TIDMSSE
RNS Number : 1889T
SSE PLC
13 November 2019
SSE plc
Interim results for the six months ended 30 September 2019
13 November 2019
Headlines
Headline half year results exclude SSE Energy Services and Gas
Production assets held for sale:
The results below reflect the reinstatement of the Capacity
Market following approval by the European Commission and therefore
include c.GBP110m of GB Capacity Market payments in respect of the
period from the date of its suspension to 30 September 2019; GBP8m
of which is included in exceptional items.
Headline results in line with Pre-Close Statement of 26
September and exclude SSE Energy Services and Gas Production
assets:
-- Adjusted operating profit on continuing operations: GBP491.9m, up 14%
-- Reported operating profit/(loss) on continuing operations:
GBP347.5m, versus GBP(184.6)m last year
-- Adjusted profit before tax on continuing operations: GBP263.4m, up 15%
-- Reported profit/(loss) before tax on continuing operations:
GBP128.9m, versus GBP(284.6)m last year
-- Adjusted earnings per share on continuing operations: 18.0p, up 10%
-- Reported earnings/(loss) per share on continuing operations: 6.2p, versus (26.4p) last year
Interim dividend in line with five-year dividend plan to
2023:
-- Interim dividend: 24 pence, down 18% reflecting dividend policy outlined in May 2018
-- Intention to recommend full-year dividend of 80 pence, with
annual RPI growth in the three subsequent years
Investment and capital expenditure in line with plan to
2023:
-- Capital and investment expenditure: GBP638.2m, down 19%
-- Includes GBP446.2m invested in regulated electricity networks and renewable energy
-- Full-year capital and investment expenditure is now expected to be around GBP1.4bn
-- Adjusted net debt and hybrid capital: GBP10.3bn
Positive updates to financial outlook for 2019/20:
-- In September 2019, SSE's forecast full year adjusted earnings
per share was around 80p-85p, taking into account the impact of
holding its interest in Gas Production for sale.
-- Gas production interests comprise assets and hedging
contracts. The structure of the proposed disposal means the hedging
contracts will be retained and are not accounted for as held for
sale. It is estimated this will add around 3 pence to SSE's
previous forecast for adjusted EPS for FY 19/20 taking it to around
83p-88p.
-- European Commission green light for Capacity Market means
forecast adjusted EPS is no longer subject to receipt of suspended
Capacity Market payments.
-- Full-year adjusted EPS is always subject to hydro and wind
assets benefiting from normal weather conditions. Generally wet and
windy weather since September means, as at early November,
renewable output for the year to date is slightly ahead of
plan.
Results of discontinued operations
At 30 September 2019, SSE Energy Services continues to be
classified as held for sale and the Group's investment in Gas
Production has also been classified as held for sale. Adjusted
operating losses of the discontinued operations for the six months
are GBP22.7m; reported operating losses are GBP511.8m (including
GBP489.1m of impairment charges relating to SSE Energy Services);
and the adjusted loss per share of the discontinued operations is
1.6p.
Delivery against strategic priorities continuing:
-- Agreement to sell SSE Energy Services to OVO Energy Limited
on course for completion in early 2020, subject to the necessary
regulatory approvals
-- Strong, stakeholder-led RIIO T2 business plan to be submitted
to Ofgem for close to GBP2.4bn totex investment in north of
Scotland that could contribute to a Transmission RAV of around
GBP5bn by 2026
-- SSE Renewables' development capability confirmed by securing
contracts for 2.2GW (SSE share) in CfD Allocation Round
-- Transition to lower carbon electricity generation confirmed
by decision to close SSE's last remaining coal-fired generation
plant at Fiddler's Ferry by March 2020.
-- Updated capital and investment expenditure plan to be set out by May 2020.
Richard Gillingwater, Chair of SSE, said:
"SSE is progressing well in the execution of its low-carbon
strategy with the sale of SSE Energy Services leading to group more
focussed on renewable energy and regulated electricity
networks.
"SSE Renewables has an enviable development pipeline bolstered
by recent success in securing valuable Contracts for Difference and
we have strong business plans for the upcoming Transmission price
control. Our growth is aligned to net zero emissions and looking
ahead to COP 26 in Glasgow next year, we will be encouraging even
faster decarbonisation.
"Clearly some headwinds remain in the sector with political
uncertainty and aspects of UK government policy being subject to
judicial process, however, we have strong optionality to create
value through the low carbon transition and deliver our dividend
commitments."
SSE's financial performance at a glance for six months to 30
September 2019
At 30 September 2019 SSE Energy Services is held for sale and
has been accounted for as a discontinued operation. Therefore, the
results of SSE Energy Services have been excluded from the profit
and loss metrics in the tables below. Details of SSE Energy
Services performance can be found in the Group Financial
Overview.
In addition, SSE's interests in Gas Production assets are also
held for sale at 30 September 2019 and therefore results relating
to these assets have been excluded from the profit and loss metrics
in the tables below.
Key Financial Indicators Sept 19 Sept 18* Sept 17*
Adjusted operating profit/(loss) GBPm GBPm GBPm
============== ========== ==========
SSEN Transmission 110.1 127.4 97.9
============== ========== ==========
SSEN Distribution 150.8 166.9 176.0
============== ========== ==========
Electricity Networks Total 260.9 294.3 273.9
============== ========== ==========
Investment in SGN 102.1 85.4 81.2
============== ========== ==========
Economically-regulated networks total 363.0 379.7 355.1
============== ========== ==========
SSE Renewables 149.9 78.4 152.5
============== ========== ==========
Thermal Generation 57.8 (3.5) 2.0
============== ========== ==========
Gas Storage (20.7) (3.7) (5.3)
============== ========== ==========
Thermal Energy Total 37.1 (7.2) (3.3)
============== ========== ==========
Business Energy (GB) 2.9 41.6 42.5
============== ========== ==========
SSE Airtricity (NI and Ire) 16.4 12.0 22.6
============== ========== ==========
Customer Solutions Total 19.3 53.6 65.1
============== ========== ==========
Energy Portfolio Management (113.1) (85.9) 9.3
============== ========== ==========
Gas Production Continuing - contracts 31.9 N/A N/A
============== ========== ==========
Enterprise 8.2 13.7 12.3
============== ========== ==========
Corporate Unallocated (4.4) (1.0) 0.9
============== ========== ==========
Total adjusted operating profit from continuing operations 491.9 431.3 591.9
============== ========== ==========
Adjusted profit before tax 263.4 229.4 415.3
============== ========== ==========
Adjusted earnings per share (EPS) pence 18.0 16.4 32.1
============== ========== ==========
Interim dividend per share (DPS) pence 24.0 29.3 28.4
============== ========== ==========
Final dividend per share (DPS) pence 56.0 expected 68.2 66.3
============== ========== ==========
Full year dividend per share (DPS) pence 80.0 expected 97.5 94.7
============== ========== ==========
Investment and capital expenditure (adjusted & reported) GBPm 638.2 783.4 779.5
============== ========== ==========
Adjusted net debt and hybrid capital GBPm (10,338.9) (9,960.3) (9,275.1)
============== ========== ==========
Reported operating profit /(loss)
============== ========== ==========
SSEN Transmission 110.1 127.4 97.9
============== ========== ==========
SSEN Distribution 150.8 166.9 176.0
============== ========== ==========
Electricity Networks Total 260.9 294.3 273.9
============== ========== ==========
Investment in SGN 54.5 38.6 35.2
============== ========== ==========
Economically-regulated networks total 315.4 332.9 309.1
============== ========== ==========
SSE Renewables 106.4 151.1 149.1
============== ========== ==========
Thermal Generation (53.3) (12.8) (9.9)
============== ========== ==========
Gas Storage (20.7) (3.7) (5.3)
============== ========== ==========
Thermal Energy Total (74.0) (16.5) (15.2)
============== ========== ==========
Business Energy (GB) 2.9 41.6 42.5
============== ========== ==========
SSE Airtricity (NI and Ire) 16.4 12.0 22.6
============== ========== ==========
Customer Solutions Total 19.3 53.6 65.1
============== ========== ==========
Energy Portfolio Management 41.5 (651.3) 30.7
============== ========== ==========
Gas Production Continuing - contracts 31.9 - -
============== ========== ==========
Enterprise 5.1 13.7 12.3
============== ========== ==========
Corporate unallocated (98.1) (68.1) 0.9
============== ========== ==========
Total reported operating profit 347.5 (184.6) 552.0
============== ========== ==========
Total Reported profit before tax 128.9 (284.6) 404.8
============== ========== ==========
Reported earnings per share (EPS) pence on continuing operations 6.2 (26.4) 30.5
============== ========== ==========
Unadjusted net debt GBPm (9,936.1) (9,477.9) (7,367.6)
============== ========== ==========
Key Performance Indicators Sept 19 Sept 18 Sept 17
============== ========== ==========
Total Renewable Generation - GWh (inc. pumped storage) 4,045 3,278 3,501
============== ========== ==========
Total Thermal Generation - GWh 8,126 10,587 10,660
============== ========== ==========
Total Generation - all plant - GWh 12,171 13,865 14,161
============== ========== ==========
Average carbon intensity of electricity generated (gCO2e/KWh) 261 313 294
============== ========== ==========
Electricity Transmission RAV - GBPm 3,406 3,259 2,907
============== ========== ==========
Electricity Distribution RAV - GBPm 3,642 3,511 3,355
============== ========== ==========
Gas Distribution RAV - GBPm 1,949 1,870 1,790
============== ========== ==========
SSE Total RAV - GBPm 8,997 8,640 8,052
============== ========== ==========
Business Energy Electricity Sold - GWh 8,345 9,610 9,729
============== ========== ==========
Business Energy Gas Sold - mtherms 90.2 91.9 88.2
============== ========== ==========
All Ireland energy market accounts - m 0.72 0.74 0.77
============== ========== ==========
*Restated to exclude the contribution of SSE Energy Services and
Gas Production assets which have been presented as discontinued
operations (see note 5(b) to the Summary Financial Statements).
Notes:
The definitions SSE uses for adjusted measures are consistently
applied and are explained in the Alternative Performance Measures
section of this document, before the Summary Financial Statements.
Throughout this document losses are shown in brackets.
Renewable generation excludes SSE's small biomass capability
which is now managed by SSE's Enterprise business.
SSE's 2030 carbon intensity target is based on generation
emissions only. To track progress against this target, previous
years' intensity ratios have been restated to only cover
electricity generation emissions rather than total scope 1
emissions.
Further Information
Investor Timetable
Interim ex-dividend date 16 January 2020
Record date 17 January 2020
Scrip reference pricing days 16 - 22 January 2020
Scrip reference price confirmed and released via RNS 23 January 2020
Final date for receipt of scrip elections 13 February 2020
Interim dividend payment date 13 March 2020
Q3 Trading Statement 31 January 2020
Notification of Closed Period By 31 March 2020
Preliminary Results for the year ended 31 March 2020 20 May 2020
AGM (Perth) and Q1 Trading Statement 16 July 2020
Contact Details
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Media media@sse.com + 44 (0)345 0760 530
Webcast facility
SSE will present its interim results for the six months ended 30
September 2019 on Wednesday 13 November. You can join the webcast
by visiting www.sse.com and following the links on either the
homepage or investor pages; or directly using
https://edge.media-server.com/mmc/p/geoyxfdz . This will also be
available as a teleconference, details below. Both facilities will
be available to replay.
Confirmation Code: 1197523
Location Phone Type Phone Number
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Online information
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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 six months to 30 September 2019
are reported under IFRS (International Financial Reporting
Standards), 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.
The definitions SSE uses for adjusted measures are consistently
applied and are explained in the Alternative Performance Measures
section before the Summary Financial Statements.
In preparing this financial report SSE has been mindful of the
commentary issued in May 2016 by the Financial Reporting Council on
the European Securities and Markets Authority's Guidelines on
Alternative Performance Measures. SSE will monitor developing
practice in the use of Alternative Performance Measures and will
continue to prioritise this, ensuring the financial information in
its results statements is clear, consistent and relevant to the
users of those statements.
Important note: SSE Energy Services
On 13 September 2019, SSE announced that it had entered into an
agreement to sell its SSE Energy Services business to OVO Energy
Limited. Therefore, SSE Energy Services will continue to be
presented in these financial statements as 'held for sale' with
assets and liabilities of that business as held for sale and the
business activity as discontinued (see note 9 of the Summary
Financial Statements). This means the results of SSE Energy
Services have been excluded from the profit and loss metrics. The
transaction has received FCA approval, awaits CMA approval and is
expected to complete early 2020.
Important note: Gas Production
At 30 September 2019 SSE has assessed that it is highly probable
that SSE's investment in Gas Production assets will be sold and has
presented the assets and liabilities of that business as held for
disposal and the business activity as discontinued (see note 9 of
the Summary Financial Statements). Therefore, the results of SSE's
investments in Gas Production assets have been excluded from the
profit and loss metrics. As the Group continues to fund this
investment, and will do so until completion of the transaction, the
capital expenditure and debt related metrics presented include the
activity of that business. While the assets of this business are
held for sale, the benefit of an internal gas hedge is being
retained within the SSE Group due to the structure of the proposed
disposal.
Impact of planned sales on the Group's APMs
The following metrics have been adjusted in all periods
presented to exclude the contribution of SSE Energy Services and
SSE's investment in Gas Production assets, which have been
presented as discontinued operations as at 30 September 2019:
Adjusted EBITDA;
Adjusted operating profit:
Adjusted profit before tax;
Adjusted current tax charge; and
Adjusted earnings per share.
Strategic Overview
Creating value through the transition to net zero emissions
Since the start of this financial year, there has been
encouraging progress in relation to SSE's strategy to create value
for shareholders and society from developing, operating and owning
energy-related infrastructure and services in a sustainable
way.
Whilst the imperative to tackle climate change creates a
tailwind behind SSE's strategy, exemplified by the UK Parliament
legislating for net zero emissions by 2050, the energy sector
continues to face a complex and challenging operating environment.
This is illustrated by the uncertainty arising from the UK general
election, the Labour Party campaign for sector nationalisation and
public policy outcomes becoming the subject of judicial
processes.
Each of these matters has to be dealt with in a pragmatic and
progressive way, guided by the concerns of shareholders and other
stakeholders and underpinned by a commitment to do the right thing
in the fight against climate change. This commitment is illustrated
by SSE's four business goals to 2030, aligned to the UN Sustainable
Development Goals and covering climate action; affordable and clean
energy; industry, innovation and infrastructure; and decent work
and economic growth.
Executing SSE's low-carbon strategy
Material progress continues to be made on execution of a
strategy that puts SSE at the centre of efforts to decarbonise the
UK and Irish economies. Key to this is our clear focus on regulated
electricity networks and renewable energy. That focus has been
sharpened by the recent progress made on the planned sale of SSE
Energy Services to OVO Energy and the measures taken to prepare for
the proposed divestment of gas production assets.
Within the core businesses, SSEN Transmission's strong,
stakeholder-led business plan for 2021-26, A Network for Net Zero,
represents a blueprint for continued investment in a modern
electricity transmission network to help decarbonise the economy.
SSEN Distribution continues to make positive strides towards
becoming a Distribution System Operator but we have more work to do
on regulatory incentives where we are focusing heavily on
improvement. The completion of the Beatrice offshore wind farm and
the success of SSE Renewables-backed projects in the recent
Contracts for Difference auction demonstrates what SSE can achieve
as a leading developer, operator and owner working with like-minded
partners.
The progress made by our complementary businesses should not be
overlooked. In particular, our thermal generation business has a
key role to play in the transition to a decarbonised energy system
and SSE is this month publishing Transition to net zero: The role
of gas, a report analysing the resilience of SSE's gas assets to
different climate change scenarios.
Delivering on the five-year dividend plan
It is SSE's core businesses that will be at the heart of SSE in
the years to come, creating options, opportunities and value
through the low carbon transition and earning returns for
shareholders in a sustainable way. Value creation will be
underpinned by returns shaped through regulatory or public policy
processes and earned through efficient operation and development
(including construction) of low-carbon assets. These core
businesses and assets underpin SSE's first financial commitment,
which is to fairly remunerate shareholders' investment through
dividends. The interim dividend of 24 pence is in line with the 80
pence per share that is expected to be recommended at year-end and
is consistent with the five-year plan announced in May 2018, to
which SSE remains fully committed.
Focusing on future opportunities
The refocused SSE group of businesses is delivering on a
clearly-defined strategy to create value from developing, operating
and owning energy-related infrastructure in a sustainable way. In
doing so it is realising a vision to be a leading energy company in
a low-carbon world. There are complex issues to navigate, but there
has been encouraging progress SSE since the start of the financial
year. SSE has put the fight against climate change at the heart of
its business, and it is for this reason that our advocacy in the
year ahead will be focused on encouraging governments attending the
UN Climate Change Conference in Glasgow next year to go further and
faster in decarbonisation. As the progress in this financial year
has shown, SSE is very well-placed to seize the opportunities on
offer from the transition to a net zero economy and in doing to
create sustainable value for shareholders and society in the years
to come.
Alistair Phillips-Davies
Chief Executive
Group Financial Overview
The following tables provide a summary of Group Financial
Performance. The definitions SSE uses for adjusted measures are
consistently applied and are explained in the Alternative
Performance Measures section of this document, before the Summary
Financial Statements.
SSE Energy Services and SSE's investment in gas production
assets have been presented as discontinued operations in the
Summary Financial Statements, and therefore have been excluded from
profit and loss based measures in the tables below in the current
and comparative periods.
Key Adjusted Financial Metrics Sept 19 Sept 18 Sept 17
GBPm GBPm GBPm
Adjusted Operating Profit 491.9 431.3 591.9
======== ======== ========
Adjusted Net Finance Costs (228.5) (201.9) (176.6)
======== ======== ========
Adjusted Profit before Tax 263.4 229.4 415.3
======== ======== ========
Adjusted Current Tax charge (31.6) (15.9) (35.5)
======== ======== ========
Effective current tax rate (%) 12.0 6.9 8.5
======== ======== ========
Adjusted Profit after Tax 231.8 213.5 379.8
======== ======== ========
Less: hybrid equity coupon payments 46.5 46.6 57.4
======== ======== ========
Adjusted Profit After Tax attributable to ordinary shareholders 185.3 166.9 322.4
======== ======== ========
Adjusted EPS - pence 18.0 16.4 32.1
======== ======== ========
Number of shares for basic/reported and adjusted EPS (million) 1,030.4 1,015.7 1,005.3
======== ======== ========
Shares in issue 30 September (m) 1,048.1 1,026.5 1,022.5
======== ======== ========
Key Reported Financial Metrics Sept 19 Sept 18 Sept 17
GBPm GBPm GBPm
Reported Operating Profit 347.5 (184.6) 552.0
------------------ -------- --------
Reported Net Finance Costs (218.6) (100.0) (147.2)
------------------ -------- --------
Reported Profit before Tax 128.9 (284.6) 404.8
------------------ -------- --------
Reported Tax (credit)/charge 18.2 (62.7) 40.6
------------------ -------- --------
Reported Profit after Tax on continuing operations 110.7 (221.9) 364.2
------------------ -------- --------
Reported Profit for the period on discontinued operations (498.2) (22.5) (7.0)
------------------ -------- --------
Reported Profit/(Loss) after Tax (387.5) (244.4) 357.2
------------------ -------- --------
Less: hybrid equity coupon payments 46.5 46.6 57.4
------------------ -------- --------
Reported Profit/(Loss) After Tax attributable to ordinary shareholders(1) (434.0) (291.0) 299.8
------------------ -------- --------
Reported earnings per share (including discontinued operations) (pence) (42.1) (28.6) 29.8
------------------ -------- --------
(1) After distributions to hybrid capital holders
Dividend per Share Mar 20 Mar 19 Mar 18
------------------ -------- --------
Interim Dividend pence 24.0 29.3 28.4
------------------ -------- --------
Final Dividend pence 56.0 expected 68.2 66.3
------------------ -------- --------
Full Year Dividend pence 80.0 expected 97.5 94.7
------------------ -------- --------
Dividend Cover times/SSE's adjusted EPS c. 1.1 x expected 0.69x 1.04 x
------------------ -------- --------
Segmental EBITDA results are included in note 5 (c) to the
Summary Financial Statements.
Operating profit
SSE Group Sept 19 Sept 18 Sept 17
Business-by-business segmental adjusted EBIT / Adjusted Operating Profit analysis GBPm GBPm GBPm
SSEN Transmission 110.1 127.4 97.9
-------- -------- --------
SSEN Distribution 150.8 166.9 176.0
-------- -------- --------
Electricity networks total 260.9 294.3 273.9
-------- -------- --------
Investment in SGN 102.1 85.4 81.2
-------- -------- --------
Economically-regulated networks total 363.0 379.7 355.1
-------- -------- --------
SSE Renewables 149.9 78.4* 152.5
-------- -------- --------
Thermal Generation 57.8 (3.5) 2.0
-------- -------- --------
Gas Storage (20.7) (3.7) (5.3)
-------- -------- --------
Thermal Energy Total 37.1 (7.2) (3.3)
-------- -------- --------
Business Energy (GB) 2.9 41.6 42.5
-------- -------- --------
SSE Airtricity (NI and Ire) 16.4 12.0 22.6
-------- -------- --------
Customer Solutions Total 19.3 53.6 65.1
-------- -------- --------
Energy Portfolio Management (113.1) (85.9) 9.3
-------- -------- --------
Gas Production Contracts 31.9 n/a n/a
-------- -------- --------
Energy Portfolio Management and Investments 81.2 (85.9) 9.3
-------- -------- --------
Enterprise 8.2 13.7 12.3
-------- -------- --------
Corporate Unallocated (4.4) (1.0) 0.9
-------- -------- --------
Total Adjusted Operating Profit 491.9 431.3 591.9
-------- -------- --------
Adjusted Net Finance Costs (228.5) (201.9) (176.6)
-------- -------- --------
Adjusted PBT (excluding Held for Sale) 263.4 229.4 415.3
-------- -------- --------
Held for Sale:
-------- -------- --------
Gas Production Assets (15.3) 19.3 4.5
-------- -------- --------
SSE Energy Services (7.4) (62.1) (7.1)
-------- -------- --------
*Reflects fair value depreciation restatement September 2018 of
GBP2.3m
SSE Group Sept 19 Sept 18 Sept 17
Business-by-business segmental GBPm GBPm GBPm
REPORTED EBIT / Operating Profit
analysis
SSEN Transmission 110.1 127.4 97.9
-------- -------- --------
SSEN Distribution 150.8 166.9 176.0
-------- -------- --------
Electricity Networks Total 260.9 294.3 273.9
-------- -------- --------
Investment in SGN 54.5 38.6 35.2
-------- -------- --------
Economically-regulated networks
total 315.4 332.9 309.1
-------- -------- --------
SSE Renewables 106.4 151.1 149.1
-------- -------- --------
Thermal Generation (53.3) (12.8) (9.9)
-------- -------- --------
Gas Storage (20.7) (3.7) (5.3)
-------- -------- --------
Thermal Energy Total (74.0) (16.5) (15.2)
-------- -------- --------
Business Energy (GB) 2.9 41.6 42.5
-------- -------- --------
SSE Airtricity (NI and Ire) 16.4 12.0 22.6
-------- -------- --------
Customer Solutions Total 19.3 53.6 65.1
-------- -------- --------
Energy Portfolio Management 41.5 (651.3) 30.7
-------- -------- --------
Gas Production Contracts 31.9 - -
-------- -------- --------
Enterprise 5.1 13.7 12.3
-------- -------- --------
Corporate Unallocated (98.1) (68.1) 0.9
-------- -------- --------
Total Reported Operating Profit 347.5 (184.6) 552.0
-------- -------- --------
Reported Net Finance Costs (218.6) (100.0) (147.2)
-------- -------- --------
Reported PBT (excluding held
for sale) 128.9 (284.6) 404.8
-------- -------- --------
Held for Sale:
-------- -------- --------
Gas Production (15.3) 19.3 4.5
-------- -------- --------
SSE Energy Services (496.5) (62.1) (7.1)
-------- -------- --------
A reconciliation of adjusted operating profit by segment to
reported operating profit by segment can be found in Note 5 (b) to
the Summary Financial Statements.
Operating profit
Adjusted and reported operating profit/losses in SSE's business
segments for the six months to 30 September 2019 are as set out
below; comparisons are with the same six months in 2018 unless
otherwise stated:
SSEN Transmission: adjusted and reported operating profit was
GBP110.1m compared to GBP127.4m, mainly due to the phasing of
allowed revenue, along with increased depreciation relating to
on-going capital expenditure.
SSEN Distribution: adjusted and reported operating profit was
GBP150.8m compared to GBP166.9m, mainly due to higher costs
associated with supplying Shetland, increased fault costs and
slightly lower Distribution Use of System electricity volumes.
Investment in SGN: adjusted operating profit was GBP102.1m
compared to GBP85.4m, mainly due to the phasing of allowed revenue
and an increase in other income.
Reported operating profit was GBP54.5m compared to GBP38.6m, due
to the factors above, offset by slightly higher interest and tax
charges.
SSE Renewables: adjusted operating profit was GBP149.9m compared
to GBP78.4m mainly due to a net increase in wind energy capacity in
operation over the period, along with more favourable weather
conditions for renewable electricity output compared with the same
period in 2018. HY19/20 also includes around GBP18m of GB Capacity
Market payments in respect of the period from the date of its
suspension to 30 September 2019; compared to HY18/19 which included
under GBP3m. Following a technical review, SSE has changed the
estimated useful life of its onshore windfarms from 20 to 25 years.
The financial impact of this extension is to increase adjusted and
reported profit before tax by GBP14.5m in HY19/20.
Reported operating profit was GBP106.4m compared to GBP151.1m.
The factors outlined above were outweighed by year on year
movements in exceptional items. In the six months to 30 September
2018 reported operating profit included exceptional gains of
GBP88.4m compared to a net exceptional and one-off financing cost
charge of GBP5.9m in the same period this year.
Thermal Generation: adjusted operating profit was GBP57.8m
compared to an adjusted operating loss of GBP3.5m, mainly due to
the reinstatement of the Capacity Market, meaning HY19/20 includes
over GBP80m of GB Capacity Market payments in respect of the period
from the date of its suspension to 30 September 2019. A further
GBP8m of capacity payments are also included in exceptional items
in relation to Fiddlers Ferry coal station. This compares to GBP11m
of Capacity Market payments which were received in the six months
to 30 September 2018. The additional income in HY19/20 was partly
offset by lower plant availability over the summer of 2019 compared
with the summer of 2018.
Reported operating loss at 30 September 2019 is GBP53.3m
compared to an operating loss of GBP12.8m in prior year. The
factors outlined above were outweighed in HY19/20 by the net
exceptional charge including impairments of Fiddler's Ferry coal
station of GBP98.7m; following the announcement to close the
station by March 2020.
Gas Storage adjusted and reported operating loss was GBP20.7m
compared to GBP3.7m, reflecting the fact that this year's auction
of storage capacity resulted in no contracted sales. SSE will
operate the plant on a merchant basis, with its businesses using
this capacity over the forthcoming winter and Gas Storage is
expected to return to a small profit for the full year.
SSE Business Energy: adjusted and reported operating profit was
GBP2.9m compared to GBP41.6m, as a result of reduced volumes of
energy sold, industry mutualisation, disposals last year and
increased bad debt. This reflects challenging market conditions for
this business, but profitability is expected to improve in the rest
of the financial year.
SSE Airtricity: adjusted and reported operating profit was
GBP16.4m compared to GBP12.0m reflecting improved margins earned by
the business.
Energy Portfolio Management (EPM): adjusted operating loss was
GBP113.1m compared to an adjusted operating loss of GBP85.9m. The
full year adjusted operating loss for FY2019/20 is now expected to
be between GBP125m and GBP130m. The Annual Report 2019 contains
information to relating to the financial performance of EPM in
2018/19 and 2019/20.
Reported operating profit for EPM in the six months to 30
September 2019 was GBP41.5m compared to a loss of GBP651.3m in
prior year due to remeasurement gains on unsettled derivative
contracts of GBP154.6m in the current period, compared to losses of
GBP565.4m in prior year.
As previously stated, following changes to the operations of the
EPM business, from FY20/21 EPM is expected to earn a small adjusted
operating profit through service provision.
Investment in Gas Production: while the assets of this business
are held for sale, the benefit of an internal gas hedge is being
retained within the SSE Group due to the structure of the proposed
disposal. This internal gas hedge has resulted in a HY19/20
adjusted and reported operating profit of GBP31.9m. In addition,
the assets held for sale have resulted in a reported operating loss
of GBP15.3.m which is excluded from SSE's adjusted results. If
reported together, the assets and the internal gas hedge would show
a total operating profit of GBP16.6m; compared to an adjusted and
reported operating profit of GBP19.3m in the same period in
2018.
Enterprise: adjusted operating profit was GBP8.2m compared to
GBP13.7m, reflecting the reduction in SSE's share of Telecoms'
profits following the sale of 50% of the business in March 2019 as
well as additional costs relating to development spend.
Reported operating profit was GBP5.1m in the current year versus
GBP13.1m in prior year due to interest and tax costs of SSE
Telecommunications.
Corporate Unallocated: adjusted operating loss of GBP4.4m
compared to GBP1.0m.
Reported operating loss is GBP98.1m in HY19/20 compared to a
reported operating loss of GBP68.1m in HY18/19. Both periods
include charges related to the disposal of SSE Energy Services of
(GBP52.5m in HY19/20 compared to GBP67.1m in HY18/19). In addition,
in HY19/20, the Group also incurred exceptional IT write-offs and
redundancy provisions totalling GBP41.2m.
SSE Energy Services (discontinued operations)
SSE Energy Services (Energy Supply (households in GB) and Energy
Related Services): adjusted operating loss was GBP7.4m, compared to
GBP62.1m. The higher loss in HY18/19 reflects a delay in passing
through cost increases to customers in that period and in addition
HY19/20 excludes depreciation as a result of the business being
presented as held for sale.
An exceptional charge of GBP489.1m has been recognised in the
period as an impairment to the carrying value of the SSE Energy
Services assets held for sale at 30 September 2019 which resulted
in a reported operating loss of GBP496.5m. This impairment is
reflective of the transaction price agreed with OVO and includes an
estimate of total transaction fees to be incurred.
Investment and Capital Expenditure
Investment and Capex Summary (adjusted) Sept 19 Sept 19 Sept 18 Sept 17
Share % GBPm GBPm GBPm
Electricity Transmission 26% 168.6 185.2 231.4
--------- -------- -------- --------
Electricity Distribution 24% 152.4 163.5 138.0
--------- -------- -------- --------
Electricity Networks total 50% 321.0 348.7 369.4
--------- -------- -------- --------
SSE Renewables 20% 125.2 244.9 174.4
--------- -------- -------- --------
Thermal Generation 17% 108.0 60.1 48.3
--------- -------- -------- --------
Gas Storage 0% 1.2 - 0.5
--------- -------- -------- --------
Thermal energy total 17% 109.2 60.1 48.8
--------- -------- -------- --------
Customer Solutions total - - 0.8 0.2
--------- -------- -------- --------
Enterprise 4% 25.1 29.0 26.5
--------- -------- -------- --------
SSE Energy Services - * 41.3 69.6
--------- -------- -------- --------
Gas Production 3% 21.7 12.8 36.0
--------- -------- -------- --------
Corporate 6% 36.0 45.8 54.6
--------- -------- -------- --------
Total investment and capital expenditure (adjusted) 100% 638.2 783.4 779.5
--------- -------- -------- --------
* In the period the Group incurred GBP53m of capital expenditure
within its Energy Services business, mainly related to
infrastructure to support SSE Energy Services' regulatory
obligation to install smart meters for its energy supply customers
as part of the UK's Smart Metering rollout. However, this capital
expenditure has been excluded from SSE's adjusted Investment and
Capital Expenditure, as the Group incurred an exceptional
impairment in the business related to the proposed OVO
transaction.
