REG - SSE Plc - Half-year Report
17/11/2021 07:05
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RNS Number : 6095S SSE PLC 17 November 2021
This announcement contains inside information under Article 7 of the Market
Abuse Regulation (EU) No 596/2014, as it forms part of retained EU Law as
defined in the European Union (Withdrawal) Act 2018 ("UK MAR").
SSE plc
interim results for the six months to september 2021
17 november 2021
Highlights - Progress and delivery
· Strategy of the group remains clear, with the separate standalone
announcement today of 'Net Zero Acceleration Programme' to accelerate clean
growth, lead the energy transition and maximise value for all stakeholders
· Plans include enhanced, fully funded £12.5bn strategic capital
investment plans to 2026 alongside ambitious 2031 targets, aligned with net
zero and 1.5 degrees
· The fully funded plan represents £1bn of additional capex
investment per year, over 2.5 times more capex allocated to Renewables and -
through a proposed minority interest disposal of Transmission and Distribution
- optimising capital allocation between regulated and unregulated businesses.
· Optimal pathway for UK's clean energy champion positions SSE to
enable delivery of over 25% of UK's 40GW offshore wind target and over 20% of
UK electricity networks investment, deploy flexibility solutions and export
renewables capabilities overseas
· Growth-enabling dividend plan paying at least £3.50 per share
across the five years, comprising a rebase to 60p in 23/24, with attractive
annual growth of at least 5% to March 2026.
· Integral to the accelerated investment plan is the announcement
of renewed 2030 greenhouse gas emission targets, aligned with a science based
1.5° Celsius pathway for the power sector.
· In line with the Group's net zero-focused strategy, in the period
since reporting Full-year Results in May 2021, SSE has:
o Announced its entry into the Japanese offshore wind market through a joint
ownership company with Pacifico Energy, including the 80% acquisition of a
10GW development platform.
o Amalgamated Berwick Bank and Marr Bank offshore wind farms, into one
single wind farm with a potential capacity of up to 4.1GW. Berwick Bank wind
farm would more than double the size of current offshore wind either in
construction or currently operational in Scotland.
o Continued to make good progress on the construction of its offshore wind
projects, Seagreen and Dogger Bank, as well as the Viking onshore wind farm on
Shetland.
o Reached an agreement to sell down a 10% stake in Dogger Bank C to Eni for
an equity consideration of £70m.
o Submitted a pre-qualification application to the Bureau of Ocean Energy
Management (BOEM) to participate in the New York Bight Auction in the US.
o Submitted a bid for the Thor offshore wind tender in Denmark
o Submitted an Initial Needs Case under the RIIO-T2 Uncertainty Mechanism
for a proposed £400m replacement transmission line between Fort Augustus and
Skye and are finalising the submission for upgrading the Argyll transmission
network to 275kV operation.
o Published and engaged with stakeholders on a comprehensive and ambitious
RIIO-ED2 business plan, ahead of final submission to Ofgem in December.
o Used its Principal Partnership of COP26 to advance the case for
decarbonisation of the energy sector to go further and faster to align with a
1.5C pathway.
· Total Recordable Injuries during the year was 30 (Total
Recordable Injury Rate of 0.16), compared to 24 (0.19) in the same period last
year.(1)
(1)2020/21 comparator restated to exclude SSE Contracting & Rail and Neos
Networks (formerly SSE Telecoms) to reflect current business composition.
Financial Summary Adjusted Reported
Sept 2021 Sept 2020 % mvmt Sept 2021 Sept 2020 % mvmt
Operating profit (£m) 376.8 328.9 15% 1,904.4 939.9 103%
Profit before tax (£m) 174.2 133.9 30% 1,686.1 779.4 116%
Earnings per share (p) 10.5 7.3 44% 103.6 62.9 65%
Investment and capital expenditure (£m) 1,042.8 434.5 140% 1,056.6 723.4 46%
Net Debt and Hybrid Capital (£bn) (9.6) (10.6) (9%) (8.9) (9.6) (6%)
* Unless otherwise started, excludes results from discontinuing operations:
Scotia Gas Networks and Gas Production assets which were held for sale at 30
September 2021.
Financial Summary for the six months to september 2021
· Adjusted EPS up 44% to 10.5p, just above SSE's guided range of
between 7.5p and 10p and reflecting improved performance across a number of
businesses in the second half of September.
· Reported EPS up 65% to 103.6p, mainly due to mark-to-market
revaluation gains on operating derivatives of c£1.2bn in the period, a result
of recent market volatility.
· As previously announced, Renewables profitability in the first
half was adversely impacted by exceptionally unfavourable weather conditions
(25% or 1.1TWh below the comparative period), and the associated requirement
to buy back hedges in volatile markets.
· This was more than offset by higher volumes and revenue
allowances in regulated networks, and a strong performance from non-core
businesses, notably gas storage
· Adjusted investment and capital expenditure up 140% to £1,042.8m
reflecting the strong progression of the Group's capital investment strategy
following coronavirus, and the impact from one-off project finance development
expenditure refunds in the prior period.
· Adjusted net debt and hybrid capital at £9.6bn, reflecting
increased investment and capital expenditure.
· Intention to recommend an interim dividend of 25.5p per share -
in line with five year dividend plan to 2023 - for payment on 10 March
2022, reflecting an assumed average annual RPI rate of 5%. As announced in
the accompanying Strategy Update, the scrip dividend will be capped at 25%
each financial year.
Financial outlook for 2021/22 and Beyond
· SSE is focused on long-term, sustainable financial performance,
and remains confident about delivery of solid financial performance for the
full year.
· The group has enjoyed a strong start to the second half of the
year, with renewables volumes above plan in October, and thermal and hydro
plant in particular achieving strong prices in the market.
· Subject to normal weather, plant availability and similar levels
of commodity prices over the coming winter months, SSE currently expects to
report full year adjusted earnings per share at a level which is at least in
line with consensus of analysts' forecasts of 83p (Bloomberg 15 November
2021). SSE intends to provide further guidance later in the financial year.
· The Group remains committed to its five-year dividend plan to
March 2023 and expects to recommend a full-year dividend of 81 pence plus RPI
inflation in line with that plan.
· Capital expenditure and investment is now expected to total in
excess of £2bn in 2021/22 (net of project finance development expenditure
refunds).
· Disposal of SSE's entire 33.3% investment in gas distribution
operator Scotia Gas Networks Ltd (SGN) is expected to complete within the
2021/22 financial year.
· Targeting a ratio of net debt to EBITDA of around 4.5 times at 31
March 2022.
The enhanced £12.5bn Net Zero Acceleration Programme, also announced today,
further outlines SSE's plans to accelerate growth and maximise value for all
stakeholders for the five years to March 2026, as well as outlining longer
term targets to 2031 and a rebased dividend with attractive growth for post
2023.
Further Information
Investor Timetable
Interim ex-dividend date 13 January 2022
Record date 14 January 2022
Scrip reference pricing days 13 - 19 January 2022
Scrip reference price confirmed and released via RNS 20 January 2022
Final date for receipt of scrip elections 10 February 2022
Interim dividend payment date 10 March 2022
Q3 Trading Statement 8 February 2022
Notification of Closed Period By 31 March 2022
Preliminary results for the year months ended 31 March 2022 25 May 2022
AGM and Q1 Trading Statement 21 July 2022
Contact Details
Institutional investors and analysts ir@sse.com + 44 (0)345 0760 530
Shareholder services SSE@linkgroup.co.uk + 44 (0)345 143 4005
Media media@sse.com + 44 (0)345 0760 530
MHP Communications, Oliver Hughes oliver.hughes@mhpc.com + 44 (0)7885 224 532
MHP Communications, Simon Hockridge simon.hockridge@mhpc.com + 44 (0)7709 496 125
Management presentation webcast and teleconference
SSE will present its interim results for the six months to 30 September 2021,
immediately followed by a strategic and capital investment update on Wednesday
17 November at 08:30am GMT. 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/en9mbrvc
(https://edge.media-server.com/mmc/p/en9mbrvc) . This will also be available
as a teleconference, details below. Both facilities will be available to
replay.
Confirmation Code: 2573869
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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
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 UK adopted International Accounting
Standard 34 Interim Financial Reporting. The interim financial information is
unaudited but has been formally reviewed by the Group's statutory auditor and
its report to the Company is set out on page 102.
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
Interim Financial Statements. SSE continues to prioritise the monitoring of
developing practice in the use of Alternative Performance Measures, ensuring
the financial information in its results statements is clear, consistent, and
relevant to the users of those statements.
For the purpose of calculating the 'Net Debt to EBITDA' metric, 'adjusted
EBITDA' is further adjusted to remove the proportion of adjusted EBITDA from
equity-accounted joint ventures relating to project financed debt.
Important note: Discontinued Operations - Gas Production and Scotia Gas
Networks
At 30 September 2021 SSE has assessed that its Gas Production assets should
continue to be classified as held for sale (see note 9 of the Interim
Financial Statements) and the Group's interest in gas distribution operator
Scotia Gas Networks Limited ('SGN') should also be classified as held for sale
following agreement reached to dispose of the entire 33.3% stake to a
consortium (see note 2(v) of the Interim Financial Statements). Both
businesses have been classified as discontinued operations. The Group's
adjusted measures therefore exclude the contribution from both of these
businesses in all periods presented.
Important note: Other disposals
In the period to 30 September 2021, SSE disposed of its Contracting and Rail
business (see note 6.1 of the Interim Financial Statements) and has assessed
that a 10% stake in the Dogger Bank C offshore wind farm development should be
classified as held for sale (see note 9 of the Interim Financial
Statements). Furthermore, in the prior period to 30 September 2020, SSE
assessed that its investment in Multifuel Energy, Contracting and Rail
business and a 10% stake in the Dogger Bank A&B offshore wind farm
development should be classified as held for sale, in addition to disposals in
that period of a 50% stake in Slough Multifuel on 2 April 2020, a 51% stake in
Seagreen Wind Farm on 3 June 2020, its investment in Walney offshore wind farm
on 2 September 2020 and its investment in MapleCo smart-metering on 23
September 2020.
As these businesses do not individually constitute a separate major line of
business for SSE, they have not been classified as discontinued operations,
and their result continues to be included within the Group's adjusted
profit-based measures to the point of disposal.
Important note: Presentation of Reporting Segments
Following the Group's sale of its Contracting and Rail business during the
period, the primary retained activities of the Enterprise business is
Distributed Energy which will develop and provide the Group's solar and
battery storage operations and focus on distributed generation, heat and
cooling networks, smart buildings and EV charging. Accordingly, the result
from the Group's out of areas networks business and Neos Networks Limited
joint venture will now be reported within SSEN Distribution and Corporate
Unallocated respectively. Comparative information has been re-presented to
reflect the change to these segments (see note 2(v) of the Interim Financial
Statements).
Impact of discontinued operations on the Group's Alternative Performance
Measures ('APM')
The following Alternative Performance Measures have been adjusted in all
periods presented to exclude the contribution of the Group's Gas Production
operations and Scotia Gas Networks Limited which have been presented as
discontinued operations as at 30 September 2021:
• Adjusted EBITDA;
• Adjusted operating profit;
• Adjusted net finance costs;
• 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 until the date of disposal.
Key Performance Indicators
- six months to 30 September
at a glance
Key Financial Indicators Adjusted Reported
Sept 2021 Sept 2020 Sept 2021 Sept 2020
Operating profit / (loss) by core business £m
- SSEN Transmission 181.7 115.2 181.7 115.2
- SSEN Distribution 153.3 114.3 153.3 114.3
- SSE Renewables 25.4 141.6 (33.6) 318.6
Operating profit / (loss) for other businesses £m 16.4 (42.2) 1,603.0 391.8
Operating profit from continuing operations £m 376.8 328.9 1,904.4 939.9
EBITDA from continuing operations £m 700.2 664.3 2,247.2 1,293.5
Profit before tax from continuing operations £m 174.2 133.9 1,686.1 779.4
Earnings per share (EPS) pence on continuing operations 10.5 7.3 103.6 62.9
Interim dividend per share (DPS) pence 25.5 24.4 25.5 24.4
Full year dividend per share (DPS) pence Exp. 81 + RPI 81.0 Exp. 81 + RPI 81.0
Investment and capital expenditure by core business, before refunds £m
- SSEN Transmission 291.0 224.4 291.0 224.4
- SSEN Distribution 171.3 167.9 201.4 197.3
- SSE Renewables 417.5 176.4 116.0 206.8
Investment and capital expenditure for other businesses, before refunds £m 163.0 111.8 448.2 341.0
Project finance development expenditure refunds £m - (246.1) - (246.1)
Investment and capital expenditure, after refunds £m 1,042.8 434.4 1,056.6 723.4
Net debt and hybrid capital £m 9,611.4 10,662.1 8,877.7 9,639.6
* Comparative information has been re-presented to reflect the classification
of Scotia Gas Networks as a discontinued operation and the changes to
segmental disclosures made in the period (see note 2(v) of the Interim
Financial Statements).
Operational Key Performance Indicators Sept 2021 Sept 2020
Thermal generation - GWh 7,812 9,438
Renewable generation - GWh (inc. pumped storage and constrained off)(1) 2,901 4,008
Total generation output - all plant - GWh(2) 10,763 13,481
SSEN Transmission RAV - £m 3,875 3,643
SSEN Distribution RAV - £m 3,862 3,825
SSE Total RAV(3) - £m 7,737 7,468
Business Energy Electricity Sold - GWh 6,161 6,301
Business Energy Gas Sold - mtherms 73 65
Airtricity Electricity Sold - GWh 2,485 3,739
Airtricity Gas Sold - mtherms 66 74
Notes:
(1)Renewable generation excludes SSE's small biomass capability which is
managed by Distributed Energy and which generated 37GWh HY2021/22 and 22GWh in
HY2020/21
(2)Includes biomass output referred to in Note 1 above plus an additional
13GWh in HY2021/22 and 13GWh HY2020/21 generated by other Distributed Energy
assets.
(3)SSE agreed the sale of its stake in gas distribution operator SGN in August
2021 and it has been presented as a discontinued operation in the Interim
Financial Statements. The RAV attributable to SGN totalled 2,024 at HY22 and
1,957 at HY21.
ESG Key Performance Indicators Sept 2021 March 2021 Sept 2020
Carbon emissions (scopes 1&2) MtCO(2)e - 7.64 -
Carbon intensity of generation gCO(2)e/kWh 292 255 275
Total water consumed (million cubic meters) - 3.6 -
Total recordable injury rate per 100,000 hours worked(1) 0.16 0.14 0.19
Total economic contribution - UK/Ireland (£bn/€m)(2) - 5.21/439 -
Jobs supported - UK/Ireland (headcount)(3) - 41,400/2,160 -
Total taxes paid UK/Ireland (£m/€m) - 379/20.4 -
Employee retention/turnover rate (%)(4) 92.1/7.9
Employee engagement index (%)(5) 82 82 82
Average board tenure - years(6) 3.3 5.0 4.6
Female board members (%) 50 36 33
Independent board members (%)(7) 73 70 73
Total number of board members 12 11 12
Notes:
March 2021 figures relate to 12 months to 31(st) March 2021
(1)Comparators restated to exclude impact of Contracting and Neos Networks
(2)Direct, indirect and induced Gross Value Added, from PwC analysis
(3) Direct, indirect and induced jobs supported, PwC analysis
(4) Includes voluntary and involuntary turnover, excludes end of fixed term
contracts and internal transfers.
(5) Results from SSE's annual employee engagement survey.
(6 )Non-Executive directors including non-Executive Chair
(7) Excludes non-Executive Chair. March 2021 figure restated to exclude
non-Executive Chair.
strategic overview
a platform for growth
The strategic progress made by SSE in the half-year to 30 September 2021
further consolidates our leadership of the energy transition in the UK and
Ireland and marks the beginning of our international expansion. With our
transformational Net Zero Acceleration Programme published alongside these
results and containing fully funded strategic investment plans out to 2026
with bold new targets for the decade to 2031, SSE is clearly very well-placed
strategically to grow over the short, medium and long term.
In the period since reporting Full-year Results in May, whilst developing our
Net Zero Acceleration Programme, we have not been distracted from our purpose
of providing energy today while building a better world of energy for
tomorrow. We have met our responsibilities as a critical service provider and
delivered on significant strategic milestones. Indeed, the strong operational
delivery of recent months has helped provide an exciting platform from which
SSE can seize the enormous growth opportunities being created across the
Group.
Delivery at SSE is attributable to the capabilities of a highly skilled and
increasingly diverse workforce, and I am grateful for our employees' ongoing
commitment to a purpose and a strategy that have clear business and societal
benefits. Their capabilities, resilience and ingenuity are integral to SSE's
bright future.
strategic progress
SSE's strategy is to create value for shareholders and society in a
sustainable way by developing, building, operating and investing in the
electricity infrastructure and businesses needed in the transition to net zero
and I'm pleased to report that we made good progress across the Group in the
first half of the year.
In SSE Renewables, plans to export our developer capabilities to overseas
markets gained momentum with our acquisition of an 80% interest in an offshore
wind development platform in Japan. We have also lodged a pre-qualification
application in the New York Bight Auction as an initial step into the emerging
US offshore market, and we have submitted a bid to the Thor auction in
Denmark. Closer to home, good progress was made with installation of the first
turbine jacket foundations at Seagreen, the world's deepest, fixed-bottom wind
farm, and offshore construction due to start at Dogger Bank, currently the
world's biggest offshore wind farm, early in 2022. We have consent for the
UK's largest pumped storage hydro project at Coire Glas and have seen material
progress in the policy and regulatory environment for such vital long-duration
storage schemes.
SSE sees a crucial role for lower-carbon thermal generation in the transition
to net zero and we welcomed the Track 1 status awarded to the East Coast
Carbon Capture and Storage Cluster, which is the site of three SSE Thermal
development projects in partnership with Equinor. While the 'Acorn' Scottish
Cluster, site of our Peterhead CCS project, was not given Track 1 status, it
was confirmed as a backup option and we continue to engage with government on
the long-term importance of such technologies to the North East of Scotland.
In our electricity networks businesses, we have had mixed success in our
appeal to the CMA over certain elements of Ofgem's RIIO-T2 price control
settlement. There are nonetheless options for substantial growth over and
above capital expenditure plans approved under RIIO-T2 and we have submitted
Needs Cases under the Uncertainty Mechanism for major projects that will
enable further renewables growth.
SSEN Distribution could see a trebling of demand in its network areas by 2050,
and the likely load expenditure required to keep pace will inform the
submission of our final business plan for the RIIO-ED2 price control next
month. The business has also recently become the first UK Distribution Network
Operator to set 1.5°C-aligned targets validated by the Science Based Targets
initiative.
SSEN Transmission and SSEN Distribution are not only key to a 1.5C pathway,
they are also engines of growth for the SSE Group. Under our new capex plan we
will extend the successful SSE Renewables partnering model to electricity
networks in order to maximise their growth potential, while retaining
strategic and operational control.
strength and resilience
The achievements of the first half come against a backdrop of significant
energy market volatility, variable weather and ongoing uncertainty over the
trajectory of the coronavirus pandemic. Once again, the resilience of SSE's
business model, with its efficient mix of regulated and market-exposed income
streams and the valuable linkages between them, has stood us in good stead.
Following a highly successful £2.8bn non-core asset disposals programme,
expected to be completed with the disposal of our stake in SGN by the end of
this financial year, strategic focus is now on renewables and regulated
electricity networks, supported by carefully chosen complementary businesses.
This very deliberate business mix - and the world-class assets within it - has
a compelling and growing strategic logic.
The renewables and networks businesses are key to net zero, they have
significant growth options and they fit together. With their shared skills and
capabilities, they form SSE's low-carbon electricity core. We will only retain
other businesses that are complementary to that core and contribute to
achieving net zero.
Thermal offers flexible capacity to balance renewables' variability. Our
customer-facing businesses are a route to market and a platform to grow in the
distributed energy sector, where we are developing battery storage projects
that will also provide flexibility to support renewables. And, lastly, our
Energy Portfolio Management business creates commercial synergies and manages
risk across all of our market-based operations.
Ultimately, SSE has been transforming into the optimal combination of
electricity infrastructure businesses. Our business mix allows specialisation
in electricity assets, such as in renewables, networks and low carbon power
stations, alongside the ability to create value right across the electricity
value chain as new opportunities emerge in hydrogen, batteries and distributed
energy.
a national energy champion
SSE has placed itself on the right side of the climate debate, with the
capabilities, businesses and assets to create value from efforts to slow
global warming. We have established ourselves as the UK's national clean
energy champion, delivering for shareholders and society as we pursue a Just
Transition to net zero.
There are favourable political and societal tailwinds behind us. We welcomed
the UK Government's net zero strategy, which gives confidence to low-carbon
investors and developers like us to keep investing at the scale needed to
achieve net zero by 2050. And we take the support received at our 2021 AGM for
an annual vote on our net zero plan as a clear signal of ongoing shareholder
support for our decarbonisation efforts.
As the UK's national clean energy champion, the Net Zero Acceleration
Programme announced alongside today's results positions SSE to enable over a
quarter of the UK's 40GW offshore wind target by 2030, over 20% of upcoming UK
electricity networks investment, whilst leading investments in flexibility and
exporting our renewables capabilities overseas.
The urgency of the climate emergency from COP26 is clear. We believe that
decarbonisation of the energy system could go further and faster and as a
Principal Partner at the summit we were able to make that case on the world
stage. This was an opportunity for us to engage with global decision-makers
and we have come away with an increased sense of purpose.
long-term ambitions
SSE is currently building more offshore wind than anyone else in the world; we
see substantial RAV growth potential above and beyond current networks price
controls; and our complementary businesses have options to create lasting
value through net zero. This growth potential and our underlying capabilities,
backed up by a strong balance sheet and a fully funded accelerated investment
plan that optimises capital allocation across the Group, give us the
confidence to set the new bold targets for the rest of the decade too.
The 2031 ambitions outlined in the separate Strategic Update today aim to
drive significant earnings growth and maximise total shareholder returns. The
tightening of carbon targets, meanwhile, is just the latest step in a long
commitment to decarbonisation that builds on our reputation as an ESG-aligned
investment opportunity.
creating lasting value
SSE is at its best in execution mode, and that is our priority over the
remainder of the financial year. We have projects to develop and build and
opportunities to take at home and abroad. Our financial focus is always on the
full-year and we are confident about delivery of solid performance for
2021/22. We are also committed to our five-year dividend plan to 2023 and
expect to recommend a full-year dividend of 81 pence plus RPI inflation for
2021/22.
Together, the interim results we are posting today, our accompanying plans to
2026 and our ambitions to 2031 set the optimal pathway to sustainable
long-term value for all stakeholders - taking the growth opportunities that
are right for SSE, and optimising the sources of funding needed to underpin
our contribution to net zero.
Alistair Phillips-Davies
Chief Executive
group financial review
- six months to 30 September 2021
This Group Financial Review sets out the financial performance of the SSE
Group for the six months ended 30 September 2021. See also the separate
sections on Group Financial Outlook 2021/22 and beyond and Supplemental
Financial Information.
The definitions SSE uses for adjusted measures are consistently applied and
are explained in the Alternative Performance Measures section of this
document, before the Interim Financial Statements.
Key Financial Metrics Adjusted Reported
£m Sept 2021 Sept 2020 Sept 2021 Sept 2020
Operating profit 376.8 328.9 1,904.4 939.9
Net Finance costs 202.6 195.0 218.3 160.5
Profit before Tax 174.2 133.9 1,686.1 779.4
Current Tax charge 12.7 11.6 542.3 79.3
Effective current tax rate (%) 7.3 8.7 32.2 10.2
Profit after Tax on continuing operations 161.5 122.3 1,143.8 700.1
Profit / (Loss) from discontinued operations, net of tax - - (93.8) 46.0
Profit / (Loss) after Tax 161.5 122.3 1,050.0 746.1
Less: hybrid equity coupon payments 50.7 46.6 50.7 46.6
Profit / (Loss) after Tax attributable to ordinary shareholders( )((1)) 110.8 75.7 999.3 699.5
((1) After distributions to hybrid capital holders)
EPS (including discontinued operations)(pence) 10.5 7.3 94.7 67.3
Number of shares for basic/reported and adjusted EPS (million) 1,054.7 1,039.6 1,054.7 1,039.6
Shares in issue (million) 1,065.5 1,048.2 1,065.5 1,048.2
* Comparative information has been re-presented to reflect the classification
of Scotia Gas Networks as a discontinued operation and the changes to
segmental disclosures made in the period (see note 2(v) of the Interim
Financial Statements).
Dividend per Share Sept 2021 Sept 2020
Interim Dividend (pence) 25.5 24.4
Full Year Dividend (pence) Expected 81 + RPI 81.0
Recent Market Volatility
Whilst the Group reduces direct exposure to short term commodity price
volatility through its business mix, its disciplined application of clearly
defined hedging policies and low VAR trading limits, the recent relatively
high and volatile gas and power market prices have had varying degrees of
impact upon several of SSE's businesses in the six months to 30 September
which can be summarised as follows:
Within SSE Renewables, significantly lower than expected volume output has
meant that excess forward sale contracts have had to be 'bought back' in the
market at higher prices, further reducing the trading result.
For SSE Thermal and Gas Storage, higher market prices and volatility is
generally positive for these businesses albeit this is dependent upon plant
availability and plant merit order during the period in SSE Thermal's case.
Both EPM and Gas Storage, through their respective exposure to unsettled
commodity contracts and physical gas inventory, have experienced significant
positive unrealised mark-to-market remeasurement gains in the period. However,
these businesses are not expected to realise significant gains upon settlement
of these contracts, as c.£(1.3)bn of adverse 'own use' operating derivatives
are excluded from remeasurement under IFRS 9 and will largely offset the
unrealised gains.
SSE's Business Energy and Airtricity businesses are not subject to a regulated
price cap and therefore variable tariffs are adjusted dynamically and fixed
tariff rates are reset for new acquisitions as wholesale costs increase or
decrease. Although the businesses are insulated against gas price rises
insofar as they are fully hedged, there are external circumstances that would
result in hedge adjustments such as weather, supplier failures and
post-coronavirus economic impacts. A dynamic forecasting approach has been in
place to quickly respond to volume changes. In relation to Airtricity,
vertical integration of generation and customer businesses in the Irish market
limits commodity exposures.
Finally, the number of retail energy suppliers failing since early September
has increased collateral requirements of the SSE Group. High energy prices and
market volatility has resulted in a significant increase in the collateral
requirements required to allow EPM to continue to trade with counterparties
and on exchanges as required - to date these increased collateral requirements
have been managed by issuing new Letters of Credit, Guarantees and Performance
Bonds with no significant cash amounts required to date.
Operating performaNce for Six Months to September 2021
Business-by-business segmental Adjusted Reported
£m Sept 2021 Sept 2020 Sept 2021 Sept 2020
Operating profit/(loss)
SSEN Transmission 181.7 115.2 181.7 115.2
SSEN Distribution 153.3 114.3 153.3 114.3
Electricity networks total 335.0 229.5 335.0 229.5
SSE Renewables 25.4 141.6 (33.6) 318.6
Thermal Generation 36.1 49.6 215.6 58.1
Gas Storage 28.7 (17.9) 263.9 4.5
Thermal Energy Total 64.8 31.7 479.5 62.6
Business Energy (GB) 2.4 (27.4) 2.4 (15.5)
SSE Airtricity (NI and Ire) (2.9) 16.6 (2.9) 20.4
Energy Customer Solutions Total (0.5) (10.8) (0.5) 4.9
Energy Portfolio Management 5.7 (1.5) 1,209.7 319.8
Distributed Energy (7.3) (37.8) (24.8) (37.8)
Corporate Unallocated (46.3) (23.8) (60.9) 42.3
Total operating profit from continuing operations 376.8 328.9 1,904.4 939.9
Net finance costs 202.6 195.0 218.3 160.5
Profit before tax from continuing operations 174.2 133.9 1,686.1 779.4
Discontinued operations:
Gas Production Assets 77.7 (3.0) (16.2) (3.0)
Scotia Gas Networks 21.0 89.4 (81.1) 45.2
Total operating profit / (loss) from discontinued operations 98.7 86.4 (97.3) 42.2
* Comparative information has been re-presented to reflect the classification
of Scotia Gas Networks as a discontinued operation and the changes to
segmental disclosures made in the period (see note 2(v) of the Interim
Financial Statements).
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 a
reconciliation of adjusted operating profit by segment to reported operating
profit by segment can be found in Note 5(b) to the Interim Financial
Statements.
Segmental EBITDA results are included in Note 5(c) to the Interim Financial
Statements.
Operating profit
Adjusted and reported operating profit/losses in SSE's business segments for
the six months to 30 September 2021 are as set out below; comparisons are with
the same period to 30 September 2020 unless otherwise stated.
SSEN Transmission: Adjusted and reported operating profit increased by 58% to
£181.7m, compared with £115.2m, mainly due to phasing of allowed revenue as
the business enters the first year of the RIIO-T2 price control, partially
offset by increases in operating costs and depreciation charges as capital
investment progresses.
SSEN Distribution: Adjusted and reported operating profit increased by 34% to
£153.3m in HY22, compared to £114.3m which includes the effects of
coronavirus in HY21. In HY22, higher allowed revenues and a recovery in
volumes were partially offset by an increase in operating costs.
SSE Renewables: Adjusted operating profit reduced by 82% to £25.4m, compared
with £141.6m, reflecting lower output which was around 25% or 1.1TWh below
the comparative period and around 30% or 1.2TWh below current year plan. The
financial impact of this reduction in output includes the adverse impact from
buying back hedged volume in volatile markets. The shortfall was driven by
unfavourable weather conditions over the summer, which was one of the least
windy across most of the UK and Ireland and one of the driest in SSE's Hydro
catchment areas in the last seventy years. Comparable output was further
impacted by the divestment of Walney offshore wind farm in September 2020.
Furthermore, adjusted operating profit in HY21 included a £23.3m developer
gain on the sale of a 51% stake in Seagreen Offshore Wind farm with no
equivalent gain the current period.
Reported operating loss was £33.6m compared to operating profit of
£318.6m. In addition to the factors noted above, the prior period saw
one-off exceptional gains totalling £214.5m with no similar gains recognised
in HY22 which accounted for the majority of the movement. In the current
year, an exceptional tax charge totalling £24.0m was recognised in joint
ventures due to the substantive enactment of a UK tax rate change impacting
deferred tax balances. Depreciation on historic fair value uplifts remained
constant at £9.4m, with joint venture share of interest and tax charges
decreasing slightly from £28.1m to £25.6m in the current period.
