REG - SSE Plc - Half-year Report
16/11/2022 07:00
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RNS Number : 5278G SSE PLC 16 November 2022
SSE PLC
interim Results
for the six months to 30 september 2022
16 november 2022
navigating volatility to deliver CRITICAL ENERGY INFRASTRUCTURE and a strong
performance
· Investing at record levels, far greater than profits, in projects
that will enhance energy security while creating green jobs and supporting
local communities.
· Reporting adjusted earnings per share of 41.8p, in line with
pre-close guidance, reflecting strength of balanced, integrated business model
and importance of assets for system security.
· Making strategic progress on SSE's £12.5bn Net Zero Acceleration
Programme, which is the optimal pathway for SSE to deliver long term growth as
the UK's clean energy champion.
· Strong balance sheet with prudent use of debt markets, meaning
minimal long-term debt refinancing expected until FY25 and a strong liquidity
position for cash collateral requirements.
· In the context of the prevailing volatile, complex and
challenging market conditions, SSE's guidance of adjusted earnings per share
for 2022/23 of at least 120p remains unchanged. Also continue to expect
2022/23 capital investment (including acquisitions) in excess of £2.5bn and
leverage well below the target 4.5x net debt to EBITDA ratio.
· Total Recordable Injury Rate reduced to 0.15 from 0.16 in the
same period last year.
FINANCIAL SUMMARY (continuing operations)
Adjusted Reported
Sept 2022 Sept 2021 % mvmt Sept 2022 Sept 2021 % mvmt
Operating profit / (loss) (£m) 716.0 376.8 +90% (635.1) 1,904.4 -133%
Profit / (loss) before tax (£m) 559.4 174.2 +221% (511.0) 1,686.1 -130%
Earnings / (loss) per share (p) 41.8 10.5 +298% (39.7) 103.6 -138%
Investment, capital and acquisitions (£m) 1,743.2 1,042.8 +67% 1,432.6 1,056.6 +36%
Net Debt and Hybrid Capital (£bn) (10.0) (9.6) +4% (9.1) (8.9) +2%
Alistair Phillips-Davies, Chief Executive, said:
"One year on and despite unprecedented volatility in the operating
environment, our Net Zero Acceleration Programme has never been more relevant
to society. We are investing around £12.5bn in the five years to March 2026,
with further opportunities that could take the total to over £25bn this
decade in the UK and Ireland alone. This direct investment primarily in
offshore wind, UK electricity networks and flexible thermal will create the
technologies to support long-term energy security.
"Over the past six months we have been delivering on our domestic investment
programme at pace whilst increasing our pipeline diversity, through exporting
our renewables expertise into selected markets overseas where net zero
ambitions have also increased. This has been complemented by our Triton
acquisition and organic growth potential in networks as they keep pace with
increasingly ambitious government policy.
"The strength and optionality of our resilient mix of market-based and
regulated businesses have shone through in this period, with recent trading
conditions highlighting the true value to society of a portfolio that balances
intermittent renewables with flexible generation when the system needs it
most. Our business model and strategy are delivering for our stakeholders
today, whilst creating future long-term societal value."
Strategic Highlights
· Continuing execution of Net Zero Acceleration Programme, with
record levels of capex far greater than profits, across a range of projects
and technologies.
· First power achieved at 1,075MW Seagreen offshore wind project
with commercial operations now expected in summer 2023, and significant
progress on Dogger Bank and Viking projects which are progressing to plan.
· Further RAV growth in Transmission, with cable installation under
way, connecting Shetland islands to the mainland ahead of expected
energisation in FY24.
· Diversified and enhanced pipeline through acquisition of Southern
European onshore wind development platform, adding 2.2GW (secured) and up to
3GW (prospective) onshore wind and solar hybridisation projects. Acquisition
provides a platform for building the onshore pipeline over the course of this
decade.
· Completion of 1.3GW Triton Power acquisition, in a 50:50 Joint
Venture with Equinor, strengthens SSE's position in hydrogen and carbon
capture technologies to support long-term decarbonisation of the UK power
system whilst contributing to security of supply and grid stability.
· Energy policy environment continues to evolve with short-term
interventions counterbalanced by accelerated longer-term ambition in key
markets.
financial highlights
· Adjusted earnings per share of 41.8p, in line with pre-close
guidance.
· Reported loss per share of (39.7)p, reflecting a number of
exceptional items and certain re-measurements, most notably the negative
impact from £(1.5)bn of fair value remeasurements, principally arising on
forward commodity contracts.
· Profitability in Renewables negatively affected by pace of
project delivery and unfavourable weather, exacerbated by the associated
requirement to buy back hedges in a higher-price environment.
· Strong performance in Thermal Energy, with thermal generation and
gas storage providing vital flexibility and security of supply to the energy
system in a time of crisis.
· Raised £1.7bn in Hybrid Capital, Eurobonds and Private
Placements in the period which, together with expected disposal proceeds, mean
the Group expects to have minimal long-term debt refinancing requirements
until FY25.
· Ample liquidity within SSE's two pension schemes, with
liability-driven investment strategies unaffected by October gilt rates spike
and no additional company support required
· Adjusted investment, capital and acquisition expenditure of
£1.7bn
· Adjusted net debt and hybrid capital at £10.0bn, in line with
pre-close guidance.
interim dividend in line with dividend plan to 2026
· Interim dividend of 29.0p per share in line with policy (assuming
FY23 average RPI of 12.7%).
· Continue to target RPI increase for FY23 followed by rebase to
60p in FY24, with attractive annual growth of at least 5% to FY26 underpinned
by strong earnings growth forecasts.
· Scrip uptake capped at 25% on full-year dividends to FY26 as
previously announced.
Financial outlook for 2022/23 and beyond
· Continue to expect adjusted earnings per share for the full year
of at least 120p.
· Remain on course to report record FY23 capex in excess of £2.5bn
(including acquisitions).
· Expect FY23 leverage to be lower than the target 4.5x net
debt/EBITDA ratio.
· Continue to expect adjusted EPS to grow at a CAGR of between
7-10% over the five years to March 2026, from an FY21 baseline of 87.5p.
Key PERFORMANCE INDICATORS
Key Financial Indicators Adjusted Reported
(continuing operations) Sept 2022 Sept 2021 Sept 2022 Sept 2021
Operating profit / (loss) by business £m
- SSEN Transmission 208.4 181.7 208.4 181.7
- SSEN Distribution 174.6 153.3 174.6 153.3
- SSE Renewables 22.5 25.4 (29.3) (33.6)
- SSE Thermal & Gas Storage 248.2 64.8 887.5 479.5
- Other businesses 62.3 (48.4) (1,876.3) 1,123.5
Operating profit / (loss) £m 716.0 376.8 (635.1) 1,904.4
EBITDA £m 1,109.3 700.2 (224.7) 2,247.2
Profit / (loss) before tax £m 559.4 174.2 (511.0) 1,686.1
Earnings / (loss) per share (EPS) pence 41.8 10.5 (39.7) 103.6
Interim dividend per share (DPS) pence 29.0 25.5
Investment and capital expenditure £m
- SSEN Transmission 270.9 291.0 270.9 291.0
- SSEN Distribution 175.8 171.3 222.0 201.4
- SSE Renewables 426.3 417.5 635.4 116.0
- SSE Thermal & Gas Storage 95.7 94.1 37.8 58.1
- Other businesses 134.5 68.9 266.5 390.1
Acquisition consideration £m 640.0 - - -
Investment, capital and acquisitions £m 1,743.2 1,042.8 1,432.6 1,056.6
Net debt and hybrid capital £m 9,988.6 9,611.4 9,076.4 8,877.7
Operational Key Performance Indicators Sept 2022 Sept 2021
Thermal generation - GWh(1) 9,158 7,812
Renewable generation - GWh (inc. pumped storage and constrained off) 3,725 2,853
Other generation - GWh(2) 38 50
Total generation output - all plant - GWh 12,921 10,715
SSEN Transmission RAV - £m 4,590 3,875
SSEN Distribution RAV - £m 4,525 3,862
SSE Total Electricity Networks RAV - £m 9,115 7,737
Business Energy Electricity Sold - GWh 5,806 6,161
Business Energy Gas Sold - mtherms 65 73
Airtricity Electricity Sold - GWh 2,693 2,485
Airtricity Gas Sold - mtherms 69 66
Notes: (1)HY23 excludes 651GWh of pre-commissioning output from Keadby 2.
(2)Other generation comprises SSE's small biomass capability which is managed
by SSE Distributed Energy and which generated 30GWh in HY23; and 37GWh HY22 in
addition to 8GWh in HY23 and 13GWh in HY22 generated by other SSE Distributed
Energy assets.
ESG Key Performance Indicators Sept 2022 March 2022 Sept 2021
Carbon emissions (scopes 1&2) MtCO(2)e - 6.24 -
Scope 1 GHG intensity gCO(2)e/kWh 271 259 292
Total water consumed (million cubic meters) - 0.8 -
Total recordable injury rate per 100,000 hours worked 0.15 0.17 0.16
Total economic contribution - UK/Ireland (£bn/€m)(1) - 5.8/438 -
Jobs supported - UK/Ireland (headcount)(2) - 45,290/1,840 -
Total taxes paid UK/Ireland (£m/€m) - 335.3/46.4 -
Employee retention/turnover rate (%)(3) - 90.5/9.5
Employee engagement index (%)(4) 84 82 82
Average board tenure - years(5) 3.9 3.8 3.3
Female board members (%) 46 50 50
Independent board members (%)(6) 75 73 73
Total number of board members 13 12 12
Notes: (1) Direct, indirect and induced Gross Value Added, from PwC analysis.
(2) Direct, indirect and induced jobs supported, PwC analysis. (3) Includes
voluntary and involuntary turnover, excludes end of fixed term contracts and
internal transfers. (4) Results from SSE's annual employee engagement survey.
(5) Non-Executive directors including non-Executive Chair. (6) Excludes
non-Executive Chair.
Further Information
Investor Timetable
Interim ex-dividend date 12 January 2023
Record date 13 January 2023
Scrip reference pricing days 12-18 January 2023
Scrip reference price confirmed and released via RNS 19 January 2023
Q3 Trading Statement 7 February 2023
Final date for receipt of scrip elections 10 February 2023
Interim dividend payment date 9 March 2023
Notification of Closed Period by 31 March 2023
Preliminary results for the year ended 31 March 2023 24 May 2023
AGM and Q1 Trading Statement 20 July 2023
Contact Details
Institutional investors and analysts ir@sse.com (mailto:ir@sse.com) + 44 (0)345 0760 530
Shareholder services SSE@linkgroup.co.uk (mailto:SSE@linkgroup.co.uk) + 44 (0)345 143 4005
Media, Sam Peacock, Glenn Barber media@sse.com (mailto:media@sse.com) + 44 (0)345 0760 530
MHP Communications, Oliver Hughes oliver.hughes@mhpc.com (mailto:oliver.hughes@mhpc.com) + 44 (0)7885 224 532
MHP Communications, Simon Hockridge simon.hockridge@mhpc.com (mailto: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 2022
on Wednesday 16 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/ui6sj7uu
(https://edge.media-server.com/mmc/p/ui6sj7uu)
This will also be available as a teleconference, for which participants can
register to receive a unique pin code and conference call number using:
https://register.vevent.com/register/BId3fb30052edf496899a18ed65f1c18ff
(https://register.vevent.com/register/BId3fb30052edf496899a18ed65f1c18ff)
Both facilities will be available to replay.
Online Information
News releases and announcements are made available on SSE's website at
www.sse.com/investors and you can register for RNS news alerts using the
following link: sse.com/investors/regulatory-news/regulatory-news-alerts/
(https://www.sse.com/investors/regulatory-news/regulatory-news-alerts/) . You
can also follow the latest news from SSE at www.twitter.com/sse
(http://www.twitter.com/sse) .
Disclaimer
This financial report contains forward-looking statements about financial and
operational matters. These statements are based on the current views,
expectations, assumptions and information of management, and are based on
information available to the management as at the date of this financial
report. Because they relate to future events and are subject to future
circumstances, these forward-looking statements are subject to unknown risks,
uncertainties and other factors which may not have been in contemplation as at
the date of the financial report. As a result, actual financial results,
operational performance and other future developments could differ materially
from those envisaged by the forward-looking statements. Neither SSE plc nor
its affiliates assumes any obligations to update any forward-looking
statements.
SSE plc gives no express or implied warranty, representation, assurance or
undertaking as to the impartiality, accuracy, completeness, reasonableness or
correctness of the information, opinions or statements expressed in the
presentation or any other information (whether written or oral) supplied as
part of it. Neither SSE plc, its affiliates nor its officers, employees or
agents will accept any responsibility or liability of any kind for any damage
or loss arising from any use of this presentation or its contents. All and any
such responsibility and liability is expressly disclaimed. In particular, but
without prejudice to the generality of the foregoing, no representation,
warranty, assurance or undertaking is given as to the achievement or
reasonableness of any future projections, forward-looking statements about
financial and operational matters, or management estimates contained in the
financial report.
This financial report does not constitute an offer or invitation to
underwrite, subscribe for, or otherwise acquire or dispose of any SSE plc
shares or other securities, or of any of the businesses or assets described in
the financial report, 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 after 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 explained in the
Alternative Performance Measures section before the Summary 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, 'Net Debt'
represents the group adjusted net debt and hybrid capital and 'EBITDA'
represents the full year group adjusted EBITDA. '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
On 14 October 2021 the Group completed the sale of its Gas Production business
and on 22 March 2022 the Group completed the sale of its 33.3% investment in
Scotia Gas Networks ('SGN') (see note 6.1 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. The Group retains a 60% share of
the decommissioning obligation of the Gas Production business. Adjustments to
the decommissioning obligation are accounted for through the Group's
consolidated income statement and removed from the Group's adjusted profit
measures as the revaluation of the provision is not considered to be part of
the Group's core continuing operations.
Important note: Other disposals
On 30 June 2021, the Group completed the sale of its Contracting and Rail
business and on 10 February 2022 the Group competed the sale of a 10% stake in
the Dogger Bank C offshore wind farm development (see note 12 of the Interim
Financial Statements). 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.
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 investment in
Scotia Gas Networks Limited which was disposed on 22 March 2022 and Group's
Gas Production operations which were disposed on 14 October 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', 'adjusted investment and capital
expenditure' and 'adjusted investment, capital and acquisition expenditure',
have not been amended as the Group continued to fund the discontinued
operations until the date of disposal.
Strategic overview
the right STRATEGY at the right time
In the year since the announcement of SSE's Net Zero Acceleration Programme
much has changed in the world. We have seen war in Europe, market and
political turmoil, and three British prime ministers. Through it all, SSE has
remained resolute in its commitment to a long-term strategy that is focused on
contributing to the UK's net zero ambitions, but we have also been able to
respond directly to an energy crisis few of us could have foreseen.
We believe that programme, referred to simply as the 'NZAP', remains the
optimal pathway to consolidate SSE's position as a national clean energy
champion. It includes a fully-funded investment programme that will see us
spend £12.5bn on critical infrastructure by 2026.
The NZAP is also the platform that could invest in excess of £25bn over the
coming decade in the UK and Ireland alone, primarily in offshore wind and UK
electricity networks, but also in the deployment of vital flexibility
solutions. There is scope for further investment through the export of SSE's
renewables capabilities overseas.
PERFORMANCE THROUGH VOLATILITY
By any measure the current operating environment is challenging. However,
market conditions that influenced financial performance in the first half of
the year have also highlighted the value of our integrated business model,
with lower-than-expected renewables output being more than offset by earnings
derived from gas storage and thermal assets that have been responding to
system demand when needed most.
SSE's carefully balanced portfolio comprises regulated networks businesses
that are insulated from power price movements and a range of generation and
storage assets that are able to manage volatility. The Group is also well
placed to withstand inflationary pressures; our Networks RAV is index-linked
and so too are renewables contracts and capacity payments. A strong balance
sheet and stable debt profile, meanwhile, continue to provide a solid
financial buffer.
DELIVERING, INVESTING AND CREATING VALUE
As detailed in the Business Unit Operating Review later in this document, SSE
has been getting on with delivery of its objectives set in the NZAP. The
operational performance seen in the first half is testament to the commitment
and resilience of SSE's direct employees and contractors. Keeping those people
safe will always be our first priority and we have all has been deeply
affected by the tragic death of a young contractor working on Shetland in
June.
Progress is being made on flagship large capital projects at Dogger Bank,
Seagreen and Viking wind farms; on repowering of existing hydro plant at
Tummel Bridge; at our new, high-efficiency CCGT at Keadby 2; constructing the
Shetland HVDC transmission link; and finalising a net zero-enabling
distribution business plan for RIIO-ED2.
At the same time, expansion into Southern Europe and Japan is exporting SSE's
developer expertise in renewable energy abroad. Completion of the Southern
European development platform acquisition this year helps grow SSE's secured
pipeline from 10GW to nearly 14GW plus over 10GW of future prospects even
before upcoming auction processes. The development pipeline is progressing at
home too with Coire Glas, Berwick Bank, Ossian (ScotWind), Seagreen 1A and
North Falls; and developments in CCS, hydrogen, solar and battery technologies
are creating further near-and medium-term growth options. And SSE Thermal's
fleet has been complemented with the addition of the Triton Power acquisition
with Equinor, which holds significant CCS and hydrogen potential at its
Saltend plant.
With a Certain View of around £2.6bn totex to 2026, SSEN Transmission is
investing at pace to connect new generation in the North of Scotland.
Projections of double-digit growth could see RAV exceeding £12bn by 2031.
SSEN Transmission is meeting societal need and in doing so is becoming an
engine of growth. Completion of the 25% minority stake, which is expected in
the coming weeks, will help propel SSE forward, unlocking further investment
and expansion in Transmission and across the Group as we rebalance capital
allocation.
SUPPORTING NATIONAL ENERGY SECURITY …
SSE recognises the social impact of an energy-linked cost of living crisis and
while government has rightly taken responsibility for providing short-term
support to bill-payers, industry must invest - and have the right conditions
to invest - in creating a long-term pathway out of the current difficulties.
By SSE's own estimates, if the system investment required to meet 2030
electricity targets had been made by 2022, Britain would have saved around
£30bn on gas expenditure this year. The cheaper energy is coming. We just
need the infrastructure; and SSE is building it at pace.
… AND ADDRESSING THE CLIMATE EMERGENCY
While SSE's develop, build, operate and invest strategy is helping to address
the current energy crisis, its purpose is also to build a better world of
energy for tomorrow. SSE's current plans would deliver 20% of the electricity
networks and 20% of the offshore wind needed in the UK by 2030 to meet
government net zero targets.
In 2019, SSE took the decision to align to the UN's Sustainable Development
Goals (SDGs) with four core associated 2030 Goals. The NZAP is the
shorter-term plan that will enable SSE to meet those broad goals in 2030. SSE
is contributing to every step of the clean electricity value chain and has
verified, science-based targets to hold it accountable along the way.
Recognising that the transition to net zero represents a radical economic
transformation, affecting working people, their communities and consumers, SSE
has continued to advance the case for a just energy transition, attracting
talent from high-carbon industries and working to deliver 'smart and fair'
smart grids at a local level.
SSE has deliberately chosen to remain invested in the transition of flexible
thermal electricity generation due to the key role it plays in a
renewables-led, net zero, electricity system. SSE's greenhouse gas inventory
gained additional scope 3 emissions through the Triton Power acquisition, and
the Joint Venture partners (SSE Thermal and Equinor) are developing a net zero
pathway for the plant.
LEADING INTO A NEW ENERGY LANDSCAPE
One thing we know for certain about the future energy landscape is that it
will be electric. And as a well-balanced business with world-class electricity
infrastructure capabilities we see plenty of opportunity alongside the
challenges that will come over the short, medium and longer term.
In the short term, we are navigating the choppy waters of market and policy
uncertainty. We have actively contributed to the debate, offering solutions to
the significant cost pressures on household incomes and at the same time we
are getting on with creating value for stakeholders.
Over the medium term, we see real opportunity for structural energy market
reform that will both encourage investment and benefit consumers. And we are
encouraged by increasingly positive policy direction in a number of overseas
markets where we are exporting our developer expertise.
SSE's strategy is delivering for us now, but it is a long-term plan consistent
with legally binding net zero goals that have cross-party support at home and
policy momentum abroad.
The Net Zero Acceleration Programme looks even better than it did a year ago.
It is our platform for delivery and growth, underpinned by a socially
responsible purpose and a value-creating strategy, investing record amounts in
clean, green energy infrastructure.
Alistair Phillips-Davies
Chief Executive
SSE plc
Group financial review
six months to 30 September 2022
This Group Financial Review sets out the financial performance of the SSE
Group for the six months ended 30 September 2022. See also the separate
sections on Group Financial Outlook, 2022/23 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 Summary Financial Statements.
Key Financial Metrics Adjusted Reported
(continuing operations) Sept 2022 Sept 2021 Sept 2022 Sept 2021
£m £m £m £m
Operating profit / (loss) 716.0 376.8 (635.1) 1,904.4
Net Finance (costs) / income (156.6) (202.6) 124.1 (218.3)
Profit / (loss) before Tax 559.4 174.2 (511.0) 1,686.1
Current Tax (charge) / credit (70.3) (12.7) 122.4 (542.3)
Effective current tax rate (%) 12.6 7.3 24.0 32.2
Profit / (loss) after Tax 489.1 161.5 (388.6) 1,143.8
Less: hybrid equity coupon payments (38.8) (50.7) (38.8) (50.7)
Profit / (loss) after Tax attributable to ordinary shareholders 450.3 110.8 (427.4) 1,093.1
Earnings / (loss) per share (pence) 41.8 10.5 (39.7) 103.6
Number of shares for basic/reported and adjusted EPS (million) 1,077.2 1,054.7 1,077.2 1,054.7
Shares in issue at 30 September (million)* 1,085.9 1,065.5 1,085.9 1,065.5
* Excludes treasury shares.
Dividend per Share March 2023 March 2022
Interim Dividend (pence) 29.0 25.5
Full Year Dividend (pence) 85.7 + RPI 85.7
Impact from market volatility
The Group's balanced mix of economically regulated and market-based businesses
provides a natural hedge against short-term commodity price volatility.
Nevertheless, the continued high and variable power and gas price environment,
combined with rising inflation rates, has had an impact on SSE's businesses
which can be summarised below:
SSEN Transmission and SSEN Distribution operate under a regulatory price
control framework which is set by Ofgem. Returns under this framework have
no direct relationship to the power and gas market prices. However, both
allowed revenues and Regulated Asset Values are index linked (Transmission to
CPI(H), and Distribution to RPI (for RIIO-ED1) and CPI(H) (for RIIO-ED2)).
Within SSE Renewables, the established hedging approach generally reduces its
broad exposure to commodity price variation at least 12 months in advance of
delivery. This approach secures value for the business, by reducing exposure
to short-term commodity price movements which would drive variable financial
performance. Hedges may be achieved either through the forward sale of power
or gas and carbon equivalents - when the latter approach is taken, a "spark
spread" will be realised when the hedges are converted into power before
delivery which will either increase or decrease the average hedge price.
Whilst this hedging approach provides relatively stable realised power prices,
market volatility in periods where wind volume output is significantly lower
than expected could mean 'buy-backs' of excess forward sales contracts could
be at higher prices which would reduce the trading result, as has been seen in
HY23.
For SSE Thermal (as well as the Hydro plant within SSE Renewables), value has
come from the ability of the plant to respond to market conditions and provide
vital balancing services to provide security of supply and flexibility in less
predictable market conditions. This business aims to establish a hedge for
the expected economic output in the six months prior to delivery, although
this approach is closely monitored for any unexpected changes in exposures due
to market volatility. The current market conditions are generally positive
for these businesses; however, if plant is unavailable at times of system
stress then excess forward sales contracts would again require to be 'bought
back' in the market which would impact the trading result.
The Gas Storage assets are operated on a merchant basis, to optimise value
arising from changes in the spread between summer and winter prices, market
volatility and plant availability. As such, the current market conditions
are generally positive for this business, to the extent that the assets can
respond to volatility and capture the positive gas price spreads arising. To
the extent that gas remains in storage at the period end, a remeasurement gain
or loss may also be recognised with reference to the forward month market
price. However, this remeasurement does not take into account the
mark-to-market movement on forward contracted sales in future periods, which
will impact the trading result.
EPM, through its exposure to unsettled commodity contracts, has experienced
significant unrealised mark-to-market remeasurement losses in this period of
heightened volatility. However, EPM is not expected to realise significant
gains or losses upon settlement of these contracts, as these revaluations are
unrelated to operating performance and traded volumes are backed by SSE's
future generation output. Whilst EPM is permitted to take small positions in
the market to manage the Group's trading requirements and execute optimisation
opportunities, this is contained within strict Value at Risk ('VAR') limits
that limit trading exposure.
In addition, market volatility and increased margining requirements has
resulted in a significant increase in the collateral necessary to allow the
businesses to continue to trade with counterparties and on exchanges as
required. Increased collateral requirements have historically been managed by
issuing new Letters of Credit, Guarantees and Performance Bonds; however, with
increased trading through the exchanges, cash collateral requirements have
increased during the period with the amount of collateral required subject to
volatility in recent months. The Group closely monitors this and maintains
more than sufficient liquidity to manage these increased collateral
requirements.
SSE Business Energy and SSE Airtricity (aside from Northern Ireland, where SSE
Airtricity is subject to a regulatory pricing mechanism) are not subject to a
regulated price cap and therefore variable tariffs are adjusted dynamically
and fixed tariff rates are reset for new customers 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 broader
economic conditions. In addition, the higher and volatile market price
environment has amplified the seasonality of profits particularly for fixed
tariff customer contracts. A dynamic forecasting approach has been
implemented to help the business respond quickly to volume changes. In
relation to Airtricity, vertical integration of generation and customer
businesses in the Irish market limits commodity exposures with some benefit
received through Renewable Energy Feed-in Tariffs ('REFIT') receipts on legacy
wind assets. Non-commodity costs for these businesses can also be impacted
by unpredictable, variable market conditions.
Finally, SSE Group is well funded with a strong investment grade credit
rating; a high proportion of the £10.0bn adjusted net debt (c.92%) is fixed
rate and the average maturity of SSE's debt is 6.5 years. The Group has been
successful despite challenging debt markets, issuing €1bn of Hybrid Bonds, a
£350m Private Placement and a €650m Eurobond in the past six months. SSE's
balance sheet strength allows the Group to meet additional collateral
increases on higher and volatile commodity contracts, while the high
proportion of fixed rate debt provides robust financing in an inflationary
environment.
Operating profit performaNce FOR SIX MONTHS TO SEPTEMBER 2022
Business-by-business segmental Adjusted Reported
Sept 2022 Sept 2021 Sept 2022 Sept 2021
£m £m £m £m
Operating profit / (loss)
SSEN Transmission 208.4 181.7 208.4 181.7
SSEN Distribution 174.6 153.3 174.6 153.3
Electricity networks total 383.0 335.0 383.0 335.0
SSE Renewables 22.5 25.4 (29.3) (33.6)
SSE Thermal 100.4 36.1 342.7 215.6
Gas Storage 147.8 28.7 544.8 263.9
Thermal Total 248.2 64.8 887.5 479.5
SSE Business Energy (GB) 60.5 2.4 60.5 2.4
SSE Airtricity (NI and Ire) 14.9 (2.9) 14.8 (2.9)
Energy Customer Solutions Total 75.4 (0.5) 75.3 (0.5)
Energy Portfolio Management 30.3 5.7 (1,958.0) 1,209.7
Distributed Energy (8.0) (7.3) (8.0) (24.8)
Neos Networks (6.5) (5.8) (11.2) (14.2)
Corporate unallocated (28.9) (40.5) 25.6 (46.7)
Total operating profit / (loss) from continuing operations 716.0 376.8 (635.1) 1,904.4
Net finance (costs) / income (156.6) (202.6) 124.1 (218.3)
Profit / (loss) before tax from continuing operations* 559.4 174.2 (511.0) 1,686.1
* The table above excludes any result from discontinued operations, being the
Group's investment in Scotia Gas Networks Limited which was disposed on 22
March 2022 (HY23: £nil; HY22: adjusted operating profit of £21.0m) and the
Group's Gas Production operations which were disposed on 14 October 2021
(HY23: adjusted operating profit of £35.0m; HY22: adjusted operating profit
of £77.7m).
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 shareholders
and other stakeholders.