Investing efficiently in energy assets that the UK and Ireland
need in 2018/19
During the six months to 30 September 2019, SSE's investment and
capital expenditure (excluding SSE Energy Services but including
Gas Production) totalled GBP638.2m, including GBP446.2m investment
in renewable energy and regulated electricity networks. Total
investment and capital expenditure over the period included the
following:
-- A major investment programme in electricity networks
totalling GBP321m (50% of SSE's total investment and capital
expenditure).
- Electricity Transmission investment and capital expenditure of
GBP169m included work on the 275kV line between Knocknagael and a
new substation at Tomatin plus the construction of new substations
at Fort Augustus, Rothienorman and New Deer, to enable renewable
energy projects to connect to the network.
- Electricity Distribution investment and capital expenditure of
GBP152m consisted primarily of asset replacement and reinforcement
projects, including the replacement of subsea cables and several
overhead line circuits.
-- Further investment in renewable energy in GB and Ireland
totalling GBP125m (20% of the total), GBP104m of which relates to
SSE's equity share of the Beatrice offshore windfarm. Beatrice,
which was officially opened on 28 June, is project-financed and
SSE's equity share is 235MW (40%).
-- SSE's flexible thermal gas-fired power stations will play a
key part in the transition to a low-carbon economy and investment
in thermal generation totalled GBP108m (17% of the total) in the
period, including the Keadby 2 and Ferrybridge Multifuel 2 project
(combined GBP100m), along with development spend on the Slough
Multi-fuel project.
-- A total of GBP25m was invested in Enterprise, predominantly
comprising spend in Telecoms, and GBP36m in SSE group services,
which was mainly on shared IT.
Updating plans and investing efficiently in energy assets that
the UK and Ireland need
SSE's strategy is to create value for shareholders and society
from developing, operating and owning energy and related
infrastructure and services in a sustainable way. Central to this
is investing in assets for which returns are expected to be clearly
greater than the cost of capital. New assets should complement
SSE's existing portfolio of assets and their development and
construction should be governed and executed in an efficient manner
and in line with SSE's commitment to strong financial
management.
Since setting out its plan in May 2018 for total investment and
capital expenditure of around GBP6bn across the five years to March
2023, SSE has been successful in securing CfDs for 2.2GW (net) of
offshore wind generation capacity. SSE's successful projects are
Seagreen (454MW out of a project total of 1,075MW secured a
contract, currently 100% owned by SSE) and Dogger Bank (three
projects totalling 3,600MW, SSE share 50% or 1,800MW). The CfD
auction is currently the subject of a Judicial Review which has
introduced some uncertainty for project owners but, subject to
progress of this legal process, SSE plans to sell down stakes so
its equity share in each CfD project is less than 50% and to
project finance them off its balance sheet. SSE's equity investment
in these projects, net of such sell-downs and project finance is
currently expected to total between GBP1.0bn and GBP1.5bn in the
period to March 2026, although the phasing of this is currently
uncertain.
SSE expects that 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
dividend commitments. Indeed, SSE believes that strict financial
discipline is more important than ever as auctions become an
increasing feature of energy infrastructure provision, and it will
not resort to taking on inappropriate risks or accepting returns on
investment that are financially unsustainable.
By their very nature long term financial plans evolve. While
SSE's May 2018 plan for total investment and capital expenditure
included an assumed 1GW of CfD projects and continued investment by
SSEN Transmission, the assumptions require to be updated to reflect
the opportunities identified in both areas as well as the normal
evolving nature of long-term investment plans in the wider SSE
Group. SSE expects to set out updated capex plans by May 2020 and
will continue with its disciplined approach to investment and focus
on balance sheet strength.
SSE's Hedging Position at 30 September
SSE published 'SSE's Approach to Hedging: May 2019 Update' on 25
May 2019*. This document included SSE's Hedge Position in relation
to its Wind and Hydro generation as at 31 March 2019. The following
table includes an update as at 30 September 2019 showing the hedge
position for full years 2020/21 and 2021/22. To aid understanding,
this table should be read in conjunction with the full 'Approach to
Hedging' document.
*https://sse.com/investors/reportsandresults/media/t14jx1up/sse-approach-to-hedging-may2019-update.pdf
FY20/21 FY21/22
Wind Expected volume TWh 4.7 4.7
============================= ======== ========
Volume hedged % 100% 44%
===================================== ======== ========
Hedge price GBP/MWh GBP46 GBP49
============================= ======== ========
If hedged in September 2019 GBP52 GBP49
============================= ======== ========
Hydro Expected volume TWh 3.4 3.4
============================= ======== ========
Volume hedged % 100% 42%
===================================== ======== ========
Hedge price GBP/MWh GBP48 GBP49
===================================== ======== ========
If hedged in September 2019 GBP53 GBP50
===================================== ======== ========
Adoption of IFRS 16
The Group adopted IFRS 16 "Leases" with effect from 1 April
2019, applying the "modified retrospective" approach whereby
comparative figures are not restated. In adopting this approach,
the results for the six months ended 30 September 2019 are not
directly comparable with those reported in the prior period under
the previous applicable accounting standard IAS 17 "Leases".
For the Adoption impact, the disclosures given in the notes to
the financial statements are:
Adoption of IFRS 16 (including SSE's share of joint ventures)
resulted in adjusted operating profit for the six months to 30
September 2019 increasing by GBP8.7m, offset by increased adjusted
interest costs of GBP8.5m, resulting in a GBP0.2m net improvement
in adjusted profit before tax.
At 30 September 2019, including additions during that period,
the net value of additional right-of-use assets under IFRS 16
totalled GBP206.6m with a corresponding lease liability of
GBP238.7m.
The revised presentation of lease payments under IFRS 16 results
in a GBP24.9m improvement in net cash flows from operating
activities and a corresponding deterioration in net cash flows from
financing activities. There is no impact on total cash and cash
equivalents.
Adjusted earnings per share
To monitor its financial performance over the medium term, SSE
reports on its adjusted earnings per share measure. This measure is
calculated by excluding the charge for deferred tax, interest costs
on net pension liabilities, exceptional items, depreciation on fair
value adjustments and the impact of certain re-measurements.
SSE's adjusted EPS measure provides an important and meaningful
measure of underlying financial performance. In adjusting for
depreciation on fair value adjustments, non-recurring joint venture
refinancing costs, exceptional items and certain re-measurements,
adjusted EPS reflects SSE's internal performance management, avoids
the volatility associated with mark-to-market IFRS 9
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. For more detail on these and other adjusted
items please refer to the Adjusted Performance Measures section of
this report.
In the six months to 30 September 2019, SSE's adjusted earnings
per share on continuing operations was 18.0 pence, compared to 16.4
pence for the six months to 30 September 2018. This reflects the
movements in adjusted operating profit outlined in the section
above, offset by higher adjusted net finance costs and a higher tax
charge reflecting the effective current tax rate increasing from
6.9% to 12.0% as explained in the Taxation section below.
Summarising the impact of Movements on Derivatives
Operating derivatives
SSE enters into forward purchase contracts (for power, gas and
other commodities) to meet the future demands of its energy supply
businesses and to optimise the value of its Generation assets and
its investments in Gas Production. Some of these contracts are
determined to be derivative financial instruments under IFRS 9 and
as such are required to be recorded at their fair value as at the
date of the financial statements.
SSE shows the change in the fair value of these forward
contracts separately as this mark-to-market movement does not
reflect the realised operating performance of the businesses. The
underlying value of these contracts is recognised as the relevant
commodity is delivered, which for the large majority of the
position at 30 September 2019 is expected to be in the next 18
months.
The GBP154.6m IFRS 9 positive movement on operating derivatives
in the six months to 30 September 2019 arose mainly from an
improvement in the 'out of the money' fair value of forward gas
contracts.
Financing derivatives
In addition to the profit recognised on operating derivatives,
there were losses of GBP69.9m recognised on the remeasurement of
financing derivatives at 30 September 2019. This loss is
predominately due to lower interest rates on long term interest
rate swaps, partially offset by lower exchange rates on cross
currency swaps and FX contracts due to weaker Sterling against the
Euro and dollar. These remeasurements are also presented separately
as they do not represent underlying business performance in the
period. The result on financing derivatives will be recognised in
adjusted profit before tax when the derivatives are settled.
Exceptional Items
In the six months to 30 September 2019, SSE recognised a net
exceptional charge of GBP675.1m before tax. The following table
provides a summary of the key components making up the net charge
position:
Exceptional Items Exceptional Items Exceptional Items Total
(continuing operations) (discontinued operations) GBPm
GBPm GBPm
SSE Energy Services related
costs and impairment (52.5) (489.1) (541.6)
----------------------------- ----------------------------- ------------------------
Fiddler's Ferry (98.7) - (98.7)
----------------------------- ----------------------------- ------------------------
Legacy IT write-offs (41.2) - (41.2)
----------------------------- ----------------------------- ------------------------
Other 6.4 - 6.4
----------------------------- ----------------------------- ------------------------
Total exceptional items (186.0) (489.1) (675.1)
----------------------------- ----------------------------- ------------------------
The Group recorded an exceptional impairment of GBP489.1m on its
SSE Energy Services business which reflects an adjustment to the
carrying value of the assets, to reflect the agreement of the sale
of the business to OVO. The impairment includes costs expected to
be incurred to complete the disposal of the business.
For a full description of the net exceptional credit see note 6
of the Summary Financial Statements.
Reported Profit/(Loss) Before Tax and Earnings Per Share
Reported results for the year to 30 September 2019 are
significantly higher than those for the same period last year;
mainly due the GBP154.6m IFRS 9 positive movement on operating
derivatives in the six months to 30 September 2019 compared to the
negative GBP565.4m movement for the same period in 2018. This arose
mainly from an improvement in the fair value of forward gas
contracts.
Dividend
Remunerating shareholders' investment through payment of
dividends
SSE's strategy is to create value for shareholders and society
from developing, operating and owning energy and related
infrastructure and services in a sustainable way.
The first financial objective of this strategy is to remunerate
shareholders' investment through the payment of dividends. SSE
believes that its dividends should be sustainable, based on the
quality and nature of its assets and operations; the earnings
derived, and the value created, from them; and the longer-term
financial outlook.
In line with this, and reflecting the underlying quality and
value of its assets and earnings, the cash flows they deliver and
the value that can be created from them, SSE's plan for the
remainder of its five- year dividend plan to March 2023 as set out
in May 2018 is as follows:
-- For 2019/20, SSE's intention is to recommend a full-year
dividend of 80 pence per share, with an interim dividend of 24
pence per share to be paid on 13 March 2020; and
-- For 2020/21, 2021/22 and 2022/23 SSE is targeting annual
increases in the full-year dividend that at least keep pace with
RPI inflation.
SSE's principal joint ventures and associates
SSE's financial results include contributions from equity
interests in joint ventures ("JVs") and associates, all of which
are equity accounted. The details of the most significant of these
are included in the table below. This table also highlights SSE's
share of off-balance sheet debt associated with its equity
interests in JVs, which, including SGN, is just over GBP2.5bn as at
30 September 2019.
SSE principal JVs and Asset type SSE holding SSE share of external SSE Shareholder loans
associates debt as at 30 Sept 2019 as at 30 Sept 2019
Seabank Power 1,140MW CCGT 50% No external debt No loans outstanding
========================= ============ ======================== ========================
Marchwood Power 840MW CCGT 50% No external debt GBP65m
========================= ============ ======================== ========================
Clyde Windfarm 522MW onshore wind farm 50.1% No external debt GBP127m
(Scotland)
========================= ============ ======================== ========================
Walney (UK) Offshore 367MW offshore wind farm 25.1% No external debt No loans outstanding
Windfarms
========================= ============ ======================== ========================
Doggerbank Wind Farms Up to 1,200MW offshore 50% No external debt GBP24m
wind farm each. Up to
3,600MW total
========================= ============ ======================== ========================
Scotia Gas Networks Gas distribution network 33.3% GBP1,572m GBP109m
========================= ============ ======================== ========================
Ferrybridge Multifuel 68MW multifuel 50% No external debt GBP98m
Energy
========================= ============ ======================== ========================
Ferrybridge Multifuel 70MW multifuel 50% No external debt GBP142m
Energy 2
========================= ============ ======================== ========================
Beatrice Offshore 588MW offshore wind farm 40% GBP949m GBP17m (Primarily
Windfarm Ltd project financed)
========================= ============ ======================== ========================
105MW onshore windfarm
(part of Galway Wind
Cloosh Valley Wind Farm Park) 25% EUR36m Project financed
========================= ============ ======================== ========================
SSE Telecoms Private telecoms network 50% No external debt GBP27m
========================= ============ ======================== ========================
Stronelairg Windfarm 228MW onshore wind farm 50.1% No external debt GBP89m
========================= ============ ======================== ========================
Dunmaglass Windfarm 94mw onshore windfarm 50.1% No external debt GBP47m
========================= ============ ======================== ========================
Greater Gabbard, a 504MW offshore windfarm (SSE share 50%) is
proportionally consolidated and is reported as a Joint Operation
with no loans outstanding.
SSE's share of Clyde windfarm reduced to 50.1% from 65% in May
2018.
SSE's share of Cloosh windfarms reduced to 25% from 50% in March
2019.
SSE's share of SSE Telecoms reduced to 50% in March 2019.
SSE's share of Stronelairg and Dunmaglass windfarms reduced to
50.1% in March 2019
Financial management and balance sheet
Debt metrics Sept 19 Mar 19 Sept 18
GBPm GBPm GBPm
=========== ========== ==========
Adjusted net debt and hybrids (GBPm) (10,338.9) (9,437.0) (9,960.3)
=========== ========== ==========
Average debt maturity (years) 7.0 7.0 7.3
=========== ========== ==========
Adjusted interest cover (excluding SGN) times 1.8 2.8 1.9
=========== ========== ==========
Adjusted interest cover (including SGN) times 2.0 2.8 2.0
=========== ========== ==========
Average interest rate for the period excluding JV/assoc. interest and all hybrid
coupon payments) 3.22% 3.28% 3.52%
=========== ========== ==========
Average cost of debt at period end (including all hybrid coupon payments) 3.60% 3.70% 3.79%
=========== ========== ==========
Net finance costs Reconciliation Sept 19 Sept 18 Sept 17
GBPm GBPm GBPm
======== ======== ========
Adjusted net finance costs 228.5 201.9 176.6
======== ======== ========
Add/(less):
======== ======== ========
Lease interest charges (18.5) (14.3) (15.4)
======== ======== ========
Notional interest arising on discounted provisions (7.8) (8.8) (8.1)
======== ======== ========
Hybrid equity coupon payment 46.5 46.6 57.4
======== ======== ========
Adjusted finance costs for interest cover calculation 248.7 225.4 210.5
======== ======== ========
SSE Principal Sources of debt funding Sept 19 Mar 19 Mar 18
Bonds 48% 46% 49%
======== ======= =======
Hybrid debt and equity securities 21% 22% 23%
======== ======= =======
European investment bank loans 12% 12% 13%
======== ======= =======
US private placement 8% 9% 10%
======== ======= =======
Index -linked debt & short-term funding 11% 11% 5%
======== ======= =======
% of total SSE borrowings secured at a fixed rate 89% 88% 90%
======== ======= =======
Rating Agency Rating Criteria Date of Issue
Moody's Baa1 stable outlook 'Low teens' Retained Cash Flow/Net Debt September 2019
==================== ========================================= ===============
Standard and Poor's BBB+ outlook stable About 18% Funds From Operations/Net Debt September 2019
==================== ========================================= ===============
Maintaining a strong balance sheet
As a long-term business, SSE believes it should maintain a
strong balance sheet, illustrated by its commitment to robust
ratios for both Retained Cash Flow (RCF)/Net debt and Funds From
Operations (FFO)/Net debt. 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.
In September 2019, both Moody's and Standard and Poor's affirmed
SSE's credit rating:
-- Moody's - Baa1 stable outlook, consistent with guideline
RCF/Net debt ratio of around 11% in 2018/19 and 2019/20 and
thereafter trending towards the low teens in percentage terms;
and
-- Standard and Poors - BBB+ outlook stable, consistent with
guideline FFO/Net debt ratio of about 18%
SSE's current credit ratings are still amongst the strongest
held by private sector utilities across Europe. With a high-quality
portfolio of assets, an increasing focus on renewable sources of
energy and regulated electricity networks, and a wide variety of
options for the future, SSE is confident it can maintain credit
rating metrics that are sustainable and consistent with an ability
to secure funding from debt investors at competitive rates; and
will remain focused on them as it develops its updated plans for
investment following the CfD auctions.
Adjusted net debt and hybrid capital
SSE's adjusted net debt and hybrid capital was GBP10.3bn at 30
September 2019, up from GBP9.4bn at March 2019, reflecting the
on-going capital investment programme, share buybacks and debt
revaluations adjustments partially offset by shareholder loans and
dividends received following the refinancing of the Beatrice
offshore windfarm.
Adjusted net debt is expected to be around GBP10.4bn at March
2020; reflecting the cash inflow from the sale of Energy Services
to OVO and some proceeds from the sale of a stake in Seagreen but
excluding the proceeds from the planned sale of gas production
assets.
As SSE have previously outlined, opportunism and agility will
continue to be important and investment expenditure and net debt
can always be impacted if there are opportunities to create value
from disposing of assets, or from further investments or
acquisitions.
The debt revaluation adjustment, of GBP311.4m as at 30 September
2019 (up from GBP139.1m at 31 March 2019) relates to
marked-to-market movements on cross-currency swaps and floating
rate swaps that are classed as hedges under IAS39. The debt
revaluation increase was driven by both Sterling and Euro weakness
against the US Dollar partially offset by lower interest rates
during the half year to 30 September 2019. The hedges ensure that
any movement in the value of net debt is predominately offset by a
movement in the derivative position.
The debt revaluation increase was driven by both Sterling and
Euro weakness against the US Dollar partially offset by lower
interest rates during the half year to 30 September 2019. The
hedges ensure that any movement in the fair value of net debt is
predominately offset by a movement in the derivative position.
Adjusted net debt excludes finance leases and includes
outstanding liquid funds that relate to wholesale energy
transactions. A reconciliation of adjusted net debt and hybrid
capital to reported net debt is provided in the table headed
Adjusted Net Debt and Hybrid Capital in the Alternative Performance
Measures section of this statement.
Hybrid Bonds summary as at 30 September 2019
Value GBPm equivalent Coupon Rate per annum Accounting Treatment First Call Date
- parts are issued in
EUR and $
Hybrid Equity Bonds GBP1.2bn All in rate 4.01% Equity accounted GBP750m September
March 2015 2020 & GBP450m April
2021
====================== ====================== ===================== ======================
Hybrid Debt Bonds GBP1bn All in rate 3.02% Debt accounted September 2022
March 2017
====================== ====================== ===================== ======================
Further details on each hybrid bond can be found in notes 13
& 14 to the Summary Financial Statements and a table noting the
amounts, timing and accounting treatment of coupon payments is
shown below.
Hybrid coupon payments 19/20 18/19
HYa FYa HYa FYe
------- ------- ------- -------
Total equity (cash) accounted GBP47m GBP47m GBP47m GBP47m
------- ------- ------- -------
Total debt (accrual) accounted GBP15m GBP30m GBP15m GBP30m
------- ------- ------- -------
Total hybrid coupon GBP62m GBP77m GBP62m GBP77m
------- ------- ------- -------
SSE's March 2015 Hybrid Bonds are perpetual instruments and are
therefore accounted for as part of equity within the Financial
Statements but, as in previous years, have been included within
SSE's 'Adjusted net debt and hybrid capital' to aid comparability.
The March 2017 Hybrid Bonds have a fixed redemption date, are
therefore debt accounted and included within Loans and Other
Borrowings; and are already part of SSE's adjusted net debt and
hybrid capital.
The coupon payments relating to the March 2015 equity accounted
hybrid bonds are presented as distributions to other equity holders
and are reflected within adjusted earnings per share when paid. The
coupon payments on the March 2017 debt accounted hybrid bonds are
treated as finance costs under IFRS.
SSE has confirmed that the criteria applied by the Rating
Agencies, Moody's and Standard and Poor's, will result in broadly
the same value of hybrid equity treatment as that of previous
years.
Managing net finance costs
SSE's adjusted net finance costs, including interest on debt
accounted hybrid bonds but not equity accounted hybrid bonds, were
GBP228.5m in the six months to 30 September 2019, compared to
GBP201.9m for the same period in 2018. This reflected higher net
debt during the year and higher JV interest costs.
Reported net finance costs were GBP218.6m, compared to
GBP100.0m, reflecting a mark-to-market loss on financing
derivatives of GBP69.9m in the period compared to a gain of
GBP39.6m in the prior period and increased underlying interest
costs due to higher net debt.
Excluding the impact of IFRS 16 (accounting for leases),
adjusted net finance costs in 2019/20 are expected to increase to
just over GBP450m reflecting additional JV interest costs from
Beatrice and lower capitalised interest.
Summarising cash and cash equivalents
At 30 September 2019, SSE's adjusted net debt included cash and
cash equivalents of GBP0.2bn, down from GBP0.5bn at March 2019.
Since 31 March 2019, the cash collateral value has decreased by
GBP106.2m to GBP238.0m at 30 September 2019. The decrease relates
to the unwind of collateral required to cover out of the money
commodity positions.
The cash and cash equivalents total presented on the
consolidated balance sheet does not include GBP75.0m relating to
the SSE Energy Service Group which is presented within assets held
for disposal within the Summary Financial Statements.
Focusing on effective financial management: debt issuance and
treasury facilities in 2019/20
In September 2019, Scottish Hydro Electric Transmission plc
(which trades as SSEN Transmission) successfully issued its
inaugural Green Bond, a 16 year/GBP350m euro bond maturing
September 2035 with a coupon of 2.25% and an all-in funding cost of
2.39%. This bond was the SSE group's third Green Bond in three
years, affirming SSE as the largest issuer of Green Bonds from the
UK corporate sector. In addition, SSE is the only UK corporate to
offer up multiple benchmark sized tranches in the Sterling and Euro
markets. This will continue to help SSE to take a leading role in
supporting the transition towards a low-carbon future, through its
plans to continue to invest in renewable energy and reaffirm its
position as a leader in renewable sources of energy.
In October 2019 SSE completed the refinancing of the GBP200m
Bank of China facility to bring it line with the GBP1.3bn RCF that
was refinanced in March. The facility was extended to 2024 with two
one-year extension options and the margin was reduced from 50bps to
35bps, which saves GBP100k in commitment fees annually. Both
facilities are now classified as sustainable facilities with
interest rate and fees paid dependant on SSE's performance in
environmental, social and governance matters, as assessed
independently by Vigeo Eiris. In September 2019 Vigeo Eiris
published their updated ESG Score for SSE, which has improved
significantly to 62, from 51 the previous year, which resulted in
the sustainability clauses on the refinanced GBP1.3bn RCF and
GBP200m Bank of China facilities being triggered, reducing the
margin on both by 2.5bps.
Refinancing over the medium term
Following the debt issued in September 2019 (referenced above)
SSE's next significant potential refinancing milestones are:
-- GBP492m of short-term Commercial Paper due to mature by March
2020 which SSE intends to keep at similar levels on a rolling
basis
-- June 2020 when it will redeem its EUR600m/2% coupon bond; and
-- September 2020 which is the first call date for the
GBP750m/3.875% coupon equity accounted Hybrid.
Maintaining a prudent Treasury policy
SSE's treasury policy is designed to be prudent and flexible. In
line with that, cash from operations is first used to finance
regulatory and maintenance capital expenditure and then dividend
payments, with capital and investment expenditure for growth
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 30 September 2019, 89% of SSE's borrowings were at
fixed rates.
Borrowings are mainly in Sterling and Euros to reflect the
underlying currency denomination of assets and cash flows 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 portfolio management 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; hedging in respect of such
exposures is determined as appropriate to the circumstances on a
case-by-case basis.
Ensuring a strong debt structure through medium and long-term
borrowings
Ability to raise funds at competitive rates is fundamental to
investment. SSE's fund-raising over the last five years, including
hybrid capital and term loans, now totals GBP6.2bn and SSE's
objective is to maintain a reasonable range of debt maturities. Its
average debt maturity, excluding hybrid securities, at 30 September
2019 was 7.0 years, unchanged since March 2019. This reflects SSE's
recent debt issuance, which has taken advantage of the best value
on the maturity curve; and SSE's average cost of debt is now
3.7%.
SSE's debt structure remains strong, and on 31 March 2019 it had
around GBP9.5bn of medium/long term borrowings in the form of
issued bonds, European Investment Bank debt, hybrid securities and
other loans.
Going concern
The Directors regularly review the SSE Group's funding structure
and have assessed that the Summary Financial Statements should be
prepared on a going concern basis. In making their assessment the
Directors have assessed the forecast future cashflows of the SSE
Group taking account of the expectation of continued available
liquidity in the commercial paper market. In addition, the SSE
Group still has significant headroom on its committed borrowing
facilities while the next significant refinancing of external debt
is not due until 2020.
Operating a Scrip Dividend Scheme
The renewal of SSE's Scrip Dividend Scheme was approved by
shareholders at its 2018 AGM. The Scrip Dividend Scheme gives
shareholders the option to receive new, fully paid ordinary shares
in the Company in place of their cash dividend payments. The Scrip
Dividend Scheme gives the Company greater flexibility in managing
its capital resources by retaining cash within the business.
In May 2018 SSE announced that, if Scrip take-up of the
full-year dividend exceeded 20%, it intended to buy back shares so
that its dilutive effect is not excessive, starting with the
2018/19 full year dividend.
Taking account of subscription to the Scrip dividend over both
the interim and final dividends, uptake of the 2018/19 dividend was
35%, made up of:
-- 47% for the 2018/19 interim dividend; and
-- 30% for the 2018/19 final dividend.
SSE therefore, on 27 August 2019, announced its intention to
initiate a share buyback, in the period following the final
dividend payment for the year ended 31 March 2019. The number of
ordinary shares to be purchased will not exceed 13,420,470 ordinary
shares, and the maximum pecuniary amount allocated to the Scrip
buy-back is GBP150m. SSE has commenced this buy-back which it
intends to complete by 31 March 2020 and as at 6 November 2019,
4.7m shares had been repurchased.
SSE believes limiting the dilutive effect of the Scrip in this
way strikes the right balance in terms of giving shareholders
choice, potentially securing cash dividend payment savings and
managing the number of additional shares issued.
Taxation
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 was the first 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 always to operate within both the
letter and spirit of the law .
For reasons already stated above, SSE's focus is on adjusted
profit before tax, and in line with that, SSE believes that the
adjusted current tax charge on that profit is the tax measure that
best reflects underlying performance. SSE's adjusted current tax
rate for FY 2019/20, based on adjusted profit before tax, is
forecast to be 12.0%, as compared with 1.1% in FY 2018/19 on the
same basis, and after prior period adjustments.
In 2018/19, SSE had prior period tax credits - through the carry
back of tax losses and truing up of earlier year tax returns -
totalling GBP106.9m, which exceeded the tax charge in the year. The
adjusted current tax charge and prior period tax credits for
2019/20 are expected to be more in line with previous years.
SSE expects to be accredited with the Fair Tax Mark for the
sixth consecutive year in the coming weeks and will also publish
its fourth Talking Tax booklet outlining what tax is paid, and
where.
Pensions
Contributing to employees' pension schemes - IAS 19 Sept 19 Sept 18 Sept 17
GBPm GBPm GBPm
Net pension scheme asset recognised in the balance sheet before deferred tax 403.9 381.7 163.3
Employer cash contributions Scottish Hydro Electric scheme 5.2 10.8 15.3
======== ======== ========
Deficit repair contribution included above - 5.8 7.0
======== ======== ========
Employer cash contributions Southern Electric scheme 34.0 33.8 36.4
======== ======== ========
Deficit repair contribution included above 24.5 23.8 22.9
======== ======== ========
During the period the Group began the triennial valuation of the
Southern Electric Pension Scheme which is expected to be complete
by 31 March 2020. At 30 September 2019 the Scottish Hydro Electric
Pension Scheme is in surplus on an IAS 19 basis by GBP587.1m.
Together with the deficit in the Southern Electric scheme of
GBP183.2m this results in the net surplus of GBP403.9m for both
schemes shown in the table above. From 1 October 2019 the Group has
agreed with the Trustees of the Scottish Hydro Electric Pension
Scheme to cease funding contributions for a period until the
surplus on a funding basis is negative for two successive quarters.
The Group also converted a longevity swap covering c.GBP800m of
liabilities of 2,235 pensioners and dependents to a buy-in
contract. The buy-in contract removes the Group's exposure to
volatility in the liabilities of these members as future benefit
payments will be funded by the third-party re-insurer.
Additional information on employee pension schemes can be found
in Note 17 to the Summary Financial Statements.
SSEN TRANSMISSION
SSEN Transmission key performance indicators
ELECTRICITY TRANSMISSION Sept 19 Sept 18
======== ========
Transmission adjusted and reported operating profit - GBPm 110.1 127.4
======== ========
Regulated Asset Value (RAV) - GBPm 3,406 3,259
======== ========
Renewable Capacity connected to SSEN Transmission Network - GW 6.3 6.0
======== ========
Transmission adjusted Capital expenditure - GBPm 168.6 185.2
======== ========
SSEN Transmission overview
SSEN Transmission, operating as Scottish Hydro Electric
Transmission plc, owns, operates and develops the high voltage
electricity transmission system in the north of Scotland and remote
islands. Ofgem sets price controls (which in future will be for
five-year periods) under the RIIO (Revenue = Incentives +
Innovation + Outputs) framework for electricity transmission
companies. The RIIO T1 price control will end in 2021, to be
followed by a new, RIIO T2 price control.
Since the start of the eight-year RIIO-T1 price control in 2013,
investment and capital expenditure by SSEN Transmission has
totalled around GBP2.8bn, including GBP168.6m in the six months to
30 September 2019. This investment plays a pivotal role in
providing the critical national infrastructure required to
facilitate the transition to a decarbonised energy system.
In the remaining 18 months of RIIO-T1, total planned investment
of over GBP500m means the business is on track to increase its RAV
to around GBP3.6bn by 2021. In addition to the base rate of return
on the RAV of SSEN's transmission assets, RIIO-T1 allows additional
revenue to be earned through financial incentives based on
efficient use of total expenditure (totex). Anticipated totex
savings over the course of RIIO-T1 will be shared equally between
SSEN Transmission, supporting future earnings, and electricity
customers, through lower charges than would otherwise have been the
case.
