TIDMSSE
RNS Number : 5345Y
SSE PLC
18 May 2016
SSE plc
Preliminary results for the year to 31 March 2016
18 May 2016
This report sets out the preliminary results for SSE plc for the
year to 31 March 2016. It includes updates on operations and
investments in its Wholesale, Networks and Retail (including
Enterprise) businesses.
Overview
-- SSE has met its main financial objective of an annual
increase in the full-year dividend that is at least equal to RPI
inflation - recommended full-year dividend up 1.1% to 89.4p;
-- Adjusted earnings per share down 3.7% to 119.5p but ahead of target of at least 115p;
-- Dividend cover of 1.34 times, which is within the expected range of 1.2 times-1.4 times;
-- SSE is targeting a return to growth and adjusted earnings per
share of at least 120p in 2016/17; and delivery of a full-year
dividend that at least keeps pace with RPI inflation in 2016/17 and
in the subsequent years;
-- Taking account of the general uncertainties in the operating
environment, SSE expects its dividend cover could range from around
1.2 times to around 1.4 times over the three years to 2018/19,
based on dividend increases that at least keep pace with RPI
inflation;
-- Adjusted profit before tax fell by 3.3% to GBP1,513.5mand
reported profit before tax fell by 19.3% to GBP593.3m;
-- All three reportable business segments contributed adjusted
operating profit during 2015/16: Wholesale earned GBP442.5m, down
6.6%; Networks earned GBP926.6m, down 1.1% and Retail (including
Enterprise) earned GBP455.2m, down 0.4%. Overall, operating profit
is as expected when SSE published its Notification of Close Period
on 24 March 2016, although the mix of operating profit is slightly
different;
-- SSE recorded net exceptional charges of GBP889.8m before tax
which was predominately related to impairment of certain Wholesale
assets. Against this, SSE also recorded a gain on the disposal of
an interest in its Clyde wind farm of GBP138.6m which was recorded
directly in equity.
-- Capital and investment expenditure totalled GBP1.6bn and
adjusted net debt and hybrid capital was GBP8.4bn at 31 March 2016,
compared to GBP7.9bn at 30 September 2015. While underlying cash
flows remain strong, the increase in adjusted net debt follows the
acquisition of, and resulting investment in, new gas production and
infrastructure assets acquired in October 2015, and unfavourable
movements in foreign exchange rates;
-- SSE's total investment and capital expenditure is expected to
be around GBP1.75bn in 2016/17 and in the range of GBP5.5-GBP6bn
across the four years to March 2020;
-- SSE continues to focus on operational efficiency and has also
secured over GBP1bn from its asset disposal programme. With a small
amount still to complete, this programme has already achieved its
objectives and will support future operations and investment;
-- SSE considers disposal of up to one third of its 50% equity
stake in SGN Limited, with any proceeds being used to return or
create value for shareholders; and
-- SSE continues to engage constructively with policy-makers and
regulators. There is now increased clarity on aspects of the
external operating environment with the conclusion of the CMA
consideration of the RIIO ED1 framework, planned revisions to the
UK Capacity Market and the Provisional Decision on Remedies from
the CMA investigation into the supply and acquisition of
energy.
SSE's financial performance in 2015/16 at-a-glance
Mar 16 Mar 15 Mar 14
======================================== ======== ======== ========
Adjusted Operating Profit* GBPm GBPm GBPm
======================================== ======== ======== ========
Wholesale 442.5 473.8 634.6
======================================== ======== ======== ========
Networks 926.6 936.8 920.3
======================================== ======== ======== ========
Retail 455.2 456.8 327.1
======================================== ======== ======== ========
Corporate Unallocated 0.1 14 (1.9)
======================================== ======== ======== ========
Total adjusted operating profit 1,824.4 1,881.4 1,880.1
======================================== ======== ======== ========
Adjusted profit before tax* 1,513.5 1,564.7 1,551.1
======================================== ======== ======== ========
Reported/ unadjusted profit before tax 593.3 735.2 592.5
======================================== ======== ======== ========
Pence Pence Pence
======================================== ======== ======== ========
Adjusted earnings per share (EPS)* 119.5 124.1 123.4
======================================== ======== ======== ========
Full-year dividend per share(DPS) 89.4 88.4 86.7
======================================== ======== ======== ========
Times Times Times
======================================== ======== ======== ========
Dividend cover 1.34 1.40 1.42
======================================== ======== ======== ========
GBPm GBPm GBPm
======================================== ======== ======== ========
Investment and capital expenditure 1,618.7 1,475.3 1,582.5
======================================== ======== ======== ========
Adjusted net debt and hybrid capital 8,395.0 7,568.1 7,642.8
======================================== -------- -------- --------
Business-by-business profitability and performance
Operating profit*, which is stated before the payment of
interest and tax, for the year to 31 March 2016 is set out above.
Comparisons are with the previous two financial years, but it
should be noted that movements 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
-- Energy Portfolio Management and Electricity Generation:
operating profit* increased slightly by 0.7% mainly due to a 11.5%
increase in electricity output from renewable sources offset by low
wholesale power prices;
-- Gas Production: operating profit* fell by 94%, reflecting a
lower average achieved price for gas produced; and
-- Gas Storage: operating profit* was broadly flat, but very low
at GBP4.0m reflecting continuing challenging operating
conditions.
Wholesale was impacted by significant impairment charges
associated with certain assets reflecting the impact of prevailing
commodity prices and regulatory and other economic factors.
Networks
-- Electricity Transmission: operating profit* rose 56.0%
reflecting major investment in the asset base;
-- Electricity Distribution: operating profit* fell by 20.7% as
expected, mainly due to the reduction in base revenues under the
first year of the RIIO ED1 Price Control; and
-- Gas Distribution: SSE's share of SGN's operating profit* fell
by 5.7% primarily due to the decrease in allowed revenue in 2015/16
compared to the prior year.
Retail
-- Energy Supply: operating profit* increased by 8.2% reflecting
growth from Business Energy, especially from the I&C sector,
where customer propositions and service have been enhanced. This
was offset by a decline in operating profit in household energy
caused by declining customer numbers and lower energy consumption.
Over the year SSE's annual pre-tax profit margin per dual fuel
household customer in GB was around 6.2%;
-- Energy-related services: operating profit* fell by 13.0%, as
SSE continues to invest in building scale in these businesses;
and
-- Enterprise: operating profit* fell by 41.9% - the previous
financial year included the GBP15.3m profit from the disposal of
SSE's gas pipeline business and there have been a number of
revisions to the overall structure of the SSE Enterprise
business.
Investment and Capital Expenditure
In the year to 31 March 2016 SSE's investment and capital
expenditure totalled GBP1.62bn. Economically-regulated Networks and
renewable energy mandated by government obligations and targets
accounted for 70% of this spend. Investment and capital expenditure
included:
-- progressing the Caithness-Moray electricity transmission
link, the largest capital project ever undertaken by SSE, and
investing in customer service and innovation in Electricity
Distribution. This investment further increased the RAV in
Electricity Transmission, and the total RAV of SSE's networks
businesses is well placed to reach around GBP10bn by 2020; and
-- expanding SSE's renewables portfolio with 67 MW of new
onshore wind commissioned and a further 548 MW in construction,
including the Galway Wind Park, Ireland's largest wind farm. These
developments in government-mandated renewables reinforce SSE's
position as an industry leader and are expected to take SSE's total
renewable energy capacity to just over 3.7GW net of the recent
Clyde part disposal.
In addition to the investment and capital expenditure outlined
above, SSE has also purchased a 20% interest in the four gas fields
and surrounding exploration acreage approximately 125km north west
of the Shetland Islands, collectively known as the Greater Laggan
Area, along with a 20% interest in the new Shetland Gas Plant, from
Total E&P UK Limited. These are long-term assets which
complement SSE's existing gas production assets and their
acquisition is part of SSE's well-established strategy to maintain
a balanced range of businesses.
Investment and capital expenditure is expected to be in the
range of GBP5.5 - 6bn across the four years to March 2020; in
2016/17 it is expected to be around GBP1.75bn and in 2017/18 it is
currently expected to be around GBP1.65bn, although this is subject
to change. This means the capex is weighted more towards the first
half of the four-year period than the second. Around two thirds of
this investment and capital expenditure is expected to be in
electricity networks and renewables.
Final investment decisions will be determined by the need to
secure returns that are clearly greater than the cost of capital,
enhance earnings and support the delivery of annual dividend
increases that at least keep pace with RPI inflation.
SSE's economic contribution
SSE's contribution to UK Gross Domestic Product in 2015/16
totalled just under GBP8.9bn, taking the total for the last five
years to over GBP45bn. In Ireland, it was EUR805m in 2015/16.
Safety
Safety is the number one priority for SSE. The Total Recordable
Injury Rate for employees and employees of other companies working
on SSE sites was 0.23 per 100,000 hours worked in 2015/16, the same
as in the previous year.
Financial outlook for SSE in 2016/17
SSE continues to fulfil its core purpose of providing the energy
people need in a reliable and sustainable way with clearly-defined
and long-term strategic and financial frameworks which are built
around the efficient operation of, and disciplined investment in, a
balanced range of businesses across the energy sector in Great
Britain and Ireland;
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
2016/17 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.
Although the nature of energy provision means that its financial
results in any single year are always subject to well-documented
uncertainties, SSE is aiming for a return to growth and adjusted
earnings per share of at least 120p in 2016/17.
As a result of its investment over the last five years, the
majority of SSE's asset base and operating profit now relates to
economically-regulated Networks and government-mandated renewable
sources of energy. Over the three years to 2018/19, SSE expects its
dividend cover could range from around 1.2 times to around 1.4
times, based on dividend increases that at least keep pace with RPI
inflation. SSE maintains a long term target for dividend cover of
above 1.4 times and closer to 1.5 times, based on dividend
increases which at least keep pace with RPI inflation.
Richard Gillingwater, Chairman, SSE, said:
"SSE continues to fulfil its core purpose of providing the
energy people need in a reliable and sustainable way, and in the
context of a number of significant challenges 2015/16 marked
another year of solid operational and financial performance across
the SSE group. SSE has a clearly defined and long-term strategic
framework comprising operational efficiency, disciplined investment
and maintaining a balanced range of energy businesses. This
strategy puts the company in good stead for the future and SSE is
well-placed to deliver for its customers and its investors alike in
the years ahead, and to continue to meet its financial objective of
annual dividend growth of at least RPI inflation."
Alistair Phillips-Davies, Chief Executive of SSE, said:
"It has been another year in which SSE has delivered what it
said it would. Nevertheless, the operating environment presented a
number of complex issues, including the impact of prevailing
commodity prices and intense retail market competition. At the same
time, SSE has continued to demonstrate financial discipline and
commitment to its long-term strategic framework. The fact that some
of the mist is beginning to clear around the legislative, political
and regulatory environment means there are grounds for some
cautious optimism for the next couple of years.
"SSE continues to invest for the future and in the year ahead
plans almost GBP1.75bn of investment into new energy infrastructure
in the UK and Ireland and improvements in services for our
customers. SSE will continue to identify opportunities for growth,
whilst maintaining its financial discipline, enabling it to deliver
for customers, achieve its core purpose and meet its dividend
commitments."
Further Information
Investor Timetable
Annual report on sse.com/investors 21 June 2016
AGM (Perth) and Q1 Trading Statement 21 July 2016
Ex-dividend date 28 July 2016
Record Date 29 July 2016
Final date for receipt of Scrip Elections 26 August 2016
Payment Date 23 September 2016
Notification of Close Period by 30 September 2016
Results for six months to 30 September 9 November 2016
2016
Enquiries
Investors and Analysts ir@sse.com + 44 (0)345 0760 530
Media media@sse.com + 44 (0)345 0760 530
Webcast facility
You can join the webcast by visiting www.sse.com and following
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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 at www.twitter.com/sse.
Disclaimer
This financial report contains forward-looking statements about
financial and operational matters. Because they relate to future
events and are subject to future circumstances, these
forward-looking statements are subject to risks, uncertainties and
other factors. As a result, actual financial results, operational
performance and other future developments could differ materially
from those envisaged by the forward-looking statements.
SSE plc gives no express or implied warranty as to the
impartiality, accuracy, completeness or correctness of the
information, opinions or statements expressed herein. Neither SSE
plc nor its affiliates assume liability of any kind for any damage
or loss arising from any use of this document or its contents.
This document does not constitute an offer or invitation to
underwrite, subscribe for, or otherwise acquire or dispose of any
SSE shares or other securities and the information contained herein
cannot be relied upon as a guide to future performance.
Definitions
These financial results for the year ending 31 March 2016 are
reported under IFRS, as adopted by the EU.
In order to present the financial results and performance of the
Group in a consistent and meaningful way, SSE applies a number of
adjusted accounting measures throughout this financial report.
These adjusted measures are used for internal management reporting
purposes and are believed to present the underlying performance of
the Group in the most useful manner for ordinary shareholders and
other stakeholders.
As a result, this report focuses on adjusted earnings per share,
adjusted profit before tax and adjusted operating profit.
Therefore, unless explicitly stated otherwise, any reference to
Operating Profit, Profit before Tax and Earnings Per Share in the
pages up to the Preliminary Financial Information refers to SSE's
adjusted measures. This has also been indicated by the use of an
*.
The definitions SSE uses can be explained as follows:
Adjusted Operating Profit * - describes operating profit before
exceptional items and re-measurements arising from IAS 39 and after
the removal of interest and taxation on profits from joint ventures
and associates. Note that 'operating profit' is described as profit
before interest and taxation.
Adjusted 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
based on adjusted profit after tax which excludes exceptional items
and re-measurements arising from IAS 39, deferred tax and interest
costs on net pension scheme liabilities.
Note 2 to the Preliminary Financial Statements explains more
about the basis and rationale of these adjustments including SSE's
definition of Exceptional Items and Certain Re-measurements.
Chief Executive's Statement
In 2015/16, SSE again delivered what it said it would.
Nevertheless, the operating environment presented a number of
complex issues. In this context SSE continues to operate within a
clearly defined strategic framework built on efficient operations,
disciplined investment and maintaining a balanced range of
businesses across the energy sector - in production, storage,
transmission, distribution, supply and related services. This
positions the business well for future evolution and change in
energy provision, whilst also enabling it to identify opportunities
for growth which should arise as the overall operating environment
continues to become clearer.
Maintaining a clearly-defined strategic framework
SSE's long-established core purpose is to provide the energy
people need in a reliable and sustainable way. It operates under a
clearly-defined strategic framework consisting of:
-- Efficient and safe core operations to help meet customers'
long-term energy needs and earn the profit that allows it to give a
return to investors;
-- Disciplined investments that are governed, developed and
executed efficiently and in line with SSE's commitment to strong
financial management and the dividend;
-- The maintenance of a balanced business so that SSE has a
broad platform from which to deliver long-term value and does not
become over-exposed to any one part of the energy sector but can
pursue opportunities and contain risk in each of them where
appropriate.
The energy markets in GB and Ireland are undergoing
technological, regulatory and demographic changes. SSE believes
that its strategic framework continues to be the right one to give
it both the foundations and the flexibility to navigate through a
changing market and changing regulatory conditions. Its focus is to
provide its customers and its shareholders with long-term value.
The fundamental strength of the business is its focus on
efficiency, strong financial management, and the maintenance of a
balanced range of businesses in the energy sector. This provides
substantial opportunities for long-term growth and its track record
in, and ongoing commitment to, operational efficiency and financial
management stands SSE in good stead for the future.
Operating within a clearly-defined financial framework
The financial objective of this strategic framework 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 investment 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 2011, this
investment totalled almost GBP8 bn.
SSE's clearly-defined financial framework has three
features:
-- Dividend: SSE's financial objective is to deliver annual
increases in the dividend of at least RPI inflation. This 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, its business
activities.
-- Dividend cover: SSE believes that its dividend per share
should be covered by adjusted earnings per share* at a level that
is sustainable over the medium term. It has updated its three-year
view of the probable range of dividend cover, despite the general
uncertainties that prevail in a sector like energy. As a result of
its investment over the last five years, the majority of SSE's
asset base and operating profit now relates to
economically-regulated Networks and government-mandated renewable
sources of energy. Over the three years to 2018/19, SSE expects its
dividend cover could range from around 1.2 times to around 1.4
times, based on dividend increases that at least keep pace with RPI
inflation. SSE maintains a long term target for dividend cover of
above 1.4 times and closer to 1.5 times, based on dividend
increases which at least keep pace with RPI inflation. In making
this assessment, SSE has considered its current and projected
dividend resources in the period to March 2019, the principal risks
facing the business and the control measures in place to mitigate
those risks.
-- Balance sheet: 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
supports the delivery of annual increases in the dividend of at
least RPI inflation and the maintenance of an appropriate level of
dividend cover.
SSE believes that its prudent financial framework and associated
disciplined approach to financial management continues to make it
an attractive investment for shareholders interested in long-term
value.
Earning profits in a responsible way
A company's values are the bedrock of how it operates and in the
fulfilment of its strategy SSE's values are central. SSE provides
people with vital services and therefore has embedded a responsible
approach into its business operations. Some of the significant
steps SSE has taken to achieve enhanced social, economic and
environmental impacts include paying the Living Wage to all
employees, including being the first corporate Living Wage employer
in Ireland, and being accredited as the UK's largest Fair Tax Mark
company to recognise its transparent tax disclosures. In summary,
SSE seeks to maintain a responsible approach to business to help
ensure it is able to fulfil its core purpose, execute its strategy
and achieve its financial objectives over the long term. Full
details of how SSE seeks to earn a profit in a responsible way can
be found at sse.com/being responsible.
Performance of the three business segments
There are three reportable segments that make up the SSE Group:
Wholesale, Networks and Retail (including Enterprise). It is this
balance of businesses across the energy sector that enables SSE to
pursue opportunities and manage risks, as well as apply best
practice across all of its businesses in critical areas such as
safety, large capital projects, customer service and disciplined
financial management.
Overall, operating profit* is as expected when SSE published its
Notification of Close Period on 24 March 2016, although the mix of
operating profit* is slightly different.
-- Wholesale SSE's Wholesale business includes Generation and
EPM, Gas Storage and Gas Production. In 2015/16 there was a slight
rise in operating profit* in EPM and Generation, as a result of an
11.5% increase in output of electricity from renewable sources.
However, overall Wholesale operating profit* fell by 6.6% due to an
94% reduction in Gas Production profits, reflecting the very
challenging market conditions, and a continuing low contribution
from Gas Storage adjusted operating profit*. The operating
environment for Gas Production, thermal generation plant and Gas
Storage remains persistently challenging due primarily to the
impact of commodity prices. However, changes planned by the UK
Government to the functioning of the Capacity Market may improve
the outlook for thermal generation plant.
-- Networks SSE wholly owns three electricity networks
businesses and has a 50% share in the SGN gas distribution
networks. These well-managed, economically-regulated energy network
companies provide a relatively stable revenue flow for SSE, and its
future plans in both Transmission and Distribution allow
opportunities for fair returns. In 2015/16 there was a 56% growth
in Transmission operating profits*, due to the delivery of a major
programme of capital investment. This was offset by the expected
reduction in base revenues for Electricity Distribution under the
first year of the RIIO ED1 Price Control which was the primary
reason for the 20.7% reduction in its operating profit* and a 5.7%
reduction in the profitability of SGN, in which SSE currently has a
50% equity share.
-- Retail (including Enterprise) SSE's Retail business supplies electricity and gas, and other energy-related services, to customers across the UK and Ireland. In 2015/16, Energy Supply operating profit* increased by 8.2% to GBP398.9m reflecting growth from business energy supply, especially from the I&C sector, in which the number of customer accounts increased. This offset the decline in operating profit* in household energy caused by declining customer numbers and lower energy consumption. Over the year, SSE's annual profit margin per dual fuel household in GB was around 6.2%. There were lower profits in SSE's Enterprise business, as the previous financial year included the GBP15.3m profit from the disposal of SSE's gas pipeline business and there have been a number of revisions to the overall structure of SSE Enterprise.
Providing greater transparency in reporting
In March 2014 SSE announced that it would begin a process of
business separation to provide greater transparency and clarity in
its reporting. There is now a subsidiary company for energy
portfolio management, SSE EPM Limited, which sits alongside the
separately disclosed Energy Supply and Generation activities of the
SSE Group. Against this background, the presentation of the results
for SSE's businesses in its Financial Statements continues to be
kept under review.
This separation should increase transparency and accountability
in the performance management and the regulatory and financial
reporting of each business. Whilst there is a general drive within
SSE to improve accountability of the individual business segments,
each reportable business segment works within SSE's strategic
framework and it is their combined performance that enables it to
meet its financial objective.
Managing energy sector issues
In 2015/16 there were continued uncertainties in aspects of
SSE's operating environment. After a period of regulatory and
legislative uncertainty, however, a degree of clarity is emerging
and during the course of the year there has been increasing
visibility around the shape of the future policy and regulatory
framework affecting energy markets in Great Britain. This provides
grounds for some cautious optimism for the future.
The energy sector issues SSE continues to manage include:
-- A sustained fall in commodity prices. Commodity prices have
an inherent and well-recognised influence on SSE's business.
However, the balance of the SSE group as a whole, as well as the
long-term nature of its assets and investments, mean that it is
well-placed to manage this risk. The fall in commodity prices over
the 18 months to March 2016 has had implications across the SSE
Group. In SSE's Retail business gas tariffs were reduced by 4.1% in
April 2015 and 5.3% in March 2016 as savings from a sustained fall
in the wholesale price of gas were passed through to customers. In
electricity the situation is more complicated due to cumulative
costs associated with the long-term upgrade of the country's
electricity system that began a decade ago. In SSE's Wholesale
business the reduction in wholesale prices led to lower earnings
for SSE's Gas Production and electricity generation businesses
which in turn contributed to the significant Wholesale business
exceptional charges recorded in the year.
-- The design of the GB Capacity Market: Through the two
Capacity Market Auctions since 2014 SSE has secured agreements to
provide de-rated electricity generation capacity to help the UK
Government, National Grid and Ofgem, to deliver their
responsibilities for security of supply. For future auctions DECC
consulted on a number of changes to the way the auction functions,
with the intention of ensuring that National Grid has adequate
electricity generation capacity to call upon. The planned rule
changes should, over time, lead to an even more effective mechanism
and the intention to introduce a supplementary capacity auction in
2016 for the delivery year 2017/2018 is welcome.
-- The evolution of the regulatory framework for energy
Networks. During the course of the year there were notable
developments in the regulatory framework for networks. The
conclusion, in September 2015, of the CMA's consideration of the
concurrent British Gas Trading (BGT) and Northern Powergrids (NPg)
appeals on the RIIO-ED1 price control resulted in it being largely
upheld. Whilst as a result of the findings of these appeals two of
SSE's Networks (SHEPD and SEPD) saw their average annual revenue
reduced by GBP2m, the CMA's conclusions further demonstrated that
the RIIO-ED1 price control process represented value for money for
customers, balancing improved network performance and customer
service over the price control period with a fair return to
investors. SSE welcomes Ofgem's recent decision that it would not
conduct a mid-period review into SHE Transmission's RIIO T1 price
control and remains committed to delivering against its outputs
while ensuring value for money for the remainder of RIIO T1.
Separately, SSE continues to engage in the process for designing
competitive tendering for onshore transmission assets, which is
being developed by Ofgem and legislated for by the UK Government,
and which may impact future transmission investment.
-- The publication by the Competition and Markets Authority of
its Provisional Decision on Remedies: The CMA's announcement of
their Provisional Decision on Remedies in March 2016 marked the
near-culmination of a two year investigation into the supply and
acquisition of energy in GB. Importantly, the investigation
progressively narrowed in focus with the main proposed remedies
focussed towards engaging customers in the energy retail market.
SSE supports many of the remedies and a clear framework and market
design is emerging, but there are unfortunate shortcomings in the
CMA's figures around the degree of consumer 'detriment' and some of
the remedies proposed require consideration as to their practical
and cost-effective implementation.
In addition, within its Notification of Close Period Statement
on 24 March 2016, SSE provided a view on the risks posed by the
forthcoming referendum on the UK's continued membership of the
European Union.
As energy is an issue of societal importance political,
legislative and regulatory change will continue to be an inherent
feature of SSE's operating environment and acknowledged as a
principal risk. Legislative change to the functioning of the energy
market is also occurring in the Irish market where SSE operates.
SSE believes that it should continue to maintain a constructive
approach to its engagement with all political parties, regulators
and governments within the jurisdictions in which it operates.
Delivering the core purpose in 2016/17
SSE's strategic priorities for 2016/17 include:
-- The safe and efficient management of assets to provide the
energy that customers rely on and support the profitability of the
business;
-- The delivery of high quality customer service and
propositions to meet the increasingly changing needs of customers
of the Retail (including Enterprise) and Networks businesses;
-- The efficient and disciplined investment in new assets or the
upgrading of existing assets to support and maintain the balance of
the business;
-- Taking further steps to increase the agility and flexibility
of the business segments within the SSE Group and to simplify
further the business through continued focus on efficiency;
-- Constructive engagement with regulators and legislators as
further clarity is forthcoming on the evolution of the market, the
regulatory framework and the operating environment.