Following the acquisition in the period of Triton Power Limited (JV with
Equinor, SSE's share 50%), the definitions SSE uses for adjusted measures have
been refined to consider the treatment of fair value gains arising from
acquisition of a business or a joint venture interest. Aside from this
refinement, the definitions 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 profits/losses in SSE's business segments for
the six months to 30 September 2022 are set out below; comparisons are with
the same period to 30 September 2021 unless otherwise stated.
SSEN Transmission: Adjusted and reported operating profit increased by 15% to
£208.4m, primarily due to higher allowed revenues in line with phasing of
totex in the second year of RIIO-T2. This was partially offset by a negative
timing impact on lower volumes versus Electricity System Operator
expectations, plus increases in operating costs and depreciation charges as
the business continues to enhance its operational capability and deliver
growth in the asset base.
SSEN Distribution: Adjusted and reported operating profit increased by 14% to
£174.6m, with higher allowed revenues including previously under-recovered
allowances following the impact of coronavirus on volumes in FY21, partially
offset by a negative timing impact on lower-than-expected volumes, with a
small decrease in operating costs and a small increase in depreciation broadly
offsetting one another.
SSE Renewables: Adjusted operating profit decreased by 11% to £22.5m, with
increased volumes across technologies and strong prices captured by hydro and
pumped storage more than offset by the need to buy back hedges at very high
prices. Having experienced exceptionally still and dry weather in the prior
year, volumes increased 0.8TWh or 28% in the current year but were still
0.5TWh or 13% behind planned levels due to unfavourable weather and delays to
the Seagreen construction project which is now expected to complete in summer
2023. The increase in hedge buyback costs was largely driven by very high
power prices and included £(57)m of costs related to delay of the Seagreen
construction project.
Reported operating loss was £(29.3)m compared to a loss of £(33.6)m in the
prior period. In addition to the factors noted above, the prior period saw an
exceptional tax charge of £(24.0)m recognised in joint ventures due to the
substantive enactment of the UK Corporation Tax rate change impacting deferred
tax balances, with no such exceptional item appearing in the current year.
This was partially offset by an increase in the share of joint venture
interest and tax of £(16.8)m, whilst depreciation on fair value uplifts
remained constant at £(9.4)m.
SSE Thermal: Adjusted operating profit increased 178% to £100.4m, compared to
£36.1m in the prior period. The higher and more volatile gas and power
market price environment, which began in early 2022, has continued during the
period with the flexible generation plant continuing to respond to those
market conditions. As a result, the market income achieved increased by
£187m on prior period due to a combination of higher volume (+27% year on
year), higher power prices and strong performance in the balancing market to
support the provision of security of supply for consumers. This was
partially offset by £76m of hedge buy-back losses due to unplanned outages -
mainly arising from Great Island CCGT which did not generate for most of the
period due to an outage caused by a cooling system fault and subsequent
turbine overhaul - as well as a £23m reduction in Capacity Market income and
a £25m increase in depreciation due to impairment reversals recognised in
September 2021 and March 2022.
Reported operating profit increased to £342.7m from £215.6m in the prior
period which had included a reversal of historic impairment charges totalling
£181.6m reflecting the higher observable power price environment. In
addition to the factors affecting operational performance highlighted above,
the reported result includes a £141m gain on acquisition of Triton Power
during the period - as the acquisition was completed in a higher power price
environment than the acquisition price considered - as well as a gain on
disposal of the Fiddler's Ferry site of £89m and the reversal of the
remaining £18m of historic impairment charges for Great Island CCGT.
Gas Storage: Adjusted operating profit increased 415% to £147.8m, compared to
£28.7m in the prior period. As with SSE Thermal, the higher and more volatile
gas market price environment continued during the period with the assets
operating on a merchant basis to capture the positive gas price spreads that
have arisen. In normal market conditions, the seasonal price spread occurs
between summer and winter which results in minimal profitability for this
segment in the first half of the year. However, due to low Russian gas
supplies and increased European demand as gas stores were built up for winter,
the usual spread was inverted, with summer gas prices higher than winter at
points during the period. That inversion led to around £46m of profits in
the period, with a further £79m of trading profits driven by the generally
volatile market conditions. The assets remain well placed to also capture the
usual winter spread with almost 150m therms of gas stored at 30 September -
over 80% of SSE's capacity - enabling them to provide vital energy security in
times of high gas demand across the winter. The strong performance of the
business, as with Thermal, affirms SSE's decision during previous years when
earnings were weaker to continue investing in these critical assets,
recognising the value they offer to the system.
Reported operating profit increased to £544.8m from £263.9m in the prior
period which included a £235.2m positive mark-to-mark movement in the fair
value of physical gas inventory held at the period end. The equivalent fair
value movement in the current period was £195.9m; however, as has been noted
in previous periods, this does not take into account any negative
mark-to-market movement on forward contracted sales for the second half of the
current financial year. Therefore, similar to the unsettled commodity
contracts held by EPM at fair value, the majority of this valuation movement
is not expected to be realised by the business. In addition to this fair
value movement, the reported operating profit included a £201m impairment
reversal which represented a full reversal of historic impairments on the
Aldbrough Gas Storage Assets.
SSE Business Energy: Adjusted and reported operating profit of £60.5m
compared to a £2.4m profit across the same period last year. The market
volatility that has been seen since the start of 2022 creates a challenging
environment for consumers and consumer-facing businesses such as Business
Energy and Airtricity. This environment has seen aged debt (60 days past due)
increase by 75% from prior period to £127.3m, with a corresponding £46m
increase in bad debt expense. In addition, in a higher price environment,
the seasonal phasing of margins recognised by this business has been amplified
particularly for fixed tariff customer contracts. This has resulted in a
significant adjusted operating profit being recognised in the first half of
the year, which is expected to reverse during the second half into a close to
break-even position for the full year.
SSE Airtricity: Adjusted operating profit of £14.9m compared to an adjusted
operating loss of £(2.9)m across the same period last year. The prior period
result included one-off adjustments which reduced adjusted operating profit by
a net £(17)m - excluding these adjustments, the period-on-period result is
broadly consistent. With tariffs being kept as low as possible for all
consumers, frozen for financially vulnerable customers until the end of March
2023 and with the launch of a €25m customer support fund we do not expect to
record a profit within our SSE Airtricity business this financial year, even
after accounting for the income from REFIT contracts which are recognised
within Airtricity.
Reported operating profit of £14.8m compares to a reported operating loss of
£(2.9)m, with the £(0.1)m movement from current period adjusted operating
profit due to SSE's share of interest and tax from the Marron Activ8 Energies
joint venture.
Energy Portfolio Management: Adjusted operating profit has increased to
£30.3m from £5.7m profit in the prior period. EPM continues to generate a
relatively low level of operating earnings through service provision to those
SSE businesses requiring access to the energy markets in addition to taking
small optimisation opportunities within strict VAR limits. The increase on
prior period is due to the heightened volatility and price of power and gas
trades in the market, which has driven higher profits from the trading and
optimisation activities for this business.
Reported operating loss of £(1,958.0)m compares to a reported operating
profit of £1,209.7m across the same period last year. This movement reflects
a significant adverse net-remeasurement movement in the current period on
unsettled, previously significantly in-the-money, fair value forward commodity
contracts. Following the unrealised movement in the period, those contracts
continue to have a small positive net mark-to-market valuation of £301m for
EPM. In line with prior years, this result excludes remeasurement of 'own
use' contracts and is unrelated to underlying operating performance.
Distributed Energy: An adjusted operating loss of £(8.0)m was recognised,
compared to a loss of £(7.3)m in the prior period. The business continues to
make a loss as it invests in both its 'whole system' approach to connecting
localised and flexible energy assets, as well as its nascent solar and battery
storage business.
The reported operating loss was also £(8.0)m, compared to a £(24.8)m loss in
the prior period, which included a £(18.1)m exceptional loss on disposal
recognised on completion of the sale of the Contracting & Rail business in
that period.
Neos Networks: SSE's remaining 50% share in the Telecoms business Neos
Networks Limited recorded an adjusted operating loss of £(6.5)m compared to
£(5.8)m in the prior period. The reported operating loss of £(11.2)m
includes SSE's share of interest and tax charges from the company.
Corporate unallocated: Adjusted operating loss of £(28.9)m compared to
£(40.5)m in the prior period. Whilst there continues to be an unwind of
historic transition service agreements with SSE Energy Services (disposed to
Ovo in January 2020), Neos Networks (part-disposed in January 2019) and SSE
Contracting (disposed to Aurelius in July 2021), the segment has benefited
from a review of the corporate cost base in the period.
Reported operating profit of £25.6m compares to a £(46.7)m loss in the prior
period which included a £(6.2)m adverse adjustment on contingent
consideration recognised in respect of the Neos Networks part-disposal. The
reported result for the current period reflects a £54.5m revaluation
adjustment to SSE's 60% share of the Gas Production decommissioning provision
which was retained following disposal of that business in October 2021.
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, revaluation
adjustments to the retained 60% Gas Production decommissioning obligation 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, revaluation adjustments to the retained 60% Gas Production
decommissioning obligation, 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 2022, SSE's adjusted earnings per share on
continuing operations was 41.8p. This compares to 10.5p for the six months to
30 September 2021 and reflects the movements in adjusted operating profit
outlined in the section above.
Group financial outlook - 2022/23
and beyond
FINANCIAL OUTLOOK for 2022/23
SSE's balanced portfolio of assets of electricity networks, renewables and
flexible generation and storage mean that the Group is performing well in
volatile market conditions. The first half of SSE's financial year has seen
good performance from gas storage and flexible thermal as they have
demonstrated their value to the energy system. However, Renewables
performance has been behind expectations in the period. Whilst a higher
price environment provides further opportunities for value creation, it also
increases costs and operational risks for the business significantly which has
impacted renewables and, to a lesser extent, flexible thermal financial
performance when output is lower than expected.
In May 2022, SSE set out that it expected to deliver adjusted earnings per
share for 2022/23 of at least 120 pence. Most of SSE's profits are earned in
the second half of its financial year and, in the context of the prevailing
volatile, complex and challenging market conditions, SSE's guidance of
adjusted earnings per share for 2022/23 of at least 120 pence remains
unchanged. As well as being influenced by market conditions, SSE's 2022/23
adjusted earnings per share will be determined by potential policy
interventions, plant availability and weather conditions. It is for all of
these reasons that SSE does not expect to provide further detail on profit
expectations for the full-year until later in the year.
The Group remains on course to report record 2022/23 capex in excess of
£2.5bn (including acquisitions) and expects leverage in March 2023 to be
lower than the target 4.5 times net debt to EBITDA ratio.
Net Zero Acceleration Programme
SSE set out its 'Net Zero Acceleration Programme' in November 2021 to
accelerate clean growth, lead the energy transition and maximise value for all
stakeholders. This fully funded programme included plans to rebase the
dividend to 60 pence in 23/24 and to invest £12.5bn, largely in projects that
will provide long-term solutions that help reduce the UK's exposure to
volatile international gas prices, whilst keeping leverage lower than the
target 4.5 times net debt to EBITDA ratio.
The Group continues to expect that this investment programme will deliver an
adjusted EPS CAGR of between 7 - 10%, against a baseline adjusted EPS of 87.5p
(before restatement for disposal of Scotia Gas Networks Limited in FY22) and
assuming a 25% minority interest disposal of the SSEN Transmission and
Distribution businesses during FY24. This growth is underpinned by
index-linked revenue streams driving around 60% of adjusted EBITDA over the
five-year period.
Disposal of Minority Stake in Networks
SSE continues to regard partnering as vital for the future and an important
means of unlocking future opportunities in its businesses.
As previously disclosed in May 2022, the Group has initiated a sales process
for a 25% share of the SSEN Transmission business. The process is continuing
in line with expectations, and the Group expects to announce an agreement in
the coming weeks, with completion following receipt of certain regulatory
approvals.
Given the SSEN Distribution business has been focussed on the RIIO-ED2
business case negotiations with Ofgem, it is expected that the process for a
similar stake sale will commence in early 2023.
Whilst these are high-quality, core businesses and SSE will retain strategic,
financial and operational control, the scale of potential growth and the
associated investment required mean that bringing in non-controlling partners
will create greater long-term value by enabling SSE to harness this
significant growth whilst maintaining an attractive balance of capital
allocation across the Group.
Supplemental financial information
Adjusted Investment and Capex Summary Sept 2022 Sept 2022 Sept 2021
Share % £m £m
SSEN Transmission 16 270.9 291.0
SSEN Distribution 10 175.8 171.3
Regulated networks total 26 446.7 462.3
SSE Renewables 24 426.3 417.5
SSE Thermal 5 89.2 93.3
Gas Storage - 6.5 0.8
Thermal Total 5 95.7 94.1
Energy Customer Solutions 1 26.0 24.8
Energy Portfolio Management - 2.4 0.9
Gas Production* - - 11.6
Distributed Energy 4 62.2 7.3
Corporate unallocated 3 43.9 24.3
Adjusted investment and capital expenditure, before refunds 63 1,103.2 1,042.8
Project finance development expenditure refunds - - -
Adjusted investment and capital expenditure 63 1,103.2 1,042.8
Acquisitions 37 640.0 -
Adjusted investment, capital and acquisitions expenditure 100 1,743.2 1,042.8
* Discontinued operation, the Gas Production business was disposed on 14
October 2021.
PROGRESS IN SSE'S CAPITAL EXPENDITURE PROGRAMME
During the six months to 30 September 2022, SSE's adjusted investment, capital
and acquisitions expenditure totalled £1,743.2m, representing an increase of
67% versus the same period last year. The amount recorded includes £640m of
expenditure in respect of the Southern European onshore wind development
platform acquisition, plus SSE's share of the purchase of Triton Power
Holdings, in transactions which both completed on 1 September 2022. The
remainder of spend was focused on SSE's Renewables, Networks and Thermal
divisions, including:
In SSEN Transmission, progress continues on its RIIO-T2 capex programme, with
expenditure in the period including £92m the Shetland HVDC link which will
connect the Shetland islands to the GB Transmission system for the first time,
as well as £71m on the East Coast Development project. Elsewhere, £28m was
spent on the Inveraray-Crossaig projects as part of the wider Argyll and
Kintyre 275kV Strategy, and £1.5m on the first two circuits connecting
Seagreen offshore wind farm to Tealing substation in Angus.
For SSEN Distribution, which is in the final year of its current RIIO-ED1
price control, investment has been delivered across a broad range of projects
in both the North and South networks. This included the start of an ambitious
£7m project which will see a full refurbishment of the overhead network
running from Poole through to Blandford Forum and on to the edge of Yeovil;
£10m of investment in Argyll's electricity infrastructure to power
communities from Taynuilt to Tullich, Oban and the islands beyond; substantial
progress on the £14m project to upgrade the electricity network between
Aultbea and Ullapool; and key infrastructure upgrades in the Isle of Wight,
Feltham and Berkshire.
On SSE Renewables' flagship construction projects, £265m of equity drawdown
has been invested at Seagreen offshore wind farm (SSE share 49%) which
achieved first power on 22 August. Despite a crane failure on an installation
vessel earlier in the year and subsequent poor weather, progress continues to
be made with 78 jackets and 65 turbines now installed, and it is expected to
reach commercial operations in summer 2023. All three phases of Dogger Bank
are now under construction but this activity has so far been funded by the
joint venture project finance. Further north, another £62m has been spent on
Viking onshore wind farm where access tracks are complete, turbine delivery is
due to commence from February 2023 and the project remains on target to
achieve commercial operations in Summer 2024. Elsewhere, around £10m has been
invested into the Tummel Bridge hydroelectric station repowering and £517m
relating to the Southern European onshore platform is included within
acquisitions.
In Thermal, around £55m was invested on the development of the 50MW Slough
Multifuel station, a joint venture with CIP, which is expected to be delivered
in FY25. In addition, £11m was invested in the final stages of the Keadby 2
project, which has experienced a delay; performance validation tests are now
expected to completed in January 2023, with remaining capex of around £7m
expected in the second half of FY23. Finally, SSE's share of consideration for
the acquisition with Equinor of Triton Power totalled £123.3m after
completion adjustments.
SSE's Hedging Position at 30 September 2022
SSE has an established approach to hedging through which it generally seeks to
reduce its broad exposure to commodity price variation at least 12 months in
advance of delivery. SSE continues to monitor market developments and
conditions and alters its hedging approach in response to changes in its
exposure profile, such as the acceleration of hedging by SSE Renewables
previously disclosed in May 2022. SSE will continue to provide a summary of
its 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 is
set out below.
SSE Renewables - GB wind and hydro:
The following table provides an update for SSE's GB Wind and Hydro generation
hedge positions as at 30 September 2022. The prices presented for 2022/23
reflect a weighted average of the achieved price for the first six months of
the year (including any buy-backs) and updated hedged prices for the second
half following conversion of gas and carbon trades for that period into
electricity. Expected volumes have been adjusted for outturn in the first
half.
Weighted Avg. As at 30 September 2022
2022/23 2023/24 2024/25 2025/26
Wind Expected volume - TWh 4.9 6.5 8.4 8.6
Volume hedged - % 104% 80% 66% 2%
Hedge price - £MWh £74 £78 £114 £118
Hydro Expected volume - TWh 3.4 3.6 3.8 3.9
Volume hedged - % 89% 85% 62% 3%
Hedge price - £/MWh £71 £85 £115 £110
Note: where gas and carbon trades have been used as a proxy for electricity, a
constant 1 MWh :69.444 th and 1MWh : 0.3815 te/MWh conversion ratio between
commodities has been applied.
The expected volumes include anticipated pre-CFD volumes from SSE's wind farms
in construction, Seagreen and Viking. No volumes have been included for
Dogger Bank wind farm. The 2022/23 wind volume hedged position reflects lower
than previously expected output from Seagreen due to construction delays.
Seagreen now accounts for approximately 0.6TWh in 22/23, 2.2TWh in 23/24 and
2.5TWh in 24/25 and 25/26, with Viking accounting for 1.6TWh in 24/25 and
1.7TWh in 25/26.
The table excludes additional volumes and income for BM activity, ROCs,
ancillary services, capacity mechanism and shape variations and optimisations.
It also excludes volumes and income relating to Irish wind output, pumped
storage and CfDs.
Energy output hedges for both wind and hydro are progressively established
over the 36 months prior to delivery (although the extent of hedging activity
for future periods depends on the level of available market depth and
liquidity). Target hedge levels continue to be achieved through the forward
sale of either electricity, or gas and carbon equivalents.
This approach aims to reduce the exposure of these wind assets to volatile
spot power market outcomes whilst still providing an underlying commodity
price hedge. When gas-and-carbon hedges are converted into electricity hedges
a "spark spread" is realised which can lead to changes in the average hedge
price expected. This can both increase the average hedge price, as has been
seen in 2022/23, or decrease it.
For wind energy output, 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. The
targeted hedge percentage is reviewed and adjusted as necessary to reflect any
changes in future market and wind capture insights. The last such revision
occurred in May 2021, with at least 90% of the anticipated energy output from
wind for the coming twelve months being hedged from that date.
The approach to hedging hydro energy output remains unchanged at approximately
85% of its anticipated energy output for the coming twelve months.
UK Business Energy: The business supplies electricity and gas to business and
public sector customers. Sales to contract customers are hedged: at point of
sale for fixed contract customers; upon instruction for flexi contract
customers; and on a rolling hedge basis for tariff customers.
Given the pricing and macro-economic context, Business Energy is dynamically
monitoring nearer term consumption actuals for any early signs of demand
variability and adjusting future volumes hedged accordingly.
GB Thermal: In the six months prior to delivery, SSE aims to hedge all of the
expected economic output of its CCGT assets, having progressively established
this hedge over the preceding eighteen months. Hedging activity depends on the
availability of sufficient market depth and liquidity, which can be limited,
particularly for periods further into the future.
SSE continues to monitor market developments, in particular overall market
volatility and liquidity, 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 2022, resulted in no third-party contracts being
secured. As such the assets are being commercially operated to optimise value
arising from changes in the spread between summer and winter prices, market
volatility and plant availability.
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, oil and carbon). This includes monitoring market
conditions and liquidity and reporting 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 shape and liquidity
whilst taking small optimisation opportunities. This is contained within a
VAR limit of £2m (£1m 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.
Summarising movements on exceptional items
and certain remeasurements
Exceptional items
In the six months to 30 September 2022, SSE recognised a net exceptional gain
within continuing operations of £448.7m before tax. The following table
provides a summary of the key components making up the net gain position:
Exceptional Credits within continuing operations Total
£m
Impairment reversals and fair value uplift:
Thermal Electricity Generation historic impairment reversal 17.8
Gas Storage historic impairment reversal 201.1
Triton Power fair value uplift 140.7
Other exceptional items
Fiddlers Ferry land sale 89.1
Total exceptional items 448.7
Notes:
- The definition of exceptional items can be found in Note 2 (iii)
of the Interim Financial Statements.
In addition to the above exceptional items from continuing operations, a net
exceptional gain within discontinued operations of £35.0m after tax was
recognised. This related to the release of a provision following further
clearance granted in respect of the Group's disposal of its Gas Production
business which completed on 14 October 2021.
For a full description of exceptional items, see Note 6 of the Interim
Financial Statements.
Certain remeasurements
In the six months to 30 September 2022, SSE recognised an adverse net
remeasurement within continuing operations of £(1,548.7)m before tax. The
following table provides a summary of the key components making up the adverse
movement:
Certain remeasurements within continuing operations Total
£m
Operating derivatives (1,988.3)
Commodity stocks held at fair value 195.9
Financing derivatives 243.7
Total net adverse remeasurement (1,548.7)
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 are
required to be recorded at their fair value as at the date of the financial
statements.
SSE shows the change in the fair value of these forward contracts separately
as this mark-to-market movement does not reflect the realised operating
performance of the businesses. The underlying value of these contracts is
recognised as the relevant commodity is delivered, which for the large
majority of the position at 30 September 2022 is expected to be within the
next 6 - 12 months.
The change in the operating derivative mark-to-market valuation was a
£(1,988.3)m decrease from a £2,306m "in-the-money" position at 31 March 2022
into a £318m "in-the-money" position at 30 September 2022. This movement
consisted of:
· Settlement during the year of £(944.3)m of previously
"in-the-money" contracts in line with the contracted delivery periods; and
· An adverse mark-to-market remeasurement of £(1,044.0)m on
unsettled contracts, largely entered into during the course of 2021/22 and
2022/23 and in line with the Group's stated approach to hedging. This
mark-to-market remeasurement reflects the extreme volatility in commodity
markets during the period.
As in prior years, the reported result does not include remeasurement of 'own
use' hedging agreements which do not meet the definition of a derivative
financial instrument under IFRS 9 "Financial Instruments".
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 £195.9m positive movement in the period 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 take into account any
negative mark-to-market movement on forward contracted sales for the second
half of the current financial year. Therefore, similar to derivative contracts
held at fair value, we do not expect that all of this valuation movement will
be realised by the business.
Financing derivatives
In addition to the movements above, a positive movement of £243.7m was
recognised on financing derivatives in the six months to 30 September 2022,
including 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 Dollar and Euro, partially offset by higher rates.
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 six months to
30 September 2022 are significantly lower than the previous year. In addition
to the £(1,548.7)m cumulative net adverse movement on forward commodity, gas
inventory and financing derivative fair value remeasurements noted above,
reported results also reflect historic impairment reversals of £219m and net
gains on acquisitions/ disposals of £230m as detailed within Note 6 of the
Interim Financial Statements.
Reported results in the prior period reflected pre-tax exceptional and certain
re-measurement gains of £1,543.5m recognised which were mainly driven by IFRS
9 remeasurements on operating derivatives.
Financial management and balance sheet
Debt metrics Sept 2022 March 2022 Sept 2021
£m £m £m
Net Debt / EBITDA* N/A 4.0 N/A
Adjusted net debt and hybrid capital (£m) (9,988.6) (8,598.2) (9,611.4)
Average debt maturity (years) 6.5 6.8 7.2
Adjusted interest cover (times) 4.2 4.0 1.6
Average interest rate for the period (excluding JV/assoc. interest and all 3.25% 3.29% 3.35%
hybrid coupon payments)
Average cost of debt at period end (including all hybrid coupon payments) 3.83% 3.81% 3.89%
* Note: Net debt represents the group adjusted net debt and hybrid capital.
EBITDA represents the full year group adjusted EBITDA, less £125.4m (at March
2022) for the proportion of adjusted EBITDA from equity-accounted Joint
Ventures relating to project financed debt.
Net finance costs reconciliation Sept 2022 Sept 2021
£m £m
Adjusted net finance costs 156.6 202.6
Add/(less):
Lease interest charges (14.1) (16.2)
Notional interest arising on discounted provisions (7.1) (2.3)
Hybrid equity coupon payment 38.8 50.7
Adjusted finance costs for interest cover calculation 174.2 234.8
SSE Principal Sources of debt funding Sept 2022 March 2022 Sept 2021
Bonds 52% 55% 58%
Hybrid debt and equity securities 18% 21% 22%
European investment bank loans 7% 7% 7%
US private placement 10% 9% 9%
Short-term funding 10% 5% 1%
Index -linked debt 3% 3% 3%
% Of which has been secured at a fixed rate 92% 96% 100%
Rating Agency Rating Criteria Date of Issue
Moody's Baa1 'negative outlook' 'Low teens' Retained Cash Flow/Net Debt November 2021
Standard and Poor's BBB+ 'outlook stable' About 18% Funds From Operations/Net Debt November 2021
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 4.5x or lower across the five years to 31
March 2026.
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 also remains at Baa1 but updated to 'stable outlook' following the
strategic review update in November 2021.
Adjusted net debt and hybrid capital
SSE's adjusted net debt and hybrid capital was £10.0bn at 30 September 2022,
up from £8.6bn at 31 March 2022. In addition to dividends, capex spend and
revaluation of currency debt as well as various working capital movements,
this movement includes the completion of two acquisitions during the period:
· In September 2022, SSE Renewables completed the acquisition from
Siemens Gamesa Renewable Energy of an onshore development platform across
Spain, France, Italy and Greece for a consideration of €580m; and
· In September 2022, SSE Thermal, alongside Equinor as 50/50
partners, completed the acquisition of the Triton Power portfolio in a £341m
transaction.
Debt summary as at 30 September 2022
The SSE Group issued £1.7bn of hybrid capital and new medium- long-term debt
in the six months to 30 September 2022 whilst also significantly increasing
short-term debt in the form of Commercial Paper:
· In March 2022, the SSE Group through its SSEN Transmission entity
priced and committed to a £350m dual tranche private placement, being a
£175m 10-year tranche at 3.13% and £175m 15-year tranche at 3.24% giving an
all-in average rate of 3.19%. The proceeds were received on 30 June
2022.
· In April 2022, SSE plc issued a €1bn NC6 equity accounted
hybrid bond at 4% to refinance the dual tranche debt accounted hybrid bonds
issued in March 2017. SSE has taken advantage of the 3-month par call option
on these 2017 hybrid bonds, meaning they were repaid on 16 June 2022 in
advance of the first call date. The €1bn equity accounted hybrid bond has
been kept in Euros and the proceeds were used to cover the portion of the
maturing hybrid that was swapped to Euros (€575m) and to finance a portion
of SSE Renewables' European onshore development platform acquisition as noted
above.
· In July 2022, SSE plc issued a 7 year €650m Eurobond at a
coupon of 2.875% which was left in Euros as part of our net investment hedge
in overseas assets held in that currency. The bond was 8 times oversubscribed
which allowed SSE to secure a highly competitive rate for the issuance.
· Over the course of the period, rolled maturing short-term debt in
the form of Commercial Paper in addition to raising a further £0.7bn, which
takes the total outstanding Commercial Paper at 30 September 2022 to €1,376m
(£1,173m). Commercial Paper has been issued in Euros and swapped back to
Sterling at an average cost of debt of 2.395% and matures between October 2022
and January 2023.
In addition to the March 2017 hybrid bonds which were called in June 2022 as
noted above, a further £463m of medium-to-long-term debt has matured in the
period comprising £163m (US Private Placement) which matured in April 2022
and £300m (Eurobond) which matured in September 2022. In the next twelve
months, there is a further £870m of medium-to-long-term debt maturing being
£150m (European Investment Bank) maturing in October 2022, £50m (also
European Investment Bank) maturing in August 2023, £35m maturing in April
2023 and £120m maturing in September 2023 (both US Private Placements) and a
€700m bond maturing in September 2023. Despite this, the Group expects to
have minimal long-term debt refinancing requirements to FY25, given expected
asset disposal proceeds. As noted above, a further €1,376m (£1,173m) of
short-term debt in the form of Commercial Paper is also due to mature in the
second half of 2022/23, however the current intention is to roll this maturing
short-term debt forward.