Thermal Generation: Adjusted operating profit reduced by 27% to £36.1m from
£49.6m in the prior period. Reductions due to £20.4m of non-recurring
developer profits on the disposal of a 50% stake in Slough Multifuel in HY21,
and lower profit contribution following divestment of Ferrybridge Multifuel,
were compensated by stronger balancing market performance and higher market
prices. However, performance in HY22 was constrained by plant availability
due to scheduled and unscheduled outages, with total output down 1.6TWh on
prior period.
Reported operating profit was £215.6m compared to £58.1m in the prior
period. In addition to the factors noted above, the current period saw a
reversal of historic impairment charges totalling £181.6m, reflecting higher
estimated power prices forecasted for the near future. Other movements
included a non-recurring fair value gain recognised in the prior period
totalling £24.8m and joint venture share of interest and tax charges which
decreased by £11.6m in the period to £4.7m.
Gas Storage: Adjusted operating profit of £28.7m, compared with an operating
loss of £(17.9)m. SSE continues to operate the plant on a merchant basis,
with the ability to capture gas price spreads during periods of heightened
market volatility. Recent market volatility has enabled Gas Storage to
realise currently higher gas price spreads earlier than the usual summer /
winter seasonality for the business, resulting in a profit for the period.
Reported operating profit was £263.9m compared to £4.5m in the prior
period. The aforementioned heightened market volatility has resulted in a
£235.2m positive mark-to-market movement, compared to £22.4m in the prior
period. However, whilst this reflects the positive movement in fair value of
physical gas inventory held at the period end, it does not reflect the
negative mark-to-market movement on forward contracted sales for the second
half of the current financial year which are not recognised under IFRS.
Therefore, similar to the unsettled commodity contracts held by EPM at fair
value, we do not expect the majority of this valuation movement will be
realised by the business.
SSE Business Energy: Adjusted operating profit was £2.4m, compared with an
adjusted operating loss of £(27.4)m in the same period last year, with higher
volumes through a reduced impact from coronavirus being partially offset by
higher non-commodity costs.
Reported operating profit was also £2.4m, compared to an operating loss of
£(15.5)m in the prior year which also included a £11.9m release of excess
bad debt provisioning originally expected to arise from coronavirus impact.
SSE Airtricity: Adjusted operating loss of £(2.9)m compares to an adjusted
operating profit of £16.6m in the prior period, mainly due to an adjustment
of £25m in relation to historic use of system costs offset by £8m prior year
revision of estimates which were recognised in HY22.
Reported operating loss was also £(2.9)m, compared to an operating profit of
£20.4m in the prior year which also included a £3.8m release of excess bad
debt provisioning originally expected to arise from coronavirus impact.
Energy Portfolio Management (EPM): Adjusted operating profit was £5.7m,
compared to an adjusted operating loss of £(1.5)m, as EPM continues to
generate a low level of operating earnings through service provision to those
SSE businesses requiring access to the energy markets.
Reported operating profit was £1,209.7m, compared to £319.8m, reflecting a
significantly higher net re-measurement gain in the current period on
unsettled, previously out of the money, fair value forward commodity
contracts. As in prior years, the reported result does not include
remeasurement of adverse 'own use' hedging agreements which total c.£(1.3)bn
at HY22 and are excluded from IFRS 9 but in practice largely offset the IFRS 9
remeasurement.
Distributed Energy: Adjusted operating loss was £(7.3)m, compared to a prior
period adjusted operating loss of £(37.8)m. This reporting segment result
includes the result from the Contracting and Rail business, which remains
reported within this segment up to the point of disposal on 30 June 2021. The
prior period result reflected the impact coronavirus had on activity within
the Contracting and Rail business, combined with a non-exceptional impairment
charge of £14.9m relating to Contracting and Rail assets and liabilities
following classification as held for sale in that period. The current year
loss reflects a reduced impact from coronavirus, but also includes losses
incurred in the Contracting and Rail business to the date of its disposal.
Reported operating loss was £(24.8)m, compared to a loss of £(37.8)m,
reflecting the factors noted above but also including a £18.1m exceptional
loss on disposal recognised on completion of the sale of Contracting &
Rail business.
Corporate Unallocated: Adjusted operating loss increased to £(46.3)m,
compared with £(23.8)m, following a decrease in external income as transition
service agreements with SSE Energy Services and Neos Networks continue to
unwind. This reporting segment now also includes the contribution from the
Group's investment in the Neos Networks joint venture, with operating losses
totalling £(5.8)m in the period.
Reported operating loss was £(60.9)m, compared to a prior period operating
profit of £42.5m, mainly due to the factors noted above as well as a £6.2m
adverse adjustment recognised in the period on contingent consideration
arising on the Neos Networks part-disposal. The prior period also reflected
an exceptional gain on disposal of £72.0m recognised relating to the disposal
of MapleCo in September 2020.
Investment in Gas Production - held for sale (discontinued operations):
Adjusted operating profit totalled £77.7m compared to an adjusted operating
loss of £(3.0)m in the prior period. These assets, which were held for sale
at the period end and subsequently disposed of on 14 October 2021, continue to
be excluded from SSE's adjusted results. Revenue has significantly increased
in the period as a result of higher gas prices.
The reported operating loss of £(16.2)m reflects an exceptional impairment
charge of £93.9m in the period as the cash inflows recognised by the business
in the period flow to the purchaser under a locked box agreement.
Scotia Gas Networks - held for sale (discontinued operations): Adjusted
operating profit of £21.0m was recognised, compared to £89.4m profit in the
prior period. This investment has been classified as held for sale from 11
June 2021 with equity accounting - and recognition of operating result -
ceasing from that date.
A reported operating loss of £(81.1)m was recognised compared to an operating
profit of £45.2m in the prior period mainly due to the factors above in
combination with an exceptional tax charge totalling £84.5m recognised due to
the substantive enactment of a UK tax rate change impacting deferred tax
balances.
Adjusted Earnings per share
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 remeasurements.
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 remeasurements, adjusted EPS reflects SSE's internal performance
management, avoids the volatility associated with mark-to-market IFRS 9
remeasurements 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 statement.
In the six months to 30 September 2021, SSE's adjusted earnings per share on
continuing operations was 10.5p. This compares to 7.3p for the six months to
30 September 2020 and reflects the movements in adjusted operating profit
outlined in the section above.
financial outlook for 2021/22 and Beyond
Key points for outlook to 2021/22
· SSE remains focused on long-term, sustainable financial
performance, and it remains confident about delivery of solid financial
performance for the full year.
· The group has enjoyed a strong start to the second half of the
year, with renewables volumes above plan in October, and thermal and hydro
plant in particular achieving strong prices in the market.
· Subject to normal weather, plant availability and similar levels
of commodity prices over the coming winter months, SSE currently expects to
report full year adjusted earnings per share at a level which is at least in
line with consensus of analysts' forecasts of 83p (Bloomberg 15 November
2021). SSE intends to provide further guidance later in the financial year.
· The Group remains committed to its five-year dividend plan to
March 2023 and expects to recommend a full-year 2021/22 dividend of 81 pence
plus RPI inflation in line with that plan. As announced in the accompanying
Strategy Update, the scrip dividend will be capped at 25% each financial year.
· Capital expenditure and investment is now expected to total in
excess of £2bn in 2021/22 (net of project finance development expenditure
refunds).
· Acquisitions:
o On 30 October 2021 SSE closed the agreement to form a new joint ownership
company in Japan. Within the total consideration of US$208m is US$30m of
deferred consideration subject to a number of conditions.
· Disposals:
o On 2 November 2021, SSE entered into an agreement to sell a 10% stake in
Dogger Bank C to Eni for an initial equity consideration of £70m. The
transaction is expected to complete by Q1 2022 and the project is expected to
reach Financial Close by the end of 2021.
o The disposal of SSE's entire 33.3% stake in gas distribution operator
Scotia Gas Networks Ltd to a consortium comprising existing SGN shareholder
Ontario Teachers' Pension Plan Board and Brookfield Super-Core Infrastructure
Partners is expected to complete within the current financial year,
conditional on certain regulatory approvals, for consideration of £1,225m in
cash.
· Targeting a ratio of net debt to EBITDA of around 4.5 times at 31
March 2022
Key points for outlook beyond 2021/22
· Alongside SSE's Results was the separate announcement today of an
enhanced five-year, £12.5bn strategic capital investment plan to accelerate
growth and maximise value for all stakeholders.
· The fully-funded Net Zero Acceleration Programme is focused on
net zero infrastructure investment:
o £12.5bn net capex investment to 2026, represents +65% step-up in annual
investment (£1bn additional capital investment per year) on previous plans
with over 2.5 times more capital now allocated to renewables growth
o Investment will deliver ~4GW net renewables capacity additions (doubling
renewables capacity) and grow electricity networks underlying RAV to ~£9bn
net of assumed 25% minority stake sales.
o The plan is supported by further renewables partnering; and minority stake
sales in both SSEN Transmission and SSEN Distribution (modelling assumption of
early FY24) to unlock value and optimise investment.
o Reshaped capital allocation to c40% Networks, c40% Renewables, c20% Other
flexible generation, distributed energy and customer businesses
o Adjusted EPS CAGR of 5-7% forecast to March 2026(1), after assumed
minority interest.
o Growth-enabling dividend, paying at least £3.50 per share across the five
years, comprising:
§ completion of current RPI linked dividend plan to March 2023
§ followed by a rebased dividend to 60p in 23/24, with an attractive annual
growth of at least 5% to March 2026
§ scrip dividend capped at 25%
o Net debt to EBITDA target of 4.5x, aligned with a strong investment grade
credit rating
· Plan delivers accelerated growth at attractive returns into 2026:
o Renewables net installed capacity increasing by 4GW, doubling existing
capacity.
o Increases and maintains a sustainable development pipeline in excess of
15GW.
o Networks businesses' RAV forecast to grow at c.10% gross CAGR.
· Compelling returns targeted, focusing on high quality assets with
common Group capabilities:
o Renewables offshore: at least 10% equity returns (excluding developer
profits) with onshore: WACC plus 100-400 bps project returns.
o New technologies WACC plus 300-500 bps given expected technology risk and
construction risk specific to each project.
o Networks 7-9% return on equity, assuming a level of outperformance and CPI
inflation of 2% p.a.
· Provides the platform for ambitious new 2031 targets including:
o Maintaining a sustained >15GW renewables pipeline, delivering >1GW
net additions p.a. and increasing renewable and other low-carbon generation
capacity to >16GW
o Fivefold increase in renewables output to 50TWh p.a.
o 8-9% gross RAV CAGR, to reach £11-13bn net RAV
o Meeting revised 1.5 degree Celsius science-based carbon targets by 2030.
supplemental financial information
Investment and capital expenditure
Adjusted Investment and Capex Summary Sept 2021 Sept 2021 Sept 2020
Share % £m £m
SSEN Transmission 28 291.0 224.4
SSEN Distribution 16 171.3 167.9
Electricity networks total 44 462.3 392.3
SSE Renewables 40 417.5 176.4
SSE Thermal 10 93.3 39.8
Gas Storage - 0.8 2.1
Thermal Energy Total 10 94.1 41.9
Customer Solutions 2 24.8 14.8
Energy Portfolio Management - 0.9 0.9
Distributed Energy 1 7.3 28.7
Gas Production (Discontinued Operation) 1 11.6 12.5
Corporate Unallocated 2 24.3 13.0
Adjusted investment and capital expenditure, before refunds 1,042.8 680.5
Project finance development expenditure refunds - (246.1)
Adjusted investment and capital expenditure 1,042.8 434.4
* Comparative information has been re-presented to reflect the classification
of Scotia Gas Networks as a discontinued operation and the changes to
segmental disclosures made in the period (see note 2(v) of the Interim
Financial Statements).
Progress of capital expenditure programme
During the six months to 30 September 2021, SSE's investment and capital
expenditure totalled £1,042.8m, including £879.8m in its core renewables and
regulated electricity networks businesses.
Investment and capital expenditure across the period included the following:
· Major investment within electricity networks totalling £462.3m,
or 44% of SSE's total investment and capital expenditure:
- SSEN Transmission has made significant progress on its capital
investment programme, having entered the first year of the RIIO-T2 price
control period on 1 April 2021. The largest proportion of spend in the period
was focused on reinforcement on the east coast of Scotland, with a total of
around £51.7m covering several major projects including work on substations
at Peterhead and Kintore, as well as reinforcement of the existing 275kV
overhead line connecting the substations Blackhillock, Keith, Kintore and
Peterhead to enable operation at an increased voltage of 400kV. Elsewhere,
replacement works of the Port Ann to Crossaig line commenced in May and
progress also continues to be made on the Shetland HVDC link, which remains on
track for energisation in 2024.
- SSEN Distribution continued to progress its capital investment programme
across both of its networks, with a total spend of £171.3m over the period.
As well as material investments in resilience and IT, the business
successfully concluded a £28m subsea cable replacement between Skye and
Harris. The project involved significant offshore works using specialist
marine vessels to successfully install and protect the 33kV cable between
Ardmore, Skye and Beacravik, Harris.
· The construction of SSE's flagship renewable energy projects
continues to progress well, with investment during the period totalling
£417.5m across a number of key projects including:
- Around £249.3m equity contribution towards Seagreen, as the project
progresses towards the final stages of construction. First energy continues to
be expected in early 2022;
- Around £110.9m of development expenditure on Dogger Bank C, which is
expected to be reimbursed to SSE by the project once it reaches financial
close by the end of 2021;
- Around £57.3m on Viking, which will be among the highest-yielding
onshore wind farms in Europe; and
· Investment in SSE's Thermal Energy division amounted to £94.1m
in the period, including £37.8m on Slough Multifuel, and £42.4m on Keadby 2,
as the project progresses towards commissioning in 2022.
SSE's Hedging Position at 30 September 2021
SSE has an established approach to hedging through which it generally seeks to
reduce its broad exposure to commodity price variation in relation to
electricity generation and supply at least 12 months in advance of delivery.
As market conditions change, SSE may be required to vary its hedging approach
to take account of any resultant new or additional exposures. SSE will
continue to provide a summary of its current hedging approach, including
details of any changes in the period, within its Interim and Full-year Results
Statements.
A summary of the hedging position for each of SSE's market-based businesses at
30 September 2021 is set out below.
SSE Renewables - GB wind and hydro:
As part of its Full-year and Interim Results, SSE reports the hedge position
in relation to its GB Wind and Hydro generation. The following table provides
an update as at 30 September 2021, showing the hedged position for full years
2022/23, 2023/24 and 2024/25 alongside the previously disclosed 2021/22
position.
2021/22 2022/23 2023/24 2024/25
Wind Expected volume - TWh 4.2 5.3 6.8 8.3
Volume hedged - % 85% 83% 57% 3%
Hedge price - £MWh £48 £55 £53 £55
Hydro Expected volume - TWh 3.6 3.7 3.7 3.8
Volume hedged - % 83% 76% 48% 3%
Hedge price - £/MWh £50 £54 £54 £55
Volumes are based on average expected output, and the contracted hedge price
is at the beginning of each financial year. The table excludes additional
volumes and income for BM activity, ROCs, ancillary services,
pre-commissioning, capacity mechanism and shape variations. It also excludes
volumes and income relating to Irish wind output, pumped storage and CfDs.
SSE's established approach to hedging seeks to account for the effect of the
'wind capture price' by targeting a hedge of less than 100% of its anticipated
wind energy output for the coming 12 months. Following an assessment of
market conditions and wind capture percentages for the relevant wind assets in
May 2021, the targeted hedge percentage will be at least 90% across the year
and will be adjusted as necessary going forward to reflect the changes in
future market and wind capture information.
Prior to FY22, target hedge levels were achieved solely through the forward
sale of electricity. Following the change in hedging approach outlined in the
May 2021 Results Statement, target hedge levels are now achieved through the
forward sale of either electricity, or gas and carbon equivalent (assuming a
constant 1 MWh : 69.444 th and 1MWh : 0.3815 te/MWh conversion ratio between
commodities). This approach aims to reduce the exposure of these wind assets
to volatile spot power market outcomes whilst still providing a hedge for the
vast majority of the anticipated energy and carbon commodity price exposure 12
months in advance of delivery. This updated approach has been introduced for
incremental volumes as they naturally come into the hedging window, i.e.
historic hedge positions were not unwound.
The approach to hedging hydro energy output remains unchanged at approximately
85% of its anticipated energy output for the coming 12 months.
UK Business Energy: The business supplies electricity and gas to business and
public sector customers. Sales to contract customers are 100% hedged: at point
of sale for fixed contract customers; upon instruction for flexi contract
customers; and on a rolling hedge for tariff customers.
Business Energy's sales demand volumes continue to be impacted by the economic
uncertainty created by ongoing coronavirus restrictions and recovery, as well
as current market price volatility for flexi customers. The extent to which
this will impact customers' consumption in the medium term remains uncertain.
As a result of this uncertainty, Business Energy has adopted a more dynamic
forecasting approach by adjusting volumes hedged as nearer term economic and
consumption signals become clearer.
GB Thermal: In the six months prior to delivery, SSE aims to hedge all of the
expected output of its CCGT assets, having progressively established this
hedge over the preceding 24 months. Hedging activity depends on the
availability of sufficient market depth and liquidity, which can be limited,
particularly for periods further into the future.
As stated in its Q3 Trading Update on 2 February 2021, due to the uncertainty
surrounding UK carbon pricing, SSE temporarily suspended forward hedging of
the expected generation profiles of its CCGTs in GB. Hedging of the Thermal
assets in the conventional manner recommenced during FY22 following
establishment of the UK emission auction process and growth in volume UK
emissions tickets traded. SSE will continue to monitor market developments,
in particular developments surrounding UK carbon pricing, and will adjust its
hedging approach to take account of any resultant change in exposures.
Gas Storage: The annual auction to offer gas storage capacity contracts from
Atwick, held in April 2021, resulted in no third-party contracts being
secured. As such the assets are being commercially operated and the business
continues to manage its commodity exposure arising from the storage of
physical gas to changes in the spread between summer and winter prices, market
volatility and plant availability.
Gas Production: As the Gas Production business was held for sale on an
unhedged basis at 30 September 2021, no forward hedge activity is currently
being undertaken for the likely production profiles of the business. The
disposal of the Gas Production business was concluded on 14 October 2021.
Energy Portfolio Management (EPM): EPM provides the route to market and
manages the execution for all of SSE's commodity trading outlined above (spark
spread, power, gas, and carbon). This includes managing market conditions and
liquidity and reporting and monitoring net Group exposures. The business
operates under strict position limits and VAR controls. There is some scope
for small position-taking to permit EPM to manage around liquidity and shape
but this is contained within a VAR limit of £3m (£2m for the curve period
and £1m for the prompt).
Ireland: Vertical integration of the generation and customer businesses in
Ireland limits the Group's commodity exposure in that market which includes an
exposure to the level of wind production.
Summarising movements on exceptional items and certain remeasurements
Exceptional items
In the six months to 30 September 2021, SSE recognised a net exceptional gain
within continuing operations of £160.2m before tax. The following table
provides a summary of the key components making up the net gain position:
Exceptional Gains / (Charges) within continuing operations Total
£m
Disposals of non-core assets:
Contracting & Rail business (18.1)
Impairments and other exceptional (charges) / credits
SSE Thermal GGCT Impairment reversal 181.6
Neos Networks (formerly SSE Telecommunications) adjustment to consideration (6.2)
Other historic true-up credits 2.9
178.3
Total exceptional items 160.2
Notes:
- The definition of exceptional items can be found in Note 2(iii)
of the Interim Financial Statements.
- Non-core assets are defined as being assets in which SSE is not
the principal operator or are less aligned with the transition to net-zero
emissions.
In addition to the above exceptional items from continuing operations, a net
exceptional loss within discontinued operations of £183.2m after tax was
recognised. This predominantly related to the Gas Production asset
impairment of £93.9m and the effect of the UK deferred tax rate change in SGN
of £85.5m. The final exceptional result on sale of the Gas Production assets
and the SGN investment will be recognised following completion expected in the
second half of the 2021/22 financial year.
For a full description of exceptional items, see Note 6.1 of the Interim
Financial Statements.
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. Some of these contracts are
determined to be derivative financial instruments under IFRS 9 and as such
require 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 31 March 2021 is expected to be within the next
12-18 months.
The balance sheet movement in the operating derivative mark-to-market
valuation was a £1,204.0m increase from a small "in-the-money" position at 31
March 2021 into a significantly "in-the-money" position at 30 September
2021. This movement consisted of:
· Settlement during the year of £380.1m of previously
"out-of-the-money" contracts in line with the contracted delivery periods; and
· Mark-to-market gains of £1,584.1m on unsettled contracts entered
into during the course of 2020/21 and 2021/22 in line with the Group's stated
hedging policy. These mark-to-market gains reflect the significant
volatility in commodity markets during the period.
As in prior years, the reported result does not include remeasurement of 'own
use' adverse hedging agreements which total c.£(1.3)bn at 30 September 2021
and are excluded from recognition under IFRS 9 but largely offset the IFRS 9
remeasurement noted above.
Commodity stocks held at fair value
Gas inventory purchased by the Gas Storage business for secondary trading
opportunities is held at fair value with reference to the forward month market
price. The £235.2m positive movement in the year arose from the significant
increase in the fair value of gas held over historic cost at the period end.
However, whilst this reflects the positive movement in fair value of physical
gas inventory held at the period end, it does not reflect the negative
mark-to-market movement on forward contracted sales for the second half of the
current financial year which are not recognised under IFRS (and are included
in the c.£(1.3)bn of 'own use' adverse hedging agreements noted above).
Therefore, similar to derivative contracts held at fair value, we do not
expect the majority of this valuation movement will be realised by the
business.
Financing derivatives
In addition to the positive movements above, a negative movement of £55.9m
was recognised on financing derivatives in the period to 30 September 2021,
including SSE's share of joint venture financing derivative remeasurements,
and related to mark-to-market movements on cross-currency swaps and floating
rate swaps that are classed as hedges under IAS 39. These hedges ensure that
any movement in the value of net debt is predominately offset by a movement in
the derivative position. The adjustment was primarily driven by weaker
Sterling against the Euro and Dollar.
These remeasurements are 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.
Reported profit before tax and earnings per share
Taking all of the above into account, reported results for the period to 30
September 2021 are significantly higher than the previous period. In addition
to the £1,383.3m cumulative net gain on forward commodity, gas inventory and
financing derivative fair value remeasurements noted above, reported results
also reflect the reversal of historic SSE Thermal impairment charges of
£181.6m as well as other pre-tax exceptional items totalling £(21.4)m as
detailed within Note 6.1 of the Interim Financial Statements.
Reported results in the prior period reflected pre-tax exceptional gains of
£653.7m recognised which were driven by a combination of progression with the
Group's £2bn plus non-core asset disposal programme and IFRS 9 remeasurements
on operating derivatives.
Financial management and balance sheet
Debt metrics Sept 21 March 21 Sept 20
£m £m £m
Net Debt / EBITDA* N/A 4.6 N/A
Adjusted net debt and hybrid capital (£m) (9,611.4) (8,898.9) (10,622.1)
Average debt maturity (years) 7.2 7.4 6.9
Adjusted interest cover (times) 1.6 3.5 1.5
Average interest rate for the period (excluding JV/assoc. interest and all 3.35% 3.12% 3.15%
hybrid coupon payments)
Average cost of debt at period end (including all hybrid coupon payments) 3.89% 3.75% 3.58%
* Note: Net debt represents the group adjusted net debt and hybrid capital.
EBITDA represents the full year group adjusted EBITDA, less £311.8m (at March
2021) for the proportion of adjusted EBITDA from equity-accounted Joint
Ventures relating to project financed debt.
Net finance costs reconciliation Sept 21 Sept 20
£m £m
Adjusted net finance costs 202.6 195.0
Add/(less):
Lease interest charges (16.2) (17.6)
Notional interest arising on discounted provisions (1.6) (1.9)
Hybrid equity coupon payment 50.8 46.6
Adjusted finance costs for interest cover calculation 235.6 222.1
SSE Principal Sources of debt funding Sept 21 March 21 Sept 20
Bonds 58% 58% 51%
Hybrid debt and equity securities 22% 24% 23%
European investment bank loans 7% 8% 11%
US private placement 9% 8% 8%
Index -linked debt & short-term funding 4% 2% 7%
% of total SSE borrowings secured at a fixed rate 100% 98% 93%
Rating Agency Rating Criteria Date of Issue
Moody's Baa1 'negative outlook' 'Low teens' Retained Cash Flow/Net Debt September 2020
Standard and Poor's BBB+ 'outlook stable' About 18% Funds From Operations/Net Debt September 2020
Maintaining a strong balance sheet
While there may be short-term fluctuations, a key objective of SSE's approach
to managing cash outflow and securing value and proceeds from disposals is its
target of a net debt/EBITDA ratio of around 4.5 times.
As well as promoting the long-term success of the Company, this approach is
also designed to ensure that SSE maintains credit rating ratios (Retained Cash
Flow (RCF)/Net Debt and Funds From Operations (FFO)/Net Debt) that are
comparable with private sector utilities across Europe and comfortably above
those required for an investment grade credit rating.
SSE's S&P credit rating remains at BBB+ 'stable outlook' and its Moody's
rating remains at Baa1, albeit on negative outlook, following review in
September 2020. The annual ratings review meetings have taken place in
September 2021 with both agencies expected to announce their ratings update
following the announcement of the updated Strategy and Investment Plan today.
Adjusted net debt and hybrid capital
SSE's adjusted net debt and hybrid capital was £9.6bn at 30 September 2021,
up from £8.9bn at 31 March 2021, reflecting the ongoing capital investment
programme, phasing of UK carbon auctions and 22/23 ROC cashflows, debt
revaluations and various other working capital movements.
Debt summary as at 30 September 2021
No medium or long term debt was issued during the period, however €120m
(£103m) of 3-month commercial paper with an annual coupon of 0.425% was
issued by SSE plc in September 2021.
A debt revaluation adjustment of £49m was recognised at 30 September 2021, up
from £3.2m at 31 March 2021, and related to mark-to-market movements on
cross-currency swaps and floating rate swaps that are classed as hedges under
IAS 39. These hedges ensure that any movement in the value of net debt is
predominately offset by a movement in the derivative position. The adjustment
was primarily driven by weaker Sterling against the Euro and Dollar.
In addition to the hybrid bond called in April 2021 as outlined below, £450m
of debt matured in September 2021 with a further £415m due to mature in
February 2022.
Hybrid bonds summary as at 30 September 2021
Hybrid bonds are a valuable part of SSE's capital structure, helping to
diversify SSE's investor base and most importantly to support credit rating
ratios, with their 50% equity treatment by the rating agencies being positive
for SSE's credit metrics.
In April 2021, the €600m (£440m) March 2015 Hybrid Bond was called and
redeemed in accordance with the first call date.
A summary of SSE's Hybrid Bonds as at 30 September 2021 can be found below:
Issued Hybrid Bond Value* All in rate First Call Date Accounting Treatment
March 2017 £300m 3.73% September 2022 Debt accounted
March 2017 $900m (£749m) 2.72% September 2022 Debt accounted
July 2020 £600m 3.74% April 2026 Equity accounted
July 2020 €500m (£454m) 3.68% July 2027 Equity accounted
Note: Sterling equivalents shown reflect the fixed exchange rate where
proceeds have been swapped to Sterling and where proceeds remain in Euros the
Sterling equivalent is revalued each period
Further details on each hybrid bond can be found in Notes 13 & 14 to the
Interim Financial Statements however a table noting the amounts, timing and
accounting treatment of coupon payments is shown below:
Hybrid coupon payments 2021/22 2020/21
HYe FYe HYa FYa
Total equity (cash) accounted £51m £51m £47m £47m
Total debt (accrual) accounted £15m £31m £15m £30m
Total hybrid coupon £67m £82m £62m £77m
SSE's July 2020 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 remaining March 2017 hybrid bonds have a
fixed redemption date and are therefore debt accounted and included within
Loans and Other Borrowings; as such they are already part of SSE's adjusted
net debt and hybrid capital.
The coupon payments relating to the 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 debt
accounted hybrid bonds are treated as finance costs under IFRS 9.
Managing net finance costs
SSE's adjusted net finance costs - including interest on debt accounted hybrid
bonds but not equity accounted hybrid bonds - were £202.6m in the six months
to 30 September 2021 reflecting a slight increase in average cost of debt.
Reported net finance costs were £218.3m compared to £160.5m which, in
addition to the movements above, reflected the higher movement on financing
derivatives slightly offset by a lower share of joint ventures and associates'
interest costs.
Summarising cash and cash equivalents
At 30 September 2021, SSE's adjusted net debt included cash and cash
equivalents of £0.2bn, down from £1.6bn at March 2021 reflecting redemption
of the March 2015 Hybrid and repayment of maturing debt. The £1.6n of cash
and cash equivalents at 31 March 2021 was higher than normal, following
proceeds from disposals received prior to 31 March 2021 and the issuance of
the £500m dual tranche green bond in March 2021.
Cash collateral may be provided or received on exchange traded contracts,
depending on whether they are in an "out of the money" or "in the money"
position for the Group. At 30 September 2021, £87.4m of cash was held as
collateral from third parties on "in the money" contracts, compared to £36.1m
at 31 March 2021.
Revolving Credit Facility
SSE has £1.5bn of committed bank facilities in place to ensure the Group has
sufficient liquidity to allow day-to-day operations and investment programmes
to continue in the event of disruption to Capital Markets preventing SSE from
issuing new debt for a period of time. These facilities, noting any options to
extend, are set out in the table below.
Date Issuer Debt type Term Value
Mar 19 SSE plc Syndicated Revolving Credit Facility with 10 Relationship Banks 2026 £1.3bn
Oct 19 SSE plc Revolving Credit Facility with Bank of China 2026 £200m
The facilities can also be utilised to cover short-term funding requirements;
however, they remain undrawn for most of the time and at 30 September 2021
they were both undrawn.
Both facilities are 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.
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 investment and capital
expenditure for growth generally financed by a combination of cash from
operations, non-core asset disposals, partnerships and project financing, 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 2021, 100% 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
The ability to raise funds at competitive rates is fundamental to investment.
SSE's fundraising over the past five years, including senior bonds, hybrid
capital and term loans, totals £5.2bn and SSE's objective is to maintain a
reasonable range of debt maturities. Its average debt maturity, excluding
hybrid securities, at 30 September 2021 was 7.2 years, down from 7.4 years at
31 March 2021. This reflects SSE's maturing debt during the six months to
September 2021. SSE's average cost of debt is now 3.89%, compared to 3.75% at
31 March 2021.
Going Concern
The Directors regularly review the Group's funding structure and have assessed
that the Interim Financial Statements should be prepared on a going concern
basis.