Maintaining network reliability
In the six months to 30 September 2019, SSEN Transmission
continued to maintain an impressive network reliability of over
99.9%, with faults that impacted end users resulting in a loss of
demand totalling just 1.15MWh. This was largely due to a lightning
strike that affected around 5,000 demand customers in Dounreay,
with all supplies restored within around one hour.
SSEN Transmission therefore remains firmly on track to perform
well in relation to the Energy Not Supplied (ENS) Incentive, which
provides a financial reward to companies, on a sliding scale, if
the volume of energy not supplied to customers due to faults is
below a pre-determined annual target, which for SSEN Transmission
is 120MWh. If faults result in annual losses of demand over 120MWh,
a financial penalty will be applied. The outcome of the ENS
Incentive, reward or penalty, will impact on earnings in
2021/22.
SSEN has an ongoing programme of maintenance and refurbishment
to ensure its critical national infrastructure assets continue to
deliver for electricity customers, generators and wider
society.
Delivering the transition to net zero
SSEN Transmission's north of Scotland operating area is expected
to play a critical role in the transition to net zero, with the
region home to some of the UK's greatest resources of renewable
electricity. Renewable electricity generation capacity connected to
SSEN Transmission's network has grown from 3.3GW at the start of
RIIO-ET1 price to over 6GW today and it is on track to grow to over
6.5GW by the end of RIIO-T1 in 2021.
In the six months to 30 September 2019, SSEN connected around
40MW of new renewable electricity generation, with a further 100MW
due to connect in the second half of the year.
While a relative slowdown in the connections in the remaining
years of RIIO-T1 is expected, SSEN Transmission expects the
installed renewable capacity in the north of Scotland to increase
to at least 10GW in RIIO T2, the equivalent of powering 10 million
homes and playing a pivotal role in UK net zero targets, as well as
supporting future earnings and RAV growth.
SSEN Transmission will continue to work collaboratively with its
customers to deliver timely and efficient connections to its
network, supported by its new stakeholder engagement strategy and
connections policy, which will drive more focus on innovative and
flexible connections, delivered in greater collaboration with
customers and other stakeholders.
Delivering a programme of capital investment
In the six months to 30 September 2019, SSEN Transmission
completed the Fort Augustus to Fort William overhead line
refurbishment on time and on budget securing future electricity
supplies in the area as well as increasing the capacity of the line
to support the growth in renewables. SSEN Transmission also
completed the 275kV line between Knocknagael and a new substation
at Tomatin enable renewable energy projects to connect to the
network.
SSEN Transmission continues to have a healthy pipeline of
capital investment programmes for the remaining 18 months of
RIIO-T1. With a total planned investment of GBP500m in the
remaining years of RIIO-T1, the delivery of SSEN Transmission's
capital investment programme will support future earnings and RAV
growth. This includes the following projects which are on track to
be delivered in the remaining years of RIIO-T1.
SSEN continues to make good progress with the new 400kV
substation at Fort Augustus, a key component to support the growth
in renewables unlocked by the Beauly to Denny line that was
completed in 2015.
Construction of new substations at New Deer and Rothienorman are
also under way, supporting the forecast growth in offshore wind in
the north east of Scotland. Both substations will initially operate
at 275kV, increasing to 400kV as part of the wider east coast
onshore reinforcements that are scheduled for RIIO-T2.
In July 2019, planning consent was granted for the Inveraray to
Crossaig transmission line in Argyll. This replacement of the
existing transmission line is essential to maintaining security of
supply in the area. Construction of the first phase of this
project, which will run from Inveraray to Port Ann, is under way,
with the second phase, from Port Ann to Crossaig, to be delivered
in RIIO-T2.
Being ready to connect Scotland's island groups
SSEN Transmission continues to work with stakeholders across the
three Scottish island groups to take forward proposals to provide
transmission connections to enable the connection of renewable
electricity generation schemes. Together, the three links could
provide an investment opportunity of around GBP1.5bn for SSEN
Transmission.
In September 2019, Ofgem approved SSEN Transmission's Needs Case
for the Orkney link, subject to Orkney renewable developers meeting
a number of conditions no later than December 2021.
In October 2019, Ofgem published an update on both the Shetland
and Western Isles Needs Cases, in which it has requested additional
information to enable it to make a decision. This includes
provision of alternative evidence to demonstrate generator
commitment in the absence of sufficient generation securing a CfD.
SSEN Transmission will now work with all parties to provide Ofgem
the information it requires to make a timely decision on both Needs
Cases.
SSEN Transmission will continue to engage constructively to take
forward its proposals in a timely manner, as soon as developer
commitment and all necessary regulatory and planning approvals are
confirmed.
Addressing concerns about competition in transmission
SSEN continues to deliver 'native' competition through the
highly competitive tendering of all major supply chain works
associated with SSEN Transmission's projects, ensuring the
continued economic and efficient delivery of SSEN's capital
investment programme.
SSEN Transmission is committed to working constructively with
the Electricity System Operator (ESO), and other stakeholders as
part of the ESO's development of competition for the RIIO-T2 price
control period. As part of this, SSEN continues to believe that any
further extension of competition in onshore transmission should be
underpinned by legislation and should only be considered where it
can be clearly demonstrated that it does not compromise the
security and operation of GB's critical national electricity
infrastructure and provides better value to consumers.
In October 2019, Ofgem published a consultation setting out its
updated minded-to position not to apply its Competition Proxy Model
to National Grid Electricity Transmission's Hinkley-Seabank (HSB)
project.
Making a strong, stakeholder-led case for A Network for Net
Zero
In June SSEN Transmission published its draft business plan for
the RIIO-T2 price control, A Network for Net Zero. It details a
'Certain View' which set out that a minimum total expenditure of
GBP2.2bn is required over the five-year price control period to
maintain and grow the north of Scotland transmission network to
meet the needs of current and future electricity generators and
customers. Following consultation with stakeholders, this is now
set to be closer to GBP2.4bn.This could see the Regulatory Asset
Value of SSEN Transmission increase to over GBP5bn by 2026,
excluding any contribution from island links.
A significant proportion of the investments planned in the
RIIO-T2 price control period are to grow the network to accommodate
forecast growth in electricity generation in the north east of
Scotland, particularly from offshore wind. This is expected to
contribute to an increase in the installed capacity of renewable
electricity generation in the north of Scotland to at least 10GW by
the end of RIIO-T2.
SSEN Transmission has worked closely with stakeholders in
developing its plan and welcomes the strong support reflected by
stakeholders for its June draft Business Plan. SSEN Transmission is
now preparing to submit its final business plan to Ofgem in
December 2019, which will reflect all feedback received from this
extensive programme of consultation, as well as refinements on
costs, projects in SSEN's 'Certain View' and wider industry and
regulatory changes. In summary, SSEN Transmission continues to
believe there is a strong case for its plan for A Network for Net
Zero.
SSEN DISTRIBUTION
SSEN Distribution key performance indicators
ELECTRICITY DISTRIBUTION Sept 19 Sept 18
======== ========
Electricity distribution adjusted and reported operating profit - GBPm 150.8 166.9
======== ========
Regulated Asset Value (RAV) - GBPm 3,642 3,511
======== ========
Distribution adjusted capital expenditure - GBPm 152.4 163.5
======== ========
Electricity Distributed TWh 17.4 17.8
======== ========
Customer minutes lost (SHEPD) average per customer 26.0 29.3
======== ========
Customer minutes lost (SEPD) average per customer 23.2 26.9
======== ========
Customer interruptions (SHEPD) per 100 customers 27.9 36.1
======== ========
Customer interruptions (SEPD) per 100 customers 24.3 27.9
------------------------------------------------------------------------ -------- --------
SSEN Distribution overview
SSEN Distribution, operating under licence as Scottish Hydro
Electric Power Distribution (SHEPD) and Southern Electric Power
Distribution (SEPD) is responsible for maintaining and developing
the electricity distribution networks supplying over 3.8 million
homes and businesses across central southern England and north of
the central belt of Scotland.
Ofgem sets price controls (which in future will be for five-year
periods) under the RIIO (Revenue = Incentives + Innovations +
Outputs) framework for electricity distribution companies. The RIIO
ED1 price control runs until 2023; the RIIO ED2 price control will
run from 2023 to 2028.
Prioritising delivery in the regulatory framework
SSEN Distribution aims to be as efficient and effective as
possible and earn returns that are fair to customers and
shareholders alike. In line with the regulatory framework, the
business continues to target a leading position in the delivery of
outputs against its RIIO-ED1 business plan and performance against
the key areas of the RIIO ED1 incentive framework.
Financial performance in the first half of 2019/20 represents a
mixed picture for SSEN Distribution. Although performance against
RIIO-ED1 incentives was improved in key areas and will flow through
into future years, adjusted operating profit for the first six
months of 2019/20 was down compared with the same period in
2018/19.
SSEN Distribution continues to pursue measures to improve its
business performance, including the introduction of a revised
internal operating model to deliver performance improvements within
the current price control and set the business up for success in
RIIO-ED2. This new model allows for greater focus on front-line
activity, including improved response to customer supply
interruptions and reductions in the duration and costs of network
faults. It will also drive efficient delivery of the Capex
programme and targeting of investment to maximise both network and
financial performance.
Improvements in Interruptions Incentive Scheme (IIS)
performance
Under the IIS, SSEN is incentivised on its performance against
the loss of electricity supply through the recording of Customer
Interruptions (CI) and Customers Minutes Lost (CML), which include
both planned and unplanned supply interruptions. These incentives
will typically be collected two years after they are earned.
An investment in technology and a focus on fault response has
driven significant improvements in SSEN Distribution's performance
against the IIS in the first six months of the financial year with
fewer customers interrupted due to the roll out of additional
network automation schemes and efforts to sectionalise the
network.
In the SHEPD region, the level of Customer Interruptions (CI)
fell to 27.9 (a 23% improvement on 2018/19) and Customer Minutes
Lost (CML) fell to 26.0 (an 11% improvement on 2018/19). In the
SEPD region, IIS performance is also ahead of regulatory targets,
with a CI performance of 24.3 (13% improvement on 2018/19) and CML
performance of 23.2 (14% improvement on 2018/19).
This improved position was aided by the ongoing implementation
of the new regional operating model that is centred around
improvements to operational efficiency and an increased focus on
fault response. This new model will be implemented in all SEPD and
SHEPD regions during the remainder of 2019/20.
Prioritising delivery for customers and stakeholders
SSEN is incentivised on its customer performance under the
'Broader Measure' customer satisfaction incentive and on the
timeliness of its delivery for connections customers. These
incentives will typically be collected two years after they are
earned.
SSEN Distribution has performed strongly against its customer
satisfaction incentive target in the first six months of the
financial year. Through improvements to regional customer service
delivery and the introduction of 'customer first' engagement
approach, it is on target to deliver an increased incentive reward
in relation to FY19/20.
Delivery for connections customers also remains on track.
Despite a planned toughening of regulatory incentive targets for
2019/20, performance against the Time to Quote (TTQ) and Time to
Connect (TTC) has improved and incentives remain in line with the
good performance in 2018/19.
SSEN continues to place customer and stakeholders at the heart
of its decision making, ensuring they play a pivotal role in
informing and influencing SSEN's strategy, activities and
policies.
In October 2019, Ofgem announced its decision not to penalise
SSEN Distribution under the penalty only Incentive on Connections
Engagement (ICE). This is the fourth consecutive year SSEN has
avoided a penalty since its introduction at the beginning of the
RIIO ED1 Price Control period.
This followed confirmation in July that SSEN Distribution will
gain no financial reward from the Stakeholder Engagement and
Customer Vulnerability (SECV) Incentive. Improvement against this
incentive is a priority as SSEN prepares for the next assessment
period in April 2020.
Delivering a major programme of capital investment
SSEN Distribution continues to undertake a major capital
investment delivery programme across both of its networks, which
will deliver significant improvements for customers, and increased
RAV on which to earn fair returns.
In the six months to 30 September 2019, SSEN Distribution
invested a total of GBP152.4m, bringing the total invested since
the beginning of the RIIO-ED1 Price Control to over GBP1.3bn. This
is part of a forecast investment of GBP2.6bn throughout the RIIO
ED1 period, supporting future earnings through RAV growth.
Securing additional allowances for subsea cables and rail
electrification
SSEN Distribution successfully applied for additional allowances
for maintenance and replacement of subsea cable assets, receiving
confirmation from Ofgem in September 2019 that it will receive an
extra GBP45.2m (2012/13 prices). This 'reopener' will allow the
business to recover additional submarine cable costs in the north
of Scotland, predominantly during the 2021/22 financial year.
In October 2019, Ofgem confirmed that SHEPD would not receive
the additional GBP30.0m allowance in (in 2012/13 prices) that it
applied for under the High Value Project uncertainty mechanism. The
additional allowances had been requested to fund the replacement of
the existing Pentland Firth East subsea cable. Although SSEN
Distribution remains disappointed with this decision, it is wholly
committed to maintaining security of supply on Orkney and will
explore all available regulatory mechanisms to fund the cable
replacement.
Ofgem also confirmed it would grant SEPD an allowance adjustment
of GBP16.0m (2012/13 prices) on its application under the Rail
Electrification Costs reopener submitted to recover costs
associated with the electrification of the Great Western Railway.
This benefit of this adjustment will flow through from the 2021/22
financial year.
A whole system recommendation for Shetland
SSEN Distribution is awaiting a formal response from Ofgem on
its proposal to share the cost of the transmission link to
Shetland, which is required to meet the islands' energy needs.
Ofgem has indicated its decision will be announced in November 2019
and if the proposal is accepted, SSEN Distribution will contribute
GBP251m towards the link, based upon the value of services it would
provide to its local distribution network across the Shetland
Islands. If the recommendation is not accepted an alternative, and
most likely much more expensive, solution will be required.
Making progress on the flexibility transition
SSEN Distribution has made significant progress in the
transition to a smart, flexible electricity system through
trialling innovative technologies and alternative network
solutions. The business is investing in the Distribution System
Operator (DSO) model which is key to electrification of transport
and heat, and which offers RAV growth over the long term.
Progress with Project Local Energy Oxfordshire (LEO), one of the
most wide-ranging, innovative, and holistic smart grid trials ever
conducted in the UK, has been welcomed by Innovate UK in its 2nd
quarterly review. Innovate UK manages the UK's Industrial Strategy
Fund, from which LEO received GBP13.8m of funding. The project,
which has a total value of GBP40m, will run until 2022.
The award-winning Solent Achieving Value from Efficiency (SAVE)
project concluded in June 2019 and demonstrated how customer
engagement and energy efficiency interventions can provide
cost-effective flexibility to the system and support an equitable
transition to DSO. The learnings from SAVE have led to the creation
of Social Constraint Managed Zones (SCMZ) to add to the existing
suite of Constraint Managed Zone (CMZ) tenders that SSEN offers,
allowing energy efficiency programmes to compete against other
flexible solutions.
These tenders provide opportunities for smart energy technology
to compete with traditional forms of network management. In
October, SSEN took an important step in the flexibility transition
placing its first economically viable CMZ contracts for a total of
6MW worth of services on the Isle of Islay.
Accelerating preparations for the electrification of
transport
In September 2019, SSEN Distribution entered into GBP7.5m
strategic partnership with the Scottish Government and Scottish
Power Energy Networks to help plan and develop the infrastructure
required for the electrification of transport in Scotland.
As part of the partnership, SSEN will lead an E-Tourism project,
that seeks to understand how the infrastructure for areas that
experience seasonal fluctuations in population can cost-efficiently
accommodate these changing demands in EV charging in the
future.
SSEN will continue to use these partnerships and associated
trials to help the regulator and government ensure that electricity
network infrastructure keeps pace with growing electrification.
Central to this will be to the need for anticipatory investment in
the network, based on robust evidence and modelling. SSEN will
continue to make the case for changes to the regulatory framework
to allow for this critical early investment.
Preparing for RIIO-ED2
SSEN Distribution continues to prepare for the next price
control period (RIIO ED2), responding to Ofgem's Open Letter RIIO
ED2 Consultation in October 2019. In its response, SSEN stated the
next price control must reflect the central role that DNOs will
have in facilitating the transition to a low-carbon economy while
highlighting the need for strategic investment to prepare for the
extensive electrification of transport, and heat. SSEN is calling
for a balanced price control where the financial parameters under
which networks operate are based on evidence and represent a fair
package for current and future customers.
In July 2019, SSEN Distribution appointed Tracey Matthews as the
chair of its ED2 Customer Engagement Group (CEG). The purpose of
the CEG is to challenge SSEN through the ED2 planning process,
providing an opportunity for SSEN to respond, before the group
submits a report to Ofgem on SSEN's performance. The CEG will meet
quarterly and comprises a cross section of representatives to
provide a balanced and accurate reflection of the differing views
and priorities that SSEN's ED2 plans must address.
SSEN Distribution continues to engage constructively with Ofgem
and remains optimistic that a package that is fair to customers,
investors and all other stakeholders, is possible.
INVESTMENT IN SCOTIA GAS NETWORKS (SGN)
SGN key performance indicators
SCOTIA GAS NETWORKS (SGN) Sept 19 Sept 18
SSE's 33.3% share
========
SGN adjusted operating profit (SSE's share) - GBPm 102.1 85.4
======== ========
SGN reported operating profit (SSE's share) - GBPm 54.5 38.6
======== ========
Regulated Asset Value - GBPm 1,949 1,870
======== ========
SGN overview
SSE owns a 33% investment stake in SGN, the gas distribution
company that serves 5.9m homes and businesses in Scotland, the
south of England and Northern Ireland. SGN is widely recognised as
the best gas network on customer service and a leader on innovation
and new technologies. Providing a safe and reliable supply is a key
priority for the company and in the first half of this financial
year 98% of uncontrolled gas escapes were attended in under an
hour.
As well as having the highest levels of customer satisfaction
among its peers, customer complaints have fallen drastically, by
76% since 2013. In the six months to 30 September the company
delivered 8,528 new connections, including 1,403 assisted
connections as part of efforts to help those in fuel poverty.
The sector expects far-reaching decisions to be made on future
heat policy in the next few years and SGN's research along with the
development and demonstrations of greener gas projects will provide
the vital evidence needed to help support these complex decisions
and help resolve any uncertainty about the future of the UK's gas
networks.
Preparing for RIIO-GD2
SGN is currently developing its business plan for the RIIO-GD2
gas distribution price control which begins on 1 April 2021. This
ambitious plan is built on extensive stakeholder engagement and
commits SGN to making a positive impact on society, delivering a
safe and efficient service and contributing to net zero goals by
accelerating decarbonised solutions and minimising environmental
impact.
SSE RENEWABLES
SSE Renewables key performance indicators
Sept 19 Sept 18
Renewable adjusted operating profit - GBPm 149.9 78.4
========== =========
Renewable reported operating profit - GBPm 106.4 151.1
========== =========
Renewable adjusted capital expenditure and investment - GBPm 125.2 244.9
========== =========
RENEWABLE GENERATION CAPACITY - MW
========== =========
Pumped storage capacity (GB) - MW 300 300
========== =========
Conventional hydro capacity (GB) - MW 1,159 1,150
========== =========
Onshore wind capacity (GB) - MW 1,247 1,180
========== =========
Onshore wind capacity (NI) - MW 141 141
========== =========
Onshore wind capacity (ROI) - MW 567 594
========== =========
Offshore wind capacity (GB) - MW 579 344
========== =========
Total renewable generation capacity (inc. pumped storage) - MW 3,993 3,709
========== =========
Renewable capacity qualifying for ROCs - MW c2,160 c2,000
========== =========
GENERATION OUTPUT - GWh
========== =========
Pumped storage output - GWh 112 111
========== =========
Conventional hydro output - GWh 1,301 1,040
========== =========
Onshore wind output GB - GWh 1,089 991
========== =========
Onshore wind output NI - GWh 126 102
========== =========
Onshore wind output ROI - GWh 569 593
========== =========
Offshore wind output - GWh 848 441
========== =========
Total renewable generation (inc. pumped storage) - GWh 4,045 3,278
========== =========
Note 1: Capacity is wholly-owned and share of joint ventures
Note 2: Electricity output is based on SSE 100% share of wholly owned sites
Note 3: Onshore wind output excludes 161GWh of constrained off generation in HY2019/20 and
225GWh in HY2018/19; Offshore wind output excludes 0.2GWh of constrained off generation in
FY2019/20 and nil in HY2018/19
Note 4: Increase in hydro capacity is due to a review as part of the internal Operating Model
improvements and is not related to the delivery of additional hydro plant
Note 5: Onshore wind capacity in GB reflects Stronelairg coming on line December 18 and the
subsequent part disposal of it and Dunmaglass in March 19. ROI onshore wind capacity reflects
the part disposal of Cloosh in March 19.
Note 6: Offshore wind capacity increase due to Beatrice coming on line May 2019
Note 6: Biomass capacity and output at Slough excluded as now part of the Enterprise business
SSE Renewables overview
On 1 April 2019, SSE consolidated all its renewable energy
assets in the UK and Ireland under the single banner of SSE
Renewables. The business is led by Managing Director, Jim Smith,
and has brought together SSE's existing operational assets and
those under development in onshore wind, offshore wind, flexible
hydro electricity, run-of-river hydro electricity and pumped
storage.
Renewable energy is one of the primary routes for achieving
decarbonisation across energy, transport and heat in the UK,
Ireland and further afield. SSE Renewables is a core part of the
SSE group and central to its future growth plans. By 2030, SSE
Renewables aim to develop and build enough renewable energy
capacity to treble annual output of renewable electricity to 30TWh.
Further decarbonisation of electricity, heat and transport - on the
scale envisaged by the UK Committee on Climate Change's May 2019
report - relies on a significant scaling up of renewable sources of
electricity, which SSE Renewables is well equipped to play a key
part in delivering.
Onshore wind
SSE Renewables' onshore wind capacity stands at 1,955MW. Its
onshore development pipeline consists of over 1GW of potential new
build projects. This includes around 700MW of capacity with consent
for development, some of which it is seeking to optimise through
planning amendments to accommodate more advanced turbine
technology. The current focus is on Gordonbush Extension (38MW),
which received revised consent from Scottish Ministers in November
2019. The revised consent will see enable SSE Renewables to
maximise the energy generation potential and efficiency of the
site, improving the project's economics. SSE Renewables will now
consider the options for a route to market for the project -
including the viability of building the project subsidy-free -
ahead of taking a final investment decision.
Other priority onshore projects include Strathy South (133MW),
Tangy re-power (up to 49MW), and on others requiring consent, such
as Doraville (139MW) in Northern Ireland.
With no current policy support mechanism in place in the UK, the
aim is to attempt to deliver into operation new onshore wind farms
without subsidy, where it is possible to do so. With the volume of
onshore wind envisioned to meet the UK's net zero targets, it is
unlikely that merchant projects alone will be able to deliver at
this scale; therefore, some form of policy support will need to be
re-introduced in the medium to long term.
Viking Wind Farm (up to 457MW), located on Shetland, was
unsuccessful in the UK Government's Contracts for Difference
Allocation Round 3 (CfD AR3), the results of which were announced
in September 2019. Viking is an important project that will
ultimately contribute to Scottish and UK net zero goals and will
also underpin a new transmission link to the remote islands,
providing security of clean energy supply and transformative
economic benefits to island communities. Despite the CfD result,
SSE Renewables remains committed to progressing Viking.
SSE Renewables noted the update published by Ofgem on 23 October
2019 setting out its intention to consider a revised needs case for
the new transmission link for Shetland. A timely final decision
from Ofgem on Scottish Hydro Electric Power Distribution's proposed
contribution towards the new transmission link for Shetland is
critical for Viking to progress to a final investment decision.
In Ireland, the Department of Communication, Climate Action and
Environment has confirmed that it intends to run the first auction
under the new Renewable Electricity Support Scheme (RESS) in June
2020. The auction pre-qualification process is expected to begin in
December 2019. Successful projects are expected to be awarded
contracts for up to 15 years of support. SSE Renewables is
considering which of its projects might be eligible to participate
in the auction.
Offshore wind
The Beatrice offshore wind farm (588MW - SSE Renewables' share
40%) reached full operation in May 2019. Phase 1 CfD payments
started on 6 November 2018 and Phase 2 on 28 April 2019. SSE
Renewables operates and maintains the entire asset on behalf of the
joint venture, Beatrice Offshore Windfarm Ltd.
All the eligible offshore projects in which SSE Renewables has
an interest, shown in the table below, were awarded 15-year
contracts in CfD AR3. Outside the 15-year CfD period, the
successful offshore wind projects will be important assets with
significant earnings capacity anticipated over their operational
lifetimes.
Project CfD Contract Strike Price (2012 Delivery
Capacity prices) Year
Dogger Bank Creyke 1,200MW GBP39.65/MWh 2023/2024
Beck A
------------- ------------------- ----------
Dogger Bank Creyke 1,200MW GBP41.61/MWh 2024/2025
Beck B
------------- ------------------- ----------
Dogger Bank Teesside 1,200MW GBP41.61/MWh 2024/2025
A
------------- ------------------- ----------
Seagreen Phase 1 454MW GBP41.61/MWh 2024/2025
------------- ------------------- ----------
Dogger Bank Wind Farms, located off the North East coast of
England, is a joint venture with Equinor in which SSE Renewables
has a 50% stake. The three successful Dogger Bank projects are each
expected to generate over 5,000GWh of electricity annually.
Following the outcome in the auction, the JV will now progress
towards a final investment decision for all three projects by late
2020. SSE Renewables will lead the development and construction
phases of the Dogger Bank Wind Farm project(s) and Equinor will
lead on operations.
The following preferred suppliers for Dogger Bank Creyke Beck A
and B have been announced:
Contract Preferred supplier
Turbines GE
-------------------
Turbine installation Jan de Nuul
-------------------
HVDC equipment ABB
-------------------
HVDC platform Aibel
-------------------
Export cable NKT
-------------------
Seagreen Phase 1, located in the Firth of Forth off the Scottish
coast, has a total capacity of 1,075MW across its 'Alpha' and
'Bravo' projects and is expected to generate around 5,000GWh of
electricity annually. The CfD contract represents 42% of the total
project capacity, although SSE Renewables is planning to build out
the project to 1,075MW capacity. Currently wholly-owned by SSE
Renewables, Seagreen Phase 1 is at an advanced stage of development
and securing a CfD is a significant step in taking the project
forward. Plans are in place to progress financing and an equity
stake sell-down to move towards a final investment in 2020. SSE
Renewables will set out a further project timeline in due
course.
The following preferred suppliers for Seagreen have been
announced to date:
Contract Preferred supplier
Turbines MHI Vestas Offshore Wind
-------------------------
O&M base Montrose Port
-------------------------
Cable package Nexans
-------------------------
SSE Renewables organised Meet the Buyer events in Aberdeen,
Inverness and Dundee in early November. These events were aimed at
facilitating engagement between companies operating in Scotland and
the appointed Tier 1 suppliers to enable businesses to understand
the opportunities on offer and prepare to bid for contracts.
SSE Renewables acknowledges that an application has been made by
a third party against the Department for Business, Energy and
Industrial Strategy (BEIS) for a judicial review in relation to the
CfD auction process. BEIS has publicly stated that it will defend
the claim. SSE Renewables is in regular dialogue with the UK
Government and the Low Carbon Contracts Company in relation to this
challenge and believes that they are committed to securing a
positive resolution to this issue. SSE Renewables continues to
monitor the situation closely.
The Crown Estate's Leasing Round 4 opened in October and will
offer seabed rights for at least 7GW of new offshore wind projects
in the waters around England and Wales. The pre-qualification
process runs until January 2020 with the invitation to tender
stages to follow throughout 2020 and agreements for leases with
successful bidders announced by Autumn 2021. The Crown Estate
Scotland's ScotWind leasing process is expected to launch after the
publication of Marine Scotland's draft Sectoral Marine Plan, which
is expected in Autumn 2019. SSE Renewables is reviewing its options
for participating in both processes.
SSE Renewables welcomed the announcement of a Q2 2021 offshore
auction amongst other commitments within the Irish Government's
Climate Action Plan designed to achieve 1GW of offshore wind by
2025 and 3.5GW by 2030. SSE Renewables believes offshore wind must
play a significant role in enabling Ireland to meet its 70%
renewable electricity target by 2030 and in Arklow Bank has a
high-quality project capable of helping Ireland achieve its
ambitions in offshore wind.
SSE Renewables' operational offshore portfolio consists of:
Asset Capacity SSE Renewables Share Status
Walney (UK) 367MW 25% Operational
--------- --------------------- --------------------
Greater Gabbard 504MW 50% Operational
(UK) (Operated
by SSE Renewables)
--------- --------------------- --------------------
Beatrice (UK) 588MW 40% Operational
(Operated
by SSE Renewables)
--------- --------------------- --------------------
SSE Renewables' future offshore development pipeline consists
of:
Project Capacity SSE Renewables Status
Share
Arklow Bank (ROI) 800MW 100% Consented and
in development
-------------- --------------- ----------------
Seagreen Phase 2 Up to 3,200MW 100% In development
& 3 (UK)
-------------- --------------- ----------------
Greater Gabbard Up to 500MW 50% In development
Extension (UK)
-------------- --------------- ----------------
Hydro
SSE Renewables owns and operates the largest energy storage
capacity in the UK, comprising 750MW of flexible hydro and 300MW of
pumped storage, as well as 400MW of run-of-river hydro. Its hydro
fleet is uniquely placed in the GB system to deliver large-scale
power that is both flexible and zero-carbon. Optimising and
enhancing this hydro resource is critical to supporting the
electricity market and to enabling the transition to a net zero
world by supporting the integration of high levels of renewables
onto the electricity grid.
Hydro's performance continues to be supported by additional
focus on using the inherent flexibility of the assets to provide
support to the grid during low periods and a higher utilisation of
the storage and catchment within hydro.
SSE Renewables' hydro assets also provide a valuable option to
the System Operator, which can take advantage of hydro's
flexibility to meet system requirements. Additional revenue
opportunities for hydro come from providing these grid
services.
The hydro fleet has high levels of availability and continues to
perform reliably and efficiently with relatively low levels of
operational expenditure supported by a proactive, long-term capital
investment programme. These investments are being made across the
hydro fleet through SSE Renewables' capital governance programme to
ensure these assets continue to endure over the coming decades.
Deanie (38MW) was recently completed (GBP16m capex) and Grudie
Bridge (18.7MW) is currently undergoing overhaul (GBP16m capex).
This work will extend their operational life beyond a further 30
years and improve the reliability and efficiency of the station.
Following the completion of these works, SSE Renewables will shift
its focus to refurbishing the large-scale cascade hydro stations.
This will increase their flexibility allowing SSE Renewables to
capture more energy from the available water and secure significant
long-term returns.
SSE Renewables' currently has consent for 600MW of pumped
storage at Coire Glas and is awaiting a decision on increasing this
capacity up to 1,500MW. With no other bulk seasonal storage
solution available, pumped storage looks primed to play an
important role in the electricity system in the 2030s and beyond.
As such, SSE Renewables continues to explore the business case for
taking forward Coire Glas.