-- The delivery of a full-year dividend increase that at least keeps pace with RPI inflation.
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 2016/17 and beyond.
Group Financial Overview
Key Financial Metrics Mar 16 Mar 15 Mar 14
GBPm GBPm GBPm
================================================================== ======== ======== ========
Adjusted Operating Profit* 1,824.4 1,881.4 1,880.1
================================================================== ======== ======== ========
Adjusted Net Finance Costs* (310.9) (316.7) (329.0)
================================================================== ======== ======== ========
Adjusted Profit before Tax* 1,513.5 1,564.7 1,551.1
================================================================== ======== ======== ========
Adjusted Current Tax Charge* (193.5) (224.8) (236.7)
================================================================== ======== ======== ========
Adjusted Profit after Tax* 1,320.0 1,339.9 1,314.4
================================================================== ======== ======== ========
Less: attributable to other equity holders (124.6) (121.3) (122.9)
================================================================== ======== ======== ========
Adjusted Profit After Tax attributable to ordinary shareholders* 1,195.4 1,218.6 1,191.5
================================================================== ======== ======== ========
Adjusted EPS* - pence 119.5 124.1 123.4
================================================================== ======== ======== ========
Reported Profit after Tax** 460.6 543.1 323.1
================================================================== ======== ======== ========
Basic EPS - pence 46.1 55.3 33.5
================================================================== ======== ======== ========
Number of shares for basic and adjusted EPS (million) 1,000.0 981.8 965.5
================================================================== ======== ======== ========
Shares in issue at 31 March (m) 1,007.6 993.0 974.9
================================================================== ======== ======== ========
(**After distributions to hybrid capital holders)
Dividend Per Share Mar 16 Mar 15 Mar 14
Interim Dividend pence 26.9 26.6 26.0
Final Dividend pence 62.5 61.8 60.7
Full Year Dividend pence 89.4 88.4 86.7
Increase % 1.1% 2.0% 3.0%
============================================ ======= ======= =======
Dividend Cover times / SSE's adjusted EPS* 1.34x 1.40x 1.42x
============================================ ======= ======= =======
Adjusted Operating Profit* by Segment Mar 16 Mar 15 Mar 14
GBPm GBPm GBPm
EPM and Electricity Generation* 436.3 433.3 496.1
Gas Production* 2.2 36.6 130.2
Gas Storage* 4.0 3.9 8.3
Wholesale 442.5 473.8 634.6
Transmission * 287.2 184.1 136.7
Distribution * 370.7 467.7 507.0
SGN * (SSE's share) 268.7 285.0 276.6
Networks 926.6 936.8 920.3
Energy Supply* 398.9 368.7 246.2
Energy related services* 15.4 17.7 24.1
Enterprise* 40.9 70.4 56.8
Retail 455.2 456.8 327.1
Corporate Unallocated* 0.1 14.0 (1.9)
======================================= ======== ======== ========
Total Adjusted Operating Profit* 1,824.4 1,881.4 1,880.1
======================================= ======== ======== ========
Net finance costs Mar 16 Mar 15 Mar 14
======================================================== ======== ======== ========
GBPm GBPm GBPm
======================================================== ======== ======== ========
Adjusted net finance costs* 310.9 316.7 329.0
======================================================== ======== ======== ========
add/(less):
======================================================== ======== ======== ========
Movement on financing derivatives (IAS 39) (14.3) 44.2 64.2
======================================================== ======== ======== ========
Share of JV/Associates interest (126.8) (124.2) (137.5)
======================================================== ======== ======== ========
Interest on net pension liabilities (IAS 19R) 22.3 14.0 28.2
======================================================== ======== ======== ========
Reported net finance costs 192.1 250.7 283.9
======================================================== ======== ======== ========
Adjusted net finance costs* 310.9 316.7 329.0
======================================================== ======== ======== ========
Add/(less):
======================================================== ======== ======== ========
Finance lease interest (34.7) (34.2) (35.7)
======================================================== ======== ======== ========
Notional interest arising on discounted provisions (15.7) (14.0) (9.5)
======================================================== ======== ======== ========
Hybrid coupon payment 124.6 121.3 122.9
======================================================== ======== ======== ========
Adjusted finance costs for interest cover calculation* 385.1 389.8 406.7
======================================================== ======== ======== ========
Profit before Tax Mar 16 Mar 15 Mar 14
GBPm GBPm GBPm
Adjusted Profit before Tax* 1,513.5 1,564.7 1,551.1
============================================== ======== ======== ========
Movement on derivatives (IAS 39) (14.5) (105.3) (212.0)
============================================== ======== ======== ========
Exceptional items (889.8) (674.6) (747.2)
============================================== ======== ======== ========
Interest on net pension liabilities (IAS19R) (22.3) (14.0) (28.2)
============================================== ======== ======== ========
Share of JV/ Associates tax 6.4 (35.6) 28.8
============================================== ======== ======== ========
Reported Profit before Tax 593.3 735.2 592.5
============================================== ======== ======== ========
Tax Mar 16 Mar 15 Mar 14
GBPm GBPm GBPm
========================================================================================= ======== ======== =======
Adjusted current tax charge* 193.4 224.8 236.7
========================================================================================= ======== ======== =======
Add/(less)
========================================================================================= ======== ======== =======
Share of JV/Associates tax 6.4 (35.6) 28.8
========================================================================================= ======== ======== =======
Deferred tax including share of JV and Associates 80.8 82.0 141.8
========================================================================================= ======== ======== =======
Tax on exceptional items/certain re-measurements (272.5) (200.4) 260.8
========================================================================================= ======== ======== =======
Reported tax charge /(credit) 8.1 70.8 146.5
========================================================================================= ======== ======== =======
Effective current tax rate based on adjusted profit before tax 12.8% 14.4% 15.3%
========================================================================================= ======== ======== =======
Total UK taxes paid including taxes on profits, property taxes, environmental taxes, and
employment
taxes 453.9 506.2 431.6
========================================================================================= ======== ======== =======
Investment and Capex Summary Mar 16 Mar 16 Mar 15
Share % GBPm GBPm
========================================== ======== ======== ========
Thermal Generation 5.6 90.8 160.6
========================================== ======== ======== ========
Renewable Generation 18.0 291.8 239.0
========================================== ======== ======== ========
Gas Storage 0.9 14.0 14.3
========================================== ======== ======== ========
Gas Production 3.5 56.1 21.0
========================================== ======== ======== ========
Total Wholesale 28.0 452.7 434.9
========================================== ======== ======== ========
Electricity Transmission 35.4 573.4 467.2
========================================== ======== ======== ========
Electricity Distribution 16.0 258.3 327.6
========================================== ======== ======== ========
Total Networks 51.4 831.7 794.8
========================================== ======== ======== ========
Energy Supply and related services 10.4 169.0 109.6
========================================== ======== ======== ========
Enterprise 3.0 48.5 25.1
========================================== ======== ======== ========
Total Retail 13.4 217.5 134.7
========================================== ======== ======== ========
Other 7.2 116.8 110.9
========================================== ======== ======== ========
Total investment and capital expenditure 100.0% 1,618.7 1,475.3
========================================== ======== ======== ========
Disposal programme (1) Mar 16 Mar 15 TOTAL
GBPm GBPm GBPm
================================= ======= ======== ========
Headline proceeds of disposal 542.2 467.5 1,009.7
================================= ======= ======== ========
Less: Debt reduction (23.5) (228.8) (252.3)
================================= ======= ======== ========
Less: Other costs and deferrals (5.6) (4.9) (10.5)
================================= ======= ======== ========
Cash proceeds of disposal 513.1 233.8 746.9
================================= ======= ======== ========
(1) In period since announcement on 26 March 2014
Debt metrics Mar 16 Mar15 Mar 14
GBPm GBPm GBPm
======================================================================== ========== ========== ==========
Adjusted net debt and hybrid capital* (GBPm) (8,395.0) (7,568.1) (7,642.8)
======================================================================== ========== ========== ==========
Average debt maturity (years) 8.9 9.9 10.7
======================================================================== ========== ========== ==========
Adjusted interest cover(1) *(excluding SGN) times 5.2 5.3 5.1
======================================================================== ========== ========== ==========
Adjusted interest cover(1) *(including SGN) times 4.7 4.8 4.6
======================================================================== ========== ========== ==========
Average interest rate (excluding JV/assoc. interest and hybrid coupon) 3.73% 4.21% 4.71%
======================================================================== ========== ========== ==========
Average interest rate (1) 3.95% 4.55% 4.92%
======================================================================== ========== ========== ==========
(1) Including hybrid coupon
Adjusted Net Debt and Hybrid Capital* Mar 16 Mar15 Mar 14
GBPm GBPm GBPm
Adjusted Net Debt and hybrid capital* (8,395.0) (7,568.1) (7,642.8)
======================================= ========== ========== ==========
Less: hybrid capital 2,209.7 3,371.1 2,186.8
======================================= ========== ========== ==========
Adjusted Net Debt* (6,185.3) (4,197.0) (5,456.0)
======================================= ========== ========== ==========
Less: Outstanding Liquid Funds (121.8) (71.7) (51.2)
======================================= ========== ========== ==========
Add: Finance Leases (300.8) (319.7) (328.9)
======================================= ========== ========== ==========
Less: Non-recourse Clyde debt (200.7) - -
======================================= ========== ========== ==========
Unadjusted Net Debt (6,808.6) (4,588.4) (5,836.1)
======================================= ========== ========== ==========
SSE Principal Sources of debt funding Mar 16 Mar15 Mar 14
Bonds 45% 38% 43%
=============================================================== ======= ====== =======
Hybrid capital securities 25% 37% 27%
=============================================================== ======= ====== =======
European investment bank loans 8% 8% 7%
=============================================================== ======= ====== =======
US private placement 5% 5% 5%
=============================================================== ======= ====== =======
Index -linked debt, long term project finance and other loans 17% 12% 18%
=============================================================== ======= ====== =======
Rating Agency Rating Current Criteria Date of Issue
==================== ==================== ==================== ==============
Moody's A3 Negative outlook 13% RCF/Net Debt Feb 2016
==================== ==================== ==================== ==============
Standard and Poor's A- Negative outlook 20-23% FFO/Net Debt Feb 2016
==================== ==================== ==================== ==============
Contributing to employees' pension schemes - IAS 19 R Mar 16 Mar15 Mar 14
GBPm GBPm GBPm
Net pension scheme liabilities recognised in the balance sheet before deferred tax IAS19R 394.8 664.6 637.7m
=========================================================================================== ======= ====== =======
Employer cash contributions Scottish Hydro Electric scheme 33.7 57.6 50.4
=========================================================================================== ======= ====== =======
Deficit repair contribution included above 14.8 29.5 29.5
=========================================================================================== ======= ====== =======
Employer cash contributions Southern Electric scheme 68.3 92.0 82.3
=========================================================================================== ======= ====== =======
Deficit repair contribution included above 44.6 58.5 56.7
=========================================================================================== ======= ====== =======
SGN contribution to SSE Mar 16 Mar 15 Mar 14
GBPm GBPm GBPm
SGN Net Debt (excluding shareholder loans) 3,632 3,553 3,523
================================================================= ======= ======= =======
SGN net finance costs included as part of SSE net Finance costs 83.3 91.0 94.4
================================================================= ======= ======= =======
SGN contribution to SSE's adjusted profit before tax 184.3 194.0 182.2
================================================================= ======= ======= =======
Group Financial Review
This group financial review covers SSE's financial performance
and outlook, capital investment, balance sheet and tax
payments.
Earnings and Dividends
Working to deliver dividend increases that at least keep pace
with inflation
SSE has met its financial objective for an annual increase in
the full-year dividend that is at least equal to RPI inflation. The
Board is recommending a final dividend of 62.5p per share, to which
a Scrip alternative is offered, compared with 61.8p in the previous
year, an increase of 1.1 %. This will make a full-year dividend of
89.4p per share which is: an increase of 1.1 % compared with
2014/15, which is in line with RPI inflation; and covered 1.34
times by SSE's adjusted earnings per share.
SSE believes that its strategic framework and opportunities for
growth mean it can continue to deliver a full-year dividend
increase that at least keeps pace with RPI inflation in 2016/17 and
in the subsequent years (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 its adjusted earnings per share* (EPS)
measure. This measure is calculated by excluding the charge for
deferred tax, interest costs on net pension liabilities,
exceptional items and the impact of certain re-measurements.
Adjusted earnings per share* has the straightforward benefit of
presenting the amount of profit after tax that has been earned for
each Ordinary Share. SSE's adjusted EPS measure has been calculated
consistently and provides an important and meaningful measure of
underlying financial performance. In adjusting for exceptional
items and certain re-measurements, adjusted EPS reflects SSE's
internal performance management, avoids the volatility associated
with mark-to-market IAS 39 re-measurements and means that items
deemed to be exceptional due to their nature and scale do not
distort the presentation of SSE's underlying results.
In the year to 31 March 2016, SSE's adjusted earnings per share*
was down 3.7% on the previous year to 119.5 pence but ahead of the
target of at least 115 pence. This resulted in dividend cover of
1.34 times which is within the expected range of 1.2 times to 1.4
times.
SSE continues to recognise that adjusted earnings per share* is
subject to significant uncertainties in 2016/17 and the years
immediately following. The nature of energy provision means that
financial results in any single year are always subject to
well-documented uncertainties, meaning SSE generally seeks to
provide a financial outlook later in the financial year.
Nevertheless, SSE is aiming for a return to growth and adjusted
earnings per share of at least 120p in 2016/17.
Delivering adjusted profit before tax in 2015/16 and 2016/17
As expected, adjusted profit before tax* fell 3.3%, from
GBP1,564.7m to GBP1,513.5m in 2015/16. SSE's Wholesale, Networks
and Retail (including Enterprise) segments were all profitable.
Nevertheless, SSE's objective is not to maximise profit in any one
year but to earn a sustainable level of profit over the medium
term.
Over 2016/17 SSE's actual level of adjusted profit before tax
will be determined largely by a range of factors that apply in its
market-based businesses including:
-- the impact of wholesale prices for energy;
-- electricity market conditions, the ability of its thermal
power stations to be available and to generate electricity
efficiently;
-- the output of renewable energy from its hydro-electric
stations and wind farms and the price achieved for the output;
-- the output from its gas production assets and the price achieved for the output;
-- the actual and underlying level of customers' energy consumption.
Impact of movements on derivatives (IAS 39)
The Group enters into forward purchase contracts (for power, gas
and other commodities) to meet the future demands of its Energy
Supply business and to optimise the value of its Generation and
other Wholesale assets. Some of these contracts are determined to
be derivative financial instruments under IAS 39 and as such are
required to be recorded at their fair value. The Group shows the
change in the fair value of these forward contracts separately as
this mark-to-market movement is not relevant to the underlying
performance of its operating segments. The Group will recognise the
underlying value of these contracts as the relevant commodity is
delivered, which will predominantly be within the subsequent 12 to
18 months. Conversely, commodity contracts that are not determined
to be derivative financial instruments under IAS 39 are accounted
for as 'own use' contracts, the cost of which is recognised on
delivery of the underlying commodity.
The adverse movement on derivatives under IAS39 of GBP31.1m has
arisen partly from a deterioration in the fair value of forward
commodity purchase contracts. 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 2016, primarily electricity and gas, was a
liability of GBP364.3m compared to a liability on similar contracts
at 31 March 2015 of GBP333.2m.
Partly offsetting this is a net favourable movement on the fair
valuation of interest and currency derivatives of GBP14.3m. This
movement is primarily due to the weakening of Sterling against all
major currencies during the year (impact of GBP20.0m) partly offset
by interest rate swaps moving further out of the money by GBP5.7m
due to fall in interest rates during the year. SSE also reports
these fair value re-measurements separately as these do not
represent underlying business performance during the financial
year. The effect of the contracts will be recorded in adjusted
profit measures when the transactions are settled.
Exceptional items
In the year to 31 March 2016, SSE recognised net exceptional
charges of GBP889.8m before tax. The following table provides a
summary of those net charges:
Total net charges by asset class Property, Plant & Equipment Other impairments, charges and Total
impairments (income)
GBPm GBPm GBPm
================================== =================================== ==================================== =======
Coal Generation 67.6 219.4 287.0
================================== =================================== ==================================== =======
Gas Generation 302.5 23.9 326.4
================================== =================================== ==================================== =======
Gas Production 125.0 36.8 161.8
================================== =================================== ==================================== =======
Gas Storage 150.9 - 150.9
================================== =================================== ==================================== =======
Other - 21.3 21.3
================================== =================================== ==================================== =======
Disposals - (57.6) (57.6)
================================== =================================== ==================================== =======
Total 646.0 243.8 889.8
================================== =================================== ==================================== =======
By Segment
================================== =================================== ==================================== =======
Wholesale 646.0 222.0 868.0
================================== =================================== ==================================== =======
Retail - 17.8 17.8
================================== =================================== ==================================== =======
Corporate - 4.0 4.0
================================== =================================== ==================================== =======
Total 646.0 243.8 889.8
================================== =================================== ==================================== =======
The Coal Generation charges reflect the May 2015 announcement
that Ferrybridge would cease commercial operations at March 2016
and also reflects increased economic and regulatory uncertainty at
Fiddler's Ferry. The impairments of the Group's gas-fired power
generation assets at Peterhead, Marchwood and Medway reflect
ongoing low 'spark' spreads and uncertainty over the enduring
ability of the plants to benefit from the UK Government's Capacity
Market auctions. The charges recognised for Gas Production assets
relate almost entirely to the decline in wholesale gas prices and
includes an element (GBP121.2m) related to the Greater Laggan
assets, while the prospects for Gas Storage remain extremely
challenging. Finally, the Group recognised gains on disposal of
wind development assets of GBP57.6m and also recorded a GBP138.6m
gain on the part-disposal of its Clyde wind farm directly in
equity. The Retail and Corporate charges are predominantly related
to the cost of restructuring the business as well as costs
associated with systems and non-core activities.
Investment and Capital Expenditure
Investing efficiently in energy assets that the UK and Ireland
need in 2015/16
Central to SSE's strategic framework is efficient and
disciplined 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 and consistent with the maintenance of
a balanced range of assets within SSE's businesses.
In March 2014, SSE said that it expected its investment and
capital expenditure would total around GBP5.5bn (net of disposal
proceeds received and balance sheet debt reduction), or GBP6.5bn
gross, over the four years to 2017/18. In 2015/16, SSE's investment
totalled GBP1.62bn before proceeds and disposals across its
businesses. The Wholesale businesses accounted for around 30% of
the total; the Networks businesses for around 50% and Retail,
including Enterprise, plus Corporate for the remaining 20%. Key
strategic investments in 2015/16 included:
-- progressing the Caithness-Moray electricity transmission
line, the largest capital project undertaken by SSE, and investing
to improve service quality for customers in Electricity
Distribution - this further increased the total RAV of SSE's
existing Networks business, which is well placed to reach around
GBP10bn by 2020; and
-- expanding SSE's renewables portfolio with 67 MW of new
onshore wind commissioned and a further 548 MW in construction,
including the Galway Wind Park, Ireland's largest wind farm. These
developments in government-mandated renewables reinforce SSE's
position as an industry leader and are expected to take SSE's total
renewable energy capacity to over 3.7GW by 2019. Including SSE
300MW Foyers pumped storage scheme, the total will be over 4GW.
In addition to the investment and capital expenditure outlined
above, SSE has also purchased a 20% interest in the four gas fields
and surrounding exploration acreage approximately 125km north west
of the Shetland Islands, collectively known as the Greater Laggan
Area, along with a 20% interest in the new Shetland Gas Plant, from
Total E&P UK Limited. These long-term assets are a natural
complement to SSE's existing gas production assets and provide
further diversity to SSE's portfolio.
Allocating capital and investment expenditure in the period up
to 2020
In March 2014 SSE set out its investment and capital expenditure
programme for the four years to March 2018. It is now half way
through that period and is still expecting gross investment and
capital expenditure to total GBP6.5bn, with around GBP1.75bn
expected in 2016/17 and around GBP1.65bn expected in 2017/18,
although this is subject to change.
Beyond that SSE has a wide range of options to support earnings
and dividend growth post-2018 and now expects total investment and
capital expenditure to be in the range of GBP5.5-GBP6bn in the four
years to March 2020. Around 50% of this is expected to be in
economically-regulated Networks and around 20% in
government-mandated renewables. At all times SSE will continue to
allocate capital in a way consistent with its focus on strong
financial management, operational efficiency and maintaining a
balanced range of businesses.
Disposing of over GBP1bn of non-core assets to support future
investment
As part of its long-standing strategic commitment to efficiency
and disciplined investment, in 2014 SSE commenced what was called a
value programme to dispose of assets which are not core to its
future plans, which result in a disproportionate burden, or which
could release capital for future investment.
Agreements with total disposal proceeds and debt reduction of
over GBP1bn have so far been secured or concluded to dispose of
assets such as an equity shares in the Clyde of onshore wind farm
projects and other wind developments, SSE Pipelines Ltd and equity
in PFI street lighting contracts. A gain on sale of GBP138.6m
resulting from the sale of the 49.9% equity stake in Clyde windfarm
(49.9% of 350MW) in the year is a clear example of the value
created through this disposal programme. With a small amount still
to complete, this programme has already achieved its objectives and
will support future operations, investment and capital
expenditure.
Financial management and balance sheet
Keeping SSE well-financed
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. Standard &
Poor's credit ratings service affirmed SSE's 'A-' long term credit
rating in February 2016 with a 'negative' outlook. This follows the
decision by Moody's Investors Service, also in February 2016, to
affirm its 'A3' issuer rating for SSE, also with a 'negative'
outlook.
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
September 2015, it successfully issued an eight-year EUR700m euro
bond, with a coupon of 1.75% and an all-in funding cost, when
converted back to sterling, of 3.19%. In addition, in March 2016,
SSE completed a private placement with 19 UK and US investors of
GBP500m with a weighted average maturity of 9.6 years and an all-in
funding cost of 3.1%.
During the year SSE extended, on cheaper terms, GBP1.5bn of bank
facilities that were due to mature in 2018 to 2020 with two, one
year options that would take these facilities out to 2022. Under
the Scottish Hydro Electric Transmission entity, it also secured a
further GBP300m facility with the European Investment Bank that
will be drawn during 2016/17 at which point it will convert to a 10
year term loan.
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: cash from operations; 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 2016, 87.1% of SSE's borrowings were at
fixed rates.
Borrowings are mainly made in Sterling and Euros 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 GBP8.40bn at 31
March 2016, compared with GBP7.57bn on the same date in 2015,
GBP7.64bn in 2014 and GBP7.35bn in 2013. The GBP827m increase in
the year results from the West of Shetland acquisition completed in
October 2015 (GBP669m), a lower uptake of the Scrip Dividend, the
impact of negative foreign exchange movements on debt balances at
the year end and higher net capex in the year (after disposals).
These disposals in 2015/16 included the sale of 49.9% of the equity
in Clyde Windfarm (Scotland) Limited ('Clyde'). On 13 May 2016, SSE
waived certain rights in relation to the construction of the
172.8MW extension to Clyde that saw the entity fully consolidated
in the Group's balance sheet at March 2016. As a result, the
arrangement is now deemed to be under joint control and
consequently SSE has excluded GBP200.7m of non-recourse finance due
by Clyde to the venture partners from its adjusted net debt and
hybrid capital measure.
Fundamentally, the level of SSE's net debt reflects the quantum
and phasing of capital expenditure and investment in projects to
maintain, upgrade, build and acquire new assets in the UK and
Ireland that energy customers depend on and which support annual
increases in the dividend payable to shareholders.
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.
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 2016 was 8.9 years, compared with 9.9 years at 31 March
2015.
SSE's debt structure remains strong, with around GBP5.9bn 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 GBP360.2m. Around GBP700m of medium-term
borrowings will mature in 2016/17.
Operating a Scrip Dividend Scheme
The Scrip Dividend Scheme, approved by SSE's shareholders most
recently in 2015, gives shareholders 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 2015 (relating to the final
dividend for the year to 31 March 2015) and in February 2016
(relating to the interim dividend for the year to 31 March 2016)
resulted in a reduction in cash dividend funding of GBP175.8m, with
11.8 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 GBP1,051m and has resulted in
the issue of 77.7 million Ordinary shares. At the July 2015 AGM,
shareholders voted by a 99.7% majority of votes cast, to agree an
extension to the Scrip Dividend Scheme from 2015 to 2018.
Managing net finance costs
SSE believes adjusted net finance costs provide the most useful
measure of performance and a reconciliation of adjusted to reported
net finance costs is provided in the table headed Net Finance
Costs. SSE's adjusted net finance costs in the year to 31 March
2016 were GBP310.9m, a reduction on GBP316.7m in the previous year
reflecting the lower average interest rate in the period.
Coupon payments relating to hybrid capital are presented as
distributions to other equity holders and are reflected within
adjusted earnings per share* when paid.