In making their assessment the Directors have considered sensitivities on the
forecast future cashflows of the Group for the period to 31 December 2022; the
current market volatility in power and gas prices and the increased collateral
requirements, the Group's credit rating; the success of the Group's disposal
programme through 2020/21; and the successful issuance of £2.5bn of medium to
long term debt and hybrid equity during the year to 31 March 2021.
The Directors have also assessed that the Group remains able to access Capital
Markets, as demonstrated by the £2.5bn of debt issued over the last 18 months
via the dual tranche Euro bond issuance in April 2020, the dual tranche hybrid
issuance in July 2020 and the dual tranche green bond issuance in March 2021.
There is also an expectation of future available liquidity in the commercial
paper market in addition to the Group's existing liquidity with £1.5bn of
undrawn committed borrowing facilities.
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 project financed debt associated with its
equity interests in JVs, which, excluding SGN which has been reclassified as a
discontinued operation, is under £1.9bn as at 30 September 2021.
SSE principal JVs and associates Asset type SSE holding SSE share of external debt as at 30 September 2021 SSE Shareholder loans as at 30 September 2021
Seabank Power Ltd 1,234MW CCGT 50% No external debt No loans outstanding
Marchwood Power Ltd 920MW CCGT 50% No external debt £44m
Clyde Windfarm (Scotland) Ltd 522MW onshore wind farm 50.1% No external debt £127m
Dogger Bank A Wind Farm 1,200MW offshore wind farm. 40% £380m Project financed
Dogger Bank B Wind Farm 1,200MW offshore wind farm. 40% £210m Project financed
Dogger Bank C Wind Farm Up to 1,200MW offshore wind farm. 50% No external debt £136m
Seagreen Windfarm Ltd 1,075MW offshore wind farm 49% £529m £53m
Seagreen 1a Ltd Offshore wind farm extension 50% No external debt £5m
Scotia Gas Networks Ltd Gas distribution network 33.3% £1,645m £119m
Beatrice Offshore Windfarm Ltd 588MW offshore wind farm 40% £746m Project financed
Cloosh Valley Wind Farm 105MW onshore windfarm (part of Galway Wind Park) 25% £27m Project financed
Neos Networks Ltd Private telecoms network 50% No external debt £78m
Slough Multifuel Ltd 50MW energy-from-waste facility 50% No external debt £49m
Stronelairg Windfarm Ltd 228MW onshore wind farm 50.1% No external debt £88m
Dunmaglass Windfarm Ltd 94MW onshore windfarm 50.1% No external debt £47m
Notes:
1. Greater Gabbard, a 504MW offshore windfarm (SSE share 50%) is
proportionally consolidated and is reported as a Joint Operation with no loans
outstanding.
2. Scotia Gas Networks Ltd has been reclassified as a discontinued
operation from 11 June 2021, following the agreement to sell SSE's 33.3% stake
to a consortium comprising existing SGN shareholders Ontario Teachers' Pension
Plan Board and Brookfield Super-Core Infrastructure Partners for cash
consideration of £1,225m. The agreement is conditional on certain
regulatory approvals and is expected to complete by 31 March 2022.
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 manage its
total tax liability efficiently, 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 the period to 30 September 2021, based on
adjusted profit before tax, is 7.3%, as compared with 8.7% (restated) for the
same period last year on the same basis, and after discrete items. The
reduction in rate year-on-year is primarily due to the impact of capital
allowances available on the Group's capital investment programme.
The UK Budget in March 2021 introduced a "super-deduction" for qualifying
capital expenditure incurred during the two year period from 1 April 2021 to
31 March 2023. Capital allowances rates of 130% and 50% replace the existing
rates of 18% and 6% respectively for qualifying capital expenditure in that
period, significantly increasing the amount of capital allowances available on
the Group's capital investment programme.
Pensions
Contributing to employees' pension schemes - IAS 19 Sept 21 March 21 Sept 20
Pension scheme asset recognised in the balance sheet before deferred tax £m 501.7 543.1 528.5
Pension scheme liability recognised in the balance sheet before deferred tax (63.7) (186.1) (382.0)
£m
Net pension scheme asset recognised in the balance sheet before deferred tax 438.0 357.0 146.5
£m
Employer cash contributions Scottish Hydro Electric scheme £m 0.5 1.1 0.5
Employer cash contributions Southern Electric scheme £m 30.7 55.2 27.4
Deficit repair contribution included above £m 20.4 37.9 17.7
In the 6 months to 30 September 2021, the surplus across SSE's two pension
schemes increased by £81.0m, from £357.0m to £438.0m.
At 30 September 2021, the deficit for the Southern Electric Pension Scheme
('SEPS') reduced by £122.4m mainly due to scheme assets outperforming the
discount rate, which resulted in a net gain on scheme assets of £111.6m.
Movements in scheme liabilities due to changes in financial assumptions and
experience adjustments were offset by contributions in the period.
The Scottish Hydro Electric Pension Scheme ('SHEPS') has insured against
volatility in its deferred and pensioner members through the purchase of
'buy-in' contracts meaning that the Group only retains exposure to volatility
in active employees. During the year the SHEPS surplus decreased by £41.4m,
due to changes in financial assumptions and experience adjustments. The
scheme remains on a contribution holiday, following finalisation of the
triennial valuation during the period.
Additional information on employee pension schemes can be found in Note 17 to
the Interim Financial Statements.
business unit operating review
SSE's strategy of developing, building, operating and investing in the
electricity infrastructure and businesses needed in the transition to net zero
is delivered through a focused mix of core and complementary Business Units.
The networks and renewables businesses form SSE's low-carbon electricity core.
These businesses are key to enabling a net zero economy, have significant
growth potential and, importantly, fit together. With common skills and
capabilities in the development, construction, financing and operation of
world-class, highly technical electricity assets, there is a strong strategic
logic to them forming the low carbon electricity core of SSE. The other
businesses SSE retains are highly complementary to that renewables and
networks core and all contribute towards delivery of SSE's net zero strategy.
SSE's business mix is very deliberate, highly effective, fully focused and
well set to prosper on the journey to net zero and beyond.
The review of the Business Units that follows provides visibility of
performance and future priorities.
Economically-regulated networks
SSE owns and operates an electricity transmission network in the north of
Scotland and two electricity distribution networks in the north of Scotland
and in central southern England. SSE is in the process of a sales process to
dispose of its current 33.3% financial stake in Scotia Gas Networks. Owners of
energy networks in Great Britain are remunerated according to the RIIO
(Revenue = Incentives + Innovation + Outputs) framework set by Ofgem, under
which the regulator determines an annual allowed level of required capital
expenditure and operating costs, in order to meet required network outputs.
These are added together to form total expenditure or 'totex', which is split
by defined capitalisation rates which differ between networks.
Regulatory operational expenditure ('fast money') flows into licensee revenue,
whereas regulatory capex ('slow money') is added to the regulatory asset value
('RAV') for each network. Licensees earn a return on regulatory equity and
receive an allowance for the cost of debt, both of which are calculated based
on a notional split of their RAV.
Each licensee has the opportunity to earn above its base return on equity
through delivering efficiency savings on totex. Additionally, if service
levels improve against targets, there is an opportunity to earn additional
income through incentives. In the event that service levels fall below targets
set out in the price control, a penalty will be incurred which reduces network
revenue and therefore customer bills. This ensures that customers only
compensate networks for improving service levels. Further, customers benefit
from reduced bills when network providers achieve efficiency savings on totex
expenditure.
Charges per MWh ('tariffs') are set by licensees 15 months in advance of the
regulatory year and are based on forecasts of: (a) revenue which licensees are
entitled to collect in respect of the regulatory year ('allowed revenue'); (b)
the incentives and totex outperformance for the last three months of the year
in which the tariffs are set; and (c) the level of volumes which will be
distributed within the regulatory year. Differences in collected versus
allowed revenue (referred to as 'over- or under-recovery') are accommodated in
allowed revenue two years after the year in which they occur.
SSEN Transmission
SSEN Transmission key performaNce indicators
SSEN Transmission September 21 September 20
Transmission adjusted and reported operating profit - £m 181.7 115.2
Regulated Asset Value (RAV) - £m 3,875 3,643
Renewable Capacity connected to SSEN Transmission Network - MW 7,850 6,400
Transmission adjusted investment and capital expenditure - £m 291.0 224.4
SSEN Transmission overview
SSEN Transmission owns, operates and develops the high voltage electricity
transmission system in the North of Scotland and its islands.
Over the duration of the five-year RIIO-T2 price control, which began in April
2021, investment and capital expenditure by SSEN Transmission is expected to
total at least £2.8bn (the Certain View), including £291.0m in the first
half of 2021/22. Taking the Certain View alone, Transmission RAV would exceed
£5bn by the end of RIIO-T2.
This investment plays a pivotal role in providing the critical national
infrastructure required to facilitate the transition to net zero and to
maintain network reliability for the communities SSEN Transmission serves as
it delivers a network for net zero.
Operational delivery
SSEN Transmission has made a strong start to RIIO-T2. Building on a proud
track record of keeping the lights on for the homes and businesses SSEN
Transmission serves, in the six months to 30 September 2021, there have been
no faults on the transmission network resulting in a loss of supply for demand
users, in line with SSEN Transmission's RIIO-T2 goal to aim for 100%
transmission network reliability for homes and businesses. This strong
operational performance also means SSEN Transmission remains on track for the
full reward through the annual Energy Not Supplied Incentive.
The RIIO-T2 period is expected to deliver significant growth in the volume of
renewables connected to SSEN Transmission's network, which is forecast to
increase from just under 7GW at the start of RIIO-T2 to between 10GW and
around 13GW. This includes growth of 1.1GW in the six months to 30 September
2021, primarily driven by the connection of Moray East offshore windfarm
(900MW). This brings the total installed capacity connected to the North of
Scotland transmission network to 9.1GW, of which 7.85GW is from renewable
sources, supporting SSEN Transmission's RIIO-T2 goal to transport the
renewable electricity that powers 10m homes, which will be met once the
installed capacity of renewables reaches 10GW.
Connecting the forecast growth in renewables will be underpinned by a series
of strategic investments in new and upgraded infrastructure across the North
of Scotland. Excellent progress is being made on the Shetland transmission
link, which has now been in construction for over 12 months and will see
Shetland connected to the GB transmission system for the first time, enabling
the connection of renewables and supporting Shetland's future security of
supply. The substation and convertor station sites at Kergord (Shetland) and
Noss Head (Caithness) are now taking shape, with most building structures now
erected. Work to install the land cable on both shore ends is also under way,
with cable duct works progressing well. Subsea boulder clearance works are due
to begin before the end of 2021 in advance of the subsea cable installation
works which will follow from 2022/23 with the project on track for completion
in 2024.
The first phase of the Inveraray to Crossaig overhead line replacement project
in Argyll was fully energised in July 2021, with work now under way on the
second phase from Port Ann to Crossaig, which remains on track for completion
by summer 2024.
Excellent progress continues to be made to incrementally increase the capacity
of the north east and east coast transmission network to 275kV then to 400kV,
with new substations at New Deer (May) and Rothienorman (July) now energised
at 275kV, to be subsequently upgraded to 400kV in 2023. The 400kV overhead
line (OHL) upgrade works between Peterhead, Rothienorman and Blackhillock are
also under way, due for completion in 2023. The overall upgrade of the east
coast network to 400kV remains on track for completion in 2026
At Alyth, construction of a new substation, including specialist voltage
control devices, has commenced with good progress also being made at Peterhead
substation and an upgrade to Tealing substation, which will help facilitate
the connection of the Seagreen offshore wind farm in early 2022.
To support SSEN Transmission's 1.5C science-based target emissions reduction
commitments, including its RIIO-T2 goal to deliver a one third reduction in
greenhouse gas emissions, the business remains at the forefront of industry
efforts to remove harmful SF6 gases from its infrastructure, working with its
supply chain to develop and deliver innovative alternatives to SF6. This
includes the world's largest installation of GE's g3 gas-insulated substation
at New Deer substation and the world's first g3 400kV substation at Kintore.
For financial performance commentary please refer to the Group Financial
Review.
cma RIIO-T2 appeal
The Competitions and Markets Authority (CMA) published its final determination
on SSEN Transmission's appeal against certain elements of Ofgem's RIIO-T2
price control settlement on 28 October. The business welcomed the upholding of
appeals against the assumed 'Outperformance Wedge', and for changes to the
Licence Modification Process. SSEN Transmission was disappointed, however,
that the CMA did not uphold appeals on the flawed Cost of Equity, or on
changes to how Transmission Network Use of System Charges are recovered and
the associated risk of under recovery this presents.
Nonetheless, the business remains committed to working constructively with
Ofgem and other stakeholders as it continues to take forward ambitious plans
to deliver a network for net zero.
growth opportunities
During the RIIO-T2 period, SSEN Transmission expects to progress a number of
investments over and above its £2.8bn Certain View to put the North of
Scotland on a pathway to net zero. SSEN Transmission expects to unlock these
additional investments through Ofgem's Uncertainty Mechanisms. Good progress
has been made in progressing these additional investments in the first half of
2021/22, including:
In October, Ofgem published its decision on the Initial Needs Case (INC) for
two HVDC links connecting Scotland to England, recognising the clear need for
these investments. Work on each of the 2GW links, with a combined estimated
cost of £3.4bn, will now be split into two projects. The Peterhead to Selby
link will be progressed jointly by SSEN Transmission and National Grid
Electricity Transmission (NGET); and the Torness to Hawthorn Pit link will be
progressed jointly by SP Energy Networks and NGET. A Final Needs Case (FNC)
remains on track for submission before the end of 2021. With an energisation
date of 2029, development and early construction activity and expenditure
would take place during RIIO-T2, with delivery taking place in RIIO-T3.
The Initial Needs Case (INC) for the replacement of the Fort-Augustus to Skye
transmission line, at an estimated total investment of around £400m, was
submitted to Ofgem in August 2021. The replacement line is required to
maintain security of supply and to enable the connection of renewable
electricity generation.
Work to prepare the INC to upgrade the Argyll transmission network to 275kV
operation is progressing well, with the INC due to be submitted before the end
of 2021. The Argyll 275kV strategy is required to support the forecast growth
in renewables in the region.
Further expenditure to connect new renewable generation, rail electrification
and system security is also expected throughout the RIIO-T2 period and beyond
when the need for this investment becomes certain. These investments could see
the total installed generation capacity increase to around 14GW by the end of
RIIO-T2, with around 13GW of this from renewable sources. Subject to
regulatory approval, combined, these investments, alongside the Certain View,
could bring the total expenditure across the RIIO-T2 period to over £4bn,
with SSEN Transmission RAV increasing to over £6bn by the end of RIIO-T2.
growth beyond riio-t2
Beyond RIIO-T2, the ScotWind leasing round, the outcome of which is expected
in January 2022, is set to unlock up to 10GW of new offshore wind in Scotland
which will require significant transmission upgrades both onshore and
offshore.
To support the connection of ScotWind and the UK Government's 40GW by 2030
offshore wind target, the National Grid ESO, in collaboration with the three
GB Transmission System Operators, is developing a Holistic Network Design
(HND) which will set out the onshore and offshore network requirements to
deliver 2030 targets. The HND is expected to include a second HVDC link from
Peterhead to England, alongside several other major reinforcements required to
deliver 2030 offshore wind targets, supporting future earnings and RAV
growth.
In addition to the opportunities outlined above, SSEN Transmission continues
to work with stakeholders in Orkney and the Western Isles to develop and take
forward proposals to enable mainland transmission connections. Changes to the
structure of the forthcoming Contracts for Difference auction, with offshore
wind now in a separate pot to remote island wind, may increase the
competitiveness of remote island wind which in turn, could support the
investment case for the proposed transmission links. The outcome of the CfD
auction is expected in the first half of 2022.
SSEN Distribution
SSEN distribution key performance indicators
SSEN Distribution September 21 September 20
Distribution adjusted and reported operating profit - £m 153.3 114.3
Regulated Asset Value (RAV) - £m 3,862 3,825
Distribution adjusted investment and capital expenditure - £m 171.3 167.9
Electricity Distributed - TWh 17.2 15.8
Customer minutes lost (SHEPD) average per customer 23 24
Customer minutes lost (SEPD) average per customer 24 23
Customer interruptions (SHEPD) per 100 customers 26 29
Customer interruptions (SEPD) per 100 customers 25 25
SSEN Distribution overview
SSEN Distribution, operating under licence as Scottish Hydro Electric Power
Distribution plc (SHEPD) and Southern Electric Power Distribution plc (SEPD),
is responsible for safely and reliably maintaining the electricity
distribution networks supplying over 3.8m homes and businesses across central
southern England and the North of Scotland.
There are 18 months remaining of the RIIO-ED1 Price Control period and SSEN
Distribution is focusing on:
· Improved performance in relation to customer and network
incentives available within RIIO-ED1.
· Efficient delivery of capital investment.
· Focused delivery of regulatory outputs.
· Maintaining a leadership position in innovation.
In July 2022, SSEN Distribution published its draft £4.1bn RIIO-ED2 business
plan for 2023 to 2028. Powering Communities to Net Zero sets out how
improvements will be delivered for customers and network investment
accelerated to power communities to net zero. Informed by engagement with over
21,000 stakeholders, the draft plan sets out six goals built around SSEN
Distribution's strategic outcomes. It proposes £900m of additional potential
investment under regulatory Uncertainty Mechanisms to help protect customers
and provide the necessary flexibility as opportunities and policy evolves.
SSEN Distribution has been engaging extensively with stakeholders following
the publication of the draft plan to support, inform and prepare a finalised
plan to be submitted to Ofgem on 1 December 2021.
Operational delivery
SSEN Distribution continues to undertake a major capital investment programme
across both its networks, delivering significant improvements for customers
and increasing its Regulated Asset Value.
In the six months to 30 September 2021, the business invested £171.3m,
bringing the total invested since the beginning of the RIIO-ED1 price control
to around £2.1bn. This is part of a forecast £2.6bn investment throughout
the RIIO-ED1 period, supporting future earnings through RAV growth.
SSEN Distribution invests to ensure the communities it serves thrive today and
to create a net zero tomorrow. In the first half of 2021/22 this included over
£155.5m of investment in projects and network infrastructure, comprised of
£88.6m in SEPD and £66.9m in SHEPD. This included works beginning in April
2021 on a £7.9m project to upgrade equipment and future-proof the network for
around 114,000 west London customers, to be completed in March 2023; and a
£5.6m investment to upgrade a substation in Hampshire to be completed in July
2023. In August 2021, SSEN Distribution successfully concluded a £28m subsea
cable replacement between Skye and Harris. The project involved significant
offshore works using specialist marine vessels to successfully install and
protect the 33kV cable between Ardmore, Skye and Beacravik, Harris.
Incentive performance remains a key revenue driver and SSEN prioritises
improving reliability of network performance and to support a positive
customer experience. Under the RIIO regulatory regime, and the Interruptions
Incentive Scheme (IIS), SSEN Distribution is incentivised on its performance
against the loss of electricity supply through the recording of Customer
Interruptions (CI) and Customer Minutes Lost (CML) which includes both planned
and unplanned supply interruptions. These incentives will typically be
collected two years after they are earned.
SSEN has continued to drive improvements in network performance and resilience
through investment in automation. In SHEPD CML reduced from 28.5 to 26.1 and
CI from 23.9 to 23.5 in comparison to the 2020/21. In SEPD CI remained broadly
flat in the first six months of 2021/22, in comparison to the first six months
of 2020/21 (24.8 to 24.9). CML rose from 22.5 to 23.6 in comparison to the
same period in 2020/21, due to two significant 132kV faults.
SSEN has successfully secured improvement in customer satisfaction levels
based on initial RIIO-ED1 Broad Measure incentive scores. The current year-end
target is £4m. Whilst performance in SHEPD remains strong, SEPD has had a
challenging first half of the year with demand increasing as the economy
reopened following the lifting of coronavirus restrictions, resulting in a
reduction in customer satisfaction. There is a full improvement plan in place
for each Broad Measure category in SEPD to improve customer satisfaction
scores. Building on last year's increased revenue, SSEN Distribution secured
an improved score from its Stakeholder Engagement and Customer Vulnerability
(SECV) submission leading to an indicative income increase from £1.1m to
£1.6m.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
The UK's net zero ambitions will lead to a trebling of demand on electricity
networks, according to the Climate Change Committee forecasts. Two key drivers
behind the increase in demand will be the electrification of heating and
transport which currently account for up to 23% and 27% respectively of annual
UK carbon emissions.
The UK Government is targeting 600,000 heat pump installations a year by 2028
and its ambition is to phase out the installation of new gas boilers from
2035. These measures will be supported by its target of reducing heat pump
cost by up to 50% by 2025.
SSEN Distribution's ED2 draft (July 2021) Business Plan's proposed investment
and utilising of flexibility to optimise the network will support an increase
in heat pump numbers from around 20,000 to 800,000 by 2028, aligned with SSEN
Distribution's 2020 Future Energy Scenario (DFES) forecasts. SSEN Distribution
applies a 'flexibility first' approach to satisfying demand requirements,
recognising that the decarbonisation of heat will require a range of solutions
and technologies, whilst also ensuring that the network needs to be ready to
accommodate rapid heat pump uptake efficiently and at the time needed.
The UK Government's Net Zero Strategy commits to decarbonising the power
system by 2035 and highlights that electricity networks will require up to
£30bn of investment by 2037 in maintenance and reinforcement. It also
announced a Zero Emission Vehicle mandate for car manufacturers, requiring an
increasing percentage of zero-emission vehicle sales each year from 2024. In
SSEN Distribution's network areas, according to the 2020 DFES, electric
vehicle charging capacity could increase from less than 500MW today to 9GW by
2030.
Throughout its strategies both the UK and Scottish governments have emphasised
support, and the necessity, for strategic investment in electricity networks
to accommodate significant increases in demand. As part of SSEN's commitment
to considering flexibility prior to network reinforcement it is part of
CrowdFlex, the UK's largest ever domestic flexibility trial. Announced in June
2021, SSEN is working alongside National Grid ESO, Octopus Energy and Ohme.
CrowdFlex will include 25,000 UK households and inform innovative approaches
to managing low-carbon technology uptake.
SSEN Distribution's RIIO ED2 draft business plan proposed £4.1bn in baseline
investment, which represents an increase of around 36% on an equivalent ED1
period. Translating that into the Group's new five-year capital and investment
expenditure capex plan to FY26 would see c.£2bn of capex as SSEN Distribution
moves into the ED2 price control period from 2023. This equates to a >15%
increase on annual investment from the previous capex plan and therefore
incorporates just part of the ambitious distribution investment plans out to
2028.
While significant and extensive electrification is required put the UK on the
path to realising its net zero target, the pace of change that will take place
is not certain. SSEN Distribution has proposed £900m of potential investment
under regulatory Uncertainty Mechanisms to help protect customers and provide
the necessary flexibility as positions and policy evolves during RIIO-ED2.
This flexibility allows SSEN Distribution to respond when greater clarity is
available for years 3-5 of the ED2 plan and to avoid committing customers to
paying for investment before we know what is fully efficient.
The final RIIO ED2 Business Plan will represent a further refinement of the
draft, taking account of feedback and updated through extensive stakeholder
engagement on the draft plan.
SSE Renewables
sse Renewables key performance indicators
SSE Renewables September 21 September 20
Renewables adjusted operating profit - £m 25.4 141.6
Renewables reported operating profit - £m (33.6) 318.6
Renewables adjusted investment and capital expenditure before refunds - £m 417.5 176.4
Generation capacity - MW
Onshore wind capacity (GB) - MW 1,285 1,247
Onshore wind capacity (NI) - MW 122 122
Onshore wind capacity (ROI) - MW 567 567
Total onshore wind capacity - MW 1,974 1,936
Offshore wind capacity (GB) - MW 487 487
Conventional hydro capacity (GB) - MW 1,159 1,159
Pumped storage capacity (GB) - MW 300 300
Total renewable generation capacity (inc. pumped storage) - 3,920 3,882
MW
Contracted capacity 2,792 2,792
Generation output - GWh
Onshore wind output (GB) - GWh 805 970
Onshore wind output (NI) - GWh 76 103
Onshore wind output (ROI) - GWh 405 533
Total onshore wind output - GWh 1,286 1,606
Offshore wind output (GB) - GWh 563 792
Conventional hydro output (GB) - GWh 907 1,319
Pumped storage output (GB) - GWh 97 68
Total renewable generation (inc. pumped storage) - GWh 2,853 3,785
Total renewable generation (also inc. constrained off) - GWh 2,901 4,008
Note 1: Capacity and output based on 100% of wholly owned sites and share of
joint ventures
Note 2: Contracted capacity includes sites with a CfD, eligible for ROCs, or
contracted under REFIT
Note 3: Onshore wind output excludes 44GWh of constrained off generation in
HY2021/22 and 223GWh in HY2021/22; Offshore wind output excludes 4GWh
constrained off generation in 2021/22 and nil in 2020/21
Note 4: Onshore wind capacity in GB reflects the commissioning of Gordonbush
Extension in August 2021
Note 5: Biomass capacity of 15MW and output of 37GWh in HY2021/22 and 22GWh
HY2020/21 is excluded, with the associated operating profit or loss reported
within Distributed Energy
SSE Renewables overview
SSE Renewables comprises the Group's existing operational assets and those
under development in onshore wind, offshore wind, flexible hydro electricity,
run-of-river hydro electricity and pumped storage. Its operational offshore
wind installed capacity is 487MW with its onshore wind and hydro electric
installed capacity at 1,936MW and 1,459MW respectively.
SSE Renewables is currently building more offshore wind capacity than any
other company in the world - the Seagreen and Dogger Bank projects will be the
largest in Scotland and in the world respectively when completed. SSE
Renewables is on track to have enabled over a quarter of the UK's 40GW
offshore wind target by 2030.
Operational delivery
In terms of operational maintenance and plant availability, it was a strong
first half year with overall availability high across onshore and offshore
wind and hydro operations.
SSE Renewables' hydro assets continue to play an important role in providing
cost-effective, low carbon flexibility to the system, which is providing
additional diversified income streams. Over the spring and summer, assets were
successful in the newly established STOR (Short Term Operating Reserve)
auctions run by the ESO. Additional value has been realised through the
ongoing hydro optimisation programme, which has identified further value
creation opportunities within the asset base, including increased digitisation
and automation of its operations.
The business continues to make progress with its programme of capital
investment focusing on extending the life of large flexible hydro assets and
improving reliability and efficiency. Grudie Bridge (18.7MW) is in final
commissioning and slightly ahead of programme. Civil works on Tummel Bridge
(34MW) have started and the replacement turbines have been ordered. Works are
well under way at Loch Mhor, the headwater reservoir for Foyers pumped storage
power station (300MW), to add 1GWh of storage and enhance the operational
capability and flexibility of the asset. The works are anticipated to be
completed in Spring 2022.
SSE Renewables has brought the maintenance of more of its onshore wind fleet
in-house. It now wholly maintains 454 turbines totalling 847MW equating to 62%
of SSE Renewables' wholly-owned fleet.
For financial performance commentary please refer to the Group Financial
Review.
Construction programme
The first two phases of the world's largest offshore wind farm at Dogger Bank
(each 1,200MW, SSE Renewables share 40%) remain on track with onshore works
for cables and substation continuing and offshore construction commencing in
Q2 2022 with installation of the HVDC export cables for Dogger Bank A. Dogger
Bank C (1,200MW) remains on track to reach financial close by the end of this
calendar year. SSE has sold down a 10% share of Dogger Bank C to Eni for an
equity consideration of £70m. A consistent combination of equity partners
across all three phases of the project will enable further synergies across
both the construction and operations phase of the Dogger Bank wind farm.
The first turbine jacket foundations have been installed at Seagreen 1
(1,075MW, SSE Renewables share 49%), Scotland's largest and the world's
deepest, fixed-bottom offshore wind farm. Full power is targeted at the end of
2022. With 621MW not currently attached to a CfD, there is the potential to
compete in the CfD Allocation Round 4 auction opening at the end of 2021 for
the uncontracted part of the project.
Construction is progressing well on Viking (443MW) with 60km out of 70km of
the access roads completed and 47 out of the 103 turbine foundations at
various stages of construction. Work on the DC substation is continuing. It is
planned that turbines will be installed in early 2023 and completion is
planned for autumn 2024. The wind farm will also have the option to enter the
CfD auction later this year. Viking will be among the highest-yielding onshore
wind farms in Europe, producing almost 2TWh annually.
At Lenalea wind farm (30MW, SSE Renewables share 50%) in Ireland, construction
is progressing and is to be commissioned in late 2022/early 2023.
In July Beatrice Offshore Wind Farm Limited, a joint venture owned 40% by SSE
Renewables, agreed Offshore Transmission Owner assets divestment worth an
asset value of £437.9m and full asset transfer took place on 5 August.
Gordonbush Extension (38MW), SSE's first merchant onshore wind project, has
now been fully commissioned and handed over to operations following its
official opening in August.
Growth opportunities - domestic
SSE has a c.10GW secured pipeline of opportunities either in construction,
consented or requiring consent. This superior pipeline will deliver c.4GW of
added capacity to FY26 with targets to reach 13GW by 2031. Delivering on
this pipeline will see, on average, almost 1GW of renewables capacity added
each year to 2031. It expects to grow this pipeline to c.15GW by FY26,
maintained through the rest of the decade, which will in turn maintain the run
rate of at least 1GW of new assets a year. Delivery of this will mean SSE
expects to comfortably exceed its target for trebling its renewable output by
2031.
Near-term growth opportunities will come from SSE Renewables' consented
offshore sites: Seagreen 1A (360MW, SSE Renewables share 49%), which is an
extension to the Seagreen 1 site, and Arklow Bank Wind Park 2 (520MW) in
Ireland. As already mentioned, development work on Seagreen 1A is ongoing with
potential to be eligible for CfD Auction Round 4 when it opens in December.
The Arklow Bank project will be well placed to take part in the first Irish
offshore auction to be scheduled in 2022, the details of which are currently
under consultation by the Irish Government. SSE Renewables has a foreshore
lease for Arklow Bank Wind Park 2 and is engaged with the Department of
Housing, Local Government and Heritage regarding extension of the associated
'Long Stop Dates'. If successful in respective auctions, both Seagreen 1A and
Arklow Bank Wind Park 2 projects could be operational by 2025/26.
In the medium term, SSE Renewables has combined the previous Berwick and Marr
Bank offshore wind projects located in the Firth of Forth into a single, up to
4.1GW, Berwick Bank project which is working towards a single consent
application submission in Spring 2022 with the aim of securing consent in
2023. The project will play a critical role in helping to deliver the 40GW UK
offshore wind target by 2030, as well as the Scottish Government's 11GW
target.