International
As stated in May 2019, extending SSE Renewables core
competencies in renewable energy to other technologies and
geographies may present significant potential to add to future
growth opportunities. SSE Renewables continues to actively explore
opportunities and assessing whether the right risk/reward balance
can be achieved. With a wealth of opportunities to pursue in the UK
and Ireland, SSE will take time to evaluate all opportunities
carefully, and strict capital discipline will be a feature of any
decisions.
THERMAL GENERATION
Thermal Generation key performance indicators
Sept 19 Sept 18
Thermal adjusted operating (loss)/profit - GBPm 57.8 (3.5)
---------- ---------
Thermal reported operating profit - GBPm (53.3) (12.8)
========== =========
Thermal adjusted capital expenditure and investment - GBPm 108.0 60.1
========== =========
GENERATION CAPACITY - MW
========== =========
Gas- and oil-fired generation capacity (GB) - MW 4,004 3,979
========== =========
Gas- and oil-fired generation capacity (Ire) - MW 1,292 1,292
========== =========
Coal-fired generation capacity - MW 1,455 1,995
========== =========
Multi-fuel capacity - MW 34 34
========== =========
Total thermal generation capacity - MW 6,785 7,300
========== =========
GENERATION OUTPUT - GWh
========== =========
Gas- and oil-fired (inc. CHP) output (GB) - GWh 6,598 8,548
========== =========
Gas- and oil-fired output (Ire) - GWh 1,339 1,553
========== =========
Coal-fired output - GWh 44 344
========== =========
Multi-fuel output - GWh 145 142
========== =========
Total thermal generation - GWh 8,126 10,587
========== =========
Note 1: Capacity is wholly-owned and share of joint ventures
Note 2: Electricity output is based on SSE 100% share of wholly owned sites, 100% share of
Seabank & Marchwood PPAs due to the contractual arrangement and % share multifuel JVs
Note 3: Increase in thermal capacity is due to a review as part of the internal Operating
Model improvements and is not related to the delivery of additional thermal plant
Thermal Generation overview
SSE owns and operates conventional thermal generation and energy
from waste facilities in the UK and Ireland.
SSE's thermal fleet fulfils an important function within the
wider electricity market by providing reliable capacity at scale
and flexibility to respond to market changes and events, for
example, unplanned nuclear outages and periods of low wind or
rain.
SSE's CCGTs are among the most flexible on the GB and Irish
electricity systems and have increasingly created value from their
intra-day flexibility. Demonstrating flexibility in National Grid's
Balancing Mechanism to support the electricity system will remain
an important complementary earnings stream, which varies from year
to year but for SSE's thermal plant can exceed GBP50m per annum.
This flexibility is important in supporting the transition to a
low-carbon electricity system whilst ensuring security of
supply.
Capacity Market
On 24 October 2019 the European Commission confirmed approval
under EU State Aid rules the Capacity Market scheme introduced in
2014 to safeguard security of electricity supplies. Following this
positive decision payments will be reinstated and paid
retrospectively provided capacity obligations have been met.
Capacity Market obligations for future delivery years will also be
upheld.
SSE's thermal assets have been awarded the following capacity
contracts in GB and Ireland through competitive auctions:
Station Asset type Capacity Capacity obligation
Medway (GB) CCGT 735MW To September 2022
SSE 100%
--------------- ---------- ---------------------------
Keadby (GB) CCGT 755MW To September 2022
SSE 100%
--------------- ---------- ---------------------------
Peterhead (GB)* CCGT 1,180MW October 2018 to September
SSE 100% 2019
October 2021 to September
2022
--------------- ---------- ---------------------------
Seabank (GB) CCGT 1,164MW To September 2022
SSE 50%
--------------- ---------- ---------------------------
Marchwood (GB) CCGT 920MW To September 2022
SSE 50%
--------------- ---------- ---------------------------
Great Island CCGT 464MW To September 2020
(Ire) SSE 100% October 2022 to September
2023
--------------- ---------- ---------------------------
Rhode (Ire) Gas/oil peaker 104MW To September 2020
SSE 100% October 2022 to September
2023
--------------- ---------- ---------------------------
Tawnaghmore peaking Gas/oil peaker 104MW To September 2020
plant Ire) SSE 100% October 2022 to September
2023
--------------- ---------- ---------------------------
Tarbert (Ire) Oil 590MW To September 2020
SSE 100%
--------------- ---------- ---------------------------
* SSE reached agreement in August for the transfer of capacity
contracts from RWE Generation UK's Aberthaw B Power Station
to SSE's Peterhead station for the capacity years 2019/20 and
2020/21. The transfer of the 2019/20 capacity obligations has
now been confirmed by National Grid, with the changeover of
the 2020/21 obligations to be completed when the transfer window
for that year opens.
Bringing an end to coal-fired generation
SSE has announced the closure of its last remaining operational
coal-fired generation units (1,510MW), at Fiddler's Ferry, by 31
March 2020. SSE is committed to reducing by at least 50% the carbon
intensity of the electricity it generates between 2018 and 2030.
The UK Government has committed to phasing out coal-fired power
stations by 2025 and the economics of coal-fired stations have
become increasingly challenged. Demolition of the Ferrybridge 'C'
coal-fired power station is underway and is expected to be complete
in 2021; decommissioning of Fiddler's Ferry will commence following
closure.
Developing opportunities for the future
Construction of Ferrybridge Multifuel 2 (69MW - SSE share 50%)
is on track for completion by the end of November 2019. SSE is also
carrying out site preparation work for a potential new multifuel
plant (up to 50MW) at Slough and continues to evaluate further
opportunities.
Construction of SSE's GBP350m, 840MW CCGT at Keadby 2 in
Lincolnshire, is under way and is expected to be delivered by early
2022. The project, which is adjacent to the existing Keadby CCGT,
will introduce Siemens' first-of-a-kind, high efficiency, gas-fired
generation technology to the UK. SSE intends to participate in
future Capacity Market auctions to secure an agreement for Keadby
2.
SSE has opportunities to develop further thermal power stations,
but these will be consistent with SSE achieving another 50%
reduction in carbon intensity by 2030. Further development options
will be progressed where they have a clear low carbon pathway; SSE
is exploring opportunities and is committed to the medium-term
potential of pre- and post-combustion Carbon Capture, Use and
Storage and Hydrogen to decarbonise flexible thermal
generation.
GAS STORAGE
Gas Storage key performance indicators
GAS STORAGE Sept 19 Sept 18
Gas storage adjusted and reported operating (loss) - GBPm (20.7) (3.7)
======== ========
Gas storage adjusted capital investment - GBPm 1.2 0.0
======== ========
Gas Storage overview
The economic conditions of gas storage remain challenging
however SSE believes its assets can play an important role during
the energy transition. SSE holds around 40% of the UK's
conventional underground gas storage capacity.
Gas storage has increasing importance for security of supply
with the UK's continuing shift away from coal-fired generation,
taking with it the storage inherent in coal stocks.
SSE's gas storage assets are well-placed to provide this service
to energy users; however, in recent years the market has
undervalued this service, making it challenging to cover the cost
of maintaining and operating these assets. SSE believes that the
economics are improving slightly, and it is expected to return to
profit in 2019/20. SSE remains committed to working with UK
Government departments and Ofgem to ensure that the critical role
of UK storage in relation to security of supply and stability of
gas price is properly rewarded.
These assets may also prove useful in the longer-term
decarbonisation of our energy system, potentially able to be
repurposed for other lower carbon gases in the future.
SSE BUSINESS ENERGY
Business Energy key performance indicators
Sept 19 Sept 18
Business Energy adjusted and reported
operating profit - GBPm 2.9 41.6
Business Energy Electricity Sold - GWh 8,345 9,610
======== ========
Business Energy Gas Sold - mtherms 90.2 91.9
======== ========
Aged Debt (Business Energy) - GBPm 48.3 24.5
======== ========
Bad debt expense (Business Energy) - GBPm 14.7 3.0
======== ========
Sept 19 Mar 19
======== ========
Energy customers' accounts (Business Energy
sites) - m 0.55 0.55
======== ========
SSE Business Energy overview
SSE Business Energy supplies energy to business and public
sector customers throughout Great Britain, to a market which
consumes a total of around 180TWh of electricity and 8bn therms of
gas annually. It complements SSE's interests in renewables and
flexible thermal generation, providing a route to market for
electricity output through standard contracts and power purchase
agreements.
SSE Business Energy is now part of the SSE Customer Solutions
Business with new leadership in place. SSE Business Energy
continues to focus on its core market segments, whilst broadening
into related services such as energy optimisation and demand side
response where there is an opportunity to use data and technology
to improve outcomes for customers.
It is responding to regulatory requirements to install smart
meters in order to better serve customers in the future.
SSE AIRTRICITY
SSE Airtricity key performance indicators
Sept 19 Sept 18
Airtricity adjusted and reported operating
profit - GBPm 16.4 12.0
Adjusted capital expenditure (Airtricity) - 0.8
======== ========
Aged Debt (Airtricity) - GBPm 3.1 3.1
======== ========
Bad debt expense (Airtricity) - GBPm 0.7 0.8
======== ========
Sept 19 Mar 19
======== ========
All-Island energy market customers (Ire)
- m 0.72 0.72
======== ========
SSE Airtricity overview
SSE's retail arm in Ireland, SSE Airtricity, is the only retail
energy brand that operates in all markets across the island of
Ireland. Combining power production and energy supply to households
and businesses continues to deliver commercial advantage to energy
customers in Ireland and is a feature of the Irish market.
At 30 September 2019, SSE Airtricity supplied electricity and
natural gas to over 0.7m household and business customer accounts
in the Republic of Ireland (ROI) and Northern Ireland (NI), making
it the second-largest provider of energy and related services in
the combined market.
In the first 6 months SSE Airtricity enjoyed success with its
new multi-award-winning campaign "This is Generation Green". The
campaign speaks to SSE's on-going commitment to working with its
customers to support their decarbonisation journey whether through
lower carbon energy supply, smart technology products or investment
in energy efficiency. This has led to SSE Airtricity's lowest
domestic customer losses. Meanwhile, SSE Airtricity's Energy
Services business continues to perform strongly securing government
funding contributions towards projects with which have a total
value of EUR4.3m for the retrofit of local authority owned social
housing, private domestic customers and businesses. In August,
Airtricity Home Energy announced an increase of its NI electricity
price of 6.9% in response to external costs.
SSE Airtricity continues to focus on helping customers reduce
their carbon output and save on energy costs, offering a range of
energy efficiency and microgeneration products, including the
FarmGen solar microgeneration product in association with
Glanbia.
ENERGY PORTFOLIO MANAGEMENT
EPM key performance Indicators
EPM Sept 19 Sept 18
EPM adjusted operating (loss/profit) - GBPm (113.1) (85.9)
======== ========
EPM reported operating (loss)/profit - GBPm 41.5 (651.3)
======== ========
EPM overview
In Energy Portfolio Management, although the new hedging
approach is now well-established, we saw the continued losses from
last year coming through, with an adjusted operating loss for the
half-year of GBP113.1m. This is consistent with the adjusted
operating loss of between GBP125m and GBP130m that we expect for
the full year.
SSE now generally seeks to hedge its exposure at least 12 months
in advance of delivery and remains on track to have this approach
fully in place from the start of the next financial year. The
Board-level Energy Markets Risk Committee, chaired by Tony Cocker,
is overseeing implementation of the new approach.
GAS PRODUCTION (Held for sale)
Gas Production key performance indicators
GAS PRODUCTION Sept 19 Sept 18
Gas production assets adjusted and reported operating profit/(loss) (discontinued) - GBPm (15.3) 19.3
======== ========
Gas production contracts adjusted and reported operating profit (continuing) - GBPm 31.9 0.0
======== ========
Gas production- M therms 225.4 246.6
======== ========
Gas production- Mboe 4.0 4.4
======== ========
Liquids production - Mboe 0.3 0.3
======== ========
Gas production adjusted capital investment - GBPm 21.7 12.8
======== ========
Technical review carried out annually: Mar 19 Mar 18
======== ========
Proved Plus Probable (2P) - (Bn Th) 1.7 1.9
======== ========
Proved Plus Probable (2P) - (MMboe) 29.7 33.8
======== ========
Gas Production overview
SSE has a diverse equity share in over 15 producing fields
across 25 licences in three regions of the UK Continental Shelf:
the Easington Catchment Area, the Bacton Area and Greater Laggan
Area. The Glendronach gas discovery in 2018 was clearly a positive
development and SSE is working with its partners to extract full
value from the discovery.
Investment in gas production assets is however no longer
consistent with SSE's strategy and focus on decarbonisation, and
these assets are accounted for as held for sale. SSE is hopeful of
a sale in the first half of 2020, leading to removal of significant
decommissioning liabilities, but will only complete a sale if it is
believed to be the right outcome for shareholders.
ENTERPRISE
Enterprise key performance indicators
ENTERPRISE Sept 19 Sept 18
Adjusted Operating Profit 8.2 13.7
======== ========
Reported Operating Profit 5.1 13.7
======== ========
SSE Heat Network Customer Accounts 8,366 8,184
======== ========
Telecoms Number of BT exchanges unbundled 166 137
======== ========
SSE Enterprise overview
The role of Enterprise within SSE Group is to seek out new
opportunities in areas that complement the group's core energy
portfolio, for example EV infrastructure, energy monitoring and
district heating. Enterprise is divided into three business
divisions: Distributed Energy, Telecoms and Contracting &
Rail.
Enterprise has brought together its existing multi-utility and
energy management capabilities into one Distributed Energy business
division to best serve the evolving needs of its customers. For
example, as part of its ambitions in the smart city space, SSE
Enterprise recently announced a partnership with global clean
energy software company Smarter Grid Solutions to develop its
innovative 'Energy as a Service' platform.
There is now a growing need for local energy generation where
Enterprise has corresponding capabilities in flexible generation
and storage, energy consumption, digital platforms and energy
management. This shift in focus within Enterprise towards local
assets and infrastructure is clearly a key priority for the
division.
While the SSE group's strategic focus is increasingly on
decarbonising the energy system, Enterprise's Contracting division
has seen a continued improvement in performance, and in Rail work
has begun on the early CP6 work tendered.
SSE Enterprise Telecoms
SSE Enterprise Telecoms continues to grow its network and
customer base after the unbundling of a further 93 BT exchanges as
well as five new commercial data centres. At the end of 2018,
Infracapital entered into an agreement with SSE plc to buy a 50%
stake in SSE Enterprise Telecoms for a total consideration of up to
GBP380m. This partnership supports SSE Enterprise Telecoms'
commitment to innovation and puts the business in an ideal position
to propel forward its existing projects and partnerships in areas
such as 5G, SD-WAN and smart cities; and in doing so help the UK
realise its digital ambitions.
SSE ENERGY SERVICES (Held for sale)
SSE Energy Services key performance indicators
SSE Energy Services (held for disposal) Sept 19 Sept 18
SSE Energy Services adjusted operating
loss - GBPm (7.4) (62.1)
=============== =================
SSE Energy Services reported operating
loss - GBPm (496.5) (62.1)
=============== =================
Adjusted capital expenditure (SSE Energy
Services) - GBPm - 41.3
=============== =================
Electricity customer accounts (GB domestic)
- m 3.37 3.61
=============== =================
Gas customer accounts (GB domestic) -
m 2.27 2.43
=============== =================
Energy Related Services (GB domestic)
- m 0.51 0.44
=============== =================
Total SSE Energy Services customers -
m 6.15 6.48
=============== =================
Smart Meters on supply Over 1,500,000 Around 1,065,000
=============== =================
Electricity supplied household average
(GB domestic) - kWh 1,460 1,480
=============== =================
Gas supplied household average (GB domestic)
- th 104 98
=============== =================
Aged debt (GB domestic) 117.7 112.5
=============== =================
Bad debt expense (GB domestic) 37.8 22.8
=============== =================
Customer complaints to third parties (GB
Domestic) 706 767
=============== =================
SSE Energy Services summary
SSE Energy Services, comprising SSE's domestic energy supply and
energy-related services businesses in Great Britain, is the
third-largest supplier in the GB energy market.
SSE Energy Services operating margin is being further restricted
in 2019/20, and as previously indicated across the year is likely
to be below 2% due to the impact of the Default Tariff Cap and
intense competition.
On 13 September2019, SSE entered into an agreement to sell SSE
Energy Services to OVO Energy Limited, a wholly owned subsidiary of
OVO Group Limited, at an enterprise value of GBP500m comprising
GBP400m cash and GBP100m in loan notes.
On 24 October the Competition and Markets Authority commenced
Phase 1 of its investigation into the OVO transaction with a
statutory deadline of 40 working days to reach a decision on
whether to clear the deal or refer it to a Phase 2 investigation.
On this basis, and assuming there is no Phase 2 referral,
completion of the OVO transaction is expected in early 2020. The
sale is in line with SSE's long-held view that the best future for
Energy Services lies outside the SSE group and SSE is confident
that this is the best outcome for the business.
The proposed transaction builds on further steps taken during
the first half of 2019/20 to introduce greater separation and
independence for SSE Energy Services while it remains in the SSE
group, including the appointment of Katie Bickerstaffe as Executive
Chair of the business.
The business is therefore operating with greater day-to-day
autonomy while still being subject to oversight by the SSE plc
Board for as long as it remains within the group.
The priority for the new management team has been to ensure the
business has the strongest possible track record as it approaches a
future outside the group, and to that end further progress has been
made on the three key goals outlined in May, namely to: reduce its
operating costs; stabilise customer numbers; and deliver the
benefits of smart metering for both customers and the business.
Against this background, SSE continues to believe that the
planned transaction with OVO Group Limited will ultimately best
serve customers, employees and shareholders.
ALTERNATIVE PERFORMANCE MEASURES
When assessing, discussing and measuring the Group's financial
performance, management refer to measures used for internal
performance management. These measures are not defined or specified
under International Financial Reporting Standards (IFRS) and as
such are considered to be Alternative Performance Measures
("APMs").
By their nature, APMs are not uniformly applied by all preparers
including other participants in the Group's industry. Accordingly,
APMs used by the Group may not be comparable to other companies
within the Group's industry.
Purpose
APMs are used by management to aid comparison and assess
historical performance against internal performance benchmarks and
across reporting periods. These measures provide an ongoing and
consistent basis to assess performance by excluding items that are
materially non-recurring, uncontrollable or exceptional. These
measures can be classified in terms of their key financial
characteristics:
-- Profit measures allow management to assess and benchmark
underlying business performance during the year. They are primarily
used by operational management to measure operating profit
contribution and are also used by the Board to assess performance
against business plan.
-- Capital measures allow management to track and assess the
progress of the Group's significant ongoing investment in capital
assets and projects against their investment cases, including the
expected timing of their operational deployment.
-- Debt measures allow management to record and monitor both
operating cash generation and the Group's ongoing financing and
liquidity position.
Changes to APMs in the period
In the period the Group changed its adjusted profit before tax,
adjusted net finance cost and adjusted earnings per share metrics
to adjust for its share of non-recurring joint venture refinancing
costs incurred in the six months ended 30 September 2019. The
rationale for including this adjustment to these APMs is set out in
adjustment number 8 on page 44.
Impact of IFRS 16 adoption on the Group's APMs
The Group has not adjusted its APMs for the impact of the
adoption of IFRS 16. The impact of adoption of IFRS 16 is explained
fully in the note 3.1 of the Interim Financial Statements. The
Group has applied the modified retrospective approach to adoption
and has not restated comparative information.
Had the Group adjusted its APMs for the impact of adoption at 30
September 2019, adjusted operating profit would be GBP8.7m lower;
adjusted net finance costs would have been GBP8.5m higher; adjusted
profit before tax would have been GBP0.2m lower; and adjusted
earnings per share would have been unchanged.
The following table explains the key APMs applied by the Group
and referred to in these statements:
Closest equivalent Adjustments to reconcile to primary
Group APM Purpose IFRS measure financial statements
Adjusted Profit Operating
EBITDA (earnings measure profit * Movement on operating and financing derivatives
before interest, ('certain re-measurements')
tax, depreciation
and amortisation)
* Exceptional items
* Share of joint ventures and associates' interest and
tax
* Depreciation and amortisation before exceptional
charges (including depreciation and amortisation
expense on fair value uplifts)
* Reversal of IFRIC 18 adjustment on adoption of IFRS
15
* Share of joint venture and associates' depreciation
and amortisation
* Release of deferred income
------------- ------------------- ------------------------------------------------------------
Adjusted Profit Operating
operating measure profit * Movement on operating and financing derivatives
profit ('certain re-measurements')
* Exceptional items
* Depreciation and amortisation expense on fair value
uplifts
* Share of joint ventures and associates' interest and
tax
------------- ------------------- ------------------------------------------------------------
Adjusted Profit Profit before
profit before measure tax * Movement on operating and financing derivatives
tax ('certain re-measurements')
* Exceptional items
* Depreciation and amortisation expense on fair value
uplifts
* Interest on net pension assets/liabilities (IAS 19R)
* Share of non-recurring joint venture refinancing
costs
* Share of joint ventures and associates' tax
------------- ------------------- ------------------------------------------------------------
Adjusted Profit Net finance
net finance measure costs * Movement on financing derivatives
costs
* Share of joint ventures and associates' interest
* Share of non-recurring joint venture refinancing
costs
* Interest on net pension assets/liabilities (IAS 19R)
------------- ------------------- ------------------------------------------------------------
Adjusted Profit Tax charge
current measure * Share of joint ventures and associates' tax
tax charge
* Deferred tax including share of joint ventures and
associates
* Tax on exceptional items and certain re-measurements
* Reclassification of tax liabilities
------------- ------------------- ------------------------------------------------------------
Adjusted Profit Earnings
earnings measure per share * Exceptional items
per share
* Movements on operating and financing derivatives
('certain re-measurements')
* Depreciation and amortisation expense on fair value
uplifts
* Interest on net pension assets/liabilities (IAS 19R)
* Share of non-recurring joint venture refinancing
costs
* Deferred tax including share of joint ventures and
associates
------------- ------------------- ------------------------------------------------------------
Adjusted Debt measure Unadjusted
net debt net debt * Hybrid equity
and hybrid
capital
* Outstanding liquid funds
* Lease obligations
* Cash presented as held for sale
------------- ------------------- ------------------------------------------------------------
Investment Capital Capital additions
and capital measure to Intangible * Other expenditure
expenditure Assets and
(adjusted) Property,
Plant and * Customer funded additions
Equipment
* Allowances and certificates
* Disposed additions
* Joint ventures and associate additions
------------- ------------------- ------------------------------------------------------------
Rationale for adjustments
Adjustments to Profit Measure
1 Movement on operating and financing derivatives ('certain
re-measurements')
This adjustment can be designated between operating and
financing derivatives.
Operating derivatives are contracts where the Group's Energy
Portfolio Management function enters into forward commitments or
options to buy or sell electricity, gas and other commodities to
meet the future demand requirements of the Group's discontinued
Energy Services business and its continuing business energy supply
operating unit, or to optimise the value of its Renewables, Thermal
or discontinued Gas Production assets. Certain of these contracts
are determined to be derivative financial instruments under IFRS 9
and as such are required to be recorded at their fair value.
Changes in the fair value of those commodity contracts designated
as IFRS 9 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 due to the volatility that
can arise on revaluation. 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 24 months.
Conversely, commodity contracts that are not financial instruments
under IFRS 9 are accounted for as 'own use' contracts and are
consequently not recorded until the commodity is delivered and the
contract is settled.
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 entered into by the Group to
manage its banking and liquidity requirements as well as risk
management relating to interest rate and foreign exchange
exposures. Changes in the fair value of those financing derivatives
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 re-measurements arising from operating and financing
derivatives, and the tax effects thereof, are disclosed separately
to aid understanding of the underlying performance of the
Group.
2 Exceptional Items
Exceptional charges or credits, and the tax effects thereof, are
considered unusual by nature or scale and of such significance that
separate disclosure is required for the underlying performance of
the Group to be properly understood. Further explanation for the
classification of an item as exceptional is included in Note 2
(iii).
3 Share of joint ventures and associates' interest and tax
This adjustment can be split between the Group's share of
interest and the Group's share of tax arising from its investments
in equity accounted joint ventures and associates.
The Group is required to report profit before interest and tax
('operating profit') including its share of the profit after tax of
its equity accounted joint ventures and associates. However, for
internal performance management purposes and for consistency of
treatment, SSE reports its relevant adjusted profit measures before
its share of the interest and/or tax on joint ventures and
associates.
4 Share of joint ventures and associates' depreciation and
amortisation
For management purposes, the Group considers EBITDA (earnings
before interest, tax, depreciation and amortisation) based on a
sum-of-the-parts derived metric which includes a share of the
EBITDA from equity accounted investments. While this is not equal
to adjusted cash generated from operating activities, it is
considered useful by management in assessing a proxy for such a
measure, given the complexity of the Group structure and the range
of investment structures utilised.
5 Reversal of IFRIC 18 adjustment on adoption of IFRS 15
The Group has restated the comparative EBITDA figure at 30
September 2017 following the adoption of IFRS 15 on 1 April 2018.
The adoption of the standard changed the way the Group accounts for
electricity distribution connections, therefore the adjusted
measure for September 2017 has been restated to provide a
consistently prepared comparative.
6 Depreciation and amortisation expense on fair value
uplifts
The Group's operating strategy includes securing value creation
from divestments of stakes in certain assets and businesses,
specifically but not exclusively in its Renewables business. Where
SSE's interest in such vehicles changes from full to joint control,
and the joint arrangement is an equity accounted joint venture, SSE
will recognise a fair value uplift on its retained equity
investment. Those uplifts will be treated as exceptional (and
non-cash) gains in the year of the relevant transactions
completing. These uplifts create assets which are depreciated or
amortised over the remaining life of the underlying assets or
contracts in those businesses with the charge being included in the
Group's adjusted depreciation and amortisation expense. The Group's
adjusted operating profit, adjusted profit before tax and adjusted
earnings per share have therefore been adjusted to exclude this
depreciation and amortisation expense from the fair value uplift
given the charges derived from significant one-off gains which are
treated as exceptional when initially recognised.
7 Release of deferred income
The Group deducts the release of deferred income in the year
from its adjusted EBITDA metric as it principally relates to
customer contributions against depreciating assets. As the metric
adds back depreciation, the income is also deducted.
8 Non recurring joint venture refinancing costs
The Group's joint venture investment, Beatrice Offshore Winds
Limited ('BOWL'), completed a refinancing of its debt in the six
months ended 30 September 2019, which resulted in transaction costs
from the original debt of GBP27.2m being expensed to the income
statement of the joint venture. In addition, GBP3.5m of costs
related to the repayment of the original instrument were incurred.
The Group's 40% share of the GBP30.7m expense is GBP12.3m, which
has been adjusted from the Group's adjusted profit before tax and
the Group's adjusted finance costs as refinancing of this scale is
non-recurring and is not representative of normal operations.
9 Interest on net pension assets/liabilities (IAS 19R)
The Group's interest charges relating to defined benefit pension
schemes are derived from the net assets/liabilities of the schemes
as valued under IAS 19R. This will mean that the charge recognised
in any given year will be dependent on the impact of actuarial
assumptions such as inflation and discount rates. To avoid income
statement volatility derived from this basis of measurement and
reflecting the non-cash nature of these charges, the Group excludes
these from its adjusted profit measures.
10 Deferred tax
The Group adjusts for deferred tax when arriving at adjusted
profit after tax, adjusted earnings per share and its adjusted
effective rate of tax. Deferred tax arises as a result of
differences in accounting and tax bases that give rise to potential
future accounting credits or charges. As the Group remains
committed to its ongoing capital programme, the liabilities
associated are not expected to reverse and accordingly the Group
excludes these from its adjusted profit measures.
Adjustments to Debt measure
11 Hybrid equity
The characteristics of certain hybrid capital securities mean
they qualify for recognition as equity rather than debt under IFRS.
Consequently, their coupon payments are presented within dividends
rather than within finance costs. As a result, the coupon payments
are not included in SSE's adjusted profit before tax measure. In
order to present total funding provided from sources other than
ordinary shareholders, SSE presents its adjusted net debt measure
inclusive of hybrid capital to better reflect the Group's funding
position.
12 Outstanding liquid funds
Outstanding liquid funds are SSE cash balances held by
counterparties as collateral at the year end. SSE includes these as
cash until they are utilised for the purposes of calculating
adjusted net debt. Loans with a maturity of less than three months
are also included in this adjustment. The Group includes this
adjustment in order to better reflect the immediate cash resources
to which it has access, which in turn better reflects the Group's
funding position.
13 Leases
On adoption of IFRS 16, SSE's reported loans and borrowings
include lease liabilities, as explained in note 3.1, which are not
directly related to the external financing of the Group. The Group
excludes these liabilities from its adjusted net debt and hybrid
capital measure to better reflect the Group's underlying funding
position with its primary sources of capital.
14 Cash presented as held for disposal
A balance of cash has been presented as held for disposal as it
will be disposed of on completion of pending transactions. As the
Group continues to fund the businesses which it holds for disposal
through intercompany loans and borrowings, and will continue to do
so until transactions to dispose of them are completed, the cash
included within these businesses has been included as an adjustment
in the Group adjusted net debt measure.
Adjustments to Capex Measure
15 Other expenditure
Other expenditure primarily represents subsequently derecognised
development expenditure which is excluded to better reflect the
Group's ongoing capital position.
16 Customer funded additions
Customer funded additions represents additions to electricity
and other networks funded by customer contributions. Given these
are directly funded by customers, these have been excluded to
better reflect the Group's underlying investment position.
17 Allowances and certificates
Allowances and certificates consist of purchased carbon
emissions allowances and generated or purchased renewable
obligations certificates (ROCs) and are not included in the Group's
'capital expenditure and investment' APM to better reflect the
Group's investment in enduring operational assets.
18 Additions through business combinations
In the six months ended 30 September 2018, the Group acquired
50% interest in Seagreen Wind Energy Limited (see note 12). On
consolidation of Seagreen, GBP143.4m of development asset was
included in the Group's consolidated intangible assets. This has
been removed from 'adjusted investment and capital expenditure' as
it was not direct capital expenditure by the Group.
19 Additions subsequently disposed
There were no additions subsequently disposed in the six months
ended 30 September 2019. Additions subsequently disposed in the
year ended 31 March 2019 represent capital additions related to
Stronelairg and Dunmaglass windfarms and SSE Telecommunications
prior to their disposal and subsequent recognition as part of SSE's
investment in joint ventures. Additions disposed in the six months
ended 30 September 2017 related to Ferrybridge MFE2 Limited which
was subsequently part-disposed to Wheelabrator Technologies
Inc.
20 Joint ventures and associates' additions
Joint ventures and associates' additions represent direct
funding provided to joint venture and associate arrangements in
relation to capital expenditure projects. This has been included to
better reflect the Group's use of directly funded equity accounted
vehicles to grow the Group's asset base. Project finance raised by
the Group's joint ventures and associates is not included in this
adjustment.
Impact of discontinued operations on the Group's APMs
The following metrics have been adjusted in all periods
presented to exclude the contribution of SSE Energy Services and
the Group's Gas Production operations, which have been presented as
discontinued operations as at 30 September 2019 (see note 9):
Adjusted EBITDA;
Adjusted operating profit:
Adjusted profit before tax;
Adjusted current tax charge; and
Adjusted earnings per share.