Hybrid bonds summary as at 30 September 2022
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.
A summary of SSE's hybrid bonds as at 30 September 2022 can be found below:
Issued Hybrid Bond Value(1) All in rate(2) First Call Date Accounting Treatment
July 2020 £600m 3.74% Apr 2026 Equity accounted
July 2020 €500m (£453m) 3.68% July 2027 Equity accounted
April 2022 €1bn (£831m) 4.00% Apr 2028 Equity accounted
(1) Sterling equivalents shown reflect the fixed exchange rate on date of
receipt of proceeds and is not subsequently revalued.
(2) All in rate reflects coupon on bonds plus any cost of swap into sterling
which currently only applies to July 2020 Hybrid.
Further details on each hybrid bond can be found in Notes 13 and 14 to the
Interim Financial Statements and a table noting the amounts, timing and
accounting treatment of coupon payments is shown below:
Hybrid coupon payments 2022/23 2021/22
HYa FYe HYa FYa
Total equity (cash) accounted £39m £39m £51m £51m
Total debt (accrual) accounted £21m £21m £15m £31m
Total hybrid coupon £60m £60m £66m £82m
SSE's March 2015 and July 2020 hybrid bonds are perpetual instruments and are
therefore accounted for as part of equity within the Interim Financial
Statements but, as in previous years, have been included within SSE's
'Adjusted net debt and hybrid capital' to aid comparability. The March 2017
hybrid bonds which were called and settled in 2022/23 had a fixed redemption
date and were therefore debt accounted and included within Loans and Other
Borrowings; as such they were 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 debt accounted
hybrid bonds are treated as finance costs under IFRS 9.
Managing net finance Income / (costs)
SSE's adjusted net finance costs - including interest on debt accounted hybrid
bonds but not equity accounted hybrid bonds - were £(156.6)m in the six
months to 30 September 2022, compared to £(202.6)m in the previous period.
The lower level of finance costs from period to period mainly reflects lower
overall net debt following the receipt in March 2022 of the Scotia Gas
Networks' disposal proceeds, replacement of a maturing debt accounted hybrid
with an equity accounted hybrid and a higher proportion of debt being held via
Commercial Paper at a lower coupon rate than maturing debt.
Reported net finance income was £124.1m compared to a reported net finance
cost of £(218.3)m in the previous period, reflecting the movements above as
well as a £299.6m period-on-period change in the mark-to-market revaluation
of financing derivatives held at fair value and a £3.2m net movement on
exceptional items, joint venture interest and interest on net pension asset.
Summarising cash and cash equivalents
At 30 September 2022, SSE's adjusted net debt included cash and cash
equivalents of £0.3bn, down from £1.0bn at March 2022. The level of cash and
cash equivalents at the period end reflects a more normal operating cash
position, as previous years' balances had included the proceeds from disposals
such as Scotia Gas Networks in March 2022.
The cash collateral position has increased from £74.7m of cash provided as
collateral at 31 March 2022 to £581.3m of cash provided at 30 September 2022.
Cash collateral is only required for forward commodity contracts traded
through commodity exchanges, and generally comprises an 'initial margin'
element based on the size and period of the trade and a 'variation margin'
element which will change from day to day depending on the fair value of that
trade each day. The level of cash collateral either provided or received
therefore depends on the volume of trading through the exchanges, the periods
being traded and the associated price volatility. As collateral is only
required on a portion of trades, the movement in collateral provided or
received will not correlate to the IFRS 9 fair value movement recognised,
which also only covers a portion of the total Group trading activity. The cash
collateral position had increased at 30 September due to the continued higher
forward power and gas price environment, alongside heightened price volatility
in those markets. We expect that the higher price environment and volatility
will continue, for at least the remainder of the financial year.
On 11 November 2022, further volatility has seen the cash collateral position
increase to £1,004.0m, which has been funded through a combination of
Commercial Paper issuance and part draw-down of the Revolving Credit
Facilities noted below. Following this increase, the Group retains over £2bn
of liquidity in reserve, available to meet any further cash collateral
requirements over the winter.
Revolving Credit Facility / SHORT-TERM FUNDING
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 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 2022
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 Moody's ESG Solutions.
Following the period end, on 11 November 2022 two new revolving credit
facilities were entered into as part of the Networks minority stake disposal
process. SSEN Transmission entered into a three-year £750m facility and SSE
Distribution entered into a similar 3 year £250m facility, both having two
one-year optional extensions. These facilities were entered into to help
cover the future long term funding requirements and the working capital of
those businesses as they look to become financially independent of the
Group. The facilities will therefore support the ongoing capital expenditure
investment programmes that are required to deliver their ambitious future
growth plans.
In addition to these committed bank facilities, the Group has access to £50m
of uncommitted bank lines and a £15m overdraft facility.
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, 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 2022, 92% 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, now totals £9.5bn and SSE's objective is to maintain
a reasonable range of debt maturities. Its average debt maturity, excluding
hybrid securities, at 30 September 2022 was 6.5 years, down from 6.8 years at
31 March 2022. This movement reflects the £1.7bn of new hybrid capital and
long term debt issued in the last six months but has been offset by a higher
short-term funding position via Commercial Paper. SSE's average cost of debt
is now 3.83%, compared to 3.81% at 31 March 2022.
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 2023
resulting from the current volatile market conditions; the Group's credit
rating; the success of the Group's disposal programme through 2020/21 and
2021/22; the successful issuance of £1.7bn of hybrid equity, Eurobond and
private placement debt issued during the period; and the likelihood of
disposal of assets which have been announced as in progress and related debt
funding. The Directors have also considered the Group's obligations under
its debt covenants, with projections to 31 December 2023 supporting the
expectation that there will be no breaches.
The Directors have assessed that the Group remains able to access Capital
Markets, as demonstrated by the £3.6bn of debt issued over the last 24
months. There is also an expectation of continued availability of the
Commercial Paper market along with future available liquidity in the private
placement market in addition to the Group's existing liquidity with £1.5bn of
undrawn committed borrowing facilities.
Operating a Scrip Dividend Scheme
In its Strategic Update, published on the 17 November 2021, SSE announced
plans to accelerate clean growth, lead the energy transition and maximise
value for all stakeholders. As part of its five-year investment plan, SSE is
targeting dividend increases in line with RPI inflation to March 2023,
followed by a rebase to 60p in 2023/24 and at least 5% annual increases to
March 2026.
SSE's Scrip Dividend Scheme was last renewed for a three-year period at the
2021 AGM and continues to be offered to all shareholders. For the period
2021/22 and beyond, take-up from the Scrip Dividend Scheme will be capped at
25%. SSE plans to implement this cap by means of a share repurchase programme,
or 'buyback', in October each year following payment of the final dividend.
The scale of any share repurchase program would be determined by shareholder
subscription to Scrip Dividend Scheme across the full year, taking into
account the interim and final dividend elections.
Following notification of the final dividend elections on 29 August 2022,
overall scrip dividend take-up for the financial year ended 31 March 2022 was
38.33%. SSE therefore, on 30 August 2022, announced its intention to initiate
a share buyback, in the period following the final dividend payment for the
year ended 31 March 2022. The number of ordinary shares to be purchased will
not exceed 6,904,083 ordinary shares, and the maximum pecuniary amount
allocated to the Scrip buy-back is £125m. SSE has commenced this buy-back
which it intends to complete by 31 March 2023 and, as at 10 November 2022,
5.2m shares had been repurchased.
SSE believes limiting the dilutive effect of the Scrip in this way strikes the
right balance in terms of giving shareholders choice, potentially securing
cash dividend payment savings and managing the number of additional shares
issued.
SSE's principal joint ventures and associates
SSE's financial results include contributions from equity interests in joint
ventures ("JVs") and associates, all of which are equity accounted. The
details of the most significant of these are included in the table below. This
table also highlights SSE's share of off-balance sheet debt associated with
its equity interests in JVs which totals less than £2.5bn as at 30 September
2022.
SSE principal JVs and associates(1) Asset type SSE holding SSE share of external debt as at 30 Sept 2022 SSE Shareholder loans as at 30 Sept 2022
Seabank Power Ltd 1,234MW CCGT 50% No external debt No loans outstanding
Marchwood Power Ltd 920MW CCGT 50% No external debt £32m
Clyde Windfarm (Scotland) Ltd 522MW onshore wind farm 50.1% No external debt £127m
Dogger Bank A Wind Farm Up to 1,200MW offshore wind farm. 40% £656m Project financed
Dogger Bank B Wind Farm Up to 1,200MW offshore wind farm. 40% £485m Project financed
Dogger Bank C Wind Farm Up to 1,200MW offshore wind farm. 40% £235m Project Financed
Seagreen Windfarm Ltd 1,075MW offshore wind farm 49% £612m £713m(2)
Seagreen 1a Ltd Offshore wind farm extension 49% No external debt £14m
Lenalea Wind Energy Ltd 30MW of onshore windfarm 50% No external debt £7m
Beatrice Offshore Windfarm Ltd 588MW offshore wind farm 40% £676m Project financed
Cloosh Valley Wind Farm 105MW onshore windfarm (part of Galway Wind Park) 25% No external debt £26m
Neos Networks Ltd Private telecoms network 50% No external debt £52m
Slough Multifuel Ltd 50MW energy-from-waste facility 50% No external debt £102m
Stronelairg Windfarm Ltd 228MW onshore wind farm 50.1% No external debt £88m
Dunmaglass Windfarm Ltd 94MW onshore windfarm 50.1% No external debt £46m
Ossian Offshore Windfarm Ltd ScotWind seabed 40% No external debt No loans outstanding
Triton Power Holdings Limited 1,200MW CCGT & 140MW OCGT 50% No external debt £48m
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) For accounting purposes, £369m of the £713m of SSE Shareholder loans
advanced to Seagreen Windfarm Limited as at 30 September 2022 have been
classified as equity.
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 2022, based on
adjusted profit before tax, is 12.6%, as compared with 7.3% for the same
period last year on the same basis, and after discrete items. The increase in
rate is largely driven by higher expected profit before tax across the full
year.
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 22 March 22 Sept 21
Pension scheme asset recognised in the balance sheet before deferred tax £m 648.5 584.9 501.7
Pension scheme liability recognised in the balance sheet before deferred tax - - (63.7)
£m
Net pension scheme asset recognised in the balance sheet before deferred tax 648.5 584.9 438.0
£m
Employer cash contributions Scottish Hydro Electric scheme £m 0.5 1.0 0.5
Employer cash contributions Southern Electric scheme £m 26.8 58.0 30.7
Deficit repair contribution included above £m 18.8 40.9 20.4
In the six months to 30 September 2022, the surplus across SSE's two pension
schemes increased by £63.6m, from £584.9m to £648.5m, primarily due to
actuarial gains of £1,104.9m and contributions made to the schemes offset by
reductions in scheme assets of £1,059.4m and current service costs.
The valuation of the Southern Electric Pension Scheme ('SEPS') increased by
£167.7m in the six-month period primarily due to actuarial gains of £727.4m,
in particular the impact of higher discount rates, as well as deficit repair
contributions exceeding service costs, offset by reductions in scheme assets
of £569.3m.
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 period the SHEPS surplus decreased by
£104.1m.
Additional information on employee pension schemes can be found in Note 17 to
the Interim Financial Statements.
HY22-23 - BUSINESS OPERATING REVIEW
SSE's strategy of sustainably 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 market-based and
economically-regulated energy businesses.
SSE's 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
highly technical electricity assets, there are strong synergies between them
and valuable links across them. SSE's business mix is very deliberate, highly
effective, fully focused and well set to prosper on the journey to net zero,
whilst contributing to energy security and affordability.
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.
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. Revenues and RAV are index-linked under the
regulatory mechanism, providing a valuable hedge against rising inflation.
SSEN Distribution's income and asset base is linked to RPI until the end of
its current price control in March 2023; while SSEN Transmission is linked to
CPIH under its RIIO-T2 price control until March 2026.
Each licensee can 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.
If 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.
In Distribution, 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.
In Transmission, licensees are paid by the System Operator based on a forecast
of allowed revenue amount set three months in advance of the regulatory year.
While under RIIO-T1 the System Operator assumed the risk of forecast volumes
being different to outturn (paying Transmission Operators a fixed allowed
revenue irrespective of volumes transported), under the RIIO-T2 price control
settlement this risk has been transferred to the Transmission Operators and
collected revenue for Transmission Operators can vary depending on actual
versus forecast volumes transported. Over- or under-recovered volumes are
accommodated in allowed revenue in the following regulatory year, based on a
forecast set in November prior to that year, with a true-up in the subsequent
year for any variance to forecast.
SSEN Transmission
SSEN Transmission Sept 22 Sept 21
Transmission adjusted and reported operating profit - £m 208.4 181.7
Regulated Asset Value (RAV) - £m 4,590 3,875
Renewable Capacity connected to SSEN Transmission Network - MW 7,870 7,850
Transmission adjusted investment and capital expenditure - £m 270.9 291.0
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, total expenditure by SSEN Transmission is expected to be at least
£2.6bn (the Certain View) and taking this expenditure alone, Transmission RAV
would exceed £5bn by the end of RIIO-T2.
In addition to the Certain View expenditure, Ofgem operate Uncertainty
Mechanisms which permit recovery of additional allowed revenue during the
price control period to reflect additional investment requirements, when their
need or expected timeframe are not known at the outset. These Uncertainty
Mechanisms are used to fund further upgrades to the network during the price
control period, when there is more certainty around the scope of work
required.
All of these investments play a pivotal role in providing critical national
infrastructure and to maintain network reliability for the communities SSEN
Transmission serves as it delivers a network for net zero.
Operational delivery
SSEN Transmission continues to make excellent progress in delivering against
its regulatory settlement for the five-year RIIO-T2 price control period.
In the six months to 30 September 2022, SSEN Transmission delivered strong
operational performance. There were no transmission faults affecting
electricity demand network users in the North of Scotland over the period, in
line with its RIIO-T2 goal for 100% transmission network reliability for homes
and businesses. SSEN Transmission is therefore on track to receive the
annual reward of £0.8m (in 18/19 prices) through the Energy Not Supplied
Incentive.
This strong operational performance is underpinned by a robust programme of
inspection, maintenance, refurbishment and replacement of its transmission
assets, keeping the lights on for communities across the North of Scotland and
ensuring reliable network access for its electricity generation customers to
support security of supply. In the six months to 30 September 2022, this
included enhanced tree cutting to improve network resilience in advance of the
winter, particularly those areas most impacted by last year's storms.
SSEN Transmission's capital investment programme remains on track with good
progress being made on all major projects. This includes the second phase of
the Inveraray-Crossaig overhead line replacement project, with the
installation of steel towers and overhead conductors now under way. As well
as maintaining and enhancing network reliability to the communities it serves,
the Inveraray-Crossaig project will also enable the growth in renewable
electricity generation across the region as part of the wider Argyll and
Kintyre 275kV Strategy.
The Shetland High Voltage Direct Current (HVDC) transmission link continues to
make excellent progress. The subsea cable installation works, which commenced
in July 2022, are progressing well with 100km of the total 260km of subsea
cable now installed. The project remains on track for completion and
energisation in 2024.
Good progress was also made to incrementally increase the capacity of the
north east and east coast transmission network to 275kV then to 400kV. This
included the second phase of upgrades at Rothienorman substation which
commenced in July. All associated overhead line works are also well under way
and due for completion in 2023, with the overall upgrade of the east coast
network to 400kV on track for completion in 2026.
These strategic investments in new and upgraded infrastructure are key to
enable growth in renewable electricity generation across the North of
Scotland.
This included energising the first two circuits to enable the connection of
the Seagreen offshore wind farm to Tealing substation in Angus. This will
facilitate the export of up to 600MW of Seagreen's capacity, with the third
circuit on track to be energised by the end of 2022, enabling Seagreen's full
capacity of 1,075MW to be connected.
As at 30 September 2022, the total installed capacity connected to the North
of Scotland transmission network was around 9GW, of which just under 8GW is
from renewable sources. Factoring in the forecast growth in renewables in the
second half of 2022/23 and subsequent years of the RIIO-T2 period, SSEN
Transmission remains well on track to meeting, and likely exceeding, its goal
to transport the renewable electricity that powers 10m homes. This will be
achieved once the installed capacity of renewables reaches 10GW.
For financial performance commentary please refer to the Group Financial
Review.
growth opportunities in RIIO-T2
SSEN Transmission has made tangible progress in unlocking several investments
over and above its £2.6bn Certain View. These additional projects, which are
being taken forward through Ofgem's Uncertainty Mechanisms, will be key to
delivering a pathway for net zero and helping secure the country's future
energy independence by enabling the deployment of homegrown, low carbon
electricity generation.
In July 2022, Ofgem approved the Final Needs Case for the Eastern Green Link 2
(EGL2), a joint venture between SSEN Transmission and National Grid
Electricity Transmission, which will see a 2GW HVDC subsea link from Peterhead
to Drax in Yorkshire. At an estimated total JV investment of around £2.1bn,
development and early construction activity and expenditure (of which SSEN
Transmission share would be 50%) will continue during RIIO-T2, with delivery
and energisation in 2029 (RIIO-T3).
Also in July, SSEN Transmission submitted its Final Needs Case for the
replacement and upgrade of the Fort Augustus to Skye transmission line. At an
estimated total investment of over £400m, the replacement line is required to
maintain security of supply and to enable the connection of renewable
electricity generation along its route.
In September 2022, Ofgem published for consultation its response to SSEN
Transmission's Initial Needs Case (INC) for the Argyll and Kintyre 275kV
Strategy, with the regulator accepting the clear need for the investment. It
also acknowledged that SSEN Transmission's proposed reinforcements are likely
to provide the optimal solution to meet the forecast growth in renewable
electricity across the region. At an estimated total investment of around
£400m, the Argyll and Kintyre 275kV Strategy is required to upgrade the local
transmission network from 132kV to 275kV operation, supporting the forecast
growth in renewables.
In October 2022, Argyll and Bute Council's Planning Committee raised an
objection to SSEN Transmission's proposed overhead line solution, triggering a
Public Local Inquiry. SSEN Transmission is extremely disappointed by this
decision, which went against the recommendations of Argyll and Bute Council's
Planning Officer, with no other statutory stakeholder objections received.
SSEN Transmission continues to consider its next steps as it reviews what this
means for its delivery programme and will work with all stakeholders to
minimise the impact of this decision on new renewable generation connections
across Argyll and Kintyre.
Further expenditure to connect new renewable generation, enable rail
electrification and support system security is also expected throughout the
RIIO-T2 period and beyond when the need for this investment becomes certain.
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 between £6.5bn to £7bn
by the end of RIIO-T2 which includes the forecast impact of Uncertainty
Mechanism investments and with current inflationary levels is likely to be
nearer the upper end of the range.
further growth Opportunities
In July, the National Grid Electricity System Operator (ESO) published the
Pathway to 2030 Holistic Network Design (HND) report setting out the onshore
and offshore electricity transmission network infrastructure required to
deliver the UK Government's 50GW by 2030 offshore wind target. This also
included a refresh of January's Networks Options Assessment (NOA).
The HND and NOA refresh have recommended the following investments in SSEN
Transmission's network region, which the ESO has assessed are 'required' to
enable 2030 targets:
· Two 2GW subsea HVDC links from Peterhead to England, which
includes EGL2 which Ofgem approved in July;
· A 1.8GW HVDC subsea link from Spittal in Caithness, connecting to
Peterhead;
· A 1.8GW HVDC subsea link from Arnish in the Western Isles
connecting to Beauly;
· 400kV onshore reinforcements between Beauly, Loch Buidhe and
Spittal; Beauly, Blackhillock, New Deer and Peterhead; Kintore, Alyth and
Westfield (in SP Energy Networks); and the uprating of the Beauly-Denny line
to enable 400kV operation on both circuits.
The HND also included proposals for a new HVDC Switching Station at Peterhead,
Project Aquila, which would integrate HVDC systems through multi-terminal and
multi-vendor interoperability. This leading innovation, a world first outside
of China, aims to reduce the number of HVDC Convertor Stations required for
future HVDC links, reducing costs and minimising community and environmental
impacts.
In December 2022, Ofgem is expected to publish the regulatory framework under
which these investments will be progressed, the Accelerated Strategic
Transmission Investment (ASTI) framework, which will confirm which of these
investments will be taken forward.
Combined, the investments set out in the HND and NOA refresh, which are
estimated to total around £10bn in total expenditure, provide greater
confidence in SSEN Transmission's long term RAV target, which is expected to
exceed £12bn by 2031.
Beyond these investments, in October, Ofgem published its decision on the
onshore and offshore classification of the offshore HND assets. As part of
this decision, Ofgem has confirmed that the proposed subsea connection from
Fetteresso to a new substation in Lincolnshire will be classed as an onshore
electricity transmission asset and delivered by Transmission Owners, which is
likely to support further growth.
Additional growth is expected to enable the connection of ScotWind's full
potential, with a follow-up exercise to the HND now under way. Plans to
decarbonise oil and gas operations in the North Sea through the deployment of
offshore wind powering platforms, which are being taken forward through Crown
Estate Scotland's Innovation & Targeted Oil & Gas (INTOG) leasing
round, also present further opportunities for growth. An outcome on the HND
Follow Up Exercise (HNDFUE) and INTOG leasing round are expected in Q1 2023.
Recognition by Ofgem and the ESO of these further potential growth and
investment opportunities underlines the importance of the Transmission
network, particularly in the north of Scotland, in transitioning the GB energy
system to net zero.
Ssen distribution
SSEN Distribution Sept 22 Sept 21
Distribution adjusted and reported operating profit - £m 174.6 153.3
Regulated Asset Value (RAV) - £m 4,525 3,862
Distribution adjusted investment and capital expenditure - £m 175.8 171.3
Electricity Distributed - TWh 16.7 17.2
Customer minutes lost (SHEPD) average per customer 27 23
Customer minutes lost (SEPD) average per customer 24 24
Customer interruptions (SHEPD) per 100 customers 30 26
Customer interruptions (SEPD) per 100 customers 23 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. SSEN Distribution's networks cover
the greatest land mass of any of the UK's Distribution Network Operators with
over 75,000km² of extremely diverse terrain.
In December 2021, SSEN Distribution published its £3.99bn RIIO-ED2 Final
Business Plan for 2023 to 2028. 'Powering Communities to Net Zero' sets out
the flexibility and network investment required to accelerate net zero while
ensuring efficiency and affordability for customers. Ofgem published its Draft
Determinations for the RIIO-ED2 price control in June 2022. SSEN Distribution
and a number of stakeholders called on Ofgem to grasp the opportunity to
secure the necessary investment in local decarbonisation and resilience whilst
also considering the best interests of customers.
Operational delivery
SSEN Distribution continues to undertake a major capital investment programme
across both its networks, delivering significant improvements for customers
and increasing its RAV.
In the six months to 30 September 2022, the business invested £176m, bringing
the total invested since the beginning of the RIIO-ED1 price control to almost
£2.5bn. This is part of a forecast £2.7bn investment throughout the RIIO-ED1
period, supporting future earnings through RAV growth.
SSEN Distribution is tendering for flexibility services in areas where
localised high demand can be offset to extend overall network capacity. This
will allow the network to be managed whilst deferring or avoiding the need for
network reinforcement. SSEN Distribution has announced plans to tender for 70
MW of new flexibility capacity this year, with a contract value estimated at
£6.7m. Contracts are being sought in 16 zones across central southern
England.
Incentive performance remains a revenue driver and SSEN prioritises improving
reliability of network performance 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.
For the first six months of 2022/23, SSEN Distribution's CI rate in SHEPD rose
from 26 to 30 in comparison to the first six months of 2021/22, with CML
increasing from 23 to 27. Investment in automation continues to support
SHEPD's unplanned CI performance, with an operational success rate of 53%
compared to 43% last year. Two significant faults, alongside the impact of
extreme weather impacted IIS performance over the period.
In SEPD, CI reduced from 25 to 23, with no change in CML at 24. SEPD is
currently outperforming the CI target set by Ofgem, reflecting a reduction of
5.8% of customers impacted by unplanned interruptions compared to 2021/22.
Continual improvements in the reliability of SEPD's Extra High Voltage (EHV)
and Low Voltage (LV) networks are positively contributing to SEPD's incentive
performance.
SSEN has successfully secured improvement in customer satisfaction levels
based on initial RIIO-ED1 Broad Measure incentive scores. The current
performance is an improvement on last year and provides an upward trend which
is supported by a comprehensive improvement plan for each Broad Measure
category in SEPD. A highest ever league table position in the Stakeholder
Engagement and Customer Vulnerability (SECV) incentive was achieved in 2021/22
resulting in an estimated revenue of £1.5m representing SSEN Distribution's
second highest return since the incentive was established.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
As a provider of critical national infrastructure, SSEN Distribution plays a
vital role in accelerating the transition to net zero. The climate emergency,
cost of living crisis and unstable geopolitical situation mean that RIIO-ED2
will be a unique price control.
SSEN Distribution's RIIO-ED2 Business Plan, which was co-created with
stakeholders, is a core component of SSE Group's Net Zero Acceleration
Programme. The Final Business Plan proposed a total base expenditure of
£3.99bn, representing a 32% increase over an equivalent timeframe in
RIIO-ED1. It reflected additional requirements for customers over the five
years to 2028. With the transition to net zero gathering pace, we are now
seeing a significant rise in the uptake of low-carbon technologies,
particularly EV chargepoints, heat pumps, and battery storage. At Final
Determination stage later this year, Ofgem can drive the efficient investment
in energy systems required to enhance security of supply in a more volatile
geopolitical environment. This will support quicker decarbonisation, increase
network resilience giving consumers the confidence to switch to low-carbon
technologies, and ultimately keep costs low in the longer-term. This will mean
network customers can benefit from a just energy transition to net zero.
In August 2022, the BEIS and Ofgem publication, 'Electricity Networks
Strategic Framework: Enabling a secure, net zero energy system', detailed a
vision for how the electricity network can act as an enabler of a secure,
resilient, net zero energy system, and noted the substantial opportunities for
growth and jobs generated by network investment. BEIS and Ofgem estimate that
investment in electricity networks to meet net zero could directly support in
excess of 50,000-130,000 FTE jobs by 2050, contributing an estimated £4-11bn
of Gross Value Added to the UK economy as well as delivering positive impacts
on wider sectors. The framework also recognises the pivotal role that DNOs
will continue to play in supporting the UK's smart technology industry and
businesses across the country.
SSE Renewables key performance indicators
SSE Renewables Sept 22 Sept 21
Renewables adjusted operating profit - £m 22.5 25.4
Renewables reported operating (loss) - £m (29.3) (33.6)
Renewables adjusted investment and capital expenditure before acquisitions - 426.3 417.5
£m
Generation capacity - MW
Onshore wind capacity (GB) - MW 1,285 1,285
Onshore wind capacity (NI) - MW 122 122
Onshore wind capacity (ROI) - MW 567 567
Total onshore wind capacity - MW 1,974 1,974
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) - MW 3,920 3,920
Contracted capacity 2,792 2,792
Generation output - GWh
Onshore wind output (GB) - GWh 1,207 805
Onshore wind output (NI) - GWh 112 76
Onshore wind output (ROI) - GWh 509 405
Total onshore wind output - GWh 1,828 1,286
Offshore wind output (GB) - GWh 558 563
Conventional hydro output (GB) - GWh 1,020 907
Pumped storage output (GB) - GWh 113 97
Total renewable generation (inc. pumped storage) - GWh 3,519 2,853
Total renewable generation (also inc. constrained off) - GWh 3,725 2,901
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 134GWh of constrained off generation in
HY2022/23 and 44GWh in HY2021/22; Offshore wind output excludes 72GWh
constrained off generation in HY2022/23 and 4GWh in HY2021/22
Note 4: Biomass capacity of 15MW and output of 30GWh in HY2022/23 and 37GWh
HY2021/22 is excluded, with the associated operating profit or loss reported
within Distributed Energy
SSE Renewables overview
SSE Renewables' strategy is to drive the net zero transition through the
world-class development, financing, construction and operation of renewables.
