2014 Not held for sale at March 2014
Businesses Other Assets Total Businesses Other Assets Total Total
Net assets disposed: GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Property, plant and equipment 58.8 13.4 72.2 - 2.2 2.2 74.4
Intangible and biological assets - 2.5 2.5 2.4 9.7 12.1 14.6
Investments - joint venture and
other 0.3 - 0.3 - 15.7 15.7 16.0
Trade and other receivables 348.7 348.7 1.7 - 1.7 350.4
Trade and other payables (94.3) - (94.3) - - - (94.3)
Loans and borrowings (230.2) - (230.2) - - - (230.2)
Net assets 83.3 15.9 99.2 4.1 27.6 31.7 130.9
Proceeds of disposal
Cash consideration 381.4 18.2 399.6 5.3 62.6 67.9 467.5
Deferred consideration 1.1 - 1.1 11.0 - 11.0 12.1
Debt reduction (228.8) - (228.8) - - - (228.8)
Costs of disposal (3.6) - (3.6) - (1.3) (1.3) (4.9)
Provisions (12.5) - (12.5) - 11.0 11.0 (1.5)
Total 137.6 18.2 155.8 16.3 72.3 88.6 244.4
Gain on disposal after provisions 54.3 2.3 56.6 12.2 44.7 56.9 113.5
The GBP467.5m cash consideration less related costs of GBP4.9m
includes the GBP228.8m debt reduction associated with the disposal
of the street lighting PFI. Actual cash proceeds of GBP233.8m are
recorded in the Cash Flow Statement as GBP167.2m from disposal of
held for sale assets, GBP25.3m from disposal of property, plant and
equipment, GBP5.3m from disposal of businesses and GBP36.0m from
sale of other investments.
Notes to the Preliminary Statement
for the year ended 31 March 2015
13. Acquisitions, disposals and held for sale assets
(continued)
c. Held-for-sale assets and liabilities
On 26 March 2014, the Group announced its intention to dispose
of a number of non-core assets and businesses and to identify
further operational efficiencies as part of a value programme. A
number of these businesses and assets have been sold in the year
and a number of additional businesses and assets are now in the
process of or have been identified for sale.
As a result, a number of assets and liabilities associated with
activities are deemed available for immediate sale and have been
separately presented on the face of the balance sheet. The assets
have been stated at the lower of their carrying value and their
fair value less costs to sell. These held for sale assets include
the 16MW Langhope Rig wind farm for which agreement has been
reached for sale but which has not reached completion, a further
street lighting PFI vehicle and a portfolio of wind farm
development assets. The aggregated pre-tax profit contribution of
the held for sale assets and businesses in the year to 31 March
2015 was GBP1.8m (2014: GBP1.2m).
The assets and liabilities classified as held for sale, and the
comparative balances at 31 March 2014, are as follows:
Energy Portfolio Management and Electricity Generation Total Total
Enterprise 2015 2014
GBPm GBPm GBPm GBPm
Property Plant and Equipment 54.2 - 54.2 62.3
Forestry Assets 1.8 - 1.8 3.4
Other intangible 21.3 - 21.3 5.5
Non-current assets 77.3 - 77.3 71.2
Inventories - - - 0.8
Trade and other receivables 3.5 29.5 33.0 260.4
Non trade debtors - - - 0.1
Current assets 3.5 29.5 33.0 261.3
Total assets 80.8 29.5 110.3 332.5
Trade and other payables (10.3) (0.5) (10.8) (14.9)
Provisions - - - (0.7)
Current liabilities (10.3) (0.5) (10.8) (15.6)
Deferred tax liabilities (0.3) - (0.3) (2.7)
Provisions - - - (0.9)
Non-current liabilities (0.3) - (0.3) (3.6)
Total liabilities (10.6) (0.5) (11.1) (19.2)
Net assets 70.2 29.0 99.2 313.3
Notes to the Preliminary Statement
for the year ended 31 March 2015