North Falls offshore wind farm (up to 504MW, SSE Renewables share 50%), which
is an extension to the Greater Gabbard wind farm off the east coast of
England, continues to progress with local consultation under way for a
potential grid connection in North Essex. North Falls could also be
operational by 2030.
SSE Renewables has submitted bids into Crown Estate Scotland's ScotWind
offshore wind seabed leasing process as part of a consortium with Marubeni
Corporation and CIP (Copenhagen Infrastructure Partners). The Project Partners
are combining their unparalleled local experience and extensive global
expertise in the development of fixed and floating offshore wind farms. The
results of ScotWind are expected in early 2022.
SSE Renewables has stated its ambition to contribute a significant amount of
the capacity needed to meeting Ireland's 5GW offshore wind target by 2030. A
foreshore licence has been secured for site investigations for the 800MW
Braymore Wind Park project off the north-east coast and an application has
been submitted for the 800MW Celtic Sea Array off the south-east coast. Celtic
Sea Array and Braymore Wind Park would both progress under the Maritime Area
Planning (MAP) Bill, which is currently progressing through the Irish
Parliament. This legislation will enable the establishment of a new regulator
that will run a process to manage the allocation of leases for seabed.
Braymore and Celtic will apply for a Marine Area Consent once the process has
been established, which is expected in early 2023.
Future onshore wind growth can be delivered through SSE Renewables' consented
sites at Strathy South (consented for 133MW and has submitted variation to
increase to 208MW) and Tangy repower (57MW) in Scotland and Yellow River
(105MW) in Ireland. SSE Renewables has submitted consent applications to the
Scottish Government for Bhlaraidh Extension (in excess of 100MW), and Achany
Extension (in excess of 80MW).
There continues to be positive progress on the Coire Glas pumped hydro storage
project (up to 1,500MW) which issued an Invitation To Tender (ITT) to
shortlisted civil engineering works companies at the end of October. The UK
Government published its updated Smart Systems and Flexibility Plan in July,
which set out the importance of long duration energy storage technologies like
pumped hydro in providing the system flexibility needed to meet net zero. A
call for evidence was published on possible policy interventions, such as cap
and floor, to support such projects and the UK Government will announce the
outcome of that process in early 2022. Subject to the outcome of these policy
decisions, Coire Glas could progress to an FID decision by 2023/24 with the
objective of being completed before the end of the decade.
SSE Renewables Project Pipeline
Project Location Technology Capacity (MW) SSE Share (MW)
Due FID or in Construction
Dogger Bank A GB Offshore wind 1,200 480
Dogger Bank B GB Offshore wind 1,200 480
Dogger Bank C GB Offshore wind 1,200 600(5)
Seagreen 1 GB Offshore wind 1,075 527
Viking GB Onshore wind 443 443
Lenalea ROI Onshore wind 31 31
Consented
Arklow Bank 2(1) ROI Offshore wind 520 520
Seagreen 1A GB Offshore wind 360 176
Yellow River ROI Onshore wind 105 105
Tangy GB Onshore wind 57 57
Coire Glas(2) GB Pumped storage Up to 1,500 Up to 1,500
Requiring consent
Berwick Bank(3) GB Offshore wind Up to 4,100 Up to 4,100
North Falls GB Offshore wind 504 252
Strathy South GB Onshore wind 208 208
Cloiche GB Onshore wind 155 155
Other - Onshore wind c200 c200
Future prospects(4)
Braymore Point ROI Offshore wind 800 800
Celtic Sea Array ROI Offshore wind 800 800
Japanese development projects Japan Offshore wind 10,000 8,000
Future auctions - Offshore wind TBC TBC
Other GB GB Onshore wind c250 c250
Other NI NI Onshore wind c50 c50
Other ROI ROI Onshore wind c250 c250
Other GB GB Hydro 75 75
Note 1: Partially consented
Note 2: Expected to require revenue stabilisation mechanism
Note 3: Berwick Bank and Marr Bank offshore wind farms were combined into one
wind farm in September 2021, known as Berwick Bank Wind Farm
Note 4: Reflects named development areas where some form of development
activity is underway and therefore excludes any future or in-flight auction
processes such as ScotWind, Thor or NY Bight
Note 5: Dogger Bank C 600MW reflects SSE's current 50% equity stake. A 10%
equity stake sale is expected to complete by Q1 2022, which would reduce share
to 480MW.
Growth opportunities - international
SSE Renewables has progressed in exporting its capabilities overseas with the
creation of a new joint ownership company, SSE Pacifico (80% stake), which
includes the acquisition of an interest in an offshore development platform
for US$208m. The new company will develop the 10GW gross portfolio acquired,
comprising a number of early development stage offshore wind projects in
Japan. It includes a mix of fixed bottom and floating sites with the most
advanced projects expected to be constructed by the end of this decade.
In the US, via its newly incorporated entity SSE Renewables North America, SSE
Renewables has successfully prequalified for the New York Bight Auction for
seabed. The auction is expected to lead to 7GW of offshore wind projects with
the Final Sale Notice expected before the end of this calendar year ahead of
the auction in Q1/Q2 2022.
In Europe, the tender process for the 800-1000MW Thor offshore wind site in
Denmark will conclude by the end of 2021. SSE Renewables is partnering with
CIP and local energy company Andel Holding.
Following formation of a partnership with Acciona Energia, SSE Renewables will
be submitting an application for Offshore Location Licenses (OLL) for the
allocation of development rights for offshore wind farms in Poland. The
process is expected to run until Q2 2022.
SSE Renewables also continues to work with Acciona Energia on offshore wind
opportunities in Spain. The Spanish government published its draft offshore
wind roadmap in August which set out an ambition to target up to 3GW by 2030.
SSE Renewables is also assessing other growth options across Europe, including
the potential to bid into the next offshore wind auction in the Netherlands
due to take place in 2022.
SSE thermal
sse thermal key performaNce indicators
SSE Thermal September 21 September 20
Thermal adjusted operating profit - £m 36.1 49.6
Thermal reported operating profit - £m 215.6 58.1
Thermal adjusted investment and capital expenditure - £m 93.3 39.8
Generation capacity - MW
Gas- and oil-fired generation capacity (GB) - MW 3,975 4,002
Gas- and oil-fired generation capacity (ROI) - MW 1,292 1,292
Multifuel capacity - MW - 68
Total thermal generation capacity - MW 5,267 5,362
Generation output - GWh
Gas- and oil-fired output (GB) - GWh 6,021 7,954
Gas- and oil-fired output (ROI) - GWh 1,791 1,233
Multifuel output - GWh - 251
Total thermal generation - GWh 7,812 9,438
Note 1: Capacity is wholly owned and share of joint ventures
Note 2: 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: Decreased multifuel capacity relates to disposal of Ferrybridge
Multifuel in October 2020
Note 4: Decreased gas- and oil-fired capacity relates to the transfer of 10MW
small plant to Distributed Energy and closure of 17MW small diesel plant
SSE Thermal overview
SSE Thermal owns and operates conventional thermal generation in the UK and
Ireland. These assets play a key transitional role in the SSE Group, and wider
energy system, in balancing the system on the journey to net zero. While
providing much-needed system flexibility to ensure stability and security of
supply in the short term, SSE Thermal is actively developing options to
progressively decarbonise its fleet.
Operational delivery
SSE Thermal's Combined Cycle Gas Turbine (CCGT) fleet continues to play an
important role in the UK and Ireland electricity systems, with its flexibility
providing system security and stability. The SSE Thermal fleet has responded
to the unprecedented market conditions in the six months to 30 September,
delivering significant value to the system and demonstrating the role it plays
in ensuring a resilient transition to net zero. Periods of scarcity have
created value for SSE Thermal through increased spark spreads, with the
Balancing Mechanism continuing to act as an important earnings stream.
Plant availability was lower in the six months to 30 September 2021, when
compared to 30 September 2020, across the SSE Thermal fleet. Reduced
availability has been driven by a number of factors including unplanned
outages to respond to faults and maintenance requirements, slight overrun of
planned outages and the phasing of outages to respond to system needs.
For financial performance commentary please refer to the Group Financial
Review.
SSE Thermal's assets have been awarded the following capacity contracts in GB
and Ireland through competitive auctions.
Station Asset type Station Capacity SSE share Capacity obligation
Medway (GB) CCGT 735MW 100% To September 2022
Keadby (GB) CCGT 755MW 100% To September 2022
Keadby 2 (GB) CCGT 840MW 100% 15-years commencing October 2023
Peterhead (GB) CCGT 1,180MW 100% To September 2025
Seabank (GB) CCGT 1,234MW 50% To September 2025
Marchwood (GB) CCGT 920MW 50% To September 2025
Slough Multifuel Energy from Waste 50MW 50% 15-years commencing October 2024
Great Island (Ire) CCGT 464MW 100% To September 2025
Rhode (Ire) Gas/oil peaker 104MW 100% To September 2025
Tawnaghmore (Ire) Gas/oil peaker 104MW 100% To September 2025
Tarbert (Ire) Oil 620MW 100% To September 2022
Capacity contracts are based on de-rating factors issued by the delivery body
for each contract year, therefore will not directly match SSE's published
station capacity.
Growth opportunities
Repurposing the SSE fleet remains a priority to make it fit for a net zero
world. The importance of bringing forward investment in lower-carbon flexible
generation has come to the fore in recent months. While SSE closed its last
remaining coal-fired power station in March 2020, coal-fired generation
continues to be relied upon to meet electricity system demand, and has seen
increased usage in 2021. This development serves to highlight the urgent need
for the carbon capture and hydrogen technologies that SSE Thermal is seeking
to develop as alternative sources of flexible generation that can provide
lower-carbon back-up.
As set out at Full-year Results, with the exception of Keadby 2, Marchwood,
Great Island and potentially Seabank, SSE cannot envisage any of its thermal
plant running into the 2030s unabated. Its focus remains on carbon capture and
storage and hydrogen technologies.
In May 2021, the UK Government launched its 'Cluster Sequencing Process' to
identify the industrial clusters which will be supported to deploy shared
carbon capture and storage infrastructure by the middle of this decade. This
is the shared infrastructure which proposed low-carbon power stations jointly
developed by SSE and Equinor could plug into. Power station options include:
· Keadby Carbon Capture Power Station - a 900MW gas-fired power
station with carbon capture.
· Peterhead Carbon Capture Power Station - a 900MW gas-fired power
station with carbon capture.
· Keadby Hydrogen - a 900MW low-carbon hydrogen-fired power
station, with a peak demand for hydrogen of 1,800MW. This could be the world's
first major hydrogen-fired power station.
In October 2021, the East Coast Cluster was identified as a successful 'Track
1' cluster, which encompasses the Zero Carbon Humber project, and will be one
of those clusters supported to deploy carbon pipelines and carbon storage.
This includes SSE Thermal and Equinor's Keadby-based projects in North
Lincolnshire.
This decision will allow Keadby Carbon Capture Power Station an opportunity to
submit an application to UK Government for a Dispatchable Power Agreement, a
revenue support scheme which has been designed for power stations with carbon
capture, and to explore opportunities to further develop Keadby Hydrogen Power
Station. This process is anticipated to launch in autumn 2021.
The Scottish cluster was identified as a 'reserve Track 1' cluster and remains
in line to progress to deployment as a 'Track-2' cluster by the end of the
decade. The Scottish cluster includes the Acorn CCS infrastructure which
Peterhead Carbon Capture and Power Station could be a key early customer for.
These plans would support the UK's transition to net zero and accelerate the
decarbonisation of some of the UK's most carbon intensive regions,
underpinning investment in shared carbon and hydrogen pipelines which other
emitters in the region could plug into.
Keadby 2, SSE Thermal's £350m 893MW CCGT brings Siemens' first-of-a-kind,
high efficiency, gas-fired generation technology to the UK and is on track to
be fully commissioned in 2022. Keadby 2 achieved its first generation when
synchronised with the grid on 31 October. As part of its co-operation
agreement with Equinor, SSE Thermal is also developing options to blend
hydrogen at Keadby 2.
gas storage
Gas storage key performance indicators
Gas Storage September 21 September 20
Gas Storage adjusted operating (loss)/profit - £m 28.7 (17.9)
Gas Storage reported operating profit/(loss) - £m 263.9 4.5
Gas storage adjusted investment and capital expenditure - £m 0.8 2.1
Gas Storage overview
SSE Thermal holds around 40% of the UK's conventional underground gas storage
capacity. These assets can play an important role in the transition to net
zero, supporting security of supply with the UK's continuing shift away from
coal-fired generation and the resulting loss of inherent energy storage in
coal stocks.
In the six months to 30 September, SSE's gas storage business responded to
market and demand changes resulting from volatility in the gas price. Natural
gas injections and withdrawals have been re-optimised, delivering value in the
first half of the year.
SSE Thermal remains committed to working with UK Government departments and
Ofgem to ensure the critical role of UK storage in relation to security of
supply and stability of gas price is properly rewarded, as well as a future
role for low-carbon hydrogen storage.
In July 2021, SSE Thermal and Equinor announced plans to develop a
world-leading hydrogen storage project at Aldbrough, an existing gas storage
site on the east Yorkshire coast. Hydrogen storage is expected to play an
important role in a low-carbon hydrogen economy balancing supply and demand
with an ability store hydrogen produced using carbon capture and electrolytic
technologies, as identified in the UK Government's inaugural Hydrogen Strategy
published in August 2021.
For financial performance commentary please refer to the Group Financial
Review.
SSE business energy
SSE Business energy key performaNce indicators
SSE Business Energy September 21 September 20
Business Energy adjusted operating (loss)/profit - £m 2.4 (27.4)
Business Energy reported operating profit/(loss) - £m 2.4 (15.5)
Electricity Sold - GWh 6,161 6,301
Gas Sold - mtherms 73.0 65.2
Aged Debt (60 days past due) - £m 72.6 76.9
Bad debt expense - £m 1.4 14.9
Energy customers' accounts - m 0.47 0.51
SSE Business Energy overview
SSE Business Energy provides a potential shopfront and route to market for
SSE's low-carbon energy solutions and green products to non-domestic customers
across GB. The business markets its products under the SSE Energy Solutions
brand alongside SSE Distributed Energy.
Operational delivery
Business Energy continues to invest in digital and customer service solutions
to adapt and evolve its offerings in a highly competitive market. May saw the
launch of a new and simplified Corporate Power Purchase Agreement product,
which makes traditionally-complex CPPAs accessible to more companies in Great
Britain. This was followed in July by the announcement that all businesses
signing up for a fixed contract with SSE Business Energy will receive their
electricity from renewable sources. SSE previously offered 100% renewable
electricity as an optional extra to business customers. The electricity's
green credentials are independently verified by EcoAct, an Atos company, and
customers are provided with Renewable Energy Guarantees of Origin (REGOs)
certification.
Prioritising the safety and wellbeing of customer service operations remains a
priority and in response to coronavirus, remote working continues to be
successfully implemented across the business. Physical services such as meter
reading, smart meter installation activities and field debt collections were
paused but are now operating effectively as lockdowns are eased. The second
half of 2021 has seen a gradual return to office working, where possible and
appropriate.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
In July, SSE Business Energy joined forces with SSE Distributed Energy to
create a new SSE Energy Solutions brand. The launch of SSE Energy Solutions
coincided with the announcement that all businesses signing up for fixed
contracts with SSE in Great Britain will now receive all their electricity
from renewable sources that SSE operates. The move, which aims to make it
easier for customers to hit their climate change targets, saw the launch of a
new customer website which makes all of SSE's products and services available
via one shopfront for the first time. The SSE Energy Solutions website offers
an expanded product portfolio including customer workplace EV charging
solutions and flexible Corporate Power Purchase Agreement offerings.
The past 12 months have also seen the launch of Business Energy's renewable
gas tariff 'Green Gas plus', which is gaining traction in the market and has
received third party accreditation from EcoAct.
SSE airtricity
SSE airtricity key performance indicators
SSE Airtricity September 21 September 20
Airtricity adjusted operating profit - £m (2.9) 16.6
Airtricity reported operating profit - £m (2.9) 20.4
Aged Debt (60 days past due) - £m 8.6 8.7
Bad debt expense - £m 2.0 2.1
Airtricity Electricity Sold - GWh 2,485 3,739
Airtricity Gas Sold - mtherms 65.7 74.0
All Ireland energy market customers (Ire) - m 0.68 0.70
SSE Airtricity overview
SSE Airtricity provides a valuable route to market for SSE's low-carbon energy
solutions and green products to customers across the island of Ireland.
Airtricity retains a strong market position as Ireland's largest supplier of
100% green energy, supplying approximately 680,000 customers and holding 23%
market share by load.
Operational delivery
Throughout the pandemic, SSE Airtricity's priority has been the safety and
wellbeing of its teams. The vast majority of staff continued to work remotely
during the first nine months of 2021, in line with government guidance.
Non-domestic demand reduced as economic activity scaled back but was partly
offset by increased demand from households. Several physical services, which
had been suspended due to lockdown restrictions, returned, including
door-to-door sales and residential construction projects such as housing
upgrades. These services are now operating effectively as lockdown
restrictions have been eased across the island of Ireland.
Against a backdrop of rising wholesale prices, Airtricity in both Northern
Ireland and Ireland had to reflect this in the prices charged to customers.
SSE Airtricity has taken extra steps to ensure that its customers are
supported with their bills. Affordability and customer support remain key
priorities for the winter ahead.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
SSE Airtricity continues to support customers and empower communities in their
transition towards a greener future. A key area of focus is the provision of
extended services and offerings, including a new partnership with ePower on
electric vehicle charging infrastructure, as well as a partnership with
Volkswagen to bring more customers closer to net zero emissions by providing a
green end-to-end solution for motorists switching to electric vehicles. The
new partnership aims to encourage and educate drivers on the seamless
transition to electric vehicles and how this will help offset carbon
emissions. In return for transitioning to a 100% green energy solution,
customers will save up to €1,000 on their annual energy bill. Airtricity has
also agreed an exclusive partnership with home alarm provider PhoneWatch to
give customers discounts on home alarms.
Finally, SSE Airtricity has continued to pursue its strategic imperatives in
2021, including the continued rollout of its 'One-Stop Shop' in conjunction
with An Post, a first of its kind in the ROI market, providing customers with
energy efficient home upgrades and practical routes to reducing their usage.
distributed energy
distributed energy key performance indicators
Distributed Energy September 21 September 20
Distributed Energy adjusted operating (loss)/profit - £m (7.3) (37.8)
Distributed Energy reported operating profit/(loss) - £m (24.8) (37.8)
SSE Heat Network Customer Accounts 11,154 9,853
SSE Enterprise/distributed energy overview
Following the sale of its Contracting and Rail businesses, SSE's reporting of
its Enterprise segment has been adjusted, and rebranding has been implemented.
The financial results from the Group's out of areas networks business and Neos
Networks Limited (formerly SSE Telecoms) joint venture will now be reported
within SSEN Distribution and Corporate Unallocated respectively. Comparative
information has been re-presented to reflect the change to these segments. The
SSE Enterprise brand name has been replaced by SSE Energy Solutions, which
gives customers a single point of entry to the Group's Distributed Energy and
Business Energy offerings.
The primary retained activity of the former SSE Enterprise businesses is now
in the area of distributed energy. SSE's Distributed Energy business provides
the Group's solar and battery storage asset development and operations and
focuses on distributed generation, EV infrastructure, heat and cooling
networks, and smart buildings and places.
Operational delivery
Financial performance in Distributed Energy was impacted by the effects of
coronavirus, but the business is now looking to grow market share. Distributed
Energy announced it had purchased the project development rights for its first
50MW battery storage asset on a consented site in Wiltshire, from Harmony
Energy Ltd. It is also looking at the viability of similar opportunities
including at SSE sites such as Ferrybridge and Fiddlers Ferry for 150MW
batteries.
Distributed Energy continues to play a key role in helping to decarbonise
transport. In London nearly one in every two electric buses has been charged
by infrastructure installed by Distributed Energy. In Glasgow it will have
completed work to power 150 green buses by the end of 2021. Its EV team is
going to develop a network of super-fast charging community hubs to encourage
electric vehicle take up.
Growth opportunities
Distributed Energy's role in the SSE Group is to explore and develop
interesting growth platforms that complement its core low carbon strategy.
This includes taking a 'whole system thinking' approach when it comes to
partnering and providing solutions for businesses and organisations embarking
on their own net zero journeys. Distributed Energy therefore seeks to help
provide the platform for a data-driven and sustainable world, including
distributed generation, energy optimisation, smart buildings and EV charging.
The business is developing opportunities of over 1GW in solar and battery
storage across the UK to help respond to the needs of local generation. Solar
is at an earlier stage but offers potential given SSE's capabilities and,
together, these technologies could represent a multi-GW opportunity. Finally,
it will aim to bring innovation to its heat networks and its IDNO businesses -
both of which show the diversity of the Distributed Energy portfolio and offer
clients effective pathways to decarbonisation.
energy portfolio management
EPM key performance indicators
EPM September 21 September 20
EPM adjusted operating profit/(loss) - £m 5.7 (1.5)
EPM reported operating profit/(loss) - £m 1,209.7 319.8
EPM overview
Energy Portfolio Management (EPM) is the energy markets heart of the SSE
Group, securing value for SSE's asset portfolios in wholesale energy markets
and managing volatility through risk-managed trading of energy-related
commodities for SSE's market-based Business Units.
SSE trades the principal commodities to which its asset portfolios are
exposed, as well as the spreads between two or more commodity prices (e.g.
spark spreads): power (baseload and other products); gas; and carbon
(emissions allowances). Each commodity has different liquidity
characteristics, which impacts on the quantum of hedging possible. See also
SSE's Hedging Position earlier in this document.
Operational Delivery
As a short-term energy market asset optimiser and a long-term energy market
adviser for all of SSE's energy portfolios, through H1 2021/22 EPM has been
navigating highly volatile energy markets. EPM has been continuing to ensure
the energy portfolios are hedged in accordance with Group policy and optimised
through prompt periods to maximise overall Group value.
The value EPM secures for SSE's asset portfolio continues to be reported
against individual Business Units.
For detailed financial performance commentary please refer to the Group
Financial Review.
Growth Opportunities
In March 2021, EPM initiated a transformation programme to enable the Business
Unit to enhance its capabilities and role as SSE's energy markets heart. In H1
2021/22 substantial progress has been made, with recruitment to bolster
capacity and bring in new capabilities, including the establishment of a
dedicated Advanced Analytics team.
investment in scotia gas networks (sgn) - (DISCONTINUED OPERATION)
sgn key performance indicators
Scotia Gas Networks (SGN) September 21 September 20
SSE's 33.3% share - Held for sale (Discontinued Operation)
SGN adjusted operating profit - £m 21.0 89.4
SGN reported operating profit - £m (81.1) 45.2
Regulated Asset Value - £m 2,024 1,957
Overview of SSE's investment in SGN
As part of its strategic refocusing of the Group, agreement was reached in
August 2021 on the disposal of SSE's entire 33% financial investment stake in
SGN and the business is now a discontinued operation for SSE. SGN continues to
safely and efficiently serve some 5.9m homes and businesses across the south
of England, all of Scotland, and the western region of Northern Ireland. While
the businesses has been a good long-term financial investment since 2005, it
no longer fits within SSE's sharpened focus on its core, low-carbon
electricity businesses. SSE expects to complete a sale within the current,
2021/22 financial year.
Operational delivery
In the six months to 30 September 2021, 98.5% of uncontrolled gas escapes were
attended in under an hour. In the same period SGN delivered 5,836 new gas
connections, including 628 assisted connections as part of efforts to help
people out of fuel poverty.
SGN's RIIO-GD2 price control business plan, which commenced in April 2021,
commits the business to making a positive impact on society, delivering a safe
and efficient service and contributing to net-zero goals by accelerating a
range of decarbonised gas solutions. SGN was partially successful in its
appeal to the CMA on the financial parameters of the settlement with Ofgem,
but has accepted the totex settlement. The business expects to use the
re-opener process with Ofgem for further net zero aligned investment outside
the price control.
END
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.
The following table explains the key APMs applied by the Group and referred to
in these statements:
Group APM Purpose Closest equivalent IFRS measure Adjustments to reconcile to primary financial statements
Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) Profit measure Operating profit · Movement on operating and joint venture financing derivatives
('certain re-measurements')
· 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)
· Share of joint venture and associates' depreciation and
amortisation
· Release of deferred income
Adjusted operating profit Profit measure Operating profit · Movement on operating and joint venture financing derivatives
('certain re-measurements')
· Exceptional items
· Depreciation and amortisation expense on fair value uplifts
· Share of joint ventures and associates' interest and tax
Adjusted profit before tax Profit measure Profit before tax · Movement on operating and financing derivatives ('certain
re-measurements')
· Exceptional items
· Depreciation and amortisation expense on fair value uplifts
· Interest on net pension assets/liabilities (IAS 19)
· Share of non-recurring joint venture refinancing costs
· Share of joint ventures and associates' tax
Adjusted net finance costs Profit measure Net finance costs · Exceptional items
· Movement on financing derivatives
· Share of joint ventures and associates' interest
· Share of non-recurring joint venture refinancing costs
· Interest on net pension assets/liabilities (IAS 19)
Adjusted current tax charge Profit measure Tax charge · Share of joint ventures and associates' tax
· Deferred tax including share of joint ventures and associates
· Tax on exceptional items and certain re-measurements
· Reclassification of tax liabilities
Adjusted earnings per share Profit measure Earnings per share · Exceptional items
· Movements on operating and financing derivatives ('certain
re-measurements')
· Depreciation and amortisation expense on fair value uplifts
· Interest on net pension assets/liabilities (IAS 19)
· Share of non-recurring joint venture refinancing costs
· Deferred tax including share of joint ventures and associates
Adjusted net debt and hybrid capital Debt measure Unadjusted net debt · Hybrid equity
· Outstanding liquid funds
· Lease obligations
· Cash presented as held for sale
Adjusted investment and capital expenditure Capex measure Capital additions to intangible assets and property, plant and equipment · Other expenditure
· Customer funded additions
· Allowances and certificates
· Disposed additions
· Joint venture and associate additions
· Refinancing proceeds
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 ('EPM') 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 Business Energy and Airtricity operating units, or
to optimise the value of the production from its SSE Renewables and 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 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. In addition, gas
purchased by the Group's Gas Storage business for secondary trading
opportunities is also held at fair value with gains and losses on
re-measurement of inventory held also recognised as part of 'certain
re-measurements'.
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 are 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 adjusted operating
profit measure 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 Depreciation and amortisation expense on fair value uplifts
The Group's strategy includes the realisation of value from divestments of
stakes in certain assets and businesses namely its offshore and international
SSE Renewables developments. In addition, for strategic purposes, the Group
may also decide to bring in equity partners to other businesses and assets.
Where SSE's interest in such vehicles changes from full to joint control, and
the subsequent arrangement is classified as an equity accounted joint venture,
SSE will recognise a fair value uplift on the remeasurement of 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 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 additional depreciation
and amortisation expense arising from the fair value uplift given these
charges derived from significant one-off gains which are treated as
exceptional when initially recognised.
6 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.
7 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
£27.2m being expensed to the income statement of the joint venture. In
addition, £3.5m of costs related to the repayment of the original instrument
were incurred. The Group's 40% share of the £30.7m expense was £12.3m, which
was adjusted from the Group's adjusted profit before tax and the Group's
adjusted finance costs in the six months ended 30 September 2019, as
refinancing of this scale is non-recurring, considered to be specific to this
instance and therefore not representative of normal operations.
8 Interest on net pension assets/liabilities (IAS 19)
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 19.
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 or credits, the Group
excludes these from its adjusted profit measures.
9 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
10 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.
11 Outstanding liquid funds
Outstanding liquid funds are SSE cash balances held by counterparties as
collateral. 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.
12 Leases
SSE's reported loans and borrowings include lease liabilities on contracts
within the scope of IFRS 16, 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.
13 Cash presented as held for disposal
Where the Group holds cash balances as part of a disposal group, those
balances will be excluded from the Group's debt measures. As the Group will
continue to fund such held for sale businesses through intercompany loans and
borrowings, any cash held by the business will be an adjustment in the Group
adjusted net debt measure.
Adjustments to capex measure
14 Other expenditure
Other expenditure primarily represents subsequently derecognised development
expenditure which is excluded to better reflect the Group's ongoing capital
position.
15 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.
16 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.
17 Additions through business combinations
Where the Group acquires an early stage development company, which is
classified as the acquisition of an asset, or group of assets and not a
business, the acquisition is treated as an addition to intangible assets or
property, plant and equipment and is included within 'adjusted investment and
capital expenditure'. Where the Group acquires an established business
requiring a fair value assessment in line with the principles of IFRS 3
'Business Combinations', the fair value of consolidated tangible or intangible
assets are excluded from the Group's 'adjusted investment and capital
expenditure', as they are not direct capital expenditure by the Group.
18 Additions subsequently disposed/impaired
In the year ended 31 March 2020, the Group funded £19.7m of capex additions
in relation to the Seagreen windfarm prior to part-disposal. On 3 June 2020,
the Group disposed of a 51% stake in Seagreen 1, therefore the capex incurred
prior to that date has been excluded from the Group's net adjusted investment
and capital expenditure metric.
19 Joint ventures and associates' additions
Joint ventures and associates' additions represent direct loan or equity
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. Asset additions funded by project finance raised within the
Group's joint ventures and associates are not included in this adjustment.
20 Refinancing proceeds
The Group's model for developing large scale capital projects within joint
ventures and associates will involve project finance being raised within those
entities. Where the Group funds early stage capex which is then subsequently
reimbursed to SSE following the receipt of project finance within the vehicle,
the refinance proceeds are included in the Group's net adjusted investment and
capital expenditure metric. This is consistent with the inclusion of the
initial investment in the metric as explained at 19, above. In the six months
ended 30 September 2020, the Group received reimbursed capex of £246.1m in
relation to Seagreen windfarm and in the six months ended 31 March 2021
£182.5m in relation to Doggerbank windfarm. These receipts have been deducted
from the Group's adjusted investment and capital expenditure metric.
Impact of discontinued operations on the Group's APMs
The following metrics have been adjusted in all periods presented to exclude
the contribution of the Group's Gas Production business and its investment in
Scotia Gas Networks Limited ("SGN"), both of which are held for sale at 30
September 2021:
· Adjusted EBITDA;
· Adjusted operating profit:
· Adjusted net finance costs;
· 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 until the date of disposal.
The table below reconciles the adjusted performance measures to the reported
measures of the continuing operations of the Group.