'Adjusted net debt and hybrid capital', and 'investment and
capital expenditure' have not been adjusted as the Group continues
to fund the discontinued operations and will continue to do so
until the date of disposal. The discontinued operations have no
external debt and all intercompany funding to the disposal group
continues to eliminate on consolidation, therefore no adjustments
are required to the Group's 'adjusted net finance cost'
measure.
The following table summarises the impact of excluding
discontinued operations from the APMs of the continuing operations
of the Group:
March September September September
2019 2019 2018 2017
GBPm GBPm GBPm GBPm
Adjusted EBITDA of SSE Group (including
2,008.6 discontinued operations) 865.9 769.6 959.9
(140.0) Less: SSE Energy Services 7.4 40.5 (3.9)
(150.5) Less: Gas Production (30.9) (68.6) (68.7)
-------- ------------------------------------------------- ---------- ---------- ----------
1,718.1 Adjusted EBITDA of continuing operations 842.4 741.5 887.3
Adjusted operating profit of SSE Group
1,227.2 (including discontinued operations) 469.2 388.5 589.3
(89.6) Less: SSE Energy Services loss/(profit) 7.4 62.1 7.1
(48.9) Less: Gas Production loss/(profit) 15.3 (19.3) (4.5)
-------- ------------------------------------------------- ---------- ---------- ----------
Adjusted operating profit of continuing
1,088.7 operations 491.9 431.3 591.9
-------- ------------------------------------------------- ---------- ---------- ----------
Adjusted profit before tax of SSE Group
815.3 (including discontinued operations) 240.7 186.6 412.7
(89.6) Less: SSE Energy Services loss/(profit) 7.4 62.1 7.1
(48.9) Less: Gas Production loss/(profit) 15.3 (19.3) (4.5)
-------- ------------------------------------------------- ---------- ---------- ----------
Adjusted profit before tax of continuing
676.8 operations 263.4 229.4 415.3
-------- ------------------------------------------------- ---------- ---------- ----------
Adjusted current tax of SSE Group (including
11.3 discontinued operations) 25.3 (0.3) 38.0
Less: SSE Energy Services current tax
(18.1) credit/(charge) 6.3 0.9 (6.5)
13.9 Less: Gas Production current tax credit/(charge) - 15.3 4.0
-------- ------------------------------------------------- ---------- ---------- ----------
7.1 Adjusted current tax of continuing operations 31.6 15.9 35.5
-------- ------------------------------------------------- ---------- ---------- ----------
Adjusted earnings per share of SSE Group
74.1 (including discontinued operations) 16.4 13.8 31.5
Less: SSE Energy Services loss/(earnings)
(7.0) per share 0.1 6.0 1.4
Less: Gas Production loss/(earnings) per
(6.1) share 1.5 (3.4) (0.8)
-------- ------------------------------------------------- ---------- ---------- ----------
Adjusted earnings per share of continuing
61.0 operations 18.0 16.4 32.1
-------- ------------------------------------------------- ---------- ---------- ----------
The remaining APMs presented on the following pages are
unchanged in all periods presented by the discontinued
operations.
The table below reconciles the adjusted performance measures to
the reported measures of the continuing operations of the
Group.
March September September September
2019 2019 2018 2017
GBPm GBPm GBPm GBPm
1,088.7 Adjusted operating profit 491.9 431.3 591.9
(411.9) Adjusted net finance costs (228.5) (201.9) (176.6)
-------- ------------------------------------------- ---------- ---------- ----------
676.8 Adjusted profit before tax 263.4 229.4 415.3
(7.1) Adjusted current tax charge (31.6) (15.9) (35.5)
669.7 Adjusted profit after tax 231.8 213.5 379.8
-------- ------------------------------------------- ---------- ---------- ----------
(46.6) Hybrid coupon paid (46.5) (46.6) (57.4)
-------- ------------------------------------------- ---------- ---------- ----------
Adjusted profit after tax attributable
to ordinary shareholders for earnings
623.1 per share (EPS) 185.3 166.9 322.4
Number of shares for Earnings per
1,021.7 Share 1,030.4 1,015.7 1,005.3
61.0 Adjusted Earnings per Share (pence) 18.0 16.4 32.1
-------- ------------------------------------------- ---------- ---------- ----------
1,718.1 Adjusted EBITDA 842.4 741.5 887.3
Depreciation, impairment and amortisation,
(519.0) before exceptional charges (263.8) (263.5) (295.0)
Reversal of IFRIC 18 adjustment
- on adoption of IFRS 15 - - 42.6
Depreciation and amortisation expense
2.9 on fair value uplifts 10.3 2.3 3.1
10.2 Release of deferred income 8.7 8.8 8.9
Share of joint ventures and associates'
(123.5) depreciation and amortisation (105.7) (57.8) (55.0)
-------- ------------------------------------------- ---------- ---------- ----------
1,088.7 Adjusted operating profit 491.9 431.3 591.9
-------- ------------------------------------------- ---------- ---------- ----------
1,088.7 Adjusted operating profit 491.9 431.3 591.9
Movement on operating and joint
(327.0) venture financing derivatives 156.6 (564.0) 23.5
1,010.2 Exceptional items (186.0) 21.3 7.9
Depreciation and amortisation expense
(2.9) on fair value uplifts (10.3) (2.3) (3.1)
Share of joint ventures and associates'
(155.4) interest and tax (104.7) (70.9) (68.2)
1,613.6 Reported operating profit 347.5 (184.6) 552.0
-------- ------------------------------------------- ---------- ---------- ----------
676.8 Adjusted Profit before tax 263.4 229.4 415.3
Movement on operating and financing
(371.8) derivatives 86.7 (524.4) (0.5)
1,010.2 Exceptional items (186.0) 21.3 7.9
Depreciation and amortisation expense
(2.9) on fair value uplifts (10.3) (2.3) (3.1)
11.4 Interest on net pension assets/liabilities 4.2 5.4 1.2
Share of joint ventures and associates'
(31.7) tax (16.8) (14.0) (16.0)
Share of non-recurring joint venture
- refinancing costs (12.3) - -
1,292.0 Reported profit before tax 128.9 (284.6) 404.8
-------- ------------------------------------------- ---------- ---------- ----------
411.9 Adjusted net finance costs 228.5 201.9 176.6
44.8 Movement on financing derivatives 69.9 (39.6) 24.0
Share of joint ventures and associates'
(123.7) interest (87.9) (56.9) (52.2)
(11.4) Interest on net pension assets/liabilities (4.2) (5.4) (1.2)
Share of non-recurring joint venture
- refinancing costs 12.3 - -
-------- ------------------------------------------- ---------- ---------- ----------
321.6 Reported net finance costs 218.6 100.0 147.2
-------- ------------------------------------------- ---------- ---------- ----------
7.1 Adjusted current tax charge 31.6 15.9 35.5
Share of joint ventures and associates'
(31.7) tax (16.8) (14.0) (16.0)
Deferred tax including share of
87.6 joint ventures and associates 15.7 27.1 20.0
Tax on exceptional items and certain
(72.9) re-measurement (12.3) (91.7) 1.1
(9.9) Reported tax (credit)/charge 18.2 (62.7) 40.6
---------- ------------------------------------------ ----------- ---------- ----------
(9,437.0) Adjusted net debt and hybrid capital (10,338.9) (9,960.3) (9,275.1)
1,169.7 Hybrid equity 1,169.7 1,169.7 2,209.7
---------- ------------------------------------------ ----------- ---------- ----------
(8,267.3) Adjusted net debt (9,169.2) (8,790.6) (7,065.4)
(344.2) Outstanding liquid funds (238.0) (361.6) (36.7)
(229.3) Lease obligations (453.9) (239.4) (265.5)
(95.2) Cash presented as held for sale (75.0) (86.3) -
(8,936.0) Unadjusted net debt (9,936.1) (9,477.9) (7,367.6)
---------- ------------------------------------------ ----------- ---------- ----------
Investment and capital expenditure
1,422.9 (adjusted) 638.2 783.4 779.5
224.7 Customer funded additions 63.7 50.9 31.7
954.0 Allowances and certificates 253.4 304.8 225.2
143.4 Additions through business combinations 14.5 142.7 -
195.3 Additions subsequently disposed - - 29.9
(292.5) Joint ventures and associates' additions (93.6) (135.5) (44.8)
---------- ------------------------------------------ ----------- ---------- ----------
Capital additions to Intangible
2,647.8 Assets and Property, Plant and Equipment 876.2 1,146.3 1,021.5
---------- ------------------------------------------ ----------- ---------- ----------
1,333.3 Additions to Intangible Assets 370.7 476.2 250.8
Capital additions to Property, Plant
1,314.5 and Equipment 505.5 670.1 770.7
---------- ------------------------------------------ ----------- ---------- ----------
Capital additions to Intangible
2,647.8 Assets and Property, Plant and Equipment 876.2 1,146.3 1,021.5
---------- ------------------------------------------ ----------- ---------- ----------
INTERIM FINANCIAL STATEMENTS
Consolidated Income Statement
for the period 1 April 2019 to 30 September 2019
2019 2018
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
Continuing
operations
Revenue 5 3,052.2 - 3,052.2 3,317.7 - 3,317.7
Cost of sales (2,250.7) 154.6 (2,096.1) (2,570.8) (565.4) (3,136.2)
----------------- ----------------- ----------
Gross profit 801.5 154.6 956.1 746.9 (565.4) 181.5
Operating costs (503.4) (192.4) (695.8) (452.1) (52.9) (505.0)
Other operating
income 3.6 6.4 10.0 14.3 74.2 88.5
Operating
profit/(loss)
before joint
ventures and
associates 301.7 (31.4) 270.3 309.1 (544.1) (235.0)
------------------- ----- ----------------- ----------------- ---------- ----------------- ----------------- ----------
Joint ventures and
associates:
Share of operating
profit 179.9 - 179.9 119.9 - 119.9
Share of interest (87.9) - (87.9) (56.9) - (56.9)
Share of movement
on derivatives - 2.0 2.0 - 1.4 1.4
Share of tax (16.5) (0.3) (16.8) (13.8) (0.2) (14.0)
------------------- ----- ----------------- ----------------- ---------- ----------------- ----------------- ----------
Share of profit on
joint ventures
and associates 75.5 1.7 77.2 49.2 1.2 50.4
----------------- ----------------- ----------
Operating
profit/(loss)
from continuing
operations 5 377.2 (29.7) 347.5 358.3 (542.9) (184.6)
Finance income 7 41.5 - 41.5 41.4 - 41.4
Finance costs 7 (190.2) (69.9) (260.1) (181.0) 39.6 (141.4)
----------------- ----------------- ----------
Profit/(loss)
before taxation 228.5 (99.6) 128.9 218.7 (503.3) (284.6)
Taxation 8 (30.5) 12.3 (18.2) (29.0) 91.7 62.7
----------------- ----------------- ---------- ----------------- ----------------- ----------
Profit/(loss) from
continuing
operations 198.0 (87.3) 110.7 189.7 (411.6) (221.9)
----------------- ----------------- ---------- ----------------- ----------------- ----------
Discontinued
operations
Loss from
discontinued
operations, net
of tax 9 (9.1) (489.1) (498.2) (22.5) - (22.5)
----------------- ----------------- ---------- ----------------- ----------------- ----------
Profit/(loss) for
the period 188.9 (576.4) (387.5) 167.2 (411.6) (244.4)
----------------- ----------------- ---------- ----------------- ----------------- ----------
Attributable to:
Ordinary
shareholders of
the parent 142.4 (576.4) (434.0) 120.6 (411.6) (291.0)
Other equity
holders 46.5 - 46.5 46.6 - 46.6
----------------- ----------------- ---------- ----------------- ----------------- ----------
(Losses)/earnings
per share
Basic
(losses)/earnings
per share (pence) 11 (42.1) (28.6)
Diluted
(losses)/earnings
per share (pence) 11 (42.1) (28.6)
----------------- ----------------- ---------- ----------------- ----------------- ----------
Earnings/(losses)
per share -
continuing
operations
Basic
earnings/(losses)
per share (pence) 11 6.2 (26.4)
Diluted
earnings/(losses)
per share (pence) 11 6.2 (26.4)
----------------- ----------------- ---------- ----------------- ----------------- ----------
The accompanying notes are an integral part of this interim
statement.
Consolidated Income Statement
for the year ended 31 March 2019
Exceptional items and
Before exceptional items and certain re-measure-ments
certain (note 6) Total
re-measure-ments (restated) (i) (restated) (i)
Note GBPm GBPm GBPm
Continuing operations
Revenue 5 7,301.5 - 7,301.5
Cost of sales (5,582.5) (328.2) (5,910.7)
----------------------------- ----------------------------- ----------------
Gross profit 1,719.0 (328.2) 1,390.8
Operating costs (957.9) (86.4) (1,044.3)
Other operating income 41.0 1,096.9 1,137.9
----------------------------- ----------------------------- ----------------
Operating profit before
joint ventures and
associates 802.1 682.3 1,484.4
----------------------------- ----- ----------------------------- ----------------------------- ----------------
Joint ventures and
associates:
Share of operating profit 283.7 (0.3) 283.4
Share of interest (123.7) - (123.7)
Share of movement on
derivatives - 1.2 1.2
Share of tax (31.5) (0.2) (31.7)
----- ----------------------------- ----------------------------- ----------------
Share of profit on joint
ventures and associates 128.5 0.7 129.2
----------------------------- ----------------------------- ----------------
Operating profit 5 930.6 683.0 1,613.6
Finance income 7 87.0 - 87.0
Finance costs 7 (363.8) (44.8) (408.6)
----------------------------- ----------------------------- ----------------
Profit before taxation 653.8 638.2 1,292.0
Taxation 8 (63.0) 72.9 9.9
----------------------------- ----------------------------- ----------------
Profit from continuing
operations 590.8 711.1 1,301.9
----------------------------- ----------------------------- ----------------
Discontinued operations
Profit from discontinued
operations, net of tax 9 150.0 3.8 153.8
----------------------------- ----------------------------- ----------------
Profit for the period 740.8 714.9 1,455.7
----------------------------- ----------------------------- ----------------
Attributable to:
Ordinary shareholders of the
parent 694.2 714.9 1,409.1
Other equity holders 46.6 - 46.6
Earnings per share
Basic earnings per share
(pence) 11 137.9
Diluted earnings per share
(pence) 11 137.9
----------------------------- ----------------------------- ----------------
Earnings per share -
continuing operations
Basic earnings per share
(pence) 11 122.9
Diluted earnings per share
(pence) 11 122.9
----------------------------- ----------------------------- ----------------
(i) 31 March 2019 presentation of exceptional items restated. See note 2 (v)
Consolidated Statement of Other Comprehensive Income
for the period 1 April 2019 to 30 September 2019
Year ended 31 March 2019 Six months ended 30 September 2018
(restated) (i) Six months ended 30 September 2019 (restated) (i)
GBPm GBPm GBPm
(Loss)/profit
1,455.7 for the period (387.5) (244.4)
Other
comprehensive
income:
Items that will
be reclassified
subsequently to
profit or loss:
Net
gains/(losses)
on cash flow
(7.9) hedges 5.0 (7.7)
Transferred to
assets and
liabilities on
(3.6) cash flow hedges 3.1 2.7
Taxation on cash
1.3 flow hedges (0.9) 1.3
------------------------- ----------------- ----------------------------------- -----------------------------------
(10.2) 7.2 (3.7)
Share of other
comprehensive
(loss)/income of
joint ventures
and associates,
(33.5) net of taxation (41.8) 0.7
Exchange
difference on
translation of
foreign
(27.1) operations 30.6 10.9
(Loss)/gain on
net investment
hedge, net of
16.9 taxation (27.0) (14.0)
------------------------- ----------------- ----------------------------------- -----------------------------------
(53.9) (31.0) (6.1)
Items that will
not be
reclassified to
profit or loss:
Actuarial gains
on retirement
benefit schemes,
(61.4) net of taxation 178.5 28.9
Share of other
comprehensive
income of joint
ventures, net of
(5.2) taxation 14.3 11.1
------------------------- ----------------- ----------------------------------- -----------------------------------
(66.6) 192.8 40.0
------------------------- ----------------- ----------------------------------- -----------------------------------
Other
comprehensive
gain/(loss), net
(120.5) of taxation 161.8 33.9
------------------------- ----------------- ----------------------------------- -----------------------------------
Total
comprehensive
(loss)/income
1,335.2 for the period (225.7) (210.5)
------------------------- ----------------- ----------------------------------- -----------------------------------
Attributable to:
Ordinary
shareholders of
1,288.6 the parent (272.2) (257.1)
Other equity
46.6 holders 46.5 46.6
------------------------- ----------------- ----------------------------------- -----------------------------------
1,335.2 (225.7) (210.5)
------------------------- ----------------- ----------------------------------- -----------------------------------
(i) Comparative statement of other comprehensive income restated. See note 2 (v)
Consolidated Balance Sheet
as at 30 September 2019
At
31 March At
2019 30 September 2018
(restated)(i) At 30 September 2019 (restated)(i)
GBPm Note GBPm GBPm
Assets
12,429.4 Property, plant and equipment 12,462.2 13,016.5
990.2 Goodwill and other intangible assets 979.9 662.9
Equity investments in joint ventures and
1,899.0 associates 1,805.6 1,109.3
935.4 Loans to joint ventures and associates 797.8 750.5
0.5 Other investments 0.5 2.9
244.4 Derivative financial assets 16 294.4 333.0
537.7 Retirement benefit assets 17 587.1 518.5
--------------- -------------------
17,036.6 Non-current assets 16,927.5 16,393.6
--------------- --------------------- -------------------
800.3 Intangible assets 218.9 285.5
228.5 Inventories 192.2 200.9
1,836.9 Trade and other receivables 1,671.8 1,651.8
- Current tax asset 51.1 -
431.6 Cash and cash equivalents 90.0 76.7
306.1 Derivative financial assets 16 251.6 390.8
1,864.3 Assets held for sale 9 1,559.5 1,458.2
--------------- --------------------- -------------------
5,467.7 Current assets 4,035.1 4,063.9
--------------- --------------------- -------------------
22,504.3 Total assets 20,962.6 20,457.5
--------------- --------------------- -------------------
Liabilities
697.4 Loans and other borrowings 13 1,293.0 897.5
2,705.2 Trade and other payables 1,718.1 2,008.7
12.5 Current tax liabilities - 86.7
12.2 Provisions 51.1 12.3
796.3 Derivative financial liabilities 16 555.0 1,069.5
1,091.9 Liabilities held for sale 9 1,313.7 831.3
--------------------- -------------------
5,315.5 Current liabilities 4,930.9 4,906.0
--------------- --------------------- -------------------
8,670.2 Loans and other borrowings 13 8,733.1 8,657.1
635.4 Deferred tax liabilities 587.7 612.6
355.4 Trade and other payables 614.4 413.6
1,017.7 Provisions 614.0 823.6
250.6 Retirement benefit obligations 17 183.2 136.8
460.9 Derivative financial liabilities 16 487.4 499.7
--------------- --------------------- -------------------
11,390.2 Non-current liabilities 11,219.8 11,143.4
--------------- --------------------- -------------------
16,705.7 Total liabilities 16,150.7 16,049.4
--------------- --------------------- -------------------
5,798.6 Net assets 4,811.9 4,408.1
--------------- --------------------- -------------------
Equity:
523.4 Share capital 15 524.0 517.2
879.6 Share premium 870.1 885.4
34.8 Capital redemption reserve 43.7 34.8
(105.3) Hedge reserve (139.9) (64.6)
33.1 Translation reserve 36.7 40.2
3,263.3 Retained earnings 2,307.6 1,825.4
--------------- --------------------- -------------------
Equity attributable to ordinary shareholders of
4,628.9 the parent 3,642.2 3,238.4
1,169.7 Hybrid equity 14 1,169.7 1,169.7
--------------- --------------------- -------------------
Total equity attributable to equity holders of
5,798.6 the parent 4,811.9 4,408.1
--------------- --------------------- -------------------
(i) Comparative balance sheets at 31 March 2019 and 30 September
2018 restated as noted at Note 2(v)
Consolidated Statement of Changes in Equity
for the period 1 April 2019 to 30 September 2019
Hedge Total
Share Capital reserve attributable Total
Share premium redemption (restated) Translation Retained to ordinary Hybrid (restated)
capital account reserve (ii) reserve earnings shareholders equity (ii)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2019 (i) 523.4 879.6 34.8 (105.3) 33.1 3,231.9 4,597.5 1,169.7 5,767.2
Total
comprehensive
income for
the period - - - (34.6) 3.6 (241.2) (272.2) 46.5 (225.7)
Dividends to
shareholders - - - - - (700.3) (700.3) - (700.3)
Scrip dividend
related share
issue 9.5 (9.5) - - - 209.2 209.2 - 209.2
Distributions
to Hybrid
equity
holders - - - - - - - (46.5) (46.5)
Share
repurchase (8.9) - 8.9 - - (201.1) (201.1) - (201.1)
Credit in
respect of
employee
share awards - - - - - 10.5 10.5 - 10.5
Investment in
own shares - - - - - (1.4) (1.4) - (1.4)
At 30
September
2019 524.0 870.1 43.7 (139.9) 36.7 2,307.6 3,642.2 1,169.7 4,811.9
-------- -------- ---------- ---------- ----------- -------- ------------ --------- ----------
(i) Opening retained earnings at 1 April 2019 have been reduced
by GBP31.4m following adoption of IFRS 16 (see note 3.1)
(ii) Opening hedge reserve restated as noted at Note 2(v)
Hedge Total
Share Capital reserve attributable Total
Share premium redemption (restated) Translation Retained to ordinary Hybrid (restated)
capital account reserve (i) reserve earnings shareholders equity (i)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2018 511.5 890.3 34.8 (61.6) 43.3 2,598.6 4,016.9 1,169.7 5,186.6
Total
comprehensive
income for
the period - - - (3.0) (3.1) (251.0) (257.1) 46.6 (210.5)
Dividends to
shareholders - - - - - (672.5) (672.5) - (672.5)
Scrip dividend
related share
issue 5.7 (5.7) - - - 141.8 141.8 - 141.8
Distributions
to Hybrid
equity
holders - - - - - - - (46.6) (46.6)
Issue of
shares - 0.8 - - - - 0.8 - 0.8
Credit in
respect of
employee
share awards - - - - - 10.4 10.4 - 10.4
Investment in
own shares - - - - - (1.9) (1.9) - (1.9)
At 30
September
2018 517.2 885.4 34.8 (64.6) 40.2 1,825.4 3,238.4 1,169.7 4,408.1
-------- -------- ---------- ---------- ----------- --------- ------------ -------- ----------
(i) Hedge reserve restated as noted at Note 2(v)
Consolidated Statement of Changes in Equity
for the year ended 31 March 2019
Total equity
attributable
to equity
Hedge Total holders of
Share Capital reserve attributable the parent
Share premium redemption (restated) Translation Retained to ordinary Hybrid (restated)
capital account reserve (i) reserve earnings shareholders equity (i)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2018
(restated)(i) 511.5 890.3 34.8 (61.6) 43.3 2,598.6 4,016.9 1,169.7 5,186.6
Total
comprehensive
income for
the year - - - (43.7) (10.2) 1,342.5 1,288.6 46.6 1,335.2
Dividends to
shareholders - - - - - (973.0) (973.0) - (973.0)
Scrip dividend
related share
issue 11.9 (11.9) - - - 283.1 283.1 - 283.1
Distributions
to Hybrid
equity
holders - - - - - - - (46.6) (46.6)
Issue of
shares - 1.2 - - - - 1.2 - 1.2
Credit in
respect of
employee
share awards - - - - - 15.7 15.7 - 15.7
Investment in
own shares - - - - - (3.6) (3.6) - (3.6)
At 31 March
2019
(restated) 523.4 879.6 34.8 (105.3) 33.1 3,263.3 4,628.9 1,169.7 5,798.6
-------- ------- ---------- ---------- ----------- -------- ------------ -------- ------------
(i) Hedge reserve restated as noted at Note 2(v)
Consolidated Cash Flow Statement
for the period 1 April 2019 to 30 September 2019
Year Six months ended 30 Six months ended 30
ended 31 March 2019 Note September 2019 September 2018
GBPm GBPm GBPm
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Operating profit/(loss) -
1,613.6 continuing operations 5 347.5 (184.6)
Operating (loss)/profit -
113.9 discontinued operations 9 (511.8) (42.8)
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Operating (loss)/profit -
1,727.5 total operations (164.3) (227.4)
Less share of profit of
joint ventures and
(129.2) associates (77.2) (50.4)
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Operating profit before
jointly controlled entities
1,598.3 and associates (241.5) (277.8)
Pension service charges,
(25.5) less contributions paid (15.2) (20.3)
Movement on operating
328.2 derivatives 16 (154.6) 565.4
Depreciation, amortisation,
748.2 write downs and impairments 875.6 316.1
Charge in respect of
employee share awards
20.8 (before tax) 10.5 10.4
Profit on disposal of
(1,122.2) assets and businesses 3.5 (75.9)
(33.9) Release of provisions (6.9) (3.7)
(10.2) Release of deferred income (8.7) (8.8)
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Cash generated from
operations before working
1,503.7 capital movements 462.7 505.4
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Decrease/(increase) in
(3.4) inventories 107.6 24.1
Decrease/(increase) in
(57.6) receivables 491.9 849.5
(116.8) Decrease in payables (382.9) (993.5)
(Decrease)/increase in
23.8 provisions (17.0) 7.5
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Cash generated from
1,349.7 operations 662.3 393.0
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Dividends received from
121.9 investments 121.7 58.3
(251.9) Interest paid (143.0) (117.6)
(43.0) Taxes paid (51.3) (14.6)
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Net cash from operating
1,176.7 activities 589.7 319.1
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Purchase of property, plant
(1,226.4) and equipment (443.7) (672.4)
Purchase of other
(282.4) intangible assets (155.8) (56.2)
20.9 Deferred income received 5.5 3.7
1,145.9 Proceeds from disposals 28.3 203.7
Loans and equity provided
to joint ventures and
(318.0) associates (64.5) (141.9)
Loans and equity repaid by
57.3 joint ventures 197.3 110.1
Purchase of businesses and
(119.8) subsidiaries - -
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Net cash from investing
(722.5) activities (432.9) (553.0)
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Proceeds from issue of
1.2 share capital - 0.8
Dividends paid to the
(689.9) company's equity holders 10 (491.1) (530.7)
Hybrid equity dividend
(46.6) payments 14 (46.5) (46.6)
Employee share awards share
(3.6) purchase 15 (1.4) (1.9)
1,260.0 New borrowings 791.3 766.4
(677.1) Repayment of borrowings (572.9) (26.0)
Settlement of cashflow
(3.6) hedges 3.1 2.7
- Repurchase of own shares 15 (201.1) -
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Net cash from financing
(159.6) activities (518.6) 164.7
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Net decrease in cash and
294.6 cash equivalents (361.8) (69.2)
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Cash and cash equivalents
at the start of period
(including cash presented
232.2 as held for sale) 526.8 232.2
Net decrease in cash and
294.6 cash equivalents (361.8) (69.2)
(95.2) Classified as held for sale (75.0) (86.3)
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Cash and cash equivalents
431.6 at the end of period 90.0 76.7
--------------------- ---------------------------- ----- ---------------------------- ----------------------------
Notes to the Interim Statement
1. Condensed Financial Statements
SSE plc (the Company) is a company domiciled in Scotland. The
Condensed Interim Statements comprise those of the Company and its
subsidiaries (together referred to as the Group).
The financial information set out in these Condensed Interim
Statements does not constitute the Group's statutory accounts for
the periods ended 30 September 2019, 31 March 2019 or 30 September
2018 within the meaning of Section 435 of the Companies Act 2006.
Statutory accounts for the year ended 31 March 2019, which were
prepared in accordance with International Financial Reporting
Standards as adopted by the EU (adopted IFRS), have been reported
on by the Group's auditors and delivered to the Registrar of
Companies. The report of the auditor was (i) unqualified (ii) did
not include reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report and
(iii) did not contain statements under section 498 (2) or (3) of
the Companies Act 2006.
The financial information set out in these interim statements
has been prepared in accordance with the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority and IAS 34
Interim Financial Reporting as adopted by the EU. The interim
financial information is unaudited but has been formally reviewed
by the auditor and its report to the Company is set out on page
83.
These interim statements were authorised by the Board on 12
November 2019.
2. Basis of preparation
These condensed interim statements for the period to 30
September 2019 and the comparative information for the period to 30
September 2018 have been prepared applying the accounting policies
and presentation used in the Group's consolidated financial
statements for the year ended 31 March 2019, with the exception of
(i) IFRS 16 'Leases' which was adopted on 1 April 2019 under the
modified retrospective transition approach with no restatement of
comparative information as set out in Note 3; and (ii) the changes
in presentation of derivatives and in relation to cash flow hedge
contracts as set out in Note 2(v). The accounts give a true and
fair view of the assets, liabilities, financial position and profit
or loss of SSE, or the undertakings included in the consolidation
as a whole. The directors have considered the principal risks for
the next 6 months with no significant changes from those identified
and disclosed in the 31 March 2019 annual report.
(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.
Reconciliations from the reported measures to adjusted measures
along with further description of the rationale for those
adjustments are included in the 'Alternative Performance Measures'
section at pages 42 to 48.
(ii) Going concern
The Directors consider that the Group has adequate resources to
continue in operational existence for the foreseeable future and
the interim statements are therefore prepared on a going concern
basis.
The Directors regularly review the Group's funding structure
(see note 13) to ensure that the Group has the short and long term
funding required. In September 2019 Scottish Hydro Electric
Transmission plc issued its first, and the Group's third, Green
Bond - a sixteen year GBP350m euro bond maturing September 2035
with an all in funding cost of 2.39%. On 3 October 2019 the Group
also completed the refinancing of its GBP200m revolving credit
facility with the Bank of China, aligning the maturity of this
instrument to the Group's GBP1.3bn revolving credit facility
refinanced in March 2019. The total GBP1.5bn facility has maturity
date of 2024, with two one year extension options. The next
substantial tranche of debt does not mature until June 2020.
(iii) Exceptional items and certain re-measurements
Exceptional items are those charges or credits that are
considered unusual by nature and/or 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 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 and
provisions in relation to contractual settlements following
significant disputes and claims. The Directors consider that any
individual 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. Impairments of intangible
development projects as part of the normal course of business are
not considered exceptional.
Certain re-measurements arise 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. The amounts shown in the
before exceptional items and certain re-measurements results for
these contracts is the amount settled in the period. This excludes
commodity contracts not treated as financial instruments under IFRS
9 where held for the Group's own use requirements which are not
recorded until the underlying commodity is delivered.
2. Basis of preparation (continued)
(iv) 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.
(v) Changes to presentation - prior year adjustments
Three separate prior year adjustments have been made to reflect
the restatement of certain financial statement line items and
balances. These adjustments either have no impact, or a limited
impact on retained earnings, net assets or adjusted performance
measures of the Group, at any reporting date.