14. Loans and other borrowings
2015 2014
Current GBPm GBPm
Bank overdraft 0.2 0.3
Other short-term loans 712.4 600.3
712.6 600.6
Obligations under finance leases 20.2 18.1
732.8 618.7
Non current
Loans 5,068.4 5,365.5
Obligations under finance leases 299.5 310.8
5,367.9 5,676.3
Total loans and borrowings 6,100.7 6,295.0
Add:
Cash and cash equivalents (1,512.3) (458.9)
Unadjusted Net Debt 4,588.4 5,836.1
Add/(less):
Hybrid capital (Note 15) 3,371.1 2,186.8
Obligations under finance leases (319.7) (328.9)
Cash held as collateral (71.7) (51.2)
Adjusted Net Debt and Hybrid Capital 7,568.1 7,642.8
Borrowing facilities
The Group has an established EUR1.5bn Euro commercial paper
programme (paper can be issued in a range of currencies and swapped
into sterling). The Group has GBP1.5bn (2014 - GBP1.5bn) of
committed credit facilities in place; maturing in April and July
2018, which provide a back up to the commercial paper programme and
at 31 March 2015 these facilities were undrawn. The Group has a
further GBP50m facility available from the European Investment Bank
which will be drawn in the first half of 2015/16 when it will
become a term loan.
15. Hybrid Capital
2015 2014
GBPm GBPm
GBP 750m 5.453% perpetual subordinated capital securities 744.5 744.5
EUR 500m 5.025% perpetual subordinated capital securities 416.9 416.9
USD 700m 5.625% perpetual subordinated capital securities 427.2 427.2
EUR 750m 5.625% perpetual subordinated capital securities 598.2 598.2
GBP 750m 3.875% perpetual subordinated capital securities 748.3 -
EUR 600m 2.375% perpetual subordinated capital securities 436.0 -
3,371.1 2,186.8
On 10 March 2015, the Company issued GBP750m and EUR600m hybrid
capital bonds with no fixed redemption date, but the Company may at
its sole discretion redeem all, but not part of, the capital
securities at their principal amount. The date for the first
discretionary redemption of the GBP750m hybrid capital bond is 10
September 2020 and then every 5 years thereafter. The date for the
first discretionary redemption of the EUR600m hybrid capital bond
is 1 April 2021 and then every 5 years thereafter.
The Company previously issued GBP750m and EUR500m hybrid capital
bonds on 20 September 2010 and EUR750m and $700m hybrid capital
bonds on 18 September 2012.
Each bond has no fixed redemption date, but the Company may, at
its sole discretion, redeem all, but not part, of these capital
securities at their principal amount. The date for the
discretionary redemption of the capital issued on 18 September 2012
is 1 October 2017 and every five years thereafter. The 20 September
2010 issued capital may be redeemed fully (not in part) at their
principal amounts on 1 October 2015 or 1 October 2020 or any
subsequent coupon payment date.
In addition, under certain circumstances defined in the terms
and conditions of the issue, the Company may at its sole discretion
redeem all (but not part of) the bonds at their principal amount at
any time prior to 1 October 2017 (for the 18 September 2012
securities) or at any time prior to 1 October 2015 (for the 20
September 2010 securities).
The Company has the option to defer coupon payments on the bonds
on any relevant payment date, as long as a dividend on the ordinary
shares has not been declared. Deferred coupons shall be satisfied
only in the following circumstances, all of which occur at the sole
option of the Company: (i) redemption; or, (ii) dividend payment on
ordinary shares. Interest will accrue on any deferred coupon.