March September 2021 September 2020 September 2019
2021 (restated*) (restated*)
(restated*)
£m £m £m £m
1,333.5 Adjusted operating profit 376.8 328.9 389.8
(384.6) Adjusted net finance costs (202.6) (195.0) (196.4)
948.9 Adjusted profit before tax (PBT) 174.2 133.9 193.4
(85.9) Adjusted current tax charge (12.7) (11.6) (18.2)
863.0 Adjusted profit after tax 161.5 122.3 175.2
(46.6) Hybrid coupon paid (50.7) (46.6) (46.5)
816.4 Adjusted profit after tax attributable to ordinary shareholders for earnings 110.8 75.7 128.7
per share (EPS)
1,040.9 Number of shares for EPS 1,054.7 1,039.6 1,030.4
78.4 Adjusted earnings per share (pence) 10.5 7.3 12.5
1,995.3 Adjusted EBITDA 700.2 664.3 710.8
(556.2) Depreciation, impairment and amortisation, before exceptional charges (272.1) (274.3) (263.8)
20.6 Depreciation and amortisation expense on fair value uplifts 10.3 10.3 10.3
17.7 Release of deferred income 9.1 7.9 8.7
(143.9) Share of joint ventures and associates' depreciation and amortisation (70.7) (79.3) (76.2)
1,333.5 Adjusted operating profit 376.8 328.9 389.8
1,333.5 Adjusted operating profit 376.8 328.9 389.8
597.8 Movement on operating and joint venture financing derivatives 1,439.2 343.2 154.6
848.9 Exceptional items 157.9 327.0 (186.0)
(20.6) Depreciation and amortisation expense on fair value uplifts (10.3) (10.3) (10.3)
(104.7) Share of joint ventures and associates' interest and tax (59.2) (48.9) (55.1)
2,654.9 Reported operating profit 1,904.4 939.9 293.0
948.9 Adjusted profit before tax (PBT) 174.2 133.9 193.4
653.4 Movement on operating and financing derivatives 1,383.3 326.7 84.7
850.3 Exceptional items 160.2 327.0 (186.0)
(20.6) Depreciation and amortisation expense on fair value uplifts (10.3) (10.3) (10.3)
8.3 Interest on net pension assets/(liabilities) 3.7 4.0 3.6
(22.3) Share of joint ventures and associates' tax (25.0) (1.9) (3.4)
- Share of non-recurring joint venture refinancing costs - - (12.3)
2,418.0 Reported profit before tax 1,686.1 779.4 69.7
March September 2021 September 2020 September 2019
2021 (restated*) (restated*)
(restated*)
384.6 Adjusted net finance costs 202.6 195.0 196.4
(1.4) Exceptional items (2.3) - -
(55.6) Movement on financing derivatives 55.9 16.5 69.9
(82.4) Share of joint ventures and associates' interest (34.2) (47.0) (51.7)
(8.3) Interest on net pension assets/(liabilities) (3.7) (4.0) (3.6)
- Share of non-recurring joint venture refinancing costs - - 12.3
236.9 Reported net finance costs 218.3 160.5 223.3
85.9 Adjusted current tax charge 12.7 11.6 18.2
(22.3) Share of joint ventures and associates' tax (25.0) (1.9) (3.4)
37.9 Deferred tax including share of joint ventures and associates 39.0 6.3 15.7
122.8 Tax on exceptional items and certain re-measurements 515.6 63.3 (12.3)
224.3 Reported tax charge 542.3 79.3 18.2
(8,898.9) Adjusted net debt and hybrid capital (9,611.4) (10,622.1) (10,338.9)
1,472.4 Hybrid equity 1,051.0 1,472.4 1,169.7
(7,426.5) Adjusted net debt (8,560.4) (9,149.7) (9,169.2)
37.1 Outstanding liquid funds 87.4 (59.7) (238.0)
(421.0) Lease obligations (404.7) (429.7) (453.9)
- Cash presented as held for sale - (0.5) (75.0)
(7,810.4) Unadjusted net debt (8,877.7) (9,639.6) (9,936.1)
912.0 Adjusted investment and capital expenditure 1,042.8 434.4 638.2
428.6 Refinancing proceeds/refunds - 246.1 -
61.8 Customer funded additions 30.1 29.4 63.7
509.0 Allowances and certificates 326.7 119.3 253.4
- Additions through business combinations - - 14.5
19.7 Disposed/impaired additions - - -
(172.7) Joint ventures and associates' additions (356.7) (114.5) (93.6)
45.4 IFRS 16 right of use asset additions 13.7 8.7 -
1,803.8 Capital additions to intangible assets and property, plant and equipment 1,056.6 723.4 876.2
701.3 397.7 213.0 370.7
Additions to intangible assets
1,102.5 Capital additions to property, plant and equipment 658.9 510.4 505.5
1,803.8 Capital additions to intangible assets and property, plant and equipment 1,056.6 723.4 876.2
*The comparative Alternative Performance Measures have been restated. See note
2 (v) of the Interim Financial Statements.
The following table summarises the impact of excluding discontinued operations
from the APMs of the continuing operations of the Group:
March September 2021 September 2020 September 2019
2021 (restated*) (restated*)
(restated*)
£m £m £m £m
2,262.9 Adjusted EBITDA of SSE Group (including discontinued operations) 810.0 780.5 865.9
- Less: SSE Energy Services loss - - 7.4
(33.0) Less: Gas Production (profit)/loss (77.7) 3.0 (30.9)
(234.6) Less: SGN profit (32.1) (119.2) (131.6)
1,995.3 Adjusted EBITDA of continuing operations 700.2 664.3 710.8
1,539.5 Adjusted operating profit of SSE Group (including discontinued operations) 475.5 415.3 469.2
- Less: SSE Energy Services loss - - 7.4
(33.0) Less: Gas Production (profit)/loss (77.7) 3.0 15.3
(173.0) Less: SGN profit (21.0) (89.4) (102.1)
1,333.5 Adjusted operating profit of continuing operations 376.8 328.9 389.8
443.9 Adjusted net finance costs of SSE Group (including discontinued operations) 210.6 225.5 228.5
(2.3) Less: Gas Production (1.6) (1.1) -
(57.0) Less: SGN (6.4) (29.4) (32.1)
384.6 Adjusted net finance costs of continuing operations 202.6 195.0 196.4
1,095.6 Adjusted profit before tax of SSE Group (including discontinued operations) 264.9 189.8 240.7
- Less: SSE Energy Services loss/(profit) - - 7.4
(30.7) Less: Gas Production loss/(profit) (76.1) 4.1 15.3
(116.0) Less: SGN profit (14.6) (60.0) (70.0)
948.9 Adjusted profit before tax of continuing operations 174.2 133.9 193.4
107.8 Adjusted current tax of SSE Group (including discontinued operations) 15.0 23.7 25.3
- Less: SSE Energy Services current tax credit/(charge) - - 6.3
(21.9) Less: SGN current tax charge (2.3) (12.1) (13.4)
85.9 Adjusted current tax of continuing operations 12.7 11.6 18.2
90.5 Adjusted earnings per share of SSE Group (including discontinued operations) 18.9 11.5 16.4
- Less: SSE Energy Services losses per share - - 0.1
(3.0) Less: Gas Production (earnings)/losses) per share (7.2) 0.4 1.5
(9.1) Less: SGN (earnings)/losses per share (1.2) (4.6) (5.5)
78.4 Adjusted earnings per share of continuing operations 10.5 7.3 12.5
*The comparative Alternative Performance Measures have been restated. See note
2 (v) of the Interim Financial Statements.
The remaining APMs presented by the Group are unchanged in all periods
presented by the discontinued operations.
INTERIM FINANCIAL STATEMENTS
Consolidated Income Statement
for the period 1 April 2021 to 30 September 2021
2021 2020
Before exceptional items and certain re-measure-ments Exceptional items and certain re-measure-ments (note 6) Total Before exceptional items and certain re-measure-ments Exceptional items and certain re-measure-ments (note 6) Total
(restated*) (restated*) (restated*)
Note £m £m £m £m £m £m
Continuing operations
Revenue 5 3,543.5 - 3,543.5 2,816.4 - 2,816.4
Cost of sales (2,625.1) 1,439.2 (1,185.9) (2,024.5) 343.7 (1,680.8)
Gross profit 918.4 1,439.2 2,357.6 791.9 343.7 1,135.6
Operating costs (591.8) 157.9 (433.9) (582.2) 15.7 (566.5)
Other operating income 9.3 - 9.3 47.9 311.3 359.2
Operating profit before joint ventures and associates 335.9 1,597.1 1,933.0 257.6 670.7 928.3
Joint ventures and associates:
Share of operating profit 30.6 - 30.6 61.0 - 61.0
Share of interest (34.2) - (34.2) (47.0) - (47.0)
Share of movement on derivatives - - - - (0.5) (0.5)
Share of tax (1.6) (23.4) (25.0) (1.9) - (1.9)
Share of (loss)/profit on joint ventures and associates (5.2) (23.4) (28.6) 12.1 (0.5) 11.6
Operating profit from continuing operations 5 330.7 1,573.7 1,904.4 269.7 670.2 939.9
Finance income 7 38.3 2.3 40.6 45.5 - 45.5
Finance costs 7 (203.0) (55.9) (258.9) (189.5) (16.5) (206.0)
Profit before taxation 166.0 1,520.1 1,686.1 125.7 653.7 779.4
Taxation 8 (26.7) (515.6) (542.3) (16.0) (63.3) (79.3)
Profit for the period from continuing operations 139.3 1,004.5 1,143.8 109.7 590.4 700.1
Discontinued operations
Profit/(loss) from discontinued operations, net of tax 9 89.4 (183.2) (93.8)
45.3 0.7 46.0
Profit for the period 228.7 821.3 1,050.0 155.0 591.1 746.1
Attributable to:
Ordinary shareholders of the parent 178.0 821.3 999.3 108.4 591.1 699.5
Other equity holders 50.7 - 50.7 46.6 - 46.6
Earnings per share
Basic (pence) 11 94.7 67.3
Diluted (pence) 11 94.6 67.2
Earnings per share - continuing operations
Basic (pence) 11 103.6 62.9
Diluted (pence) 11 103.4 62.8
*The comparative Consolidated Income Statement has been restated. See note 2
(v).
The accompanying notes are an integral part of this interim statement.
Consolidated Income Statement
for the year ended 31 March 2021
Before exceptional items and certain Exceptional items and certain re-measure-ments Total
re-measure-ments
(note 6)
(restated*)
(restated*) (restated*)
Note £m £m £m
Continuing operations
Revenue 5 6,826.4 - 6,826.4
Cost of sales (4,732.7) 598.6 (4,134.1)
Gross profit 2,093.7 598.6 2,692.3
Operating costs (1,198.4) (127.1) (1,325.5)
Other operating income 268.7 976.0 1,244.7
Operating profit before joint ventures and associates 1,164.0 1,447.5 2,611.5
Joint ventures and associates:
Share of operating profit 149.0 - 149.0
Share of interest (82.4) - (82.4)
Share of movement on derivatives - (0.8) (0.8)
Share of tax (22.4) - (22.4)
Share of profit on joint ventures and associates 44.2 (0.8) 43.4
Operating profit from continuing operations 5 1,208.2 1,446.7 2,654.9
Finance income 7 78.2 57.0 135.2
Finance costs 7 (372.1) - (372.1)
Profit before taxation 914.3 1,503.7 2,418.0
Taxation 8 (101.5) (122.8) (224.3)
Profit for the year from continuing operations 812.8 1,380.9 2,193.7
Discontinued operations
Profit from discontinued operations, net of tax 9 127.5 1.6 129.1
Profit for the year 940.3 1,382.5 2,322.8
Attributable to:
Ordinary shareholders of the parent 893.7 1,382.5 2,276.2
Other equity holders 46.6 - 46.6
Earnings per share
Basic (pence) 11 218.7
Diluted (pence) 11 218.3
Earnings per share - continuing operations
Basic (pence) 11 206.3
Diluted (pence) 11 206.0
*The comparative Consolidated Income Statement has been restated. See note 2
(v).
The accompanying notes are an integral part of this interim statement.
Consolidated Statement of Comprehensive Income
for the period 1 April 2021 to 30 September 2021
Year ended 31 March 2021 Six months ended 30 September 2020
(restated*) Six months ended 30 September 2021 (restated*)
£m £m £m
Profit for the period
2,193.7 Continuing operations 1,143.8 700.1
129.1 Discontinued operations (93.8) 46.0
2,322.8 1,050.0 746.1
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss:
(44.7) Net (losses)/gains on cash flow hedges 30.0 (46.3)
(5.1) Transferred to assets and liabilities on cash flow hedges 0.9 (4.2)
8.5 Taxation on cash flow hedges (8.0) 8.8
(41.3) 22.9 (41.7)
25.0 Share of other comprehensive gain of joint ventures and associates, net of 43.3 25.6
taxation
(43.3) Exchange difference on translation of foreign operations 5.0 25.9
37.3 Gain/(loss) on net investment hedge (9.5) (29.0)
(22.3) 61.7 (19.2)
Items that will not be reclassified to profit or loss:
(12.8) Actuarial (loss)/gain on retirement benefit schemes, net of taxation 26.2 (170.5)
(23.3) Share of other comprehensive loss)/income of joint ventures, net of taxation (1.7) (11.9)
1.1 Gains on revaluation of investments in equity instruments, net of taxation - -
(35.0) 24.5 (182.4)
(57.3) Other comprehensive (loss)/gain, net of taxation 86.2 (201.6)
2,265.5 Total comprehensive income for the period 1,136.2 544.5
Total comprehensive income for the period arises from
2,155.0 Continuing operations 1,231.2 510.8
Discontinued operations
Items that will be reclassified subsequently to profit or loss:
4.7 Share of other comprehensive gain/(loss) of joint ventures and associates, net 0.5 (0.4)
of taxation
Items that will not be reclassified to profit or loss:
(23.3) Share of other comprehensive loss of joint ventures, net of taxation (1.7) (11.9)
(18.6) Other comprehensive loss from discontinued operations (1.2) (12.3)
110.5 Total comprehensive income/(loss) from discontinued operations (95.0) 33.7
2,265.5 Total comprehensive income for the period 1,136.2 544.5
Attributable to:
2,218.9 Ordinary shareholders of the parent 1,085.5 497.9
46.6 Other equity holders 50.7 46.6
2,265.5 1,136.2 544.5
*The comparative Consolidated Statement of Other Comprehensive Income has been
restated. See note 2 (v).
The accompanying notes are an integral part of this interim statement.
Consolidated Balance Sheet
as at 30 September 2021
At At 30 September 2021 At
31 March 30 September 2020
2021
£m Note £m £m
Assets
13,254.3 Property, plant and equipment 13,903.4 13,092.9
841.3 Goodwill and other intangible assets 893.6 813.7
1,643.5 Equity investments in joint ventures and associates 1,103.7 1,697.2
554.3 Loans to joint ventures and associates 632.8 628.8
3.6 Other investments 3.5 1.7
115.9 Other receivables 128.2 109.4
114.7 Derivative financial assets 16 2,207.1 176.3
543.1 Retirement benefit assets 17 501.7 528.5
17,070.7 Non-current assets 19,374.0 17,048.5
374.9 Intangible assets 408.4 177.9
234.9 Inventories 456.3 165.1
1,488.2 Trade and other receivables 1,629.4 1,481.2
12.7 Current tax asset 42.4 24.4
1,600.2 Cash and cash equivalents 232.7 415.5
470.9 Derivative financial assets 16 419.2 360.7
339.1 Assets held for sale 9 845.9 677.9
4,520.9 Current assets 4,034.3 3,302.7
21,591.6 Total assets 23,408.3 20,351.2
Liabilities
937.6 Loans and other borrowings 13 2,066.8 1,363.5
1,987.3 Trade and other payables 2,202.9 1,527.0
12.8 Current tax liabilities - -
79.3 Provisions 121.4 54.6
238.7 Derivative financial liabilities 16 1,008.0 276.2
253.5 Liabilities held for sale 9 172.6 456.5
3,509.2 Current liabilities 5,571.7 3,677.8
8,473.0 Loans and other borrowings 13 7,043.6 8,691.6
774.3 Deferred tax liabilities 1,368.2 663.4
722.5 Trade and other payables 907.4 674.3
793.3 Provisions 866.7 582.0
186.1 Retirement benefit obligations 17 63.7 382.0
452.1 Derivative financial liabilities 16 500.2 485.6
11,401.3 Non-current liabilities 10,749.8 11,478.9
14,910.5 Total liabilities 16,321.5 15,156.7
6,681.1 Net assets 7,086.8 5,194.5
Equity:
524.5 Share capital 15 535.6 524.1
847.1 Share premium 838.2 850.9
49.2 Capital redemption reserve 49.2 49.2
(133.6) Hedge reserve (67.4) (133.4)
0.4 Translation reserve (4.1) 3.3
3,921.1 Retained earnings 4,684.3 2,428.0
5,208.7 Equity attributable to ordinary shareholders of the parent 6,035.8 3,722.1
1,472.4 Hybrid equity 14 1,051.0 1,472.4
6,681.1 Total equity attributable to equity holders of the parent 7,086.8 5,194.5
The accompanying notes are an integral part of this interim statement.
Consolidated Statement of Changes in Equity
for the period 1 April 2021 to 30 September 2021
Share capital Share premium Capital redemption Hedge reserve Translation Retained earnings Total attributable to ordinary shareholders Hybrid equity Total equity attributable to equity holders of the parent
reserve reserve
£m £m £m £m £m £m £m £m £m
At 1 April 2021 524.5 847.1 49.2 (133.6) 0.4 3,921.1 5,208.7 1,472.4 6,681.1
Profit for the period - - - - - 999.3 999.3 50.7 1,050.0
Other comprehensive income/(loss) - - - 66.2 (4.5) 24.5 86.2 - 86.2
Total comprehensive income/(loss) - - - 66.2 (4.5) 1,023.8 1,085.5 50.7 1,136.2
Dividends to shareholders - - - - - (590.5) (590.5) - (590.5)
Scrip dividend related share issue (11.1) - - - 327.5 327.5 - 327.5
11.1
Distributions to Hybrid equity holders - - - - - - - (50.7) (50.7)
Issue of shares - 2.2 - - - - 2.2 - 2.2
Redemption of Hybrid Equity - - - - - (4.6) (4.6) (421.4) (426.0)
Credit in respect of employee share awards - - - - - 8.5 8.5 - 8.5
Investment in own shares - - - - - (1.5) (1.5) - (1.5)
At 30 September 2021 535.6 838.2 49.2 (67.4) (4.1) 4,684.3 6,035.8 1,051.0 7,086.8
Share capital Share premium Capital redemption Hedge reserve Translation Total attributable to ordinary shareholders Hybrid equity Total equity attributable to equity holders of the parent
reserve reserve Retained earnings
£m £m £m £m £m £m £m £m £m
At 1 April 2020 523.1 875.6 49.2 (111.1) 6.4 2,407.2 3,750.4 1,169.7 4,920.1
Profit for the period - - - - - 699.5 699.5 46.6 746.1
Other comprehensive loss - - - (16.1) (3.1) (182.4) (201.6) - (201.6)
Total comprehensive income - - - (16.1) (3.1) 517.1 497.9 46.6 544.5
Dividends to shareholders - - - - - (582.1) (582.1) - (582.1)
Scrip dividend related share issue 1.0 (1.0) - - - 25.5 25.5 - 25.5
Distributions to Hybrid equity holders - - - - - - - (46.6) (46.6)
Issue of Hybrid equity - - - - - - - 1,051.0 1,051.0
Redemption of Hybrid equity - - - - - (1.7) (1.7) (748.3) (750.0)
Credit in respect of employee share awards - - - - - 8.8 8.8 - 8.8
Investment in own shares (i) - (23.7) - - - 25.7 2.0 - 2.0
Adjustment in relation to historic measurement of financial instruments, net
of tax (ii)
- - - (6.2) - 27.5 21.3 - 21.3
At 30 September 2020 524.1 850.9 49.2 (133.4) 3.3 2,428.0 3,722.1 1,472.4 5,194.5
(i) Investment in own shares is the purchase of own shares less the settlement
of treasury shares for sharesave schemes. This includes a reclassification
between share premium and retained earnings of £27.1m for previous treasury
share issuances to employees.
(i)
Consolidated Statement of Changes in Equity
for the year ended 31 March 2021
Share capital Share premium Capital redemption Hedge reserve Translation reserve Retained earnings Total attributable to ordinary shareholders Hybrid equity Total equity attributable to equity holders of the parent
reserve
£m £m £m £m £m £m £m £m £m
At 1 April 2020 523.1 875.6 49.2 (111.1) 6.4 2,407.2 3,750.4 1,169.7 4,920.1
Profit for the year - - - - - 2,276.2 2,276.2 46.6 2,322.8
Other comprehensive loss - - - (16.3) (6.0) (35.0) (57.3) - (57.3)
Total comprehensive income for the year - - - (16.3) (6.0) 2,241.2 2,218.9 46.6 2,265.5
Dividends to shareholders - - - - - (836.4) (836.4) - (836.4)
Scrip dividend related share issue 1.4 (1.4) - - - 39.0 39.0 - 39.0
Distributions to Hybrid equity holders - - - - - - - (46.6) (46.6)
Issue of Hybrid equity - - - - - - - 1,051.0 1,051.0
Redemption of Hybrid equity - - - - - (1.7) (1.7) (748.3) (750.0)
Credit in respect of employee share awards - - - - - 19.7 19.7 - 19.7
Investment in own shares (i) - (27.1) - - - 24.6 (2.5) - (2.5)
Adjustment in relation to historic depreciation rates, net of tax (ii) - - - (6.2) - 27.5 21.3 - 21.3
At 31 March 2021 524.5 847.1 49.2 (133.6) 0.4 3,921.1 5,208.7 1,472.4 6,681.1
Consolidated Cash Flow Statement
for the period 1 April 2021 to 30 September 2021
Year Note Six months ended 30 September 2021 Six months ended 30 September 2020
ended 31 March 2021 (*restated)
(*restated)
£m £m £m
2,654.9 Operating profit - continuing operations 5 1,904.4 939.9
121.6 Operating profit/(loss) - discontinued operations 9 (97.3) 42.2
2,776.5 Operating profit - total operations 1,807.1 982.1
(132.0) Less share of loss/(profit) of joint ventures and associates 109.7 (56.8)
2,644.5 Operating profit before jointly controlled entities and associates 1,916.8 925.3
(22.8) Pension service charges, less contributions paid (12.5) (9.7)
(590.1) Movement on operating derivatives 5 (1,204.0) (321.3)
637.9 Depreciation, amortisation, write downs and impairments 184.8 274.3
18.1 Charge in respect of employee share awards (before tax) 8.5 8.8
(1,227.9) Loss/(profit) on disposal of assets and businesses 21.5 (359.2)
(4.1) Release of provisions (23.9) (5.1)
(17.7) Release of deferred income 5 (9.1) (7.9)
1,437.9 Cash generated from operations before working capital movements 882.1 505.2
(71.7) (Increase)/decrease in inventories 12.7 4.3
155.3 Decrease/(increase) in receivables (159.1) 275.8
420.0 Increase/(decrease) in payables 42.9 35.3
36.1 Increase in provisions 7.0 7.3
1,977.6 Cash generated from operations 785.6 827.9
191.1 Dividends received from investments 83.1 71.3
(288.7) Interest paid (141.5) (140.1)
(62.8) Taxes paid (39.0) (19.9)
1,817.2 Net cash from operating activities 688.2 739.2
(985.0) Purchase of property, plant and equipment (520.0) (307.8)
(192.3) Purchase of other intangible assets (74.3) (92.9)
11.2 Deferred income received 7.0 3.0
1,734.8 Proceeds from disposals 12 5.0 433.1
(172.8) Cash disposed through disposals - -
182.5 Joint venture development expenditure refunds - -
(188.9) Loans and equity provided to joint ventures and associates (376.2) (122.7)
54.2 Loans and equity repaid by joint ventures 31.2 42.2
443.7 Net cash from investing activities (927.3) (45.1)
10.4 Proceeds from issue of share capital 2.2 3.4
(797.4) Dividends paid to the company's equity holders 10 (263.0) (556.6)
(46.6) Hybrid equity dividend payments 14 (50.7) (46.6)
(12.9) Employee share awards share purchase 15 (1.5) (1.4)
1,051.0 Issue of hybrid instruments 14 - 1,051.0
(750.0) Redemption of hybrid instruments 14 (426.0) (750.0)
1,668.5 New borrowings 103.3 1,313.9
246.1 Seagreen development expenditure refinancing proceeds - -
(2,189.3) Repayment of borrowings (493.7) (1,452.2)
(5.1) Settlement of cashflow hedges 1.0 (4.2)
(825.3) Net cash from financing activities (1,128.4) (442.7)
1,435.6 Net increase/(decrease) in cash and cash equivalents (1,367.5) 251.4
164.6 Cash and cash equivalents at the start of period (including cash presented as 1,600.2 164.1
held for sale)
1,435.6 Net increase/(decrease) in cash and cash equivalents (1,367.5) 251.4
1,600.2 Cash and cash equivalents at the end of period 232.7 415.5
Notes to the Interim Financial Statements
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 2021, 31 March 2021 or 30 September 2020 within the meaning of
Section 435 of the Companies Act 2006. Statutory accounts for the year ended
31 March 2021, which were prepared in accordance with International Accounting
Standards in conformity with the requirements of the Companies Act 2006 and in
accordance with International Financial Reporting Standards pursuant to
Regulation (EC) No.1606/2002 as it applies in the European Union ('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 Group's
financial statements for the year ending 31 March 2022 will be prepared in
accordance with United Kingdom adopted International Financial Reporting
Standards.
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 UK adopted International Accounting
Standard 34 Interim Financial Reporting. 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 102.
These interim statements were authorised by the Board on 16 November 2021.
2. Basis of preparation
These Condensed Interim Statements for the period to 30 September 2021 and the
comparative information for the period to 30 September 2020 have been prepared
applying the accounting policies used in the Group's consolidated financial
statements for the year ended 31 March 2021. The changes to presentation are
explained at note 2(v).
(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 52 to 58.
(ii) Going concern
The Directors consider that the Group has adequate resources to continue in
operational existence for the period to 31 December 2022. The financial
statements are therefore prepared on a going concern basis.
In reaching their conclusion, the Directors regularly review the Group's
funding structure (see note 13) against the current economic climate to ensure
that the Group has the short and long term funding required. The Group has
performed detailed going concern testing, including the consideration of
cashflow forecasts under stressed scenarios for the period to December 2022.
In the six months ended 30 September 2021, the Group has issued new debt
instruments totalling £103.3m and has redeemed £871.4m of hybrid capital and
maturing debt in the period. The Group also continues to have access to its
£1.5bn of committed revolving credit facilities which mature in 2026. Subject
to satisfactory completion of conditions precedent, the Group anticipates at
least a further £1.295bn of disposals proceeds to be received by the Group in
the second half of the year. Note those proceeds have not been taken account
of in concluding on the Group's going concern status.
(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 recognition of items as exceptional items will tend to be
non-recurring although exceptional charges (or credits) 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, reversals of historic impairments, business restructuring
costs and reorganisation costs, significant realised gains or losses on
disposal, unrealised fair value adjustments on part disposal of a subsidiary
and provisions in relation to contractual settlements following significant
disputes and claims.
The Group operates a policy framework for estimating whether items are
considered to be exceptional. This framework, which is reviewed annually,
estimates the materiality of each broad set of potentially exceptional
circumstances, after consideration of strategic impact and likelihood of
recurrence, by reference to the Group's key performance measure of Adjusted
Earnings per Share. This framework estimates that any item greater than
£30.0m will be considered exceptional, with lower thresholds applied to
circumstances that are considered to have a greater strategic impact and are
less likely to recur. The only exception to this threshold is for gains or
losses on disposal or divestment of international or offshore wind farm
development projects which are considered non-exceptional in line with the
Group's strategy to generate recurring gains from developer divestments.
Certain re-measurements are re-measurements arising on certain commodity,
interest rate and currency contracts which are accounted for as held for
trading or as fair value hedges in accordance with the Group's policy for such
financial instruments, or re-measurements on stocks of commodities held at the
balance sheet date.
2. Basis of preparation (continued)
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.
The impact of changes in Corporation Tax rates on deferred tax balances are
also included within certain remeasurements.
(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
Discontinued operations
On 2 August 2021, the Group announced it had agreed to sell its 33.3% stake in
gas distribution operator SGN to a consortium comprising existing SGN
shareholders Ontario Teachers' Pension Plan Board and Brookfield Super-Core
Infrastructure Partners for cash consideration of £1,225m. The agreement is
conditional on certain regulatory approvals and is expected to complete by 31
March 2022. The Group assessed that the investment met the criteria to be
classified as held for sale on 11 June 2021 when an Exclusivity Agreement was
signed by the consortium. Accordingly from 11 June 2021 the Group ceased to
equity account for its investment in SGN on designation as held for sale. As
the investment in SGN comprised a separate single line of business, the
investment has also been classified as a discontinued operation. Therefore,
comparative information for the 6 months ended 30 September 2020 and 12 months
ended 31 March 2021 have been restated and the Group's investment is presented
as held for sale at 30 September 2021. The impact of reclassification of the
SGN investment has been to reduce adjusted operating profit (September 2020
£89.4m, March 2021 £173.0m), adjusted PBT (September 2020 £60.0m, March
2021 £116.0m) and adjusted EPS (September 2020 4.6p, March 2021 9.1p).
Segments
In accordance with the requirements of IFRS 8 'Operating Segments' the Group
has aligned its segmental disclosures with its revised internal reporting
following changes to the Group's structure and operations. These segments are
used internally by the Group Executive Committee to in order to assess
operating performance and to make decisions on how to allocate capital.
Consequently, the segmental results reported in the Group's operating segments
have been restated with effect from 1 April 2021. Following the Group's sale
of its Contacting and Rail business to Aurelius Group, the primary retained
activities of the Enterprise business is Distributed Energy which will develop
and provide the Group's solar and battery storage operations and focus on
distributed generation, heat and cooling networks, smart buildings and EV
charging. Accordingly, the result from the Group's out of areas networks
business and Neos Networks Limited joint venture will now be reported within
SSEN Distribution and Corporate Unallocated respectively. Comparative
segmental information in note 5 has been re-presented to reflect the change to
these segments. The impact of the restatements are an increase to reported
revenue of SSEN Distribution (September 2020 £12.4m, March 2021 £25.0m) and
a decrease to the reported revenue of Distributed Energy (September 2020
£12.4m, March 2021 £25.0m), and an increase to the adjusted operating profit
of SSEN Distribution (September 2020 £4.7m, March 2021 £8.5m), an increase
to the adjusted operating loss of Distributed Energy (September 2020 £4.3m,
March 2021 £5.7m) and an increase to the adjusted operating loss of Corporate
Unallocated (September 2020 £0.4m, March 2021 £2.8m).