Tax
SSE is one of the UK's biggest taxpayers, and in the survey
published in November 2015 was ranked 13th out of the 100 Group of
Companies in 2015 in terms of taxes paid. In the year to 31 March
2016, SSE paid GBP453.9m of taxes on profits, property taxes,
environmental taxes, and employment taxes in the UK, compared with
GBP506.2m in the previous year. Total taxes paid in 2015/16 were
lower than the previous year, primarily due to:
-- reduced gas production profits as a result of lower gas prices;
-- capital allowances resulting from the Greater Laggan acquisition in 2015/16;
-- tax relief available on costs associated with closing thermal generation plant; and
-- lower Climate Change Levy liabilities through reduced coal consumption.
SSE also paid EUR15.2 million of taxes in the Republic of
Ireland, being the only country outside of the UK in which SSE has
any trading operations.
SSE considers being a responsible taxpayer a core element of
being a responsible member of society. SSE seeks to pay the right
amount of tax on its profits, in the right place, at the right
time, and continues to be the only FTSE 100 company to have been
awarded the Fair Tax Mark. While SSE has an obligation to its
customers and shareholders to efficiently manage its total tax
liability, it does not seek to use the tax system in a way it does
not consider it was meant to operate, or use "tax havens" to reduce
its tax liabilities. SSE understands it also has an obligation to
the society in which it operates, and from which it benefits - for
example, tax receipts are vital for the public services SSE relies
upon. Therefore SSE's tax policy is to operate within both the
letter and spirit of the law at all times.
For reasons already stated above, SSE's focus is on adjusted
profit before tax*, and in line with that, the adjusted current tax
charge on that profit is the tax measure that best reflects
underlying performance. SSE's adjusted current tax rate, based on
adjusted profit before tax*, is 12.8%, as compared with 14.4% in
2014/15 on the same basis.
As would be expected for a Company of SSE's size, the SSE group
has a small number of tax enquiries ongoing with HMRC at any one
time. In addition, under Corporate Tax Self Assessment, SSE adopts
a filing position on matters in its tax returns that may be large
or complex, with the position then being discussed with HMRC after
the tax returns have been filed. SSE engages proactively with HMRC
on such matters, but where SSE considers there to be a risk that
HMRC may disagree with its view, and that additional tax may become
payable as a result, a provision is made for the potential
liability, which is then released once the matter has been agreed
with HMRC. SSE considers this to be in line with the overall
prudent approach to its tax responsibilities.
Reviewing the value of SSE's equity stake in SGN
SSE acquired a 50% equity stake in SGN Limited in 2005 for a
total of GBP505m. In the time since then, SGN has become a leading
gas distribution business demonstrating efficiency and innovation
that has benefited, and continues to benefit, customers and has
earned fair returns for investors. Its Regulated Asset Value
reached just over GBP5bn at 31 March 2016.
Throughout this time, SSE has continued to invest in its
wholly-owned electricity transmission and distribution businesses
and their Regulated Asset Value reached a total GBP5.4bn at 31
March 2016, with the principal growth arising as a result of SSE's
major investment in electricity transmission.
Against this background of a transformed portfolio of energy
Networks businesses, SSE has decided to consider options to
crystallise some value for shareholders from its long-term
investment in SGN and is considering the sale of up to one third of
its 50% equity stake in SGN Limited. In considering whether to take
forward the disposal of part of its equity in SGN, SSE will be very
mindful of the need to ensure that SGN itself is in a good position
build to on its track record of success in the future.
Should a sale be completed, SSE would expect to use the proceeds
to return value to its shareholders, or to invest to create value
for shareholders should there be the right opportunity, in a way
that would be determined at the time.
Conclusion
SSE's first financial objective is to deliver annual increases
in the dividend that at least keep pace with RPI inflation. SSE
believes that its strategic framework, opportunities for growth and
effective financial management mean it can continue to deliver this
in 2016/17 and beyond. Its financial priorities for 2016/17
include:
-- Delivery of an annual increase in the dividend that at least keep pace with RPI inflation;
-- A return to growth and adjusted earnings per share of at least 120p in 2016/17;
-- Maintaining dividend cover in a range from around 1.2 times
to around 1.4 times over the three years to 2018/19 based on
dividend increases that at least keep pace with RPI inflation;
-- Continued disciplined investment in a balanced range of
energy related assets and delivering the projects within the
established investment programme, especially in Networks and
government-mandated renewables; and
-- Maintaining a strong balance sheet, with a commitment to the
current criteria for a single 'A' credit-rating.
WHOLESALE
Wholesale Key Performance Indicators
March 16 March 15
Energy Portfolio Management (EPM) and Electricity Generation
============================================================================= =========== ===========
EPM and Generation operating profit* - GBPm 436.3 433.3
============================================================================= =========== ===========
EPM and Generation capital expenditure and investment - GBPm 382.6 399.6
============================================================================= =========== ===========
GENERATION
============================================================================= =========== ===========
Gas- and oil-fired generation capacity (GB) - MW 3,961 4,262
============================================================================= =========== ===========
Gas- and oil-fired generation capacity (Ire) - MW 1,292 1,068
============================================================================= =========== ===========
Coal-fired generation capacity- MW 1,995 3,009
============================================================================= =========== ===========
Waste to Energy capacity - (MW) 34 0
============================================================================= =========== ===========
Total thermal generation capacity - MW 7,282 8,339
============================================================================= =========== ===========
Pumped storage capacity (GB) - MW 300 300
============================================================================= =========== ===========
Conventional hydro capacity (GB) - MW 1,150 1,150
============================================================================= =========== ===========
Onshore wind capacity (GB) - MW 900 1008
============================================================================= =========== ===========
Onshore wind capacity (NI) - MW 88 88
============================================================================= =========== ===========
Onshore wind capacity (ROI) - MW 456 456
============================================================================= =========== ===========
Offshore wind capacity (GB) - MW 344 355
============================================================================= =========== ===========
Dedicated biomass capacity (GB) - MW 37 38
============================================================================= =========== ===========
Total renewable generation capacity - MW 3,275 3,394
============================================================================= =========== ===========
Total electricity generation capacity (GB and Ire) - MW 10,557 11,733
============================================================================= =========== ===========
Renewable capacity qualifying for ROCs - MW c.1,800 c.1,900
============================================================================= =========== ===========
Gas- and oil-fired (inc. CHP) output (GB) - GWh 10,160 9,537
============================================================================= =========== ===========
Gas- and oil-fired output ( Ire) - GWh 1,780 251
============================================================================= =========== ===========
Coal-fired (inc. biomass co-firing) output - GWh 6,141 9,143
============================================================================= =========== ===========
Total thermal generation - GWh 18,081 18,931
============================================================================= =========== ===========
Pumped storage output - GWh 252 190
============================================================================= =========== ===========
Conventional hydro output - GWh 4,074 3,726
============================================================================= =========== ===========
Onshore wind output GB - GWh 2,439 2,219
============================================================================= =========== ===========
Onshore wind output NI - GWh 235 212
============================================================================= =========== ===========
Onshore wind output ROI - GWh 1,308 1,055
============================================================================= =========== ===========
Offshore wind output - GWh 1,312 1,191
============================================================================= =========== ===========
Biomass output GB - GWh 75 63
============================================================================= =========== ===========
Total renewable generation - GWh 9,695 8,656
============================================================================= =========== ===========
Total Generation output all plant - GWh 27,776 27,587
============================================================================= =========== ===========
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 1,180MW at Peterhead (while TEC is 400MW) and 464MW at Great Island
(net increase 224MW) operational from 17 April 2015.
Note 4: 2016 Capacity excludes Ferrybridge which ceased operation on 31 March 2016.
Note 5: Wind output excludes 387GWh of constrained off generation in 2015/16 and 268GWh in
2014/15
Note 6:Onshore wind capacity at March16 excludes 175MW related to the Clyde disposal in March
16 - onshore wind output includes 100%
Note 7: Waste to Energy GWh not included above as contracted to third party
Note 8: Slough Heat & Power Biomass Plant's financial results are reported within SSE Enterprise
=======================================================================================================
March 16 March 15
=================================================================== ========= =========
GAS PRODUCTION
=================================================================== ========= =========
Gas production operating profit* - GBPm 2.2 36.6
=================================================================== ========= =========
Gas production- m therms 403 398
=================================================================== ========= =========
Gas production- mn boe 6.55 6.47
=================================================================== ========= =========
Liquids production - mn boe 0.13 0.08
=================================================================== ========= =========
Gas production capital investment - GBPm 56.1 21.0
=================================================================== ========= =========
Total net proven plus probable (2P) Reserves estimate - bn therms 3.62 1.73
=================================================================== ========= =========
Total net proven plus probable (2P) Reserves estimate - mn boe 58.8 28.2
=================================================================== ========= =========
GAS STORAGE
=================================================================== ========= =========
Gas storage operating profit* - GBPm 4.0 3.9
=================================================================== ========= =========
Gas storage customer nominations met - % 100 100
=================================================================== ========= =========
Gas storage capital investment - GBPm 14.0 14.3
=================================================================== ========= =========
Sustainably sourcing and producing energy
SSE's Wholesale segment consists of three business areas: Energy
Portfolio Management and Electricity Generation; Gas Storage; and
Gas Production. It makes a sustainable contribution to the
fulfilment of SSE's core purpose and achievement of its financial
goals, through excellence in the flexible 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.
The markets in which SSE's Wholesale businesses operate continue
to be impacted by a number of key long-term trends and
developments, including an uncertain macroeconomic environment;
shifts in commodity prices; increased government intervention; and
the ongoing transition to a low carbon economy. SSE's Wholesale
business therefore has to continually review its portfolio in the
context of a changing market.
In line with its commitment to transparency in performance
management and reporting SSE has incorporated a new subsidiary
company to conduct its energy portfolio management activities, SSE
EPM Limited. This company will produce separately audited accounts
and, sits alongside the separately disclosed Energy Supply and
Generation activities of the SSE Group. Against this background,
the presentation of the results for SSE's Wholesale businesses in
its Financial Statements continues to be kept under review.
Financial performance in Wholesale
During the year to 31 March 2016 total operating profit in
Wholesale was GBP442.5m. The primary drivers relating to operating
profit are as follows:
EPM and Electricity Generation - an 11.5% increase in output of
electricity from renewable sources, primarily due to higher average
wind speeds and levels of rainfall compared to 2014/15, although
this was largely offset by the impact of lower commodity prices
across both Generation and EPM.
Gas Production - a significantly lower average achieved price
for the wholesale gas volumes produced.
Gas Storage - a challenging economic environment saw a small
reduction in operating profit.
The Wholesale business also incurred GBP868m of net exceptional
charges in the year with the significant reduction in commodity
prices and other economic factors impacting the carrying value of
gas production, thermal generation and gas storage assets; a
breakdown of which is set out in the table of Wholesale key
performance indicators.
Preparing Consolidated Segmental Statements
SSE is required by Ofgem to publish a Consolidated Segmental
Statement (CSS) each year setting out the revenues, costs and
profits or losses of businesses in its Wholesale and Retail
segments.
-- In line with that requirement, SSE expects to publish its CSS
for 2015/16 in July 2016. The CSS for 2015/16, which will be
reconciled to SSE's published financial statements and reviewed by
SSE's auditors KPMG , is expected to show that within EPM and
Electricity Generation, EPM and thermal generation reported
operating losses and renewable generation reported an operating
profit.
Energy Portfolio Management (EPM)
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 to
customers.
Maintaining a diverse portfolio of energy assets and
contracts
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, and trading positions, both
long and short term. EPM provides a route-to-market for SSE's
Generation assets and helps Energy Supply manage its commodity
risk. In doing so, SSE has:
-- greater ability to manage the impact from wholesale energy price volatility; 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 7 million
therms of gas per day to supply its gas customers and to fuel its
power stations, and around 130GWh of electricity per day to supply
all its electricity customers. There are three primary routes to
competitively and sustainably procure the fuels and energy it needs
to meet this demand:
-- assets: including thermal and renewable power generation; and
upstream gas exploration and production;
-- contracts: long-term gas producer contracts; power purchase
agreements 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 requirement for EPM. In establishing the
separated legal entity to manage these risks and requirements on
behalf of the Group's Energy Supply, Generation and Gas Production
businesses, SSE has enhanced the reporting transparency and
accountability of this activity. By optimising energy procurement
through a diverse portfolio, SSE aims to shelter its portfolio from
the inevitable volatility that exists in global markets.
Generation - Overview
Electricity Generation is responsible for the operation,
management and maintenance of SSE's generation assets and for
ensuring these assets are available when required and able to meet
contractual obligations and developing future renewable and thermal
projects.
Managing and developing Generation assets to meet key
priorities
The Generation division's principal objective is to safely,
efficiently and reliably maintain and operate a diverse generation
portfolio, which includes substantial amounts of capacity for
renewable energy, across the UK and Ireland. 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 being dependent on particular fuels or technologies;
-- capacity: that is well-maintained to meet its requirements in
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 impact of variability of generation from wind farms can be
managed; and
-- sustainability: to support progressive reduction in the CO
intensity of electricity generated through the cost efficient
decarbonisation of its generation fleet. By moving towards a lower
carbon generation mix, SSE is transitioning its Generation assets
from a portfolio weighted towards gas and coal, to one weighted
towards gas and renewables.
Generation - Great Britain (renewables)
Operating SSE's renewable generation capacity
Output of electricity from renewable sources increased in
2015/16, compared to the previous year (9,695 GWh compared to 8,656
GWh) despite overall renewable operating capacity remaining largely
unchanged (67MW commissioned in the year). The primary driver for
this differential was the weather: put simply there was more
rainfall and windier conditions in 2015/16 across Great Britain
than in 2014/15. Availability and performance of the renewable
portfolio has also remained very high throughout the period,
allowing SSE's assets to operate in these favourable
conditions.
Meanwhile, judgement on the Court of Session case of SSE
Generation Ltd against Hochtief Solutions AG and Hochtief (UK)
Constructions Ltd in relation to the hydro-electric scheme at
Glendoe is expected to be handed down in the second half of this
financial year.
Developing renewable energy schemes onshore
SSE continues to operate under the policy support regime for
renewable generation capacity in GB, currently delivered through
the Renewables Obligation (RO) (which also applies in Northern
Ireland); and the Contracts for Difference (CfD) mechanism.
The policy framework for renewable generation was subject to a
number of interventions by the UK Government after it took office
in May 2015. These include:
-- the early closure of the RO to new onshore wind;
-- a delay until late 2016 of the second CfD auction for "less
established" technologies, including offshore wind;
-- the clear signal that CfDs in their current form are unlikely
to be generally available to new onshore wind; and
-- the removal of levy-exemption certificates (LECs) for renewable electricity.
For SSE's onshore wind portfolio, clarity regarding which
projects remain eligible for RO support was provided through the
definition of 'grace periods'. Future development options for later
onshore wind projects are being explored in light of the policy
changes referenced above.
SSE has three onshore wind projects under construction which
will qualify for the GB RO:
-- Dunmaglass (94MW) - scheduled for completion by the end of 2016/17.
-- Clyde Extension (172.8MW) - expected to be fully operational in 2017.
-- Bhlaraidh (108MW) - expected to be fully operational in 2017.
SSE also has onshore wind projects in development that will not
qualify for the RO:
-- Stronelairg (with consent) (up to 240MW) - SSE, alongside the
Scottish Government, is appealing the judicial review judgement
which rejected the consent decision and will be heard in court in
May 2016.
-- Viking (with consent) (up to 457MW - SSE share 50%) - SSE,
with its Joint Venture partner, has continued to develop this
project which requires State Aid clearance from the European
Commission and confirmation it will be eligible to participate in
forthcoming CfD auctions.
-- Strathy South (in planning) (up to 133MW) - Objections were
examined fully at a Public Local Inquiry in 2015 and it is now
awaiting a consent decision from Scottish Ministers.
-- Gordonbush Extension (in planning) (up to 32MW) - Highland
Council did not object to the application at a planning committee
meeting in February 2016 and it is now awaiting a consent decision
from Scottish Ministers.
Offshore wind projects in development
In the last 12 months SSE's offshore efforts and resources have
been focused on the Beatrice project (588MW - SSE share 40%)
planned for the outer Moray Firth. The project is progressing in
accordance with the terms of the Investment Contract awarded by the
UK government in 2014. The project is expected to reach financial
close in May 2016. SSE's Joint Venture partners on the project are
Copenhagen Infrastructure Partners (CIP) who increased their
interest from 25% to 35% in February 2016 and Repsol who currently
have a 25% stake. Beatrice will be project financed with
non-recourse debt.
Subject to financial close, onshore construction activities will
begin in 2016 with offshore construction planned for 2017. The
project is expected to be fully operational by 2019. The Beatrice
wind farm is expected to deliver around GBP700m into the UK economy
via supply chain opportunities alone.
In addition to Beatrice, SSE has an interest in two further
offshore wind farm developments: Seagreen (up to 3,500MW - a 50:50
partnership with Fluor Limited); and Forewind (up to 4,800MW - a
four-way partnership with RWE Innogy, Statoil and Statkraft). The
first phase of Seagreen (up to 1,050MW) is consented although this
decision is subject to a judicial review in the Court of Session
heard in 2015. Forewind has consent for four separate 1,200MW
projects in the Dogger Bank Zone and the four Joint Venture partner
organisations will agree the best route forward for each.
In October 2015 SSE announced that it had agreed exit terms from
the Galloper project (340MW, 50:50 partnership with RWE Innogy),
following RWE Innogy's announcement that it had reached financial
close on the project.
The UK Government confirmed in the Budget 2016 that it intends
to auction GBP730m of CfD contracts in this parliament for offshore
wind and other less established technologies connecting in 2021-26.
The first auction is expected to be later this year with GBP290m
available. This announcement provides welcome clarity about the
future for offshore wind.
Optimising the renewable development portfolio
In order to support future investment in a balanced range of
energy assets SSE has, as first outlined in March 2014 recycled
capital by delivering a programme of selective disposals of
non-core assets and operational and in-development onshore wind
projects. In March 2016 agreements were signed for the sale of
49.9% of the operational 349.6MW Clyde Wind Farm located in South
Lanarkshire to Greencoat UK Wind Plc (UKW) and GMPF & LPFA
Infrastructure LLP (GLIL) for a headline consideration of GBP355
million resulting in a gain of GBP138.6m. As part of its key
accounting judgements, SSE concluded that at 31 March 2016 Clyde
remained under its control due to certain contractual arrangements
relating to the construction of the extension project. As such,
this gain was recognised directly in equity. In May 2016, these
arrangements were changed and consequently SSE's interest in Clyde
will be that of a joint venture going forward. When the 172.8MW
extension to Clyde is commissioned the equity stake jointly owned
by UKW and GLIL will be diluted to 30% with SSE retaining 70% and
providing long term management services for the day to day
operations of all 522.4MW.
Generation - Great Britain (thermal)
Market developments with an impact on SSE
In 2015/16 the UK Government announced a number of policies and
regulatory changes affecting SSE's thermal generation portfolio.
These included:
-- revisions to the future functioning of the GB Capacity Market (see below);
-- an announcement of the intent to close coal-fired power
stations by 2025, and facilitate the development of new gas-fired
power stations; and
-- an announcement that it will continue to cap Carbon Price
Support rates at GBP18/t CO2 for 2019-20 and 2020-21 (in real terms
adjusted for RPI). The Government also indicated that the future of
the Carbon Price Floor beyond 2021 will be announced in its Autumn
Statement later this year.
Ofgem has consistently maintained that during the period to
2018/19 it expects electricity generation capacity margins will be
lower than they were in recent years due to weak market economics
and the closure of 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 implementation of the
Capacity Market. SSE supports the UK Government's plans to
incrementally improve the Capacity Market, including the planned
supplementary capacity auction for winter 2017/2018; and
-- in the intervening period, through the Supplemental Balancing
Reserve (SBR) which will close after winter 2016/17.
The design and operation of both the Capacity Market and SBR
mechanisms is set by the UK's Department of Energy and Climate
Change (DECC) and National Grid. They determine how much capacity
is required to ensure security of supply under each mechanism. Once
this volume has been determined they procure the necessary capacity
through a competitive auction/tender process.
SSE will play its part by ensuring all plant eligible to
participate in both the SBR and the Capacity Market will be made
available when required. It will also continue to work openly and
constructively with all stakeholders on the issue of security of
supply.
Operating SSE's thermal power stations
Market conditions for thermal generation continued to be
challenging during 2015/16. The continued expansion of sources of
renewable electricity and reducing customer demand has impacted the
profitability of all thermal assets. In addition, the 18 months to
March 2016 saw a significant weakening of the market prices for oil
and gas. Together with the closure of older coal-fired power
stations this has led to an increase in gas-fired generation output
relative to coal. This has been reflected in SSE's own portfolio as
well as the wider market. This trend looks set to continue and it
is therefore anticipated that gas-fired power stations will play an
increasingly important role in GB electricity generation in the
coming years. Despite the strategic improvement, market conditions
remain challenging for gas- fired electricity generation as
reflected by the plant impairments of GBP326.4m recognised in the
year.
In December 2015 the second Capacity Market auction was held in
GB. A total of 3.2GW (de-rated) of SSE's 6.1GW (de-rated)
pre-qualified capacity was successful in the auction, and will
receive a total payment of GBP57m on the basis it delivers this
capacity in 2019/20. The balance of the pre-qualified capacity
remains eligible to participate in the 'T-1' 2019/20 capacity
auction. In the summer of 2016 SSE plans to pre-qualify capacity
for the next 'T-4' auction scheduled for December 2016, as well as
for the additional planned auction that will procure capacity for
2017/18.
Maintaining and operating a portfolio of gas-fired power
stations
SSE has an ownership interest in five gas-fired power stations
that participate in the GB electricity market:
-- Medway (700MW wholly owned) has continued to perform well in
response to market requirements and contractual obligations, and it
has taken on a capacity obligation for 2018/19 and 2019/20;
-- Keadby (735MW wholly owned) returned to service in November
2015 following its removal from the market in March 2013. Keadby
also has capacity obligations for 2018/19 and 2019/20;
-- Peterhead (1,180MW wholly owned) 400MW of Peterhead's
capacity returned to service in November 2015 following the
completion of major upgrade work to improve the flexibility and
efficiency of the station. It has also secured SBR contracts to
provide support services to National Grid over the winters 2015/16
and 2016/17 and a voltage control contract for one year commencing
1st April 2016;
-- Seabank (1,164MW) and Marchwood (840MW) SSE has a 50% stake
in each of these gas-fired power stations, which have both taken on
capacity obligations for 2018/19 and 2019/20.
In 2015/16, the UK Government also decided that the capital
budget for a Carbon Capture and Storage (CCS) competition would no
longer be available and that the competition would not proceed on
the planned basis. SSE had been working with Shell on a CCS project
at its Peterhead power station. In response, SSE acknowledged that
being in government involves taking difficult decisions, but also
stated that the decision represented a significant missed
opportunity for the UK.
Taking key decisions on the future of coal-fired power
stations
SSE acquired two wholly-owned coal-fired power stations in 2004:
Ferrybridge (Yorkshire; now closed) and Fiddler's Ferry (Cheshire,
1,995MW).
In March 2016 SSE ceased coal-fired electricity generation at
Ferrybridge in line with the announcement of plans to do so in May
2015. SSE acknowledges the immense contribution of all who have
worked at Ferrybridge during its proud 50 years of service. The
site has now entered a period of decommissioning.
The future commercial operation at three of the four units at
Fiddler's Ferry (1,455MW) was the subject of a consultation with
employees and other stakeholders, announced by SSE in February
2016. In March 2016 Fiddler's Ferry successfully secured a contract
to provide ancillary services to National Grid. The one-year
contract, which started on 1 April 2016, covers one of the three
available units at the site. It was secured following a competitive
procurement process.
Following its success in securing this contract and in view of
the UK Government's planned reforms to the Capacity Market, SSE
also:
-- confirmed that one unit at the station will provide
Supplementary Balancing Reserve (SBR) services to National Grid for
the winter of 2016/17. TEC (Transmission Entry Capacity) is
therefore not required for this unit's capacity;
-- retained TEC for the station of 1,455MW, equivalent to the
capacity of three units, for 2016/17; decided to enter all or part
of Fiddler's Ferry capacity into any 2017/18 Capacity Market
auction; and
-- recognised exceptional charges of GBP287.0m in relation to coal generation activities.
Developing new gas-fired generation options
SSE supports recent proposals by the UK Government to encourage
investment in new gas-fired generation. SSE will continue and
retain and develop options for new stations at Keadby 2 in
Lincolnshire and Seabank 3 near Bristol, but will do so in a way
that is fully consistent with its commitment to disciplined
financial decision-making.
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 the
needs of customers. Multi fuel remains an important part of that
strategy.