Notes to the Preliminary Statement
for the year ended 31 March 2015
15. Hybrid Capital (continued)
For the capital issued on 20 September 2010 and the EUR750m
capital issued on 18 September 2012, coupon payments are expected
to be made annually in arrears on 1 October in each year. For the
US$700m capital issued on 18 September 2012, coupon payments are
expected to be made bi-annually in arrears on 1 April and 1 October
each year. For the GBP750m capital issued on 10 March 2015, the
first coupon payment is expected to be 10 September 2016 and then
annually in arrears thereafter, and for the EUR600m capital issued
on 10 March 2015, the first coupon payment is expected to be made
on 1 April 2016 and then annually in arrears thereafter. The
purpose of all three issues was to strengthen SSE's capital base
and fund the Group's ongoing capital investment and
acquisitions.
Coupon payments of GBP23.6m (2014 - GBP24.2m) in relation to the
US$ capital issued on 18 September 2012 were paid on 2 April 2014
and 1 October 2014. In addition coupon payments of GBP97.7m (2014 -
GBP98.7m) in relation to the other hybrid capital bonds were made
on 1 October 2014.
16. Share capital
Number GBPm
(millions)
Allotted, called up and fully paid:
At 1 April 2014 974.9 487.4
Issue of shares (i) 18.1 9.1
At 31 March 2015 993.0 496.5
The Company has one class of ordinary share which carries no
right to fixed income. The holders of ordinary shares are entitled
to receive dividends as declared and are entitled to one vote per
share at meetings of the Company.
(i) Shareholders were able to elect to receive ordinary shares
in place of the final dividend of 60.7p per ordinary share (in
relation to year ended 31 March 2014) and the interim dividend of
26.6p (in relation to the current year) under the terms of the
Company's scrip dividend scheme. This resulted in the issue of
11,775,169 and 5,348,770 new fully paid ordinary shares
respectively (2014: 1,128,181 and 8,551,629). In addition, the
Company issued 1.0m (2014 - 0.9m) shares during the year under the
savings-related share option schemes for a consideration of
GBP10.3m (2014 - GBP8.9m).
During the year, on behalf of the Company, the employee share
trust purchased 0.6m shares for a total consideration of GBP9.0m
(2014 - 0.8m shares, consideration of GBP12.0m). At 31 March 2015,
the trust held 3.1m shares (2014 - 3.2m) which had a market value
of GBP47.5m (2014 - GBP46.6m).
17. Capital and Financial Risk Management
(i) Capital management
The Board's policy is to maintain a strong balance sheet and
credit rating so as to support investor, counterparty and market
confidence and to underpin future development of the business. The
Group's credit ratings are also important in maintaining an
efficient cost of capital and in determining collateral
requirements throughout the Group. As at 31 March 2015, the Group's
long term credit rating was A- stable outlook for Standard &
Poor's and A3 negative outlook for Moody's.
The maintenance of a medium-term corporate model is a key
control in monitoring the development of the Group's capital
structure, and allows for detailed scenarios and sensitivity
testing. Key ratios drawn from this analysis underpin regular
updates to the Board and include the ratios used by the rating
agencies in assessing the Group's credit ratings.
The Group has the option to purchase its own shares from the
market; the timing of these purchases depends on market prices and
economic conditions. The use of share buy-backs is the Group's
benchmark for investment decisions and can be utilised at times
when management believe the Group's shares are undervalued. No
share buy-back was made during the year.
The Group's debt requirements are principally met through
issuing bonds denominated in Sterling and Euros as well as private
placements and medium term bank loans including those with the
European Investment Bank. In addition, the Group has issued hybrid
capital securities which bring together features of both debt and
equity are perpetual and subordinate to all senior creditors. The
Group has GBP1.5bn of committed bank facilities which relate to the
Group's revolving credit and bilateral facilities that can be
accessed at short notice for use in managing the Group's short term
funding requirements. The Group also has a GBP50m facility with the
European Investment Bank that will be drawn in the first half of
2015/16 when it will become a term loan. However, these committed
facilities remain undrawn for the majority of the time.