The business comprises the Group's existing operational assets and those under
development in onshore wind, offshore wind, flexible hydro electricity,
run-of-river hydro electricity, pumped storage, as well as solar and batteries
in international markets. Its operational offshore wind installed capacity is
487MW with its onshore wind and hydro electric installed capacity at 1,974MW
and 1,459MW respectively. SSER is currently leading the construction of more
offshore wind than any other company in the world.
Operational delivery
SSE Renewables' hydro assets continue to play an important role in providing
cost-effective, low-carbon flexibility to the system, providing additional
diversified revenue streams. Rainfall in the first half of the year was
exceptionally low, which has had a major impact on hydro's output. However,
station availability remained very high, and through proactive water
management, hydro has been able to generate when the system most requires it.
Summer outages were managed well, and plant availability is high going into
winter months.
Onshore wind also saw very high availability with volumes at 98% of planned
volume.
Late summer saw lower wind resource than anticipated and offshore output was
further impacted by delays to the Seagreen offshore wind farm project.
Offshore output in the first half of the year was 63% of planned levels,
though excluding Seagreen the figure rose to 84%. The outlook is positive with
the significant grouted connection works at Greater Gabbard and the inter
array cable repairs at Beatrice complete. The service operation vessel is
mobilised at Seagreen with positive early asset performance.
For financial performance commentary please refer to the Group Financial
Review.
Construction programme
All three phases of the world's largest offshore wind farm at Dogger Bank
(each 1,200MW, SSE share 40%) remain on track. Onshore works are continuing on
all three phases, with the three convertor stations at various stages of
construction and the onshore HVDC cables already installed on Dogger Bank A
and Dogger Bank B. Offshore work is well under way for Dogger Bank A with
successful installation of the first monopiles and transition pieces and the
175km offshore export cable. Although there have been some delays to the
foundation installation programme, and weather and vessel availability remain
as risks, Dogger Bank A is still expecting to achieve first power during 2023.
On Seagreen 1 (1,075MW, SSE share 49%), which will be the world's deepest,
fixed-bottom offshore wind farm once operational, there were 78 jackets and 65
turbines installed as at 11 November 2022. The offshore substation platform
has been successfully installed and, following first power in August, 27
turbines are now exporting energy. All onshore cabling works and export cable
installation is progressing as planned. Due to challenging weather conditions
over the first half of the financial year and delays encountered with the
S7000 installation vessel subcontracted to the project, Seagreen is expected
to be completed in summer 2023, assuming normal weather and planned vessel
availability.
Onshore, construction is progressing well on Viking (443MW) with all 70km of
access tracks finished and all 103 bases completed on 12 November 2022. Work
on the DC substation is continuing with all transformers delivered safely. The
safety and wellbeing of the Viking team has been a particular focus since the
tragic death on site of a BAM Nuttall Contractor, Liam Macdonald, in June and
there is a determination to deliver the remainder of the project safely.
Turbines will be installed in early 2023 and completion is planned for July
2024. In July, Viking was awarded a CfD in Allocation Round 4 covering 50% of
the output of Viking for 15 years at £46.39/MWh, in 2012 prices.
In Ireland, Lenalea wind farm (30MW, SSE share 50%) construction is
progressing and it is due to be commissioned in late 2023. Following a final
investment decision in August, Yellow River (104MW) started construction at
the beginning of November 2022 and will proceed on a merchant basis.
In hydro, all major station outages have been successfully completed and the
refurbishment of Tummel Bridge station remains on track for completion in
Autumn 2023.
Growth opportunities - domestic
SSE Renewables' core markets of the UK and Ireland continue to offer
considerable opportunities for growth over the near, medium and long term.
In August, consent was received for the Bhlaraidh Extension (in excess of
100MW) in Scotland and in September for Drumnahough (60MW, SSE share 50%)) in
Ireland. A decision on consent for Achany Extension (in excess of 80MW) in
Scotland is expected by the end of FY22/23.
In October, SSE Renewables reached an agreement to acquire Aberarder wind
farm, a 12-turbine, 50MW consented development project located adjacent to the
operational Dunmaglass wind farm (94MW, SSE share 50%).
SSE Renewables recently launched a fleet-wide assessment of where batteries,
hydrogen and solar could be co-located with existing onshore assets.
Co-location could present a material opportunity for further domestic growth
by optimising existing grid connections and secured land on existing sites. On
hydro, SSE Renewables is also actively seeking additional investment
opportunities, including adding pumping capabilities to existing stations.
Offshore, the consented Seagreen 1A (500MW, SSE Renewables share 49%) did not
secure a CfD in Allocation Round 4 but is currently exploring alternative
routes to market to take the project forward.
Looking to the medium term, SSE Renewables is working towards a consent
application submission by the end of 2022 for the Berwick Bank wind farm. The
aim is to secure consent for the up to 4.1GW project in 2023 and for it to be
operational around the end of the decade.
North Falls 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.
Ossian wind farm is SSE Renewables' floating offshore wind project secured in
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 recently increased its potential maximum capacity from
2.6GW to up to 3.6GW (SSE Renewables share 40%) following completion of a full
geophysical and benthic survey of the project area. It continues to progress
through the early stages of development and could play an important part in
meeting the UK Government's increased floating wind target of 5GW by 2035.
SSE Renewables also aims to contribute additional capacity needed to meet
Ireland's new offshore wind target of 7GW by 2030. Arklow Bank Wind Park 2
(800MW) is progressing through the new marine consenting regime with a Marine
Area Consent offer (to secure seabed rights) received in October 2022. Arklow
intends to participate in the first Offshore Renewable Energy Support Scheme
(ORESS) auction, expected in Q2 2023, with a view to being operational by
2028.
A foreshore licence has been secured for site investigations for the 1,000MW
Braymore Wind Park project off the north-east coast of Ireland and an
application has been submitted for the 1,200MW Celtic Sea Array off the
south-east coast. Celtic Sea Array and Braymore Wind Park will both apply for
a Marine Area Consent in the government's next phase, expected in 2023.
In August, the UK Government acknowledged the need for large-scale and
long-duration electricity storage and confirmed it will develop policy to
enable the investment by 2024. Subject to the outcome of these policy
decisions, SSE's Coire Glas pumped hydro storage project (up to 1,500MW) could
progress to an FID decision by 2024/25 with the objective of being completed
around the end of the decade.
SSE's first green hydrogen projects - the Gordonbush H2 project co-located
with Gordonbush wind farm and the Galway Hydrogen Hub (GH2) in Ireland - are
progressing through their respective planning processes.
Growth opportunities - international
In September 2022, SSE Renewables completed the acquisition from Siemens
Gamesa Renewable Energy of an onshore development platform across Spain,
France, Italy and Greece for a consideration of €580m. The platform
comprises 2.2GW of secured and up to 3GW of prospective onshore wind and solar
hybridisation projects. The most advanced projects are progressing well to
commence construction in FY23/24. 'Bolt on' acquisition opportunities to
further leverage the strength of the platform are being actively explored.
In the Netherlands, SSE Renewables is participating in the Hollandse Kust
(west) offshore wind tender for the 700MW HKW Site VI with the results
expected in December 2022.
SSE Renewables continues to pursue offshore wind development activities in
Japan within its joint ownership company, SSE Pacifico (80% stake). The
Japanese Government has confirmed the Round 2 auction process will begin
towards the end of 2022. SSE Pacifico is looking at potential opportunities to
participate alongside partners, whilst continuing to focus its development
activities on projects targeting future auctions.
SSE Renewables has submitted an application to the Polish Government for an
Offshore Location License (OLL) for the allocation of development rights for a
954MW offshore wind farm in the Baltic Sea, which would be developed in
partnership with Acciona Energia. The outcome of the process is expected in Q1
2023. The companies awarded through this process will have the chance to
qualify and participate in Contract for Difference (CfD) auctions starting in
2025.
SSE Renewables also continues to work with Acciona Energia on offshore wind
opportunities in Spain and is awaiting the Spanish Government's final offshore
wind regulations.
Elsewhere, SSE Renewables is assessing growth options across selected markets
in Northern Europe and the United States. It continues to assess participation
in upcoming offshore leasing rounds, for example, in California, which will
take place in December 2022.
Sse renewables project pipeline
Project Location Technology Capacity (MW) SSE Share (MW)
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 1,200 480
Seagreen 1 GB Offshore wind 1,075 527
Viking GB Onshore wind 443 443
Yellow River ROI Onshore wind 104 104
Lenalea ROI Onshore wind 30 15
Total in construction 2,529
Late-stage development
Seagreen 1A GB Offshore wind 500 245
Bhlaraidh Ext. GB Onshore wind Up to 100 Up to 100
Strathy South GB Onshore wind 208 208
Other GB & Ireland GB & Ire Onshore wind - 137
Spanish projects Spain Onshore wind(3) 104 104
France, Italy and Greece projects Various Onshore wind(3) 127 127
Coire Glas GB Pumped storage Up to 1,500 Up to 1,500
Total late-stage development 2,421
Early-stage development
Berwick Bank GB Offshore wind 4,100 4,100
Ossian (ScotWind lease) GB Offshore wind Up to 3,600 Up to 1,440
Arklow Bank 2 ROI Offshore wind 800 800
North Falls GB Offshore wind 504 252
Cloiche GB Onshore wind 125 125
Other GB & Ireland GB & Ire Onshore wind - 166
Spanish projects Spain Onshore wind(3) 989 989
France, Italy and Greece projects Various Onshore wind(3) 953 953
Total early-stage development 8,825
Future prospects
Braymore Point ROI Offshore wind 1,000 1,000
Celtic Sea Array ROI Offshore wind 1,200 1,200
Japanese projects Japan Offshore wind ~6,000 ~4,800
Other GB GB Onshore wind - ~350
Other Ireland Ire Onshore wind - ~250
Spanish projects Spain Onshore wind(3) ~2,300 ~2,300
France, Italy and Greece projects Various Onshore wind(3) ~850 ~850
Other GB Hydro GB Hydro 75 75
Total future prospects >10,000
Note 1: Table reflects ownership and development status as at 16(th) November
2022
Note 2: Late-stage is consented in GB and grid or land security elsewhere,
early-stage has land rights in GB and some security over planning or land
elsewhere. Future prospects are named sites where non-exclusive development
activity is under way.
Note 3: Includes solar hybridisation
SSE Thermal
SSE Thermal key performance indicators
SSE Thermal Sept 22 Sept 21
Thermal adjusted operating profit - £m 100.4 36.1
Thermal reported operating profit - £m 342.7 215.6
Thermal adjusted investment and capital expenditure, before acquisitions - £m 89.2 93.3
Generation capacity - MW
Gas- and oil-fired generation capacity (GB) - MW 4,645 3,975
Gas- and oil-fired generation capacity (ROI) - MW 1,292 1,292
Total thermal generation capacity - MW 5,937 5,267
Generation output - GWh
Gas- and oil-fired output (GB) - GWh 8,715 6,021
Gas- and oil-fired output (ROI) - GWh 443 1,791
Total thermal generation - GWh 9,158 7,812
Note 1: Capacity is wholly owned and share of joint ventures; September 2022
capacity reflects share of Triton Power portfolio with acquisition completed
1st September 2022.
Note 2: Output is based on SSE 100% share of wholly owned sites and 100% share
of Marchwood PPAs due to the contractual arrangement. In September 2021 SSE's
offtake agreement for 100% of output from its Seabank CCGT JV expired, with
output following that date only recognised to the extent of its 50% equity
share.
Note 3: Output in GB excludes 651GWh of pre-commissioning output from Keadby 2
CCGT in the six months to September 2022, with completion of performance
validation testing expected January 2023
SSE Thermal overview
SSE Thermal owns and operates conventional flexible thermal generation in the
UK and Ireland. These assets play a key role in the SSE Group and wider energy
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,
most notably in carbon capture and storage and hydrogen technologies.
Operational delivery
SSE Thermal's Combined Cycle Gas Turbine (CCGT) fleet plays an important role
in the UK and Ireland, providing flexibility at scale to tight and volatile
energy markets and supporting the Government, regulator and ESO in their
obligation to ensure security of supply. The fleet also delivers value for the
SSE Group portfolio by providing a defence against wind price capture
volatility and actively responding to system need through the Balancing
Market, illustrating the importance of flexible assets in securing a resilient
transition to net zero.
In the GB market, significant periods of high spark spreads over the first
half of the year have allowed value to be secured by the fleet in utilising
its inherent flexibility to sell output to the market, particularly in the
Balancing Market, and contracting forward ahead of delivery. Although this
period of very high and volatile gas prices has resulted in higher profits at
half year, the commercial risks associated with plant failure are also high.
Despite the overall availability of the fleet meeting expectations, outages at
Medway, Marchwood and Great Island have partially offset some of the market
value captured.
SSE Thermal's role is to respond to market conditions and system balancing
requirements; with increasing renewable penetration, strong operational
performance is less dependent on the volume of the fleet's output, and more on
its availability at times of system stress. Managing availability responsibly
is therefore a key focus for SSE Thermal.
Following an agreement in June, SSE Thermal, alongside Equinor as 50/50
partner, completed the acquisition of the Triton Power portfolio on 1
September in a £341m transaction. The portfolio includes the 1.2GW Saltend
power station in the Humber along with two smaller plants, Indian Queens power
station, a 140MW OCGT in Cornwall, and Deeside power station in North Wales, a
decommissioned CCGT which provides carbon-free inertia to the system. These
assets provide a platform to develop future decarbonisation options, in
particular at Saltend, as outlined below.
In July, SSE Thermal completed the sale of the closed and decommissioned
Fiddler's Ferry power station to natural resources company Peel NRE, who have
future development ambitions for the site.
For financial performance commentary please refer to the Group Financial
Review.
SSE Thermal Capacity Contract Awards
The following agreements have been awarded through competitive auctions:
Station Asset type Station Capacity SSE share of contract Capacity obligation
Medway (GB) CCGT 735MW 100% To September 2023
Keadby (GB) CCGT 755MW 100% To September 2026
Keadby 2 (GB) CCGT 893MW 100% 16-years commencing October 2022
Peterhead (GB) CCGT 1,180MW 100% To September 2026
Seabank (GB) CCGT 1,234MW 50% To September 2026
Marchwood (GB) CCGT 920MW 100% To September 2026
Saltend (GB) CCGT 1,200MW 50% To September 2026
Indian Queens (GB) OCGT 140MW 50% To September 2026
Slough Multifuel (GB) Energy from Waste 50MW 50% 15-years commencing October 2024
Great Island (Ire) CCGT 464MW 100% To September 2026
Rhode (Ire) Gas/oil peaker 104MW 100% To September 2026
Tawnaghmore (Ire) Gas/oil peaker 104MW 100% To September 2026
Tarbert (Ire) Oil 620MW 100% To September 2023
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.
Capacities stated reflect Transmission Entry Capacity
Marchwood (SSE equity share 50%) tolling arrangement means SSE receives 100%
of economic benefit from capacity contract
Keadby 1 has capacity obligation in 2022/23 and 2025/26 but none in 2023/24 or
2024/25 contract years.
Keadby 2 16 year obligation comprised of a T-1 and a 15 year contract
Growth opportunities
Delivering lower-carbon flexibility is a key pillar of SSE's NZAP. Developing
decarbonised alternatives to the existing CCGT fleet will be vital to deliver
SSE's goal to cut carbon intensity by 80% by 2030 and achieve its
science-based carbon reduction targets, aligned with a 1.5C global warming
scenario. SSE Thermal is developing projects that include carbon capture and
storage (CCS) and hydrogen; technologies which will be critical to society in
the transition to net zero, enabling enhanced renewables deployment by
balancing the system.
In the first half, SSE Thermal made good progress in its plans for carbon
capture power stations, which are being co-developed with Equinor. Building on
the selection of the East Coast Cluster as a Track 1 cluster, it was announced
in August 2022 that Keadby 3 Carbon Capture Power Station has been shortlisted
to progress to the due diligence stage of the UK Government's Cluster
Sequencing Process. This process will give the project the opportunity to
receive government support through a Dispatchable Power Agreement; a revenue
support scheme designed for power projects with carbon capture. A contract for
the completion of FEED study (Front End Engineering Design) for the power
station, which will be up to 910MW, was announced in June. The station could
be operational by 2027 subject to reaching a final investment decision in
2023. It would capture up to 1.5m tonnes of CO2 a year, which represents at
least 5 per cent of the UK Government's 2030 target, while providing
low-carbon, flexible power to back-up renewable generation.
Details on the timing for selection of Track 2 clusters have not been
confirmed although the UK Government has committed to engaging with industry
this calendar year on that process. The Scottish Cluster, a 'reserve Track 1'
cluster continues to be well placed, with the UK Government committed to
supporting four clusters by 2030, including two by the middle of this decade.
SSE Thermal and Equinor's Peterhead Carbon Capture power station project is
likewise continuing to develop with planning application submitted in March
and July's announcement of the award of a FEED study contract.
Low-carbon hydrogen will be an important facet of a net zero economy, with the
British Energy Security Strategy published in April 2022 setting out an
ambition for a production capacity of 10GW by 2030 to secure indigenous
supplies of low-carbon energy. The UK Government's 2021 Hydrogen Strategy
highlighted the role it will play in providing flexible energy for power, heat
and transport and the need for large hydrogen storage facilities. In August
2022, UK Government launched a consultation to support the delivery of
hydrogen transport and storage infrastructure critical to enabling the
targeted volumes of production.
SSE Thermal is progressing with a proof-of-concept project, the purpose of
which is to better understand and de-risk the interactions between hydrogen
electrolysis, hydrogen cavern storage and 100% hydrogen dispatchable power,
with the intention of drawing on government support via the Net Zero Hydrogen
Fund and Hydrogen Business Model. This project will enable and inform the
scaling up of both SSE's, but also the wider Humber's, hydrogen ambitions. In
parallel, SSE Thermal is continuing to develop low-carbon hydrogen projects,
alongside Equinor, including hydrogen blending at Keadby2, Keadby hydrogen
power station and Aldbrough hydrogen storage, and sees significant further
growth opportunities as routes to market develop.
SSE Thermal and Equinor's acquisition of the Triton Power portfolio in
September 2022 adds to this hydrogen pipeline, with plans to blend up to 30%
low carbon hydrogen by 2027. Saltend power station is a potential primary
offtaker of hydrogen from Equinor's H2H Hydrogen Production facility, which
has also progressed to the due diligence phase of the UK Government's Cluster
Sequencing Process
SSE Thermal continues to explore the decarbonisation of the Medway site
through hydrogen or CCS, and has further opportunities such as a new potential
low carbon power generation development option in North West England,
well-located relative to the HyNet Cluster.
SSE Thermal is also actively exploring opportunities for low carbon flexible
generation in Ireland where policies for hydrogen and CCS are currently at an
early stage, but there is definite potential for these technologies, with
solutions such as biofuels potentially providing a transitional step to
hydrogen power generation in the near term.
Commissioning of Keadby 2, SSE Thermal's 893MW CCGT, started in October 2021
with performance validation testing expected to complete in January 2023,
which represents a delay of three months. The unit has been generating
intermittently since the commencement of its commissioning phase and has
captured some value to date. This delay does not impede the achievement of
timelines for completing testing required under Capacity Market Rules. Keadby
2 brings Siemens Energy's cutting-edge turbine technology to the UK; this
first-of-a-kind turbine is one of the most efficient in the world and will
displace older, more carbon intensive plant on the system. It is capable of
being upgraded to decarbonise the system further, through hydrogen blending or
carbon capture and storage.
Gas Storage
Gas Storage key performance indicators
Gas Storage Sept 22 Sept 21
Gas Storage adjusted operating profit - £m 147.8 28.7
Gas Storage reported operating profit - £m 544.8 263.9
Gas storage adjusted investment and capital expenditure - £m 6.5 0.8
Gas Storage overview
SSE Thermal holds around 40% of the UK's conventional underground gas storage
capacity. These assets support stability and security of gas supply and can
potentially be converted to hydrogen storage for a net zero future.
Through the first half, SSE Gas Storage performed strongly, navigating highly
volatile gas markets and optimising assets to help ensure security of gas
supply for the UK whilst providing important liquidity to the market. As well
as their clear societal value, the assets are also a significant risk
management tool to the portfolio by offering short-notice flexibility to
mitigate exposures from wind speeds and demand variability. The increasing
focus on gas security arising out of geopolitical developments underlines the
importance of gas storage.
Following a number of years of very low profitability, SSE's gas storage
assets have made a substantial contribution in the period with high
withdrawals in response to market signals and trading profits realised against
a low stock price. The return to service of Aldbrough Cavern 9 has also
enabled the capture of additional value, as has investment to increase
available capacity. These assets are well positioned going into the winter,
with high levels of gas stored and technical readiness to respond to market
demand. As a result of an increase in future market revenues forecast from
these types of assets, the historical impairments have been fully reversed on
Aldbrough at half year.
SSE Thermal remains committed to working with UK Government departments and
Ofgem to ensure the critical role of UK storage is properly valued.
Plans to develop a potentially world-leading hydrogen storage project at
Aldbrough with Equinor, announced in July 2021, are progressing. Following the
commitment in the British Energy Security Strategy to deliver hydrogen
transport and storage business models by 2025, the UK Government published a
consultation on this at the end of August 2022. This consultation notes the
importance of storage as a 'system balancer' and envisages underground
hydrogen storage becoming important to the functioning of the hydrogen economy
by the end of the decade. SSE Thermal is participating in industry working
groups to progress the development of the business model. As described in the
previous section, SSE Thermal has submitted a proof-of-concept project to the
Net Zero Hydrogen Fund, including a hydrogen cavern storage element.
For financial performance commentary please refer to the Group Financial
Review.
Energy Customer Solutions
overview
SSE Business Energy in GB (non-domestic) and SSE Airtricity on the island of
Ireland (domestic and non-domestic) provide a shopfront and route to market
for SSE's generation, renewable green products and low-carbon energy
solutions.
The Russian invasion of Ukraine and resulting disruption on global commodity
markets led to notable cost inflation, which the customer business has been
actively managing on behalf of its customers. Given the operating environment,
the business placed a keen focus on risk management, particularly in relation
to its hedging position and pricing approach, to maintain service to its
customers in a responsible and sustainable way. As detailed in the subsequent
business breakdowns it has also taken several steps to increase its support
for those customers who need it most, as well as working constructively with
governments on assistance packages.
Across Great Britain and Ireland, focus remains on supporting customers to
reduce energy consumption, modernise systems and expand the green energy
product offering to ensure the business grows its position as a trusted
partner to customers on their net zero journey.
The business has also made strides on diversity targets, particularly in the
recruitment of personnel to green customer service roles, while also targeting
support to help staff on lower salary bandings.
SSE Business Energy
SSE Business Energy key performance indicators
SSE Business Energy Sept 22 Sept 21
Business Energy adjusted operating profit - £m 60.5 2.4
Business Energy reported operating (loss)/profit - £m (60.5) 2.4
Electricity Sold - GWh 5,806 6,161
Gas Sold - mtherms 65.2 73.0
Aged Debt (60 days past due) - £m 127.3 72.6
Bad debt expense - £m 47.4 1.4
Energy customers' accounts - m 0.46 0.47
SSE Business Energy overview
In GB, SSE Business Energy (BE) markets its products under the SSE Energy
Solutions brand alongside SSE Distributed Energy, selling power to around
469,000 non-domestic customers across GB.
Operational delivery
With all new customers signing fixed contracts in 2021 offered 100% renewable
electricity from SSE Renewables' wind and hydro assets, the number of
customers on Business Energy's 100% green-as-standard tariff has increased by
41% over the period.
Following the successful 2021 launch of its new simplified Corporate Power
Purchase Agreement proposition, Business Energy has successfully closed a
number of contracts for business customers, allowing them to secure 100%
renewable power backed by SSE assets for up to five years. Smart meters will
continue to be a vital tool for consumers to manage and reduce demand, with BE
continuing with its rollout of the Smart programme, having successfully
installed 11,700 smart meters in the period.
In response to higher customer engagement, the business has also increased
resourcing levels to enhance support for customers during this period. This
has included introducing online self-service for business customers.
Business Energy has also been actively delivering Faster Switching and other
regulatory schemes. In addition, in recent weeks SSE Business Energy has been
implementing the Energy Bill Relief Scheme for eligible customers. The
business has taken a pragmatic approach, working collaboratively with
Government to complete system change at pace.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
Business Energy is continuing to expand its product offering of green energy
and low carbon solutions in order to enhance its position as the trusted
expert for business customers on their net zero journey. During the period, it
has forged a number of successful partnerships to bring innovative and
practical products to customers that the business will continue to build on
throughout 2023 and beyond.
This includes Business Energy's recent partnership with sustainability
platform, Zellar, which provides access to a knowledge centre for businesses
seeking to operationalise sustainability practices, tools to measure progress,
and a directory of accredited sustainable goods and service suppliers.
Sse Airtricity
SSE Airtricity key performance indicators
SSE Airtricity Sept 22 Sept 21
Airtricity adjusted operating profit/(loss) - £m 14.9 (2.9)
Airtricity reported operating profit/(loss) - £m 14.8 (2.9)
Aged Debt (60 days past due) - £m 9.7 8.6
Bad debt expense - £m 1.8 2.0
Airtricity Electricity Sold - GWh 2,693 2,485
Airtricity Gas Sold - mtherms 68.8 65.7
All Ireland energy market customers (Ire) - m 0.73 0.68
SSE Airtricity overview
The SSE Airtricity brand continues to strengthen, and the business serves over
700,000 home and business customers across the island of Ireland.
Operational delivery
The nature of electricity markets has meant all suppliers, regardless of
energy mix, have been exposed to rising wholesale prices. While the business
has been actively managing market challenges, sustained volatility in global
energy markets has impacted customer tariff decisions during the first half of
the year.
SSE Airtricity established the largest customer support fund of any supplier
on the island, making provision for up to £21m in customer affordability
funding. This support includes holding energy costs for financially vulnerable
customers* at June 2022 levels until 31 March 2023, a free home energy upgrade
for 600 vulnerable households and donations of almost £2m to charitable
partners. These measures have ensured support is targeted directly at
communities across the island and demonstrate SSE's commitment to responsible
business. Indeed, as mentioned earlier, the actions taken in Airtricity will
mean the Group does not expect to record a profit within the SSE Airtricity
business this financial year, even accounting for any additional returns from
Airtricity renewable contracts resulting from REFIT1.
With that in mind, further context of the profits covered earlier in the
Financial Review is required. An adjusted operating loss of £(2.9)m was
recognised in the prior year, which included one-off adjustments which reduced
adjusted operating profit by a net £(17)m. Excluding these adjustments, the
reported and adjusted operating profit would have been around £14m, which is
broadly consistent with the current period result. However, unlike the prior
year, the current overall profitability position is expected to reverse by
year end as the business further supports customers via SSE Airtricity's
enhanced affordability fund.
As in GB, on the island of Ireland Airtricity has been working closely with
government partners to establish and administer government support schemes
with optimum efficiency, so customers receive the support within the
timeframes outlined in the schemes. This has included delivering the Microgen
Scheme and enhanced consumer protection measures for Winter 2022 in Ireland.
The business has also supported customers to reduce their energy consumption
through service offerings such as full home retrofits in Ireland enabling cost
savings and reducing carbon emissions. It has brought several innovations to
market such as funded solar offerings. It will continue to build on these
innovations in the second half of the year as it continues to support
customers on their net zero journey while enabling cost reduction.
For additional financial performance commentary please refer to the Group
Financial Review.
*excludes customers of the AGSNI business, as a Regulated entity
Growth opportunities
SSE Airtricity's pioneering first Sustainable Energy Authority of Ireland
('SEAI') accredited one-stop-shop model for home energy efficiency upgrade in
the Republic of Ireland and Northern Ireland continues to grow with an
ambition to retrofit 45,000 homes across Ireland by 2030. The business has
secured energy credit savings of 1.5 GWh** and the growth of the Energy
Services business segment remains a key priority for 2023 with further
expansion planned for Northern Ireland.
The business continues to develop its offering in Smart and microgeneration
with further propositions planned in the second half. SSE Airtricity further
strengthened its B2B customer services with the recent launch of the Electric
Vehicle Charge Points product platform added to existing lighting, solar and
demand side response offerings.