Net presentation of financial instruments and deferred taxation
balances - restatement of prior period balance sheets
Following the March 2019 IFRS Interpretations Committee (IFRIC)
agenda decision on the accounting treatment applied to the physical
settlement of contracts to buy or sell a non-financial item, the
Group reviewed the balance sheet presentation for EPM commodity
trades. Whilst this review reconfirmed that the net presentation
approach for the income statement applied by the Group from 1 April
2018 for EPM commodity trades was consistent with the IFRIC
pronouncement, it has been subsequently identified that the
majority of these commodity trades will, in time, be settled on a
'net' basis with counterparties.
Previously, trade receivables and payables resulting from
commodity trades were presented on a 'gross' basis on the balance
sheet, as if each underlying trade was individually cash settled.
In accordance with the requirements of IAS32 'Financial
Instruments', and IFRS 7 'Financial Instruments: Disclosures',
these balances should have been presented 'net' on the balance
sheet and a restatement has been made to correct this position. In
addition, and in line with industry practice, the Group has chosen
to present operational derivative balances representing unsettled
and undelivered commodity trades 'net' on the balance sheet,
assuming normal monthly settlement terms applied.
Furthermore, we have reviewed the presentation of deferred tax
assets and liabilities and have noted that deferred tax balances
meeting the offset criteria in IAS 12 were presented 'gross' rather
than 'net' on the balance sheet, with a 'net' presentation included
within a note to the accounts. The Group has therefore restated the
comparative balance sheets to present deferred tax assets and
liabilities net where the offset criteria are met.
In accordance with IAS 8 'Accounting Policies, Changes in
Accounting Estimates and Errors', changes in accounting policies
and prior period errors should be adjusted retrospectively. Given
the errors identified in the presentation of trade receivables and
payables and the deferred tax assets and liabilities and
consequential presentational changes in operational derivative
balances resulting from commodity trades, the Group has changed the
balance sheet presentation of these balances from a 'gross' to a
'net' basis for both the current and comparative reporting periods
presented. For September 2019 and March 2019, commodity trades have
been presented on a 'monthly' net settlement basis reflecting
current practice however, given detailed historical data is not
available, for September 2018 this has been presented on an
'annual' net settlement basis which is not considered to be
materially different.
The adjustment has no impact on the Income Statement, net assets
or adjusted performance measures of the Group at any reporting
date. The impact of this adjustment on the Balance Sheet at the
respective reporting dates is as follows:
31 March 2019 30 September 2018
As reported Adjustment Restated As reported Adjustment Restated
GBPm GBPm GBPm GBPm GBPm GBPm
325.9 (81.5) 244.4 Derivative financial assets 890.3 (557.3) 333.0
302.8 (302.8) - Deferred tax assets 280.1 (280.1) -
16,792.2 - 16,792.2 Other items 16,060.6 - 16,060.6
------------ ----------- --------- ------------ ----------- ---------
17,420.9 (384.3) 17,036.6 Non-current assets 17,231.0 (837.4) 16,393.6
------------ ----------- --------- ------------ ----------- ---------
3,144.6 (1,307.7) 1,836.9 Trade and other receivables 2,608.4 (956.6) 1,651.8
1,452.2 (1,146.1) 306.1 Derivative financial assets 2,919.1 (2,528.3) 390.8
3,324.7 - 3,324.7 Other items 2,021.3 - 2,021.3
------------ ----------- --------- ------------ ----------- ---------
7,921.5 (2,453.8) 5,467.7 Current assets 7,548.8 (3,484.9) 4,063.9
------------ ----------- --------- ------------ ----------- ---------
25,342.4 (2,838.1) 22,504.3 Total assets 24,779.8 (4,322.3) 20,457.5
------------ ----------- --------- ------------ ----------- ---------
Liabilities
4,012.9 (1,307.7) 2,705.2 Trade and other payables 2,965.3 (956.6) 2,008.7
1,882.4 (1,086.1) 796.3 Derivative financial liabilities 3,374.5 (2,305.0) 1,069.5
1,814.0 - 1,814.0 Other items 1,827.8 - 1,827.8
------------ ----------- --------- ------------ ----------- ---------
7,709.3 (2,393.8) 5,315.5 Current liabilities 8,167.6 (3,261.6) 4,906.0
------------ ----------- --------- ------------ ----------- ---------
602.4 (141.5) 460.9 Derivative financial liabilities 1,280.3 (780.6) 499.7
947.0 (302.8) 644.2 Deferred tax liabilities 904.2 (280.1) 624.1
10,242.4 - 10,242.4 Other items 9,963.5 - 9,963.5
------------ ----------- --------- ------------ ----------- ---------
11,791.8 (444.3) 11,347.5 Non-current liabilities 12,148.0 (1,060.7) 11,367.4
------------ ----------- --------- ------------ ----------- ---------
19,501.1 (2,838.1) 16,663.0 Total liabilities 20,315.6 (4,322.3) 15,993.3
------------ ----------- --------- ------------ ----------- ---------
5,841.3 - 5,841.3 Net assets 4,464.2 - 4,464.2
------------ ----------- --------- ------------ ----------- ---------
2. Basis of preparation (continued)
(vi) Changes to presentation - prior year adjustments (continued)
Calculation of net result on cash flow hedges - restatement of
prior period statements of comprehensive income and changes in
equity
During the period, it was identified that the calculation of the
net result arising from cash flow hedge accounting relationships
incorrectly resulted in gains or losses on the effective portion of
those relationships being recognised against the hedged item (being
foreign currency denominated debt), rather than recognised within
the Hedge Reserve. Following a detailed review of all hedging
activity, it was confirmed that this calculation error only
affected a specific type of financial instruments - fixed rate
cross currency swaps - and did not affect the hedge designation of
these or other hedge relationships.
Whilst this restatement has no impact on the Income Statement
and has limited impact on the Statement of Comprehensive Income and
Balance Sheet, it was assessed that there is a material impact to
the Hedge Reserve. Therefore, a restatement of comparative period
balances has been made in accordance with IAS 8. The impact of this
adjustment at 31 March 2019 is to increase Loans and Other
Borrowings by GBP51.5m (September 2018: GBP67.6m), increase
deferred tax assets by GBP8.8m (September 2018: GBP11.5m) and
decrease Other Comprehensive Income and the Hedge Reserve by
GBP42.7m (September 2018: GBP56.1m).
Presentation of gains on disposal - restatement of 31 March 2019
income statement
In the year ended 31 March 2019, the Group made significant
gains on disposals (see note 6) which were presented as an
exceptional offset to operating costs in the 31 March 2019 income
statement. The Group has re-presented the 31 March income statement
to present the gains on sale as exceptional 'other operating
income'.
(vii) Changes to estimates
Extension of useful lives of onshore windfarms
During the period the Group has performed a detailed technical
review of the operating lives of its onshore and offshore
windfarms. Following this review, the Group has changed the
estimated useful life of its onshore windfarms from 20 to 25 years.
The financial impact of this extension to the useful economic life
is to increase adjusted and reported profit before tax by GBP14.5m.
The estimated full year impact of this change in useful economic
life is GBP29.5m. As this is considered a change in estimate under
IAS 8, the change has been applied prospectively and prior period
comparatives have not been restated.
3. Summary of significant new accounting policies and reporting changes
The Group has adopted IFRS 16 'Leases' from 1 April 2019, with
the transitional impact from that standard disclosed below. A
number of other amendments to and interpretations of existing
standards have been issued by the IASB and - where endorsed by the
EU as effective from 1 April 2019 - have also been adopted, with no
impact to the Group.
3.1 IFRS 16 'Leases'
This standard replaces IAS 17 'Leases' and related
interpretations in setting out the principles for the recognition,
measurement, presentation and disclosure of leases. The principal
change from the previous standard is the introduction of a single
lessee accounting model which requires a lessee to recognise assets
and liabilities for all leases with a term of more than 12 months,
unless the underlying asset is of low value.
(i) Transition approach
The Group has applied the "Modified Retrospective" approach,
whereby comparative figures are not restated. Instead, the
cumulative effect of initially applying IFRS 16 has been recognised
as an adjustment to the opening balance of retained earnings as at
1 April 2019. The Group has elected to apply the following
practical expedients, as allowed by the standard, on initial
application:
-- the application of a single discount rate to a portfolio of leases with reasonably similar characteristics;
-- rely on the assessment of whether leases are onerous through
applying IAS 37 "Provisions, Contingent Liabilities and Contingent
Assets" immediately prior to transition;
-- exclude initial direct costs from the measurement of the right-of-use asset; and
-- use hindsight when determining the lease term if the contract
contains options to extend or terminate the lease.
The Group did not apply the practical expedient on defining
leases, and therefore performed a full reassessment of the lease
population under IFRS 16 criteria. Furthermore, the Group has
applied the exemptions within the standard whereby both leases with
a duration of 12 months or less and leases for assets which are
deemed "low value" will continue to be expensed to the income
statement on a straight-line basis over the lease term.
In determining whether any break and/or extension clauses should
be included within the lease term, the Group has considered that
any clauses will not be triggered where the non-cancellable element
of the lease term has longer than five years remaining as any
decision beyond that date is not reasonably certain. For leases
with less than five years remaining, an assessment is made at each
reporting period on a lease-by-lease basis on whether the clause is
reasonably certain to be triggered. Reassessment of break and/or
extension judgements made in prior periods could result in
recalculation of the lease liability and adjustments to associated
balances.
Where the interest rate implicit in the lease is not readily
determinable, the Group has applied the intercompany borrowing rate
which is based on the Group's external medium-term borrowing rates
with premia adjustments for any subsidiary specific risk
factors.
3. Summary of significant new accounting policies and reporting changes (continued)
3.1 IFRS 16 'Leases' (continued)
(ii) Impact of transition at 1 April 2019
On transition to IFRS 16 the Group recognised GBP225.8m of
additional right of use assets (presented within property, plant
and equipment), GBP258.1m of additional lease liabilities, a
GBP3.9m reduction in equity investments in joint ventures and
associates and a deferred tax asset of GBP4.8m. This resulted in a
GBP31.4m adjustment on transition to retained earnings.
Furthermore, application of IFRS 16 to existing finance lease
commitments under IAS 17 resulted in GBP4.8m of previously
recognised leased assets and lease liabilities being derecognised
on transition, as the consideration paid for these commitments did
not meet the measurement criteria of a lease liability under IFRS
16.
The differences between the operating lease commitments under
IAS 17 at 31 March 2019 and the lease liability recognised under
IFRS 16 at 1 April 2019 relating to the same contracts are
explained below:
1 April
2019
GBPm
Operating lease commitments as at 31 March 2019 430.9
Recognition exemption for short term and low value
leases on date of transition (27.7)
IAS 17 leases outside the scope of IFRS 16 (30.5)
IFRS 16 remeasurement of lease payments, break and/or
extension clauses reasonably certain to be exercised 30.1
--------
Non-discounted lease liability under IFRS 16 402.8
Discount effect (144.7)
Additional lease liability recognised on 1 April
2019 258.1
--------
The weighted average incremental borrowing rate applied to
calculate the right of use assets and lease liabilities recognised
on transition at 1 April 2019 over the contracted residual term was
4.56%. Incremental borrowing rates applied to individual leases in
the period ranged between 4.06% to 5.06%. A 2% increase to the
incremental borrowing rates would reduce right of use assets and
lease liabilities by approximately GBP30m, with a 2% reduction
increasing right of use assets and lease liabilities by
approximately GBP45m with minimal impact on profit after tax in
either case.
(iii) Impact on six month results to 30 September 2019
Adoption of IFRS 16 resulted in operating costs for the six
month period decreasing by GBP24.9m, offset by GBP18.6m of
additional depreciation charges and GBP5.8m of additional interest
charges, resulting in a GBP0.5m net increase in profit before tax.
The Group's share of JV operating profit was GBP2.4m higher, offset
by an increase in the Group's share of JV interest of GBP2.7m. In
total, the Group's profit before tax is GBP0.2m higher. At 30
September 2019, including additions during that period, the net
value of additional right-of-use assets under IFRS 16 totalled
GBP206.6m with a corresponding lease liability of GBP238.7m.The
revised presentation of lease payments under IFRS 16 results in a
GBP24.9m improvement in net cash flows from operating activities
and a corresponding deterioration in net cash flows from financing
activities. There is no impact on total cash and cash
equivalents.
3.2 New standards, amendments and interpretations issued, but not yet adopted by the Group
A number of standards, amendments and interpretations have been
issued but not yet adopted by the Group within these financial
statements, because application is not yet mandatory or because
adoption by the EU remains outstanding at this point in time.
IFRS 17 'Insurance contracts' is expected to be effective from 1
January 2021 (1 April 2021 for the Group) but remains subject to EU
endorsement. The Group has yet to commence a project to fully
assess the impact from adoption of IFRS 17, however the Group's
initial expectation is that adoption of this standard will not have
a material impact on the Group's consolidated financial
statements.
Other interpretations and amendments are not anticipated to have
a material impact on the Group's consolidated financial
statements.
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
below.
4.1 Significant financial judgements - estimation uncertainties
The preparation of these Condensed Interim Statements has
sspecifically considered the following significant financial
judgements, all of which are areas of estimation uncertainty.
(i) Impairment testing and valuation of certain non-current assets - estimation uncertainty
The Group reviews the carrying amounts of its ggoodwill, 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. At 30 September 2019, the Group has
reviewed assets related to gas production, thermal and wind power
generation for indicators of impairment arising since the last
formal review performed at 31 March 2019. 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 main assumptions in the Group's impairment assessments
performed at 31 March 2019 were: power, gas, carbon and other
commodity prices, volatility of gas prices, plant running regimes
and load factors, expected proven and probable reserves, and
discount rates. The conclusions of this review were that there were
no indications of impairment necessitating formal impairment review
at 30 September 2019. The Group will reassess the assets for
impairment at 31 March 2020.
4. Critical accounting judgements and key sources of estimation uncertainty (continued)
4.1 Significant financial judgements - estimation uncertainties (continued)
(ii) Revenue recognition - estimated energy consumption - estimation uncertainty
Revenue from domestic (GB business discontinued, SSE Energy
Services) and business 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 i) 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
ii) unbilled revenue (disclosed as accrued income) calculated by
assessing a number of factors such as externally notified
aggregated volumes supplied to customers from national settlement
bodies, amounts billed to customers and other adjustments.
Given the non-routine process, numberr of differing inputs and
the extent of differing inputs and the extent of management
judgement noted below, the unbilled revenue estimate is considered
a significant estimate made by management in preparing the
Condensed Interim Statements. The unbilled income receivable
related to the GB domestic supply business has been presented as
held for sale at 30 September 2019. In addition, the revenue
derived from the accrued income is included in revenue from
discontinued operations (see note 9).
Unbilled revenue is calculated by applying the tariffs
applicable to customers to the calculated volume of electricity or
gas consumed. This estimation methodology is subject to an internal
corroboration process that provides support for the judgements made
by management. This corroboration process requires the comparison
of calculated unbilled volumes to a 'benchmark' measure of unbilled
volumes (in GWh and millions of therms) which is derived from
historical weather-adjusted consumption patterns and aggregated,
independently validated but unreconciled metering data that is used
in industry reconciliation processes for total consumption by
supplier. This comparison of the estimated supplied quantity of
electricity or gas that is deemed to have been delivered to
customers against 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 estimation of
electricity unbilled revenue is further influenced by the impact on
estimated electricity or gas supplied of national settlements data
or, for electricity only, feed-in-tariff supported volumes and
spill from solar PV generation. A more comprehensive disclosure of
the Group's policy, and the judgements applied, is disclosed in
note 4.1 (iii) of the Group's 31 March 2019 annual report.
(iii) 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. Further detail on the calculation basis
and key assumptions used is disclosed in Note 17 of these interim
statements.
4.2 Other key accounting judgements
(i) Impairment of SSE's household energy and services business
in Great Britain - accounting judgement
On 13 September 2019, the Group announced that it had entered
into an agreement with OVO Group Limited ('OVO') to sell SSE's
household energy and services business in Great Britain ('SSE
Energy Services') for an enterprise value of GBP500m, comprising
GBP400m cash and GBP100m in loan notes, less an adjustment for
debt-like items of GBP59m. The Group first classified SSE Energy
Services as held for disposal in its 30 September 2018 Condensed
Interim Statements.
The transaction has an effective date of 30 June 2019 and
completion is expected in late 2019 or early 2020, subject to the
transaction obtaining necessary regulatory approvals. At 30
September 2019 the Group has continued to classify SSE Energy
Services as held for disposal and, given the enterprise valuation
agreed with OVO during the period, has revalued the business to the
lower of historical cost and fair value less costs of disposal. As
a result, an impairment of GBP489.1m has been recognised (see note
6.1 (ii)).
(ii) Accounting for costs of the smart meter infrastructure programme - accounting judgement
Through its participation in the UK smart metering programme,
the Group is required to make payments to the Data Communications
Company ("DCC") as it develops infrastructure to support the UK
smart meter roll-out. The Group has assessed that the DCC costs
incurred are capital in nature as they will provide future economic
benefit and the Group has the power to control certain assets
through the terms of the Smart Meter Code. These assets relate to
the centralised infrastructure costs of the UK's smart meter
programme. At 30 September 2019, the costs capitalised to date have
been impaired to GBP42.7m following an allocation of the impairment
to the carrying value of SSE Energy Services due to the announced
agreement to dispose of the business to OVO. At 30 September 2018
the Group had capitalised GBP96.3m (March 2019: GBP103.3m) of costs
related to the Smart Meter programme.
(iii) Accounting for British Capacity Market payments - accounting judgement
Capacity Market income
In November 2018, the General Court of the Court of Justice of
the European Union ("ECJ") annulled the state aid approval granted
by the European Commission ("EC") in July 2014 for the British
Capacity Market scheme. The annulment was based on procedural
grounds, requiring the EC to open an in-depth investigation under
state aid rules into the scheme before it could be reinstated.
Following the ECJ judgement, the UK Government confirmed that
payments under existing capacity agreements would be suspended. As
a result, GBP60.4m of expected revenue was not recognised by the
Group's Renewables and Thermal businesses in the prior financial
year.
4. Critical accounting judgements and key sources of estimation uncertainty (continued)
4.2 Other key accounting judgements (continued)
(iii) Accounting for British Capacity Market payments - accounting judgement (continued)
Capacity Market income (continued)
On 24 October 2019, following completion of the in-depth
investigation, the EC announced their approval of the scheme under
EU state aid regulations. Following the EC announcement, on 25
October 2019 the UK Government issued letters to the National Grid
Electricity System Operator (ESO) and Electricity Settlements
Company (ESC) confirming the reinstatement of the British Capacity
Market scheme including resumption of capacity payments in respect
of agreements that existed in November 2018 that were prevented
from being paid as a result of the suspension.
The Group considers that the EC announcement, and subsequent UK
Government instruction to reinstate the original scheme, confirms
that revenue totalling GBP109.6m in relation to the scheme should
be recognised in the period to 30 September 2019. This includes
GBP60.4m in relation to revenue not recognised in respect of the
prior financial year. In the period the Group has classified
GBP8.3m of the GBP109.6m Capacity Market income as exceptional, as
it was generated by Fiddler's Ferry subsequent to the announcement
to close the station.
Capacity Market charges
The Group's British Supply businesses are required to make
Capacity Market payments to an independent Settlement Body
throughout the year. This charge is based on the Supplier's
forecast energy demands between November and February and is
charged evenly over the course of the delivery year. Following
suspension of the scheme, as detailed above, the Group continued to
recognise the Capacity Market charge during the suspension period
with a corresponding accrual reflecting the suspension of payments.
Following reinstatement in October 2019, payment of the accrued
suspension period charges is expected to be made during the course
of November 2019.
In accordance with IFRIC 21 "Levies", a liability for the full
year charge is recognised progressively between November and
February. The Group has assessed that this represents a regulatory
operating cost to the business for its operations throughout the
year and therefore recognises the cost over the course of the year.
Any difference between the liability and charge is recognised as a
settlement prepaid asset.
(iv) Lease classification for Smart Meter contracts - accounting judgement
The Group has assessed that its arrangements for Smart Meter
Asset Provider (MAP) services do not contain leases of the smart
meters owned by the MAP due to other parties taking a significant
amount of the output from the meters and due to the Group being
unable to control either the operation or the physical access to
the meters. The assessment that these arrangements do not contain
leases of the smart meters did not change on adoption of IFRS 16
"Leases" on 1 April 2019.
(v) Held for sale classification of the Group's investment in Gas Production
In accordance with IFRS 5, the Group has classified its
investment in Gas Production assets as held for sale at 30
September 2019. The Group is actively engaged in discussions with
potential buyers for the business and is targeting a sale in the
second half of the financial year. At 30 September these
discussions were advanced, though no formal offers for the business
had been received. A well drilling process on the Glendronach
prospect was ongoing at the balance sheet date, with offers from
potential buyers expected to be influenced by the results of this
programme, expected late in 2019. As the business constitutes a
reportable segment of the Group, it has been considered a
discontinued operation and comparative results have been
represented to remove the business from continuing operations.
4.3 Other areas of estimation uncertainty
(i) Tax provisioning - estimation uncertainty
The Group has a number of open tax issues with the tax
authorities in the UK and Republic of Ireland, the two
jurisdictions in which the Group operates. Where management makes a
judgement that an outflow of funds is probable, and a reliable
estimate of the dispute can be made, provision is made for the best
estimate of the most likely liability.
In estimating any such liability, the Group applies a risk-based
approach, considering the specific circumstances of each dispute
based on management's interpretation of tax law and supported,
where appropriate, by discussion and analysis by external tax
advisors. These estimates are inherently judgemental and could
change substantially over time as each dispute progresses and new
facts emerge. Provisions are reviewed on an ongoing basis; however,
the resolution of tax issues can take a considerable period to
conclude and it is possible that amounts ultimately paid will be
different from the amounts provided. Provisions for uncertain tax
positions are included in current tax liabilities, and total
GBP46.0m at 30 September 2019 (2018: GBP66.1m; March 2019:
GBP47.6m).
IFRIC 23 "Uncertainty over Income Tax Treatments", was adopted
by the Group on 1 April 2019 and resulted in no changes to the
judgements or estimates made for tax provisions.
4.3 Other areas of estimation uncertainty (continued)
(ii) Decommissioning costs - estimation uncertainty
The estimated cost of decommissioning at the end of the useful
lives of certain property, plant and equipment assets is reviewed
periodically and was reassessed at 31 March 2019. Decommissioning
costs in relation to gas exploration and production assets are
periodically agreed with the field operators and reflect the latest
expected economic production lives of the fields. Provision is made
for the estimated discounted cost of decommissioning at the balance
sheet date.
The Group is currently decommissioning its Ferrybridge power
station. The dates for settlement of the Group's other
decommissioning costs are inherently uncertain, particularly for
gas exploration and production assets, where reassessment of gas
and liquid reserves and the upward and downward movement in
commodity prices and operating costs can lengthen or shorten the
field life. However, costs are expected to be incurred from 2020 to
2040.
5. Segmental information
As part of its 2019 Annual Results announcement, the Group
announced that from 1 April 2019 it was focusing on its core
low-carbon renewable energy generation and network businesses.
These low-carbon renewables and networks businesses are supported
by thermal generation plant that provides flexibility to complement
the variability of renewables output, and the Group's Business
Energy and Irish supply businesses that provide key energy services
for customers and secure valuable routes to market for SSE's
generation fleet. As a result, the Group's operating segments have
been redefined from 1 April 2019. These segments are used
internally by the Board to run the business and make strategic
decisions. The only change to reported segments has been to split
the previously reported 'Electricity Generation' segment into two
segments - 'Renewables' and 'Thermal'. Comparative information has
been re-presented to reflect the change to these segments.
The types of products and services from which each reportable
segment derives its revenues are:
Business area Reported segments Description
-------------------- ---------------------------------- ----------------------------------------------------------
Continuing operations
----------------------------------------------------------------------------------------------------------------------
Transmission Electricity Transmission The economically regulated high voltage transmission of
electricity from generating plant
to the distribution network in the North of Scotland.
-------------------- ---------------------------------- ----------------------------------------------------------
Distribution Electricity Distribution The economically regulated lower voltage distribution of
electricity to customer premises
in the North of Scotland and the South of England.
-------------------- ---------------------------------- ----------------------------------------------------------
Gas Distribution SSE's share of Scotia Gas Networks, which operates two
economically regulated gas distribution
networks in Scotland and the South of England.
-------------------- ---------------------------------- ----------------------------------------------------------
Renewables Renewables The generation of power from renewable sources, such as
onshore and offshore windfarms and
run of river and pumped storage hydro assets in the UK
and Ireland.
-------------------- ---------------------------------- ----------------------------------------------------------
Thermal Thermal Generation The generation of power from thermal plant and the
Group's interests in multifuel assets in
the UK and Ireland.
-------------------- ---------------------------------- ----------------------------------------------------------
Gas Storage The storage of gas for the purpose of benefitting from
market price fluctuations.
-------------------- ---------------------------------- ----------------------------------------------------------
Customers Business Energy The supply of electricity and gas to business customers
in Great Britain.
-------------------- ---------------------------------- ----------------------------------------------------------
Airtricity The supply of electricity, gas and energy related
services to residential and business customers
in the Republic of Ireland and Northern Ireland.
-------------------- ---------------------------------- ----------------------------------------------------------
Enterprise Enterprise The integrated provision of services in competitive
markets for industrial and commercial
customers including electrical contracting, private
energy networks, lighting services and
share of telecoms capacity and bandwidth.
-------------------- ---------------------------------- ----------------------------------------------------------
EPM & I Energy Portfolio Management (EPM) The provision of a route to market for the Group's
Renewable, Thermal and discontinued Gas
Production businesses and commodity procurement for the
Group's energy supply businesses in
line with the Group's stated hedging policies.
-------------------- ---------------------------------- ----------------------------------------------------------
Discontinued operations
----------------------------------------------------------------------------------------------------------------------
SSE Energy Services SSE Energy Services The supply of electricity and gas and related energy
goods and services such as meter reading
and installation, boiler installation and maintenance and
domestic telecoms and broadband
services to domestic customers in Great Britain
-------------------- ---------------------------------- ----------------------------------------------------------
EPM & I 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 IFRS 9, the impact of
depreciation on fair value uplifts, 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 and earnings before
interest, taxation, depreciation and amortisation ('EBITDA') by
segment is provided below. All revenue and profit before taxation
arise from operations within the UK and Ireland.
5. Segmental information (continued)
5. (a) Revenue by segment
Six months ended 30 September 2019 Six months ended 30 September 2018
Revenue Revenue
from from
contracts Other contracts Other
with contract Reported Intra-segment Segment with contract Reported Intra-segment Segment
customers revenue revenue revenue(i) revenue customers revenue revenue revenue(i) revenue
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
Electricity
Transmission 189.0 - 189.0 - 189.0 197.3 - 197.3 - 197.3
Electricity
Distribution 320.7 - 320.7 91.8 412.5 311.6 - 311.6 99.7 411.3
Renewables 95.1 - 95.1 218.2 313.3 84.7 - 84.7 203.4 288.1
Thermal
Generation 221.9 - 221.9 301.4 523.3 189.2 - 189.2 419.2 608.4
Gas Storage 4.4 - 4.4 203.6 208.0 11.3 - 11.3 206.4 217.7
Business Energy 1,122.5 - 1,122.5 12.0 1,134.5 1,197.3 - 1,197.3 12.4 1,209.7
Airtricity 503.4 - 503.4 31.6 535.0 439.5 - 439.5 102.4 541.9
Enterprise 189.2 3.8 193.0 6.7 199.7 224.0 3.7 227.7 55.9 283.6
EPM:
Gross
commodity
trading 5,791.3 - 5,791.3 2,153.1 7,944.4 8,458.4 - 8,458.4 2,209.0 10,667.4
Optimisation
trading(ii) (5,418.7) - (5,418.7) (245.4) (5,664.1) (7,827.0) - (7,827.0) 365.6 (7,461.4)
---------- --------- ---------- -------------- ---------- ---------- --------- ---------- -------------- ----------
EPM 372.6 - 372.6 1,907.7 2,280.3 631.4 - 631.4 2,574.6 3,206.0
Corporate
unallocated 29.6 - 29.6 115.8 145.4 27.7 - 27.7 114.8 142.5
---------- --------- ---------- -------------- ---------- ---------- --------- ---------- -------------- ----------
Total
continuing
operations 3,048.4 3.8 3,052.2 2,888.8 5,941.0 3,314.0 3.7 3,317.7 3,788.8 7,106.5
---------- --------- ---------- -------------- ---------- ---------- --------- ---------- -------------- ----------
Discontinued
operations
SSE Energy
Services 1,469.2 - 1,469.2 5.3 1,474.5 1,404.7 - 1,404.7 97.8 1,502.5
Gas Production 13.5 - 13.5 95.8 109.3 16.9 - 16.9 97.7 114.6
---------- --------- ---------- -------------- ---------- ---------- --------- ---------- -------------- ----------
Total
discontinued
operations 1,482.7 - 1,482.7 101.1 1,583.8 1,421.6 - 1,421.6 195.5 1,617.1
---------- --------- ---------- -------------- ---------- ---------- --------- ---------- -------------- ----------
Total SSE Group 4,531.1 3.8 4,534.9 2,989.9 7,524.8 4,735.6 3.7 4,739.3 3,984.3 8.723.6
---------- --------- ---------- -------------- ---------- ---------- --------- ---------- -------------- ----------
Year ended 31 March 2019
Revenue from
contracts with Intra-segment
customers Other contract revenue Reported revenue revenue(i) Segment revenue
GBPm GBPm GBPm GBPm GBPm
Continuing
operations
Electricity
Transmission 395.7 - 395.7 0.2 395.9
Electricity
Distribution 676.4 - 676.4 229.5 905.9
Renewables 224.6 - 224.6 626.2 850.8
Thermal
Generation 324.4 - 324.4 910.1 1,234.5
Gas Storage 24.2 - 24.2 488.3 512.5
Business Energy 2,592.9 - 2,592.9 26.2 2,619.1
Airtricity 1,087.3 - 1,087.3 144.7 1,232.0
Enterprise 476.6 7.2 483.8 110.1 593.9
EPM:
Gross
commodity
trading 20,240.8 - 20,240.8 4,464.6 24,705.4
Optimisation
trading(ii) (18,808.7) - (18,808.7) 475.7 (18,333.0)
--------------------- -------------------------- ---------------------- --------------------- --------------------------
EPM 1,432.1 - 1,432.1 4,940.3 6,372.4
Corporate
unallocated 60.1 - 60.1 242.7 302.8
--------------------- -------------------------- ---------------------- --------------------- --------------------------
Total
continuing
operations 7,294.3 7.2 7,301.5 7,718.3 15,019.8
--------------------- -------------------------- ---------------------- --------------------- --------------------------
Discontinued
operations
SSE Energy
Services 3,579.3 5.4 3,584.7 184.9 3,769.6
Gas Production 30.1 - 30.1 210.9 241.0
--------------------- -------------------------- ---------------------- --------------------- --------------------------
Total
discontinued
operations 3,609.4 5.4 3,614.8 395.8 4,010.6
--------------------- -------------------------- ---------------------- --------------------- --------------------------
Total SSE Group 10,903.7 12.6 10,916.3 8,114.1 19,030.4
--------------------- -------------------------- ---------------------- --------------------- --------------------------
(i) Revenue from the Group's investment in Scotia Gas Networks
Limited, the Group's share being GBP212.8m (2018: GBP206.8m, March
2019: GBP411.8m) is not recorded in the revenue line in the income
statement
(ii) The Group continues to provide optimisation volume
disclosures to disclose the volume of trading in the period by its
EPM segment.