Notes to the Preliminary Statement
for the year ended 31 March 2015
17. Capital and Financial Risk Management (continued)
(i) Capital management (continued)
The Group capital comprises:
2014
2015 (Restated)
GBPm GBPm
Total borrowings (excluding finance leases) 5,781.0 5,966.1
Less : Cash and cash equivalents (1,512.3) (458.9)
Net debt (excluding hybrid capital) 4,268.7 5,507.2
Hybrid capital 3,371.1 2,186.8
Cash held as collateral (71.7) (51.2)
Adjusted Net Debt and Hybrid Capital 7,568.1 7,642.8
Equity attributable to shareholders of the parent 2,709.4 2,932.7
Total capital 10,277.5 10,575.5
In summary, the Group's intent is to balance returns to
shareholders between current returns through dividends and
long-term capital investment for growth. In doing so, the Group
will maintain its capital discipline and will continue to operate
within the current economic environment prudently. There were no
changes to the Group's capital management approach during the
year.
(ii) Financial risk management
The Board has overall responsibility for the establishment and
oversight of the Group's risk management framework. The Risk and
Trading Committee, which reports to the Executive Committee,
comprises the two Executive Directors and senior managers from the
Energy Portfolio Management, Retail, Corporate and Finance
functions. Its specific remit is to support the Group's risk
management responsibilities by reviewing the strategic, market,
credit, operational and liquidity risks and exposures that arise
from the Group's energy portfolio management, generation and
treasury operations. This committee is discussed further in the
Corporate Governance section of the Annual Report.
The Group's policies for risk management are established to
identify the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits.
These policies, and the systems used to monitor activities, are
reviewed regularly by the Risk and Trading Committee.
Exposure to the commodity, currency and interest rate risks
noted arise in the normal course of the Group's business and
derivative financial instruments are entered into to hedge exposure
to these risks. The objectives and policies for holding or issuing
financial instruments and similar contracts and the strategies for
achieving those objectives that have been followed during the year
are explained below.
The Company is required to disclose information on its financial
instruments and has adopted policies identical to that of the
Group, where applicable. Separate disclosure is provided where
necessary.
For financial reporting purposes, the Group has classified
derivative financial instruments into two categories, operating
derivatives and financing derivatives. Operating derivatives relate
to qualifying commodity contracts which includes certain contracts
for electricity, gas, oil, coal and carbon. Financing derivatives
include all fair value and cash flow interest rate hedges,
non-hedge accounted (mark-to-market) interest rate derivatives,
cash flow foreign exchange hedges and non-hedge accounted foreign
exchange contracts. Non-hedge accounted contracts is treated as
held for trading.
The net movement reflected in the interim income statement can
be summarised thus:
2015 2014
GBPm GBPm
Operating derivatives
Total result on operating derivatives (i) (1,073.5) (785.4)
Less: amounts settled (ii) 1,005.7 634.5
Movement in unrealised derivatives (67.8) (150.9)
Financing derivatives (and hedged items)
Total result on financing derivatives (i) (395.5) (754.7)
Less: amounts settled (ii) 351.3 690.5
Movement in unrealised derivatives (44.2) (64.2)
Net income statement impact (112.0) (215.1)
(i) Total result on derivatives in the income statement
represents the total amounts (charged) or credited to the income
statement in respect of operating and financial derivatives.
(ii) Amounts settled in the year represent the result on
derivatives transacted which have matured or been delivered and
have been included within the total result on derivatives.