**via our partners AES and Activ8
SSE DISTRIBUTED ENERGY
SSE Distributed Energy key performance indicators
SSE DISTRIBUTED ENERGY Sept 22 Sept 21
SSE Distributed Energy adjusted operating (loss) - £m (8.0) (7.3)
SSE Distributed Energy reported operating (loss) - £m (8.0) (24.8)
SSE Heat Network Customer Accounts 11,799 11,154
Biomass, heat network and other capacity - MW(1) 26 35
Biomass, heat network and other output - GWh 38 51
Note 1: Capacity in September 2022 reflects sale of 8MW Chippenham gas-fired
power station and changes to capacity installed on heat networks
SSE Distributed Energy overview
The primary activities contained within this segment are distributed energy,
solar and battery storage. Distributed energy activities relate to embedded
generation, EV infrastructure, heating and cooling networks and smart
buildings. Solar and battery storage activities relate to a growing pipeline
of grid-scale solar generation and battery storage assets.
Distributed energy, solar and battery storage assets have an increasingly
important role to play in the GB energy system as electrification accelerates
and generation is increasingly led by intermittent wind output. They also
provide valuable diversity and optionality to the SSE portfolio.
Operational delivery
As the grid-scale solar and battery pipeline has grown, a standalone team was
formed to provide increased focus on the successful development and delivery
of the portfolio. Recent progress includes works now fully under way at a 50MW
battery storage asset on a consented site at Salisbury, Wiltshire, with full
energisation expected in summer 2023.
The Distributed Energy team has made progress helping people and places reach
their net zero targets by adopting a 'whole system' approach to connect
localised and flexible energy assets. These include energy optimisation, heat
and cooling networks, electrical networks, smart buildings, and EV charging.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
The Solar and Battery team has nearly doubled its secured pipeline so far this
year from 380MW to 700MW with more than 1GW of further sites under active
consideration. Secured pipeline growth has come through acquisition of a 320MW
battery project at Monk Fryston, which is subject to planning.
Development at the 30MW solar farm at Littleton Pastures in Worcestershire
continues and once complete in 2024, the 77-acre solar site will be capable of
powering some 9,400 homes.
In addition, progress is being made to bring two 150MW battery projects to the
former SSE power station sites at Fiddlers Ferry and Ferrybridge. Once built,
these batteries will also benefit from remote monitoring and energy trading
services through the SSE Enhance platform.
The Distributed Energy team is targeting construction of a network of 300 EV
charging hubs across the UK by 2027 and opened its first site in Glasgow this
summer. It has also announced a partnership with Oxford Properties and M7 Real
Estate to build EV charging hubs at 20 retail parks in the Oxford area:
capable of charging an estimated two million vehicles annually.
ENERGY PORTFOLIO MANAGEMENT (EPM)
EPM key performance indicators
EPM Sept 22 Sept 21
EPM adjusted operating profit - £m 30.3 5.7
EPM reported operating (loss)/profit - £m (1,958.0) 1,209.7
EPM overview
Energy Portfolio Management (EPM) is the energy markets heart of the SSE
Group, securing value on behalf of 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 risk and liquidity
characteristics, which impacts the quantum of hedging possible.
See also SSE's Hedging Position earlier in this document.
Operational Delivery
In the six months to September 2022, EPM navigated continued energy market
volatility, ensuring the SSE portfolio was hedged in accordance with the
Group's approach to hedging and then optimised through prompt periods. The
value EPM secures for SSE's asset portfolio continues to be reported against
individual Business Units. Exposure to shape trades as a legacy of the sale
of SSE's domestic Retail business to Ovo Energy has now expired.
For financial performance commentary please refer to the Group Financial
Review.
Growth Opportunities
Transformation of the EPM Business Unit continues with recruitment into risk,
trading and data analytics. Trading activity is becoming established in
France, Belgium and the Netherlands as the business looks to expand into
Europe to support the Renewables business. Projects to optimise wind balancing
performance and support further international expansion are also progressing.
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 period. 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. The Group has
six profit measures, of which adjusted operating profit and adjusted profit
before tax are the main focus of management through the financial period and
adjusted earnings per share is the main focus of management on an annual
basis. In order to derive adjusted earnings per share, the Group has defined
adjusted operating profit, adjusted net finance costs, and adjusted current
tax charge as components of the adjusted earnings per share calculation.
Adjusted EBITDA is used by management as a proxy for cash derived from
ordinary operations of the Group.
· 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 and also to provide a measure of progress against
the Group's strategic Net Zero Acceleration Programme objectives.
· Debt measures allow management to record and monitor both
operating cash generation and the Group's ongoing financing and liquidity
position.
Changes to APMs in the period
In the period the Group has refined its profit measures for the treatment of
fair value gains arising from an acquisition of a business or a joint venture
interest, which generates an exceptional operating gain on acquisition. The
rationale for including this adjustment to these APMs is set out in adjustment
number 6.
The following section explains the key APMs applied by the Group and referred
to in these statements:
Profit measures
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
· Adjustments to retained Gas Production decommissioning provision
· 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
· Non-controlling share of operating profit
· Non-controlling share of 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
· Adjustments to retained Gas Production decommissioning provision
· Depreciation and amortisation expense on fair value uplifts
· Share of joint ventures and associates' interest and tax
· Non-controlling share of operating profit
Adjusted profit before tax Profit measure Profit before tax · Movement on operating and financing derivatives ('certain
re-measurements')
· Exceptional items
· Adjustments to retained Gas Production decommissioning provision
· Non-controlling share of profit before tax
· 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
· Non-controlling share of financing costs
· Interest on net pension assets/liabilities (IAS 19)
Adjusted current tax charge Profit measure Tax charge · Share of joint ventures and associates' tax
· Non-controlling share of current tax
· Deferred tax including share of joint ventures, associates and
non-controlling interests
· Tax on exceptional items and certain re-measurements
· Reclassification of tax liabilities
Adjusted earnings per share Profit measure Earnings per share · Exceptional items
· Adjustments to retained Gas Production decommissioning provision
· 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, associates and
non-controlling interests
Rationale for adjustments to profit measures
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 (predominately purchase
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 (predominately sales
contracts) 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 inventory 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 recognised as part of 'certain re-measurements' in
the income statement.
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 Adjustments to retained Gas Production decommissioning provision
On 14 October 2021, the Group disposed of its Gas Production business but
retained a 60% share of the decommissioning obligation of the business. Gas
Production was presented as a discontinued operation prior to disposal as the
transaction constituted the exit of all activity in that industry. Adjustments
to the decommissioning obligation are accounted for through the Group's
consolidated income statement and removed from the Group's adjusted profit
measures as the revaluation of the provision is not considered to be part of
the Group's core continuing operations.
4 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.
5 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.
6 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 may 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. Furthermore, SSE
may acquire businesses or joint venture interests which are determined to
generate an exceptional opening gain on acquisition and accordingly an
accounting fair value uplift to the opening assets acquired. These uplifts
create assets or adjustments to 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 any additional depreciation, amortisation and impairment expense
arising from fair value uplifts given these charges derived from significant
one-off gains which are treated as exceptional when initially recognised.
7 Release of deferred income
The Group deducts the release of deferred income in the year from its adjusted
EBITDA metric as it principally relates to customer contributions against
depreciating assets. As the metric adds back depreciation, the income is also
deducted.
8 Interest on net pension assets/liabilities (IAS 19 "Employee Benefits")
The Group's interest income relating to defined benefit pension schemes are
derived from the net assets of the schemes as valued under IAS 19. This will
mean that the credit or charge recognised in any given year will be dependent
on the impact of actuarial assumptions such as inflation and discount rates.
The Group excludes these from its adjusted profit measures due to the non-cash
nature of these charges or credits.
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.
10 Results attributable to non-controlling interest holders
The Group's structure includes non-wholly owned but controlled subsidiaries
which are consolidated within the financial statements of the Group under
IFRS. There is no impact to the current period or prior years but in future
the Group will remove the share of profit attributable to holders of
non-controlling equity stakes in such businesses from all of its profit
measures, to report to all metrics based on the share of profits items
attributable to the ordinary equity holders of the Group. The adjustment will
be applied consistently to all of the Group's adjusted profit measures,
including removing proportionate non-controlling share of operating profit and
depreciation and amortisation from the Group's adjusted EBITDA metric;
removing the non-controlling share of operating profit from the Group's
adjusted operating profit metric; removing the non-controlling share of net
finance costs from the Group's adjusted net finance costs metric; and removing
the non-controlling interest share of current tax from the Group's adjusted
current tax metric.
30 September 2022
Continuing operations (£m) Reported Movement on derivatives Exceptional items Adjustments to Gas Production decommissioning provision Depreciation on FV uplifts Joint venture interest and tax Interest on net pension asset Deferred tax Adjusted
Operating (loss)/profit (635.1) 1,792.4 (448.7) (54.5) 9.4 52.5 - - 716.0
Net finance costs 124.1 (243.7) - - - (29.1) (7.9) - (156.6)
(Loss)/profit before taxation (511.0) 1,548.7 (448.7) (54.5) 9.4 23.4 (7.9) - 559.4
Taxation 122.4 (275.4) 63.5 - - (23.4) - 42.6 (70.3)
(Loss)/profit after taxation (388.6) 1,273.3 (385.2) (54.5) 9.4 - (7.9) 42.6 489.1
Attributable to other equity holders (38.8) - - - - - - - (38.8)
Profit attributable to ordinary shareholders (427.4) 1,273.3 (385.2) (54.5) 9.4 - (7.9) 42.6 450.3
Number of shares for EPS 1,077.2 1,077.2
(Loss)/earnings per share (39.7) 41.8
EBITDA
30 September 2022
Adjusted operating profit from continuing operations Share of joint venture and associates' depreciation and amortisation Release of deferred income Depreciation on FV uplifts Depreciation, impairment and amortisation before exceptional charges Adjusted EBITDA
£m £m £m £m £m £m
716.0 76.1 (7.7) (9.4) 334.3 1,109.3
30 September 2021
Continuing operations (£m) Reported Movement on derivatives Exceptional items Adjustments to Gas Production decommissioning provision Depreciation on FV uplifts Joint venture interest and tax Interest on net pension asset Deferred tax Adjusted
Operating profit 1,904.4 (1,439.2) (157.9) - 10.3 59.2 - - 376.8
Net finance costs (218.3) 55.9 (2.3) - - (34.2) (3.7) - (202.6)
Profit before taxation 1,686.1 (1,383.3) (160.2) - 10.3 25.0 (3.7) - 174.2
Taxation (542.3) 267.5 248.1 - - (25.0) - 39.0 (12.7)
Profit after taxation 1,143.8 (1,115.8) 87.9 - 10.3 - (3.7) 39.0 161.5
Attributable to other equity holders (50.7) - - - - - - - (50.7)
Profit attributable to ordinary shareholders 1,093.1 (1,115.8) 87.9 - 10.3 - (3.7) 39.0 110.8
Number of shares for EPS 1,054.7 1,054.7
Earnings per share 103.6 10.5
EBITDA
30 September 2021
Adjusted operating profit from continuing operations Share of joint venture and associates' depreciation and amortisation Release of deferred income Depreciation on FV uplifts Depreciation, impairment and amortisation before exceptional charges Adjusted EBITDA
£m £m £m £m £m £m
376.8 70.7 (9.1) (10.3) 272.1 700.2
30 September 2020
Continuing operations (£m) Reported Movement on derivatives Exceptional items Adjustments to Gas Production decommissioning provision Depreciation on FV uplifts Joint venture interest and tax Interest on net pension asset Deferred tax Adjusted
Operating profit 939.9 (343.2) (327.0) - 10.3 48.9 - - 328.9
Net finance costs (160.5) 16.5 - - - (47.0) (4.0) - (195.0)
Profit before taxation 779.4 (326.7) (327.0) - 10.3 1.9 (4.0) - 133.9
Taxation (79.3) 60.5 2.8 - - (1.9) - 6.3 (11.6)
Profit after taxation 700.1 (266.2) (324.2) - 10.3 - (4.0) 6.3 122.3
Attributable to other equity holders (46.6) - - - - - - - (46.6)
Profit attributable to ordinary shareholders 653.5 (266.2) (324.2) - 10.3 - (4.0) 6.3 75.7
Number of shares for EPS 1,039.6 1,039.6
Earnings per share 62.9 7.3
EBITDA
30 September 2020
Adjusted operating profit from continuing operations Share of joint venture and associates' depreciation and amortisation Release of deferred income Depreciation on FV uplifts Depreciation, impairment and amortisation before exceptional charges Adjusted EBITDA
£m £m £m £m £m £m
328.9 79.3 (7.9) (10.3) 274.3 664.3
31 March 2022 (restated*)
Continuing operations (£m) Reported Movement on derivatives Exceptional items Adjustments to Gas Production decommissioning provision Depreciation on FV uplifts Joint venture interest and tax Interest on net pension asset Deferred tax Adjusted
Operating profit 3,749.5 (2,097.8) (301.8) 13.1 20.6 147.3 - - 1,530.9
Net finance costs (273.2) (21.0) (3.2) - - (67.8) (7.6) - (372.8)
Profit before taxation 3,476.3 (2,118.8) (305.0) 13.1 20.6 79.5 (7.6) - 1,158.1
Taxation (881.3) 408.0 323.7 - - (79.5) - 122.0 (107.1)
Profit after taxation 2,595.0 (1,710.8) 18.7 13.1 20.6 - (7.6) 122.0 1,051.0
Attributable to other equity holders (50.7) - - - - - - - (50.7)
Profit attributable to ordinary shareholders 2,544.3 (1,710.8) 18.7 13.1 20.6 - (7.6) 122.0 1,000.3
Number of shares for EPS 1,055.0 1,055.0
Earnings per share 241.2 94.8
EBITDA
31 March 2022 (restated*)
Adjusted operating profit from continuing operations Share of joint venture and associates' depreciation and amortisation Release of deferred income Depreciation on FV uplifts Depreciation, impairment and amortisation before exceptional charges Adjusted EBITDA
£m £m £m £m £m £m
1,530.9 146.6 (17.6) (20.6) 612.0 2,251.3
*The comparative Alternative Performance Measures have been restated. See note
2 (v).
debt measure
Group APM Purpose Closest equivalent IFRS measure Adjustments to reconcile to primary financial statements
Adjusted net debt and hybrid capital Debt measure Unadjusted net debt · Hybrid equity
· Outstanding liquid funds
· Lease obligations
· Cash presented as held for sale
rationale for Adjustments to debt measure
11 Hybrid equity
The characteristics of certain hybrid capital securities mean they qualify for
recognition as equity rather than debt under IFRS. Consequently, their coupon
payments are presented within equity rather than within finance costs. As a
result, the coupon payments are not included in SSE's adjusted profit before
tax measure. In order to present total funding provided from sources other
than ordinary shareholders, SSE presents its adjusted net debt measure
inclusive of hybrid capital to better reflect the Group's funding position.
12 Outstanding liquid funds
Outstanding liquid funds are SSE cash balances held by counterparties
including trading exchanges as collateral. Collateral balances primarily
represent net initial margin that will be received on maturity of the related
trades. Loans with a maturity of less than three months are also included in
this adjustment. The Group includes this adjustment in order to better reflect
the immediate cash resources to which it has access, which in turn better
reflects the Group's funding position.
13 Lease obligations
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.
14 Debt and cash attributable to non-controlling interest holders
The Group's structure includes non-wholly owned but controlled subsidiaries
which are consolidated within the financial statements of the Group under
IFRS. There is no impact to the current period or prior years but in future
the Group will remove the share of debt and cash in these subsidiaries
proportionately attributable to the non-controlling interest holders from its
adjusted net debt and hybrid capital metric to present net debt attributable
to ordinary equity holders of the Group.
March September 2022 September 2021 September 2020
2022
£m £m £m £m
(8,015.4) Unadjusted net debt (9,076.4) (8,877.7) (9,639.6)
74.7 Outstanding liquid funds 581.3 (87.4) 59.7
393.5 Lease obligations 388.9 404.7 429.7
- Cash presented as held for sale - - 0.5
(7,547.2) Adjusted Net Debt (8,106.2) (8,560.4) (9,149.7)
(1,051.0) Hybrid equity (1,882.4) (1,051.0) (1,472.4)
(8,598.2) Adjusted Net Debt and Hybrid Capital (9,988.6) (9,611.4) (10,622.1)
capital measures
Group APM Purpose Closest equivalent IFRS measure Adjustments to reconcile to primary financial statements
Adjusted investment and Capital expenditure Capex measure Capital additions to intangible assets and property, plant and equipment · Customer funded additions
· Allowances and certificates
· Additions acquired through business combinations
· Disposed or impaired additions
· Joint ventures and associate additions funding
· Non-controlling share of capital expenditure
· Refinancing proceeds/refunds
Adjusted Investment, Capital and Acquisition Expenditure Capital measure Capital additions to intangible assets and property, plant and equipment · Customer funded additions
· Allowances and certificates
· Additions acquired through business combinations
· Disposed or impaired additions
· Joint ventures and associates' additions funding
· Non-controlling share of capital expenditure
· Refinancing proceeds/refunds
· Acquisition cash consideration
rationalE for Adjustments to capex measures
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 acquired 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 the
acquisition of 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 or interest in an equity-accounted joint venture
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.
However, the fair valuation of consideration paid for the business or
investment is included in the Group's 'adjusted investment, capital and
acquisition expenditure' metric, see 23 below. Please refer to note 12 for
detail of the Group's acquisitions in the period.
18 Additions subsequently disposed/impaired
In the year ended 31 March 2022 there were capex additions of £13.9m related
to the Gas Production business, which was disposed on 14 October 2021. This
adjustment also includes any subsequently derecognised development
expenditure.
19 Joint ventures and associates' additions funding
Joint ventures and associates' additions included in the Group's capital
measures represent the direct loan or equity funding provided by the Group 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 Non-controlling interest share of capital expenditure
The Group's structure includes non-wholly owned but controlled subsidiaries
which are consolidated within the financial statements of the Group under
IFRS. In future, the Group will remove the share of capital additions
attributable proportionately to these equity holders from its "adjusted
investment and capital expenditure" and "adjusted investment, capital and
acquisition expenditure" metrics. This is consistent with the adjustments
noted elsewhere related to these non-controlling interests. This has no impact
on the current or prior period metrics.
21 Refinancing proceeds/refunds
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 17, above. In the year ended
31 March 2022, Doggerbank windfarm reimbursed SSE for previous funding of
£136.7m. In the year ended 31 March 2021, the Group received reimbursed capex
of £246.1m in relation to Seagreen windfarm and £182.5m in relation to
Doggerbank windfarm. These receipts have been deducted from the Group's
adjusted investment and capital expenditure metric for the respective periods.
22 Lease additions
Additions of right of use assets under the Group's IFRS 16 compliant policies
for lease contracts are excluded from the Group's adjusted capital measures as
they do not represent directly funded capital investment. This is consistent
with the treatment of lease obligations explained at 13, above.
23 Acquisition cash consideration in relation to business combinations
The Group has outlined a significant investment programme which will partly be
achieved through the acquisition of businesses with development opportunities
for the Group. The cash consideration paid for these entities is included
within the Group's adjusted investment, capital and acquisition expenditure
metric as it provides stakeholders an accurate basis of cash investment into
the Group's total development pipeline and is consistent with the reporting of
the Group's Net Zero Acceleration Programme.
March 2022 (restated*) September 2022 September 2021 September 2020
£m £m £m £m
921.0 Capital additions to intangible assets 765.4 397.7 213.0
1,392.9 Capital additions to property, plant and equipment 667.2 658.9 510.4
2,313.9 Capital additions to intangible assets and property, plant and equipment 1,432.6 1,056.6 723.4
(91.3) Customer funded additions (54.0) (30.1) (29.4)
(544.5) Allowances and certificates (122.4) (326.7) (119.3)
(197.8) Additions through business combinations (488.7) - -
(13.9) Additions subsequently disposed/impaired - - -
682.5 Joint ventures and associates' additions 363.1 356.7 114.5
(136.7) Refinancing proceeds/refunds - - (246.1)
(85.7) Lease asset additions (27.4) (13.7) (8.7)
1,926.5 Adjusted Investment and Capital Expenditure 1,103.2 1,042.8 434.4
141.3 Acquisition cash consideration 640.0 - -
2,067.8 Adjusted Investment, Capital and Acquisition Expenditure 1,743.2 1,042.8 434.4
Impact of discontinued operations on Group's APMs
The following metrics have been adjusted in all periods presented to exclude
the contribution of the Group's investment in Scotia Gas Networks Limited
("SGN") which was disposed on 22 March 2022 and Group's Gas Production
operations which were disposed on 14 October 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', 'investment and capital expenditure'
and 'investment, capital and acquisition expenditure' have not been adjusted
as the Group continues to fund the discontinued operations until the date of
disposal.
The following table summarises the impact of excluding discontinued operations
from the APMs of the continuing operations of the Group in the current and
prior periods:
March September 2022 September 2021 September 2020
2022
(restated*)
£m £m £m £m
2,384.8 Adjusted EBITDA of SSE Group (including discontinued operations) 1,144.3 810.0 780.5
(101.4) Less: Gas Production (profit)/loss (35.0) (77.7) 3.0
(32.1) Less: SGN profit - (32.1) (119.2)
2,251.3 Adjusted EBITDA of continuing operations 1,109.3 700.2 664.3
1,653.3 Adjusted operating profit of SSE Group (including discontinued operations) 751.0 475.5 415.3
(101.4) Less: Gas Production (profit)/loss (35.0) (77.7) 3.0
(21.0) Less: SGN profit - (21.0) (89.4)
1,530.9 Adjusted operating profit of continuing operations 716.0 376.8 328.9
377.6 Adjusted net finance costs of SSE Group (including discontinued operations) 156.6 210.6 225.5
(0.1) Less: Gas Production - (1.6) (1.1)
(4.7) Less: SGN - (6.4) (29.4)
372.8 Adjusted net finance costs of continuing operations 156.6 202.6 195.0
1,275.7 Adjusted profit before tax of SSE Group (including discontinued operations) 594.4 264.9 189.8
(101.3) Less: Gas Production loss/(profit) (35.0) (76.1) 4.1
(16.3) Less: SGN profit - (14.6) (60.0)
1,158.1 Adjusted profit before tax of continuing operations 559.4 174.2 133.9
109.4 Adjusted current tax of SSE Group (including discontinued operations) 70.3 15.0 23.7
(2.3) Less: SGN current tax charge - (2.3) (12.1)
107.1 Adjusted current tax of continuing operations 70.3 12.7 11.6
105.6 Adjusted earnings per share of SSE Group (including discontinued operations) 45.1 18.9 11.5
(9.6) Less: Gas Production (earnings)/losses per share (3.3) (7.2) 0.4
(1.2) Less: SGN (earnings)/losses per share - (1.2) (4.6)
94.8 Adjusted earnings per share of continuing operations 41.8 10.5 7.3
*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 2022 to 30 September 2022
2022 2021
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
Note £m £m £m £m £m £m
Continuing operations
Revenue 5 5,629.4 - 5,629.4 3,543.5 - 3,543.5
Cost of sales (4,333.7) (1,792.4) (6,126.1) (2,625.1) 1,439.2 (1,185.9)
Gross profit/(loss) 1,295.7 (1,792.4) (496.7) 918.4 1,439.2 2,357.6
Operating costs (664.5) 218.9 (445.6) (591.8) 157.9 (433.9)
Other operating income 3.2 89.1 92.3 9.3 - 9.3
Operating profit/(loss) before joint ventures and associates 634.4 (1,484.4) (850.0) 335.9 1,597.1 1,933.0
Joint ventures and associates:
Share of operating profit 126.7 140.7 267.4 30.6 - 30.6
Share of interest (29.1) - (29.1) (34.2) - (34.2)
Share of tax (23.4) - (23.4) (1.6) (23.4) (25.0)
Share of profit/(loss) on joint ventures and associates 74.2 140.7 214.9 (5.2) (23.4) (28.6)
Operating profit/(loss) from continuing operations 5 708.6 (1,343.7) (635.1) 330.7 1,573.7 1,904.4
Finance income 7 58.2 243.7 301.9 38.3 2.3 40.6
Finance costs 7 (177.8) - (177.8) (203.0) (55.9) (258.9)
Profit/(loss) before taxation 589.0 (1,100.0) (511.0) 166.0 1,520.1 1,686.1
Taxation 8 (89.5) 211.9 122.4 (26.7) (515.6) (542.3)
Profit/(loss) for the period from continuing operations 499.5 (888.1) (388.6) 139.3 1,004.5 1,143.8
Discontinued operations
Profit/(loss) from discontinued operations, net of tax 9 - 35.0 35.0 89.4 (183.2) (93.8)
Profit/(loss) for the period 499.5 (853.1) (353.6) 228.7 821.3 1,050.0
Attributable to:
Ordinary shareholders of the parent 460.7 (853.1) (392.4) 178.0 821.3 999.3
Other equity holders 38.8 - 38.8 50.7 - 50.7
(Losses)/earnings per share
Basic (pence) 11 (36.4) 94.7
Diluted (pence) 11 (36.4) 94.6
(Losses)/earnings per share - continuing operations
Basic (pence) 11 (39.7) 103.6
Diluted (pence) 11 (39.7) 103.4
The accompanying notes are an integral part of this interim statement.
Consolidated Income Statement
for the year ended 31 March 2022
Before exceptional items and certain Exceptional items and certain re-measure-ments Total
re-measure-ments
(note 6)
(restated*)
(restated*)
Note £m £m £m
Continuing operations
Revenue 5 8,697.2 - 8,697.2
Cost of sales (6,405.5) 2,097.8 (4,307.7)
Gross profit 2,291.7 2,097.8 4,389.5
Operating costs (1,118.7) 297.5 (821.2)
Other operating income 67.1 4.3 71.4
Operating profit before joint ventures and associates 1,240.1 2,399.6 3,639.7
Joint ventures and associates:
Share of operating profit 257.1 - 257.1
Share of interest (67.8) - (67.8)
Share of tax (46.3) (33.2) (79.5)
Share of profit on joint ventures and associates 143.0 (33.2) 109.8
Operating profit from continuing operations 5 1,383.1 2,366.4 3,749.5
Finance income 7 79.0 24.2 103.2
Finance costs 7 (376.4) - (376.4)
Profit before taxation 1,085.7 2,390.6 3,476.3
Taxation 8 (149.6) (731.7) (881.3)
Profit for the year from continuing operations 936.1 1,658.9 2,595.0
Discontinued operations
Profit from discontinued operations, net of tax 9 116.3 366.4 482.7
Profit for the year 1,052.4 2,025.3 3,077.7
Attributable to:
Ordinary shareholders of the parent 1,001.7 2,025.3 3,027.0
Other equity holders 50.7 - 50.7
Earnings per share
Basic (pence) 11 286.9
Diluted (pence) 11 286.4
Earnings per share - continuing operations
Basic (pence) 11 241.2
Diluted (pence) 11 240.7
*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 2022 to 30 September 2022
Year ended 31 March 2022 Six months ended 30 September 2021
(restated*) Six months ended 30 September 2022
£m £m £m
Profit/(loss) for the period
2,595.0 Continuing operations (388.6) 1,143.8
482.7 Discontinued operations 35.0 (93.8)
3,077.7 (353.6) 1,050.0
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss:
22.9 Net gains on cash flow hedges 147.9 30.0
11.2 Transferred to assets and liabilities on cash flow hedges 3.5 0.9
(4.4) Taxation on cash flow hedges (33.5) (8.0)
29.7 117.9 22.9
181.4 Share of other comprehensive gain of joint ventures and associates, net of 508.2 43.3
taxation
(3.2) Exchange difference on translation of foreign operations 72.5 5.0
9.4 Gain/(loss) on net investment hedge (41.6) (9.5)
217.3 657.0 61.7
Items that will not be reclassified to profit or loss:
124.7 Actuarial gain on retirement benefit schemes, net of taxation 33.3 26.2
(1.7) Share of other comprehensive loss of joint ventures, net of taxation - (1.7)
123.0 33.3 24.5
340.3 Other comprehensive gain, net of taxation 690.3 86.2
3,418.0 Total comprehensive income for the period 336.7 1,136.2
Total comprehensive income for the period arises from:
2,908.4 Continuing operations 301.7 1,231.2
Discontinued operations
Items that will be reclassified subsequently to profit or loss:
28.6 Share of other comprehensive gain of joint ventures and associates, net of - 0.5
taxation
Items that will not be reclassified to profit or loss:
(1.7) Share of other comprehensive loss of joint ventures, net of taxation - (1.7)
26.9 Other comprehensive gain/(loss) from discontinued operations - (1.2)
482.7 Profit/(loss) from discontinued operations 35.0 (93.8)
509.6 Total comprehensive income/(loss) from discontinued operations 35.0 (95.0)
3,418.0 Total comprehensive income for the period 336.7 1,136.2
Attributable to:
3,367.3 Ordinary shareholders of the parent 289.9 1,085.5
- Non-controlling interest 8.0 -
50.7 Other equity holders 38.8 50.7
3,418.0 336.7 1,136.2
*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 2022
At At 30 September 2022 At
31 March 30 September 2021
2022
(restated*)
£m Note £m £m
Assets
14,612.8 Property, plant and equipment 15,049.8 13,903.4
1,127.8 Goodwill and other intangible assets 1,796.3 893.6
1,239.5 Equity investments in joint ventures and associates 2,232.3 1,103.7
736.9 Loans to joint ventures and associates 886.0 632.8
8.7 Other investments 18.0 3.5
136.4 Other receivables 145.2 128.2
371.7 Derivative financial assets 16 1,124.7 2,207.1
584.9 Retirement benefit assets 17 648.5 501.7
18,818.7 Non-current assets 21,900.8 19,374.0
459.3 Intangible assets 169.7 408.4
266.6 Inventories 501.4 456.3
2,211.0 Trade and other receivables 2,954.3 1,629.4
8.8 Current tax asset 38.3 42.4
1,049.3 Cash and cash equivalents 289.3 232.7
2,941.8 Derivative financial assets 16 2,677.2 419.2
- Assets held for sale 9 - 845.9
6,936.8 Current assets 6,630.2 4,034.3
25,755.5 Total assets 28,531.0 23,408.3
Liabilities
1,190.8 Loans and other borrowings 13 1,399.7 2,066.8
2,672.6 Trade and other payables 2,943.7 2,202.9
93.3 Provisions 29.3 121.4
701.5 Derivative financial liabilities 16 2,195.4 1,008.0
- Liabilities held for sale 9 - 172.6
4,658.2 Current liabilities 6,568.1 5,571.7
7,873.9 Loans and other borrowings 13 7,966.0 7,043.6
1,644.1 Deferred tax liabilities 1,520.0 1,368.2
842.4 Trade and other payables 927.6 907.4
1,017.9 Provisions 751.1 866.7
- Retirement benefit obligations 17 - 63.7
549.6 Derivative financial liabilities 16 956.7 500.2
11,927.9 Non-current liabilities 12,121.4 10,749.8
16,586.1 Total liabilities 18,689.5 16,321.5
9,169.4 Net assets 9,841.5 7,086.8
Equity:
536.5 Share capital 15 545.6 535.6
835.1 Share premium 826.0 838.2
49.2 Capital redemption reserve 49.2 49.2
77.5 Hedge reserve 703.6 (67.4)
6.6 Translation reserve 29.5 (4.1)
6,572.9 Retained earnings 5,756.6 4,684.3
8,077.8 Equity attributable to ordinary shareholders of the parent 7,910.5 6,035.8
1,051.0 Hybrid equity 14 1,882.4 1,051.0
40.6 Attributable to non-controlling interests 48.6 -
9,169.4 Total equity attributable to equity holders of the parent 9,841.5 7,086.8
*The comparative Consolidated Balance Sheet has been restated. See note 2 (v).