In July 2015 Multifuel Energy Ltd (MEL) (the SSE and
Wheelabrator Technologies Inc. 50:50 joint venture) fully
commissioned a GBP300m (68MW) multi-fuel generation facility
adjacent to SSE's existing Ferrybridge coal power station, known as
Ferrybridge Multifuel 1 (FM1). The station has taken on a capacity
obligation for 2018/19 and 2019/20. Whilst SSE reports its 34MW
share of capacity, it excludes generation output at Ferrybridge
multi-fuel as this is contracted to a third party. In its first
full financial year of operation to March 2016 the station
processed 413,000 tonnes of fuel in commercial operation and
exported 385GWh of electricity, with the station running at near
baseload.
In October 2015, planning consent for a second multi-fuel
facility at the Ferrybridge site, Ferrybridge Multifuel 2 (FM2) was
granted , and a final investment decision on it is expected to be
taken later in 2016.
Generation - Ireland
Producing electricity for Ireland's Single Electricity
Market
SSE is the third largest electricity generator by capacity in
the all-island Single Electricity Market (SEM). It owns and
operates 1,836MW of generation capacity of which 544MW is from
renewable sources. This makes SSE the largest single generator of
wind power in the SEM. The company also trades across the
interconnectors between Ireland and GB.
SSE's new 464MW Great Island CCGT unit (grid connection capacity
set at 431MW) commenced commercial operation in April 2015.
Coinciding with the retirement of the old 240MW heavy fuel oil unit
at the same site, the transition to gas has improved the carbon
intensity of SSE's fleet and significantly decarbonises energy
generation in the all-island market.
Delivering and developing new capacity for electricity
generation
SSE continues to invest in renewable electricity generation in
Ireland. Over the two years to March 2018, SSE will add 174MW of
new Irish wind power generation capacity to its existing fleet.
In the Republic of Ireland, construction of the two-phase 174MW
(SSE share 120MW) Galway Wind Park project is ongoing. Phase 1 of
the project (66MW), which entered construction in February 2015, is
owned and financed by SSE. Phase 2 (108MW) is a 50/50 joint venture
between SSE and Coillte. Galway Wind Park is expected to be
commissioned in 2017, qualifying the wind farm for the REFIT II
support scheme.
In Northern Ireland, SSE is currently constructing the 35MW
Tievenameenta Wind Farm in Co. Tyrone. In the same county
construction is due to commence shortly on the 19MW Slieve Divena
II Wind Farm. Both projects are expected to be fully operational in
2017 and meet the criteria for Northern Ireland's RO grace
period.
SSE also has plans for a wind farm development at Doraville (up
to 115MW), a planning application for which is currently before
Northern Ireland's Department of the Environment. This project will
not qualify for the RO.
Engaging in the ISEM reform process
Reform of Ireland and Northern Ireland's SEM market to comply
with the EU Electricity Target Model continues, with regulators in
each jurisdiction progressing the Integrated SEM (I-SEM) project.
SSE remains fully involved in all stages of the ongoing design and
implementation process for the new market which is due for
introduction by the end of 2017.
Gas Production
Gas Production is responsible for the efficient delivery of gas
from the offshore gas fields in which SSE has a shared
ownership.
Producing from UK Continental Shelf assets
Total output in the year to 31 March 2016 was 403 million therms
(6.55mn boe) of gas and 0.13mn boe of liquids, compared with 398
million therms of gas (6.47mn boe) and 0.08mn boe in the previous
year. This slight rise in production in 2015/16 was due to the
start up of the Laggan field in February 2016 although there was a
natural decline in output from existing fields. The Greater Laggan
Area acquisition is expected to mean SSE's average annual volumes
of gas and liquids produced will be at a higher level than those it
reported in previous years with a forecast average production of
around 500million therms (8.1mn boe) of gas and 0.85mn boe of
liquids per year in the five years to March 2021.
The decrease in operating profit, GBP2.2m compared to GBP36.6m,
from Gas Production during the period was mainly as a result of the
significantly lower average achieved price for wholesale gas
volumes produced. The sustained decline in gas price was a
significant contributor to the GBP161.8m of exceptional charges
recognised in the year, which includes GBP121.2m related to Greater
Laggan Area.
Delivering new opportunities in Gas Production
SSE had regularly set out its intention to seek new
opportunities to increase its asset base to help meet gas demand
requirements, with the UK and north-west Europe the focus for this
activity due to the relatively stable tax and fiscal regime and
proximity to SSE's domestic energy supply markets.
In line with this long-term strategy SSE announced in July 2015,
that it had entered into an agreement with Total E&P UK Limited
to acquire: a 20% interest in the four gas fields and surrounding
exploration acreage approximately 125km north west of the Shetland
Islands, collectively known as the Greater Laggan Area; and a 20%
interest in the new Shetland Gas Plant. The acquisition was
completed in October 2015. Total E&P UK Limited is the operator
of, and owns a 60% stake in these assets. The remaining 20% is
owned by DONG Energy.
The transaction completed with cash consideration of GBP669m
(which reflects the value of the assets including associated UK
capital allowances). SSE's share of forecast capex in the period to
March 2019 is expected to be c. GBP190m to complete the entire
development of the four primary fields (Laggan, Tormore, Edradour
and Glenlivet) as well as the Shetland Gas Plant, of which GBP43m
was spent to 31 March 2016.
The new Shetland Gas Plant is located close to Sullom Voe and
will process and export produced gas and condensate from
developments in the west of Shetland for onward delivery to the St
Fergus Gas Terminal for gas; and via the Sullom Voe Oil Terminal
for liquids. This makes it one of the most important infrastructure
developments in the UK. Production started in February 2016 and it
is expected to process and export gas and condensate for producers
West of Shetland well into the 2030s.
Gas production started in February 2016 from the Laggan fields
which have the ability to produce up to 90,000 boe a day at peak
production (SSE share 20%) and will help to secure energy for SSE's
customers and help meet the needs of SSE's gas-fired power stations
contributing to security of electricity supply. The nearby Tormore,
Edradour and Glenlivet fields are expected to start production
towards the end of 2016, 2017 and 2018 respectively and should keep
production at peak rates through to 2020.
In addition to helping meet SSE's gas demand requirements, the
acquisition is expected to create value over the long term, despite
the current impact of lower gas prices, and represents SSE's focus
on maintaining a balanced range of energy businesses across its
portfolio.
SSE's UK Continental Shelf upstream portfolio is predominantly
gas weighted with only associated liquids and as per the
independent Reserves Audit, at 31st March 2016, SSE's total
economically recoverable net proven plus probable (2P) reserves,
taking into account all technical and economic variables was
estimated to be 3.6 billion therms (58.8 mn boe) in all of the
fields in which SSE has an ownership interest.
Gas Storage
Gas Storage is responsible for the operation and maintenance of
SSE's gas storage facilities, and for ensuring they are available
for use by its customers.
Delivering gas storage services from Hornsea and Aldbrough
The economic environment for gas storage facilities continued to
be extremely challenging during 2015/16 - as illustrated the
GBP150.9m of exceptional charges recognised in the year. As
previously announced, SSE took the difficult decision at the end of
2014/15 to mothball its older withdrawal plant at the Hornsea
(Atwick) facility, which it completed for the start of the 2015/16
storage year.
Both of SSE's storage sites have continued to operate to meet
the needs of their customers through 2015/16, albeit with some
revision to Hornsea service provision during the last quarter:
-- Hornsea (Atwick) again met 100% of customer nominations with
the site 52% available through the year except in instances of
planned maintenance. The site was 97% available in the six months
to 30 September 2015. During the second half of the year, however,
a significant extension to maintenance works at the site kept it
unavailable , resulting in a drop from typical high levels for the
year overall;
-- Aldbrough met 100% of customer nominations and was 82%
available through the year except in instances of planned
maintenance. The two caverns removed from service earlier in the
year have remained out of service, with forward options regarding
these caverns under review.
Alongside the requirement to continue to ensure the highest
standards of asset management are maintained, SSE continues to
review its gas storage business on an ongoing basis. Its overall
aim is to continue to provide valuable flexibility and hedging
services to its customers and hence the wider UK gas market, while
managing its profitability and being as well positioned as possible
to take advantage of future market developments.
Wholesale - Conclusion and Priorities
Creating sustainable, long-term value from wholesale markets for
investors and customers is the strategic objective of SSE's
Wholesale businesses. This should be delivered through the
responsible production, storage and delivery of energy and related
services; a focus on meeting the needs of its customers; ongoing
rigour in optimising its portfolio of existing assets and those in
development, mean that SSE's activities across its Wholesale
businesses continue to support SSE's core purpose and the first
financial objective of annual growth in the dividend payable to
shareholders.
Wholesale - priorities in 2016/17 and beyond include:
-- Ensuring the safe, reliable and efficient operation of all
wholly-owned assets and those in which SSE has an ownership
interest ;
-- Securing a stable and predictable supply of energy to meet SSE's needs;
-- Delivering SSE's investments in renewable energy and other electricity generation plant;
-- Driving business change to respond effectively to market
change and regulatory developments in GB, NI, RoI and EU
regulations; and
-- Securing value, where appropriate, through the risk-managed
trading of energy-related commodities.
NETWORKS
Networks Key Performance Indicators
Mar 16 Mar 15
ELECTRICITY TRANSMISSION
========================================== ======= =======
Operating profit* - GBPm 287.2 184.1
========================================== ======= =======
Regulated Asset Value (RAV) - GBPm 2,287 1,732
========================================== ======= =======
Capital expenditure - GBPm 573.4 467.2
========================================== ======= =======
Connection offers provided in required
period 88 97
========================================== ======= =======
ELECTRICITY DISTRIBUTION
========================================== ======= =======
Operating profit* - GBPm 370.7 467.7
========================================== ======= =======
Regulated Asset Value (RAV) - GBPm 3,157 3,159
========================================== ======= =======
Capital expenditure - GBPm 258.3 327.6
========================================== ======= =======
Electricity Distributed TWh 39.5 39.6
========================================== ======= =======
Customer minutes lost (SHEPD) average
per customer 55 69
========================================== ======= =======
Customer minutes lost (SEPD) average
per customer 41 57
========================================== ======= =======
Customer interruptions (SHEPD) per
100 customers 66 70
========================================== ======= =======
Customer interruptions (SEPD) per 100
customers 47 60
========================================== ======= =======
Estimated Incentives Performance GBPm c23 c6.5
SCOTIA GAS NETWORKS
========================================== ======= =======
Operating profit* (SSE's share) - GBPm 268.7 285.0
========================================== ======= =======
Regulated Asset Value (SSE's share)
- GBPm 2,513 2,459
========================================== ======= =======
Capital and replacement expenditure
(SSE's share)- GBPm 162.8 169.9
========================================== ======= =======
Uncontrolled gas escapes attended within
one hour % 98.5 98.7
========================================== ======= =======
SGN gas mains replaced - km 960 1,042
========================================== ======= =======
Owning, operating and investing in Networks
SSE is the only energy company in the UK to be involved in
electricity transmission, electricity distribution and gas
distribution. Its five economically-regulated energy network
companies consist of a 100% ownership of Scottish Hydro Electric
Transmission (SHET), Scottish Hydro Electric Power Distribution
(SHEPD) and Southern Electric Power Distribution (SEPD) and a 50%
stake in both Scotland Gas Networks and Southern Gas Networks
(SGN).
SSE's interests in economically-regulated energy networks
supports the delivery of disciplined investment, a balanced range
of assets and operational efficiency. The RAV of SSE's five
existing Networks companies is well placed to reach around GBP10bn
by 2020.
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. While the RIIO Price
Control mechanism is complex, these economically-regulated,
lower-risk businesses provide relative predictability and stability
for SSE and balance its activities in the competitive Wholesale and
Retail markets. They are core to SSE's strategy in the short,
medium and long-term and contribute significantly to its ability to
deliver annual dividend increases.
Under the RIIO price controls all network operators are
incentivised to become more responsive to the needs of their
customers and stakeholders and to engage effectively with them to
help inform how they plan and run their businesses. SSE's Network
businesses recognise that this requirement is key to ensuring it is
accountable and responsive to the communities it serves.
In the second half of 2016/17, SSE's three electricity networks
businesses will become collectively known as Scottish and Southern
Electricity Networks following a rebranding process designed to
improve customers' awareness of, and stakeholders' engagement with,
the businesses.
Financial performance in Networks
During the year to 31 March 2016, total operating profit in
Networks was GBP926.6m with the principal movements in operating
profit as follows:
Transmission - The 56% increase in SHE Transmission's operating
profit reflects the ongoing delivery of a major programme of
capital investment including the first full year of construction of
the Caithness-Moray transmission link. Operating profit is likely
to decline in this new financial year due to phasing of capex and
revenue as well as rates rebates and depreciation associated with
the growing asset base. Since the current RIIO T1 Price Control
started in April 2013, SHE Transmission's capital investment has
totalled GBP1.39bn.
Distribution - The 20.7% decrease in electricity distribution
operating profit is primarily due to the expected reduction in base
revenues under the first year of the RIIO ED1 price control. The
profiling of the price control settlement resulted in a significant
income reduction in 2015/16. This was set out in Ofgem's Final
Determination in November 2014.
SGN - SSE's share of SGN's operating profit fell by 5.7%
primarily due to a decrease in Allowed Revenue in 2015/16 compared
to the prior year. The drop was mainly linked to the regulatory
mechanism for sharing the benefit of previously earned
outperformance with customers in RIIO GD1, for which there is a two
year lag.
Impact of revenue recovery
If in any year, regulated network 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 adjusted. This
particularly impacts Electricity Distribution and during 2014/15
there was an under recovery of approximately GBP38m in this
business. Under the regulatory framework the GBP38m under recovery
in 2014/15 was reflected in customer charges published in December
2015 for 2016/17. The under recovery in 2015/16 was significantly
lower, at approximately GBP5m. There were no material under or over
recovery positions in Transmission or Gas Distribution reflecting a
more capacity based revenue recovery mechanism.
Electricity Transmission
Scottish Hydro Electric Transmission Plc (SHE Transmission) is
responsible for maintaining and investing in the electricity
transmission network in the north of Scotland.
Completing projects which add to the RAV
During 2015/16 SHE Transmission completed a number of upgrades
and reinforcements to its transmission network in the north of
Scotland. The projects, which were all completed on time and within
their Ofgem allowances (nominal prices), are:
-- the GBP94m reconductoring of the Beauly-Blackhillock-Kintore overhead line;
-- the GBP68m substation and overhead line works on the Beauly-Mossford project; and
-- the GBP210m subsea upgrade and associated onshore
infrastructure on the Kintyre-Hunterston projects.
The replacement Beauly-Denny 400kV overhead line was energised
in November 2015 and provides additional flexibility and
electricity network resilience. As well as connecting new
electricity generation to the transmission network one of the
additional benefits of the new overhead line was realised during
the big storms of the winter - storms Frank, Gertrude and Henry -
when there was no loss of supply to generation customers. The
replacement of its section of the Beauly-Denny line has required a
total investment to date by SHE Transmission of around GBP650m and
it is continuing discussions with Ofgem regarding recovery of
efficiently incurred costs additional to the original allowance of
the project. Total costs are now not expected to exceed
GBP670m.
SHE Transmission's investment in these and other projects
demonstrates its commitment towards supporting the transition to
lower carbon forms of electricity generation. In delivering these
essential infrastructure projects SHE Transmission has built on its
continuing expertise in delivering increased capacity for
electricity generation.
The investment that SHE Transmission has made in its network has
helped connect over 2GW of additional capacity and as a result has
made its network more secure and resilient. With the current
pipeline of development SHE Transmission is expected to increase
its RAV from GBP2.3bn as at March 2016 to around GBP3bn by March
2018.
Delivering the Caithness-Moray project
With an agreed investment of GBP1,118m (2013/14 prices), the
Caithness-Moray transmission reinforcement is SHE Transmission's
flagship project and its largest single capital investment to date.
The project, which will enable the connection of up to 1,200MW of
additional generation capacity in the north of Scotland and the
Northern Isles is progressing well and is scheduled to be
operational by the end of 2018. For example, both land and subsea
cable manufacture are continuing ahead of programme, with land
cable production completed and delivered to site for both Caithness
and Moray. The subsea cable manufacture is on course for completion
by the end of 2016. Subsea activities will commence in the first
quarter of 2017. First revenues were received in 2015/16 under the
Strategic Wider Works mechanism.
Fulfilling responsibilities for potential island links
Developers of generation capacity on the Scottish Islands
continue to await clarity from the UK Government on whether EU
State Aid clearance is obtained and their projects are eligible for
Contracts for Difference (CfD) in forthcoming auctions. Whilst this
uncertainty remains, developers are unable to commit to final
funding decisions on their projects. While it continues to engage
with stakeholders, SHE Transmission is not therefore in a position
to submit 'Needs Cases' to Ofgem for the island links to the
Western Isles and Shetland. SHE Transmission continues to engage
with Ofgem and developers and will submit Needs Cases for the
island links later this year, if circumstances allow.
Adapting to policy and regulatory change
Following the publication in March 2015 of the final conclusions
of its Integrated Transmission Planning and Regulation (ITPR)
project, Ofgem has continued the development of the regime for
extending the use of competition in onshore transmission.
While ITPR poses some potential risks, the extension of
competition into onshore transmission also presents opportunities
for SHE Transmission. The experience it has built up both in-house
and with its supply chain means that SHE Transmission is well
placed for competitive delivery when it is implemented.
Through continued engagement with Ofgem and DECC SHE
Transmission aims to ensure that its development portfolio, and
specifically some of its more advanced projects, can be delivered
as far as possible under the existing regulatory framework. It is
also contributing to discussions on future arrangements that will
deliver the transmission infrastructure required in a way that
supports the UK Government's policy objectives, delivers value for
end consumers and achieves a fair and reasonable return to
investors.
Ofgem announced on 12 May 2016 that it would not conduct a
mid-period review into SHE Transmission's RIIO T1 price control.
SHE Transmission remains committed to delivering against its
outputs while ensuring value for money for the remainder of RIIO
T1.
Working with stakeholders
SHE Transmission is also engaging with stakeholders through its
Visual Impact of Scottish Transmission Assets (VISTA) project which
is seeking views on how to mitigate the impacts of transmission
infrastructure in National Parks and National Scenic Areas. The
views of stakeholders are central to understanding the impact of
existing infrastructure and investigating potential options for
mitigation.
Electricity Distribution
Scottish and Southern Energy Power Distribution (SSEPD) is
responsible for maintaining the electricity distribution networks
supplying over 3.7 million homes and businesses across central
southern England and north of the Central Belt of Scotland.
Putting customers first
During 2015/16, its first year under the incentives-based RIIO
ED1 price control, SSEPD has made significant steps in driving real
change in its operations, processes and standards. The introduction
of a change programme is ensuring that the business is able to meet
the demands of the eight year price control. Its new sustainable
business model, built on a combination of customer service and
innovation, will bring benefits to customers while ensuring
financial targets are achieved and a fair return is delivered to
investors.
The focus of the new price control is the delivery of efficient
operations and the best possible experience for customers; and the
business has prioritised its efforts on the incentives built into
RIIO ED1 that are designed to encourage improvements in customer
service.
The most financially significant of these are the two measures
of loss of electricity supply: Customer Interruptions and Customer
Minutes Lost (CIs and CMLs). In the first year of the new price
control SSEPD's adoption of the 'restore first, repair second'
method was a driver in bringing down its CIs and CMLs. The
continued investment in automation, network reinforcement and tree
cutting also delivered improvements to help secure financial
incentives. SSEPD's adoption of a regionalised model across its
distribution areas has assigned responsibility and decision making
to local teams which has helped to improve the response to power
supply disruption during extreme weather events.
SSEPD's commitment to minimising the occurrence and duration of
customer interruptions saw the Customer Minutes Lost reduce to
55minutes (SHEPD) and 41minutes (SEPD) per customer and for
Customer Interruptions to reduce to 66 per 100 customers (SHEPD)
and 47 per 100 customers (SEPD). This is the best-ever performance
for SSE's Networks business.
The first awards from SSEPD's GBP1.3m Resilient Communities
Fund, which was established to support local communities in their
preparation and response to emergencies, were made in 2015/16. The
second round of nominations for funding has opened. The fund was
established using money remaining from an amount agreed with Ofgem
following weather-related electricity supply disruption over the
Christmas period in 2013/14.
During the winter of 2015/16 SSEPD delivered its largest ever
customer communications campaign, including advertising on TV,
radio and digital outputs. The campaign raised awareness of its
contact details in response to storms and to promote the services
it provides for customers, including those who may need extra help
during a power cut that are registered on its Priority Service
Register.
Keeping costs down
The main focus for SSEPD during RIIO ED1 is to deliver the
outputs outlined in its business plan in an efficient and
sustainable manner. In order to meet these challenges the business
is transforming continually to ensure that its processes,
procedures and supply chain are efficient.
Improving through innovation
Innovation is a key priority at SSEPD and its projects will play
a crucial role in balancing the country's future energy needs,
while helping to keep the cost of energy down. SSEPD has a pipeline
of innovations, at various stages of development, and is on target
to achieve cost savings over the period of the price control while
creating direct benefits for customers.
The innovation projects are funded through Ofgem's incentive
schemes, which are designed to help Britain's electricity networks
achieve energy efficiencies and become smarter. Projects have
included:
-- SSEPD's My Electric Avenue monitored what impact people
charging their electric vehicles could have on the electricity
network and tested real solutions to allow more to connect with
minimal disruption. The trial will help all Distribution Network
Operators (DNOs) to safeguard, maintain and develop smarter
networks to cope with the increase in electric vehicle usage in the
future. This project is now informing work on developing a standard
solution for smart charging where networks are heavily loaded,
working closely with the other DNOs.
-- The findings from the Thames Valley Vision project on energy
characterisation and forecasting could revolutionise the way that
DNOs manage and effectively maintain the electricity networks of
the future.
-- Following a number of trials SSEPD has created the first
"Constraint Managed Zones (CMZs)" on its network. The CMZs ensure
that security of supply is met for sections of the network through
the use of load variation techniques, such as Demand Side Response,
Energy Storage and stand-by generators. The first deployment is
deferring GBP9m of capital cost beyond RIIO ED1.
SSEPD actively shares the learning from these projects within
the Networks business and with other networks operators in the UK
and across Europe, helping to promote best practice and bring new
techniques and technologies into 'business as usual' operation
across Britain's electricity network.
Co-operating with an investigation
On 20 January 2015, SSE plc was notified that the Gas and
Electricity Markets Authority opened an investigation into whether
SSE plc had infringed Chapter II of the Competition Act 1998 and/or
Article 102 Treaty on the Functioning of the European Union in
respect of the provision of points of connection services in the
Southern Electric Power Distribution area. The investigation is
ongoing.
Engaging stakeholders in decision making
A key feature of SSEPD's first year in the price control is
making sure its stakeholders have a say in its business decisions.
This influence allows them to hold the DNOs to account and it has
been vital to maintaining SSEPD's reputation. This has
included:
-- A consultation launched in 2015/16 to give stakeholders the
opportunity to nominate the undergrounding of 90km of overhead
lines in Areas of Outstanding Natural Beauty, National Parks and
National Scenic Areas in the north of Scotland and central southern
England.
-- SHEPD working with Comhairle nan Eilean Siar and other
stakeholders to explore the available options around current
network restrictions in the Western Isles. A steering group has
been formed and it is investigating possible solutions that may
accommodate the connection of additional renewable energy
generation.
Stakeholder engagement will continue to play a vital role at
SSEPD and is a requirement for further regulated incentives during
the price control.
SGN
SGN manages the network that distributes natural and green gas
to 5.9 million homes and businesses across Scotland and the south
of England. In line with its equity holding, SSE receives 50% of
the distributable earnings from SGN Ltd while, through a managed
service agreement, continues to provide some back-office
support.
Working with the Gas Distribution Price Control
SGN is focused on ensuring all its outputs under Ofgem's 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 a key element of this and, within
overall total cost allowances of over GBP4.6bn (at 2012/13 prices),
Ofgem has allowed around GBP2.8bn over the current eight year price
control running to 2021 to cover new capital investment and to
manage the risks relating to SGN's existing assets. This investment
enables SGN to:
-- deliver a safe and reliable network for customers;
-- minimise its impact on the environment and communicate its work to stakeholders; and
-- deliver new customer-driven initiatives to help reduce fuel
poverty and increase awareness of Carbon Monoxide dangers.
In terms of operational performance and safety, 98.5% of
uncontrolled gas escapes reported by the public were attended
within one hour of notification, exceeding Ofgem's 97%
standard.
Networks - Conclusion and Priorities
SSE's economically-regulated Networks businesses are key to the
provision of energy in the north of Scotland and central southern
England. SSE aims to put the current and future needs of customers
at the heart of these businesses and, in doing so, earn a return
that is value for money for customers and fair to investors. This
will be its aim in 2016/17 and beyond.
Networks priorities for 2016/17 and beyond
-- operate safely and meet all compliance requirements;
-- provide an excellent service to all customers who rely on its network;
-- deliver required outputs while maintaining tight controls over expenditure;
-- deliver every customer connection to quoted cost, time and budget;
-- develop and maintain effective stakeholder relationships;
-- progress innovations that improve network reliability, efficiency and customer service.