Notes to the Preliminary Statement
for the year ended 31 March 2015
17. Capital and Financial Risk Management (continued)
Financial risk management (continued)
The fair values of the primary financial assets and liabilities
of the Group, together with their carrying values, are as
follows:
2014 2014
2015 2015 (restated) (restated)
Carrying Fair Carrying Fair
Value Value Value Value
GBPm GBPm GBPm GBPm
Financial Assets
Current
Trade receivables 2,977.5 2,977.5 2,797.5 2,797.5
Other receivables 25.2 25.2 29.0 29.0
Cash collateral 71.7 71.7 51.2 51.2
Cash and cash equivalents 1,512.3 1,512.3 458.9 458.9
Derivative financial assets 1,999.9 1,999.9 1,261.2 1,261.2
6,586.6 6,586.6 4,597.8 4,597.8
Non-current
Unquoted equity investments 11.2 11.2 24.3 24.3
Loans to associates and jointly controlled entities 559.4 559.4 521.6 521.6
Derivative financial assets 566.8 566.8 368.4 368.4
1,137.4 1,137.4 914.3 914.3
7,724.0 7,724.0 5,512.1 5,512.1
Financial Liabilities
Current
Trade payables (2,707.7) (2,707.7) (2,496.3) (2,496.3)
Bank loans and overdrafts (712.6) (714.3) (600.6) (603.5)
Finance lease liabilities (20.2) (20.2) (18.1) (18.1)
Derivative financial liabilities (2,297.3) (2,297.3) (1,470.2) (1,470.2)
(5,737.8) (5,739.5) (4,585.2) (4,588.1)
Non-current
Loans and Borrowings (5,068.4) (6,213.4) (5,365.5) (6,001.3)
Finance lease liabilities (299.5) (299.5) (310.8) (310.8)
Derivative financial liabilities (933.4) (933.4) (681.7) (681.7)
(6,301.3) (7,446.3) (6,358.0) (6,993.8)
(12,039.1) (13,185.8) (10,943.2) (11,581.9)
Net financial liabilities (4,315.1) (5,461.8) (5,431.1) (6,069.8)
Fair Value Hierarchy
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable.
-- Level 1 fair value measurements are those derived from
unadjusted quoted market prices for identical assets or
liabilities.
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data.
Notes to the Preliminary Statement
for the year ended 31 March 2015
17. Capital and Financial Risk Management (continued)
Financial risk management (continued)
Fair Value Hierarchy
Level Level Level Total
1 2 3
Financial Assets GBPm GBPm GBPm GBPm
Energy derivatives 1,093.3 1,261.7 - 2,355.0
Interest rate derivatives - 188.5 - 188.5
Foreign exchange derivatives - 23.2 - 23.2
Equity investments - 26.4 - 26.4
1,093.3 1,499.8 - 2,593.1
Financial Liabilities
Energy derivatives (1,044.5) (1,643.8) - (2,688.3)
Interest rate derivatives - (473.3) - (473.3)
Foreign exchange derivatives - (69.1) - (69.1)
Loans and Borrowings - (30.9) - (30.9)
(1,044.5) (2,217.1) - (3,261.6)
There were no significant transfers out of level 1 into level 2
and out of level 2 into level 1 during the year ended 31 March
2015. Oil and coal commodities reported as level 2 for the year
ended 31 March 2014 (assets of GBP316.8m and liabilities of
GBP319.4m) are now classified as level 1, following a reassessment
of assets and liabilities by the Group.
18. Retirement Benefit Obligations
Valuation of combined Pension Schemes
Value
Long- term rate of return Value Long- term rate of return at 31 March
expected at 31 March 2015 at 31 March 2015 expected at 31 March 2014 2014
% GBPm % GBPm
Equities 5.6 1,060.1 7.2 967.9
Government bonds 2.6 1,049.6 3.5 920.0
Corporate bonds 3.3 1,061.3 4.3 814.1
Other investments 4.1 580.0 1.3 555.3
Total fair value of plan
assets 3,751.0 3,257.3
Present value of defined
benefit obligation (4,209.1) (3,693.9)
Pension liability before
IFRIC 14 (458.1) (436.6)
IFRIC 14 liability (i) (206.5) (201.1)
Deficit in the schemes (664.6) (637.7)
Deferred tax thereon 132.8 127.5
Net pension liability (531.8) (510.2)
(i) The IFRIC 14 liability represents the deficit repair
obligations required to ensure a minimum funding level together
with a restriction on the surplus that can be recognised.