The accompanying notes are an integral part of this interim statement.
Consolidated Statement of Changes in EQuity
for the period 1 April 2022 to 30 September 2022
Share capital Share premium Capital redemption reserve Hedge reserve Translation reserve Retained earnings Total attributable to ordinary shareholders Hybrid equity Total equity before non-controlling interest Non-controlling interest Total equity
£m £m £m £m £m £m £m £m £m £m £m
At 1 April 2022 (restated*) 536.5 835.1 49.2 77.5 6.6 6,572.9 8,077.8 1,051.0 9,128.8 40.6 9,169.4
(Loss)/profit for the year - - - - - (392.4) (392.4) 38.8 (353.6) - (353.6)
Other comprehensive income - - - 626.1 22.9 33.3 682.3 - 682.3 8.0 690.3
Total comprehensive income for the year - - - 626.1 22.9 (359.1) 289.9 38.8 328.7 8.0 336.7
Dividends to shareholders - - - - - (642.6) (642.6) - (642.6) - (642.6)
Scrip dividend related share issue 9.1 (9.1) - - - 322.5 322.5 - 322.5 - 322.5
Issue of treasury shares - - - - - 0.5 0.5 - 0.5 - 0.5
Distributions to Hybrid equity holders - - - - - - - (38.8) (38.8) - (38.8)
Issue of hybrid equity - - - - - - - 831.4 831.4 - 831.4
Share buy back - - - - (125.0) (125.0) - (125.0) - (125.0)
Credit in respect of employee share awards - - - - - 9.1 9.1 - 9.1 - 9.1
Investment in own shares - - - - - (21.7) (21.7) - (21.7) - (21.7)
At 30 September 2022 545.6 826.0 49.2 703.6 29.5 5,756.6 7,910.5 1,882.4 9,792.9 48.6 9,841.5
*The comparative consolidated statement of changes in equity has been
restated. See note 2 (v).
On 28 September 2022, SSE entered into an irrevocable £125.0m share buyback
programme. The buyback scheme was initiated in order to honour SSE's existing
commitment to cap scrip dividend take-up at 25%. As the irrevocable agreement
was entered into prior to the balance sheet date, the full value of the
programme has been recognised as a liability at 30 September 2022. The first
shares were purchased on 3 October 2022, subsequent to the balance sheet date.
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
Consolidated Statement of Changes in Equity
for the year ended 31 March 2022
Share capital Share premium Capital redemption reserve Hedge reserve Translation reserve Retained earnings Total attributable to ordinary shareholders Hybrid equity Total equity before non-controlling interest Non-controlling interest Total equity
£m £m £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 - 6,681.1
Profit for the year (restated*) - - - - - 3,027.0 3,027.0 50.7 3,077.7 - 3,077.7
Other comprehensive income - - - 211.1 6.2 123.0 340.3 - 340.3 - 340.3
Total comprehensive income for the year - - - 211.1 6.2 3,150.0 3,367.3 50.7 3,418.0 - 3,418.0
Dividends to shareholders - - - - - (862.3) (862.3) - (862.3) - (862.3)
Scrip dividend related share issue 12.0 (12.0) - - - 355.7 355.7 - 355.7 - 355.7
Issue of treasury shares - - - - - 6.3 6.3 - 6.3 - 6.3
Distributions to Hybrid equity holders - - - - - - - (50.7) (50.7) - (50.7)
Redemption of hybrid equity - - - - - (4.6) (4.6) (421.4) (426.0) - (426.0)
Credit in respect of employee share awards - - - - - 20.8 20.8 - 20.8 - 20.8
Investment in own shares - - - - - (14.1) (14.1) - (14.1) - (14.1)
Acquisition of subsidiary - - - - - - - - - 40.6 40.6
At 31 March 2022 (restated*) 536.5 835.1 49.2 77.5 6.6 6,572.9 8,077.8 1,051.0 9,128.8 40.6 9,169.4
*The comparative consolidated statement of changes in equity has been
restated. See note 2 (v).
Consolidated Cash Flow Statement
for the period 1 April 2022 to 30 September 2022
Year Note Six months ended 30 September 2022 Six months ended 30 September 2021
ended 31 March 2022
(restated*)
£m £m £m
3,749.5 Operating profit/(loss) - continuing operations 5 (635.1) 1,904.4
(100.5) Operating profit/(loss) - discontinued operations 9 35.0 (97.3)
3,649.0 Operating profit - total operations (600.1) 1,807.1
(28.7) Less share of loss/(profit) of joint ventures and associates (214.9) 109.7
3,620.3 Operating profit/(loss) before jointly controlled entities and associates (815.0) 1,916.8
(23.0) Pension service charges, less contributions paid (11.3) (12.5)
(2,100.4) Movement on operating derivatives 1,969.0 (1,204.0)
303.2 Depreciation, amortisation, write downs and impairments 115.3 184.8
106.9 Impairment of joint venture investment - -
20.8 Charge in respect of employee share awards (before tax) 9.1 8.5
(48.2) Loss/(profit) on disposal of assets and businesses (89.1) 21.5
(1.6) Release of provisions (92.1) (23.9)
(17.6) Release of deferred income 5 (7.7) (9.1)
1,860.4 Cash generated from operations before working capital movements 1,078.2 882.1
(24.4) (Increase)/decrease in inventories (36.5) 12.7
(625.6) Increase in receivables (713.2) (159.1)
544.2 Increase in payables 257.8 42.9
61.3 Increase/(decrease) in provisions (41.1) 7.0
1,815.9 Cash generated from operations 545.2 785.6
177.0 Dividends received from investments 144.1 83.1
(273.5) Interest paid (103.1) (141.5)
(91.5) Taxes paid (74.9) (39.0)
1,627.9 Net cash from operating activities 511.3 688.2
(1,273.6) Purchase of property, plant and equipment (620.2) (520.0)
(182.2) Purchase of other intangible assets (119.7) (74.3)
12.3 Deferred income received 8.5 7.0
1,366.9 Proceeds from disposals 6 60.0 5.0
(145.3) Purchase of businesses, joint ventures and subsidiaries 12 (640.0) -
136.7 Joint venture development expenditure refunds - -
(676.0) Loans and equity provided to joint ventures and associates (436.1) (376.2)
10.9 Loans and equity repaid by joint ventures 6.4 31.2
5.4 Increase in other investments (9.3) -
(744.9) Net cash from investing activities (1,750.4) (927.3)
6.3 Proceeds from issue of share capital 0.5 2.2
(506.6) Dividends paid to the company's equity holders 10 (320.1) (263.0)
(50.7) Hybrid equity dividend payments 14 (38.8) (50.7)
(14.1) Employee share awards share purchase 15 (21.7) (1.5)
- Issue of hybrid equity instruments 14 831.4 -
(426.0) Redemption of hybrid equity instruments 14 - (426.0)
506.1 New borrowings 2,068.6 103.3
(960.1) Repayment of borrowings (2,044.3) (493.7)
11.2 Settlement of cashflow hedges 3.5 1.0
(1,433.9) Net cash from financing activities 479.1 (1,128.4)
(550.9) Net decrease in cash and cash equivalents (760.0) (1,367.5)
1,600.2 Cash and cash equivalents at the start of period 1,049.3 1,600.2
(550.9) Net decrease in cash and cash equivalents (760.0) (1,367.5)
1,049.3 Cash and cash equivalents at the end of period 289.3 232.7
*The comparative Consolidate Cash Flow Statement has been restated. See note 2
(v).
Notes to the Interim Financial Statements
1. Condensed Interim Financial Statements
SSE plc (the Company) is a company domiciled in Scotland. The condensed
Interim Financial Statements comprise those of the Company and its
subsidiaries (together referred to as the Group).
The financial information set out in these condensed Interim Financial
Statements does not constitute the Group's statutory accounts for the periods
ended 30 September 2022, 31 March 2022 or 30 September 2021 within the meaning
of Section 435 of the Companies Act 2006. Statutory accounts for the year
ended 31 March 2022, which were prepared in accordance with UK-adopted
international accounting standards, 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 2023 will be prepared in accordance with United Kingdom adopted
International Accounting Standards.
The financial information set out in these condensed Interim Financial
Statements has been prepared in accordance with the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority and UK adopted IAS 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 below.
These interim statements were authorised by the Board on 15 November 2022.
2. Basis of preparation
These condensed Interim Financial Statements for the period to 30 September
2022 and the comparative information for the period to 30 September 2021 have
been prepared applying the accounting policies used in the Group's
consolidated financial statements for the year ended 31 March 2022, with the
exception the policy adoption of the amendments to IAS 16 Proceeds Before
Intended Use, as explained at note 3.1.
(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 to be 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 above.
(ii) Going concern
The Directors consider that the Group has adequate resources to continue in
operational existence for the period to 31 December 2023. The interim
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 cash
flow forecasts under stressed scenarios for the period to December 2023.
In the six months ended 30 September 2022, the Group has issued new debt
instruments totalling £2,068.6m and hybrid equity of £831.4m and has
redeemed £1,998.2m of 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.
On 11 November 2022, two new revolving credit facilities were entered into as
part of the Networks minority stake disposal process. SSEN Transmission
entered into a 3 year £750m facility and SSEN Distribution entered into a
similar 3 year £250m facility, both facilities have two 1 year optional
extensions. These facilities were entered into to help cover the future long
term funding requirements and the working capital of those businesses as they
look to become financially independent of the Group. The facilities will
therefore support the ongoing capital expenditure investment programmes that
are required to deliver their ambitious future growth plans.
(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 or improved 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 or on acquisition of an investment and provisions in relation to
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 currently estimates that any qualifying
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 early stage
international or offshore windfarm 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.
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 and prior year adjustments
There have been no material changes to presentation of the financial
statements in the current or prior year. The prior year comparatives at 31
March 2022 have been restated following the adoption of the amendment to IAS
16 Proceeds Before Intended Use, as disclosed in the section below.
3. New accounting policies and reporting changes
Except for the adoption of the amendment to IAS 16, 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 Financial
Statements for the year ended 31 March 2022.
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
The Group has adopted the amendments to IAS 16 Property, Plant and Equipment -
Proceeds Before Intended Use from 1 April 2022, retrospectively from the
earliest period presented in these financial statements, in line with the
requirements of the standard. The Group had pre-commissioning activity in the
prior year and therefore has restated the comparative information presented
for the year ended 31 March 2022. For the 6 months ended 31 September 2021
there was no pre-commissioning activity and therefore the period required no
restatement.
In the year ended 31 March 2022 the Group received proceeds during testing of
Keadby 2 CCGT. Keadby 2 achieved its first fire in October 2021 and commenced
test operations in February 2022. It is expected that the test schedule will
be complete by in the second half of the financial year when the plant will be
operated under management instruction for commercial operations under
management control. Depreciation will commence from this date. The impact of
adoption of the amendment in the prior year is to increase revenue by £89.0m,
increase cost of sales by £94.7m, increase operating costs by £0.2m
therefore decreasing profit before tax by £5.9m, and decreasing profit after
tax by £4.4m.
In the current period ended 30 September 2022, the Group has recognised
pre-commissioning revenue of £123.6m and pre-commissioning costs of £120.9m
related to Keadby 2, which previously would have been recognised as a cost of
the constructed asset. In addition, the Group's share of profit recognised
from joint ventures and associates in the current period includes £2.7m of
pre-commissioning operating profits from Seagreen Wind Energy Limited.
The Group has adopted the amendment to IAS 37 Onerous Contracts - Cost of
Fulfilling a Contract in the current period, which has been reflected in the
calculation of an onerous provision in GB Business Energy relating to the
unavoidable costs of fulfilling certain supply contracts (£21.7m).
There were no other standards, amendments to standards or interpretations
relevant to the Group's operations which were adopted during the period.
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 the date the financial statements were authorised for issue.
IFRS 17 'Insurance contracts' is effective from 1 January 2023 (1 April 2023
for the Group) following UK endorsement on 16 May 2022. The Group's
expectation is that adoption of this standard will not have a material impact
on the Group's consolidated financial statements.
There are a number of amendments and other interpretations issued but not yet
effective. These 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 is
necessarily required 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 2022 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 Financial 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, specific property, plant and equipment assets and investment assets to
determine whether any impairments or reversal of impairment 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 or fair value
less cost to sell assessments, if more appropriate.
At 30 September 2022, the Group has reviewed assets related to thermal, gas
storage and wind power generation for indicators of impairment (or impairment
reversal) arising since the last formal review performed at 31 March 2022. The
main assumptions in the Group's impairment assessments performed at 31 March
2022 were: power, gas, carbon and other commodity prices, volatility of gas
prices, plant running regimes and load factors, discount rates and other
inputs.
In the period to 30 September 2022, 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
and gas storage assets that have been impaired previously. The conclusions
from this impairment assessment are set out in note 6.1 (i) and (iv). Wind
generation assets have not been impaired previously and so no formal
reassessment was performed at 30 September 2022. The impact of the proposed
imposition of a temporary fixed price for low-carbon generators may be seen as
a potential indicator of impairment. However, at the time of publication, the
level of the fixed price 'cap', which assets are in scope and the period of
the scheme remain under consultation. As the intention of the fixed price
intervention is to restrict "excessive" profits earned by low-carbon
generators, the intervention does not necessarily indicate an impairment risk
to SSE's wind generation cash generating units, the value-in-use assessment
for which is based on "normal" price capture.
At 30 September 2022, the Group has reviewed its investment in Neos Networks
Limited for indicators of impairment (or impairment reversal) arising since
the last formal review performed at 31 March 2022. There were no indicators of
impairment identified and therefore no impairment assessment was performed.
The Group will reassess the assets for indicators of impairment, or impairment
reversal, at 31 March 2023.
(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 condensed
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 accrual is considered to be a significant estimate made by
management in preparing the condensed Interim Financial Statements. A more
comprehensive explanation of the Group's policy, and the nature of the
judgements requiring consideration, is disclosed in note 18 of the Group's 31
March 2022 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 is repayable in
full by 31 December 2029, carries interest at 13.25% and is presented
cumulative of accrued interest payments, discounted at 13.25%. At 30 September
2022, the carrying value (net of expected credit loss provision of £1.5m
(March 2022: £1.8m)) is £140.2m (March 2022: £131.0m).
Consistent with the procedures performed at 31 March 2022, 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 previous energy supplier failures and recent market volatility, the
Group's assessment of the recoverability of the loan note is considered a
significant financial judgement. The Group has taken appropriate steps to
assess all available information in respect of the recoverability of the loan
note. Procedures included reviewing recent financial information of Ovo Energy
Limited, including the 31 December 2021 statutory financial statements;
considering available Government support schemes; and discussions with Ovo
management. While the current carrying value is considered appropriate,
changes in economic conditions could lead to a change in the expected credit
loss incurred by the Group in future periods.
(v) Impact of climate change and the transition to net zero -
financial judgement and estimation uncertainty
Climate change and the transition to net zero have been considered in the
preparation of these financial statements. The Group has a clearly articulated
Net Zero Acceleration Programme ('NZAP'), as set out on pages 4 to 5 of the
Group's 2022 Annual Report, to lead in the UK's transition to net zero and
aligns its investment plans and business activities to that strategy. The
impact of future climate change regulation could have a material impact on the
currently reported amounts of the Group's assets and liabilities.
In preparing these condensed Interim Financial Statements, the following has
been considered:
Valuation of property, plant and equipment, and impairment assessment of
goodwill
In the medium term, the transition to net zero may result in regulation
restricting electricity generation from unabated gas fired power stations. The
Group's view is that flexible generation capacity, such as the Group's fleet
of CCGT power stations, will be an essential part of the net zero transition
in order to provide security of supply to a market which is increasingly
dependent upon renewable sources, which are inherently intermittent. The
majority of the Group's GB CCGT fleet is nearing the end of its economic life
and it is not currently expected that regulation to require abatement would be
introduced before the planned closure of those power stations. Of the value
capitalised at 30 September 2022, only two CCGT assets are forecast to
continue to operate beyond 2030, being Great Island and Keadby 2. The Group's
view is that Great Island will continue to be essential to providing security
of supply in the Irish electricity market. Keadby 2 is nearing completion and,
despite a delay to the start of commercial operations to later in the current
financial year, the plant has achieved market leading efficiency throughout
test operations. Therefore, the Group considers that other assets operating in
the market would be more likely to close before Keadby 2 and the plant will
continue to be required to balance the UK electricity market beyond 2030. As a
result, the useful economic life of both assets was not shortened when
preparing the 31 March 2022 financial statements. The Group assesses the
useful economic life of its Property, Plant and Equipment assets annually.
In the short term, the projected economic return from the activity provided by
the Group's Great Island CCGT assets has increased, resulting in the reversal
of historic impairments at 30 September 2022. See note 6.1(iv).
A significant increase in renewable generation capacity in the Group's core
markets could potentially result in an oversupply of renewable electricity at
a point in the future, which would lead to a consequential decrease in the
power price achievable for the Group's wind generation assets. The Group has
not assessed that this constitutes an indicator of impairment at 30 September
2022 as the Group's baseline investment case models assume a centrally
approved volume of new build in these markets. The Group's policy is to test
the goodwill balances associated with wind generation portfolio for impairment
on an annual basis.
Another climate related risk to SSE's valuation bases could be changes to
weather patterns resulting from global warming. This in turn could result in
calmer, drier weather patterns, which would reduce volumes achievable for the
Group's wind and hydro generation assets (although noting that this would
likely lead to capacity constraints and hence higher prices). This has not
been assessed as an indicator of impairment at 30 September 2022, as there is
no currently observable evidence to support that scenario directly.
Valuations of decommissioning provisions
The Group holds decommissioning provisions for its Renewable and Thermal
generation assets and has retained a 60% share for the decommissioning of its
disposed Gas Production business. As noted above, the Group's view at 30
September 2022 is that climate change regulation will not bring forward the
closure dates of its CCGT fleet, many of which are expected to close before
2030. Similarly, it is expected that fundamental changes to weather patterns,
or the impact of new wind generation capacity will not bring forward the
decommissioning of the Group's current wind farm portfolio.
The discounted share of the Gas Production provision is £192.5m (March 2022:
£249.4m). At 30 September 2022, the impact of discounting of this retained
provision is £85.1m (March 2022: £33.8m), which is expected to be incurred
across the period to 31 March 2037. If the decommissioning activity was
accelerated due to changes in legislation, the costs of unwinding the
discounting of the provision would be recognised earlier.
4.2 Other accounting judgements and estimation uncertainties - Changes
from the prior year
The Group has made no changes to accounting judgements and estimation
uncertainties from those presented in the Group's 2022 Annual Report.
4.3 Other areas of estimation uncertainty
(i) Tax provisioning
The Group has open tax disputes 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 by external tax advisors. These estimates are
inherently judgmental and could change substantially over time as disputes
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 ultimately paid will be different
from the amounts provided. Provisions for uncertain tax positions are included
in current tax liabilities, and total £27.9m at 30 September 2022 (2021:
£34.7m; March 2022: £27.9m). 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. Due to the
uncertainty associated with such tax positions, it is possible that at a
future date, and on conclusion of these open tax positions, the final outcomes
may vary significantly. While a range of outcomes is reasonably possible, the
Group continues to believe that it has made appropriate provision for periods
which are open and not yet agreed with the tax authorities.
In December 2020, the Group's case concerning the availability of capital
allowances on Glendoe Hydro Electric Station was heard at the Court of Appeal.
A decision was released in February 2021, which was largely in the Group's
favour. HMRC have sought permission to have an appeal heard against the
decision by the Supreme Court, with the Supreme Court due to hear the case in
March 2023. Any movement in the amounts carried for other uncertain tax
positions during the next twelve months will be driven by tax litigation the
Group is not directly involved in and is unable to predict the outcome of.
(ii) Decommissioning costs
The calculation of the Group's decommissioning provisions involves the
estimation of quantum and timing of cash flows to settle the obligation. The
Group engages independent valuation experts to estimate the cost of
decommissioning its Renewable, Thermal and Gas Storage assets every three
years based on current technology and prices. The last independent assessment
for Renewable and Thermal generation assets was performed in the year to 31
March 2022. The last formal assessment for Gas Storage assets was performed in
the year to 31 March 2020. Retained decommissioning costs in relation to the
disposed Gas Production business are periodically agreed with the field
operators and reflect the latest expected economic production lives of the
fields.
The dates for settlement of future decommissioning costs are uncertain,
particularly for the disposed gas exploration and production business where
reassessment of gas and liquids reserves and fluctuations in commodity prices
can lengthen or shorten the field life.
At 30 September 2022, the carrying value of decommissioning provisions have
decreased due to the significant increases in discount rate assumptions since
31 March 2022. This has resulted in a decrease in decommissioning provisions
for the Group thermal assets of £25.1m, for Group Gas Storage facilities of
£40.9m, for Group Wind assets of £83.5m and for Gas Production disposed
assets of £54.5m. With the exception of the provision relating to Gas
Production assets, movements on which are recorded in the income statement,
all revaluation movements have been matched by an offsetting adjustment to the
associated asset.
5. Segmental information
There have been no changes to the Group's core operating segments during the
period. These segments are used internally by the Board to run the business
and make strategic decisions. The Group's "Corporate unallocated" segment is
the Group's residual corporate central costs which cannot be allocated to
individual segments.
The types of products and services from which each reportable segment
generates its revenue 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.
Renewables SSE Renewables The generation of electricity from renewable sources, such as onshore and
offshore windfarms and run of river and pumped storage hydro assets in the UK
and Ireland and the development of similar assets in Japan and Southern
Europe.
Thermal SSE Thermal The generation of electricity from thermal plant and the Group's interests in
multifuel assets in the UK and Ireland.
Gas Storage The operation of gas storage facilities in the UK, utilising capacity to
optimise trading opportunities associated with the assets.
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.
EPM & I Energy Portfolio Management (EPM) The provision of a route to market for the Group's Renewable and Thermal
generation 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 net interest costs associated with defined benefit pension schemes,
adjustments to the retained Gas Production decommissioning, the impact of
depreciation on fair value uplifts 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 2022 Six months ended 30 September 2021
Reported revenue Inter-segment revenue Segment revenue Reported revenue Inter-segment revenue (i) Segment revenue
2022 2022 2022 2021 2021 2021
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 325.4 - 325.4 278.7 - 278.7
SSEN Distribution 522.5 28.2 550.7 435.3 28.5 463.8
SSE Renewables 151.2 29.8 181.0 133.3 93.5 226.8
SSE Thermal 249.9 1,592.0 1,841.9 370.4 250.6 621.0
Gas Storage 5.2 1,760.0 1,765.2 3.6 667.4 671.0
Energy Customer Solutions
Business Energy 1,465.0 32.4 1,497.4 909.0 14.3 923.3
SSE Airtricity 753.3 101.2 854.5 442.9 159.3 602.2
Distributed Energy 60.9 8.9 69.8 112.3 13.6 125.9
EPM:
Gross trading 9,697.0 5,213.4 14,910.4 4,149.6 2,333.3 6,482.9
Optimisation trades(ii) (7,632.0) (1,028.0) (8,660.0) (3,327.6) (742.7) (4,070.3)
EPM 2,065.0 4,185.4 6,250.4 822.0 1,590.6 2,412.6
Corporate unallocated 31.0 74.1 105.1 36.0 73.1 109.1
Total continuing operations 5,629.4 7,812.0 13,441.4 3,543.5 2,890.9 6,434.4
Discontinued operations
Gas Production - - - 6.7 109.5 116.2
Total discontinued operations - - - 6.7 109.5 116.2
Total SSE Group 5,629.4 7,812.0 13,441.4 3,550.2 3,000.4 6,550.6
Year ended 31 March 2022
(restated*)
Reported revenue Inter-segment revenue (i) Segment revenue
2022 2022 2022
£m £m £m
Continuing operations
SSEN Transmission 589.7 - 589.7
SSEN Distribution 954.6 78.6 1,033.2
SSE Renewables 357.4 418.8 776.2
SSE Thermal 933.2 285.0 1,218.2
Gas Storage 8.7 2,471.1 2,479.8
Energy Customer Solutions
Business Energy 2,289.0 34.5 2,323.5
SSE Airtricity 1,177.3 451.3 1,628.6
Distributed Energy 176.9 25.4 202.3
EPM:
Gross trading 12,808.3 7,160.2 19,968.5
Optimisation trades(ii) (10,667.6) (2,914.0) (13,581.6)
EPM 2,140.7 4,246.2 6,386.9
Corporate unallocated 69.7 147.7 217.4
Total continuing operations 8,697.2 8,158.6 16,855.8
Discontinued operations
Gas Production 8.1 133.9 142.0
Total discontinued operations 8.1 133.9 142.0
Total SSE Group 8,705.3 8,292.5 16,997.8
*The comparative has been restated. See note 2 (v).