5. Segmental information (continued)
(b) Operating profit/(loss) by segment
Six months ended 30 September 2019
Joint
Adjusted Venture/ Before
operating Depreciation Associate exceptional Non-recurring Exceptional
profit on fair share of items and joint venture items and
reported to value interest and certain refinancing certain
the Board uplifts tax (i) remeasurements costs remeasurements Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
Electricity
Transmission 110.1 - - 110.1 - - 110.1
Electricity
Distribution 150.8 - - 150.8 - - 150.8
Gas
Distribution 102.1 - (49.3) 52.8 - 1.7 54.5
Renewables 149.9 (9.4) (28.2) 112.3 (12.3) 6.4 106.4
Thermal
Generation 57.8 - (12.4) 45.4 - (98.7) (53.3)
Gas Storage (20.7) - - (20.7) - - (20.7)
Business
Energy 2.9 - - 2.9 - - 2.9
Airtricity 16.4 - - 16.4 - - 16.4
Enterprise 8.2 (0.9) (2.2) 5.1 - - 5.1
EPM (113.1) - - (113.1) - 154.6 41.5
Gas Production
(continuing)
(ii) 31.9 - - 31.9 - - 31.9
Corporate
unallocated (4.4) - - (4.4) - (93.7) (98.1)
Total
continuing
operations 491.9 (10.3) (92.1) 389.5 (12.3) (29.7) 347.5
Discontinued
operations
SSE Energy
Services (7.4) - - (7.4) - (489.1) (496.5)
Gas Production (15.3) - - (15.3) - - (15.3)
Total
discontinued
operations (22.7) - - (22.7) - (489.1) (511.8)
Total SSE
Group 469.2 (10.3) (92.1) 366.8 (12.3) (518.8) (164.3)
(i) The adjusted operating profit of the Group is reported after
removal of the Group's share of interest, fair value movements on
financing derivatives and tax from joint ventures and associates
and after adjusting for exceptional items and certain
re-measurements (note 6). The share of Scotia Gas Networks Limited
interest includes loan stock interest payable to the consortium
shareholders. The Group has accounted for its 33% share of this,
GBP4.7m (2018: GBP4.7m, March 2019: GBP9.4m), as finance income
(note 7).
(ii) The Group has assessed that the Gas Production business
meets the criteria to be classified as held for sale under IFRS 5
(see note 9). The Gas Production business is being sold unhedged
under a "lock-box" agreement with an effective date of 1 April
2019. In line with its stated hedging policy, the Group has hedged
the forecast production of the business for the six months ended 30
September 2019, resulting in realised gains in these contracts of
GBP31.9m in the period. The Group has retained these profits within
the continuing operations, as the economic benefit of these
contracts will not be disposed with the business.
Six months ended 30 September 2018
Before
Adjusted Joint Venture/ exceptional Exceptional
operating profit Depreciation on Associate share items and items and
reported to the fair value of interest and certain certain
Board uplifts tax (i) remeasurements remeasurements Total
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
Electricity
Transmission 127.4 - - 127.4 - 127.4
Electricity
Distribution 166.9 - - 166.9 - 166.9
Gas Distribution 85.4 - (48.0) 37.4 1.2 38.6
Renewables 78.4 (2.3) (13.4) 62.7 88.4 151.1
Thermal generation (3.5) - (9.3) (12.8) - (12.8)
Gas Storage (3.7) - - (3.7) - (3.7)
Business Energy 41.6 - - 41.6 - 41.6
Airtricity 12.0 - - 12.0 - 12.0
Enterprise 13.7 - - 13.7 - 13.7
EPM (85.9) - - (85.9) (565.4) (651.3)
Corporate
unallocated (1.0) - - (1.0) (67.1) (68.1)
Total continuing
operations 431.3 (2.3) (70.7) 358.3 (542.9) (184.6)
Discontinued
operations
SSE Energy
Services (62.1) - - (62.1) - (62.1)
Gas Production 19.3 - - 19.3 - 19.3
Total discontinued
operations (42.8) - - (42.8) - (42.8)
Total SSE Group 388.5 (2.3) (70.7) 315.5 (542.9) (227.4)
5. Segmental information (continued)
5. (b) Operating profit/(loss) by segment (continued)
Year ended 31 March 2019
Before
Adjusted Joint Venture/ exceptional Exceptional
operating profit Depreciation on Associate share items and items and
reported to the fair value of interest and certain certain
Board uplifts tax (i) remeasurements remeasurements Total
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
Electricity
Transmission 252.1 - - 252.1 - 252.1
Electricity
Distribution 401.3 - - 401.3 - 401.3
Gas Distribution 176.8 - (94.3) 82.5 2.6 85.1
Renewables 455.9 (2.9) (31.5) 421.5 821.4 1,242.9
Thermal Generation (22.3) - (25.6) (47.9) (2.7) (50.6)
Gas Storage (5.7) - - (5.7) - (5.7)
Business Energy 51.6 - - 51.6 - 51.6
Airtricity 38.6 - - 38.6 - 38.6
Enterprise 31.8 - - 31.8 - 31.8
EPM(iii) (284.9) - - (284.9) (328.2) (613.1)
Corporate
unallocated (6.5) - (3.8) (10.3) 189.9 179.6
Total continuing
operations 1,088.7 (2.9) (155.2) 930.6 683.0 1,613.6
Discontinued
operations
SSE Energy
Services 89.6 - - 89.6 (54.3) 35.3
Gas Production 48.9 - - 48.9 29.7 78.6
Total discontinued
operations 138.5 - - 138.5 (24.6) 113.9
Total SSE Group 1,227.2 (2.9) (155.2) 1,069.1 658.4 1,727.5
5. (c) Earnings/(losses) before interest, taxation, depreciation
and amortisation ('EBITDA') by segment
30 September 2019
Depreciation/
Adjusted impairment/ JV/ Associate
operating amortisation share of
profit Depreciation before depreciation Release of
reported to on fair value exceptional and deferred Adjusted
the Board uplifts charges amortisation income EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
Electricity
Transmission 110.1 - 39.2 - (1.7) 147.6
Electricity
Distribution 150.8 - 80.0 - (4.0) 226.8
Gas Distribution 102.1 - - 29.5 - 131.6
Renewables 149.9 (9.4) 79.1 62.7 - 282.3
Thermal
generation 57.8 - 22.1 7.3 (0.1) 87.1
Gas Storage (20.7) - 0.4 - - (20.3)
Business Energy 2.9 - 0.2 - - 3.1
Airtricity 16.4 - 3.2 - - 19.6
Enterprise 8.2 (0.9) 5.2 4.6 (2.3) 14.8
EPM (113.1) - - - - (113.1)
Gas Production
(continuing) 31.9 - - - - 31.9
Corporate
unallocated (4.4) - 34.4 1.6 (0.6) 31.0
Total continuing
operations 491.9 (10.3) 263.8 105.7 (8.7) 842.4
Discontinued
operations
SSE Energy
Services (7.4) - - - - (7.4)
Gas Production (15.3) - 46.2 - - 30.9
Total
discontinued
operations (22.7) - 46.2 - - 23.5
Total SSE Group 469.2 (10.3) 310.0 105.7 (8.7) 865.9
5. Segmental information (continued)
5. (c) Earnings/(losses) before interest, taxation, depreciation
and amortisation ('EBITDA') by segment (continued)
30 September 2018
Depreciation/
Adjusted impairment/ JV/ Associate
operating amortisation share of
profit Depreciation before depreciation Release of
reported to on fair value exceptional and deferred Adjusted
the Board uplifts charges amortisation income EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
Electricity
Transmission 127.4 - 35.4 - (1.4) 161.4
Electricity
Distribution 166.9 - 79.1 - (6.1) 239.9
Gas Distribution 85.4 - 28.1 - 113.5
Renewables 78.4 (2.3) 92.6 22.7 - 191.4
Thermal
generation (3.5) - 19.8 7.0 (0.2) 23.1
Gas Storage (3.7) - 0.5 - - (3.2)
Business Energy 41.6 - 0.2 - - 41.8
Airtricity 12.0 - 4.0 - - 16.0
Enterprise 13.7 - 12.0 - (0.5) 25.2
EPM (85.9) - - - - (85.9)
Corporate
unallocated (1.0) - 19.9 - (0.6) 18.3
Total continuing
operations 431.3 (2.3) 263.5 57.8 (8.8) 741.5
Discontinued
operations
SSE Energy
Services (62.1) - 21.6 - - (40.5)
Gas Production 19.3 - 49.3 - - 68.6
Total
discontinued
operations (42.8) - 70.9 - - 28.1
Total SSE Group 388.5 (2.3) 334.4 57.8 (8.8) 769.6
31 March 2019
Depreciation/
Adjusted impairment/ JV/ Associate
operating amortisation share of
profit Depreciation before depreciation Release of
reported to on fair value exceptional and deferred Adjusted
the Board uplifts charges amortisation income EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
Electricity
Transmission 252.1 - 69.3 - (2.8) 318.6
Electricity
Distribution 401.3 - 132.1 - (1.1) 532.3
Gas Distribution 176.8 - - 57.5 - 234.3
Renewables 455.9 (2.9) 192.7 48.7 (0.4) 694.0
Thermal
generation (22.3) - 40.3 14.8 (0.5) 32.3
Gas Storage (5.7) - 1.0 - - (4.7)
Business Energy 51.6 - 0.3 - - 51.9
Airtricity 38.6 - 7.6 - - 46.2
Enterprise 31.8 - 32.3 - (4.5) 59.6
EPM (284.9) - - - - (284.9)
Corporate
unallocated (6.5) - 43.4 2.5 (0.9) 38.5
Total continuing
operations 1,088.7 (2.9) 519.0 123.5 (10.2) 1,718.1
Discontinued
operations
SSE Energy
Services 89.6 - 50.4 - - 140.0
Gas Production 48.9 - 101.6 - - 150.5
Total
discontinued
operations 138.5 - 152.0 - - 290.5
Total SSE Group 1,227.2 (2.9) 671.0 123.5 (10.2) 2,008.6
6. Exceptional items and certain re-measurements
Year ended 31 March Six months ended 30 September Six months ended 30 September
2019 2019 2018
GBPm GBPm GBPm
Continuing operations
Exceptional items (note 6.1)
Asset impairments,
write-backs and related
(49.9) charges (149.4) (38.3)
Provisions for restructuring
(27.5) and other liabilities (43.0) (14.6)
(9.3) GMP equalisation charge - -
(86.7) (192.4) (52.9)
Net gains on disposals of
1,096.9 businesses and other assets 6.4 74.2
1,010.2 Total exceptional items (186.0) 21.3
Certain re-measurements (note
6.2)
Movement on operating
(328.2) derivatives 154.6 (565.4)
Movement on financing
(44.8) derivatives (69.9) 39.6
Share of movement on
derivatives in jointly
controlled entities (net of
1.0 tax) 1.7 1.2
(372.0) 86.4 (524.6)
Exceptional items before
638.2 taxation (99.6) (503.3)
Taxation
Taxation on other exceptional
5.6 items 33.1 2.3
Taxation on certain
67.3 re-measurements (20.8) 89.4
72.9 Taxation 12.3 91.7
Exceptional items on
continuing operations after
711.1 taxation (87.3) (411.6)
Discontinued operations
Exceptional items (note 6.1)
Asset impairments, write
(24.6) backs and related charges (489.1) -
28.4 Taxation - -
Exceptional items on
discontinued operations after
3.8 taxation (489.1) -
Exceptional items are
disclosed across the following
categories within the income
statement:
Year ended 31 March Six months ended 30 September Six months ended 30 September
2019 2019 2018
GBPm GBPm GBPm
Continuing operations
Cost of sales:
Movement on operating
(328.2) derivatives (note 16) 154.6 (565.4)
(328.2) 154.6 (565.4)
Operating costs:
Retail related restructuring
(88.9) costs and IT impairments (52.5) (67.1)
Reversal of previous
Renewable generation
14.2 impairment charges - 14.2
Thermal generation impairment
(2.7) charges (98.7) -
Other exceptional provisions
(9.3) and impairments (41.2) -
(86.7) (192.4) (52.9)
Operating income:
Net gains on disposals of
1,096.9 businesses and other assets 6.4 74.2
1,096.9 6.4 74.2
Joint ventures and
associates:
Movement on derivatives (net
1.0 of tax) 1.7 1.2
1.0 1.7 1.2
683.0 Operating (loss)/profit (29.7) (542.9)
Finance costs
Movement on financing
(44.8) derivatives (note 16) (69.9) 39.6
(Loss)/profit before taxation
638.2 on continuing operations (99.6) (503.3)
Discontinued operations
Operating costs:
Retail and technology
(54.3) development related charges (489.1) -
Gas Production (E&P) related
29.7 credit/(charges) - -
Profit/(loss) before taxation
(24.6) on discontinued operations (489.1) -
6. Exceptional items and certain re-measurements (continued)
6.1 Exceptional items
(i) Fiddler's Ferry closure
On 13 June 2019, the Group announced its intention to close the
remaining power generation units at Fiddler's Ferry power station.
Following the announcement, the Group has incurred a total
exceptional charge of GBP98.7m related to the decision to close the
plant comprising an impairment of the coal and oil inventory of
GBP75.6m; a redundancy provision of GBP21.0m; and operating losses
at the plant of GBP2.1m.
(ii) SSE Energy Services Related costs
On 13 September 2019, the Group announced it had entered into a
transaction to dispose of SSE Energy Services to OVO Energy Limited
for total consideration of GBP500m (see note 4.2(i)), less
debt-like items of GBP59.0m. In the six months ended 30 September
2019, the Group has incurred GBP52.5m of charges related to the
transaction within continuing operations, including impairments to
Group IT assets of GBP39.5m and GBP13.0m of advisor fees and
restructuring expenses to separate the business from the continuing
operations. The GBP39.5m impairment of the IT assets reflects the
expected cost of providing services to SSE Energy Services under a
Transitional Service Agreement for an agreed period following
completion of the transaction with OVO.
In addition, the Group has recognised an impairment of GBP489.1m
to the carrying value of the assets within assets held for sale.
This charge reflects the expected recoverable value from the
transaction, assuming consideration of GBP441.0m and total
transaction fees of GBP25m will be incurred. The impairment has
been recognised against the carrying value of the goodwill
(GBP187.3m); intangible assets including the Smart DCC
infrastructure programme (GBP254.0m); and property, plant and
equipment (GBP47.8m).
(iii) IT impairment charges
In the period, the Group internally announced an investment plan
in IT software, operations and infrastructure which is aimed at
transforming the Group's IT systems to drive growth and
profitability of the Group. As a result, new agreements with
software providers have been entered into to allow employees to
benefit from cloud based IT arrangements, which resulted in the
impairment of legacy software contracts of GBP34.3m. In addition,
the Group has entered into an agreement to outsource certain IT
support roles for the new cloud based software. As a result, a
redundancy provision of GBP6.9m has been recognised in the
period.
(iv) Disposal of Stronelairg and Dunmaglass windfarms
As noted below, the Group disposed of a 49.9% stake in the
Stronelairg and Dunmaglass windfarms on 31 March 2019, recognising
a gain on disposal of GBP733.0m, including a fair value uplift of
GBP369.2m. Following the completion of the sale, an adjustment to
the consideration of GBP6.4m was received in the period, which has
been treated as exceptional to align with the treatment of the
original disposal.
Exceptional items recognised in the previous financial year
Clyde gain on sale - On 30 May 2018, the Group disposed of a
14.9% equity stake in Clyde Windfarm (Scotland) Limited for
consideration of GBP202.0m, recognising a GBP74.2m gain on sale in
the first half of the year. The Group continues to retain a 50.1%
stake in Clyde Windfarm (Scotland) Limited.
Seagreen impairment reversal - On 24 September 2018, the Group
acquired a further 50% of Seagreen Wind Energy Limited
('Seagreen'), taking its ownership to 100% and bringing Seagreen
under full control of the Group. The Group reversed a previous
impairment charge of GBP14.2m in its 30 September 2018 Interim
Results as there was renewed commitment to develop the project.
SSE Energy Services disposal costs - In the prior year, the
Group recognised an impairment charge of GBP41.0m at 30 September
2018 on certain properties which will be sub-let to SSE Energy
Services following the completion of a proposed demerger
transaction with nPower. In addition, the Group recognised GBP47.9m
(September 2018: GBP26.1m) of professional advisor fees and IT and
physical separation costs as the Group separated its IT systems and
introduced physical separation in the properties that will be
occupied by both SSE and SSE Energy Services following the
disposal.
Stronelairg & Dunmaglass windfarms: On 31 March 2019, the
Group disposed of a 49.9% equity stake in its wholly owned
subsidiaries, Stronelairg Windfarm Limited ('Stronelairg') and
Dunmaglass Windfarm Limited ('Dunmaglass'), to Greencoat UK Wind
Plc ("UKW") for total consideration of GBP635.0m. The Group
assessed that it lost control of Stronelairg and Dunmaglass on that
date, and the 50.1% interest retained in the entities will be
accounted for as equity accounted investments in joint ventures
under the principles of IFRS 11 'Joint Arrangements'. The Group
acquired the joint venture investments at fair value under the
principles of IFRS 3 'Business Combinations', resulting in a total
gain of GBP733.0m, including fair value gain on acquisition of the
joint venture investments of GBP369.2m.
SSE Telecommunications: On 29 March 2019, the Group disposed of
a 50.0% equity stake in its wholly owned subsidiary, SSE
Telecommunications Limited ('SSE Telecoms'), to Infracapital
Partners III ('Infracapital') for initial consideration of
GBP215.0m. Under the terms of the sale agreement, SSE has the
ability to earn a further GBP85m in deferred consideration based on
SSE Telecoms achieving certain business objectives and a further
GBP80m in contingent consideration to be paid in a series of
instalments in the five-year period to 2024, based on financial
targets for out-performance. Total consideration has been initially
assessed at GBP230.5m, reflecting the span of contingent payments.
The Group has assessed that it lost control of SSE Telecoms as a
result of the transaction and the 50.0% equity stake retained will
be accounted for as an equity accounted joint venture under the
principles of IFRS 11 'Joint Arrangements'. The Group has acquired
the joint venture investment at fair value under the principles of
IFRS 3 'Business Combinations', resulting in a total gain of
GBP235.4m, including fair value gain on acquisition of the joint
venture investment of GBP119.3m.
6. Exceptional items and certain re-measurements (continued)
6.1 Exceptional items (continued)
Exceptional items recognised in the previous financial year
(continued)
Thermal Generation impairment charges and reversals - The Group
recognised an exceptional impairment of GBP30.5m on the Keadby gas
fired power station, due to a market shift in energy prices
achievable from its thermal fleet. The movement in clean spark
spreads was adverse for Keadby, however the same shift is
considered favourable to the Group's newer and more efficient plant
at Marchwood. As a result, the Group reversed prior impairments of
GBP27.8m against the Marchwood power station right of use lease
asset.
Pensions GMP equalisation - Following the High Court in October
2018, the Group recognised an exceptional past service cost of
GBP9.0m in the 31 March 2019 income statement for guaranteed
minimum pension equalisation across its defined benefit pension
schemes. In addition, the Group's joint venture SGN recognised an
exceptional past service charge of GBP0.8m, of which the Group
recognised its share of GBP0.3m as exceptional.
Prior year exceptional charges within discontinued
operations
Within the discontinued Gas Production segment, the Group
recognised a net impairment reversal of GBP29.7m related to its
North Sea Gas Production assets following an increase in
independently assessed hydrocarbon reserves and an increase to long
term gas price forecasts. The impairment reversals were recognised
on the Bacton (GBP15.8m) and Sean (GBP13.9m) fields at 31 March
2019.
Within its discontinued SSE Energy Services segment, the Group
recorded an exceptional impairment charge of GBP54.3m at 31 March
2019 related to discontinued marketing and customer data management
software assets.
6.2 Certain re-measurements
The Group's EPM function enters into forward commodity purchase
(and sales) contracts to meet the future demand requirements of its
domestic and business energy supply operating units and to optimise
the value of its Renewable and other Thermal generation assets.
Certain of these contracts are determined to be derivative
financial instruments under IFRS 9 and as such are required to be
recorded at their fair value. Changes in the fair value of those
commodity contracts designated as IFRS 9 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 representative of 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 24 months.
Conversely, commodity contracts that are not financial instruments
under IFRS 9 are accounted for as 'own use' contracts. The
re-measurements arising from IFRS 9 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.
7. Net finance costs
Year ended 31 March Six months ended 30 September Six months ended 30 September
2019 2019 2018
GBPm GBPm GBPm
Finance income:
Interest income from short term
1.1 deposits 1.1 0.8
Interest on pension scheme
9.5 assets 3.6 4.6
Foreign exchange translation of
- monetary assets and liabilities 0.8 -
Other interest receivable:
9.4 Scotia Gas Networks loan stock 4.7 4.7
Other joint ventures and
51.5 associates 27.4 18.5
15.5 Other receivable 3.9 12.8
76.4 36.0 36.0
87.0 Total finance income 41.5 41.4
Finance costs:
(35.3) Bank loans and overdrafts (18.3) (15.1)
(310.2) Other loans and charges (151.1) (159.8)
Notional interest arising on
(17.4) discounted provisions (7.8) (8.8)
(28.6) Lease interest charges (i) (18.5) (14.3)
27.7 Less: interest capitalised 5.5 17.0
Total finance costs before fair
(363.8) value movements (190.2) (181.0)
Changes in fair value of
financing derivative assets or
liabilities at fair value
through
(44.8) profit or loss (69.9) 39.6
(321.6) Net finance costs (218.6) (100.0)
Presented as:
87.0 Finance income 41.5 41.4
(408.6) Finance costs (260.1) (141.4)
(321.6) Net finance costs (218.6) (100.0)
Adjusted net finance costs are arrived at after the following
adjustments:
Six months ended 30 Six months ended 30
Year ended 31 March September September
2018 2019 2018
GBPm GBPm GBPm
(321.6) Net finance costs (218.6) (100.0)
(add)/less:
Share of interest from joint ventures and associates:
(9.4) Scotia Gas Networks loan stock (4.7) (4.7)
(114.3) Other jointly controlled entities and associates (83.2) (52.2)
(123.7) (87.9) (56.9)
Share of non-recurring joint venture refinancing costs
- (ii) 12.3 -
(123.7) (75.6) (56.9)
(9.5) Interest on pension scheme assets (3.6) (4.6)
Share of interest on net pension liabilities in joint
(1.9) ventures (0.6) (0.8)
44.8 Movement on financing derivatives (note 16) 69.9 (39.6)
(411.9) Adjusted net finance costs (228.5) (201.9)
17.4 Notional interest arising on discounted provisions 7.8 8.8
28.6 Lease interest charges (i) 18.5 14.3
(46.6) Hybrid coupon payment (46.5) (46.6)
Adjusted net finance costs for interest cover
(412.5) calculations (248.7) (225.4)
(i) The Group adopted IFRS 16 on 1 April 2019. See note 3.1 for
the impact of adoption
(ii) The Group's joint venture investment, Beatrice Offshore
Winds Limited ('BOWL'), completed a refinancing of its debt in the
six months ended 30 September 2019, which resulted in the Group
incurring its share of one-off finance costs of GBP12.3m. These are
deemed to be non-recurring and have not been incurred as part of
normal operations.
8. Taxation
The income tax expense reflects the anticipated effective rate
of tax on profits before taxation for the Group for the year ending
31 March 2020, taking account of the movement in the deferred tax
provision in the period so far as it relates to items recognised in
the income statement. The reported tax rate on the profit before
tax before exceptional items and certain re-measurements on
continuing operations is 13.3% (2018: 13.3%, March 2019: 9.6%). The
reported tax rate on the loss before tax after exceptional items,
including the effect of changes in tax rate, and certain
re-measurements on continuing operations was 14.1% (2018: 22.0%,
March 2019: (0.8)%).
The total adjusted effective rate of tax on profits before
taxation excluding exceptional items, certain re-measurements,
deferred tax associated with interest on net pension liabilities
under IAS 19R and adjusted for tax on associates and jointly
controlled entities for the period can be represented as
follows:
Six months ended 30 Six months ended 30
September September
Year ended 31 March 2019 2019 2018
Adjusted effective rate:
1.1% Current tax 12.0% 6.9%
12.9% Deferred tax 5.9% 11.1%
14.0% 17.9% 18.0%
During the period, the Group made no deficit repair
contributions to the Scottish Hydro Electric Pension Scheme and was
in discussions with the Trustees of the Scheme to cease regular
contributions (see note 17). As a result of the suspension of the
deficit repair contributions and the expected cessation of regular
contributions, the Group assessed during the period that the
surplus on the scheme could be recovered through means other than
through cash withdrawals. As a result, the Group has recognised
deferred tax on the surplus at 17% at 30 September 2019, rather
than the 35% tax rate which would have been expected to have been
incurred if the Group had taken cash withdrawals from the scheme.
The impact of this change in tax rate is a reduction in the
deferred tax liability of GBP105.7m, which has been recognised
through the Statement of Oher Comprehensive Income.
On 10 October 2019, subsequent to the period end, the Group
agreed to cease regular contributions to the scheme, effective from
1 October 2019 (see note 17).
9. Discontinued operations and assets and liabilities held for sale
The Group has two discontinued operations as at 30 September
2019: the GB domestic supply and energy related services business
(SSE Energy Services); and the Group's investment in Gas Production
assets. Transactions to dispose of these businesses are considered
to be highly probable at the balance sheet date, therefore the
assets and liabilities have been presented as held for sale and the
business activities have been presented as discontinued. At 31
March 2019 and 30 September 2018 only SSE Energy Services was
presented as a discontinued operation, therefore the comparative
information at these dates has been restated to include the results
of Gas Production, in line with IFRS 5. The profits/(losses) of the
discontinued operations, after elimination of intercompany
transactions, are as follows:
31 March 2019 30 September 2019
Before Before Six months
exceptional Exceptional exceptional Exceptional ended 30
items and items and items and items and September 2018
remeasurements remeasurements Total remeasurements remeasurements Total GBPm
GBPm GBPm GBPm GBPm GBPm GBPm
3,614.8 - 3,614.8 Revenue 1,482.7 - 1,482.7 1,421.6
(2,726.9) - (2,726.9) Cost of sales (1,150.7) - (1,150.7) (1,094.4)
887.9 - 887.9 Gross profit 332.0 - 332.0 327.2
Operating
(749.4) (24.6) (774.0) costs (i) (354.7) (489.1) (843.8) (370.0)
Operating
138.5 (24.6) 113.9 (loss)/profit (22.7) (489.1) (511.8) (42.8)
11.5 28.4 39.9 Taxation 13.6 - 13.6 20.3
(Loss)/profit
from
discontinued
operations,
150.0 3.8 153.8 net of tax (9.1) (489.1) (498.2) (22.5)
(i) Included within the underlying operating costs of SSE Energy
Services are GBP9.4m of non-recurring restructuring costs, which
have not been treated as exceptional.
Cashflows from discontinued operations
March
2019 September 2019 September 2018
GBPm GBPm GBPm
158.6 Cashflows from operating activities 56.7 58.1
(145.5) Cashflows from investing activities (76.9) (54.2)
13.1 Net increase in cash and cash equivalents from discontinued operations (20.2) 3.9
9. Discontinued operations and assets and liabilities held for sale (continued)
Assets and liabilities held for sale
On 13 September 2019, the Group announced it had entered into an
agreement with OVO Energy Limited to dispose of SSE Energy
Services, the Group's GB domestic gas and electricity supply and
related services business (see note 4.2(i)). The assets and
liabilities within the SSE Energy Services disposal group have been
classified as held for sale and have been presented separately
after elimination of intercompany balances on the face of the
balance sheet. In addition, the Group has previously stated its
intention to dispose of its investments in Gas Production and is in
active negotiations to sell this business. The assets and
liabilities held for sale, subsequent to the exceptional impairment
recognised (see note 6, GBP489.1m) have been stated at cost, which
is lower than their fair value less costs to sell.
March
2019 SSE Energy Services Gas Production September 2019 September 2018
GBPm GBPm GBPm GBPm GBPm
39.1 Property plant and equipment 12.9 370.3 383.2 549.7
736.1 Goodwill and other intangible assets 321.5 93.8 415.3 197.8
4.9 Deferred tax asset 1.7 17.5 19.2 5.3
0.9 Inventories 1.0 4.2 5.2 0.9
988.1 Trade and other receivables 660.7 0.9 661.6 618.2
95.2 Cash and cash equivalents 75.0 - 75.0 86.3
1,864.3 Total assets 1,072.8 486.7 1,559.5 1,458.2
(1,069.0) Trade and other payables (891.8) (23.2) (915.0) (815.1)
(6.8) Current tax liabilities - - - (1.3)
(11.4) Deferred tax liabilities (6.9) - (6.9) (12.9)
(4.7) Provisions (2.9) (388.9) (391.8) (2.0)
(1,091.9) Total liabilities (901.6) (412.1) (1,313.7) (831.3)
772.4 Net assets 171.2 74.6 245.8 626.9
The assets and liabilities classified as held for sale at 30
September 2018 and 31 March 2019 were SSE Energy Services, which
remains held for sale; and SSE Water, which was disposed in May
2019 for consideration of GBP8.5m, resulting in a gain on sale of
GBP0.3m.
10. Dividends
Ordinary dividends
Six months ended 30 September
Year ended 31 March 2019 2019 Six months ended 30 September 2018
Pence per Settled Pence per Settled Pence per
Settled via ordinary Total via scrip ordinary via scrip ordinary
Total GBPm scrip GBPm share GBPm GBPm share Total GBPm GBPm share
Final -
year ended
31 March
- - - 2019 700.3 209.2 68.2 - - -
Interim -
year ended
31 March
300.5 141.3 29.3 2019 - - - - - -
Final -
year ended
31 March
672.5 141.8 66.3 2018 - - - 672.5 141.8 66.3
973.0 283.1 700.3 209.2 672.5 141.8
The final dividend of 68.2p per ordinary share declared in the
financial year ended 31 March 2019 (2018: 66.3p) was approved at
the Annual General Meeting on 18 July 2019 and was paid to
shareholders on 20 September 2019. 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.
An interim dividend of 24.0p per ordinary share (2018: 29.3p)
has been proposed and is due to be paid on 13 March 2020 to those
shareholders on the SSE plc share register on 17 January 2020. The
proposed interim dividend has not been included as a liability in
these financial statements. A scrip dividend will be offered as an
alternative.
11. (Losses)/earnings per share
Basic (losses)/earnings per share
The calculation of basic (losses)/earnings per share at 30
September 2019 is based on the net (loss)/profit attributable to
ordinary shareholders and the weighted average number of ordinary
shares outstanding during the period ended 30 September 2019.
Adjusted earnings per share
Adjusted earnings per share has been calculated by excluding the
charge for deferred tax, the interest on net pension liabilities
and the impact of exceptional items and certain
re-measurements.