RETAIL (including Enterprise)
Retail (including Enterprise) Key Performance Indicators
Mar 16 Mar 15
Energy Supply
========================================= ============= ============
Operating Profit * - GBPm 398.9 368.7
========================================= ============= ============
Capital expenditure (Energy Supply
and Energy Related Services) - GBPm 169.0 109.6
========================================= ============= ============
Electricity customer accounts (GB
domestic) - m 4.16 4.37
========================================= ============= ============
Gas customer accounts (GB domestic)
- m 2.79 2.96
========================================= ============= ============
Energy customers (GB business sites)
- m 0.47 0.45
========================================= ============= ============
All-Island energy market customers
(Ire) - m 0.79 0.80
========================================= ============= ============
Total energy customer accounts (GB,
Ire) - m 8.21 8.58
========================================= ============= ============
Electricity supplied household average
(GB) - kWh 3,763 3,842
========================================= ============= ============
Gas supplied household average (GB)
- th 426 438
========================================= ============= ============
Household/small business aged debt
(GB, Ire) - GBPm 103.2 106.2
========================================= ============= ============
Bad debt charge - GBPm 44.0 65.3
========================================= ============= ============
Customer complaints to third parties
(GB)(1) 1,416 1,528
========================================= ============= ============
(1 Ombudsman: Energy Services and
Citizens Advice)
========================================= ============= ============
Energy related services
========================================= ============= ============
Operating profit*- GBPm 15.4 17.7
========================================= ============= ============
Home Services customer accounts (GB)
- m 0.40 0.35
========================================= ============= ============
Meters read - m 11.4 13.0
========================================= ============= ============
Supply customers' bills based on actual
reading % 95.1 96.2
Smart Meters installed over 180,000 over 40,000
Enterprise
========================================= ============= ============
Operating profit* - GBPm 40.9 70.4
========================================= ============= ============
Capital expenditure - GBPm 48.5 25.1
========================================= ============= ============
SSE Contracting Order Book - GBPm 133 133
========================================= ============= ============
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 Ireland. At 31 March 2016 it supplied
electricity and gas to 8.21million household and business accounts.
It also provides other related products and services including
telephone, broadband and boiler care to 0.40 million household and
business customers. The Retail segment includes the Enterprise
business which provides energy services to meet the needs of
businesses and public sector organisations in a reliable and
sustainable way. Taken together these businesses provide balance to
the SSE Group and demonstrate SSE's commitment to efficient
operations and industry-leading customer service.
SSE is focused on addressing the decline in customer numbers it
has experienced in recent years. In the context of the rapidly
evolving competitive environment in which its Retail business
operates, SSE has embarked on a transition from commodity provider
towards its vision of becoming a market-leading retailer of energy
and essential services, by digitalising and diversifying its
business, and consistently excelling in customer service.
Financial performance in Retail and Enterprise
In 2015/16, SSE's profit margin (operating profit as a
percentage of revenue) in Energy Supply was 5.2% (before tax)
compared with 4.6% in 2014/15 and 2.9% in 2013/14. Energy supply
profit margin has averaged4.1% over the past five years.
During the year to 31 March 2016, total operating profit in
Retail was GBP455.2m with the principal movements in operating
profit as follows:
Energy Supply - The overall increase in operating profit was
driven primarily by strong performance in Business Energy, in
particular due to increasing market share in the industrial and
commercial (I&C) sector. This more than offset a reduction in
operating profit in domestic energy as a result of customer losses
and lower consumption. This is in line with the expectations set
out by SSE at its interim results that operating profit in domestic
energy supply would fall in 2015/16 relative to 2014/15.
Energy Related Services - Operating profit fell as SSE continues
to invest in building scale in these businesses, making a number of
operational improvements to support its plans for future growth in
non-energy as part of its diversification strategy. In line with
that strategy, overall customer numbers in Energy-Related Services,
which includes broadband and fixed-line telephone, gas boiler and
electrical maintenance, repair and installation, increased to
0.40million from 0.35million in the year to 31 March 2016.
Enterprise - The reduction in operating profit mainly reflects
strategic business disposals that took place in the previous year
(including the GBP15.3m profit from the disposal of SSE's gas
pipeline business), alongside numerous revisions to the overall
structure of the SSE Enterprise business.
Preparing Consolidated Segmental Statements
SSE is required by Ofgem to publish a Consolidated Segmental
Statement (CSS) each year setting out the revenues, costs and
profits or losses of businesses in its Wholesale and Retail
segments.
In line with that requirement, SSE expects to publish its CSS
for 2015/16 in July 2016. The CSS for 2015/16, which will be
reconciled to SSE's published financial statements and reviewed by
SSE's auditors KPMG. It is expected to show that SSE's profit
margin (before tax) from supplying electricity and gas to
households in Great Britain was relatively flat at 6.2%, compared
with 6% in 2014/15. SSE's CSS is also expected to highlight the
increasing divergence between electricity and gas margins,
primarily due to cumulative costs associated with the long-term
upgrade of the country's electricity system that began around a
decade ago and which is continuing in the interests of ensuring
that customers benefit from a secure and lower-carbon energy
system. These costs are levied more heavily against
electricity.
Responding to the Competition and Markets Authority inquiry
On 10 March 2016 the Competition and Markets Authority (CMA)
published its Provisional Decision on Remedies (PDR) summary,
setting out for consultation its final proposed remedies as it
approaches the conclusion of its two-year energy market
investigation. As outlined in SSE's published response, the PDR
largely reflects the position that GB energy markets are generally
competitive and well-functioning, and, in particular:
-- that the key elements of the wholesale markets are working well and highly competitive;
-- the significant number of positive features that the CMA has
identified in the domestic supply markets, including that over 30
suppliers compete vigorously on price, tariff and product
innovation; and
-- that market developments, and particularly smart meters, will
have (and are already having) a materially positive impact on the
energy sector.
However, SSE does not recognise either the CMA's assessment of
profitability in the sector and associated customer detriment or
the overall picture of the GB energy supply market implied by the
PDR findings. SSE remains concerned that, despite some of the
in-depth analysis undertaken, the PDRs still display a considerable
lack of appreciation for the dynamic and evolving nature of this
market.
Nevertheless, SSE supports many of the remedies proposed by the
CMA, including the withdrawal of the simpler choices component of
the Retail Market Review (RMR) rules; improving the framework for
effective competition through a clear path towards mandatory
half-hourly settlement; and improving industry governance, among
others. However, SSE has concerns that prepayment meters (PPMs) are
a poor proxy for vulnerable customers and the PPM price cap stands
out as a potentially flawed remedy which may have a detrimental
impact on competition and endanger the efficacy of the rest of the
package.
While SSE strongly supports efforts to maximise customer
engagement, it also has concerns over the proposed database for
"disengaged" customers.
SSE will continue to work constructively with the CMA and other
appropriate stakeholders to reach a practical delivery of this
substantial package, whilst recognising it is already a busy period
of change in the industry, particularly against the backdrop of the
smart meter roll-out.
Energy Supply and Energy Related Services
Treating customers fairly
Underpinning SSE's approach to the provision of both energy and
energy-related services is the principle of treating customers
fairly. This is central to the decisions SSE takes both at
Executive Committee and Board level, as documented in its annual
Treating Customers Fairly Statement, published in August each year.
This means actively addressing any issues that arise relating to
the quality of the service provided, as well as looking for ways to
improve service quality in the future.
As a result of its approach to customers, SSE continues to be
recognised by a variety of trusted third parties for the quality of
its service:
-- The Ombudsman for Energy Services reported in March that SSE
received the fewest complaints of all ten suppliers covered,
including the largest independent suppliers, with 3.09 complaints
per 100,000 customers.
-- SSE continues to perform strongly in the Citizens Advice
Energy Supplier Performance Report, with a score 44 times better
than the worst performing supplier and seven times better than the
other major suppliers' average score. SSE remained top for the
period June-September 2015, a position held for five years, before
slipping fractionally to second place for Q4 2015. SSE is working
hard to improve on this and is confident that it will remain an
industry leader.
-- SSE was also ranked best for customer service among the
largest six energy suppliers by uSwitch, the best performing major
energy supplier in the Which? customer service survey of the top
100 consumer brands, and number one energy supplier in the annual
UK National Consumer Satisfaction Index (NICIS-UK).
Supplying energy to customers across Great Britain and
Ireland
SSE appreciates that customers rely on its core products of
electricity and gas to power and heat their homes in order to live
safely and comfortably, and is therefore committed to keeping
energy prices as low as possible. On 29 March 2016, SSE implemented
its third price cut in Great Britain during the period of its
unique two and a half year price freeze, reducing gas prices by a
further 5.3%. SSE's household energy customers have not seen a
price increase since November 2013 and SSE's new gas prices are now
12% lower for a typical household customer than they were in 2013.
While electricity wholesale prices have also fallen, this has been
offset by non-energy costs and in particular the cumulative impact
of programmes to upgrade the country's energy infrastructure, which
are levied predominantly against electricity.
In the year to 31 March 2016, SSE's energy customer accounts in
Great Britain and Ireland fell from 8.58 million to 8.21 million.
SSE is focused on addressing the decline in customer numbers it has
experienced in recent years and is aiming to reduce significantly
the rate of customer losses during the coming year. The market for
energy supply in GB in particular continues to be intensely
competitive, with political, regulatory and market factors all
contributing to the rapid growth of new market entrants, of which
11 have come to market in the past year alone. Customers are also
highly engaged: in March 2016 alone, over 475,000 customers
switched supplier, with 43% switching to a smaller provider,
according to Energy UK data. Increasingly, customers are switching
via internet comparison sites (ICSs), which now account for around
50% of switches compared to 25% seven years ago, and are driven
almost exclusively by price. Similar forces are at work in the
competitive markets in Ireland.
Having made significant improvements in the past 12 months in
order to compete more effectively in this environment, SSE will
continue to offer market-leading deals to new and existing
customers in 2016/17. However, it is, fundamentally, a business
focused on the long-term and its strategy therefore centres around
providing customers with additional value in order to create
stronger, deeper and more sustainable customer relationships based
on high-quality customer service, provision of a range of
different, competitively priced products in the home and a
programme of rewards. To support this strategy, SSE is also focused
on building a strong brand that customers want to engage with and
on delivering operational efficiencies that enable it to do more
for less.
Investing in becoming a market-leading retailer of energy and
essential services
SSE firmly believes that its strategy of becoming a
market-leading retailer of energy and essential services, by
digitalising and diversifying its business, and consistently
leading in customer service, is the right response to an
increasingly competitive market, and one which will enable it to
leverage its strong competencies in customer service and efficient
operations.
It now has a number of key initiatives under way, including:
-- a significant upgrade of its customer-facing digital channels
and websites to simplify and improve customer service while also
minimising its cost to serve;
-- diversifying though the national expansion of its Home
Services business, which provides boiler and electrical services to
customers;
-- offering market-leading deals in the broadband and fixed-line
telephony market in order to build scale in this business and
further diversify SSE's customer base, seeking to offer additional
products and value to existing energy customers;
-- introducing additional resources, training and telephony
services to its call centres to deliver on its ambition to build
differentiation through service; and
-- optimising the smart meter roll-out and developing new
in-home customer experiences linked to smart data to drive digital
customer engagement and achieve its service ambition.
At the same time SSE continues to invest in its brand to ensure
it not only appeals to customers but is able to offer additional
value and rewards linked to its sponsorship of sports, such as the
SSE Women's FA Cup, and leading entertainment venues The SSE Hydro,
The SSE Arena, Wembley, and The SSE Arena, Belfast.
This investment is underpinned by SSE's ongoing efforts to
streamline its operations and generate process efficiencies.
Meeting customers' need for energy
Following a colder first six months of the year relative to
2014/15, winter temperatures were again near or above average,
impacting consumption volumes in the second half of the year. The
average UK temperature for the 12 months to 31 March 2016 was 0.4
degrees Celsius warmer than the 30-year (1981-2010) average, though
it was 0.3 degrees Celsius colder than in 2014/15.
While consumption can vary greatly year-on-year based on
temperatures, on a weather-corrected basis SSE estimates that gas
and electricity consumption by household customers in the 12 months
to 31 March 2016 fell by 3.1% and 1.8% respectively. As well as
reflecting underlying changes in SSE's customer base, this can be
attributed to the ongoing impact of structural, technological and
behavioural energy efficiency improvements. SSE estimates that, at
today's prices, a typical customer bill is now approximately 12%
lower than in 2011 as a result of reduced energy consumption,
largely due to energy efficiency improvements.
SSE continues to play its role in the delivery of important
energy efficiency improvements to customers' homes under the Energy
Company Obligation (ECO). SSE is on course to meet its ECO targets
to 31 March 2017 and, since the scheme was launched in 2013, SSE
has:
-- promoted the installation of 282,000 energy efficiency
measures including loft, cavity and solid wall insulation and
boiler replacements;
-- helped improve the efficiency of over 242,000 homes across Great Britain; and
-- provided over GBP1,000m of notional lifetime bill savings for customers.
Helping vulnerable customers
Energy is an essential service; SSE therefore takes its
responsibility to vulnerable customers very seriously and helps
them manage their energy costs in a number of ways.
The Warm Home Discount (WHD) scheme enables pensioners and
vulnerable customers to receive help with their fuel bills in the
form of a yearly 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
efficiency advice, and help with bespoke payment arrangements. In
the year to 31 March 2016 around 325,000 customers received
assistance from SSE worth over GBP48.5 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 the top-up
behaviour of its prepayment customers to minimise the risk of
'self-disconnection'. In line with its licence condition, 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.
Further to its commitment to use any future unclaimed credit
balances which cannot be returned to customers to help give
additional support for vulnerable customers, SSE has also now
reallocated historic unclaimed credits to the value of more than
GBP28m.
Debt levels continue to reduce, partly reflecting lower prices
and falling consumption, but also due to SSE's efforts to engage
constructively and understandingly with customers in arrears as
early as possible, making sure support is provided and payment
plans are manageable.
Rolling out smart meters to customers across Great Britain
SSE's metering business is undergoing a transformation through
the smart meter roll-out; however, it still undertakes meter
reading operations and meter operator work in all parts of Great
Britain. SSE believes in the potential for the national roll-out of
smart meters to transform the relationship between customers, their
energy usage and their supplier in the coming years. It is
therefore committed to delivering its roll-out in a way that is
both cost-effective and customer-centric, with the primary
objective of maximising the net benefits to customers.
SSE has been gradually ramping up its capacity and delivery of
smart meters with a view to getting it right for customers first
time to maximise engagement. As of 31 March 2016, SSE had installed
more than 180,000 smart meters and installed its 200,000(th) meter
in April 2016. 2016/17 is a pivotal year for the smart programme,
with the central communications infrastructure provided by the Data
Communications Company (DCC) due to be delivered to a revised
timetable which will see phased introduction in August and October
2016. While there remain other constraints to be addressed, getting
the DCC up and running is a critical first step towards enabling
suppliers to build up to mass deployment. Any further delays to the
DCC's delivery timetable must be reflected in the overall delivery
timetable to avoid any negative impacts for customers.
Doing more for business energy customers
Business Energy performed strongly in 2015/16, driven by growth
in the Industrial and Commercial (I&C) market and ongoing
efforts to control operating costs. SSE has continued to build its
offering in the commercial sector with the launch of a new
renewable energy proposition 'SSE Green', a new customer website
and a change in approach to service with a greater focus on the
needs of customers. This has resulted in Business Energy's service
team moving closer to its sales team, working with the customer to
define requirements at an early stage and then providing ongoing
support on a continuous basis.
For Business Energy's micro business customers, SSE has
continued its emphasis on Treating Customers Fairly by relaunching
its TCF statement and establishing a Performance team to focus on
operational excellence by driving continuous improvement. Third
Party Intermediaries (TPIs) remain an important channel for
Business Energy growth and SSE continues to provide ongoing support
to its TPIs by providing access to its industry experts via sales
channels, engagement sessions and regular industry updates.
Key to the continued success of Business Energy is a willingness
to listen to customers, review processes and act on what customers
are saying. At the same time, SSE remains focused on giving
business customers direct access to people who will support and
work in partnership with them throughout the lifetime of their
contract.
Supplying energy and energy-related services to customers in
Ireland
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 2016, SSE Airtricity supplied electricity and gas to 0.79
million household and business customer accounts in the Republic of
Ireland (ROI) and Northern Ireland (NI), representing a 20% share
of the total combined gas and electricity markets in which it
operates.
Market conditions remain highly competitive, particularly in
Northern Ireland where the regulated electricity market has seen
the emergence of new domestic entrants in the last 12 months. In
light of competitive pressures, SSE Airtricity continues to invest
in its brand and in June 2015 announced a ten-year naming rights
deal for The SSE Arena, Belfast, adding to SSE's existing portfolio
of UK-wide entertainment venues. SSE Airtricity's Energy Services
business continues to expand in both the ROI and NI markets. As a
'digital-first' supplier, around 70% of all SSE Airtricity customer
interactions are performed via the company's online, digital and
mobile service platforms.
SSE Airtricity reduced its household electricity prices in
Republic of Ireland by 2% from 11 January 2016, following an
earlier 2% cut to electricity along with a 4% cut to gas prices in
April 2015. In Northern Ireland, the company reduced its
electricity prices by 8% in April 2015 and by a further 1.3% from
11 January 2016.
In Northern Ireland's Greater Belfast natural gas supply
network, where SSE Airtricity is the regulated supplier with a 73%
market share, the company reduced its gas prices by 10% from 1
October 2015. This followed an earlier 7.8% cut in its regulated
prices in April 2015. The setting of SSE Airtricity's regulated
natural gas prices, including any changes to those prices, follows
a Price Control review conducted every six months by the Northern
Ireland Utility Regulator.
Enterprise
Business Structure
SSE Enterprise incorporates six of SSE's businesses:
Contracting, Energy Solutions, Rail, Slough Heat and Power,
Telecoms and Utilities, supported by centralised sales and project
delivery teams. As a multi-disciplined engineering services partner
for businesses, building a sustainable infrastructure for the
future, SSE Enterprise provides energy services to meet the needs
of businesses and public sector organisations in a reliable and
sustainable way.
With a significant self-delivery capability, SSE Enterprise:
-- designs, builds, maintains and operates complex mechanical
and electrical engineering infrastructure;
-- provides sector-leading energy management and data analytic
services to help businesses optimise their energy performance,
helping to reduce costs and emissions;
-- provides industry-leading telecoms connectivity and data
centre services, meeting the connectivity and communication needs
of businesses with bespoke solutions; and
-- designs builds, maintains and operates electricity, gas,
water, heat and cooling networks for commercial and residential
developments.
SSE Enterprise was formed in 2014 under the leadership of
Managing Director Jim McPhillimy, who is also a member of SSE's
Executive Committee and a PDMR. Having successfully brought
together the SSE Enterprise group of businesses and enhanced their
overall capability, Jim will step down from the role and retire
from SSE at the end of the year. A successor will be appointed in
the next few months.
Setting the right priorities for SSE Enterprise
The energy needs and expectations of private sector companies
and public sector organisations are becoming increasingly
sophisticated, with growing requirements for effective energy
management and robust energy and utility infrastructure. In
addition, those customers are increasingly seeking integrated and
bespoke solutions to meet their energy and utility needs.
Laying the foundations for future growth
Since the start of 2015/16, SSE Enterprise has continued to make
progress in laying the foundations to deliver future growth.
-- SSE Enterprise Telecoms has continued to grow its network,
unbundling a further 33 BT exchanges, increasing telecoms coverage
by an additional 50,000 postcodes nationwide; further expanding its
network in London; and connecting a further four data centres,
bringing the total number of connected data centres to 72. SSE
Enterprise Telecoms sales grew 30% year on year, with a number of
notable new clients including NATS, Mitsubishi UFJ Financial Group
Inc. (MUFG) and Imperial College.
-- SSE Enterprise Contracting and SSE Enterprise Energy
Solutions have both undergone organisational restructures, with
enhanced sales organisations focused on operational efficiency and
delivering value for customers. SSE Enterprise Contracting has been
selected by Bluepoint London, a subsidiary of the French group
Bolloré, to be the installer of up to 6,000 Electric Vehicle
Charging Points across London.
-- SSE Enterprise Utilities has created a dedicated heat team
with ambitious plans to significantly build on its current
portfolio of district heat networks and maintain its position as
one of the UK's leading heat network providers. In 2015/16 SSE
Enterprise Utilities delivered a low-carbon, multi-utility solution
at the Riverlight development in London, providing the installation
and ongoing ownership, operation and maintenance of the water,
heat, gas and electricity networks.
-- A dedicated rail business, SSE Enterprise Rail, has been
created with the primary purpose of 'Powering Britain's Railways',
building on the extensive engineering experience and expertise SSE
has built up in rail over the last 15 years. Since its formation,
SSE Enterprise Rail has significantly expanded its capabilities in
the rail sector, increasing its product portfolio of Railway
Industry Supplier Qualification Scheme (RISQS) codes; the industry
recognised qualification for the supply of products and services to
the rail industry, from 32 to over 200.
-- Slough Heat and Power has transferred from SSE's Generation
division to SSE Enterprise, recognising the opportunity to broaden
the offering of services that SSE Enterprise provides to Slough
Heat and Power's existing and prospective customers.
-- A new Energy Performance team has been created, responsible
for securing, structuring and delivering Energy Performance
Contracts (EPCs).
Retail (including Enterprise) - Conclusion and Priorities
SSE's Energy Supply, Energy-Related Services and Enterprise
businesses operate in competitive markets and are each focused on
the changing energy needs of household, commercial and public
sector customers. This means maintaining a clear focus on
delivering the propositions and services that customers need. Put
simply, the core requirement of these businesses is to put the
current and future needs of customers at the heart of everything
they do.
Key priorities for 2016/17 and beyond
-- moving towards a stabilisation of customer numbers through
enhanced sales and retention activities, as well as through
realising SSE's customer service ambition;
-- accelerating diversification through the national expansion
of Home Services and continued growth in broadband and
telephone;
-- taking the smart opportunity by optimising deployment of
smart meters and developing compelling smart-enabled customer
propositions;
-- continuing to improve the customer experience and deliver
operational efficiencies by further digitalising the business;
-- delivering continuing investment and growth in energy supply
to commercial and public sector organisations; and
-- continuing development of integrated energy and utility
solutions that meet the specific and evolving needs of customers,
in addition to the continued organic growth of each of the
businesses within Enterprise.