(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 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 2022
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 and ancillary services 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 316.3 - - 8.5 - - 0.6 325.4 - 325.4
SSEN Distribution 502.0 - - 5.5 - - 7.6 515.1 7.4 522.5
SSE Renewables - 24.6 - 39.8 77.3 - 9.5 151.2 - 151.2
SSE Thermal - 248.4 - - - - 1.5 249.9 - 249.9
Gas Storage - - - - - 5.2 - 5.2 - 5.2
Energy Customer Solutions
Business Energy - 1,465.0 - - - - - 1,465.0 - 1,465.0
SSE Airtricity - 741.7 - 11.6 - - - 753.3 - 753.3
Distributed Energy 7.9 13.4 11.4 2.4 - - 22.9 58.0 2.9 60.9
EPM - - - - 1,879.5 - 185.5 2,065.0 - 2,065.0
Corporate unallocated - - - - - - 31.0 31.0 - 31.0
Total continuing operations 826.2 2,493.1 11.4 67.8 1,956.8 5.2 258.6 5,619.1 10.3 5,629.4
Total SSE Group 826.2 2,493.1 11.4 67.8 1,956.8 5.2 258.6 5,619.1 10.3 5,629.4
5. Segmental information (continued)
5. (a) Revenue by segment (continued)
Disaggregation of revenue (continued)
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 and ancillary services 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
Energy Customer Solutions
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)
Year ended 31 March 2022 (restated*)
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 and ancillary services 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 570.8 - - 16.5 - - 2.4 589.7 - 589.7
SSEN Distribution 903.3 - - 10.5 - - 22.8 936.6 18.0 954.6
SSE Renewables - 79.7 - 75.0 202.7 - - 357.4 - 357.4
SSE Thermal - 929.1 - - - - 4.1 933.2 - 933.2
Gas Storage - - - - - 8.7 - 8.7 - 8.7
Energy Customer Solutions
Business Energy - 2,289.0 - - - - - 2,289.0 - 2,289.0
SSE Airtricity - 1,158.1 - 19.2 - - - 1,177.3 - 1,177.3
Distributed Energy 11.9 15.8 77.7 3.9 2.9 - 59.3 171.5 5.4 176.9
EPM - - - - 1,920.9 - 219.8 2,140.7 - 2,140.7
Corporate unallocated - - - - - - 69.7 69.7 - 69.7
Total continuing operations 1,486.0 4,471.7 77.7 125.1 2,126.5 8.7 378.1 8,673.8 23.4 8,697.2
Discontinued operations
Gas Production - - - - - - 8.1 8.1 - 8.1
Total discontinued operations - - - - - - 8.1 8.1 - 8.1
Total SSE Group 1,486.0 4,471.7 77.7 125.1 2,126.5 8.7 386.2 8,681.9 23.4 8,705.3
*The comparative has been restated. See note 2 (v).
5. Segmental information (continued)
5. (b) Operating profit/(loss) by segment
Six months ended 30 September 2022
Adjusted operating profit reported to the Board Depreciation on fair value uplifts Joint Venture/ Associate share of interest and tax Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total
Adjustments to Gas Production decommissioning provision
£m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 208.4 - - - 208.4 - 208.4
SSEN Distribution 174.6 - - - 174.6 - 174.6
SSE Renewables 22.5 (9.4) (42.4) - (29.3) - (29.3)
SSE Thermal 100.4 - (5.3) - 95.1 247.6 342.7
Gas Storage 147.8 - - - 147.8 397.0 544.8
Energy Customer Solutions
Business Energy 60.5 - - - 60.5 - 60.5
SSE Airtricity 14.9 - (0.1) - 14.8 - 14.8
Distributed Energy (8.0) - - - (8.0) - (8.0)
EPM 30.3 - - - 30.3 (1,988.3) (1,958.0)
Corporate
Corporate unallocated (28.9) - - 54.5 25.6 - 25.6
Neos (6.5) - (4.7) - (11.2) - (11.2)
Total continuing operations 716.0 (9.4) (52.5) 54.5 708.6 (1,343.7) (635.1)
Discontinued operations
Gas Production - - - - - 35.0 35.0
Total discontinued operations - - - - - 35.0 35.0
Total SSE Group 716.0 (9.4) (52.5) 54.6 708.6 (1,308.7) (600.1)
The adjusted operating profit of the Group is reported after removal of the
Group's share of interest, fair value movements on financing derivatives, Gas
Production decommissioning costs, 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).
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 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 (i) (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
Corporate unallocated (40.5) - - (40.5) (6.2) (46.7)
Neos (5.8) (0.9) (5.5) (12.2) (2.0) (14.2)
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 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 the year to 31 March
2022 did not materially impact prior year financial statements.
5. Segmental information (continued)
5. (b) Operating profit/(loss) by segment (continued)
Year ended 31 March 2022 (restated*)
Adjusted operating profit reported to the Board Depreciation on fair value uplifts Joint Venture/ Associate share of interest and tax Adjustments to Gas Production decommissioning provision Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total
£m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 380.5 - - - 380.5 - 380.5
SSEN Distribution 351.8 - - - 351.8 - 351.8
SSE Renewables 568.1 (18.8) (92.9) - 456.4 (28.6) 427.8
SSE Thermal 300.4 - (9.5) - 290.9 333.3 624.2
Gas Storage 30.7 - - - 30.7 94.7 125.4
Energy Customer Solutions
Business Energy (21.5) - - - (21.5) - (21.5)
SSE Airtricity (i) 60.4 - - - 60.4 - 60.4
Distributed Energy (10.9) - - - (10.9) (18.3) (29.2)
EPM (16.8) - - - (16.8) 2,100.4 2,083.6
Corporate
Corporate unallocated (95.7) - (4.7) (13.1) (113.5) - (113.5)
Neos (16.1) (1.8) (7.0) - (24.9) (115.1) (140.0)
Total continuing operations 1,530.9 (20.6) (114.1) (13.1) 1,383.1 2,366.4 3,749.5
Discontinued operations
Gas Production 101.4 - - - 101.4 (120.8) (19.4)
SGN 21.0 - (12.8) - 8.2 487.2 495.4
Total discontinued operations 122.4 - (12.8) - 109.6 366.4 476.0
Total SSE Group 1,653.3 (20.6) (126.9) (13.1) 1,492.7 2,732.8 4,225.5
*The comparative has been restated. See note 2 (v).
5. Segmental information (continued)
5. (c) Earnings/(losses) before interest, taxation, depreciation and
amortisation ('EBITDA')
30 September 2022
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 208.4 - 55.9 - (1.5) 262.8
SSEN Distribution 174.6 - 89.6 - (5.5) 258.7
SSE Renewables 22.5 (9.4) 82.1 42.3 - 137.5
SSE Thermal 100.4 - 49.5 10.5 - 160.4
Gas Storage 147.8 - 5.6 - - 153.4
Energy Customer Solutions
Business Energy 60.5 - 2.1 - - 62.6
SSE Airtricity 14.9 - 3.6 - - 18.5
Distributed Energy (8.0) - 2.5 - (0.2) (5.7)
EPM 30.3 - 2.6 - - 32.9
Corporate
Corporate unallocated (28.9) - 40.8 - (0.5) 11.4
Neos (6.5) - - 23.3 - 16.8
Total continuing operations 716.0 (9.4) 334.3 76.1 (7.7) 1,109.3
Total SSE Group 716.0 (9.4) 334.3 76.1 (7.7) 1,109.3
5. Segmental information (continued)
5. (c) Earnings/(losses) before interest, taxation, depreciation and
amortisation ('EBITDA') (continued)
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
Corporate unallocated (40.5) - 23.0 - (0.3) (17.8)
Neos (5.8) (0.9) - 19.0 - 12.3
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
31 March 2022 (restated*)
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 380.5 - 103.2 - (3.8) 479.9
SSEN Distribution 351.8 - 195.9 - (11.6) 536.1
SSE Renewables 568.1 (18.8) 160.9 85.4 - 795.6
SSE Thermal 300.4 - 70.2 19.0 - 389.6
Gas Storage 30.7 - 0.8 - - 31.5
Energy Customer Solutions
Business Energy (21.5) - 11.3 - - (10.2)
Airtricity 60.4 - 1.7 - - 62.1
Distributed Energy (10.9) - 7.4 - (1.3) (4.8)
EPM (16.8) - 4.5 - - (12.3)
Corporate
Corporate unallocated (95.7) - 56.1 - (0.9) (40.5)
Neos (16.1) (1.8) - 42.2 - 24.3
Total continuing operations 1,530.9 (20.6) 612.0 146.6 (17.6) 2,251.3
Discontinued operations
Gas Production 101.4 - - - - 101.4
SGN 21.0 - - 11.1 - 32.1
Total discontinued operations 122.4 - - 11.1 - 133.5
Total SSE Group 1,653.3 (20.6) 612.0 157.7 (17.6) 2,384.8
6. Exceptional items and certain re-measurements
Six months ended 30 September 2022 Six months ended 30 September 2021
Year ended 31 March £m £m
2022
£m
Continuing operations
Exceptional items (note 6.1)
322.6 Asset impairments and related (charges) and credits 218.9 182.2
(17.6) Net gains on acquisitions/disposals of businesses and other assets 229.8 (22.0)
305.0 Total exceptional items 448.7 160.2
Certain re-measurements (note 6.2)
2,100.4 Movement on operating derivatives (1,988.3) 1,204.0
(2.6) Movement in fair value of commodity stocks 195.9 235.2
21.0 Movement on financing derivatives 243.7 (55.9)
2,118.8 Total certain re-measurements (1,548.7) 1,383.3
2,423.8 Exceptional items and certain re-measurements on continuing operations before (1,100.0) 1,543.5
taxation
Taxation
(79.0) Taxation on other exceptional items (63.5) (33.2)
(408.0) Taxation on certain re-measurements 275.4 (267.5)
(244.7) Effect of deferred tax rate change in wholly owned entities - (214.9)
(33.2) Effect of deferred tax rate change in jointly controlled entities - (23.4)
(764.9) Taxation 211.9 (539.0)
1,658.9 Total exceptional items and certain re-measurements on continuing operations (888.1) 1,004.5
after taxation
Discontinued operations
Exceptional items (note 6.1) and certain re-measurements (note 6.2)
(120.8) Gas production asset impairments and related (charges)/credits 35.0 (93.9)
576.5 Net gain on disposal of jointly controlled entities - -
(3.8) Share of movement on derivatives in jointly controlled entities (net of tax) - (3.8)
(85.5) Effect of deferred tax rate change in jointly controlled entities - (85.5)
366.4 Total exceptional items and certain re-measurements on discontinued operations 35.0 (183.2)
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 2022 Six months ended 30 September 2021
Year ended 31 March £m £m
2022
£m
Continuing operations
Cost of sales:
2,100.4 Movement on operating derivatives (note 16) (1,988.3) 1,204.0
(2.6) Movement in fair value of commodity stocks 195.9 235.2
2,097.8 (1,792.4) 1,439.2
Operating costs:
322.6 Asset impairments and reversals 218.9 182.2
(25.1) Other exceptional provisions and charges - (24.3)
297.5 218.9 157.9
Operating income:
4.3 Net gains on disposals of businesses and other assets 89.1 -
2,399.6 (1,484.4) 1,597.1
Joint ventures and associates:
- Net gains on acquisition of a joint venture 140.7 -
(33.2) Effect of deferred tax rate change in jointly controlled entities - (23.4)
(33.2) 140.7 (23.4)
2,366.4 Operating profit/(loss): (1,343.7) 1,573.7
Finance costs/(income)
21.0 Movement on financing derivatives (note 16) 243.7 (55.9)
3.2 Interest income on deferred consideration receipt - 2.3
24.2 243.7 (53.6)
2,390.6 Profit/(loss) before taxation on continuing operations (1,100.0) 1,520.1
Discontinued operations
(120.8) Gas production asset impairments and related (charges)/credits 35.0 (93.9)
Joint ventures and associates:
576.5 Net gain on disposal of jointly controlled entities - -
(3.8) Share of movement on derivatives in jointly controlled entities (net of - (3.8)
tax)
451.9 Profit/(loss) before tax on discontinued operations 35.0 (97.7)
6. Exceptional items and certain re-measurements (continued)
6.1 Exceptional items
Exceptional items recognised within continuing operations in the current
financial period ended 30 September 2022
i) Gas Storage - impairment reversal
At 30 September 2022, observable prices for gas have increased significantly
from prices used in the last formal impairment assessment at 31 March 2022.
This is considered an indicator of impairment reversal necessitating formal
reassessment of the carrying value of the Group's gas storage assets that have
previously been impaired. A value in use model based on pre-tax discounted
cashflows, with updated gas prices and updated mean reversion rate ("MRR")
inputs at 30 September 2022 was prepared to assess the recoverable amount of
the assets. This was performed for the Group's Gas Storage operations at
Aldbrough as follows:
Assets Cash flow period assumption Operating and other valuation assumptions Commentary and impairment conclusions
Gas Storage assets (Aldbrough) Period to end of life The Value in Use ("VIU") of the Group's Gas Storage assets at Aldbrough were Conclusion
based on pre-tax discounted cash flows expected to be generated by the storage
assets based on management's view of the assets' operating prospects. Cash The VIU assessment performed on the assets indicated an exceptional impairment
flows are subject to a pre-tax real discount rate of 11.4% (March 2022: 12.0%) reversal of £201.1m, which has been recognised at 30 September 2022. This
reflecting risks specific to the assets. represents a full reversal of historic impairments.
The key assumptions applied in the valuation of the assets are gas price Following the impairment reversal the carrying value of Aldbrough is £252.1m.
volatility and the mean reversion rate ('MRR'). The gas price volatility The carrying value represents the net book value of the storage assets and
assumption reflects management's view of price fluctuations between periods excludes the carrying value of cushion gas volumes.
where the Group can purchase gas at a low price, store it and sell during
periods of peak prices. The assumption is based on market observed volatility
in the last 3 years and management's view on projected volatility in future
periods. MRR represents the time taken for the market to return to average Sensitivity analysis
after a period of increase or decline. The MRR combined with the volatility
rate derives management's fair value of the assets. A sensitivity performed with a low volatility assumption would result in an
impairment reversal of £135.1m.
A low sensitivity of the MRR assumption (represents a decrease in the rate by
1.0) would result in an impairment reversal of £149.5m.
ii) Fiddler's Ferry land sale
On 30 June 2022, the Fiddlers Ferry site was sold to Peel NRE Developments
Limited for cash consideration of £60.0m. The Group carried a decommissioning
provision for the site of £53.2m and a residual asset of £24.1m, both of
which were disposed of as part of the sale. As a result, the Group has
recognised an exceptional gain of £89.1m on disposal. See note 12 for further
information.
iii) Triton Power 50% joint venture acquisition
On 1 September 2022, the Group announced that SSE Thermal and Equinor had
completed the acquisition of Triton Power Holdings Limited from Energy Capital
Partners for total consideration of £341.0m shared equally, following
relevant competition approvals. See note 12 for further detail regarding this
acquisition. The purchase price of £341.0m was agreed based on prices
prevalent in the market during the summer. Subsequent market volatility has
resulted in price increases and, on completion of the acquisition on 1
September 2022, the Group recognised an exceptional gain of £140.7m,
representing the Group's share of the excess of the net fair value of the
identifiable assets and liabilities over the cost of the investment in the
acquired business, which was based on updated projected spark margins.
iv) Thermal Generation - impairment reversals
At 30 September 2022, observable prices for power and gas have increased
significantly from prices used in the last formal impairment assessment at 31
March 2022. This is considered an indicator of impairment reversal
necessitating formal reassessment of the carrying value of the Group's thermal
power generation assets that had previously been impaired. At 31 March 2022,
all historic impairment adjustments at the Group's GB CCGTs had been reversed.
Accordingly, the only plant that required to be reviewed was the Great Island
CCGT in Ireland. A value in use model based on pre-tax discounted cashflows,
with an updated observable spark spread input at 30 September 2022 was
prepared to assess the fair value of that plant.
The results of this review were as follows:
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 by the plant based on
management's view of the plant's operating prospects. Cash flows are subject The VIU assessment performed on the asset indicated an exceptional impairment
to a pre-tax real discount rate of 11.1% reflecting the specific risks in the reversal of £17.8m, which has been recognised at 30 September 2022. This
Irish market (31 March 2022: 11.0%) reflecting the specific risks in the Irish represents a full reversal of historic impairments.
market.
The carrying value of the asset following the impairment reversal is £275.9m.
Sensitivity analysis
In line with the formal valuation exercise performed at 31 March 2022,
sensitivities to the impairment reversal were calculated to assess the overall
write-back within a range of reasonably possible scenarios.
A 0.5% increase in the discount rate would continue to result in a full
reversal of historic impairments.
A 20% decrease in gross margin would result in an impairment of £35m.
A €10/KW decrease in non-contracted capacity market price would continue to
result in a full reversal of historic impairments.
Exceptional items recognised within discontinuing operations in the current
financial period ended 30 September 2022
v) Gas Production - gain on disposal
On 4 November 2022, RockRose Energy Limited received HMRC clearance in respect
of tax treatment in relation to the Group's disposal of its Gas Production
business to Viaro Energy (through its subsidiary RockRose Energy Limited),
which completed on 14 October 2021. The Group had indemnified RockRose Energy
Limited in relation to certain tax liabilities that it might suffer as a
result of the transaction, and this formed part of the provision which was
recognised on the disposal of the Gas Production business. The HMRC clearance
indicated that no such tax liabilities arise for RockRose Energy Limited and
as a result the Group has released £35.0m of provision relating to the
indemnity as an adjustment to the loss on disposal recognised. The adjustment
is recognised in discontinued operations in the period ended 30 September
2022.
Exceptional items in the year ended 31 March 2022
i) Thermal Electricity Generation - impairment reversals
At 31 March 2022, the Group carried out a formal impairment review to assess
the carrying value of its GB combined cycle gas turbine ('CCGT') power
stations and the Group's Great Island CCGT plant in Ireland. As a result of
the assessment, the Group recognised an exceptional impairment reversal of
£331.6m to the carrying value of the assets, including the impairment
reversal recognised at 30 September 2021 of £181.6m. This represented a full
impairment reversal for the CCGT plants at Peterhead, Marchwood, Keadby and
Medway and a partial reversal for Great Island.
ii) Gas Storage - impairment reversal
At 31 March 2022, the Group carried out a formal impairment review to assess
the carrying value of its Gas Storage operations at Atwick and Aldbrough. As a
result of the assessment, the Group recognised an exceptional impairment
reversal of £97.3m to the carrying value of the assets.
iii) 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 adjustments, cash consideration received was £0.2m. The
Group recorded a further exceptional loss on disposal of £18.9m on
completion, in addition to the exceptional impairment loss of £51.2m
recognised during the year ended 31 March 2021.
iv) Neos Networks - investment impairment and adjustments to consideration
At 31 March 2022, the Group assessed that the value of its investment in Neos
Networks Limited was impaired by £106.9m. In the year ended 31 March 2019,
the Group disposed of 50% of its stake in the business 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 2022, 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.
v) Other credits
At 31 March 2022, the Group recognised further exceptional credits of £8.1m
relating to reversal of previously recognised exceptional charges or
judgements. These included i) reassessment of impairments associated with Heat
Networks assets (credit of £0.6m), ii) credit of £3.2m in relation the
unwind of discounting on deferred consideration recognised on the part
disposal of SSE Slough Multifuel Limited in the year ending 31 March 2021,
iii) credit of £4.3m in relation to a gain on disposal of historically
impaired land at Seabank.
Exceptional items within discontinued operations in the year ended 31 March
2022
vi) SGN disposal gain
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 transaction completed on 22 March
2022, with the Group recognising an exceptional gain on disposal of £576.5m.
vii) Gas Production - loss on disposal
The Group recorded an exceptional disposal loss of £120.8m related to sale of
its Gas Production assets and liabilities to Viaro Energy through its
subsidiary RockRose Energy Limited which completed on 14 October 2021. At 30
September 2021 an impairment charge of £93.9m was recognised in relation to
the loss on sale incurred to 30 September 2021 under the transaction's lock
box mechanism. The further £26.9m recognised in the second half of the
financial year represents the profit of the business due to the buyer between
1 October 2021 and the disposal date on 14 October 2021.
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 power generation assets. Certain of these
contracts (predominately electricity, gas and other commodity purchase
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 (predominately electricity sales contracts) 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 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 businesses.
At 30 September 2022, volatility in global commodity markets and changes in
SSE's contractual positions have resulted in a significantly adverse
mark-to-market remeasurement on commodity contracts (predominately power
purchases) designated as financial instruments and trading inventory of
£1,792.4m (loss) (2021: £1,439.2m (gain), March 2022: £2,097.8m (gain)). It
should be noted that the net IFRS 9 position on operating derivatives at 30
September 2022 is an asset of £330.0m. In addition, the Group has executory
'own use' designated commodity contracts which, if classified as financial
instruments and remeasured at fair value in accordance with IFRS 9, would
significantly increase the total fair value remeasurement and closing
liability value. These predominately relate to financial hedges entered into
on behalf of the SSE Renewables and SSE Thermal businesses of future sales
which were entered into before the subsequent increase in market prices. A
significant proportion of 'in the money' mark-to-market contracts recorded at
30 September 2022 and unvalued '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
loss in the period has resulted in a deferred tax credit of £285.4m (2021:
£297.4m, March 2022: £408.0m), which has also been classified as
exceptional. In addition, the Group has recognised gains of £243.7m (2021:
(£55.9m), March 2021: £21.0m) on the remeasurement of the certain interest
rate and foreign exchange contracts through the income statement, gains on the
remeasurement of cash flow hedge accounted contracts of £147.9m (2021:
£30.0m, March 2022: £22.9m) in other comprehensive income and gains on the
equity share of the remeasurement of cash flow hedge accounted contracts in
joint ventures of £508.2m (2021: £43.3m, March 2022: £181.4m).
The income statement 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 at 24 May 2021 and therefore the
deferred tax balances were re-measured at 30 September 2021 and 31 March 2022.
The rate change resulted in an income statement charge for continuing
operations of £244.7m at 31 March 2022 (September 2021: £214.9m) and an
increase to the Group's deferred tax liabilities (including the effect of
equity accounted items) of £279.5m at 31 March 2022. The impact of the rate
change on the Group's share of profits of its equity accounted investments was
a charge of £55.2m at 31 March 2022 (September 2021: £55.2m) for continuing
operations and a charge of £5.6m for discontinued operations at 31 March 2022
(September 2021: £5.6m).
The 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 tax
for the current and prior year.
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 2022 Six months ended 30 September 2021
2022
£m £m £m
Finance income:
0.8 Interest income from short term deposits 7.9 0.5
7.6 Interest on pension scheme assets 7.9 3.7
- Foreign exchange translation of monetary assets and liabilities 0.1 -
Other interest receivable:
46.8 Joint ventures and associates 30.5 19.5
27.0 Other receivable 11.8 16.9
73.8 42.3 36.4
82.2 Total finance income 58.2 40.6
Finance costs:
(16.2) Bank loans and overdrafts (14.9) (7.6)
(340.2) Other loans and charges (161.6) (173.6)
(14.6) Foreign exchange translation of monetary assets and liabilities - (14.9)
(5.7) Notional interest arising on discounted provisions (7.1) (2.3)
(30.4) Lease charges (14.1) (16.2)
30.7 Less: interest capitalised 19.9 11.6
(376.4) Total finance costs (177.8) (203.0)
21.0 Changes in fair value of financing derivative assets or liabilities at fair 243.7 (55.9)
value through profit or loss
(273.2) Net finance costs 124.1 (218.3)
Presented as:
103.2 Finance income 301.9 40.6
(376.4) Finance costs (177.8) (258.9)
(273.2) Net finance costs 124.1 (218.3)
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
2022
2022
2021
(restated*)
£m £m £m
(273.2) Net finance income/(costs) 124.1 (218.3)
(add)/less:
(67.8) Share of interest from joint ventures and associates (29.1) (34.2)
(7.6) Interest on pension scheme assets (7.9) (3.7)
(21.0) Movement on financing derivatives (note 16) (243.7) 55.9
(3.2) Exceptional item - (2.3)
(372.8) Adjusted net finance costs (156.6) (202.6)
5.7 Notional interest arising on discounted provisions 7.1 2.3
30.4 Lease charges 14.1 16.2
(50.7) Hybrid coupon payment (38.8) (50.7)
(387.4) Adjusted net finance costs for interest cover calculations (174.2) (234.8)
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 discrete 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 2023,
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 15.2% (2021: 16.1%, March 2022:
13.8%). The reported tax rate on the profit before tax after exceptional items
and certain remeasurements is 24.0% (2021: 32.2%, March 2022 25.4%).
The charge recognised in the income statement is as follows:
Six months ended 30 September 2022 Six months ended 30 September 2021
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 51.4 (4.7) 46.7 13.4 (6.4) 7.0
Adjustments in respect of previous years - - - (3.0) (9.0) (12.0)
Total current tax 51.4 (4.7) 46.7 10.4 (15.4) (5.0)
Deferred tax
Current year 38.1 (207.2) (169.1) 16.3 316.1 332.4
Effect of change in tax rate - - - - 214.9 214.9
Total deferred tax 38.1 (207.2) (169.1) 16.3 531.0 547.3
Total taxation (credit)/charge 89.5 (211.9) (122.4) 26.7 515.6 542.3
Year ended 31 March 2022
Before exceptional items and remeasurements Exceptional items and remeasurements Total
(restated*) £m (restated*)
£m £m
Current tax
UK corporation tax 82.5 8.8 91.3
Adjustments in respect of previous years (5.9) - (5.9)
Total current tax 76.6 8.8 85.4
Deferred tax
Current year 75.2 478.2 553.4
Effect of change in tax rate - 244.7 244.7
Adjustments in respect of previous years (2.2) - (2.2)
Total deferred tax 73.0 722.9 795.9
Total taxation charge 149.6 731.7 881.3
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 2022
30 September 2021
31 March 2022
(restated*)
£m % £m % £m %
Continuing operations
881.3 25.4 Group tax charge/(credit) and effective rate (122.4) 24.0 542.3 32.2
(795.9) (22.9) Add: reported deferred tax (charge)/credit and effective rate 169.1 (33.1) (547.3) (32.5)
85.4 2.5 Reported current tax charge and effective rate 46.7 (9.1) (5.0) (0.3)
4.8 Effect of adjusting items 17.5 (2.5)
85.4 7.3 Reported current tax charge on adjusted basis 46.7 8.4 (5.0) (2.8)
add:
30.6 2.6 Share of current tax from joint ventures and associates 18.9 3.4 2.3 1.3
less:
(8.9) (0.7) Current tax charge/credit on exceptional items 4.7 0.8 15.4 8.8
107.1 9.2 Adjusted current tax charge and effective rate 70.3 12.6 12.7 7.3
The adjusted effective current tax rate for the period after adjusting for
discrete events arising in the first half of the year is 12.6% (2021: 7.3%).
The forecast full-year effective current tax rate is expected to be 13.6%.
*The comparative has been restated. See note 2 (v).
9. Discontinued operations and assets and liabilities held for sale
Discontinued operations
The discontinued operations during the year ended 31 March 2022 represented
the Group's investment in SGN, which was disposed on 22 March 2022 and the
Group's investment in Gas Production assets, which was sold on 14 October
2021. The total profit recognised from discontinued operations for the
period ended 30 September 2022 is a £35.0m gain from the Gas Production
disposal (see note 6.1 (v) for further information). For the year ended 31
March 2022 the total profit was £482.7m (September 2021: loss £93.8m);
consisting of a £502.2m gain from SGN, including a £576.5m gain on disposal
(September 2021 £76.0m loss) and £19.5m loss from Gas Production (September
2021: £17.8m loss).
The assets held for sale at 30 September 2021 were £673.3m, which included
Gas Production net assets of £8.8m, the Group's 33.3% investment in SGN of
£661.9m and the Group's 10% stake in Doggerbank windfarm development C of
£2.6m, which was sold on 10 February 2022. There were no assets and
liabilities classified as held for sale at 30 September 2022 and 31 March
2022.
10. Dividends
Ordinary dividends
Year ended 31 March 2022 Six months ended 30 September 2022 Six months ended 30 September 2021
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 2022 642.6 322.5 60.2 - - -
271.8 28.2 25.5 Interim - year ended 31 March 2022 - - - - - -
590.5 327.5 56.6 Final - year ended 31 March 2021 - - - 590.5 327.5 56.6
862.3 355.7 642.6 322.5 590.5 327.5
The final dividend of 60.2p per ordinary share declared in respect of the
financial year ended 31 March 2022 (2021: 56.6p) was approved at the Annual
General Meeting on 21 July 2022 and was paid to shareholders on 22 September
2022. 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.
For dividends paid in relation to the financial year ended 31 March 2022 and
in relation to the subsequent years to 31 March 2026, the Group's policy is to
repurchase shares to reduce the scrip's dilutive effects, if the scrip take-up
exceeds 25% of the full year dividend in any given year. The overall scrip
dividend take-up for the financial year ended 31 March 2022 was 38.33%. SSE
initiated a share buy-back, in the period following the final dividend payment
for the year ended 31 March 2022. The number of ordinary shares to be
purchased will not exceed 6,904,083 ordinary shares, and the maximum amount
allocated to the Scrip buy-back is £125.0m. SSE intends to complete this
process by 31 March 2023.
