REG - SSE Plc - Half-year Report <Origin Href="QuoteRef">SSE.L</Origin> - Part 7
08/11/2017 07:26
- Part 7: For the preceding part double click ID:nRSH8580Vf
(9,096.7) (10,227.7) (8,071.3) (9,290.9)
(12,545.5) (13,738.8) (11,827.5) (12,958.5) (11,702.0) (12,923.9)
(5,802.3) (6,995.6) Net financial liabilities (6,366.4) (7,497.4) (6,344.9) (7,566.8)
16. Financial Risk Management (continued)
Fair Value Hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
· Level 1 fair value measurements are those derived from unadjusted quoted market prices for identical assets or
liabilities.
· Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
· Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or
liability that are not based on observable market data.
September 2017 September 2016
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Financial Assets
Energy derivatives 369.9 768.7 - 1,138.6 525.1 1,609.7 - 2,134.8
Interest rate derivatives - 380.6 - 380.6 - 486.1 - 486.1
Foreign exchange derivatives - 33.8 - 33.8 - 74.0 - 74.0
Equity investments - 11.5 - 11.5 - 16.5 - 16.5
369.9 1,194.6 - 1,564.5 525.1 2,186.3 - 2,711.4
Financial Liabilities
Energy derivatives (353.2) (927.3) - (1,280.5) (458.8) (1,878.2) - (2,337.0)
Interest rate derivatives - (435.8) - (435.8) - (464.6) - (464.6)
Foreign exchange derivatives - (1.9) - (1.9) - (0.3) - (0.3)
Loans and borrowings - 156.0 - 156.0 - 307.5 - 307.5
(353.2) (1,209.0) - (1,562.2) (458.8) (2,035.6) - (2,494.4)
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 2017, nor in the 6 months ended 30 September 2016.
March 2017
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial Assets
Energy derivatives 335.9 943.9 - 1,279.8
Interest rate derivatives - 471.8 - 471.8
Foreign exchange derivatives - 46.2 - 46.2
Equity Investments - 12.5 - 12.5
335.9 1,474.4 - 1,810.3
Financial Liabilities
Energy derivatives (341.9) (1,101.2) - (1,443.1)
Interest rate derivatives - (403.5) - (403.5)
Foreign exchange derivatives - (9.8) - (9.8)
Loans and borrowings - 257.4 - 257.4
(341.9) (1,257.1) - (1,599.0)
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 2017.
17. Retirement Benefit Obligations
Defined Benefit Schemes
The Group has two funded 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 2017.
Summary of Defined Benefit Pension Schemes:
Movement recognised in the SoCI Pensionasset Movement recognised in respect of the pension liability in the SoCI Pension asset/(liability)
March2017 March2017 September2017 September2016 September2017 September2016
£m £m £m £m £m £m
235.4 525.4 Scottish Hydro Electric Pension Scheme (17.0) (222.5) 514.1 59.3
(76.8) (454.9) Southern Electric Pension Scheme 90.5 (347.3) (350.8) (735.4)
158.6 70.5 73.5 (569.8) 163.3 (676.1)
262.7 - IFRIC 14 adjustment - 267.2 - -
421.3 70.5 Net actuarial gain/(loss) and combined asset/(liability) 73.5 (302.6) 163.3 (676.1)
During the prior financial year, the Group agreed with the trustees to the Scottish Hydro Electric pensions scheme an
amendment to the scheme rules to clarify that SSE Plc, as operator of the scheme, has a clear right to any surplus on the
winding up of the scheme. Under IFRIC14, this amendment to the scheme rules removed the restriction on rocognising any
surplus. The net pension asset of £163.3m (2016 - £676.1m liability, March 2017 - £70.5m asset) reported at 30 September
2017 includes the recognition of a £514.1m (2016 - £59.3m, March 2017 - £525.4m) asset in the Scottish Hydro Electric
pensions scheme. The major assumptions used by the actuaries in both schemes were:
March 2017 September 2017 September 2016
4.3% Rate of increase in pensionable salaries 4.3% 4.2%
3.3% Rate of increase in pension payments 3.3% 3.2%
2.7% Discount rate 2.8% 2.3%
3.3% Inflation rate 3.3% 3.2%
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 2017 September 2017 September 2016
Male Female Male Female Male Female
Scottish Hydro Electric Pension Scheme
23 24 Currently aged 65 23 24 26 26
25 28 Currently aged 45 25 28 29 29
Southern Electric Pension Scheme
23 25 Currently aged 65 23 25 24 26
25 27 Currently aged 45 25 27 26 28
During the period the Scottish Hydro Electric Pensions Scheme entered into a longevity swap covering c£800m of scheme
liabilities to reduce its exposure to longevity risk. The swap covers 1,800 current pensioners and 567 dependents and
reduces the Group's exposure to volatility in the longevity assumption. It is expected that the Group will benefit from
future reductions in minimum contributions to the scheme as a result of the swap.