Continuing operations
Year ended Six months ended Six months ended
31 March 2019 30 September 2019 30 September 2018
(Losses)/ (Losses)/
Earnings per (Losses)/ earnings per (Losses)/ earnings per
Earnings share earnings share earnings share
GBPm pence GBPm pence GBPm pence
(Loss)/earnings
attributable to
ordinary
1,409.1 137.9 shareholders (434.0) (42.1) (291.0) (28.6)
Less:
Loss/(earnings)
attributable to
discontinued
(153.8) (15.0) operations 498.2 48.3 22.5 2.2
Basic
earnings/(loss)
on continuing
operations for
1,255.3 122.9 EPS 64.2 6.2 (268.5) (26.4)
Exceptional
items and
certain
re-measurements
(711.1) (69.6) (note 6) 87.3 8.5 411.6 40.5
Basic excluding
exceptional
items and
certain re-
544.2 53.3 measurements 151.5 14.7 143.1 14.1
Adjusted for:
Share of
non-recurring
joint venture
refinancing
- - costs 12.3 1.2 - -
Depreciation
charge on fair
2.9 0.3 value uplifts 10.3 1.0 2.3 0.2
Interest on net
pension scheme
liabilities
(9.5) (0.9) (note 7) (3.6) (0.3) (4.6) (0.4)
Share of
interest on
net pension
liabilities in
(1.9) (0.2) joint venture (0.6) (0.1) (0.8) (0.1)
86.7 8.4 Deferred tax 18.3 1.8 25.7 2.5
Deferred tax
from share of
joint ventures
0.7 0.1 and associates (2.9) (0.3) 1.2 0.1
623.1 61.0 Adjusted 185.3 18.0 166.9 16.4
1,255.3 122.9 Basic 64.2 6.2 (268.5) (26.4)
- - Dilutive effect of convertible debt and share options - - - -
1,255.3 122.9 Diluted 64.2 6.2 (268.5) (26.4)
Reported earnings per share
Year ended Six months ended Six months ended
31 March 2019 30 September 2019 30 September 2018
Earnings/ (Losses)
Earnings Earnings per share Earnings/ (Losses) per share Losses Losses per share
GBPm pence GBPm pence GBPm pence
Basic
Earnings/(losses)
per share on
continuing
1,255.3 122.9 operations 64.2 6.2 (268.5) (26.4)
Earnings/(losses)
per share on
discontinued
153.8 15.0 operations (498.2) (48.3) (22.5) (2.2)
Earnings/(losses)
per share
attributable to
ordinary
1,409.1 137.9 shareholders (434.0) (42.1) (291.0) (28.6)
The weighted average number of shares used in each calculation
is as follows:
Six months ended 30 September Six months ended 30 September
Year ended 31 March 2019 2019 2018
Number of shares Number of shares Number of shares
(millions) (millions) (millions)
For basic and adjusted
1,021.7 earnings per share 1,030.4 1,015.7
Effect of exercise of share
- options 0.9 0.4
1,021.7 1,031.3 1,016.1
12. Acquisitions and disposals
Acquisitions and disposals in the current period
There have been no significant acquisitions or disposals in the
current period. Proceeds from disposals within the cashflow
statement relate to sales of property, plant and equipment and the
disposal of SSE Water in the period.
Prior period acquisitions and disposals
Acquisitions
On 24 September 2018, the Group acquired the remaining 50% of
Seagreen Wind Energy Limited ('Seagreen') through its wholly owned
subsidiary SSE Renewables Developments (UK) Limited, for
consideration of GBP118.0m. The Group previously held 50% of
Seagreen, which was an equity accounted joint venture. The Group
assessed that the assets acquired did not meet the IFRS 3 'Business
Combinations' criteria to be classified as a business, therefore a
fair value exercise was only carried out on the assets acquired.
The 50% stake in Seagreen that the Group held prior to this
transaction remained held at cost.
Disposals
Clyde windfarm - On 8 May 2018 the Group's joint venture
partners in the Clyde windfarm, Greencoat UK Wind plc and GLIL
Infrastructure LLP, exercised their option to purchase a further
14.9% equity stake in Clyde Windfarm (Scotland) Limited for
consideration of GBP202.0m. The Group recognised an exceptional
gain on sale of GBP74.2m from the disposal. SSE continues to retain
a 50.1% stake in the equity accounted joint venture following the
sale in the prior period.
Stronelairg & Dunmaglass windfarms: On 31 March 2019, the
Group disposed of a 49.9% equity stake in its wholly owned
subsidiaries, Stronelairg Windfarm Limited ('Stronelairg') and
Dunmaglass Windfarm Limited ('Dunmaglass'), to Greencoat UK Wind
Plc ("UKW") for total consideration of GBP635.0m. The Group has
assessed that it lost control of Stronelairg and Dunmaglass on that
date, and the 50.1% interest retained in the entities will be
accounted for as equity accounted investments in joint ventures
under the principles of IFRS 11 'Joint Arrangements'. The Group
acquired the joint venture investments at fair value under the
principles of IFRS 3 'Business Combinations', resulting in a total
gain of GBP733.0m, including fair value gain on acquisition of the
joint venture investments of GBP369.2m.
SSE Telecommunications: On 29 March 2019, the Group disposed of
a 50.0% equity stake in its wholly owned subsidiary, SSE
Telecommunications Limited ('SSE Telecoms'), to Infracapital
Partners III ('Infracapital') for initial consideration of
GBP215.0m. Under the terms of the sale agreement, SSE has the
ability to earn a further GBP85m in deferred consideration based on
SSE Telecoms achieving certain business objectives and a further
GBP80m in contingent consideration to be paid in a series of
instalments in the five-year period to 2024, based on financial
targets for out-performance. Total consideration has been initially
assessed at GBP230.5m, reflecting the span of contingent payments
and has been reassessed but not adjusted at 30 September 2019. The
Group recorded a total gain on disposal of GBP235.4m, including
fair value gain on acquisition of a joint venture investment of
GBP119.3m.
Indigo pipelines: The Group holds an investment in the Scottish
Equity Partners ('SEP') Fund, which disposed of its investment in
Indigo Pipelines in the year. On 5 March 2019, the SEP Fund paid a
special dividend of GBP69.2m to SSE, resulting a GBP54.3m
exceptional profit.
Cloosh windfarm: On 28 March 2019, the Group disposed of a 25.0%
equity stake in its joint venture investment in Cloosh Valley Wind
Farm Holdings DAC ('Cloosh') to GR Wind Farms 1 Limited ('GRWF1')
for consideration of EUR34.5m (GBP29.8m), recognising a gain on
sale of GBP23.6m in the year. Following the disposal SSE continues
to hold a 25% investment in Cloosh, with GRWF1 holding the
remaining 75% investment.
13. Sources of finance
13.1 Capital management
The Board's policy is to maintain a strong balance sheet and
credit rating 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 30 September 2019, the
Group's long term credit rating was BBB+ stable outlook by Standard
& Poor's and was Baa1 stable 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 on the
market, the timing of these purchases depends on market prices and
economic conditions. The use of share buy-backs shall be
implemented if the Directors believe that doing so would be in the
best interests of shareholders. During the six months to 30
September 2019 SSE bought back 17,850,924 at an average share price
of GBP11.20 for consideration of GBP201.1m (including stamp duty
and commission).
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. On 20 September 2019 the Group issued its
third Green Bond, a 16 year GBP350m bond with a coupon of 2.25% and
an all in funding cost of 2.39%. On 3 October 2019, subsequent to
the period end, the Group completed the refinancing of its GBP200m
revolving credit facility with the Bank of China, which now matures
in 2024 with the option of two further one year extensions. This
aligns to the GBP1.3bn revolving credit facility which was
refinanced in March 2019. These committed bank facilities can be
accessed at short notice for use in managing the Group's short term
funding requirements, although these committed facilities remain
undrawn for the majority of the time and were undrawn at 30
September 2019.
March September September
2019 2019 2018
GBPm GBPm GBPm
9,138.3 Total borrowings (excluding leases) 9,572.2 9,315.2
(431.6) Less: Cash and cash equivalents (90.0) (76.7)
(95.2) Cash presented as held for sale (75.0) (86.3)
8,611.5 Net debt (excluding hybrid equity) 9,407.2 9,152.2
1,169.7 Hybrid equity 1,169.7 1,169.7
(344.2) Cash held as collateral and other short-term loans (238.0) (361.6)
9,437.0 Adjusted net debt and hybrids 10,338.9 9,960.3
4,628.9 Equity attributable to shareholders of the parent 3,642.2 3,238.4
14,065.9 Total capital excluding leases 13,981.1 13,198.7
13.2 Loans and other borrowings
March 2019 September 2018
(restated) September 2019 (restated)
GBPm GBPm GBPm
Current
668.4 Other short-term loans 1,243.5 868.6
29.0 Lease obligations 49.5 28.9
697.4 1,293.0 897.5
Non-current
8,469.9 Loans 8,328.7 8,446.6
200.3 Lease obligations 404.4 210.5
8,670.2 8,733.1 8,657.1
9,367.6 Total loans and borrowings 10,026.1 9,554.6
(431.6) Cash and cash equivalents (90.0) (76.7)
8,936.0 Unadjusted net debt 9,936.1 9,477.9
Add/(less):
1,169.7 Hybrid equity (note 14) 1,169.7 1,169.7
(229.3) Lease obligations (453.9) (239.4)
(344.2) Cash held as collateral (238.0) (361.6)
(95.2) Cash presented as held for sale (75.0) (86.3)
9,437.0 Adjusted Net Debt and Hybrid Capital 10,338.9 9,960.3
13. Sources of Finance (continued)
13.2 Loans and other borrowings (continued)
SSE's adjusted net debt and hybrid capital was GBP10.3bn at 30
September 2019, compared with GBP9.4bn at 31 March 2019 and
GBP10.0bn at 30 September 2018. The increase in net debt and hybrid
capital reflects SSE's ongoing investment programme. The
comparative values have been restated in relation to the hedge
accounting for cross-currency swaps as described at Note 2(v).
Adjusted net debt and hybrid capital is stated after removing
lease obligations and cash held as collateral in line with the
Group's presentation basis which is explained at Note 2(i). 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.
In addition, 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 at 30 September 2019
GBP492m of commercial paper was outstanding. In addition, the Group
also has GBP1.5bn (September 2018: GBP1.5bn) of committed revolving
credit facilities in place which were undrawn at 30 September
2019.
13.3 Hybrid debt
Included within loans and borrowings at 30 September 2019 is
GBP1.0bn (2018: GBP1.0bn, March 2019: GBP1.0bn) of hybrid debt
securities issued on 16 March 2017 with an issuer first call date
on 16 September 2022. Due to the instruments having a fixed
redemption date, they have been accounted for as debt and are
included within loans and borrowings. This is in contrast to the
previous hybrid instruments issued which had no fixed redemption
date and are accounted for as equity.
14. Hybrid Equity
March 2019 September 2019 September 2018
GBPm Perpetual subordinated capital securities GBPm GBPm
748.3 GBP 750m 3.875% perpetual subordinated capital securities (i) 748.3 748.3
421.4 EUR 600m 2.375% perpetual subordinated capital securities (i) 421.4 421.4
1,169.7 1,169.7 1,169.7
The purpose of the SSE's hybrid capital programme is to
strengthen SSE's capital base and complement other sources of
finance. Further commentary is provided in the Capital Management
section of Note 13.
(i) 10 March 2015 GBP750m and EUR600m Hybrid Capital Bonds
The March 2015 hybrid capital bonds have 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 every 5
years thereafter. The date for the first discretionary redemption
of the EUR600m hybrid capital bond is 1 April 2021 and then every 5
years thereafter. For the GBP750m capital issued coupon payments
are made annually on 10 September, and for the EUR600m capital
issued coupon payments are made annually on 1 April.
Coupon Payments
In relation to the EUR600m hybrid capital bond, a coupon payment
of GBP17.4m (2018: GBP17.5m) was paid on 1 April 2019. For the
GBP750m hybrid capital bond a coupon payment of GBP29.1m (2018:
GBP29.1m) was paid on 10 September 2019. The coupon payments in the
six month period to 30 September 2019 consequently totalled
GBP46.5m (2018: GBP46.6m).
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 on redemption; or on a dividend payment on ordinary shares,
both of which occur at the sole option of the Company. Interest
will accrue on any deferred coupon.
15. Share capital
Number
(millions) GBPm
Allotted, called up and fully paid:
At 1 April 2019 1,046.9 523.4
Issue of shares 19.1 9.5
Repurchase of shares (17.9) (8.9)
At 30 September 2019 1,048.1 524.0
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.
Shareholders were able to elect to receive ordinary shares in
place of the final dividend for the year to 31 March 2019 of 68.2p
(2018: 66.3p in relation to the final dividend for the year to 31
March 2018; March 2019: 29.3p in relation to the interim dividend
for the year to 31 March 2019) per ordinary share under the terms
of the Company's scrip dividend scheme. This resulted in the issue
of 19,086,291 (September 2018: 11,316,873; March 2019: 12,543,773)
new fully paid ordinary shares.
In addition, the Company issued 0.0m shares (2018: 0.1m, March
2019: 0.1m) during the period under the savings-related share
option schemes and discretionary share option schemes, all of which
were settled by shares held in Treasury for a consideration of
GBP0.0m (2018: GBP0.8m, March 2019: GBP1.2m).
15. Share capital (continued)
Under the share buyback programme announced on 1 February 2019,
17.9m shares were repurchased and cancelled in the 6 month period
to 30 September 2019 for a total consideration of GBP201.1m
(including stamp duty and commission); (year to 31 March 2019 - no
shares were repurchased). The nominal value of share capital
repurchased and cancelled is transferred out of share capital and
into the capital redemption reserve.
Of the 1,048.1m shares in issue, 7.7m are held as treasury
shares. These shares will be held by the Group and used to award
shares to employees under the Sharesave scheme in the UK.
During the period, on behalf of the Company, the employee share
trust purchased 0.1 million shares (2018: 0.1 million, March 2019:
0.3 million) for a consideration of GBP1.4m (2018: GBP1.9m, March
2019: GBP3.6m) to be held in trust for the benefit of employee
share schemes.
16. Financial Risk Management
The Board has overall responsibility for the establishment and
oversight of the Group's risk management framework. 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. 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.
From 1 April 2019, SSE established a Group-wide risk committee
reporting to the Group Executive Committee, which replaced the
Wholesale and Retail Risk Committees. This committee is responsible
for reviewing the strategic, market, credit, operational and
liquidity risks and exposures that arise from the Group's operating
activities. In addition, the Group has a Board level sub-committee,
the Energy Markets Risk Committee, chaired by Non-Executive
Director Tony Cocker, which was established to oversee the Group's
new approach to hedging as announced in November 2018.
In the six months to 30 September 2019, the Group continued to
be exposed to difficult economic conditions. Aged debt levels
remain high and the Group has continued to commit significant
internal resource to managing credit risk in the period.
The Group's policy in relation to liquidity risk continues to be
to ensure, in so far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable
losses or risking damage to its reputation. Further detail is noted
in the Group's financial statements at March 2019.
For financial reporting purposes, the Group has classified
derivative financial instruments into two categories, operating
derivatives and financing derivatives. Operating derivatives relate
to all qualifying commodity contracts including those 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.
The net movement reflected in the interim income statement can
be summarised as follows:
Six months ended 30 September Six months ended 30 September
Year ended 31 March 2019 2019 2018
GBPm GBPm GBPm
Operating derivatives
Total result on operating
(695.9) derivatives (i) (163.8) (629.6)
367.7 Less: amounts settled (ii) 318.4 64.2
Movement in unrealised
(328.2) derivatives 154.6 (565.4)
Financing derivatives (and
hedged items)
Total result on financing
(35.7) derivatives (i) (116.4) 48.7
(9.1) Less: amounts settled (ii) 46.5 (9.1)
Movement in unrealised
(44.8) derivatives (69.9) 39.6
(373.0) Net income statement impact 84.7 (525.8)
(i) Total result on derivatives (and hedged items) 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 period represent the result on
derivatives transacted which have matured or been delivered and
have been included within the total result on derivatives.
16. Financial Risk Management (continued)
The fair values of the primary financial assets and liabilities
of the Group together with their carrying values are as
follows:
March 2019 (restated) (i) September 2019 September 2018 (restated) (i)
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
Financial Assets
Current
989.3 989.3 Trade receivables 871.3 871.3 669.5 669.5
3.8 3.8 Other receivables 5.1 5.1 4.5 4.5
Cash collateral and other short
344.2 344.2 term loans 238.0 238.0 361.6 361.6
431.6 431.6 Cash and cash equivalents 90.0 90.0 76.7 76.7
306.1 306.1 Derivative financial assets 251.6 251.6 390.8 390.8
2,075.0 2,075.0 1,456.0 1,456.0 1,503.1 1,503.1
Non-current
0.5 0.5 Unquoted equity investments 0.5 0.5 2.9 2.9
Loans to associates and jointly
935.4 935.4 controlled entities 797.8 797.8 750.5 750.5
244.4 244.4 Derivative financial assets 294.4 294.4 333.0 333.0
1,180.3 1,180.3 1,092.7 1,092.7 1,086.4 1,086.4
3,255.3 3,255.3 2,548.7 2,548.7 2,589.5 2,589.5
Financial Liabilities
Current
(1,171.4) (1,171.4) Trade payables (539.0) (539.0) (617.9) (617.9)
Bank loans commercial paper and
(668.4) (689.4) overdrafts (1,243.5) (1,257.9) (868.6) (910.2)
(29.0) (29.0) Lease liabilities (49.5) (49.5) (28.9) (28.9)
(796.3) (796.3) Derivative financial liabilities (555.0) (555.0) (1,069.5) (1,069.5)
(2,665.1) (2,686.1) (2,387.0) (2,401.4) (2,584.9) (2,626.5)
Non-current
(8,469.9) (9,408.7) Loans and borrowings (8,328.7) (9,321.9) (8,446.6) (9,267.8)
(200.3) (200.3) Lease liabilities (404.4) (404.4) (210.5) (210.5)
(460.9) (460.9) Derivative financial liabilities (487.4) (487.4) (499.7) (499.7)
(9,131.1) (10,069.9) (9,220.5) (10,213.7) (9,156.8) (9,978.0)
(11,796.2) (12,756.0) (11,607.5) (12,615.1) (11,741.7) (12,604.5)
(8,540.9) (9,500.7) Net financial liabilities (9,058.8) (10,066.4) (9,152.2) (10,015.0)
(i) Comparative balance sheets at 31 March 2019 and 30 September
2018 restated as noted at Note 2(v)
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) to assess fair
value.
-- 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.
September 2019 September 2018 (restated) (i)
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Financial Assets
Energy derivatives 7.5 89.5 - 97.0 32.7 293.7 - 326.4
Interest rate derivatives - 441.3 - 441.3 - 379.6 - 379.6
Foreign exchange derivatives - 7.7 - 7.7 - 12.3 - 12.3
Unquoted equity instruments - - 0.5 0.5 - - 2.9 2.9
7.5 538.5 0.5 546.5 32.7 685.6 2.9 721.2
Financial Liabilities
Energy derivatives (239.6) (283.7) - (523.3) (289.2) (860.5) - (1,149.7)
Interest rate derivatives - (508.1) - (508.1) - (419.0) - (419.0)
Foreign exchange derivatives - (11.0) - (11.0) - (0.5) - (0.5)
Loans and borrowings - (311.4) - (311.4) - (136.8) - (136.8)
(239.6) (1,114.2) - (1,353.8) (289.2) (1,416.8) - (1,706.0)
(i) Comparative balance sheets at 30 September 2018 restated as noted at Note 2(v)
There were no significant transfers out of level 1 into level 2
and out of level 2 into level 1 during the 6 months ended 30
September 2019, nor in the 6 months ended 30 September 2018.
16. Financial Risk Management (continued)
Fair Value Hierarchy (continued)
March 2019 (restated) (i)
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Financial Assets
Energy derivatives 6.4 198.9 - 205.3
Interest rate derivatives - 335.7 - 335.7
Foreign exchange derivatives - 9.5 - 9.5
Unquoted equity instruments - - 0.5 0.5
6.4 544.1 0.5 551.0
Financial Liabilities
Energy derivatives (328.4) (457.5) - (785.9)
Interest rate derivatives - (462.3) - (462.3)
Foreign exchange derivatives - (9.0) - (9.0)
Loans and borrowings - (139.1) - (139.1)
(328.4) (1,067.9) - (1,396.3)
(ii) Comparative balance sheet at 31 March 2019 restated as noted at Note 2(v)
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
2019.
17. Retirement Benefit Obligations
Defined Benefit Schemes
The Group has two final salary pension schemes which provide
defined benefits based on final pensionable pay, which are subject
to independent valuations at least every three years. The Group
also has an Employer Financed Retirement Benefit scheme and a Group
Personal Pension Plan, details of which were provided in the
Group's Financial Statements to 31 March 2019.
Summary of Defined Benefit Pension Schemes:
Movement
recognised in Pension Movement recognised in respect of
the SoCI asset/(liability) the pension asset in the SoCI Pension asset/(liability)
March March September September September September
2019 2019 2019 2018 2019 2018
GBPm GBPm GBPm GBPm GBPm GBPm
Scottish Hydro
Electric Pension
(38.9) 537.7 Scheme 47.6 (60.8) 587.1 518.5
Southern Electric
(43.5) (250.6) Pension Scheme 50.4 83.5 (183.2) (136.8)
Net actuarial
gain/(loss) and
combined
(82.4) 287.1 asset/(liability) 98.0 22.7 403.9 381.7
A triennial valuation of the Southern Electric Pension Scheme as
at 31 March 2019 was started during the period and is expected to
be completed by 31 March 2020.
In the prior year a triennial valuation for the Scottish Hydro
Electric Pension Scheme ('SHEPS') was finalised. The scheme had a
surplus of GBP156.7m at 31 March 2018 on a funding basis compared
to a surplus of GBP587.1m at 30 September 2019 on an IAS19 basis.
The finalisation of the triennial review has allowed the Company to
agree a new schedule of contributions to the scheme during the six
months ended 30 September 2019. The Company will now cease regular
contributions to the scheme for a period until the surplus on a
funding basis is negative for two successive quarterly valuations.
The contributions to the scheme ceased from 1 October 2019,
subsequent to the reporting date.
A summary of the movement presented in the statement of changes
in equity is shown below:
Six months ended 30 September Six months ended 30 September
Year ended 31 March 2019 2019 2018
GBPm GBPm GBPm
Actuarial gains/(losses)
(82.4) recognised 98.0 22.7
21.0 Deferred tax thereon (25.2) 6.2
Change in deferred tax rate
recognised on the SHEPS
- surplus (see note 8) 105.7 -
Net gain recognised in
(61.4) statement of changes in equity 178.5 28.9
The major assumptions used by the actuaries in both schemes in
preparing the IAS19 valuations were:
March 2019 September 2019 September 2018
3.85% Rate of increase in pensionable salaries 3.70% 4.30%
3.35% Rate of increase in pension payments 3.20% 3.30%
2.40% Discount rate 1.80% 2.90%
3.35% Inflation rate 3.20% 3.30%
17. Retirement Benefit Obligations (continued)
The assumptions relating to longevity underlying the pension
liabilities are based on standard actuarial mortality tables and
include an allowance for future improvements in longevity. The
assumptions, equivalent to future longevity for members in normal
health at age 65, are as follows:
March 2019 September 2019 September 2018
Male Female Male Female Male Female
Scottish Hydro Electric Pension Scheme
23 24 Currently aged 65 23 24 23 24
24 27 Currently aged 45 24 27 25 27
Southern Electric Pension Scheme
23 25 Currently aged 65 23 25 23 25
24 26 Currently aged 45 24 26 24 26
On 1 October 2019, subsequent to the reporting date, the
Scottish Hydro Electric Pension Scheme converted a longevity swap
contract covering cGBP800m of liabilities of 2,235 current
pensioners and dependents to a buy-in contract. The buy-in contract
removes the Group's exposure to the volatility in the liabilities
of these members as future benefit payments will be funded by the
third party re-insurer.
18. Capital Commitments
March 2019 September 2019 September 2018
GBPm GBPm GBPm
Capital Expenditure
768.8 Contracted for but not provided 653.4 680.5
Capital commitments of GBP38.1m (2018: GBP16.2m; March 2019:
GBP26.2m) related to business activities that are held for sale at
the respective reporting dates, which are excluded from the number
above.
19. Related Party Transactions
The following trading transactions took place during the period
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 joint control or significant influence
over.
Purchase Purchase
Sale of of goods Sale of of goods
goods and and Amounts Amounts goods and and Amounts Amounts
services services owed from owed to services services owed from owed to
September 2019 September 2018
Equity accounted
joint ventures: GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Scotia Gas Networks
Ltd 22.4 (66.8) - (15.1) 26.1 (71.2) 0.6 (16.1)
Seabank Power Ltd 18.6 (25.9) 0.1 (6.5) 16.2 (28.7) 0.1 (8.7)
Marchwood Power Ltd 7.2 (63.6) 0.4 (20.9) 5.4 (62.4) 0.4 (17.3)
Clyde Windfarm
(Scotland) Ltd 1.7 (47.5) 3.6 (33.6) 1.7 (55.4) 4.7 (30.0)
Beatrice Offshore
Windfarm Ltd 3.9 (17.1) 1.4 (3.5) 3.9 - 3.4 -
Stronelairg
Windfarm Ltd 1.3 (22.7) 1.4 (13.4) - - - -
Dunmaglass Windfarm
Ltd 0.5 (10.6) 0.5 (6.7) - - - -
SSE
Telecommunications
ltd 20.9 (20.1) 1.6 (13.2) - - - -
Other Joint
Ventures 6.8 (116.6) 20.0 (41.4) 3.4 (30.6) 6.1 (5.0)
Associates - (18.4) - (3.8) - (17.2) - (4.3)
Purchase of goods and
Sale of goods and services services Amounts owed from Amounts owed to
March 2019
Joint ventures: GBPm GBPm GBPm GBPm
Scotia Gas Networks Ltd 46.2 (140.3) 11.8 (1.2)
Seabank Power Ltd 45.9 (60.5) 0.1 (10.2)
Marchwood Power Ltd 15.4 (116.2) 0.4 (14.6)
Clyde Windfarm (Scotland)
Ltd 3.5 (150.3) 3.7 (41.3)
Beatrice Offshore Windfarm
Ltd 6.4 - 1.8 -
Other Joint Ventures 49.5 (171.4) 17.6 (44.3)
Associates - (35.4) - -
19. Related Party Transactions (continued)
The Group's gas supply activity incurs gas distribution charges
from Scotia Gas Networks while the Group also provides services to
Scotia Gas Networks in the form of a management service agreement
for corporate services and stock procurement services. 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. The amounts
outstanding are trading balances, are unsecured and will be settled
in cash. The transactions with Clyde Windfarm (Scotland) Limited
relate to contracts for the provisions of energy under power
purchase agreements. This related party was previously wholly owned
by the Group. No guarantees have been given or received. No
provisions have been made for doubtful debts in respect of the
amounts owed by related parties.
In addition to the above trading transactions the Group was owed
the following loans from its principal joint ventures and
associates: Scotia Gas Networks GBP109.2m (2018: GBP109.2m, March
2019: GBP109.2m), Multifuel Energy Limited GBP249.7m (2018:
GBP236.7m, March 2019: GBP251.2), Marchwood Power Limited GBP65.1m
(2018: GBP79.8m, March 2019: GBP70.6m), Clyde Windfarm (Scotland)
Limited GBP127.0m (2018: GBP264.1m, March 2019: GBP127.0m),
Beatrice Offshore Windfarm Ltd GBP17.1m (2018: GBPnil, March 2019:
GBP147.7m), Dunmaglass Windfarm Limited GBP46.6m (2018: GBPnil,
March 2019: GBP46.6m), Stronelairg Windfarm Ltd GBP88.7m (2018:
GBPnil, March 2019: GBP88.7m), SSE Telecommunications Ltd GBP27.2m
(2018: GBPnil, March 2019: GBP26.8m), and Doggerbank Offshore
Windfarms GBP24.0m (2018: GBP15.4m, March 2019: GBP24.0m).
20. Seasonality of operations
Certain activities of the Group are affected by weather and
temperature conditions and seasonal market price fluctuations. As a
result of this, the amounts reported for the interim period may not
be indicative of the amounts that will be reported for the full
year due to seasonal fluctuations in customer demand for gas,
electricity and services, the impact of weather on demand,
renewable generation output and commodity prices, market changes in
commodity prices and changes in retail tariffs. In Networks, the
volumes of electricity and gas distributed or transmitted across
network assets are dependent on levels of customer demand which are
generally higher in winter months. In SSE Energy Services
(discontinued), Business Energy and Airtricity, notable seasonal
effects include the impact on customer demand of warmer
temperatures in the first half of the financial year. In Thermal
Generation, Renewables and Gas Production (discontinued), there is
the impact of lower customer demand on commodity prices. The
weather impact on Renewable generation production in relation to
hydro and wind assets is particularly affected by seasonal
fluctuation. The impact of temperature on customer demand for gas
is more volatile than the equivalent demand for electricity.
21. Post Balance Sheet Events
21.1 Resumption of the British Capacity Market scheme
On 24 October 2019, subsequent to the period end, the European
Commission (EC) announced their approval of the British Capacity
Market scheme, which was previously suspended under EU state aid
regulations. Following the EC announcement, the UK Government
confirmed the reinstatement of the British Capacity Market scheme
on 25 October 2019, including resumption of capacity payments in
respect of agreements that existed in November 2018 that were
prevented from being paid as a result of the suspension.
The Group considers that the EC announcement, and subsequent UK
Government instruction to reinstate the original scheme, is an
adjusting post-balance sheet event. This adjusting event resulted
in revenue totalling GBP109.6m in relation to the scheme being
recognised in the period to 30 September 2019, including GBP60.4m
in relation to revenue not recognised in respect of the prior
financial year.
We confirm that to the best of our knowledge:
i) the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
ii) the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year;
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year that have materially affected
the financial position or performance of the entity during that
period; and any changes in the related party transactions described
in the last annual report that could do so; and
(c) DTR 4.2.10R of the Disclosure and Transparency Rules, being
the condensed set of financial statements, which has been prepared
in accordance with the applicable set of accounting standards,
gives a true and fair view of the assets, liabilities, financial
position and profit or loss of the issuer, or the undertakings
included in the consolidation as a whole.
For and on behalf of the Board
Alistair Phillips-Davies Gregor Alexander
Chief Executive Finance Director
London
12 November 2019
Introduction
We have been engaged by the Company to review the condensed
consolidated set of financial statements in the half-yearly
financial report for the six months ended 30 September 2019 which
comprises the Consolidated Income Statement, Consolidated Statement
of Other Comprehensive Income, Consolidated Balance Sheet,
Consolidated Statement of Changes in Equity, Consolidated Cash Flow
Statement and the related explanatory notes 1 to 21. We have read
the other information contained in the half yearly financial report
and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed
consolidated set of financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The
condensed consolidated set of financial statements included in this
half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed consolidated set of financial statements in the
half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated set of
financial statements in the half-yearly financial report for the
six months ended 30 September 2019 is not prepared, in all material
respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Ernst & Young LLP
London
12 November 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FFWEFEFUSESF
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