REG - SSE Plc - Annual Financial Report <Origin Href="QuoteRef">SSE.L</Origin> - Part 2

SSEAnnouncement

16/07/2015 12:12

- Part 2: For the preceding part double click  ID:nRSW9283Qa 

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
 competitive and stable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
 Funding shortfall                                                                                                                                                           Human and relationship capital management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
 What is the risk?SSE's policy is to ensure that it has at all times funds available to meet its liabilities when these fall due under both normal and stressed conditions,   What is the risk?SSE's people are one of its most valuable assets, playing a major part in the continued success of the business and it is those people who will deliver the business transformation critical to delivering on strategy. The actions of SSE's people influence the relationship it has with customers as well as the wider reputation of the business, both of which are central to SSE's differentiation in a competitive market.There is increasing competition for skilled individuals, both within the energy sector and increasingly from other industries. If SSE cannot retain, attract and develop diverse talent, it will have an impact on both the development plans for the business and the continuity of existing operations. Poorly executed knowledge transfer between colleagues, particularly in parts of the business with an ageing demographic, could lead to reduced performance and may threaten SSE's plans for improvement. Everyone at SSE is expected to comply with legislation, regulation and internal policy, including the SSESET of values, and it is important that everyone is responsible and acts with integrity at all times. The current pace of political and regulatory change, combined with the inherent complexity of SSE's activities, make it increasingly important that everyone at SSE is able to readily question the status quo and always strive for continuous improvement.In many cases SSE's activities involve being welcomed into customers' homes and afforded a level of trust, something that it takes very seriously. There are certain roles in which misjudged or malicious behaviour could lead to significant financial impact or a loss in investor confidence, particularly in energy portfolio management and in passing significant accounting judgements. How does SSE mitigate it?·      SSE looks to employ, train, develop and retain a diverse and talented workforce and provide them with the support they need to deliver business objectives in a responsible way.·      SSE's business leaders are expected to undertake regular succession planning reviews. At a Group level, SSE continues to develop its approach to the management of talent, identifying the current depth across the organisation and looking at strategies to enhance this. Currently employing around 650 trainees across the business, SSE is an active member of the National Skills Academy for Power, an industry joint training and skills development group which develops common standards and attraction strategies for key energy sector roles.·      SSE has strong governance systems in place which minimise the potential for malicious activity, including independent monitoring of compliance and trading activity, segregation of duties, and robust hiring and performance management processes.·      SSE has a Whistleblowing policy which allows anyone, either internal or external, to report any suspicions they have of any wrongdoing.·      The Audit Committee reviews all key accounting judgements made as part of the preparation of the Annual Report and Accounts.  
 without incurring unacceptable costs or risking damage to its reputation. SSE typically funds refinancing and future borrowing requirements by issuing senior bonds and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
 hybrid capital. In addition, it utilises bank borrowings, index-linked loans and private placements. If these sources of funding were unavailable to meet either increases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
 in overall borrowing requirements or to refinance maturing debt it could impact on SSE's ability to meet its commitments and in turn could force a curtailment of its                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
 capital investment programme, adversely impact credit ratings and ultimately affect SSE's ability to trade. How does SSE mitigate it?·      SSE's approach to managing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
 liquidity is to ensure that the Group has available committed borrowings and facilities equal to at least 105% of forecast borrowings over a rolling 6 month period.·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
 This approach is informed by detailed medium to long term cash forecasting which takes into account anticipated changes in business activity, markets and funding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
 position. ·      The Board, through the Audit Committee, considers the medium term funding plan including a detailed market update report in May each year.·      SSE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
 maintains a group of relationship banks who support the company's financing activities through their ongoing participation in committed lending facilities which currently                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
 total £1.5bn.·      SSE seeks to maintain a diversified portfolio of debt to avoid over-reliance on any one market. This allows it to build relationships with, and create                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
 competition between, debt providers. ·      The Board's policy is to maintain a strong balance sheet and credit rating to support investor, counter-party and market                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
 confidence and to underpin the future development of the Group. The current average age of SSE's debt is around 10 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
 Industry and company transformation                                                                                                                                         Infrastructure failure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
 What is the risk?The energy sector is undergoing constant technological improvement and political and regulatory change. It is important that SSE is able to stay at the    What is the risk?SSE is reliant on a number of key IT systems to support ongoing operations and cash flow. In particular the customer management system, the main trading support systems and real-time network management systems are critical. A loss of any of these systems could be caused by malicious activity, software or hardware issues including telecoms network connectivity and power supply issues to data centres, or poor operational performance. Interruption of service or compromise of these systems for any reason could significantly affect the service levels provided to customers, could affect operation of the electricity network, compromise sensitive customer data, divert resource from the business as contingency plans are implemented and in some cases may affect a material proportion of the Group's cash flow.SSE's electricity network is one of the UK's critical national infrastructure assets, central to the functioning of a modern economy. Ensuring the security of this asset is vital as is its safe, efficient, reliable and compliant operation in order to maintain the confidence of Regulators, politicians, customers, investors, and ultimately to protect SSE's licences to operate. How does SSE mitigate it?·      Business Units and IT Service Delivery Teams work together to agree appropriate service level agreements for business critical services. Operational Key Performance Indicators (KPIs), are monitored and any incidents are reported and tracked. ·      Key technology and infrastructure risks are incorporated into the design of systems and are regularly appraised by IT with risk mitigation plans recommended.·      Technology reviews are undertaken to evaluate software and hardware longevity and the need for any additional resilience planning.·      SSE conducts regular internal and third party testing of the security of the IT network and systems.·      SSE is an active member of a number of security forums including the Centre for the Protection of National Infrastructure. Where sites are designated critical to national infrastructure, SSE has an enhanced level of security in place, monitored by a dedicated NSI gold registered facility.·      The Group has crisis management and business continuity plans in place which are designed for the management of, and recovery from, any interruption events.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
 forefront of the industry by identifying emerging trends, developing strategies to exploit competitive opportunities and question the status quo, striving for continuous                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
 improvement in all areas of activity.In Retail markets, competitive pressure means a failure to keep up with fast-developing customer needs and new technologies could                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
 reduce SSE's market share and adversely affect service levels to customers. The advent of smart metering and the changing needs of the customer require a reorganisation                                                                                                                                                                                                                                                                                                        

- More to follow, for following part double click  ID:nRSW9283Qc