18. Capital Commitments
March 2017£m September 2017£m September 2016£m
949.0 Capital ExpenditureContracted for but not provided 616.0 959.6
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.
Sale of goods and services Purchase of goods and services Amounts owed from Amounts owed to Sale of goods and services Purchase of goods and services Amounts owed from Amounts owed to
Sep 2017 Sep 2017 Sep 2017 Sep 2017 Sep 2016 Sep 2016 Sep 2016 Sep 2016
Equity accounted joint ventures: £m £m £m £m £m £m £m £m
Scotia Gas Networks Ltd 24.9 (59.4) 0.8 - 22.1 (78.4) 10.1 0.9
Seabank Power Ltd 6.0 (88.0) 0.1 22.2 2.5 (59.3) - 8.4
Marchwood Power Ltd 5.4 (74.9) 0.9 14.2 9.7 (72.8) 2.9 17.9
Clyde Windfarm (Scotland) Ltd 2.5 (43.2) 1.1 24.0 2.8 - 0.5 -
Other Joint Ventures 5.8 - 2.3 - 3.5 - 4.1 -
Associates 1.4 (26.5) 3.0 7.3 0.6 (23.9) 3.9 4.0
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, and the build of an extension to the existing operating wind farm.
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 £177.8m (2016 - £266.8m, March 2017 - £177.8m), Multifuel Energy Limited £201.8m (2016 -
£144.9m, March 2017 - £144.0m), Marchwood Power Limited £85.2m (2016 - £97.4m, March 2017 - 90.3m) and Clyde Windfarm
(Scotland) Limited £372.1m (2016 - £272.1m, March 2017 - £343.2m).
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 Retail, notable seasonal effects include the
impact on customer demand of warmer temperatures in the first half of the financial year. In Wholesale, there is the impact
of lower customer demand on commodity prices, the weather impact on renewable generation such as hydro and wind and other
seasonal effects. The impact of temperature on customer demand for gas is more volatile than the equivalent demand for
electricity.
21. Post Balance Sheet Events
On 2 October 2017, the Group redeemed the September 2012 E750m and US$700m hybrid capital bonds following the successful
issuance of £1.0bn of hybrid debt instruments in March 2017 (see Note 13). The total all-in cost of the hybrid capital
bonds redeemed on 2 October 2017 was 5.6% per annum, compared to 3.02% of the hybrid debt instruments.
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; and
(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.
For and on behalf of the Board
Alistair Phillips-Davies Gregor Alexander
Chief Executive Finance Director
London
7 November 2017
Conclusion
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report
for the six months ended 30 September 2017 which comprises Consolidated and Condensed Income Statement, the Consolidated
and Condensed Statement of Comprehensive Income, the Consolidated and Condensed Balance Sheet, the Consolidated and
Condensed Statement of Changes in Equity, the Consolidated and Condensed Cash Flow Statement and the related explanatory
notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 September 2017 is not prepared, in all material
respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and
Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
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 UK. 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. We read the other information
contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial statements.
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.
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 DTR of the UK FCA.
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the
half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the
half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting
the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those
matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the
conclusions we have reached.
William Meredith
for and on behalf of KPMG LLP
Chartered Accountants
319 St Vincent Street
Glasgow
G2 5AS
7 November 2017
This information is provided by RNS
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