Summary Financial Statements
Consolidated Income Statement
for the year ended 31 March 2016
2016 2015
Before Exceptional Before Exceptional
exceptional items and exceptional items and
items and certain items and certain
certain re-measure-ments certain re-measure-ments
re-measure-ments (note 6) Total re-measure-ments (note 6) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 5 28,781.3 - 28,781.3 31,654.4 - 31,654.4
Cost of sales (25,859.4) (644.5) (26,503.9) (28,801.3) (432.8) (29,234.1)
Gross profit 2,921.9 (644.5) 2,277.4 2,853.1 (432.8) 2,420.3
Operating
costs (1,449.8) (334.0) (1,783.8) (1,361.5) (358.5) (1,720.0)
Other
operating
income 29.4 57.6 87.0 47.2 74.8 122.0
Operating
profit
before joint
ventures and
associates 1,501.5 (920.9) 580.6 1,538.8 (716.5) 822.3
------------- ---- ----------------- ----------------- ---------- ----------------- ----------------- ----------
Joint
ventures and
associates:
Share of
operating
profit /
(loss) 322.9 - 322.9 342.6 (25.9) 316.7
Share of
interest (126.8) - (126.8) (124.2) - (124.2)
Share of
movement on
derivatives - 2.3 2.3 - 6.7 6.7
Share of tax (39.9) 46.3 6.4 (34.2) (1.4) (35.6)
-----------------
Share of
profit on
joint
ventures and
associates 156.2 48.6 204.8 184.2 (20.6) 163.6
----------------- ----------------- ----------
Operating
profit 5 1,657.7 (872.3) 785.4 1,723.0 (737.1) 985.9
Finance
income 7 101.8 - 101.8 95.9 - 95.9
Finance costs 7 (308.2) 14.3 (293.9) (302.4) (44.2) (346.6)
Profit before
taxation 1,451.3 (858.0) 593.3 1,516.5 (781.3) 735.2
Taxation 8 (280.6) 272.5 (8.1) (271.2) 200.4 (70.8)
----------------- ----------------- ---------- ----------------- ----------------- ----------
Profit for
the year 1,170.7 (585.5) 585.2 1,245.3 (580.9) 664.4
----------------- ----------------- ---------- ----------------- ----------------- ----------
Attributable
to:
Ordinary
shareholders
of the
parent 1,046.1 (585.5) 460.6 1,124.0 (580.9) 543.1
Other equity
holders 124.6 - 124.6 121.3 - 121.3
Basic
earnings per
share
(pence) 10 46.1 55.3
Diluted
earnings per
share
(pence) 10 46.0 55.2
Interim
dividend
paid per
share
(pence) 9 26.9 26.6
Proposed
final
dividend per
share
(pence) 9 62.5 61.8
---------- ----------
89.4 88.4
---------- ----------
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 2016
2016 2015
GBPm GBPm
Profit for the year 585.2 664.4
Other comprehensive income:
Items that will not be reclassified to profit
or loss:
Actuarial gains/(losses) on retirement benefit
schemes 254.3 (79.3)
Taxation on actuarial (gains)/losses on defined
benefit pension schemes (58.9) 16.3
------ -------
195.4 (63.0)
------ -------
Share of joint ventures actuarial gains/(losses
)on retirement benefit schemes 94.8 (2.1)
Share of joint ventures taxation of actuarial
gains/(losses) on retirement benefit schemes (18.4) 0.2
------ -------
76.4 (1.9)
------ -------
Items that will be reclassified subsequently
to profit or loss:
Gains/(losses) on effective portion of cash flow
hedges 79.4 (41.9)
Transferred to assets and liabilities on cash
flow hedges 4.7 (4.5)
Taxation on cashflow hedges (15.1) 8.8
------ -------
69.0 (37.6)
------ -------
Share of joint ventures/associates gain/(loss)
on effective portion of cash flow hedges 4.7 (9.4)
Share of joint ventures/associates taxation on
cash flow hedges (0.8) 1.9
------ -------
3.9 (7.5)
------ -------
Losses on revaluation of available for sale investments,
net of taxation (8.4) (3.2)
------ -------
Exchange difference on translation of foreign
operations 85.1 (119.7)
(Losses)/gains on net investment hedge (40.7) 61.7
Taxation on net investment hedge 7.3 (13.0)
------ -------
51.7 (71.0)
------ -------
Other comprehensive gain/(loss), net of taxation 388.0 (184.2)
Total comprehensive income for the period 973.2 480.2
Attributable to:
Ordinary shareholders of the parent 848.6 358.9
Other equity holders 124.6 121.3
973.2 480.2
------ -------
Consolidated Balance Sheet
as at 31 March 2016
2016 2015
Note GBPm GBPm
Assets
Property, plant and equipment 12,525.0 11,303.9
Intangible assets:
Goodwill 609.9 598.0
Other intangible assets 249.5 170.4
Equity investments in associates and joint ventures 1,045.1 875.2
Loans to associates and joint ventures 591.6 559.4
Other investments 16.7 26.4
Deferred tax assets 512.0 270.2
Derivative financial assets 537.7 566.8
Non-current assets 16,087.5 14,370.3
-------- --------
Other intangible assets 500.1 433.5
Inventories 215.4 342.3
Trade and other receivables 3,274.3 4,527.0
Cash and cash equivalents 13 360.2 1,512.3
Derivative financial assets 1,615.0 1,999.9
Current assets held for sale 12 134.2 110.3
Current assets 6,099.2 8,925.3
-------- --------
Total assets 22,186.7 23,295.6
-------- --------
Liabilities
Loans and other borrowings 13 923.3 732.8
Trade and other payables 4,184.4 5,277.1
Current tax liabilities 298.2 308.4
Provisions 94.0 99.5
Derivative financial liabilities 1,783.8 2,297.3
Liabilities held for sale 12 115.0 11.1
-------- --------
Current liabilities 7,398.7 8,726.2
-------- --------
Loans and other borrowings 13 6,245.5 5,367.9
Deferred tax liabilities 917.5 716.0
Trade and other payables 452.4 424.6
Provisions 703.3 382.4
Retirement benefit obligations 17 394.8 664.6
Derivative financial liabilities 857.5 933.4
-------- --------
Non-current liabilities 9,571.0 8,488.9
-------- --------
Total liabilities 16,969.7 17,215.1
-------- --------
Net assets 5,217.0 6,080.5
-------- --------
Equity:
Share capital 15 503.8 496.5
Share premium 880.4 862.7
Capital redemption reserve 22.0 22.0
Hedge reserve (2.2) (72.1)
Translation reserve (17.8) (69.5)
Retained earnings 1,598.6 1,469.8
Equity attributable to ordinary shareholders of the parent 2,984.8 2,709.4
Hybrid capital 14 2,209.7 3,371.1
-------- --------
Total equity attributable to equity holders of the parent 5,194.5 6,080.5
Non-controlling interests 22.5 -
-------- --------
Total equity 5,217.0 6,080.5
-------- --------
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 2016
Total equity
Total attributable
Share Capital attributable to equity
Share premium redemption Hedge Translation Retained to ordinary Hybrid holders of Non-controlling Total
capital account reserve reserve reserve earnings shareholders Capital the parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2015 496.5 862.7 22.0 (72.1) (69.5) 1,469.8 2,709.4 3,371.1 6,080.5 - 6,080.5
Profit for the
year - - - - - 460.6 460.6 124.6 585.2 - 585.2
Other
comprehensive
income - - - 69.0 51.7 187.0 307.7 - 307.7 - 307.7
Share of joint
ventures and
associates
other
comprehensive
gain - - - 3.9 - 76.4 80.3 - 80.3 - 80.3
------- ------- ---------- ------- ----------- -------- ------------ --------- ------------ --------------- ---------
Total
comprehensive
income for the
year - - - 72.9 51.7 724.0 848.6 124.6 973.2 - 973.2
------- ------- ---------- ------- ----------- -------- ------------ --------- ------------ --------------- ---------
Dividends to
shareholders - - - - - (884.0) (884.0) - (884.0) - (884.0)
Scrip dividend
related share
issue 5.9 (5.9) - - - 175.8 175.8 - 175.8 - 175.8
Distributions to
hybrid capital
holders - - - - - - - (124.6) (124.6) - (124.6)
Issue of shares 1.4 23.6 - - - - 25.0 - 25.0 - 25.0
Redemption of
hybrid capital - - - - - (8.5) (8.5) (1,161.4) (1,169.9) - (1,169.9)
Credit in
respect of
employee share
awards - - - - - 13.5 13.5 - 13.5 - 13.5
Investment in
own shares - - - - - (11.1) (11.1) - (11.1) - (11.1)
Disposal of
non-controlling
interest - - - - - 138.6 138.6 138.6 - 138.6
Non controlling
interest (i) - - - (3.0) - (19.5) (22.5) - (22.5) 22.5 -
At 31 March 2016 503.8 880.4 22.0 (2.2) (17.8) 1,598.6 2,984.8 2,209.7 5,194.5 22.5 5,217.0
------- ------- ---------- ------- ----------- -------- ------------ --------- ------------ --------------- ---------
(i) This represents the non controlling interest in Clyde
Windfarm (Scotland) Limited
Consolidated Statement of Changes in Equity
for the year ended 31 March 2016
Total equity
Total attributable
Share Capital attributable to equity
Share premium redemption Hedge Translation Retained to ordinary Hybrid holders of Non-controlling Total
capital account reserve reserve reserve earnings shareholders Capital the parent interests equity
GBPm GBPm 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 - 5,119.5
Profit for the
year - - - - - 543.1 543.1 121.3 664.4 - 664.4
Other
comprehensive
income - - - (37.6) (71.0) (66.2) (174.8) - (174.8) - (174.8)
Share of joint
ventures and
associates
other
comprehensive
(loss) - - - (7.5) - (1.9) (9.4) - (9.4) - (9.4)
------- ------- ---------- ------- ----------- -------- ------------ ------- ------------ --------------- -------
Total
comprehensive
income for
the year - - - (45.1) (71.0) 475.0 358.9 121.3 480.2 - 480.2
------- ------- ---------- ------- ----------- -------- ------------ ------- ------------ --------------- -------
Dividends to
shareholders - - - - - (854.1) (854.1) - (854.1) - (854.1)
Scrip dividend
related share
issue 8.6 (8.6) - - - 255.6 255.6 - 255.6 255.6
Distributions
to hybrid
capital
holders - - - - - - - (121.3) (121.3) - (121.3)
Issue of
shares 0.5 9.8 - - - - 10.3 - 10.3 - 10.3
Redemption of
hybrid
capital - - - - - - - 1,184.3 1,184.3 - 1,184.3
Credit in
respect of
employee
share awards - - - - - 15.0 15.0 - 15.0 - 15.0
Investment in
own shares - - - - - (9.0) (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 - 6,080.5
------- ------- ---------- ------- ----------- -------- ------------ ------- ------------ --------------- -------
Consolidated Cash Flow Statement
for the year ended 31 March 2016
2016 2015
Note GBPm GBPm
Cash generated from operations before
working capital movements 11 2,112.1 2,080.7
Decrease/(increase) in inventories 44.0 (8.5)
Decrease/(increase) in receivables 1,098.5 (243.1)
(Decrease)/increase in payables (879.5) 394.0
(Decrease) in provisions (55.7) (66.2)
Cash generated from operations 2,319.4 2,156.9
--------- ---------
Dividends received from joint ventures
and associates 130.9 110.1
Interest received 101.8 95.9
Interest paid (254.1) (227.8)
Income taxes paid (125.5) (164.8)
Payment for consortium relief (13.6) (12.0)
Net cash from operating activities 2,158.9 1,958.3
--------- ---------
Cash flows from Investing activities
Purchase of property, plant and equipment (1,495.4) (1,345.3)
Purchase of other intangible assets (444.8) (241.8)
Deferred income received 16.1 2.9
Proceeds from disposals 12 312.4 233.8
Loans to joint ventures and associates (50.5) (33.9)
Purchase of businesses 12 (669.0) (66.0)
Loans and equity repaid by joint ventures 18.3 15.0
Investment in joint ventures and associates (9.8) (20.0)
Increase in other investments (0.2) (0.1)
Net cash from investing activities (2,322.9) (1,455.4)
--------- ---------
Cash flows from financing activities
Proceeds from issue of share capital 25.0 10.3
Dividends paid to company's equity holders 9 (708.2) (598.5)
(Redemption)/issue of hybrid capital 14 (1,161.4) 1,184.3
Hybrid capital dividend payments 14 (124.6) (121.3)
Employee share awards share purchase (11.1) (9.0)
New borrowings 1,070.1 151.1
Repayment of borrowings (77.7) (66.3)
--------- ---------
Net cash from financing activities (987.9) 550.6
--------- ---------
Net (decrease)/increase in cash and
cash equivalents (1,151.9) 1,053.5
--------- ---------
Cash and cash equivalents at the start
of year 1,512.1 458.6
Net (decrease)/increase in cash and
cash equivalents (1,151.9) 1,053.5
Cash and cash equivalents at the end
of year 360.2 1,512.1
--------- ---------
Cash and cash equivalents in balance
sheet 13 360.2 1,512.3
Bank overdrafts (i) - (0.2)
--------- ---------
Cash and cash equivalents as above 360.2 1,512.1
--------- ---------
(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 2016
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 2016 or 2015, but is derived from those
accounts. Consolidated financial statements for the year ended 31
March 2015 were delivered to the Registrar of Companies, and those
for the year ended 31 March 2016 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 2016. This preliminary announcement was
authorised by the Board on 17 May 2016.
2. Basis of preparation and presentation
2.1 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 2016. 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
2015. 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.
2.2 Basis of presentation
The Group applies the use of adjusted accounting measures
throughout these statements. These measures enable the Directors to
present the underlying performance of the Group and its segments to
the users of the statements in a consistent and meaningful manner.
The adjustments applied and certain terms such as 'adjusted
operating profit', 'adjusted EPS' and 'adjusted net debt and hybrid
capital' are not defined under IFRS and are explained in more
detail below.
(i) Adjusted measures
The Directors assess the performance of the Group and its
reportable segments based on 'adjusted measures'. These measures
are used for internal performance management and are believed to be
appropriate for explaining underlying performance to users of the
accounts. These measures are also deemed the most useful for the
ordinary shareholders of the Company and for other
stakeholders.
The performance of the reportable segments is reported based on
adjusted profit before interest and tax ('adjusted operating
profit'). This is reconciled to reported profit before interest and
tax by adding back exceptional items and certain re-measurements
(see Note 2.2(ii) below) and after the removal of interest and
taxation on profits from equity-accounted joint ventures and
associates.
The performance of the Group is reported based on adjusted
profit before tax which excludes exceptional items and certain
re-measurements (see below), the net interest costs associated with
defined benefit schemes and taxation on profits from
equity-accounted joint ventures and associates. The interest costs
removed are non-cash and are subject to variation based on
actuarial valuations of scheme liabilities.
The Group's key performance measure is adjusted earnings per
share (EPS), which is based on basic earnings per share before
exceptional items and certain re-measurements (see below), the net
interest costs associated with defined benefit schemes and after
the removal of deferred taxation. Adjusted profit after tax is
presented on a basis consistent with adjusted EPS except for the
exclusion of payments to holders of hybrid equity.
The financial statements also include an 'adjusted net debt and
hybrid capital' measure. This presents financing information on the
basis used for internal liquidity risk management. This measure
excludes obligations due under finance leases, non-recourse debt
associated with Clyde Windfarm (Scotland) Limited (see Note
4.2(iv)) and includes cash held as collateral on commodity trading
exchanges. The measure 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.
Notes to the Preliminary Statement
for the year ended 31 March 2016
2. Basis of preparation and presentation (continued)
2.2 Basis of presentation (continued)
(ii) Exceptional items and certain re-measurements
Exceptional items are those charges or credits that are
considered unusual by nature and scale and of such significance
that separate disclosure is required for the financial statements
to be properly understood. The trigger points for exceptional items
will be tend to be non-recurring although exceptional charges may
impact the same asset class or segment over time. Market conditions
that have deteriorated significantly over time will only be
captured to the extent observable at the balance sheet date.
Examples of items that may be considered exceptional include
material asset or business impairment charges, business
restructuring costs, significant gains or losses on disposal of
assets and businesses and contractual settlements following
significant disputes and claims. The Directors consider that any
gain or loss on disposal of greater than GBP30.0m would be
disclosed as being exceptional by nature of its scale. Other gains
or losses on disposal below this level may be considered to be
exceptional by reference to specific circumstances which will be
explained on a case-by-case basis.
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 which are not
recorded until the underlying commodity is delivered.
(iii) Other additional disclosures
As permitted by IAS 1 'Presentation of financial statements',
the Group's income statement discloses additional information in
respect of joint ventures and associates, exceptional items and
certain re-measurements to aid understanding of the Group's
financial performance and to present results clearly and
consistently.
3. Summary of significant new accounting policies and reporting changes
No new accounting standards have been adopted by the Group that
have a material impact on the financial statements in the current
year. The following issued standards have not yet been adopted by
the Group:
i) IFRS 15 'Revenue from contracts with customers' is effective
on 1 January 2018 (and thus to the Group from 1 April 2018),
subject to European Union (EU) endorsement;
ii) IFRS 16 'Leases' is effective on 1 January 2019 (1 April
2019 to the Group), subject to EU endorsement;
iii) IFRS 9 'Financial instruments' which will be effective on 1
January 2018 (1 April 2018 to the Group), subject to EU
endorsement.
The Group has commenced initial assessment of the impact of
these standards on the consolidated financial statements. However,
at this stage, it is not yet practicable to quantify the impact
these standards will have. The assessment of IFRS 15 will consider
matters such as bundled goods and services, the allocation of
transaction price to performance obligations, treatment of customer
acquisition costs and contracts with variable consideration. The
assessment of IFRS 16 will require, with certain exceptions,
obligations associated with contracts currently designated as
operating leases to be recognised on balance sheet as lease
liabilities. The definition of a lease has also been modified which
may impact which contracts the Group accounts for as leases.
In addition to these, there are a number of other amendments and
annual improvement project recommendations that are not yet
effective but which have been endorsed by the EU. These are not
anticipated to have a material impact on the Group's consolidated
financial statements. The amendments to IFRS 11 'Accounting for
acquisitions of interests in joint operations' which were effective
on 1 January 2016 clarifies that the acquisition of an interest in
a joint operation will be accounted for in accordance with IFRS 3
Business Combinations. This is not expected to represent a change
in Group accounting policy.
4. 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.
4.1 Significant Financial Judgements - Estimation Uncertainties
The preparation of these Financial Statements has specifically
considered the following Significant Financial Judgements all of
which are areas of estimation uncertainty.
Notes to the Preliminary Statement
for the year ended 31 March 2016
4 Critical accounting judgements and key sources of estimation uncertainty (continued)
4.1 Significant Financial Judgements - Estimation Uncertainties
(continued)
(i) Impairment testing and valuation of certain Non-Current Assets - Estimation Uncertainty
The Group reviews the carrying amounts of its goodwill, other
intangible assets and specific property, plant and equipment assets
to determine whether any impairment of the carrying value of those
assets requires to be recorded. In conducting its reviews, the
Group makes judgements and estimates in considering the recoverable
amount of the respective assets or cash-generating units (CGUs).
The specific assets under review in the year ended 31 March 2016
are goodwill, thermal power generation assets, wind farm CGUs, gas
storage assets and exploration and production (E&P) assets.
Changes to the estimates and assumptions on factors such as
regulation and legislation changes, 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.
(ii) Revenue recognition - estimated energy consumption - 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 aggregated 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
electricity or gas that is deemed to have been delivered to
customers and the aggregate supplied quantity of electricity or gas
applicable to the Group's customers that is measured by industry
system operators, is a key judgement. The assessment of electricity
unbilled revenue is further influenced by the impact on national
settlements data or feed-in-tariff supported volumes and spill from
solar PV generation. The experience of the Group is that the
industry estimated supplied quantities in gas have historically
been higher than actual metered supply. To take account of this,
the Group applies a further judgement, being a percentage reduction
to unbilled consumption volume, to the measurement of its unbilled
revenue in the financial statements. It is expected that this
judgement will become less critical as the industry transitions to
smart meter technology.
(iii) Valuation of trade receivables - Estimation Uncertainty
The basis of determining the provisions for bad and doubtful
debts is explained at Note 16 of the financial statements in the
section on credit risk and aged debt. While the provisions 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.
(iv) 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. Further detail on the estimation basis is contained
in Note 32 of the financial statements.
4.2 Other key accounting judgements
Other key accounting judgements applied in the preparation of
these Financial Statements include the following:
(i) Business Combinations and acquisitions - Accounting Judgement
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 certain 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. Business
combinations are disclosed in Note 12.
Notes to the Preliminary Statement
for the year ended 31 March 2016
4 Critical accounting judgements and key sources of estimation uncertainty (continued)
4.2 Other key accounting judgements (continued)
(ii) Energy Company Obligation (ECO) costs - Accounting Judgement
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.
(iii) Treatment of disputes and claims - Accounting Judgement
The Group is exposed to the risk of litigation, regulatory
judgements 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.
(iv) Consolidation of interest in Clyde Windfarm (Scotland) Limited- Accounting Judgement
On 18 March 2016, the Group completed the sale of 49.9% of the
equity in Clyde Windfarm (Scotland) Limited ('Clyde'). Details of
this transaction are included at Note 12. The Group is providing
project and contract management services for and 100% of the
funding for the construction of the 172.8MW extension of the wind
farm. As part of this arrangement, the Group has retained a casting
vote over the engineering, procurement and construction of the
extension and certain rights over the construction of the
extension. Under IFRS 10 Consolidated Financial Statements, the
extension is considered to be a 'relevant activity' which
significantly affects the future returns from Clyde and the rights
retained by the Group have been concluded to confer power to
control the relevant activities of Clyde to the Group. As a
consequence, this entity has been fully consolidated into the
Group's financial statements. This means that the gain on the
transaction has been recorded in equity and the co-venturers'
ownership share is represented as a non-controlling interest. On 13
May 2016, the Group agreed to waive those contractual rights which
gave rise to the judgement that power to control the relevant
activities existed over Clyde. All other contractual arrangements
remain in place. As a consequence, the Group will prospectively
account for its interest in Clyde as that of an investment in an
equity-accounted joint venture. One of the impacts of that change
to the consolidation basis will be to remove the equivalent to the
GBP200.7m of non-recourse borrowings held by Clyde from the Group's
consolidated balance sheet. In addition, the Group's interest in
the entity is expected to remain that of an equity-accounted joint
venture following completion of the extension construction project.
Given this change in circumstance and on the basis the GBP200.7m
debt item is non-recourse to the Group, this item has been excluded
from the Group's 'adjusted net debt and hybrid capital'
measure.
4.3 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 cost of decommissioning at the end of the useful
lives of certain property, plant and equipment assets is reviewed
periodically and has been reassessed in the year to 31 March 2016.
Decommissioning costs in relation to gas exploration and production
assets are based on expected lives of the fields and costs of
decommissioning. Provision is made for the estimated discounted
cost of decommissioning at the balance sheet date. The dates for
settlement of future decommissioning costs are uncertain and are
currently expected to be incurred predominantly between 2017 and
2040.
(iii) Gas and liquids reserves
The volume of proven and probable (2P) 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.
Notes to the Preliminary Statement
for the year ended 31 March 2016
5. 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.
In March 2014, the Group announced its intention to reorganise
its activities so that there are separately auditable legal
entities responsible for its Energy Supply, Energy Portfolio
Management (EPM) and Electricity Generation activities. This change
was made to enhance the transparency of the measurement and
reporting of the performance of these activities. There is now a
subsidiary company, SSE EPM Limited, which is responsible for
managing the Group's commodity requirements.
The establishment of this company does not change the Group's
basis of inter-segmental pricing or its basis of reporting
operational performance to the Board. The methodology in place
promotes market reflectivity and closely aligns with the
operational decision-making in the respective businesses. EPM and
Electricity Generation continue to be reported to the Board as a
single reportable operating segment.
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 and Ireland 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
-------------- -------------------------------------------------- --------------------------------------------------
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 2016
5 Segmental information (continued)
5.1 Revenue by segment
Intra-segment Intra-segment
External revenue External revenue, Total revenue,
revenue (i) Total revenue revenue restated (i) restated
2016 2016 2016 2015 2015 2015
GBPm GBPm GBPm GBPm GBPm GBPm
Networks
Electricity
Distribution 689.0 243.6 932.6 735.6 288.0 1,023.6
Electricity
Transmission 367.9 - 367.9 246.7 0.2 246.9
1,056.9 243.6 1,300.5 982.3 288.2 1,270.5
--------------- --------------- -------------- --------------- -------------- ---------------
Retail
Energy Supply 7,548.3 83.2 7,631.5 7,961.2 30.3 7,991.5
Enterprise 455.1 96.6 551.7 495.7 155.4 651.1
Energy-related
Services 118.2 112.9 231.1 112.6 97.3 209.9
--------------- --------------- -------------- --------------- -------------- ---------------
8,121.6 292.7 8,414.3 8,569.5 283.0 8,852.5
--------------- --------------- -------------- --------------- -------------- ---------------
Wholesale
Energy
Portfolio
Management and
Electricity
Generation 19,525.3 3,780.6 23,305.9 22,023.7 4,015.4 26,039.1
Gas Storage 5.7 214.3 220.0 9.7 211.8 221.5
Gas Production 2.2 144.9 147.1 1.3 177.5 178.8
--------------- --------------- -------------- --------------- -------------- ---------------
19,533.2 4,139.8 23,673.0 22,034.7 4,404.7 26,439.4
--------------- --------------- -------------- --------------- -------------- ---------------
Corporate
unallocated 69.6 258.9 328.5 67.9 225.8 293.7
--------------- --------------- -------------- --------------- -------------- ---------------
Total 28,781.3 4,935.0 33,716.3 31,654.4 5,201.7 36,856.1
--------------- --------------- -------------- --------------- -------------- ---------------
(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 GBP549.9m (2015 - GBP659.2m) is not recorded in the
revenue line in the income statement.
Revenue by geographical location is as follows:
2016 2015
GBPm GBPm
UK 28,035.4 30,923.3
Ireland 745.9 731.1
--------- ---------
28,781.3 31,654.4
--------- ---------
Notes to the Preliminary Statement
for the year ended 31 March 2016
5. Segmental information (continued)
5.2 Operating profit/(loss) by segment
2016
Adjusted operating JV / Associate share Before exceptional Exceptional items Total
profit reported to of interest and tax items and certain and
the Board (ii) re-measurements certain
re-measurements
GBPm GBPm GBPm GBPm GBPm
Networks
Electricity
Distribution 370.7 - 370.7 - 370.7
Electricity
Transmission 287.2 - 287.2 - 287.2
Gas Distribution 268.7 (142.0) 126.7 48.6 175.3
926.6 (142.0) 784.6 48.6 833.2
Retail
Energy Supply 398.9 - 398.9 - 398.9
Enterprise 40.9 - 40.9 - 40.9
Energy-related
Services 15.4 - 15.4 (17.8) (2.4)
-------------------- -------------------- -------------------- -------------------- -------
455.2 - 455.2 (17.8) 437.4
Wholesale
Energy Portfolio
Management and
Electricity
Generation 436.3 (24.7) 411.6 (586.4) (174.8)
Gas Storage 4.0 - 4.0 (150.9) (146.9)
Gas Production 2.2 - 2.2 (161.8) (159.6)
-------------------- -------------------- -------------------- -------------------- -------
442.5 (24.7) 417.8 (899.1) (481.3)
Corporate unallocated 0.1 - 0.1 (4.0) (3.9)
Total 1,824.4 (166.7) 1,657.7 (872.3) 785.4
-------------------- -------------------- -------------------- -------------------- -------
2015
Adjusted operating JV / Associate share Before exceptional Exceptional items Total
profit reported to of interest and tax items and certain and certain
the Board (ii) re-measurements 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
-------------------- -------------------- -------------------- -------------------- -------
(ii) 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 6).