3. New accounting policies and reporting changes
The accounting policies applied in the preparation of these Interim Financial
Statements are consistent with those applied by the Group in the preparation
of the consolidated financial statements for the year ended 31 March 2021. Set
out below are revisions to accounting standards that have become applicable in
the period, or are issued but not yet effective.
3.1 New standards, amendments and interpretations effective or adopted by
the Group
Phase 2 of the Interest Rate Benchmark Reform became effective for the Group
from 1 April 2021. Under Phase 2, provided that the new basis for calculating
cash flows is economically equivalent to the previous basis, reliefs permit
hedge accounting relationships to continue unaffected. The Group has applied
these reliefs to continue hedge accounting on affected instruments and
therefore adoption of the amendment had no impact on the Interim Financial
Statements.
The amendment to IFRS 16 'Covid-19 Related Rent Concessions beyond 30 June
2021' had no impact on the Interim Financial Statements.
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 Interim Financial Statements, because
application is not yet mandatory or because adoption by the UK remains
outstanding at this point in time.
Amendments to IAS 16 'Property, Plant and Equipment: Proceeds Before Intended
Use' is expected to be effective from 1 January 2022 but remains subject to UK
endorsement. The standard is available for early adoption, with retrospective
application in periods presented. The Group is currently constructing the
Keadby 2 CCGT asset which may be tested and earn pre-commissioning revenue in
the second half of the current financial year. It is not expected that
restatements of prior year comparatives will have a material impact on
reported results in those periods.
IFRS 17 'Insurance contracts' is expected to be effective from 1 January 2023
(1 April 2023 for the Group) but remains subject to UK endorsement. 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 issued but not yet effective are not
anticipated to have a material impact on the Group's consolidated financial
statements.
4. Accounting judgements and estimation uncertainty
In the process of applying the Group's accounting policies, management
necessarily require to make judgements and estimates that will 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.
The changes the Group has made to significant financial judgements disclosed
at 31 March 2021 are detailed in note 4.1(iv) and 4.2(i) below.
4.1 Significant financial judgements and estimation uncertainties
The preparation of these Condensed Interim Statements has specifically
considered the following significant financial judgements, some of which are
areas of estimation uncertainty as noted below.
(i) Impairment testing and valuation of certain non-current assets -
financial judgement and estimation uncertainty
The Group reviews the carrying amounts of its goodwill, other intangible
assets, and specific property, plant and equipment assets to determine whether
any adjustment to the carrying value of those assets requires to be recorded.
Where an indicator of impairment or impairment reversal exists, the
recoverable amount of those assets is determined by reference to value in use
calculations.
At 30 September 2021, the Group has reviewed assets related to thermal and
wind power generation for indicators of impairment (or impairment reversal)
arising since the last formal review performed at 31 March 2021. The main
assumptions in the Group's impairment assessments performed at 31 March 2021
were: power, gas, carbon and other commodity prices, volatility of gas prices,
plant running regimes and load factors, discount rates and other inputs.
At 30 September 2021, observable prices for power and gas have increased,
which is considered an indicator of impairment reversal necessitating the
formal reassessment of the carrying value of certain thermal assets that have
been impaired previously. The conclusions from this impairment assessment are
set out in note 6.1 (ii). Wind generation assets have not been impaired
previously and so no formal reassessment was performed at 30 September 2021.
The Group will reassess the assets for indicators of impairment, or impairment
reversal, at 31 March 2022.
(ii) Retirement benefit obligations - 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 of the calculation basis, key assumptions used and the
resulting movements in obligations are disclosed in note 17 of these Interim
Financial Statements.
(iii) Revenue recognition - Customers unbilled supply of energy -
estimation uncertainty
Revenue from energy supply activities undertaken by Business Energy and
Airtricity businesses includes an estimate of the value of electricity or gas
supplied to customers between the date of the last meter reading and the
period end. This estimation comprises both billed revenue and unbilled
revenue and is calculated based on applying the tariffs and contract rates
applicable to customers against estimate customer consumption, taking account
of various factors including usage patterns, weather trends and externally
notified aggregated volumes supplied to customers from national settlement
bodies. A change in the assumptions underpinning the calculation would have an
impact on the amount of revenue recognised in any given period.
Given the non-routine process, the number and the extent of differing inputs
and the requirement of management to apply judgement noted above, the
estimated revenue estimate is considered a significant estimate made by
management in preparing the Interim Financial Statements. A more comprehensive
disclosure of the Group's policy, and the judgements applied, is disclosed in
note 18 of the Group's 31 March 2021 annual report.
(iv) Valuation of other receivables - financial judgement and estimation
uncertainty
The Group holds a £100m loan note due from Ovo Energy Limited following the
disposal of SSE Energy Services on 15 January 2020. The loan carries interest
at 13.25% and is presented cumulative of accrued interest payments, discounted
at 13.25%. Consistent with the prior year, the Group has assessed
recoverability of the loan note receivable and has recognised a provision for
expected credit loss in accordance with the requirements of IFRS 9. Due to
recent market volatility, the Group's assessment of the value of the loan note
is now considered a more significant financial judgement. While the carrying
value is considered to be appropriate, changes in economic conditions could
lead to a change in the level of expected credit loss incurred by the Group.
4.2 Other accounting judgements
(i) Changes from the prior year
Accounting for the impacts of coronavirus - accounting judgement and
estimation uncertainty
For the years ended 31 March 2020 and 31 March 2021, the Group included a
specific accounting judgement and estimation uncertainty in relation to the
impact of coronavirus on its operations and going concern assessments.
During the six months ended 30 September 2021, the UK economy has continued to
recover from the effects of the pandemic, and therefore the specific
accounting judgement and estimation uncertainty in relation to the impact of
coronavirus is no longer required.
4. Accounting judgements and estimation uncertainty (continued)
4.3 Other areas of estimation uncertainty
(i) Tax provisioning
The Group has a small number of open tax issues with the tax authorities in
the UK. 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,
taking into account the specific circumstances of each dispute based on
management's interpretation of tax law and supported, where appropriate, by
discussion and analysis from external tax advisors. These estimates are
inherently judgmental 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 of time to
conclude and it is possible that amounts paid on settlement will be different
from the amounts provided. Provisions for uncertain tax positions are included
in current tax liabilities, and total £34.7m at 30 September 2021 (2020:
£40.1m; March 2021: £37.6m). The Group estimates that a reasonably possible
range of settlement outcomes for the uncertain tax provisions given their
binary nature is between nil and the full value of the provision.
(ii) Decommissioning costs
The estimated cost of decommissioning at the end of the useful lives of
certain property, plant and equipment assets is reviewed periodically and was
reassessed at 30 September 2021. 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. The Group's next formal reassessment of the decommissioning
liabilities associated with its Thermal and Renewables assets by independent
experts will be performed in the financial year to March 2022. Provision is
made for the estimated discounted cost of decommissioning at the balance sheet
date.
The dates for settlement of future decommissioning costs are uncertain,
particularly for gas exploration and production assets where reassessment of
gas and liquids reserves and fluctuations in commodity prices can lengthen or
shorten the field life. At 30 September 2021 the Group's Gas Production assets
are held for sale. Under the terms of the disposal the Group will retain 60%
of the decommissioning obligation. Provision is made for the estimated
discounted cost of decommissioning at the balance sheet date. The Group is
currently incurring decommissioning costs related to the Ferrybridge and
Fiddlers Ferry power stations, with the remaining provision expected to being
increasingly utilised over the next ten years and continue out to 2040.
5. Segmental information
The changes to the Group's segments in the period are explained at note 2(v)
and includes the realignment of the activities of the Distributed Energy
business (from the Enterprise segment) and the impact of the Group's
investment in SGN being classified as a discontinued operation. Comparative
information has been re-presented to reflect the change to these segments. The
Group's Gas Production business remained 'held for sale' at 30 September 2021
and is presented separately as a discontinued operation. The Group's
'Corporate unallocated' segment is the Group's residual corporate central
costs which cannot be allocated to individual segments and which now includes
the contribution from the Group's Neos Networks joint venture.
The types of products and services from which each reportable segment derives
its revenues are:
Business area Reported segments Description
Continuing operations
Transmission SSEN Transmission The economically regulated high voltage transmission of electricity from
generating plant to the distribution network in the North of Scotland.
Distribution SSEN Distribution The economically regulated lower voltage distribution of electricity to
customer premises in the North of Scotland and the South of England. This now
includes the result from the Group's out of area networks business.
Renewables SSE 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 SSE Thermal 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.
Energy Customer Solutions Business Energy The supply of electricity and gas to business customers in Great Britain.
SSE Airtricity The supply of electricity, gas and energy related services to residential and
business customers in the Republic of Ireland and Northern Ireland.
Distributed Energy Distributed Energy The provision of services to enable customers to optimise and manage low
carbon energy use; development and management of battery storage and solar
assets; distributed generation, independent distribution, heat and cooling
networks, smart buildings and EV charging activities. The results of the
Group's Contracting and Rail business are included within this segment until
it was disposed on 30 June 2021.
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
EPM & I Gas Production The production and processing of gas and oil from North Sea fields.
Gas Distribution SGN SSE's share of profits of Scotia Gas Networks, which operates two economically
regulated gas distribution networks in Scotland and the South of England.
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 2021 Six months ended 30 September 2020
Reported revenue Inter-segment revenue (i) Segment revenue Reported revenue Inter-segment revenue (i) Segment revenue
2021 2021 2021 2020 2020 2020
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 278.7 - 278.7 201.6 - 201.6
SSEN Distribution 435.3 28.5 463.8 370.5 23.1 393.6
SSE Renewables 133.3 93.5 226.8 118.7 190.6 309.3
SSE Thermal 370.4 250.6 621.0 207.6 353.4 561.0
Gas Storage 3.6 667.4 671.0 3.2 152.1 155.3
Energy Customer Solutions
Business Energy 909.0 14.3 923.3 875.7 13.8 889.5
SSE Airtricity 442.9 159.3 602.2 463.7 17.7 481.4
Distributed Energy 112.3 13.6 125.9 140.6 13.6 154.2
EPM:
Gross trading 4,149.6 2,333.3 6,482.9 3,967.8 1,274.6 5,242.4
Optimisation trades(ii) (3,327.6) (742.7) (4,070.3) (3,599.3) (268.1) (3,867.4)
EPM 822.0 1,590.6 2,412.6 368.5 1,006.5 1,375.0
Corporate unallocated 36.0 73.1 109.1 66.3 70.9 137.2
Total continuing operations 3,543.5 2,890.9 6,434.4 2,816.4 1,841.7 4,658.1
Discontinued operations
Gas Production 6.7 109.5 116.2 6.3 70.9 77.2
Total discontinued operations 6.7 109.5 116.2 6.3 70.9 77.2
Total SSE Group 3,550.2 3,000.4 6,550.6 2,822.7 1,912.6 4,735.3
5. Segmental information (continued)
5. (a) Revenue by segment (continued)
Year ended 31 March 2021
Reported revenue Inter-segment revenue (i) Segment revenue
Continuing operations
SSEN Transmission 404.9 - 404.9
SSEN Distribution 834.5 69.1 903.6
SSE Renewables 281.9 544.2 826.1
SSE Thermal 504.0 699.0 1,203.0
Gas Storage 7.1 766.0 773.1
Energy Customer Solutions
Business Energy 1,934.5 30.5 1,965.0
SSE Airtricity 1,072.7 61.5 1,134.2
Distributed Energy 334.5 33.6 368.1
EPM:
Gross trading 8,811.9 2,699.3 11,511.2
Optimisation trades(ii) (7,449.2) (155.8) (7,605.0)
EPM 1,362.7 2,543.5 3,906.2
Corporate unallocated 89.6 189.4 279.0
Total continuing operations 6,826.4 4,936.8 11,763.2
Discontinued operations
Gas Production 14.2 90.8 105.0
Total discontinued operations 14.2 90.8 105.0
Total SSE Group 6,840.6 5,027.6 11,868.2
(i) Revenue from the Group's investment in Scotia Gas Networks
Limited, the Group's share being £60.4m for the period to 11 June 2021 (30
September 2020: £199.1m, 31 March 2021: £411.8m) 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)
5. (a) Revenue by segment (continued)
Disaggregation of revenue
Revenue from contracts with customers can be disaggregated by reported
segment, by major service lines and by timing of revenue recognition as
follows:
Six months ended 30 September 2021
Revenue from contracts with customers
Goods or services transferred over time Goods or services transferred at a point in time
Use of electricity networks Supply of energy Construction related services Other contracted services Physical energy Gas storage Other revenue Total revenue from contracts with customers Other contract revenue Total
£m £m £m £m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 268.9 - - 8.4 - - 1.4 278.7 - 278.7
SSEN Distribution 413.9 - - 4.7 - - 10.6 429.2 6.1 435.3
SSE Renewables - 59.3 - - 74.0 - - 133.3 - 133.3
SSE Thermal - 368.1 - - - - 2.3 370.4 - 370.4
Gas Storage - - - - - 3.6 - 3.6 - 3.6
Distributed Energy
Business Energy - 909.0 - - - - - 909.0 - 909.0
SSE Airtricity - 432.2 - 10.7 - - - 442.9 - 442.9
Distributed Energy 13.2 8.8 66.0 21.6 - - - 109.6 2.7 112.3
EPM - - - - 608.5 - 213.5 822.0 - 822.0
Corporate unallocated - - - - - - 36.0 36.0 - 36.0
Total continuing operations 696.0 1,777.4 66.0 45.4 682.5 3.6 263.8 3,534.7 8.8 3,543.5
Discontinued operations
Gas Production - - - - - - 6.7 6.7 - 6.7
Total discontinued operations - - - - - - 6.7 6.7 - 6.7
Total SSE Group 696.0 1,777.4 66.0 45.4 682.5 3.6 270.5 3,541.4 8.8 3,550.2
5. Segmental information (continued)
5. (a) Revenue by segment (continued)
Disaggregation of revenue (continued)
Six months ended 30 September 2020
Revenue from contracts with customers
Goods or services transferred over time Goods or services transferred at a point in time
Use of electricity networks Supply of energy Construction related services Other contracted services Physical energy Gas storage Other revenue Total revenue from contracts with customers Other contract revenue Total
£m £m £m £m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 186.9 - - 13.2 - - 1.5 201.6 - 201.6
SSEN Distribution 350.2 - - 5.3 - - 6.2 361.7 8.8 370.5
SSE Renewables - 41.3 - - 77.4 - - 118.7 - 118.7
SSE Thermal - 202.1 - - - - 5.5 207.6 - 207.6
Gas Storage - - - - - 3.2 - 3.2 - 3.2
Distributed Energy
Business Energy - 875.7 - - - - - 875.7 - 875.7
SSE Airtricity - 454.7 - 9.0 - - - 463.7 - 463.7
Distributed Energy 10.5 6.9 107.0 13.0 - - - 137.4 3.2 140.6
EPM - - - - 362.8 - 5.7 368.5 - 368.5
Corporate unallocated - - - - - - 66.3 66.3 - 66.3
Total continuing operations 547.6 1,580.7 107.0 40.5 440.2 3.2 85.2 2,804.4 12.0 2,816.4
Discontinued operations
Gas Production - - - - - - 6.3 6.3 - 6.3
Total discontinued operations - - - - - - 6.3 6.3 - 6.3
Total SSE Group 547.6 1,580.7 107.0 40.5 440.2 3.2 91.5 2,810.7 12.0 2,822.7
5. Segmental information (continued)
5. (a) Revenue by segment (continued)
Disaggregation of revenue (continued)
Year ended 31 March 2021
Revenue from contracts with customers
Goods or services transferred over time Goods or services transferred at a point in time
Use of electricity networks Supply of energy Construction related services Other contracted services Physical energy Gas storage Other revenue Total revenue from contracts with customers Other contract revenue Total
£m £m £m £m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 373.8 - - 26.4 - - 4.7 404.9 - 404.9
SSEN Distribution 787.1 - - 9.1 - - 16.2 812.4 22.1 834.5
SSE Renewables - 159.9 - - 122.0 - - 281.9 - 281.9
SSE Thermal - 484.3 - - - - 19.7 504.0 - 504.0
Gas Storage - - - - - 7.1 - 7.1 - 7.1
Distributed Energy
Business Energy - 1,934.5 - - - - - 1,934.5 - 1,934.5
SSE Airtricity - 1,055.2 - 17.5 - - - 1,072.7 - 1,072.7
Distributed Energy 12.8 15.4 265.4 33.3 1.2 - 0.5 328.6 5.9 334.5
EPM - - - - 988.9 - 373.8 1,362.7 - 1,362.7
Corporate unallocated - - - - - - 89.6 89.6 - 89.6
Total continuing operations 1,173.7 3,649.3 265.4 86.3 1,112.1 7.1 504.5 6,798.4 28.0 6,826.4
Discontinued operations
Gas Production - - - - - - 14.2 14.2 - 14.2
Total discontinued operations - - - - - - 14.2 14.2 - 14.2
Total SSE Group 1,173.7 3,649.3 265.4 86.3 1,112.1 7.1 518.7 6,812.6 28.0 6,840.6
5. Segmental information (continued)
5. (b) Operating profit/(loss) by segment
Six months ended 30 September 2021
Adjusted operating profit reported to the Board Depreciation on fair value uplifts Joint Venture/ Associate share of interest and tax (i) Before exceptional items and certain remeasurements Exceptional items and certain remeasurements Total
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 181.7 - - 181.7 - 181.7
SSEN Distribution 153.3 - - 153.3 - 153.3
SSE Renewables 25.4 (9.4) (25.6) (9.6) (24.0) (33.6)
SSE Thermal 36.1 - (4.7) 31.4 184.2 215.6
Gas Storage 28.7 - - 28.7 235.2 263.9
Energy Customer Solutions
Business Energy 2.4 - - 2.4 - 2.4
SSE Airtricity (ii) (2.9) - - (2.9) - (2.9)
Distributed Energy (7.3) - - (7.3) (17.5) (24.8)
EPM 5.7 - - 5.7 1,204.0 1,209.7
Corporate unallocated (46.3) (0.9) (5.5) (52.7) (8.2) (60.9)
Total continuing operations 376.8 (10.3) (35.8) 330.7 1,573.7 1,904.4
Discontinued operations
Gas Production 77.7 - - 77.7 (93.9) (16.2)
SGN 21.0 - (12.8) 8.2 (89.3) (81.1)
Total discontinued operations 98.7 - (12.8) 85.9 (183.2) (97.3)
Total SSE Group 475.5 (10.3) (48.6) 416.6 1,390.5 1,807.1
(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, the depreciation charge on fair value uplifts and tax from joint
ventures and associates and after adjusting for exceptional items and certain
re-measurements (note 6). The share of SGN interest includes loan stock
interest payable to the consortium shareholders (included in SGN). The Group
has accounted for its 33% share of this, £5.1m (2020: £4.9m, March 2021:
£9.8m), as discontinued finance income.
(ii) The adjusted operating profit reported to the Board for SSE
Airtricity includes a correction in respect of historic use of system costs of
£25.0m. It has been assessed that adjustment in current year does not
materially impact prior year financial statements.
5. Segmental information (continued)
5. (b) Operating profit/(loss) by segment
Six months ended 30 September 2020
Adjusted operating profit reported to the Board Depreciation on fair value uplifts Joint Venture/ Associate share of interest and tax (i) Before exceptional items and certain remeasurements Exceptional items and certain remeasurements Total
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 115.2 - - 115.2 - 115.2
SSEN Distribution 114.3 - - 114.3 - 114.3
SSE Renewables 141.6 (9.4) (28.1) 104.1 214.5 318.6
SSE Thermal 49.6 - (16.3) 33.3 24.8 58.1
Gas Storage (17.9) - - (17.9) 22.4 4.5
Energy Customer Solutions
Business Energy (27.4) - - (27.4) 11.9 (15.5)
Airtricity 16.6 - - 16.6 3.8 20.4
Distributed Energy (37.8) - - (37.8) - (37.8)
EPM (1.5) - - (1.5) 321.3 319.8
Corporate unallocated (23.8) (0.9) (4.5) (29.2) 71.5 42.3
Total continuing operations 328.9 (10.3) (48.9) 269.7 670.2 939.9
Discontinued operations
Gas Production (3.0) - - (3.0) - (3.0)
SGN 89.4 - (44.9) 44.5 0.7 45.2
Total discontinued operations 86.4 - (44.9) 41.5 0.7 42.2
Total SSE Group 415.3 (10.3) (93.8) 311.2 670.9 982.1
5. Segmental information (continued)
5. (b) Operating profit/(loss) by segment (continued)
Year ended 31 March 2021
Adjusted operating profit reported to the Board Depreciation on fair value uplifts Joint Venture/ Associate share of interest and tax (i) Before exceptional items and certain remeasurements Exceptional items and certain remeasurements Total
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 220.9 - - 220.9 - 220.9
SSEN Distribution 275.8 - - 275.8 - 275.8
SSE Renewables 731.8 (18.8) (71.4) 641.6 214.4 856.0
SSE Thermal 160.5 - (19.6) 140.9 634.4 775.3
Gas Storage (5.7) - - (5.7) 8.5 2.8
Energy Customer Solutions
Business Energy (24.0) - - (24.0) 20.1 (3.9)
SSE Airtricity 44.0 - - 44.0 6.0 50.0
Distributed Energy (27.0) - - (27.0) (49.1) (76.1)
EPM 18.4 - - 18.4 590.1 608.5
Corporate unallocated (61.2) (1.8) (13.7) (76.7) 22.3 (54.4)
Total continuing operations 1,333.5 (20.6) (104.7) 1,208.2 1,446.7 2,654.9
Discontinued operations
Gas Production 33.0 - - 33.0 - 33.0
SGN 173.0 - (86.0) 87.0 1.6 88.6
Total discontinued operations 206.0 - (86.0) 120.0 1.6 121.6
Total SSE Group 1,539.5 (20.6) (190.7) 1,328.2 1,448.3 2,776.5
5. Segmental information (continued)
5. (c) Earnings/(losses) before interest, taxation, depreciation and
amortisation ('EBITDA')
30 September 2021
Adjusted operating profit reported to the Board Depreciation on fair value uplifts Depreciation/ impairment/ amortisation before exceptional charges Joint venture/ Associate share of depreciation and amortisation Release of deferred income Adjusted EBITDA
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 181.7 - 48.1 - (2.3) 227.5
SSEN Distribution 153.3 - 86.6 - (5.9) 234.0
SSE Renewables 25.4 (9.4) 78.7 43.3 - 138.0
SSE Thermal 36.1 - 23.6 8.4 - 68.1
Gas Storage 28.7 - 0.4 - - 29.1
Energy Customer Solutions
Business Energy 2.4 - 2.5 - - 4.9
SSE Airtricity (2.9) - 3.6 - - 0.7
Distributed Energy (7.3) - 3.2 - (0.6) (4.7)
EPM 5.7 - 2.4 - - 8.1
Corporate unallocated (46.3) (0.9) 23.0 19.0 (0.3) (5.5)
Total continuing operations 376.8 (10.3) 272.1 70.7 (9.1) 700.2
Discontinued operations
Gas Production 77.7 - - - - 77.7
SGN 21.0 - - 11.1 - 32.1
Total discontinued operations 98.7 - - 11.1 - 109.8
Total SSE Group 475.5 (10.3) 272.1 81.8 (9.1) 810.0
5. Segmental information (continued)
5. (c) Earnings/(losses) before interest, taxation, depreciation and
amortisation ('EBITDA') (continued)
30 September 2020
Adjusted operating profit reported to the Board Depreciation on fair value uplifts Depreciation/ impairment/ amortisation before exceptional charges Joint venture/ Associate share of depreciation and amortisation Release of deferred income Adjusted EBITDA
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 115.2 - 42.1 - (1.3) 156.0
SSEN Distribution 114.3 - 83.5 - (5.7) 192.1
SSE Renewables 141.6 (9.4) 79.0 48.0 - 259.2
SSE Thermal 49.6 - 26.6 11.4 - 87.6
Gas Storage (17.9) - 0.4 - - (17.5)
Energy Customer Solutions
Business Energy (27.4) - 1.1 - - (26.3)
SSE Airtricity 16.6 - 3.6 - - 20.2
Distributed Energy (37.8) - 2.1 - (0.3) (36.0)
EPM (1.5) - - - - (1.5)
Corporate unallocated (23.8) (0.9) 35.9 19.9 (0.6) 30.5
Total continuing operations 328.9 (10.3) 274.3 79.3 (7.9) 664.3
Discontinued operations
Gas Production (3.0) - - - - (3.0)
SGN 89.4 - - 29.8 - 119.2
Total discontinued operations 86.4 - - 29.8 - 116.2
Total SSE Group 415.3 (10.3) 274.3 109.1 (7.9) 780.5
31 March 2021
Adjusted operating profit reported to the Board Depreciation on fair value uplifts Depreciation/ impairment/ amortisation before exceptional charges Joint venture/ Associate share of depreciation and amortisation Release of deferred income Adjusted EBITDA
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 220.9 - 87.1 - (2.6) 305.4
SSEN Distribution 275.8 - 168.8 - (11.3) 433.3
SSE Renewables 731.8 (18.8) 158.0 90.1 - 961.1
SSE Thermal 160.5 - 54.3 15.8 (1.0) 229.6
Gas Storage (5.7) - 0.8 - - (4.9)
Energy Customer Solutions
Business Energy (24.0) - 4.6 - - (19.4)
Airtricity 44.0 - 7.5 - - 51.5
Distributed Energy (27.0) - 8.2 - (1.7) (20.5)
EPM 18.4 - 5.3 - - 23.7
Corporate unallocated (61.2) (1.8) 61.6 38.0 (1.1) 35.5
Total continuing operations 1,333.5 (20.6) 556.2 143.9 (17.7) 1,995.3
Discontinued operations
Gas Production 33.0 - - - - 33.0
SGN 173.0 - - 61.6 - 234.6
Total discontinued operations 206.0 - - 61.6 - 267.6
Total SSE Group 1,539.5 (20.6) 556.2 205.5 (17.7) 2,262.9
6. Exceptional items and certain re-measurements
Six months ended 30 September 2021 Six months ended 30 September 2020 (restated*)
Year ended 31 March £m £m
2021 (restated*)
£m
Continuing operations
Exceptional items (note 6.1)
(50.4) Asset impairments and related (charges) and credits 182.2 15.7
(75.3) Provisions for restructuring and other liabilities - -
(125.7) 182.2 15.7
976.0 Net gains/(losses) on disposals of businesses and other assets (22.0) 311.3
850.3 Total exceptional items 160.2 327.0
Certain re-measurements (note 6.2)
590.1 Movement on operating derivatives 1,204.0 321.3
8.5 Movement in fair value of commodity stocks 235.2 22.4
55.6 Movement on financing derivatives (55.9) (16.5)
(0.8) Share of movement on derivatives in jointly controlled entities (net of tax) - (0.5)
653.4 Total certain re-measurements 1,383.3 326.7
1,503.7 Total exceptional items and certain re-measurements before taxation 1,543.5 653.7
Taxation
3.1 Taxation on other exceptional items (33.2) (2.8)
(125.9) Taxation on certain re-measurements (267.5) (60.5)
- Effect of deferred tax rate change in wholly owned entities (214.9) -
- Effect of deferred tax rate change in jointly controlled entities (23.4) -
(122.8) Taxation (539.0) (63.3)
1,380.9 Total exceptional items and certain re-measurements on continuing operations 1,004.5 590.4
after taxation
Discontinued operations
Exceptional items (note 6.1) and certain re-measurements (note 6.2)
- Gas production asset impairments and related charges (93.9) -
1.6 Share of movement on derivatives in jointly controlled entities (net of tax) (3.8) 0.7
- Effect of deferred tax rate change in jointly controlled entities (85.5) -
1.6 Total exceptional items and certain re-measurements on discontinued operations (183.2) 0.7
after taxation
6. Exceptional items and certain re-measurements (continued)
Exceptional items and certain re-measurements are disclosed across the
following categories within the income statement:
Six months ended 30 September 2021 Six months ended 30 September 2020
Year ended 31 March £m (restated*)
2021 £m
(restated*)
£m
Continuing operations
Cost of sales:
590.1 Movement on operating derivatives (note 16) 1,204.0 321.3
8.5 Movement in fair value of commodity stocks 235.2 22.4
598.6 1,439.2 343.7
Operating costs:
(30.1) Asset impairments and reversals 182.2 15.7
(24.2) SSE Energy Services related restructuring costs and asset impairments - -
(72.8) Other exceptional provisions and charges (24.3) -
(127.1) 157.9 15.7
Operating income:
976.0 Net gains on disposals of businesses and other assets - 311.3
976.0 - 311.3
Joint ventures and associates:
(0.8) Share of movement on derivatives in jointly controlled entities (net of - (0.5)
tax)
- Effect of deferred tax rate change in jointly controlled entities (23.4) -
(0.8) (23.4) (0.5)
1,446.7 Operating profit: 1,573.7 670.2
Finance costs/(income)
55.6 Movement on financing derivatives (note 16) (55.9) (16.5)
1.4 Interest income on deferred consideration receipt 2.3 -
57.0 (53.6) (16.5)
1,503.7 Profit before taxation on continuing operations 1,520.1 653.7
Discontinued operations
Joint ventures and associates:
- Gas production asset impairments and related charges (93.9) -
1.6 Share of movement on derivatives in jointly controlled entities (net of (3.8) 0.7
tax)
1.6 Profit/(loss) on discontinued operations (97.7) 0.7
*Comparative information has been restated. See note 2 (v).
6. Exceptional items and certain re-measurements (continued)
6.1 Exceptional items
Exceptional items recognised in the current financial period
Exceptional items within continuing operations
i) SSE Contracting - loss on disposal
On 30 June 2021, the Group completed the sale of its Contracting and Rail
business to the Aurelius Group for headline consideration of £22.5m and £5m
of contingent consideration, based on earning targets within the business. Due
to working capital movements in the business subsequent to the transaction
agreement, cash consideration received was £0.2m. The Group recorded an
additional exceptional loss on disposal of £18.1m on completion, in addition
to the exceptional impairment loss of £51.2m recognised during the year ended
31 March 2021.
ii) Thermal Generation - impairment reversals
At 30 September 2021, observable prices for power and gas have increased
significantly from prices used in the last formal impairment assessment at 31
March 2021. This is considered an indicator of impairment reversal,
necessitating formal reassessment of the carrying value of certain thermal
assets that have previously been impaired. A value in use model based on
pre-tax discounted cashflows, with an updated observable spark spread input at
30 September 2021 was prepared to assess the fair value of the assets. This
was performed for the Group's GB combined cycle gas turbine ('CCGT') power
stations and the Group's Great Island CCGT in Ireland as follows:
Assets Cash flow period assumption Operating and other valuation assumptions Commentary and impairment conclusions
GB CCGTs (Keadby, Medway, Peterhead and Marchwood (PPA right of use asset) Period to end of life Modelling methodology and assumptions Conclusion
The VIU of the Group's GB combined cycle gas turbine ('CCGT') power stations At 30 September 2021 an impairment reversal totalling £175.8m has been
were based on pre-tax discounted cash flows expected to be generated by each recognised on the GB CCGT assets. Individual impairment reversals were
plant, based on management's view of operating prospects and operational recognised on Peterhead (£25.4m); Keadby (£46.7m); Medway (£49.7m) and
flexibility within the GB wholesale market, including capacity market clearing Marchwood (£54.0m).
prices. Cash flows are subject to a pre-tax real discount rate between 13.3%
and 20.9% (31 March 2021: between 8.9% and 19.9%).