Notes to the Preliminary Statement
for the year ended 31 March 2015
18. Retirement Benefit Obligations (continued)
Movements in the defined benefit asset obligations and assets
during the year:
2015 2014
Assets Obligations Total Assets Obligations Total
GBPm GBPm GBPm GBPm GBPm GBPm
at 1 April 3,257.3 (3,693.9) (436.6) 3,118.0 (3,634.5) (516.5)
Included in Income Statement
Current service cost - (55.4) (55.4) - (56.2) (56.2)
Past service cost - (16.7) (16.7) - (0.6) (0.6)
Interest income/(cost) 139.9 (156.4) (16.5) 128.0 (147.0) (19.0)
139.9 (228.5) (88.6) 128.0 (203.8) (75.8)
Included in Other Comprehensive Income
Actuarial (loss)/gain arising from:
Demographic assumptions - - - - (12.4) (12.4)
Financial assumptions - (515.4) (515.4) - 14.8 14.8
Experience assumptions - 70.4 70.4 - 13.3 13.3
Return on plan assets excluding interest income 362.5 - 362.5 7.3 - 7.3
362.5 (445.0) (82.5) 7.3 15.7 23.0
Other
Contributions paid by the employer 149.6 - 149.6 132.7 - 132.7
Scheme participants contributions 0.3 (0.3) - 1.1 (1.1) -
Benefits Paid (158.6) 158.6 - (129.8) 129.8 -
(8.7) 158.3 149.6 4.0 128.7 132.7
Balance at 31 March 3,751.0 (4,209.1) (458.1) 3,257.3 (3,693.9) (436.6)
Charges / (credits) recognised:
2015 2014
GBPm GBPm
Current service cost (charged to operating profit) 72.1 56.8
--------
72.1 56.8
--------
(Credited)/charged to finance costs:
Interest on pension scheme assets (139.9) (128.0)
Interest on pension scheme liabilities 156.4 147.0
IFRIC 14 impact on net interest 8.6 7.8
--------
25.1 26.8
--------
19. Capital commitments
2015 2014
GBPm GBPm
Capital expenditure:
Contracted for but not provided 1,059.5 625.1
Contracted for, but not provided capital commitments, include
the fixed contracted costs of the Group's major capital projects.
In practice, contractual variations may arise on the final
settlement of these contractual costs.
Notes to the Preliminary Statement
for the year ended 31 March 2015
20. Related party transactions
The following transactions took place during the year between
the Group and entities which are related to the Group but which are
not members of the Group. Related parties are defined as those in
which the Group has control, joint control or significant influence
over.
Sale of Purchase of Sale of Purchase of
goods and goods and Amounts Amounts owed goods and goods and Amounts Amounts owed
services services owed from to services services owed from to
2015 2015 2015 2015 2014 2014 2014 2014
Equity
accounted
joint
ventures: GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Seabank
Power Ltd 20.1 (115.5) 1.8 11.1 22.9 (108.7) 1.2 9.1
Marchwood
Power Ltd 28.7 (114.4) 3.4 12.7 33.5 (94.5) 0.2 8.1
Scotia Gas
Networks
Ltd 49.0 (166.4) 7.7 0.3 58.7 (175.2) 15.7 0.7
Other Joint
Ventures 27.6 (6.0) 3.0 - 36.5 - 1.1 0.3
Associates 0.8 (41.9) 1.9 2.5 1.5 (28.2) 1.1 2.5
The transactions with Seabank Power Limited and Marchwood Power
Limited relate to the contracts for the provision of energy or the
tolling of energy under power purchase arrangements. Scotia Gas
Networks Limited has operated the gas distribution networks in
Scotland and the South of England from 1 June 2005. The Group's gas
supply activity incurs gas distribution charges while the Group
also provides services to Scotia Gas Networks in the form of a
management service agreement for corporate services, stock
procurement services and the provision of the capital expenditure
on the development of front office management information
systems.
The amounts outstanding are trading balances, are unsecured and
will be settled in cash. No guarantees have been given or received.
No provisions have been made for doubtful debts in respect of the
amounts owed by related parties.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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