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, GBP24.3m (2015 - GBP33.3m), as finance income (Note 7).
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
(GBP0.4m before tax; 2015 - GBP0.7m before tax).
Notes to the Preliminary Statement
for the year ended 31 March 2016
6. Exceptional items and certain re-measurements
2016 2015
GBPm GBPm
Exceptional items
Asset impairments and related charges (892.5) (667.5)
Provisions for restructuring and other liabilities (54.9) (56.0)
-------- --------
(947.4) (723.5)
Net gains on disposals of businesses and other assets 57.6 74.8
-------- --------
(889.8) (648.7)
Impairment of investments in joint ventures and associates (share of result) - (25.9)
-------- --------
(889.8) (674.6)
Share of effect of change in UK corporation tax on deferred tax liabilities and assets of
associate and joint venture investments 46.7 -
Total exceptional items (843.1) (674.6)
-------- --------
Certain re-measurements
Movement on operating derivatives (note 16) (31.1) (67.8)
Movement on financing derivatives (note 16) 14.3 (44.2)
Share of movement on derivatives in jointly controlled entities (net of tax) 1.9 5.3
-------- --------
Total certain re-measurements (14.9) (106.7)
-------- --------
Exceptional items and certain re-measurements before taxation (858.0) (781.3)
-------- --------
Taxation
Effect of change in UK corporation tax rate on deferred tax liabilities and assets 41.5 15.6
Taxation on other exceptional items 227.6 145.6
-------- --------
269.1 161.2
Taxation on certain re-measurements 3.4 39.2
-------- --------
Taxation 272.5 200.4
-------- --------
Exceptional items after certain re-measurements after taxation (585.5) (580.9)
-------- --------
Exceptional items are disclosed across the following categories within the income statement:
2016 2015
GBPm GBPm
Cost of sales:
Coal-fired Generation related provisions and charges (287.0) (313.5)
Gas-fired Generation related charges (326.4) (51.5)
Movement on operating derivatives (note 16) (31.1) (67.8)
-------- --------
(644.5) (432.8)
Operating costs:
Gas Production (E&P) related charges (161.8) (106.1)
Gas Storage related charges (150.9) (163.9)
Gas-fired Generation related charges - (24.9)
Other exceptional provisions and charges (21.3) (63.6)
-------- --------
(334.0) (358.5)
Operating income:
Net gains on disposals of businesses and other assets 57.6 74.8
Joint ventures and associates:
Impairment of investments - (25.9)
Effect of change in UK corporation tax on deferred tax liabilities and assets 46.7 -
Movement on derivatives (net of tax) 1.9 5.3
-------- --------
48.6 (20.6)
Operating loss (872.3) (737.1)
-------- --------
Finance costs
Movement on financing derivatives (note 16) 14.3 (44.2)
-------- --------
Loss before taxation (858.0) (781.3)
-------- --------
Notes to the Preliminary Statement
for the year ended 31 March 2016
6 Exceptional items and certain re-measurements (continued)
In the year to 31 March 2016, the Group recognised net
exceptional charges of GBP889.8m. This consisted of asset
impairment and related charges totalling GBP892.5m, exceptional
provisions of GBP54.9m and net exceptional gains on disposal of
GBP57.6m. The GBP138.6m gain on the part disposal of Clyde Windfarm
(Scotland) Limited has been recognised directly in equity and
therefore does not form part of the Income Statement and therefore
total gains on disposal were GBP196.2m.
Property, Goodwill & Inventories Other charges Total Provisions Total charges
Plant & Other GBPm GBPm Impairment GBPm GBPm
Equipment Intangibles related
GBPm GBPm GBPm
Coal
Generation
(i) 67.6 - 87.9 83.2 238.7 48.3 287.0
Gas Generation
(ii) 302.5 2.2 3.7 18.0 326.4 - 326.4
Gas Production
(iii) 125.0 27.2 - 9.6 161.8 - 161.8
Gas Storage
(iv) 150.9 - - - 150.9 - 150.9
Other (v) - 11.2 - 3.5 14.7 6.6 21.3
------------- ------------- ------------ -------------- ------------ ----------- --------------
646.0 40.6 91.6 114.3 892.5 54.9 947.4
------------- ------------- ------------ -------------- ------------ ----------- --------------
(i) Coal-fired Generation. On 20 May 2015, the Group announced
that operations at Ferrybridge would cease at 31 March 2016 and
consequently exceptional charges including the recognition of
restructuring provisions, impairment of inventory and other costs
have been recognised (GBP72.0m). On 30 March 2016, the Group
announced that following a consultation process and success in
securing a contract to provide ancillary services to National Grid
for one year from 1 April 2016, operations at Fiddler's Ferry would
continue and that SSE would enter 'all or part of' the capacity at
Fiddler's Ferry into any 2017/18 Capacity Market auction.
Nonetheless, the challenging economic and regulatory conditions
facing coal-fired generation in the UK means that the long-term
future of Fiddler's Ferry remains uncertain. In addition, SSE's
longer-term strategic involvement in coal-fired generation and coal
procurement is now under review. As a result, further exceptional
charges have been recognised including impairment of the value of
plant (GBP67.6m) and inventory (GBP47.9m) at Fiddler's Ferry and
accelerated decommissioning costs recorded directly as a charge to
the income statement and, included in other charges, irrecoverable
current assets and financial losses relating to cessation of coal
hedging activities (totalling GBP99.5m). Following these charges,
the residual value of the Group's coal generation plants is
nil.
(ii) Gas-fired Generation. Following the failure of Peterhead
Power Station to win a capacity contract under the Capacity Market
Auction for 2019/20 and the announcement, on 25 November, that the
UK Government was withdrawing funding support for the proposed
carbon capture and storage project at Peterhead Power Station,
exceptional charges of GBP129.3m have been recognised in relation
to the assets at the site. The economic conditions for the Group's
other main Gas-fired Generation plants in Great Britain (Medway,
Keadby and Marchwood) remain challenging. While the Group's long
term view remains that the impact of regulatory changes will create
a favourable economic environment for gas-fired generation, there
has as yet been no observable recovery in 'spark spread' margins at
these plants and there remains uncertainty in relation to the
enduring ability of the plants to benefit from the UK Government's
Capacity Market process. As a result, further impairment charges
have been recognised of GBP197.1m, principally in respect of
Marchwood and Medway plant and certain contractual prepayments.
Following these charges, the residual value of the Group's GB gas
generation plants under review is GBP226.2m
(iii) Gas Production. Impairment of the Group's Gas Exploration
and Production assets in the North Sea has been recognised
predominately due to declining wholesale gas prices. The
exceptional charges recognised include an element (GBP121.2m)
related to the impairment of Greater Laggan field assets acquired
at 28 October 2015 which reflects the impact of the decline in
expected long term gas prices between the acquisition date and the
financial year end. The other impairments related to the impact of
the fall in wholesale gas prices on the Group's other E&P
assets at Sean, Lomond, Bacton and ECA (GBP40.6m). Following these
charges, the residual value of the Group's gas production assets is
GBP888.0m
(iv) Gas Storage. Current and forecast demand for gas storage in
Great Britain continues to be impacted by reduced short term price
volatility and seasonal spreads in the wholesale gas market. These
factors have had different but significant impacts on the Group's
facilities at Hornsea (Atwick) and Aldbrough. As a result,
exceptional charges of GBP150.9m have been recognised across both
assets. Following these charges, the residual value of the Group's
gas storage facilities is GBP21.2m.
(v) Other charges. Other exceptional charges have been
recognised in relation to impairment of system development
projects, restructuring charges and exit costs associated with the
strategic exit from certain non-core activities.
The Group recognised GBP57.6m of exceptional net credits arising
from disposals. On 28 May 2015, the Group recognised an exceptional
gain on disposal of GBP39.3m in relation to the sale of three
onshore wind development sites to Blue Energy. In addition, the
Group also recognised a gain on its disposal of its interest in the
Galloper offshore wind development of GBP18.3m. The latter disposal
gain is considered to be exceptional due to the Group having
previously impaired its investment in Galloper as part of its
decision to scale back its commitment to offshore wind development.
Further detail is included at Note 12.
In the previous financial year, the Group recognised exceptional
charges arising from and related to asset impairments amounting to
GBP667.5m and provisions of GBP56.0m. The exceptional charges
recognised can be summarised as follows:
Notes to the Preliminary Statement
for the year ended 31 March 2016
6. Exceptional items and certain re-measurements (continued)
6.1 Exceptional items (continued)
In the previous financial year, the Group recognised exceptional
charges arising from and related to asset impairments amounting to
GBP667.5m and provisions of GBP56.0m. The exceptional charges
recognised can be summarised as follows:
Property, Goodwill & Inventories Other charges Total Provisions Total charges
Plant & Other GBPm GBPm Impairment GBPm GBPm
Equipment Intangibles related
GBPm GBPm GBPm
Coal
Generation 222.7 - 41.0 45.8 309.5 4.0 313.5
Gas
Generation 14.9 51.5 - - 66.4 10.0 76.4
Gas
Production 61.9 44.1 - 0.1 106.1 - 106.1
Gas Storage 162.4 - - - 162.4 1.5 163.9
Other 16.9 - - 6.2 23.1 40.5 63.6
------------- ------------- ------------ -------------- ------------- ----------- --------------
478.8 95.6 41.0 52.1 667.5 56.0 723.5
------------- ------------- ------------ -------------- ------------- ----------- --------------
The impairments of Coal generation plants followed the 31 July
2014 fire at Ferrybridge and the inability of both units at
Ferrybridge and one unit at Fiddler's Ferry to secure agreements to
provide capacity under the auction process run by DECC in December
2014. The impairments of Gas generation plants predominately
related to development sites at Abernedd and Seabank. The
impairments of Gas Production assets related to the impact of
declining wholesale prices on the Group's Sean, ECA and Lomond
fields. The charges associated with Gas Storage followed the
strategic review of the Group's operations in that segment the
results of which were announced on 26 March 2015. The other charges
mainly relate to asset impairments, other charges in non-core
businesses and provisions for certain disputes and claims. The
exceptional disposal gains recorded related to the sale of seven
street lighting PFI companies to Equitix (GBP38.0m), the Group's
share of the dividend from the Environmental Energy Fund's disposal
of its stake in Anesco (GBP19.6m) and the gain on disposal of
non-core retail assets (GBP17.2m).
As supplemental detail, the following table represents the
exceptional charges recognised in the financial year to 31 March
2014 presented in similar format:
Property, Plant & Goodwill & Other Other Total Provisions Total charges
Equipment GBPm Intangibles charges Impairment GBPm GBPm
GBPm GBPm related
GBPm
Restructuring
Non-core 35.2 2.0 36.0 73.2 58.9 132.1
Wind 17.0 75.9 47.6 140.5 - 140.5
Coal Generation 191.6 - 47.0 238.6 - 238.6
Gas Storage 111.4 26.3 - 137.7 - 137.7
Other 17.5 18.7 15.7 51.9 46.4 98.3
--------------------- ---------------------- --------- ------------ ----------- --------------
372.7 122.9 146.3 641.9 105.3 747.2
--------------------- ---------------------- --------- ------------ ----------- --------------
The restructuring-related charges followed the announcement, on
28 March 2014, that the Group was intending to dispose of a number
of non-core assets and businesses, embark upon a programme of
voluntary early release for around 500 employees and scale back its
commitment in relation to offshore wind developments. The
impairments of the coal plants followed a period of relatively
favourable operating conditions for Fiddler's Ferry and Ferrybridge
but were necessary in context of the increasing impact on
profitability of the Carbon Price Support (CPS) mechanism and
uncertainty around future political and regulatory support for coal
generation. The impairment of Gas Storage was due to the impact of
market and global factors such as North American fracking and
availability of LNG on the business. The 2014 financial statements
noted that "there remains inherent imprecision in the valuation
processes for these long-term infrastructure assets which is
dependent on macro-economic factors. Management believe a balanced
position has been taken regarding these factors". The other charges
relate to impairments of certain Retail developments and provisions
for certain disputes and claims.
Notes to the Preliminary Statement
for the year ended 31 March 2016
6 Exceptional items and certain re-measurements(continued)
6.1 Certain re-measurements
The Group enters into forward commodity purchase contracts to
meet the future demands of its Energy Supply business and to
optimise the value of its Generation and other Wholesale assets.
Certain of these contracts are determined to be derivative
financial instruments under IAS 39 and as such are required to be
recorded at their fair value. Changes in the fair value of those
commodity contracts designated as IAS 39 financial instruments are
reflected in the income statement (as part of 'certain
re-measurements'). The Group shows the change in the fair value of
these forward contracts separately as this mark-to-market movement
is not relevant to the underlying performance of its operating
segments. The Group will recognise the underlying value of these
contracts as the relevant commodity is delivered, which will
predominately be within the subsequent 12 to 18 months. Conversely,
commodity contracts that are not financial instruments under IAS 39
are accounted for as 'own use' contracts. The re-measurements
arising from IAS 39 are disclosed separately to aid understanding
of the underlying performance of the Group. This category also
includes income statement movement on financing derivatives (and
hedged items) as described in Note 16.
6.2 Change in UK corporation tax rates
Finance (No.2) Act 2015 which received royal assent on 18
November 2015 enacted a Corporation tax rate of 19% (currently 20%)
from 1 April 2017, and a rate of 18% from 1 April 2020. As these
changes have been substantively enacted they have the effect of
reducing the Group's deferred tax liabilities by GBP27.6m including
the impact of changes recognised in the statement of other
comprehensive income. A further change to reduce the rate of
Corporation Tax to 17% from 1 April 2020 was announced in Finance
(No.2) Bill 2016, however as this change has not been substantively
enacted at the balance sheet date its effect, estimated to be
GBP21.0m, has not been brought into account in calculating the
Group's deferred tax liabilities.
A resolution was passed under the Provisional Collection of
Taxes Act 1968 on 22 March 2016 which reduced the rate of Petroleum
Revenue Tax (PRT) to 0% (from 35%) with effect from 1 January 2016.
As this change has been substantively enacted at the balance sheet
date it has the effect of reducing the Group's deferred tax
liabilities by GBP2.8m. Finance (No.2) Bill 2016 announced a
reduction in the rate of Supplementary Charge on ring-fenced
profits to 0% (previously 20%) with effect from 1 January 2016. As
this change has not been enacted at the balance sheet date it has
not been brought into account in calculating the Group's deferred
tax liabilities. It is expected to reduce the Group's deferred tax
liabilities by GBP9.0m.
Taxation
The Group has separately recognised the tax effect of the
exceptional items and certain re-measurements summarised above.
Notes to the Preliminary Statement
for the year ended 31 March 2016
7. Finance income and costs
2016 2015
Before Before
Exceptional Exceptional
items and Exceptional items items and Exceptional items
certain and certain certain and certain
re-measurements re-measurements Total re-measurements re-measurements Total
GBPm GBPm GBPm GBPm GBPm GBPm
Finance income:
Interest income
from short term
deposits 4.7 - 4.7 1.1 - 1.1
Foreign exchange
translation of
monetary assets
and liabilities 9.0 - 9.0 - - -
------------------ ----------------- ------------------ -------- ----------------- ------------------ --------
Other interest
receivable:
Scotia Gas
Networks loan
stock 24.3 - 24.3 33.3 - 33.3
Other joint
ventures and
associates 0.9 - 0.9 14.8 - 14.8
Other receivable 62.9 - 62.9 46.7 - 46.7
------------------ ----------------- ------------------ -------- ----------------- ------------------ --------
88.1 - 88.1 94.8 - 94.8
Total finance
income 101.8 - 101.8 95.9 - 95.9
----------------- ------------------ -------- ----------------- ------------------ --------
Finance costs:
Bank loans and
overdrafts (27.9) - (27.9) (23.9) - (23.9)
Other loans and
charges (257.1) - (257.1) (262.5) - (262.5)
Interest on
pension scheme
liabilities (20.4) - (20.4) (25.1) - (25.1)
Notional interest
arising on
discounted
provisions (15.7) - (15.7) (14.0) - (14.0)
Foreign exchange
translation of
monetary assets
and liabilities - - - (0.5) - (0.5)
Finance lease
charges (34.7) - (34.7) (34.2) - (34.2)
Less: interest
capitalised 47.6 - 47.6 57.8 - 57.8
Total finance
costs (308.2) - (308.2) (302.4) - (302.4)
----------------- ------------------ -------- ----------------- ------------------ --------
Changes in fair
value of
financing
derivative
assets or
liabilities at
fair value
through
profit or loss - 14.3 14.3 - (44.2) (44.2)
Net finance costs (206.4) 14.3 (192.1) (206.5) (44.2) (250.7)
----------------- ------------------ -------- ----------------- ------------------ --------
Presented as:
Finance income 101.8 - 101.8 95.9 - 95.9
Finance costs (308.2) 14.3 (293.9) (302.4) (44.2) (346.6)
Net finance costs (206.4) 14.3 (192.1) (206.5) (44.2) (250.7)
----------------- ------------------ -------- ----------------- ------------------ --------
The capitalisation rate applied in determining the amount of
borrowing costs to capitalise in the period was 4.24% (2015 -
4.49%).
Adjusted net finance costs are arrived at after the following adjustments:
2016 2015
GBPm GBPm
Net finance costs (192.1) (250.7)
(add)/less:
Share of interest from joint ventures and associates:
Scotia Gas Networks loan stock (24.3) (33.3)
Other joint ventures and associates (102.5) (90.9)
-------- --------
(126.8) (124.2)
Interest on pension scheme liabilities 20.4 25.1
Share of interest on net pension liabilities in joint ventures 1.9 (11.1)
Movement on financing derivatives (Note 16) (14.3) 44.2
-------- --------
Adjusted net finance costs (310.9) (316.7)
Notional interest arising on discounted provisions 15.7 14.0
Finance lease charges 34.7 34.2
Hybrid coupon payment (Note 14) (124.6) (121.3)
-------- --------
Adjusted net finance costs for interest cover calculations (385.1) (389.8)
-------- --------
Notes to the Preliminary Statement
for the year ended 31 March 2016
8. Taxation
Analysis of charge recognised in the income statement:
Before Exceptional 2016 Before Exceptional 2015
Exceptional items and Exceptional items items and
items and certain and certain certain
certain re-measure-ments re-measure-ments re-measure-ments
re-measure-ments
GBPm GBPm GBPm GBPm GBPm GBPm
Current tax
UK corporation tax 180.5 (44.2) 136.3 231.4 (25.1) 206.3
Adjustments in
respect of
previous years (21.2) - (21.2) (29.8) - (29.8)
----------------- ------------------ -------- ------------------ ------------------ --------
Total current tax 159.3 (44.2) 115.1 201.6 (25.1) 176.5
----------------- ------------------ -------- ------------------ ------------------ --------
Deferred tax
Current year 74.9 (186.8) (111.9) 52.7 (159.7) (107.0)
Effect of change
in tax rate - (41.5) (41.5) - (15.6) (15.6)
Adjustments in
respect of
previous years 46.4 - 46.4 16.9 - 16.9
----------------- ------------------ -------- ------------------ ------------------ --------
Total deferred tax 121.3 (228.3) (107.0) 69.6 (175.3) (105.7)
----------------- ------------------ -------- ------------------ ------------------ --------
Total taxation
charge 280.6 (272.5) 8.1 271.2 (200.4) 70.8
----------------- ------------------ -------- ------------------ ------------------ --------
Notes to the Preliminary Statement
for the year ended 31 March 2016
8. Taxation (continued)
In October 2014, SSE became the first FTSE 100 listed group to
be accredited with the Fair Tax Mark. As a consequence, the Group's
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:
2016 2016 2015 2015
GBPm % GBPm %
Group profit before tax 593.3 735.2
Less: share of results of associates and jointly controlled entities (204.8) (163.6)
-------- ------- -------- -------
Profit before tax 388.5 571.6
Tax on profit on ordinary activities at standard UK corporation tax rate of 20%
(2014 - 21%) 77.7 20.0 120.0 21.0
Tax effect of:
Capital allowances (in excess of)/less than depreciation (24.9) (6.4) 86.0 15.1
Increase in restructuring and settlement provisions 9.2 2.4 2.6 0.5
Non-taxable gain on sale of shares (11.5) (3.0) (13.8) (2.4)
Fair value movements on derivatives 3.4 0.9 23.6 4.1
Pension movements (3.1) (0.8) (11.0) (1.9)
Relief for capitalised interest and revenue costs (20.3) (5.2) (22.3) (3.9)
Hybrid capital coupon payments (24.8) (6.4) (25.5) (4.5)
Corporation tax relief on PRT paid (3.2) (0.8) (4.5) (0.8)
Expenses not deductible for tax purposes 14.4 3.7 7.7 1.3
Impact of higher current tax rates on E&P profits 12.8 3.3 42.1 7.4
Impact of foreign tax rates (3.0) (0.8) 1.4 0.2
E&P tax losses carried forward 111.9 28.8 - -
Employee share awards (2.3) (0.6) - -
Adjustments to tax charge in respect of previous years (21.2) (5.5) (29.8) (5.2)
-------- ------- -------- -------
Reported current tax charge and effective rate 115.1 29.6 176.5 30.9
Depreciation less than/in excess of capital allowances 35.3 9.1 (68.5) (12.0)
Increase in restructuring and settlement provisions (9.2) (2.4) (2.6) (0.5)
Fair value movements on derivatives (3.4) (0.9) (23.6) (4.1)
Pension movements 3.1 0.8 11.0 1.9
Relief for capitalised interest and revenue costs 20.3 5.2 22.3 3.9
Impact of higher deferred tax rates on E&P profits (32.6) (8.4) (34.8) (6.1)
Impact of foreign tax rates (1.7) (0.4) (4.2) (0.7)
Adjustments to tax charge in respect of previous years 46.4 11.9 6.5 1.1
Change in rate of UK corporation tax (41.5) (10.7) (15.6) (2.7)
Arising due to business combination (14.1) (3.5) - -
E&P tax losses carried forward (111.9) (28.8) - -
Employee share schemes 2.3 0.6 - -
Other items - - 3.8 0.6
Reported deferred tax credit and effective rate (107.0) (27.5) (105.7) (18.6)
-------- ------- -------- -------
Group tax charge and effective rate 8.1 2.1 70.8 12.3
-------- ------- -------- -------
The adjusted current tax charge is arrived at after the
following adjustments:
2016 2016 2015 2015
GBPm % GBPm %
Group tax charge and effective rate 8.1 2.1 70.8 12.3
Less: reported deferred tax credit and effective rate 107.0 27.5 105.7 18.6
------ ------- ------ -------
Current tax charge and effective rate 115.1 29.6 176.5 30.9
Effect of adjusting items (see below) - (22.0) - (19.6)
------ ------- ------ -------
Current tax charge and effective rate on adjusted basis 115.1 7.6 176.5 11.3
add/(less):
Share of current tax from joint ventures and associates 34.1 2.3 23.2 1.5
Current tax on exceptional items 44.2 2.9 25.1 1.6
------ ------- ------ -------
Adjusted current tax charge and effective rate 193.4 12.8 224.8 14.4
------ ------- ------ -------
Notes to the Preliminary Statement
for the year ended 31 March 2016
8 Taxation (continued)
The adjusted effective rate is based on adjusted profit before
tax being:
2016 2015
GBPm
Profit before tax 593.3 735.2
Add/(less):
Exceptional items and certain re-measurements 858.0 781.3
Share of tax from joint ventures/associates before exceptional items and certain re-measurements 39.9 34.2
Interest on pension scheme liabilities 20.4 25.1
Share of interest on net pension liabilities in jointly controlled entities and associates 1.9 (11.1)
-------- --------
Adjusted profit before tax 1,513.5 1,564.7
-------- --------
The adjusted current tax charge can therefore be reconciled to
the adjusted profit before tax as follows:
2016 2016 2015 2015
GBPm % GBPm %
Adjusted profit before tax 1,513.5 1,564.7
-------- --------
Tax on profit on ordinary activities at standard UK corporation tax rate 302.7 20.0 328.6 21.0
Tax effect of:
Capital allowances in excess of depreciation (170.7) (11.3) (42.1) (2.7)
Non taxable gain on sale of shares 1.9 0.1 (6.3) (0.4)
Increase in restructuring and settlement provisions 2.9 0.2 3.9 0.2
Pension movements (7.9) (0.5) (13.9) (0.9)
Relief for capitalised interest and revenue costs (9.3) (0.6) (15.2) (1.0)
Hybrid capital coupon payments (24.8) (1.6) (25.4) (1.6)
Corporation tax relief on PRT paid (3.2) (0.2) (4.4) (0.3)
Expenses not deductible for tax purposes 4.5 0.3 10.1 0.7
Relief for brought forward losses 108.8 7.2 (23.6) (1.5)
Impact of higher current tax rates on oil and gas profits 12.8 0.8 42.1 2.7
Impact of foreign tax rates (3.1) (0.2) 1.4 0.1
Adjustments to tax charge in respect of previous years (21.2) (1.4) (30.4) (1.9)
-------- ------- -------- ------
Adjusted current tax charge and effective rate 193.4 12.8 224.8 14.4
-------- ------- -------- ------
Notes to the Preliminary Statement
for the year ended 31 March 2016
9. Dividends
Ordinary dividends
Year ended 31 Year ended 31
March 2016 Settled via Pence per March 2015 Settled via Pence per
Total scrip ordinary share Total scrip ordinary share
GBPm GBPm GBPm GBPm
Interim - year
ended 31 March
2016 270.5 16.3 26.9 - - -
Final - year
ended 31 March
2015 613.5 159.5 61.8 - - -
Interim - year
ended 31 March
2015 - - - 262.6 81.6 26.6
Final - year
ended 31 March
2014 - - - 591.5 174.0 60.7
884.0 175.8 854.1 255.6
--------------- --------------- --------------- ---------------
The final dividend of 61.8p per ordinary share declared in the
financial year ended 31 March 2015 (2014- 60.7p) was approved at
the Annual General Meeting on 23 July 2015 and was paid to
shareholders on 19 September 2015. 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 26.9p per ordinary share (2015 - 26.6p)
was declared and paid on 18 March 2016 to those shareholders on the
SSE plc share register on 22 January 2016. 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 62.5p per ordinary share (which
equates to a dividend of GBP629.8m) based on the number of issued
ordinary shares at 31 March 2016 is subject to approval by
shareholders at the Annual General Meeting and has not been
included as a liability in these financial statements.