Changes from 31 March 2021 Sensitivity analysis
Certain assets within the Group's GB CCGT fleet are nearing the end of their In line with the formal valuation exercise performed at 31 March 2021,
operational life and are therefore more sensitive to fluctuations in market sensitivities to the impairment reversal were calculated to assess the overall
assumptions. During the period, observable peak load spark price assumed for write-back within a range of reasonably possible scenarios.
the assets has increased significantly which has been reflected in the updated
VIU model. A 20% decrease in gross margin would result in an impairment of £17.1m in
Peterhead. For Keadby the impairment reversal would reduce to £29.9m and for
Medway it would reduce to £30.2m. Marchwood impairment reversal would be
unchanged.
A 20% increase in gross margin would result in an increase to the impairment
reversal Peterhead of £43.4m, Keadby £17.9m and Medway £20.5m Marchwood
impairment reversal would be unchanged.
A £10/KW decrease in non-contracted capacity market price would reduce the
impairment write back in Peterhead to £5.6m. Keadby, Medway and Marchwood
impairment reversal would be unchanged.
A £10/KW increase in non-contracted capacity market price would result in an
increase to the impairment reversal on Peterhead of £20.7m. Keadby, Medway
and Marchwood impairment reversal would be unchanged.
6. Exceptional items and certain re-measurements (continued)
6.1 Exceptional items (continued)
Assets Cash flow period assumption Operating and other valuation assumptions Commentary and impairment conclusions
Great Island CCGT Period to end of life The VIU of the Group's Great Island CCGT power station was based on pre-tax Conclusion
discounted cash flows expected to be generated based on management's view of
operating prospects. Cash flows are subject to a pre-tax real discount rate of At 30 September 2021 an impairment reversal of £5.8m has been recognised.
10.8% reflecting the specific risks in the Irish market (31 March 2021:
10.8%).
Sensitivity analysis
In line with the formal valuation exercise performed at 31 March 2021,
sensitivities to the impairment reversal were calculated to assess the overall
write-back within a range of reasonably possible scenarios.
A 20% decrease in gross margin would result in an impairment of £82.0m, a 20%
increase in gross margin would result in an impairment reversal of £56.6m.
A €10/KW decrease in non-contracted capacity market price would result an
impairment of £11.9m. A €10/KW increase would result in an impairment
reversal of £23.5m.
iii) Neos Networks - adjustments to consideration
In the year ended 31 March 2019, the Group disposed of 50% of its stake in
Neos Networks Limited (formerly SSE Telecommunications Limited) to
Infracapital Partners III, 'Infracap', for initial consideration of £215.0m
and the potential for a further £165m of contingent consideration dependent
on achievement of certain targets. In the 6 months ended 30 September 2021,
the Group reassessed its position relating to the retained contingent elements
and its contractual position with Infracap, with the net impact being the
recognition of an exceptional charge of £6.2m.
iv) Other credits
At 30 September 2021 the Group reassessed its impairment provision recognised
in 2017/18 related to its Enterprise Utilities business following improvements
in the performance of the Heat Networks assets. The impairment review resulted
in a reversal in impairment of £0.6m (September 2020: £nil, March 2021
£2.2m). While this reversal is not exceptional, it has been classified as
exceptional to align to the classification of the initial impairment.
At 30 September 2021 the Group recognised £2.3m (2021: £1.4m) of exceptional
finance credits in relation the unwind of discounting on deferred
consideration recognised for the part disposal of SSE Slough Multifuel Limited
in the year ending 31 March 2021.
Exceptional items within discontinued operations
i) Gas Production - impairment charges
The Group recorded an exceptional impairment charge of £93.9m related to the
carrying value of the Gas Production assets and liabilities held for sale,
which are not subject to deprecation under IFRS 5, based on their fair value
less costs to sell, excluding the deferred tax asset which continues to be
measured under IAS 12. The sale to Viaro Energy through its subsidiary
RockRose Energy Limited completed on 14 October 2021, subsequent to the
balance sheet date. The additional loss on sale, not recognised at 30
September 2021, but due to the buyer based on production between 1 October
2021 and 14 October 2021 is estimated at £24.1m. This has arisen due to the
lock box mechanism effective 1 April 2019 within the sale agreement and will
be recognised in the second half of the financial year.
Exceptional items recognised in the previous financial year
i) Thermal Electricity Generation - impairment charges
At 31 March 2021, the Group carried out a formal impairment review in order to
assess the carrying value of its CCGT plant at Great Island. As a result of
the assessment, the Group recognised an exceptional impairment of £58.1m
(September 2020: £nil) to the carrying value of the asset, which arose
following reductions in forward price curves and forecast electricity demand
in Ireland.
ii) Customer bad debt provisioning
In the year ended 31 March 2020, the Group recognised an exceptional provision
for exposure to bad debts of £33.7m specifically related to the coronavirus
pandemic within its Business Energy (£27.7m) and Airtricity (£6.0m)
businesses. The initial outbreak of the pandemic happened late 2019 and the UK
remained in lockdown at the date of approval of the Annual Report on 16 June
2020, which meant that significant uncertainty surrounded the judgement at
that date. The provision reflected the Group's best estimate at that date and
was treated as an adjusting post balance sheet event. During the year to 31
March 2021, the Group achieved higher cash collections in recovery of its debt
than was expected, largely due to government support schemes and other
factors. As a result, a reversal of the exceptional provision of £20.1m
(September 2020: £11.9m) in its Business Energy and £6.0m (September 2020:
£3.8m) in its Airtricity businesses was recognised.
6. Exceptional items and certain re-measurements (continued)
6.1 Exceptional items (continued)
Exceptional items recognised in the previous financial year (continued)
iii) SSE Contracting - impairment charges
On 1 April 2021, the Group announced the sale of its Contracting and Rail
business to Aurelius Group. The transaction was for initial consideration of
£17.5m, plus a loan note receivable of £5m, and a further £5m of contingent
consideration based upon future financial performance of the business. At 31
March 2021, the Group classified its interest in the business as held for sale
(see note 9) and impaired the carrying amount of the held for sale asset to
its net realisable value, resulting in an impairment of £51.2m (September
2020: £nil). The transaction completed on 30 June 2021.
iv) SSE Energy Services disposal costs
In the year ended 31 March 2020, the Group disposed of its SSE Energy Services
business to Ovo Energy Limited, incurring an exceptional loss of £237.7m. The
calculation of the loss included estimates for costs of disposal and
separation which were subsequently re-estimated in the year to 31 March 2021.
These additional costs of disposal, which total £24.2m (September 2020:
£nil), included increased estimates of the cost of IT separation and
decommissioning and the impairment of SSE properties which are wholly (or
substantially) leased to the disposal group.
v) Neos Networks adjustment to consideration
In the year ended 31 March 2019, the Group disposed of 50% of its stake in
Neos Networks Limited (formerly SSE Telecommunications Limited) to
Infracapital Partners III, 'Infracap', for initial consideration of £215.0m
and the potential for a further £165m of contingent consideration dependent
on achievement of certain targets. In the year ended 31 March 2021, the Group
received further cash proceeds of £44m relating to previously accrued
deferred consideration but also reassessed its position relating to the
retained contingent elements and its contractual position with Infracap, with
the net impact being the recognition of an exceptional charge of £20.2m
(September 2020: £nil).
vi) Other charges
At 31 March 2021 the Group reassessed its impairment provision recognised in
2017/18 related to its Enterprise Utilities business following improvements in
the performance of the Heat Networks assets. The impairment review resulted in
a reversal in impairment of £2.2m (September 2020: £nil). While this
reversal was not exceptional, it was classified as exceptional to align to the
classification of the initial impairment.
In 2017/18 the Group recognised an exceptional impairment related to its
Barkip anaerobic digestion plant following operational issues at the site. In
the year ended 31 March 2021, the Group disposed of the site for consideration
of £1.3m, resulting in a £1.3m (September 2020: £nil) reversal of the
exceptional impairment recognised in 2017/18. While this reversal was not
exceptional, it was classified as exceptional to align to the classification
of the initial impairment.
vii) Disposal gains
During the year ended 31 March 2021, the Group progressed with its disposal
plan for non-core assets announced in June 2020, which resulted in exceptional
gains on disposal. The exceptional gains on disposal totalling £976.0m
(September 2020: £311.3m) are summarised below. Further details regarding the
disposals during the year ended 31 March 2021 are provided in note 12.
On 13 October 2020, the Group announced it had reached an agreement to dispose
of its 50% investment in Multifuel Energy Limited and Multifuel Energy 2
Limited (together 'MEL') to European Diversified Infrastructure Fund III for
headline consideration of £995m. The agreement was subject to antitrust
approval by the European Commission, which was granted on the 7 January 2021
when the transaction completed. The Group recorded an exceptional gain on
disposal of £669.9m (September 2020: £nil).
On 2 September 2020, the Group agreed to sell its subsidiary, SSE Renewables
Walney Limited, to Greencoat UK Wind Plc for consideration of £350m,
resulting in an exceptional gain on sale of £188.7m (September 2020:
£188.7m). SSE Renewables Walney Limited was the holding company of the
Group's non-operated 25.1% stake in Walney Offshore Wind Farm. As essentially
a financial investment and as Walney Offshore Wind Farm Limited had been
operational for several years, the disposal was not considered to be aligned
to the Group's strategic objective of gaining value from divestment of stakes
in offshore or international wind developments, therefore the gain on disposal
was recognised as exceptional.
On 23 September 2020, the Group disposed of its 33% investment in Maple Topco
Limited, the smart meter services provider, for proceeds of £95.3m, and
recognised an exceptional gain on disposal of £70.4m (September 2020:
£70.4m).
On 3 June 2020, the Group disposed of a 51% stake in its wholly owned
subsidiary, Seagreen Holdco 1 Ltd ('Seagreen 1'), to Total. The transaction
was for initial cash proceeds of £70m, plus contingent consideration of up to
£60m dependent upon future criteria being met. The Group assessed that
control of the company was lost on that date, and that the investment in
Seagreen 1 should be accounted for as an equity accounted joint venture under
the principles of IFRS 11 "Joint Arrangements". The Group acquired the joint
venture investment at fair value under the principles of IFRS 10 "Consolidated
Financial Statements", resulting in a total gain of £49.0m (September 2020:
£49.0m). Of that gain, £25.7m (September 2020: £25.7m) was recognised as
exceptional, as it represented the fair value gain on acquisition of the joint
venture investment retained by the Group. The remaining £23.3m (September
2020: £23.3m) of the gain was included in underlying operations, in line with
the Group's stated exceptional policy (see note 2 (iii)).
6. Exceptional items and certain re-measurements (continued)
6.1 Exceptional items (continued)
Exceptional items recognised in the previous financial year (continued)
On 2 April 2020, the Group disposed of a 50% stake in its wholly owned
subsidiary, SSE Slough Multifuel Ltd, to Copenhagen Infrastructure Partners.
The transaction was for initial cash proceeds of £10m, plus contingent
consideration of up to £59.1m dependent upon future criteria being met. The
Group assessed that control of the company was lost on that date, and that the
investment in Slough Multifuel should be accounted for as an equity accounted
joint venture under the principles of IFRS 11 "Joint Arrangements". The Group
acquired the joint venture investment at fair value under the principles of
IFRS 10 "Consolidated Financial Statements", resulting in a total gain of
£41.7m (September 2020: £48.7m). Of that gain, £21.3m (September 2020:
£24.8m) was recognised as exceptional, as it represented the fair value gain
on acquisition of the joint venture investment retained by the Group. The
remaining £20.4m (September 2020: £23.9m) of the gain was included in
underlying operations, in line with the Group's stated exceptional policy (see
note 2 (iii)).
6.2 Certain re-measurements
The Group, through its EPM business, enters into forward commodity purchase
(and sales) contracts to meet the future demand requirements of its Business
Energy and SSE Airtricity supply businesses and to optimise the value of its
SSE Renewables and SSE Thermal. Certain of these contracts are determined to
be derivative financial instruments under IFRS 9 "Financial Instruments" and
as such are required to be recorded at their fair value. Conversely, commodity
contracts that are not financial instruments under IFRS 9 are accounted for as
'own use' contracts and are not recorded at fair value. In addition, inventory
purchased to utilise excess capacity ahead of an optimised sale in the market
by the Gas Storage business is held as trading inventory at fair value.
Changes in the fair value through the profit and loss statement of those
commodity contracts designated as financial instruments and trading inventory
are therefore reflected in the income statement. The Group shows the change
in the fair value of these forward contracts and trading inventory separately,
as "certain re-measurements", as the Group does not believe this
mark-to-market movement is relevant to the underlying performance of its
operating segments.
At 30 September 2021, volatility in global commodity markets has resulted in
an 'in the money' mark-to-market remeasurement on commodity contracts
designated as financial instruments and trading inventory of £1,439.2m.
However, the Group has 'own use' designated commodity contracts which, if
classified as financial instruments and remeasured at fair value in accordance
with IFRS 9, would significantly reduce the total fair value remeasurement. A
significant proportion of 'in the money' mark-to-market remeasurement recorded
at 30 September 2021 and 'own use' designated commodity contracts are expected
to reverse in the second half of the financial year as the relevant commodity
is delivered. The remaining settlement of these contracts will predominately
be within the subsequent 12 to 24 months. The mark-to-market gain in the
period has resulted in a deferred tax charge of £297.4m, which has also been
classified as exceptional.
The re-measurements arising from IFRS 9 and the associated deferred tax charge
are disclosed separately to aid understanding of the underlying performance of
the Group.
This category also includes the income statement movement on financing
derivatives (and hedged items) as described in note 16.
6.3 Change in UK corporation tax rates
The Government announced in the Budget on 3 March 2021 that the main rate of
corporation tax will increase to 25% for the financial year beginning 1 April
2023. Prior to this date, the rate of corporation tax will remain at 19%. The
increase to 25% was substantively enacted on 24 May 2021. The deferred tax
balances have been re-measured at 30 September 2021 accordingly. The impact of
the rate change for wholly owned entities is £214.9m within the income
statement.
Finance Bill 2021 also included draft legislation in respect of Capital
Allowance 'Super-deductions' of 130% in respect of General Pool plant and
machinery, alongside First Year Allowances of 50% for Special Rate Pool plant
and machinery for the two years commencing 1 April 2021. The Group expects
these changes, which were substantively enacted on 24 May 2021, to
significantly increase the deduction for Capital Allowances in the financial
years ending 31 March 2022 and 31 March 2023. An estimate of the
super-deduction has been taken into account when calculating the effective
rate of tax for the interim period. The Group notes that final guidance in
respect of the application of the super-deduction has not yet been issued by
HMRC.
Taxation
The Group has separately recognised the tax effect of the exceptional items
and certain re-measurements summarised above.
7. Finance income and costs
Year ended 31 March Six months ended 30 September 2021 Six months ended 30 September 2020
2021 (restated*)
(restated*)
£m £m £m
Finance income:
1.9 Interest income from short term deposits 0.5 1.5
8.3 Interest on pension scheme assets 3.7 4.0
1.3 Foreign exchange translation of monetary assets and liabilities - -
Other interest receivable:
43.9 Joint ventures and associates 19.5 28.8
24.2 Other receivable 16.9 11.2
68.1 36.4 40.0
79.6 Total finance income 40.6 45.5
Finance costs:
(24.0) Bank loans and overdrafts (7.6) (15.2)
(323.2) Other loans and charges (173.6) (160.9)
- Foreign exchange translation of monetary assets and liabilities (14.9) -
(3.8) Notional interest arising on discounted provisions (2.3) (1.9)
(35.3) Lease charges (16.2) (17.6)
14.2 Less: interest capitalised 11.6 6.1
(372.1) Total finance costs (203.0) (189.5)
55.6 Changes in fair value of financing derivative assets or liabilities at fair (55.9) (16.5)
value through profit or loss
(236.9) Net finance costs (218.3) (160.5)
Presented as:
135.2 Finance income 40.6 45.5
(372.1) Finance costs (258.9) (206.0)
(236.9) Net finance costs (218.3) (160.5)
Adjusted net finance costs are arrived at after the following adjustments:
Year ended 31 March Six months ended 30 Six months ended 30
September
September
2021
2021
2020
(restated*)
(restated*)
£m £m £m
(236.9) Net finance costs (218.3) (160.5)
(add)/less:
(82.4) Share of interest from joint ventures and associates (34.2) (47.0)
(8.3) Interest on pension scheme (assets)/liabilities (3.7) (4.0)
(55.6) Movement on financing derivatives (note 16) 55.9 16.5
(1.4) Exceptional item (2.3) -
(384.6) Adjusted net finance costs (202.6) (195.0)
3.8 Notional interest arising on discounted provisions 2.3 1.9
35.3 Lease charges 16.2 17.6
(46.6) Hybrid coupon payment (50.7) (46.6)
(392.1) Adjusted net finance costs for interest cover calculations (234.8) (222.1)
*The comparative has been restated. See note 2 (v).
8. Taxation
The income tax expense for the interim period is calculated in accordance with
the principles of IAS 34, where the forecast effective rate of tax for the
year is applied to the profits for the period, with discreet items arising in
the interim period being separately treated.
The income tax expense reflects the anticipated effective rate of tax on
profits before taxation for the Group for the year ending 31 March 2022,
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 16.1% (2020: 12.7%, March 2021:
11.1%). The reported tax rate on the profit before tax after exceptional items
and certain remeasurements is 32.2% (2020: 10.2%, March 2021: 9.3%).
The charge recognised in the income statement is as follows:
30 September 2021 30 September 2020
Before exceptional items and remeasurements Exceptional items and remeasurements Total Before exceptional items and remeasurements Exceptional items and remeasurements Total
£m £m £m £m £m £m
Current tax
UK corporation tax 13.4 (6.4) 7.0 9.0 6.9 15.9
Adjustments in respect of previous years (3.0) (9.0) (12.0) 0.7 - 0.7
Total current tax 10.4 (15.4) (5.0) 9.7 6.9 16.6
Deferred tax
Current year 16.3 316.1 332.4 9.4 56.4 65.8
Effect of change in tax rate - 214.9 214.9 - - -
Adjustments in respect of previous years - - - (3.1) - (3.1)
Total deferred tax 16.3 531.0 547.3 6.3 56.4 62.7
Total taxation charge/(credit) 26.7 515.6 542.3 16.0 63.3 79.3
31 March 2021
Before exceptional items and remeasurements Exceptional items and remeasurements Total
Current tax
UK corporation tax 84.1 6.2 90.3
Adjustments in respect of previous years (11.4) - (11.4)
Total current tax 72.7 6.2 78.9
Deferred tax
Current year 34.0 113.3 147.3
Adjustments in respect of previous years (5.2) 3.3 (1.9)
Total deferred tax 28.8 116.6 145.4
Total taxation charge/(credit) 101.5 122.8 224.3
The 'adjusted current tax charge' and the 'adjusted effective rate of tax',
which are presented in order to best represent underlying performance by
making similar adjustments to the 'adjusted profit before tax' measure, are
arrived at after the following adjustments:
Year ended Six months ended Six months ended
30 September 2021
30 September 2020
31 March 2021
(restated*)
(restated*)
£m % £m % £m %
Continuing operations
224.3 9.3 Group tax charge and effective rate 542.3 32.2 79.3 10.2
(145.4) (6.1) Add: reported deferred tax charge and effective rate (547.3) (32.5) (62.7) (8.0)
78.9 3.2 Reported current tax charge and effective rate (5.0) (0.3) 16.6 2.2
5.1 Effect of adjusting items (2.5) 10.2
78.9 8.3 Reported current tax charge on adjusted basis (5.0) (2.8) 16.6 12.4
add:
14.9 1.6 Share of current tax from joint ventures and associates 2.3 1.3 1.9 1.4
less:
(7.9) (0.8) Current tax charge/credit on exceptional items 15.4 8.8 (6.9) (5.1)
85.9 9.1 Adjusted current tax charge and effective rate 12.7 7.3 11.6 8.7
The adjusted effective current tax rate for the period after adjusting for
discrete events arising in the first half of the year is 7.3%. The forecast
full-year effective current tax rate is expected to be between 8% - 9%.
*The comparative has been restated. See note 2 (v).
9. Discontinued operations and assets and liabilities held for sale
Discontinued operations
The discontinued operations are the Group's Gas Production business, which
remains held for sale at the balance sheet date, and its joint venture
investment in SGN. SGN constitutes a separate major line of business of the
Group, therefore it has been classified as a discontinued operation and is
included in discontinued operations in all comparative information below.
The profit/(loss) of the discontinued operations for the period is as follows:
30 September 2021 30 September 2020
Before exceptional items and remeasurements Exceptional items and remeasurements Total Before exceptional items and remeasurements(i) Exceptional items and remeasurements Total(i)
(restated*) (restated*) (restated*)
£m £m £m £m £m £m
Revenue(i) 116.2 - 116.2 77.2 - 77.2
Cost of sales(i) (36.9) - (36.9) (78.5) - (78.5)
Gross profit/(loss) 79.3 - 79.3 (1.3) - (1.3)
Operating costs (1.6) (93.9) (95.5) (1.7) - (1.7)
Operating profit/(loss) before joint ventures 77.7 (93.9) (16.2) (3.0) - (3.0)
Joint ventures:
Share of operating profit 21.0 - 21.0 89.4 - 89.4
Share of interest (11.1) - (11.1) (32.9) - (32.9)
Share of movement on derivatives - (4.6) (4.6) - 0.8 0.8
Share of tax (1.7) (84.7) (86.4) (12.0) (0.1) (12.1)
Share of profit on joint ventures 8.2 (89.3) (81.1) 44.5 0.7 45.2
Operating profit/(loss) 85.9 (183.2) (97.3) 41.5 0.7 42.2
Finance income 5.1 - 5.1 4.9 - 4.9
Finance costs (1.6) - (1.6) (1.1) - (1.1)
Profit/(loss) before tax 89.4 (183.2) (93.8) 45.3 0.7 46.0
Profit/(loss) from discontinued operations, net of tax 89.4 (183.2) (93.8) 45.3 0.7 46.0
(i) For the 6 months ended 30 September 2020 revenue and cost of sales
have been adjusted by £70.9m to reflect the external revenue and cost of
sales that will be lost by SSE on disposal of Gas Production.
31 March 2021
Before exceptional items and remeasurements Exceptional items and remeasurements Total
(restated*) (restated*) (restated*)
£m £m £m
Revenue 105.0 - 105.0
Cost of sales (68.9) - (68.9)
Gross profit 36.1 - 36.1
Operating costs (3.1) - (3.1)
Operating profit before joint ventures 33.0 - 33.0
Joint ventures:
Share of operating profit 173.0 - 173.0
Share of interest (64.1) - (64.1)
Share of movement on derivatives - 1.9 1.9
Share of tax (21.9) (0.3) (22.2)
Share of profit on joint ventures 87.0 1.6 88.6
Operating profit/(loss) 120.0 1.6 121.6
Finance income 9.8 - 9.8
Finance costs (2.3) - (2.3)
Profit before taxation 127.5 1.6 129.1
Profit for the year from discontinued operations, net of tax 127.5 1.6 129.1
* The comparative has been restated. See note 2 (v).
Other comprehensive income from discontinued operations
September 2021 September 2020
March £m £m
2021
£m
Items that will be reclassified subsequently to profit or loss:
4.7 Share of other comprehensive gain/(loss) of joint ventures and associates, net 0.5 (0.4)
of taxation
Items that will not be reclassified to profit or loss:
(23.3) Share of other comprehensive (loss)/income of joint ventures, net of taxation (1.7) (11.9)
(18.6) Other comprehensive loss from discontinued operations (1.2) (12.3)
9. Discontinued operations and assets and liabilities held for sale
(continued)
Cashflows from discontinued operations
September 2021 September 2020
March £m £m
2021
£m
26.8 Cashflows from operating activities 11.6 12.5
(26.8) Cashflows from investing activities (11.6) (12.5)
- Net increase/(decrease) in cash and cash equivalents from discontinued - -
operations
Assets and liabilities held for sale
At 30 September 2021, the Group's Gas Production assets and liabilities were
deemed available for immediate sale. As referred at note 21.2, the transaction
to dispose of Gas Production was completed on 14 October 2021. On 2 August
2021, the Group announced it had agreed to sell its 33.3% investment in SGN to
a consortium comprising existing SGN shareholders Ontario Teachers' Pension
Plan Board and Brookfield Super-Core Infrastructure Partners for cash
consideration of £1,225m. The agreement is conditional on certain regulatory
approvals and is expected to complete by 31 March 2022. Accordingly, the
investment is presented as held for sale at 30 September 2021. The final gain
on sale will be determined on completion of the transaction, but is expected
to be in excess of £570m. Finally, a 10% stake in Doggerbank windfarm
development C has also been classified as held for sale at 30 September 2021,
as the Group was progressed in discussions to sell a 10% stake in Dogger Bank
C to Eni. The transaction was announced on 2 November 2021, subsequent to the
balance sheet date (see note 21.3).
The assets and liabilities of each of these businesses have been classified as
held for sale and have been presented separately after elimination of
intercompany balances on the face of the balance sheet.
March Gas Production SGN 10% Dogger bank C September 2021 September 2020
2021 £m £m £m £m £m
£m
167.5 Property plant and equipment 124.7 - - 124.7 180.4
49.6 Goodwill and other intangible assets 33.7 - - 33.7 41.6
- Equity investments in joint ventures and associates - 543.1 2.6 545.7 71.9
- Loans to joint ventures and associates - 118.8 - 118.8 281.2
14.9 Deferred tax asset 14.7 - - 14.7 14.7
4.7 Inventories 5.8 - - 5.8 7.1
102.4 Trade and other receivables 2.5 - - 2.5 80.5
- Cash and cash equivalents - - - - 0.5
339.1 Total assets 181.4 661.9 2.6 845.9 677.9
(55.4) Trade and other payables (13.2) - - (13.2) (50.0)
(0.1) Current tax liabilities - - - - -
(195.8) Provisions (159.4) - - (159.4) (405.0)
(2.2) Loans and other borrowings - - - - (1.5)
(253.5) Total liabilities (172.6) - - (172.6) (456.5)
85.6 Net assets/(liabilities) 8.8 661.9 2.6 673.3 221.4
Amounts accumulated in hedge reserve related to SGN total £28.2m, net of tax.
The assets and liabilities classified as held for sale at 30 September 2020
were the Group's investment in Multifuel Energy Limited, the Group's 10% stake
in Doggerbank A&B windfarm development, the Group's SSE Contracting
business and the Group's investment in Gas Production assets. Multifuel Energy
Limited was sold on 7 January 2021 (see note 12) and the 10% stake in
Doggerbank A & B windfarm development was sold was sold on 4 December 2020
(see note 12), while the SSE Contracting business and the Group's investment
in Gas Production assets remained held for sale at 31 March 2021. As noted
above, both SSE Contracting and Gas Production have now been disposed.
10. Dividends
Ordinary dividends
Year ended 31 March 2021 Six months ended 30 September 2021 Six months ended 30 September 2020
Total £m Settled via scrip £m Pence per ordinary share Total Settled Pence per ordinary share Total £m Settled Pence per ordinary share
£m via scrip via scrip £m
£m
- - - Final - year ended 31 March 2021 590.5 327.5 56.6 - - -
254.3 13.5 24.4 Interim - year ended 31 March 2021 - - - - -
582.1 25.5 56.0 Final - year ended 31 March 2020 - - 582.1 25.5 56.0
836.4 39.0 590.5 327.5 582.1 25.5
The final dividend of 56.6p per ordinary share declared in respect of the
financial year ended 31 March 2021 (2020: 56.0p) was approved at the Annual
General Meeting on 22 July 2021 and was paid to shareholders on 23 September
2021. Shareholders were able to elect to receive ordinary shares credited as
fully paid instead of the cash dividend under the terms of the Company's scrip
dividend scheme.
An interim dividend of 25.5p per ordinary share (2020: 24.4p) has been
proposed and is due to be paid on 10 March 2022 to those shareholders on the
SSE plc share register on 14 January 2022. 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. Earnings per share
Basic earnings per share
The calculation of basic earnings per ordinary share at 30 September 2021 is
based on the net profit attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding during the period ended 30
September 2021.
Adjusted earnings per share
Adjusted earnings per share has been calculated by excluding the charge for
deferred tax, the interest on net pension liabilities under IAS 19, the
depreciation charged on fair value uplifts and the impact of exceptional items
and certain re-measurements.
Continuing operations
Year ended Six months ended Six months ended
30 September 2021
30 September 2020
31 March 2021
(restated*)
(restated*)
Earnings Earnings per share Earnings Earnings per share Earnings Earnings per share
£m pence £m pence £m pence
2,276.2 218.7 Earnings attributable to ordinary shareholders 999.3 94.7 699.5 67.3
(129.1) (12.4) Less: losses/(earnings) attributable to discontinued operations 93.8 8.9 (46.0) (4.4)
2,147.1 206.3 Basic earnings on continuing operations used to calculate adjusted EPS 1,093.1 103.6
653.5 62.9
(1,380.9) (132.8) Exceptional items and certain re-measurements (note 6) (1,004.5) (95.2) (590.4) (56.8)
766.2 73.5 Basic excluding exceptional items and certain re- measurements 88.6 8.4 63.1 6.1
Adjusted for:
20.6 2.0 Depreciation charge on fair value uplifts 10.3 1.0 10.3 1.0
(8.3) (0.8) Interest on net pension scheme assets (note 7) (3.7) (0.4) (4.0) (0.4)
32.2 3.1 Deferred tax 16.3 1.6 9.8 0.9
5.7 0.6 Deferred tax from share of joint ventures and associates (0.7) (0.1) (3.5) (0.3)
816.4 78.4 Adjusted 110.8 10.5 75.7 7.3
2,147.1 206.3 Basic 1,093.1 103.6 653.5 62.9
- (0.3) Dilutive effect of outstanding share options - (0.2) - (0.1)
2,147.1 206.0 Diluted 1,093.1 103.4 653.5 62.8
Reported earnings per share
Year ended Six months ended Six months ended
30 September 2021
30 September 2020
31 March 2021
(restated*)
(restated*)
Earnings Earnings per share Earnings Earnings per share Earnings Earnings per share
£m pence £m pence £m pence
Basic
2,147.1 206.3 Earnings per share on continuing operations 1,093.1 103.6 653.5 62.9
129.1 12.4 Earnings/(losses) per share on discontinued operations (93.8) (8.9) 46.0 4.4
2,276.2 218.7 Earnings per share attributable to ordinary shareholders 999.3 94.7 699.5 67.3
- (0.4) Dilutive effect of outstanding share options - (0.1) - (0.1)
2,276.2 218.3 Diluted 999.3 94.6 699.5 67.2
11. Earnings per share (continued)
The weighted average number of shares used in each calculation is as follows:
Year ended 31 March 2021 Six months ended 30 September 2021 Six months ended 30 September 2020
Number of shares Number of shares Number of shares
(millions) (millions) (millions)
1,040.9 For basic and adjusted earnings per share 1,054.7 1,039.6
1.6 Effect of exercise of share options 2.2 1.5
1,042.5 For diluted earnings per share 1,056.9 1,041.1
12. Acquisitions and disposals
Acquisitions and disposals in the current period
Acquisitions
There have been no significant acquisitions in the current period.