10. Earnings per Share
Basic earnings per share
The calculation of basic earnings per ordinary share at 31 March
2016 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 2016. 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 6).
Year ended 31 March Year ended 31 March Year ended 31 March Year ended 31 March
2016 2016 2015 2015
Earnings Earnings per share Earnings Earnings per share
GBPm pence GBPm pence
Basic 460.6 46.1 543.1 55.3
Exceptional items and
certain
re-measurements (Note
6) 585.5 58.5 580.9 59.2
---------------------- ---------------------- ---------------------- ----------------------
Basic excluding
exceptional items and
certain
re-measurements 1,046.1 104.6 1,124.0 114.5
Adjusted for:
Interest on net
pension scheme
liabilities (Note 7) 20.4 2.0 25.1 2.5
Share of interest on
net pension scheme
liabilities in joint
venture (Note 7) 1.9 0.2 (11.1) (1.1)
Deferred tax (Note 8) 121.3 12.1 69.6 7.1
Deferred tax from
share of joint
ventures and
associates 5.8 0.6 11.0 1.1
Adjusted 1,195.5 119.5 1,218.6 124.1
---------------------- ---------------------- ---------------------- ----------------------
Basic 460.6 46.1 543.1 55.3
Dilutive effect of outstanding share options - (0.1) - (0.1)
----- ----- ----- -----
Diluted 460.6 46.0 543.1 55.2
Notes to the Preliminary Statement
for the year ended 31 March 2016
10. Earnings per Share (continued)
The weighted average number of shares used in each calculation
is as follows:
31 March 2016 31 March 2015
Number of shares Number of shares
(millions) (millions)
For basic and adjusted earnings per share 1,000.0 981.8
Effect of exercise of share options 1.2 2.1
----------------- -----------------
For diluted earnings per share 1,001.2 983.9
----------------- -----------------
11. Notes to the Consolidated Cash Flow Statement
11.1 Reconciliation of Group operating profit to cash generated
from operations
2016 2015
Note GBPm GBPm
Profit for the year 585.2 664.4
Add back: taxation 8 8.1 70.8
Add back: net finance costs 7 192.1 250.7
------- -------
Operating profit 785.4 985.9
Less share of profit of joint ventures and associates (204.8) (163.6)
------- -------
Operating profit before joint ventures and associates 580.6 822.3
Movement on operating derivatives 31.1 67.8
Pension service charges less contributions paid (35.9) (77.5)
Exceptional charges 889.8 648.7
Depreciation of assets 676.8 656.7
Amortisation and impairment of intangible assets 2.3 3.4
Fixed asset impairments 6.7 -
Impairment of inventories - 1.4
Release of provisions (7.8) -
Release of deferred income (17.9) (16.9)
Charge in respect of employee share awards 16.5 15.0
Profit on disposal of assets and businesses - non exceptional (30.1) (40.2)
Cash generated from operations before working capital movements 2,112.1 2,080.7
------- -------
11.2 Reconciliation of net increase in cash and cash equivalents
to movement in adjusted net debt and hybrid capital
2016 2015
GBPm GBPm
(Decrease)/Increase in cash and cash equivalents (1,151.9) 1,053.5
Add/(less):
Issue of hybrid capital 1,161.4 (1,184.3)
New borrowings (1,070.1) (151.1)
Repayment of borrowings 77.7 66.3
Non-cash movement on borrowings (94.8) 269.8
Increase in cash held as collateral and other short term loans 50.1 20.5
Balances due to partners in Clyde Windfarm (Scotland) Limited 200.7 -
--------- ---------
Movement in adjusted net debt and hybrid capital (826.9) 74.7
--------- ---------
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 2016
12. Acquisitions, disposals and held-for-sale assets
12.1 Acquisitions
On 28 October 2015, the Group through its wholly owned
subsidiary, SSE E&P UK Limited, acquired a 20% interest in the
four gas fields and surrounding exploration acreage approximately
125km north west of the Shetland Islands, collectively known as the
Greater Laggan Area, along with a 20% interest in the Shetland Gas
Terminal, from Total E&P UK Limited. The cash consideration
paid for the business was GBP669.0m included the Group's share of
post 1 January 2015 capital expenditure on the Shetland Gas
Terminal along with other completion adjustments. Those items were
the differences from the consideration of GBP565.0m which was
announced on 29 July 2015.
Total
GBPm
Assets acquired
Property, Plant and Equipment 695.8
Development and other intangible assets 73.2
Decommissioning provisions (100.0)
Net assets 669.0
Production commenced from the Laggan-Tormore project on the UK
Atlantic Frontier on the 8th February, 2016. In the financial year,
21m therms of gas were extracted, 38.1k barrels of oil and 1.8k
tonnes of natural gas liquids contributing GBP7.0m to revenue with
a loss after tax of GBP1.8m during the period to 31 March 2016.
12.2 Held-for-sale assets and liabilities
During the year, the Group substantially completed the programme
of non-core asset and business disposals that it had announced on
26 March 2014 along with a number of other separately identified
assets. As the programme comes to an end some assets and
liabilities remain classified as held-for-sale on the balance sheet
at 31 March 2016. The aggregated pre-tax profit contribution of the
held for sale assets and businesses in the year to 31 March 2016
was GBPnil (2015: GBP1.8m).
The assets and liabilities classified as held for sale, and the
comparative balances at 31 March 2016, are as follows:
Retail Enterprise Total
2016 2015
GBPm GBPm GBPm GBPm
Property Plant and Equipment - - - 54.2
Forestry Assets - - - 1.8
Other intangible 27.9 - 27.9 21.3
Non-current assets 27.9 - 27.9 77.3
Trade and other receivables - 106.3 106.3 33.0
Current assets - 106.3 106.3 33.0
Total assets 27.9 106.3 134.2 110.3
Trade and other payables - (11.2) (11.2) (10.8)
Loans and borrowings - (5.9) (5.9) -
Current liabilities - (17.1) (17.1) (10.8)
Loans and borrowings - (97.9) (97.9) -
Deferred tax liabilities - - - (0.3)
Non-current liabilities - (97.9) (97.9) (0.3)
Total liabilities - (115.0) (115.0) (11.1)
Net assets 27.9 (8.7) 19.2 99.2
Notes to the Preliminary Statement
for the year ended 31 March 2016
12. Acquisitions, disposals and held-for-sale assets
(continued)
12.3 Disposals
(i) Significant disposals
On 29 October 2015, the Group agreed to sell its shareholding in
Galloper Offshore Windfarm Limited to its co-venturer RWE Innogy
for cash consideration of GBP18.3m. The rationale for the disposal
was explained in the Group's statement on offshore wind investment
on 26 March 2014. The gain on the disposal of GBP18.3m was recorded
as an exceptional item (Note 6). On 28 May 2015, the Group also
agreed to sell three onshore wind development sites (Cour,
Blackcraig and Whiteside Hill) to Blue Energy. Total consideration
of these assets was GBP52.4m. Consequently, an exceptional gain on
disposal of GBP39.3m was recorded (Note 6). Both disposals were of
businesses classified as Held-for-sale at 31 March 2015.
On 18 March 2016, the Group sold a 49.9% stake in its wholly
owned operational 349.6MW Clyde Wind Farm located in South
Lanarkshire to Greencoat UK Wind Plc ("UKW") and GMPF & LPFA
Infrastructure LLP ("GLIL") for total cash consideration of
GBP339.2 million. The stake held by the co-investors has been
deemed to be that of a non-controlling interest in an entity under
the Group's control. This key accounting judgement is explained at
note 4.2 iv. The consequence of this is that the gain recorded on
the part disposal of GBP138.6m was recognised directly in equity
instead of in the income statement and the non-recourse to SSE
loans held by the Clyde entity (GBP200.7m) require to be recorded
on the Group balance sheet. The assets included in the Clyde
Windfarm (Scotland) Limited transaction were not previously
held-for-sale.
(ii) Total Disposals
The following table summarises all businesses and assets
disposed of during the financial year including the significant
disposals referred to above. The table differentiates the disposals
of previously 'held for sale' assets and businesses from other
disposals which include other assets and investments disposed of as
part of the normal course of business.
2016 2015
Held for sale at Not Held for Sale Total
Held for Sale at Not Held for Sale March 2014 at
March 2015 at March 2015 Total March 2014
GBPm GBPm GBPm GBPm GBPm GBPm
Net assets
disposed:
Property, plant and
equipment 37.5 6.8 44.3 72.2 2.2 74.4
Intangible and
biological assets 11.7 - 11.7 2.5 12.1 14.6
Investments - joint
venture and other - - - 0.3 15.7 16.0
Trade and other
receivables 1.4 - 1.4 348.7 1.7 350.4
Trade and other
payables 28.8 - 28.8 (94.3) - (94.3)
Loans and
borrowings - - - (230.2) - (230.2)
Net assets 79.4 6.8 86.2 99.2 31.7 130.9
Proceeds of
disposal:
Consideration
including debt
reduction 160.5 381.7 542.2 399.6 67.9 467.5
Deferred
consideration - - - 1.1 11.0 12.1
Debt reduction (23.5) - (23.5) (228.8) - (228.8)
Non-recourse loans - (200.7) (200.7) - - -
Costs of disposal - (5.6) (5.6) (3.6) (1.3) (4.9)
Provisions - - - (12.5) 11.0 (1.5)
Net proceeds (i) 137.0 175.4 312.4 155.8 88.6 244.4
-
Gain on disposal
after provisions 57.6 168.6 226.2 56.6 56.9 113.5
Presentation:
Equity - 138.6 138.6 - - -
Income statement
credit 57.6 30.0 87.6 56.6 56.9 113.5
2016 2015
GBPm GBPm
Net proceeds of disposal (i) 312.4 244.4
Deferred consideration - (12.1)
Provisions - 1.5
Proceeds of disposal per cash flow statement 312.4 233.8
Cash from Clyde transaction recorded as New Borrowings 200.7 -
Total cash proceeds 513.1 233.8
The debt reduction items, GBP23.5m (2015 -GBP228.8m), are
associated with the disposal of the street-lighting PFI
companies.
Notes to the Preliminary Statement
for the year ended 31 March 2016
13. Loans and other borrowings
2016 2015
GBPm GBPm
Current
Bank overdraft - 0.2
Other short-term loans 898.8 712.4
898.8 712.6
Obligations under finance leases 24.5 20.2
923.3 732.8
Non current
Loans 5,969.2 5,068.4
Obligations under finance leases 276.3 299.5
6,245.5 5,367.9
Total loans and borrowings 7,168.8 6,100.7
Add:
Cash and cash equivalents (360.2) (1,512.3)
Unadjusted Net Debt 6,808.6 4,588.4
Add/(less):
Hybrid capital (Note 14) 2,209.7 3,371.1
Obligations under finance leases (300.8) (319.7)
Cash held as collateral and other short term
loans (121.8) (71.7)
Balances due to non-controlling interest partners
in Clyde Windfarm (Scotland) Limited (200.7) -
Adjusted Net Debt and Hybrid Capital 8,395.0 7,568.1
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) and as at 31 March 2016 GBP198.8m commercial paper
was outstanding (2015 - nil). During the year the Group extended
its existing GBP1.5bn of facilities on reduced pricing with the
facilities now maturing in August 2020 (GBP1.3bn) and November 2020
(GBP0.2bn). These facilities continue to provide back up to the
commercial paper programme and at 31 March 2016 they were undrawn.
The Group has a further GBP300m facility available with the
European Investment Bank which will be fully drawn in May 2016 when
it will become a 10 year term loan.
14. Hybrid Capital
2016 2015
GBPm GBPm
GBP 750m 5.453% perpetual subordinated capital securities - 744.5
EUR 500m 5.025% perpetual subordinated capital securities - 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 748.3 748.3
EUR 600m 2.375% perpetual subordinated capital securities 436.0 436.0
2,209.7 3,371.1
14.1 20 September 2010 GBP750m and EUR500m hybrid capital
bonds
On 1 October 2015 the company redeemed the GBP750m and EUR500m
hybrid capital bonds issued on 20 September 2010, the redemption
was funded by the proceeds of the GBP750m and EUR600m hybrid
capital bonds issued on 10 March 2015.
14.2 18 September 2012 EUR750m and US$700m Hybrid Capital
Bonds
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.
For 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$700m capital issued on 18 September 2012,
coupon payments are expected to be made bi-annually in arrears on 1
April and 1 October each year.
Notes to the Preliminary Statement
14.3 10 March 2015 GBP750m and EUR600m Hybrid Capital Bonds
On 10 March 2015, the Company issued GBP750m and EUR600m hybrid
capital bonds with no fixed redemption date, but the Company may,
at its sole discretion, redeem all, but not part, of the capital
securities at their principal amount. The date for the first
potential discretionary redemption of the GBP750m hybrid capital
bond is 10 September 2020 and then these can occur every 5 years
thereafter. The date for the first discretionary redemption of the
EUR600m hybrid capital bond is 1 April 2021 and then these can
occur every 5 years thereafter. The purpose of the outstanding
issues was to strengthen SSE's capital base and fund the Group's
ongoing capital investment and acquisitions.
14.4 10 March 2015 GBP750m and EUR600m Hybrid Capital Bonds
(continued)
For the GBP750m capital issued on 10 March 2015 the first coupon
payment is expected to be made on 10 September 2016 and then
annually in arrears thereafter, and for the EUR600m capital issued
on 10 March 2015, the first coupon payment is expected to be made
on 1 April 2016 and then annually in arrears thereafter.
14.5 Coupon Payments
Coupon payments of GBP12.5m (2015 - GBP11.8m) in relation to the
US$ capital issued on 18 September 2012 were paid on 1 April 2015.
Coupon payments of GBP12.4m (2015 - GBP12.4m) were made in relation
to the same hybrid capital bond on 1 October 2015, and payments of
GBP99.7m were made in relation to all other hybrid capital bonds on
1 October 2015.
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:
-- redemption; or
-- dividend payment on ordinary shares.
Interest will accrue on any deferred coupon.
15. Share capital
Number GBPm
(millions)
Allotted, called up and fully paid:
At 31 March 2015 993.0 496.5
Issue of shares (i) 14.6 7.3
At 31 March 2016 1,007.6 503.8
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 61.8p per ordinary share (in
relation to year ended 31 March 2015) and the interim dividend of
26.9p (in relation to the current year) under the terms of the
Company's scrip dividend scheme. This resulted in the issue of
10,600,639 and 1,172,973 new fully paid ordinary shares
respectively (2015: 11,775,169 and 5,348,770). In addition, the
Company issued 2.8m (2015 - 1.0m) shares during the year under the
savings-related share option schemes for a consideration of
GBP25.0m (2015 - GBP10.3m)
During the year, on behalf of the Company, the employee share
trust purchased 0.8m shares for a total consideration of GBP11.1m
(2015 - 0.6m shares, consideration of GBP9.0m). At 31 March 2016,
the trust held 3.0m shares (2015 - 3.1m) which had a market value
of GBP45.5m (2015 - GBP47.5m).
16. Capital and Financial Risk Management
16.1 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 2016, the Group's
long term credit rating was A- negative 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 is utilised at times when
management believe the Group's shares are undervalued. No share
buy-back was made during the year.
Notes to the Preliminary Statement
16 Capital and Financial Risk Management (continued)
16.1 Capital management (continued)
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 however these committed facilities remain
undrawn for the majority of the time.
The Group's capital comprises:
2016 2015
GBPm GBPm
Total borrowings (excluding finance leases) 6,868.0 5,781.0
Less : Cash and cash equivalents (360.2) (1,512.3)
Net debt (excluding hybrid capital) 6,507.8 4,268.7
Hybrid capital 2,209.7 3,371.1
Cash held as collateral and other short term loans (121.8) (71.7)
Balances due to non-controlling interest partners in Clyde Windfarm (Scotland) Ltd (200.7) -
Adjusted Net Debt and Hybrid Capital 8,395.0 7,568.1
Equity attributable to shareholders of the parent 2,984.8 2,709.4
Total capital 11,379.8 10,277.5
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.
16.2 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, retail
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 are treated as
held for trading.
Notes to the Preliminary Statement
for the year ended 31 March 2016
16. Capital and Financial Risk Management (continued)
16.2 Financial risk management (continued)
The net movement reflected in the interim income statement can
be summarised thus:
2016 2015
GBPm GBPm
Operating derivatives
Total result on operating derivatives (i) (1,375.4) (1,073.5)
Less: amounts settled (ii) 1,344.3 1,005.7
Movement in unrealised derivatives (31.1) (67.8)
Financing derivatives (and hedged items)
Total result on financing derivatives (i) (214.9) (395.5)
Less: amounts settled (ii) 229.2 351.3
Movement in unrealised derivatives 14.3 (44.2)
Net income statement impact (16.8) (112.0)
(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.
The fair values of the primary financial assets and liabilities
of the Group, together with their carrying values, are as
follows:
2016 2016 2015 2015
Carrying Fair Carrying Fair
Value Value Value Value
GBPm GBPm GBPm GBPm
Financial Assets
Current
Trade receivables 1,966.8 1,966.8 2,977.5 2,977.5
Other receivables 23.7 23.7 25.2 25.2
Cash held as collateral and other short term loans 13 121.8 121.8 71.7 71.7
Cash and cash equivalents 13 360.2 360.2 1,512.3 1,512.3
Derivative financial assets 1,615.0 1,615.0 1,999.9 1,999.9
4,087.5 4,087.5 6,586.6 6,586.6
Non-current
Unquoted equity investments 9.9 9.9 11.2 11.2
Loans to associates and jointly controlled entities 591.6 591.6 559.4 559.4
Derivative financial assets 537.7 537.7 566.8 566.8
1,139.2 1,139.2 1,137.4 1,137.4
5,226.7 5,226.7 7,724.0 7,724.0
Financial Liabilities
Current
Trade payables (1,868.3) (1,868.3) (2,707.7) (2,707.7)
Bank loans and overdrafts 13 (898.8) (900.6) (712.6) (714.3)
Finance lease liabilities 13 (24.5) (24.5) (20.2) (20.2)
Derivative financial liabilities (1,783.8) (1,783.8) (2,297.3) (2,297.3)
(4,575.4) (4,577.2) (5,737.8) (5,739.5)
Non-current
Loans and Borrowings 13 (5,969.2) (6,889.9) (5,068.4) (6,213.4)
Finance lease liabilities 13 (276.3) (276.3) (299.5) (299.5)
Derivative financial liabilities (857.5) (857.5) (933.4) (933.4)
(7,103.0) (8,023.7) (6,301.3) (7,446.3)
(11,678.4) (12,600.9) (12,039.1) (13,185.8)
Net financial liabilities (6,451.7) (7,374.2) (4,315.1) (5,461.8)
Notes to the Preliminary Statement
for the year ended 31 March 2016
16. Capital and Financial Risk Management (continued)
16.2 Financial risk management (continued)
(i) 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.
Fair Value Hierarchy
Level Level Level Total
1 2 3
Financial Assets GBPm GBPm GBPm GBPm
Energy derivatives 378.7 1,475.3 - 1,854.0
Interest rate derivatives - 238.1 - 238.1
Foreign exchange derivatives - 60.6 - 60.6
Equity investments - 25.1 - 25.1
378.7 1,799.1 - 2,177.8
Financial Liabilities
Energy derivatives (436.7) (1,781.6) - (2,218.3)
Interest rate derivatives - (415.5) - (415.5)
Foreign exchange derivatives - (7.5) - (7.5)
Loans and Borrowings - 81.8 - 81.8
(436.7) (2,122.8) - (2,559.5)
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
2016.
17. Retirement Benefit Obligations
Valuation of combined Pension Schemes
Long- term rate of return Value Long- term rate of return Value
expected at 31 March 2016 at 31 March 2016 expected at 31 March 2015 at 31 March 2015
% GBPm % GBPm
Equities 5.5 1,049.6 5.6 1,060.1
Government bonds 1.2 1,001.7 2.6 1,049.6
Corporate bonds 3.0 1,069.7 3.3 1,061.3
Other investments 1.7 581.9 4.1 580.0
Total fair value of plan
assets 3,702.9 3,751.0
Present value of defined
benefit obligation (3,835.0) (4,209.1)
Pension liability before
IFRIC 14 (132.1) (458.1)
IFRIC 14 liability (i) (262.7) (206.5)
Deficit in the schemes (394.8) (664.6)
Deferred tax thereon 71.0 132.8
Net pension liability (323.8) (531.8)
(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 2016
17 Retirement Benefit Obligations(continued)
Movements in the defined benefit asset obligations and assets
during the year:
2016 2015
Assets Obligations Total Assets Obligations Total
GBPm GBPm GBPm GBPm GBPm GBPm
at 1 April 3,751.0 (4,209.1) (458.1) 3,257.3 (3,693.9) (436.6)
Included in Income Statement
Current service cost - (61.8) (61.8) - (55.4) (55.4)
Past service cost - (4.3) (4.3) - (16.7) (16.7)
Interest income/(cost) 121.2 (134.9) (13.7) 139.9 (156.4) (16.5)
121.2 (201.0) (79.8) 139.9 (228.5) (88.6)
Included in Other Comprehensive Income
Actuarial (loss)/gain arising from:
Demographic assumptions - 48.0 48.0 - - -
Financial assumptions - 277.4 277.4 - (515.4) (515.4)
Experience assumptions - 101.5 101.5 - 70.4 70.4
Return on plan assets excluding interest income (123.1) - (123.1) 362.5 - 362.5
(123.1) 426.9 303.8 362.5 (445.0) (82.5)
Other
Contributions paid by the employer 102.0 - 102.0 149.6 - 149.6
Scheme participants contributions 0.3 (0.3) - 0.3 (0.3) -
Benefits paid (148.5) 148.5 - (158.6) 158.6 -
(46.2) 148.2 102.0 (8.7) 158.3 149.6
Balance at 31 March 3,702.9 (3,835.0) (132.1) 3,751.0 (4,209.1) (458.1)
Charges / (credits) recognised:
2016 2015
GBPm GBPm
Current service cost (charged to operating profit) 66.1 72.1
66.1 72.1
(Credited)/charged to finance costs:
Interest on pension scheme assets (121.2) (139.9)
Interest on pension scheme liabilities 134.9 156.4
IFRIC 14 impact on net interest 6.7 8.6
20.4 25.1
18. Capital commitments
2016 2015
GBPm GBPm
Capital expenditure:
Contracted for but not provided 898.4 1,059.5
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 2016
19. 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.
2016 2016 2016 2016 2015 2015 2015 2015
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
Joint
ventures: GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Seabank
Power Ltd 13.7 (125.8) - 18.2 20.1 (115.5) 1.8 11.1
Marchwood
Power Ltd 12.7 (108.7) 0.1 15.5 28.7 (114.4) 3.4 12.7
Scotia Gas
Networks
Ltd 46.3 (155.8) 15.9 0.9 49.0 (166.4) 7.7 0.3
Other Joint
Ventures 8.1 (1.2) 8.4 - 27.6 (6.0) 3.0 -
Associates 0.5 (59.7) 2.4 3.9 0.8 (41.9) 1.9 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.
20. Post Balance Sheet Events
On 13 May 2016, the Group agreed to waive certain contractual
rights that gave rise to the accounting judgement that the Group
had power to control the "relevant activities" of Clyde Windfarm
(Scotland) Limited ('Clyde'). As a consequence, the Group will
prospectively account for its interest in Clyde as that of an
investment in an equity-accounted joint venture.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DBGDUXDBBGLR
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