Disposals
SSE Contracting: on 30 June 2021, the Group completed the sale of its
Contracting and Rail business to the Aurelius Group for headline consideration
of £22.5m and £5m of contingent consideration based on earnings targets
within the business. Due to working capital movements in the business
subsequent to the transaction agreement, cash consideration received was
£0.2m. The Group recorded an additional exceptional loss on disposal of
£18.1m on completion, in addition to the exceptional impairment loss of
£51.2m recognised during the year ended 31 March 2021.
Other disposals: On 19 August 2021 the Group received a dividend of £4.8m
following the sale of Smarter Grid Solutions by the Environmental Energies
Fund Limited, resulting in a gain on sale of £2.8m.
Prior year acquisitions and disposals
During the year ended 31 March 2021, the Group progressed its disposal plan
for non-core assets announced in June 2020, and continued its programme of
strategic partnering generating developer gains. As a result, it recognised
exceptional gains on disposal of £976.0m (September 2020, £311.3m) and
non-exceptional gains on disposal of £251.9m (September 2020, £47.2m). The
gains at September 2020 related to disposals of investments in Walney Windfarm
and Maple Smart Meter Assets, and stakes in Seagreen 1 Windfarm and Slough
Multifuel. The disposals below primarily comprise sales of stakes in
non-operated investment assets, or the sale of a stake in early stage offshore
windfarm developments, which aligns to the Group's stated policy to realise
value from these assets.
There were no significant additions during the year ended 31 March 2021.
Sale of investment in Ferrybridge Multifuel: On 7 January 2021, the Group
completed the disposal of its 50% joint venture investment in Multifuel Energy
Limited and Multifuel Energy 2 Limited (together 'MEL'), to European
Diversified Infrastructure Fund III for headline consideration of £995m. The
Group recorded an exceptional gain on disposal of £669.9m on completion.
Sale of investment in Walney Windfarm: On 2 September 2020, the Group agreed
to sell its subsidiary, SSE Renewables Walney Limited, to Greencoat UK Wind
Plc for consideration of £350m, resulting in an exceptional gain on sale of
£188.7m. The disposal is not considered to be aligned to the Group's
strategic objective of gaining value from divestment of stakes in offshore or
international wind developments, therefore the gain on disposal was recognised
as exceptional.
Sale of investment in Maple Smart Meter Assets: On 23 September 2020, the
Group disposed of its 33% joint venture investment in Maple Topco Limited, the
smart meter services provider, for proceeds of £95.3m, recognising an
exceptional gain on disposal of £70.4m.
Sale of stake in Doggerbank A&B Windfarms: On 4 December 2020, the Group
announced it had agreed to sell a 10% stake in Doggerbank A and Doggerbank B
windfarms to Eni for equity consideration of £206.3m, resulting in a
non-exceptional gain on disposal of £202.8m. The gain has been recognised
within the adjusted profit of the Group in line with the Group's stated
exceptional policy for gains on disposal of divestments in offshore windfarms.
Sale of stake in Seagreen 1 Windfarm: On 3 June 2020, the Group disposed of a
51% stake in its wholly owned subsidiary, Seagreen Holdco 1 Ltd ('Seagreen
1'), to Total. The transaction was for initial cash proceeds of £70m, plus
contingent consideration of up to £60m dependent upon future criteria being
met. The Group has assessed that control of the company was lost on that date,
and that the investment in Seagreen 1 should be accounted for as an equity
accounted joint venture under the principles of IFRS 11 "Joint Arrangements".
The Group acquired the joint venture investment at fair value under the
principles of IFRS 10 "Consolidated Financial Statements", resulting in a
total gain of £49.0m. Of that gain, £25.7m was recognised as exceptional, as
it represented the fair value gain on acquisition of the joint venture
investment retained by the Group. The remaining £23.3m of the gain was
included in underlying operations, in line with the Group's stated exceptional
policy.
Sale of stake in Slough Multifuel: On 2 April 2020, the Group disposed of a
50% stake in its wholly owned subsidiary, SSE Slough Multifuel Ltd, to
Copenhagen Infrastructure Partners. The transaction was for initial cash
proceeds of £10m, plus contingent consideration of up to £59.1m dependent
upon future criteria being met. The Group has assessed that control of the
company was lost on that date, and that the investment in Slough Multifuel
should be accounted for as an equity accounted joint venture under the
principles of IFRS 11 "Joint Arrangements". The Group acquired the joint
venture investment at fair value under the principles of IFRS 10 "Consolidated
Financial Statements", resulting in a total gain of £41.7m. Of that gain,
£21.3m was recognised as exceptional, as it represented the fair value gain
on acquisition of the joint venture investment retained by the Group. The
remaining £20.4m of the gain was included in underlying operations, in line
with the Group's stated exceptional policy.
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 in the Group 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 2021, the
Group's long term credit rating was BBB+ stable outlook for Standard &
Poor's and Baa1 negative outlook for Moody's.
The maintenance of a medium term corporate model is a key control in
monitoring the development of the Group's capital structure and allows for
detailed scenarios and sensitivity testing. Key ratios drawn from this
analysis underpin regular updates to the Board and include the ratios used by
the rating agencies in assessing the Group's credit ratings.
The Group'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 1 April
2021, the Group exercised its option to redeem its €600m hybrid equity bond
(£421.4m). The bond had no fixed redemption date, but the Group had the
option to redeem all of the bond on 1 April 2021 or every 5 years
thereafter.
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.
The £1.5bn of committed bank facilities, being a £1.3bn Revolving Credit
Facility with a March 2026 maturity date and a £0.2bn bilateral facility with
an October 2026 maturity date. These facilities can also be utilised to cover
short term funding requirements; however, they remain undrawn for most of the
time and were undrawn at 30 September 2021. In addition, the Group has an
established €1.5bn Euro commercial paper programme (paper can be issued in a
range of currencies and swapped into Sterling). At 30 September 2021, £103m
of commercial paper was outstanding (2020: £336m; March 2021: nil).
The Group capital comprises:
March September September
2021 2021 2020
£m £m £m
8,989.6 Total borrowings (excluding lease obligations) 8,705.8 9,625.4
(1,600.2) Less: Cash and cash equivalents (232.7) (415.5)
- Cash presented as held for sale - (0.5)
7,389.4 Net debt (excluding hybrid equity) 8,473.1 9,209.4
1,472.4 Hybrid equity 1,051.0 1,472.4
37.1 Cash held as collateral and other short-term loans 87.4 (59.7)
8,898.9 Adjusted net debt and hybrid equity 9,611.5 10,622.1
5,208.7 Equity attributable to shareholders of the parent 6,035.8 3,722.1
14,107.6 Total capital excluding lease obligations 15,647.3 14,344.2
13.2 Loans and other borrowings
March 2021 September 2021 September 2020
£m £m £m
Current
864.7 Short term loans 2,014.4 1,289.1
72.9 Lease obligations 52.4 74.4
937.6 2,066.8 1,363.5
Non-current
8,124.9 Loans 6,691.3 8,336.3
348.1 Lease obligations 352.3 355.3
8,473.0 7,043.6 8,691.6
9,410.6 Total loans and borrowings 9,110.4 10,055.1
(1,600.2) Cash and cash equivalents (232.7) (415.5)
7,810.4 Unadjusted net debt 8,877.7 9,639.6
Add/(less):
1,472.4 Hybrid equity (note 14) 1,051.0 1,472.4
(421.0) Lease obligations (404.7) (429.7)
37.1 Cash held/(deposited) as collateral and other short term loans 87.4 (59.7)
- Cash presented as held for sale - (0.5)
8,898.9 Adjusted net debt and hybrid equity 9,611.4 10,622.1
SSE's adjusted net debt and hybrid capital was £9.6bn at 30 September 2021,
compared with £8.9bn at 31 March 2021 and £10.6bn at 30 September 2020.
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.
13. Sources of finance (continued)
13.3 Reconciliation of net increase in cash and cash equivalents to movement
in adjusted net debt and hybrid equity
March 2021 September 2021 September 2020
£m £m £m
1,435.6 (Decrease)/increase in cash and cash equivalents (1,367.5) 251.4
Add/(less)
- Cash presented as held for sale - (0.5)
(1,912.9) New borrowing proceeds (103.3) (1,313.9)
(1,051.0) New hybrid equity proceeds - (1,051.0)
1,895.9 Repayment of borrowings 450.0 1,394.4
438.6 Disposal of borrowings - -
748.3 Repayment of hybrid equity 421.4 750.0
306.0 Non-cash movement on borrowings (62.8) 10.1
(293.5) Decrease in cash held as collateral and other short term borrowings (50.3) (196.7)
1,567.0 (Increase)/decrease in adjusted net debt and hybrids (712.5) (156.2)
13.4 Hybrid debt
Included within loans and borrowings at 30 September 2021 is £1.0bn (2020:
£1.0bn, March 2021: £1.0bn) 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. 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 note 13.1.
14. Hybrid Equity
March 2021 September 2021 September 2020
£m Perpetual subordinated capital securities £m £m
421.4 EUR 600m 2.375% perpetual subordinated capital securities (i) - 421.4
598.0 GBP 600m 3.74% perpetual subordinated capital securities (ii) 598.0 598.0
453.0 EUR 500m 3.125% perpetual subordinated capital securities (ii) 453.0 453.0
1,472.4 1,051.0 1,472.4
(i) 10 March 2015 €600m Hybrid Capital Bonds
The March 2015 hybrid capital bond has no fixed redemption date, but the
Company could, at its sole discretion, redeem all but not part of the capital
securities at their principal amount. The date for the first discretionary
redemption of the €600m hybrid capital bond was executed and this hybrid
bond was redeemed on 1 April 2021.
(ii) 2 July 2020 £600m and €500m Hybrid Capital Bonds
The new hybrid capital bonds issued in July 2020 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 £600m hybrid bond is 14 April 2026
and then every 5 years thereafter. The date for the first potential
discretionary redemption of the €500m hybrid capital bond is 14 July 2027
and then every 5 years thereafter. For the £600m hybrid, the coupon payments
are made annually on 14 April and for the €500m hybrid the coupon payments
are made annually on 14 July.
Coupon Payments
In relation to the €600m hybrid equity bond, the final coupon payment of
£17.5m (2021: £17.5m) was made on 1 April 2021 and for the £750m hybrid
equity bond the final coupon payment of £29.1m was paid on 10 September
2020. In relation to the £600m hybrid equity bond a coupon payment of
£16.8m (2021: £nil) was made on 14 April 2021 and for the €500m hybrid
equity bond a coupon payment of £16.4m (2021: £nil) was made on 14 July
2021. The coupon payments in the six month period to 30 September 2021
consequently totalled £50.7m (2020: £46.6m).
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 £m
(millions)
Allotted, called up and fully paid:
At 1 April 2021 1,049.1 524.5
Issue of shares 22.2 11.1
At 30 September 2021 1,071.3 535.6
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 2021 of 56.6p (2020: 56.0p in relation
to the final dividend for the year to 31 March 2020; March 2021: 24.4p in
relation to the interim dividend for the year to 31 March 2021) per ordinary
share under the terms of the Company's scrip dividend scheme. This resulted in
the issue of 22,201,443 (September 2020: 1,918,977; March 2021: 2,802,380) new
fully paid ordinary shares.
15. Share capital (continued)
In addition, the Company issued 0.2m shares (2020: 0.3m, March 2021: 0.9m)
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 £2.2m (2020: £3.4m, March 2021: £10.4m).
No shares were repurchased in the period.
Of the 1,071.3m shares in issue, 5.9m 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 (2020: 0.1 million, March 2021: 0.9 million) for
a consideration of £1.5m (2020: £1.4m, March 2021: £12.9m) 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 commodity, currency and interest rate risks arise in the
normal course of the Group's business and derivative financial instruments are
entered into to hedge exposure to these risks.
There is a Group wide risk committee reporting to the Group Executive
Committee, which 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 two dedicated Energy Market
risk committees reporting to the Group Executive Committee and Board
respectively, with the Group Executive Sub-committee chaired by the Group
Finance Director and the Board Sub-committee chaired by Non-Executive Director
Tony Cocker. These Committees oversee the Group's management of its energy
market exposures, including its approach to hedging.
In the six months to 30 September 2021, the Group was exposed to exceptional
volatility in energy markets impacting the primary commodities to which it is
exposed (Gas, Carbon and Power). The Group's approach to hedging, and the
diversity of its energy portfolios (across Wind, Hydro, Thermal and Customers)
has provided significant mitigation of these exposures. Exceptional rises
and volatility in commodity prices have created a particular challenge in
managing counter-party credit and collateral exposures and requirements, to
ensure continued access to energy markets to enable hedging and prompt
optimisation of SSE's energy portfolios. This market access has been
successfully maintained.
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 31 March 2021.
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:
Year ended 31 March 2021 Six months ended 30 September 2021 Six months ended 30 September 2020
£m £m £m
Operating derivatives
429.1 Total result on operating derivatives (i) 1,584.1 143.8
161.0 Less: amounts settled (ii) (380.1) 177.5
Movement in unrealised derivatives 1,204.0 321.3
590.1
Financing derivatives (and hedged items)
35.2 Total result on financing derivatives (i) (55.3) (90.6)
20.4 Less: amounts settled (ii) (0.6) 74.1
55.6 Movement in unrealised derivatives (55.9) (16.5)
645.7 Net income statement impact 1,148.1 304.8
(i) Total result on derivatives in the income statement represents the total
amounts (charged) or credited to the income statement in respect of operating
and financial derivatives.
(ii) Amounts settled in the 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 2021 September 2021 September 2020
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
£m £m £m £m £m £m
Financial Assets
Current
832.2 832.2 Trade receivables 947.5 947.5 792.6 792.6
3.8 3.8 Other receivables 3.2 3.2 6.7 6.7
2.7 2.7 Cash collateral and other short term loans 59.4 59.4 59.7 59.7
1,600.2 1,600.2 Cash and cash equivalents 232.7 232.7 415.5 415.5
470.9 470.9 Derivative financial assets 419.2 419.2 360.7 360.7
2,909.8 2,909.8 1,662.0 1,662.0 1,635.2 1,635.2
Non-current
3.6 3.6 Unquoted equity investments 3.5 3.5 1.7 1.7
115.9 115.9 Loan note receivable 128.2 128.2 109.4 109.4
554.3 554.3 Loans to associates and jointly controlled entities 632.8 632.8 643.9 643.9
114.7 114.7 Derivative financial assets 2,207.1 2,207.1 176.3 176.3
788.5 788.5 2,971.6 2,971.6 931.3 931.3
3,698.3 3,698.3 4,633.6 4,633.6 2,566.5 2,566.5
Financial Liabilities
Current
(433.3) (433.3) Trade payables (610.0) (610.0) (304.8) (304.8)
(39.8) (39.8) Outstanding liquid funds (146.8) (146.8) - -
(864.7) (880.2) Loans and borrowings (2,014.4) (2,087.4) (1,289.1) (1,303.2)
(72.9) (72.9) Lease liabilities (52.4) (52.4) (74.4) (74.4)
(238.7) (238.7) Derivative financial liabilities (1,008.0) (1,008.0) (276.2) (276.2)
(1,649.4) (1,664.9) (3,831.6) (3,904.6) (1,944.5) (1,958.6)
Non-current
(8,124.9) (9,373.1) Loans and borrowings (6,691.3) (7,703.5) (8,336.3) (9,441.9)
(348.1) (348.1) Lease liabilities (352.3) (352.3) (355.3) (355.3)
(452.1) (452.1) Derivative financial liabilities (500.2) (500.2) (485.6) (485.6)
(8,925.1) (10,173.3) (7,543.8) (8,556.0) (9,177.2) (10,282.8)
(10,574.5) (11,838.2) (11,375.4) (12,460.6) (11,121.7) (12,241.4)
(6,876.2) (8,139.9) Net financial liabilities (6,741.8) (7,827.0) (8,555.2) (9,674.9)
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 2021 September 2020
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 132.5 2,302.0 - 2,434.5 - 147.8 - 147.8
Interest rate derivatives - 177.7 - 177.7 - 374.9 - 374.9
Foreign exchange derivatives - 14.0 - 14.0 - 14.3 - 14.3
Loan note receivable - - 128.2 128.2 - - 109.4 109.4
Unquoted equity instruments - - 3.5 3.5 - - 1.7 1.7
132.5 2,493.7 131.7 2,757.9 - 537.0 111.1 648.1
Financial Liabilities
Energy derivatives - (1,023.9) - (1,023.9) (8.4) (202.7) - (211.1)
Interest rate derivatives - (433.2) - (433.2) - (534.7) - (534.7)
Foreign exchange derivatives - (51.1) - (51.1) - (16.0) - (16.0)
Loans and borrowings - (48.9) - (48.9) - (234.3) - (234.3)
- (1,557.1) - (1,557.1) (8.4) (987.7) - (996.1)
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 2021, nor the 6
months ended 30 September 2020.
16. Financial Risk Management (continued)
Fair Value Hierarchy (continued)
March 2021
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial Assets
Energy derivatives 68.8 275.9 - 344.7
Interest rate derivatives - 217.6 - 217.6
Foreign exchange derivatives - 23.3 - 23.3
Loan note receivable - - 115.9 115.9
Unquoted equity instruments - - 3.6 3.6
68.8 516.8 119.5 705.1
Financial Liabilities
Energy derivatives - (138.1) - (138.1)
Interest rate derivatives - (489.7) - (489.7)
Foreign exchange derivatives - (63.0) - (63.0)
Loans and borrowings - (3.2) - (3.2)
- (694.0) - (694.0)
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 2021.
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. The schemes are subject to
independent valuations at least every three years. The Group also has an
Employer Financed Retirement Benefit scheme and a defined contribution scheme,
SSE Pensions+ under a master trust with Aviva, details of which were provided
in the Group's Financial Statements to 31 March 2021.
Summary of Defined Benefit Pension Schemes:
Movement recognised in the SoCI Pension Movement recognised in respect of the pension asset in the SoCI Pension asset/(liability)
asset/(liability)
March March September September September September
2021 2021 2021 2020 2021 2020
£m £m £m £m £m £m
8.6 543.1 Scottish Hydro Electric Pension Scheme (41.7) (6.3) 501.7 528.5
(24.4) (186.1) Southern Electric Pension Scheme 106.5 (204.2) (63.7) (382.0)
(15.8) 357.0 Net actuarial gain/(loss) and combined asset/(liability) 64.8 (210.5) 438.0 146.5
A triennial valuation of the Southern Electric Pension Scheme ('SEPS') was
finalised in the year ended 31 March 2020 and showed a deficit of £286.6m as
at 31 March 2019. The Group continues to pay deficit contributions which,
along with investments returns from return seeking assets, is expected to make
good this shortfall by 31 March 2027. The next funding valuation will be
carried out as at 31 March 2022.
The last triennial valuation for the Scottish Hydro Electric Pension Scheme
('SHEPS') was carried out as at 31 March 2021 and showed a surplus on a cash
funding basis of £268.4m. Following this valuation, the Group agreed to a new
schedule of contributions to the scheme which continues to cease contributions
to the scheme for a period until the surplus on a gilts funding basis is
negative for two successive quarterly valuations.
A summary of the movement presented in the statement of changes in equity is
shown below:
Year ended 31 March 2021 Six months ended 30 September Six months ended 30 September
2021
2020
£m
£m £m
(15.8) Actuarial gains/(losses) recognised 64.8 (210.5)
3.0 Deferred tax thereon (38.6) 40.0
(12.8) Net gain recognised in statement of changes in equity 26.2 (170.5)
17. Retirement Benefit Obligations (continued)
The major assumptions used by the actuaries in both schemes in preparing the
IAS19 valuations were:
March 2021 September 2021 September 2020
3.70% Rate of increase in pensionable salaries 3.85% 3.55%
3.20% Rate of increase in pension payments 3.35% 3.05%
2.00% Discount rate 1.95% 1.50%
3.20% Inflation rate 3.35% 3.05%
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 2021 September 2021 September 2020
Male Female Male Female Male Female
Scottish Hydro Electric Pension Scheme
23 24 Currently aged 65 22 24 23 24
25 27 Currently aged 45 24 27 24 26
Southern Electric Pension Scheme
23 25 Currently aged 65 23 25 23 25
24 26 Currently aged 45 24 26 24 26
18. Capital Commitments
March 2021 September 2021 September 2020
£m £m £m
1,189.5 Capital Expenditure 1,285.8 1,254.8
Contracted for but not provided
19. Related Party Transactions
The following 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 control,
joint control or significant influence over.
September 2021 September 2020
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
£m £m £m £m £m £m £m £m
Joint ventures:
Seabank Power Ltd 47.2 (47.5) 0.1 (35.3) 24.9 (23.2) 0.8 (16.9)
Marchwood Power Ltd 32.5 (107.8) 19.5 (43.6) 20.9 (76.3) 0.3 (14.7)
Scotia Gas Networks Ltd(ii) 15.3 (5.0) 15.5 (0.8) 12.0 (6.7) 11.7 (1.1)
Clyde Windfarm (Scotland) Ltd 2.3 (52.8) - (33.6) 2.1 (37.8) 1.3 (30.4)
Beatrice Offshore Windfarm Ltd 2.8 (31.4) 1.0 (10.7) 2.9 (11.2) 0.6 (3.5)
Stronelairg Windfarm Ltd 1.1 (28.6) 1.1 (16.5) 0.9 (14.9) - (9.6)
Dunmaglass Windfarm Ltd 0.5 (12.7) 0.2 (8.1) 0.4 (7.7) - (5.7)
Neos Networks Ltd(i) 15.0 (13.8) 2.2 (42.7) 6.9 (19.5) 0.8 (7.9)
Other Joint Ventures 24.4 (71.9) 11.7 (41.0) 23.7 (78.6) 7.1 (45.8)
Associates - - - - - (16.2) - -
March 2021
Sale of goods and services Purchase of goods and services Amounts owed from Amounts owed to
£m £m £m £m
Joint ventures:
Seabank Power Ltd 75.2 (86.7) 0.1 (16.8)
Marchwood Power Ltd 45.3 (142.3) 0.6 (11.2)
Scotia Gas Networks Ltd 29.9 (13.1) 17.3 (1.1)
Clyde Windfarm (Scotland) Ltd 4.3 (116.1) 0.1 (38.2)
Beatrice Offshore Windfarm Ltd 5.3 (43.7) 1.1 (5.3)
Stronelairg Windfarm Ltd 1.9 (44.7) - (17.1)
Dunmaglass Windfarm Ltd 0.9 (22.2) - (6.6)
Neos Networks Ltd(i) 38.0 (26.3) 41.4 (1.4)
Other Joint Ventures 22.5 (193.8) 54.8 (1.9)
Associates - (16.2) - -
(i) Formerly SSE Telecommunications Limited.
19. Related Party Transactions (continued)
The transactions with Seabank Power Limited and Marchwood Power Limited relate
to the contracts for the provision of energy or the tolling of energy under
power purchase arrangements.
Scotia Gas Networks Limited ('SGN') operates the gas distribution networks in
Scotland and the South of England. The Group's gas supply activity incurs gas
distribution charges while the Group also provides services to SGN in the form
of a management services agreement for corporate and shared services. On 2
August 2021, the Group announced it had agreed to sell its 33.3% stake in
SGN. The Group assessed that the investment met the criteria to be
classified as held for sale on 11 June 2021 when an Exclusivity Agreement was
signed by the acquiring consortium. Accordingly, from 11 June 2021 the Group
ceased to equity account for SGN.
The amounts outstanding are trading balances, are unsecured and will be
settled in cash. No guarantees have been given or received. No provisions
have been made for doubtful debts in respect of the amounts owed by the
related parties.
In addition to the above at 30 September 2021, the Group was owed the
following loans from its principal joint ventures : Marchwood Power Limited
£43.6m (2020: £53.5m, March 2021: £47.1m), Scotia Gas Networks Limited
£118.8m (2020: £113.9m, March 2021: £118.8m), Clyde Windfarm (Scotland)
Limited £127.1m (2020: £127.1m, March 2021: £127.1m), Stronelairg Windfarm
Limited £88.7m (2020: £88.2m, March 2021: £88.2m), Dunmaglass Windfarm
Limited £46.5m (2020: £46.5m, March 2021: £46.5m), Neos Networks Limited
£77.8m (2020: £44.2m, March 2021: £60.9m) and Multifuel Energy Limited
£48.6m (2020: £244.3m, March 2021: £nil).
20. Seasonality of operations
Certain activities of the Group are affected by weather and temperature
conditions and seasonal market price fluctuations. Within the six months
ending 30 September 2021, the summer period was one of the calmest across most
of the UK and Ireland, and one of the driest in the last seventy years in
SSE's Hydro catchment areas. Therefore, 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 and market changes in commodity prices. In Transmission and
Distribution, 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 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 production 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 Acquisition 80% equity interest in Japanese offshore wind development
platform
On 29 October 2021 the Group, through its wholly owned subsidiary SSE
Renewables International Holdings Ltd, completed the acquisition of an 80%
equity interest in an offshore wind development platform from Pacifico Energy
and its affiliates for $193m USD upfront cash consideration and a
further $30m USD deferred consideration subject to a number of conditions.
This acquisition is aligned to the Group's published strategy to pursue
overseas renewable opportunities.
An 80% equity stake has been acquired in the SSE Pacifico K.K., Aichi Offshore
Wind Power No.1 G.K., Aichi Offshore Wind Power No.2 G.K., Enshunada Offshore
Wind Power No.1 G.K., Goto-Fukue Offshore Wind Power G.K., Izu Islands
Offshore Wind Power G.K., Minami-Izu Offshore Wind Power No.1 G.K., Niigata
Offshore Wind Power No.1 G.K., Oki Islands Offshore Wind Power G.K.,
Wakayama-West Offshore Wind Power No.1 G.K. and Wakayama-West Offshore Wind
Power No.2 G.K..
The assets and liabilities acquired largely comprise tangible and intangible
assets, being early-stage development costs, grid connections and goodwill.
Given the timing of the completion of the acquisition and the proximity to the
reporting date, a formal PPA assessment has not yet been completed, therefore
the Group is unable to provide a quantification of the fair values of the
assets and liabilities acquired. The Group will include an acquisition
balance sheet in its full year results for 31 March 2022.
21.2 Gas production - disposal
On 14 October 2021, the Group completed the sale of its Gas Production
business to Viaro Energy through its subsidiary RockRose Energy Limited. In
the period ended 30 September 2021, the Gas Production business had an
operating profit (recognised in discontinued operations) of £77.7m (see note
9). The Group recorded an exceptional impairment charge of £93.9m for the
period ended 30 September 2021 related to the carrying value of the Gas
Production assets and liabilities held for sale, based on their fair value
less costs to sell. The additional loss on sale, not recognised at 30
September 2021, but due to the buyer based on production between 1 October
2021 and 14 October 2021 is estimated at £24.1m. This has arisen due to the
lock box mechanism effective 1 April 2019 within the sale agreement and will
be recognised in the second half of the financial year.
21.3 Dogger Bank C - disposal
On 2 November 2021, SSE announced it had entered into an agreement to sell a
10% stake in Dogger Bank C to Eni for an equity consideration of £70m and
contingent consideration of up to £40m. The transaction is expected to
complete by Q1 2022 subject to regulatory approvals and customary purchase
price adjustments. The initial indicative gain on sale is anticipated to be in
excess of £60m. After the sale the Group's shareholding in Dogger Bank C will
be 40%.
22.
Principal risks and Uncertainties
SSE's established Risk Management Framework and wider system of internal
control continues to inform strategic decision-making in 2021/22. This,
combined with a resilient business model, helps the Group manage and minimise
the human, operational and financial impacts from external conditions such as
volatile commodity prices and to meet its objective of supporting the reliable
supply of electricity to those who needed it.
The Directors continually monitor the Principal Risks and Uncertainties of the
Group and have determined that those reported in the 2021 Annual Report and
summarised below remain relevant for the remaining half of the financial year.
• Climate Change
• Commodity Prices **
• Cyber Security and Resilience
• Energy Affordability **
• Energy Infrastructure Failure
• Financial Liabilities
• Large Capital Projects Management
• People and Culture
• Politics, Regulation and Compliance **
• Safety and the Environment *
• Speed of Change
* Safety remains SSE's most important value, and management of this risk
remains SSE's highest priority.
** It should be noted that Energy Affordability is particularly closely linked
to - and therefore impacted by - Politics, Regulation and Compliance and
Commodity Prices.
As noted in the 2021 Annual Report, an additional review of the "Joint Venture
and Partner Management" emerging risk was undertaken by the Group Risk
Committee in Q2 of the financial year 21/22 which concluded it should remain
an emerging risk for now.
For more information on these risks, and the wider system of internal control,
please refer to pages 54 to 63 of the SSE plc 2021 Annual Report which is
available on the company website www.sse.com (http://www.sse.com) .
Statement of director's responsibilities in respect of the condensed interim financial statements
We confirm that to the best of our knowledge:
i) the condensed set of financial statements has been prepared in accordance
with UK adopted IAS 34 Interim Financial Reporting;
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.
(c) DTR 4.2.10 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
16 November 2021
Independent review report to SSE plc
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 2021 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 set of financial statements.
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 2021 is not prepared,
in all material respects, in accordance with UK adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with 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. 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.
As disclosed in note 1, the annual financial statements of the group will be
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Responsibilities of 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.
Auditor's Responsibilities for the review of the financial information
In reviewing the half yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the half
yearly financial report. Our conclusion is based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
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.
Ernst & Young LLP
Glasgow
16 November 2021
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