An interim dividend of 29.0p per ordinary share (2022: 25.5p) has been
proposed and is due to be paid on 9 March 2023 to those shareholders on the
SSE plc share register on 13 January 2023. 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 2022 is
based on the net profit or loss attributable to ordinary shareholders and the
weighted average number of ordinary shares outstanding during the period ended
30 September 2022.
Adjusted earnings per share
Adjusted earnings per share has been calculated by excluding the charge for
deferred tax, interest on net pension liabilities under IAS 19, retained Gas
Production decommissioning obligation adjustments, 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 2022
30 September 2021
31 March 2022
(restated*)
Earnings Earnings per share Earnings Earnings per share Earnings Earnings per share
£m pence £m pence £m pence
3,027.0 286.9 Earnings/(losses) attributable to ordinary shareholders (392.4) (36.4) 999.3 94.7
(482.7) (45.7) Less: (Earnings)/losses attributable to discontinued operations (35.0) (3.3) 93.8 8.9
2,544.3 241.2 Basic earnings on continuing operations used to calculate adjusted EPS (427.4) (39.7) 1,093.1 103.6
(1,658.9) (157.2) Exceptional items and certain re-measurements (note 6) 888.1 82.4 (1,004.5) (95.2)
885.4 84.0 Basic excluding exceptional items and certain re- measurements 460.7 42.7 88.6 8.4
Adjusted for:
13.1 1.2 Gas Production decommissioning adjustments (54.5) (5.1) - -
20.6 2.0 Depreciation charge on fair value uplifts 9.4 0.9 10.3 1.0
(7.6) (0.7) Interest on net pension scheme assets (note 7) (7.9) (0.7) (3.7) (0.4)
73.0 6.8 Deferred tax 38.1 3.6 16.3 1.6
15.8 1.5 Deferred tax from share of joint ventures and associates 4.5 0.4 (0.7) (0.1)
1,000.3 94.8 Adjusted 450.3 41.8 110.8 10.5
Year ended Six months ended Six months ended
31 March 2022 30 September 2022 30 September 2021
(restated*)
Earnings Earnings per share Earnings Earnings per share Earnings Earnings per share
£m pence £m pence £m pence
2,544.3 241.2 Basic (427.4) (39.7) 1,093.1 103.6
- (0.5) Dilutive effect of outstanding share options - - - (0.2)
2,544.3 240.7 Diluted (427.4) (39.7) 1,093.1 103.4
Reported earnings per share
Year ended Six months ended Six months ended
30 September 2022
30 September 2021
31 March 2022
(restated*)
Earnings Earnings per share Earnings Earnings per share Earnings Earnings per share
£m pence £m pence £m pence
Basic
2,544.3 241.2 Earnings/(losses) per share on continuing operations (427.4) (39.7) 1,093.1 103.6
482.7 45.7 Earnings/(losses) per share on discontinued operations 35.0 3.3 (93.8) (8.9)
3,027.0 286.9 Earnings/(losses) per share attributable to ordinary shareholders (392.4) (36.4) 999.3 94.7
- (0.5) Dilutive effect of outstanding share options - - - (0.1)
3,027.0 286.4 Diluted (392.4) (36.4) 999.3 94.6
The weighted average number of shares used in each calculation is as follows:
Year ended 31 March 2022 Six months ended 30 September 2022 Six months ended 30 September 2021
Number of shares Number of shares Number of shares
(millions) (millions) (millions)
1,055.0 For basic and adjusted earnings per share 1,077.2 1,054.7
2.0 Effect of exercise of share options 2.7 2.2
1,057.0 For diluted earnings per share 1,079.9 1,056.9
12. Acquisitions and disposals
Acquisitions and disposals in the current period
Acquisitions
European onshore renewables development platform: On 1 September 2022 the
Group completed the 100% acquisition of an existing European onshore renewable
energy development platform from Siemens Gamesa Renewable Energy ("SGRE") for
final cash consideration of £516.8m, after obtaining regulatory approval and
after completion adjustments. The SGRE portfolio is mainly located in Spain
with the remainder across France, Italy and Greece. This acquisition is
aligned to the Group's published strategy to pursue overseas renewable
opportunities.
Due to the acquisition date being close to the balance sheet date of 30
September 2022, SSE has recognised purchase consideration £488.8m as an
intangible asset, as a provisional fair value and £28.0m as working capital.
An exercise to determine the fair value of the separable assets and
liabilities acquired will be completed in the second half of the financial
year.
Acquisition costs of £4.7m were expensed to operating costs in the period.
The acquired business contributed £nil to revenue and £nil to operating
profit in the 6 month period to 30 September 2022.
Triton Power - 50% joint venture acquisition: On 1 September 2022, the Group
announced that SSE Thermal and Equinor had completed the acquisition of Triton
Power Holdings Limited from Energy Capital Partners for total consideration of
£341m shared equally. The Group's share of the cash consideration paid for
the equity investment was £123.2m after completion adjustments. Triton Power
operates the 1.2GW Saltend Power Station in the Humber along with two smaller
plants, Indian Queens Power Station, a 140MW OCGT in Cornwall, and Deeside
Power Station, a decommissioned CCGT in north Wales. The acquisition will
strengthen SSE's existing collaboration with Equinor and will support the
long-term decarbonisation of the UK's power system and contribute to security
of supply and grid stability. An exceptional gain on acquisition of £140.7m
was recognised (see note 6) based on movements in the underlying fair value of
assets acquired between agreeing and completing the transaction. Due to the
acquisition date being close to the balance sheet date, the exercise to
attribute fair value will be completed in the second half of the financial
year. See note 6.1 (iii) for further information.
The joint venture contributed £5.0m to operating profit in the 6 month period
to 30 September 2022.
During the 6 months ended 30 September 2022, the Group made other smaller
asset acquisitions (of special purpose vehicles as opposed to businesses) for
deferred consideration of £34.7m. The total cash consideration for business
combinations of £640.0m is included in the Group's Adjusted investment,
capital and acquisition metric.
Disposals
Fiddler's Ferry land sale: On 30 June 2022, the Fiddlers Ferry site was sold
to Peel NRE Developments Limited resulting an exceptional gain of £89.1m on
disposal.
Prior year acquisitions and disposals
Acquisitions
Acquisition of 80% equity interest in Japanese offshore wind development
platform
On 29 October 2021 the Group 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.
The assets and liabilities acquired largely comprise tangible and intangible
assets, being windfarm site development costs and goodwill as set out in the
table below. The non-controlling interest acquired was measured at fair value,
where fair value represented the non-controlling interest's proportionate
share of the assets and liabilities acquired through the transaction.
Fair value at 29 October 2021
Assets acquired
Intangible development assets 20.5
Cash 4.3
Other assets 0.4
Total net assets acquired 25.2
Non-controlling interest (40.6)
Goodwill 176.7
161.3
Cash consideration 141.3
Deferred consideration 20.0
161.3
Disposals
During the year ended 31 March 2022, the Group completed its strategic
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 an exceptional gain on disposal of £576.5m of its investment in
SGN (discontinued), an exceptional loss of £120.8m on disposal of SSE E&P
UK Limited (discontinued) and other less material exceptional gains and losses
on disposal, mainly relating to the sale of the Group's Contracting and Rail
business to the Aurelius Group. Additionally, the Group recognised a
non-exceptional gain on disposal of £67.1m, relating to the sale of the
Group's 10% stake in Dogger Bank C on 10 February 2022. After the sale the
Group's shareholding in Dogger Bank C is 40%. The disposals primarily comprise
sales of stakes in non-operated investment assets, or the sale of a stake in
early stage offshore windfarm development, which aligns to the Group's stated
policy to realise value from these assets.
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 2022, 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.
During the period SSE plc issued a 7 year €650m Eurobond at a coupon of
2.875% with an all-in cost of funding rate of just below 3% once fees and cost
of pre hedging have been included. The bond will be left in Euros as part of
the Group's net investment hedge of Euro denominated businesses. SSE Group
(through Scottish Hydro Electric Transmission plc) also received the proceeds
from the private placement that was priced and committed to in March 2022.
This comprised of a £350m dual tranche US Private Placement with Pricora
Capital being a £175m 10-year tranche at 3.13% and a £175m 15-year tranche
at 3.24% giving an all-in average rate of 3.185% across both tranches.
SSE's adjusted net debt and hybrid capital was £10.0bn at 30 September 2022,
compared with £8.6bn at 31 March 2022.
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. That balance
was £581.3m (2021: £74.7m, March 2022: (£87.4m) at 30 September 2022 and
reflects the increased levels of initial and variation margin required as part
of the management of the Group's exposures on commodity contracts traded on
exchanges.
The Group has £1.5bn of committed bank facilities, being a £1.3bn Revolving
Credit Facility with a March 2026 maturity and a £0.2bn bilateral facility
with an October 2026 maturity. These facilities can also be utilised to cover
short term funding requirements; however, they remain undrawn during the six
months to 30 September 2022. In the period to 15 November 2022, £700m of
these facilities have been utilised to fund further margin requirements for
commodity contracts transacted on exchanges. 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) and at 30 September 2022,
£1,173m of commercial paper was outstanding compared to £507m at 31 March
2022 (30 September 2021: £103m).
On 11 November 2022, two new revolving credit facilities were entered into as
part of the Networks minority stake disposal process. SSEN Transmission
entered into a 3 year £750m facility and SSEN Distribution entered into a
similar 3 year £250m facility, both facilities have two 1 year optional
extensions. These facilities were entered into to help cover the future long
term funding requirements and the working capital of those businesses as they
look to become financially independent of the Group. The facilities will
therefore support the ongoing capital expenditure investment programmes that
are required to deliver their ambitious future growth plans.
The Group capital comprises:
March September September
2022 (restated*) 2022 2021
£m £m £m
8,671.2 Total borrowings (excluding lease obligations) 8,976.8 8,705.8
(1,049.3) Less: Cash and cash equivalents (289.3) (232.7)
7,621.9 Net debt (excluding hybrid equity) 8,687.5 8,473.1
1,051.0 Hybrid equity 1,882.4 1,051.0
(74.7) Cash held as collateral and other short-term loans (581.3) 87.4
8,598.2 Adjusted net debt and hybrid equity 9,988.6 9,611.5
8,077.8 Equity attributable to shareholders of the parent 7,910.5 6,035.8
16,676.0 Total capital excluding lease obligations 17,899.1 15,647.3
The comparative has been restated. See note 2 (v).
13.2 Loans and other borrowings
March 2022 September 2022 September 2021
£m £m £m
Current
1,118.7 Short term loans 1,323.1 2,014.4
72.1 Lease obligations 76.6 52.4
1,190.8 1,399.7 2,066.8
Non-current
7,552.5 Loans 7,653.7 6,691.3
321.4 Lease obligations 312.3 352.3
7,873.9 7,966.0 7,043.6
9,064.7 Total loans and borrowings 9,365.7 9,110.4
(1,049.3) Cash and cash equivalents (289.3) (232.7)
8,015.4 Unadjusted net debt 9,076.4 8,877.7
Add/(less):
1,051.0 Hybrid equity (note 14) 1,882.4 1,051.0
(393.5) Lease obligations (388.9) (404.7)
(74.7) Cash held/(deposited) as collateral and other short term loans (581.3) 87.4
8,598.2 Adjusted net debt and hybrid equity 9,988.6 9,611.4
SSE's adjusted net debt and hybrid capital was £10.0bn at 30 September 2022,
compared with £8.6bn at 31 March 2022 and £9.6bn at 30 September 2021.
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.
13.3 Reconciliation of net decrease in cash and cash equivalents to movement
in adjusted net debt and hybrid equity
March 2022 September 2022 September 2021
£m £m £m
(550.9) (Decrease)/increase in cash and cash equivalents (760.0) (1,367.5)
Add/(less)
(506.1) New borrowing proceeds (2,068.6) (103.3)
- New hybrid equity proceeds (831.4) -
865.0 Repayment of borrowings 1,998.2 450.0
421.4 Repayment of hybrid equity - 421.4
(40.5) Non-cash movement on borrowings (235.2) (62.8)
111.8 Increase/(decrease) in cash held as collateral and other short term borrowings 506.6 (50.3)
300.7 (Increase)/decrease in adjusted net debt and hybrids (1,390.4) (712.5)
13.4 Hybrid debt
Following the issue of a new €1bn equity accounted hybrid in April 2022, the
Company took advantage of the 3 month par call option on the debt accounted
hybrids to fully redeem these hybrids on 16 June 2022. Included therefore
within loans and borrowings at 30 September 2022 is £nil hybrid debt
securities, compared to £1.0bn of hybrid debt securities at 30 September 2021
and 31 March 2022 (issued on 16 March 2017, with an issuer first call date on
16 September 2022).
14. Hybrid Equity
March 2022 September 2022 September 2021
£m Perpetual subordinated capital securities £m £m
598.0 GBP 600m 3.74% perpetual subordinated capital securities (i) 598.0 598.0
453.0 EUR 500m 3.125% perpetual subordinated capital securities (i) 453.0 453.0
- EUR 1,000m 4.00% perpetual subordinated capital securities (ii) 831.4 -
1,051.0 1,882.4 1,051.0
(i) 2 July 2020 £600m and €500m Hybrid Capital Bonds
The 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 discretionary coupon payments are
made annually on 14 April and for the €500m Hybrid the discretionary coupon
payments are made annually on 14 July.
(ii) 12 April 2022 €1,000m Hybrid Capital Bonds
The Hybrid capital bond issued in April 2022 has 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 is 21 April 2028 and then every 5 years thereafter.
The discretionary Hybrid coupon payments are made annually on 21 April.
Coupon Payments
In relation to the £600m hybrid equity bond a discretionary coupon payment of
£22.4m (2022: £16.8m) was made on 14 April 2022 and for the €500m hybrid
equity bond a discretionary coupon payment of £16.4m (2022: £16.4m) was made
on 14 July 2022. Additionally, in relation to the €600m hybrid equity bond
(redeemed on 1 April 2021), the final discretionary coupon payment of £17.5m
was made on 1 April 2021. The first discretionary coupon payment on the new
€1bn hybrid equity bond will occur on 21 April 2023. The coupon payments in
the six month period to 30 September 2022 consequently totalled £38.8m (2021:
£50.7m).
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 2022 1,073.1 536.5
Issue of shares 18.2 9.1
At 30 September 2022 1,091.3 545.6
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 2022 of 60.2p (2021: 56.6p in relation
to the final dividend for the year to 31 March 2021; March 2022: 25.5p in
relation to the interim dividend for the year to 31 March 2022) per ordinary
share under the terms of the Company's scrip dividend scheme. This resulted in
the issue of 18,241,941 (2021: 22,201,443; March 2022: 1,782,473) new fully
paid ordinary shares.
In addition, the Company issued 33k shares (2021: 0.2m, March 2022: 0.6m)
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 £0.5m (2021: £2.2m, March 2022: £6.3m).
On 28 September 2022 the Group entered into an irrevocable non-discretionary
Share buyback programme of £125m in own shares for cancellation. As the Share
buyback was irrecoverable the full value was recognised as a liability at 30
September 2022 and no shares were repurchased in the period. The share
repurchase scheme commenced on 3 October 2022.
Of the 1,091.3m (2021: 1,071.3m, March 2022: 1,073.1m) shares in issue, 5.4m
(2021: 5.9m, March 2022: 5.5m) 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 1.3 million shares (2021: 0.1 million, March 2022: 0.9 million) for
a consideration of £21.7m (2021: £1.5m, March 2022: £14.1m) 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.
SSE has 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.
During the period ended 30 September 2022, the Group was exposed to
exceptional volatility in energy markets impacting the primary commodities to
which it is exposed (Gas, Carbon and Power) due to the impacts from the war in
Ukraine and other global factors. The Group's approach to hedging, and the
diversity of its energy portfolios (across Wind, Hydro, Thermal and Customers)
has provided significant certain 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.
Market access to energy markets to enable hedging and prompt optimisation has
been maintained by a combination of three key actions. Firstly, bilateral
counterparty limits have been increased (subject to Executive Director
authorisation) and SSE has continued to utilise market access provided by
exchange platforms and auctions. Secondly, the SSE Group Parent Company
Guarantee has been increased appropriately to reflect the impact of market
volatility on counterparty exposures. Finally, since March 2022, SSE Treasury
facilities have been increased by circa £710m with relationship banks and
insurance companies in order to facilitate letters of credit to be posted as
collateral instead of cash to support the route to market of the Group.
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 2022.
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 2022 Six months ended 30 September 2022 Six months ended 30 September 2021
£m £m £m
Operating derivatives
3,527.2 Total result on operating derivatives (i) (1,044.0) 1,584.1
(1,426.8) Less: amounts settled (ii) (944.3) (380.1)
2,100.4 Movement in unrealised derivatives (1,988.3) 1,204.0
Financing derivatives (and hedged items)
(43.3) Total result on financing derivatives (i) 225.0 (55.3)
64.3 Less: amounts settled (ii) 18.7 (0.6)
21.0 Movement in unrealised derivatives 243.7 (55.9)
2,121.4 Net income statement impact (1,744.6) 1,148.1
(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.
The movement in unrealised operating derivatives excludes £19.3m of gains on
proprietary trades, which has been recognised in the underlying profit of the
Group.
The fair values of the primary financial assets and liabilities of the Group
together with their carrying values are as follows:
March 2022 September 2022 September 2021
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
£m £m £m £m £m £m
Financial Assets
Current
1,433.9 1,433.9 Trade receivables 1,570.3 1,570.3 947.5 947.5
4.9 4.9 Other receivables 109.2 109.2 3.2 3.2
83.8 83.8 Cash collateral and other short term loans 1,113.1 1,113.1 59.4 59.4
1,049.3 1,049.3 Cash and cash equivalents 289.3 289.3 232.7 232.7
2,941.8 2,941.8 Derivative financial assets 2,677.2 2,677.2 419.2 419.2
5,513.7 5,513.7 5,759.1 5,759.1 1,662.0 1,662.0
Non-current
8.7 8.7 Unquoted equity investments 18.0 18.0 3.5 3.5
136.4 136.4 Loan note receivable 145.2 145.2 128.2 128.2
736.9 736.9 Loans to associates and jointly controlled entities 886.0 886.0 632.8 632.8
371.7 371.7 Derivative financial assets 1,124.7 1,124.7 2,207.1 2,207.1
1,253.7 1,253.7 2,173.9 2,173.9 2,971.6 2,971.6
6,767.4 6,767.4 7,933.0 7,933.0 4,633.6 4,633.6
Financial Liabilities
Current
(919.7) (919.7) Trade payables (986.9) (986.9) (610.0) (610.0)
(9.1) (9.1) Outstanding liquid funds (531.8) (531.8) (146.8) (146.8)
(1,118.7) (1,162.4) Loans and borrowings (1,323.1) (1,335.3) (2,014.4) (2,087.4)
(72.1) (72.1) Lease liabilities (76.6) (76.6) (52.4) (52.4)
(701.5) (701.5) Derivative financial liabilities (2,195.4) (2,195.4) (1,008.0) (1,008.0)
(2,821.1) (2,864.8) (5,113.8) (5,126.0) (3,831.6) (3,904.6)
Non-current
(7,552.5) (8,133.7) Loans and borrowings (7,653.7) (6,898.1) (6,691.3) (7,703.5)
(321.4) (321.4) Lease liabilities (312.3) (312.3) (352.3) (352.3)
(549.6) (549.6) Derivative financial liabilities (956.7) (956.7) (500.2) (500.2)
(8,423.5) (9,004.7) (8,922.7) (8,167.1) (7,543.8) (8,556.0)
(11,244.6) (11,869.5) (14,036.5) (13,293.1) (11,375.4) (12,460.6)
(4,477.2) (5,102.1) Net financial liabilities (6,103.5) (5,360.1) (6,741.8) (7,827.0)
Fair value hierarchy
The following tables provide 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 2022 September 2021
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 - 3,402.4 - 3,402.4 132.5 2,302.0 - 2,434.5
Interest rate derivatives - 360.6 - 360.6 - 177.7 - 177.7
Foreign exchange derivatives - 38.9 - 38.9 - 14.0 - 14.0
Loan note receivable - - 145.2 145.2 - - 128.2 128.2
Unquoted equity instruments - - 18.0 18.0 - - 3.5 3.5
- 3,801.9 163.2 3,965.1 132.5 2,493.7 131.7 2,757.9
Financial Liabilities
Energy derivatives (9.5) (3,062.9) - (3,072.4) - (1,023.9) - (1,023.9)
Interest rate derivatives - (54.6) - (54.6) - (433.2) - (433.2)
Foreign exchange derivatives - (25.1) - (25.1) - (51.1) - (51.1)
Loans and borrowings - (199.3) - (199.3) - (48.9) - (48.9)
(9.5) (3,341.9) - (3,351.4) - (1,557.1) - (1,557.1)
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 2022, nor the 6
months ended 30 September 2021.
March 2022
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial Assets
Energy derivatives 884.1 2,246.4 - 3,130.5
Interest rate derivatives - 176.8 - 176.8
Foreign exchange derivatives - 6.1 - 6.1
Loan note receivable - - 136.4 136.4
Unquoted equity instruments - - 8.7 8.7
884.1 2,429.3 145.1 3,458.5
Financial Liabilities
Energy derivatives - (828.7) - (828.7)
Interest rate derivatives - (376.1) - (376.1)
Foreign exchange derivatives - (46.3) - (46.3)
Loans and borrowings - (31.6) - (31.6)
- (1,282.7) - (1,282.7)
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 2022.
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 2022.
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
2022 2022 2022 2021 2022 2021
£m £m £m £m £m £m
(24.6) 517.5 Scottish Hydro Electric Pension Scheme (105.9) (41.7) 413.4 501.7
221.9 67.4 Southern Electric Pension Scheme 150.3 106.5 235.1 (63.7)
197.3 584.9 Net actuarial gain/(loss) and combined asset/(liability) 44.4 64.8 648.5 438.0
A triennial valuation of the Southern Electric Pension Scheme ('SEPS') was
finalised in the year ended 31 March 2019 and showed a deficit of £286.6m as
at 31 March 2019 on a projected unit basis. 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 funding
valuation as at 31 March 2022 is currently in process and is expected to
finalise in the second half of the financial year. As part of that process the
Trustee and the Company will agree future contributions to the scheme based on
the valuation. The Group also pays contributions in respect of current
accrual, with some active members also paying contributions. Total
contributions of approximately £56.7m are expected to be paid by the Group
during the current year ending on 31 March 2023, including deficit repair
contributions of £38.9m, of which £18.8m have been paid to 30 September
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 of £268.3m
on a projected unit basis. Following this valuation, the Group agreed a new
schedule of contributions which does not require contributions to be paid to
the scheme, unless there is a deficit on the valuation basis for two
successive quarterly valuations. Consequently, the Group has not and is not
expected to make contributions to the scheme in the year ending 31 March 2023.
A summary of the movement presented in the statement of changes in equity is
shown below:
Year ended 31 March 2022 Six months ended 30 September Six months ended 30 September
2022
2021
£m
£m £m
197.3 Actuarial gains/(losses) recognised 44.4 64.8
(72.6) Deferred tax thereon (11.1) (38.6)
124.7 Net gain recognised in statement of changes in equity 33.3 26.2
The major assumptions used by the actuaries in both schemes in preparing the
IAS19 valuations were:
March 2022 September 2022 September 2021
4.2% Rate of increase in pensionable salaries 4.1% 3.9%
3.7% Rate of increase in pension payments 3.6% 3.4%
2.7% Discount rate 5.2% 2.0%
3.7% Inflation rate 3.6% 3.4%
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 2022 September 2022 September 2021
Male Female Male Female Male Female
Scottish Hydro Electric Pension Scheme
22 24 Currently aged 65 22 24 22 24
24 27 Currently aged 45 24 27 24 27
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 2022 September 2022 September 2021
£m £m £m
985.9 Capital Expenditure 848.2 1,285.8
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 2022 September 2021
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)
Marchwood Power Ltd 56.7 (125.5) - (34.7) 32.5 (107.8) 19.5 (43.6)
Scotia Gas Networks Ltd - - - - 15.3 (5.0) 15.5 (0.8)
Clyde Windfarm (Scotland) Ltd 2.4 (124.9) 1.6 (48.6) 2.3 (52.8) - (33.6)
Beatrice Offshore Windfarm Ltd 2.3 (83.9) 1.3 (18.9) 2.8 (31.4) 1.0 (10.7)
Stronelairg Windfarm Ltd 1.1 (74.1) - (28.4) 1.1 (28.6) 1.1 (16.5)
Dunmaglass Windfarm Ltd 0.5 (34.1) - (13.1) 0.5 (12.7) 0.2 (8.1)
Neos Networks Ltd 2.8 (11.7) 9.4 (19.0) 15.0 (13.8) 2.2 (42.7)
Seagreen Offshore Windfarm Ltd 14.8 (4.7) 13.7 (4.5) 11.1 - 5.3 -
Doggerbank A, B and C 12.4 - 7.1 - 9.3 - 4.4 -
Other Joint Ventures 5.5 (90.3) 1.8 (46.6) 4.0 (71.9) 2.0 (41.0)
March 2022
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 51.9 (49.1) - -
Marchwood Power Ltd 104.3 (229.3) - (7.6)
Scotia Gas Networks Ltd 42.9 (10.1) - -
Clyde Windfarm (Scotland) Ltd 4.6 (259.3) 0.1 (74.2)
Beatrice Offshore Windfarm Ltd 5.0 (163.7) 0.9 (20.6)
Stronelairg Windfarm Ltd 2.1 (138.5) - (36.7)
Dunmaglass Windfarm Ltd 1.0 (57.9) - (13.7)
Neos Networks Ltd 31.2 (27.1) 52.2 (13.8)
Seagreen Offshore Windfarm Ltd 24.9 (0.4) 6.0 (0.3)
Doggerbank A, B and C 21.2 - 8.5 -
Other Joint Ventures 8.2 (195.9) 1.3 (23.5)
The transactions with Seabank Power Limited and Marchwood Power Limited relate
to the contracts for the provision of energy or the tolling of energy under
power purchase arrangements.
On 22 March 2022 the Group completed its disposal of its interest in Scotia
Gas Networks Limited ('SGN'). In the prior year, the table above included
the Group's gas supply activity which included gas distribution charges and
services the Group provided to SGN in the form of a management services
agreement for corporate and shared services.
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 2022, the Group was owed the
following loans from its principal joint ventures: Marchwood Power Limited
£32.6m (2021: £43.6m, March 2022: £39.1m), Triton Power Holdings Limited
£48.0m (2021: £nil, March 2022: £nil), Clyde Windfarm (Scotland) Limited
£127.1m (2021: £127.1m, March 2022: £127.1m), Stronelairg Windfarm Limited
£88.7m (2021: £88.7m, March 2022: £88.2m), Dunmaglass Windfarm Limited
£46.5m (2021: £46.5m, March 2022: £46.5m), Neos Networks Limited £51.6m
(2021: £77.8m, March 2022: £90.2m), SSE Slough Multifuel Limited £102.0m
(2021: £48.6m, March 2022: £62.5m), Seagreen Offshore Windfarm Limited
£344.1m (2021: £53.0m, March 22: £271.7m) and Scotia Gas Networks Limited
£nil (2021: £118.8m, March 2022: £nil).
20. Seasonality of operations
Certain activities of the Group are affected by weather and temperature
conditions and seasonal market price fluctuations. As a result of this, the
amounts reported for the interim period may not be indicative of the amounts
that will be reported for the full year due to seasonal fluctuations in
customer demand for gas, electricity and services, the impact of weather on
demand, renewable generation output and commodity prices 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
and the procurement prices in summer versus winter. This has been particularly
the case in these businesses in the current financial year with the
profitability in the first half of the year expected to fully reverse in the
second half as the impact of higher commodity prices and other costs impact
operations. In Thermal Generation and Renewables, there is the impact of lower
production in the summer 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. The Gas
Storage business' activity is partly to manage seasonal risk across
summer/winter gas price spreads and its profitability is impacted by the
extent to which optimisation gains or losses can be achieved.
21. Post Balance Sheet Events
21.1 Energy Prices Bill
On the 12 October 2022 the UK government announced the Energy Prices Bill
which is intended to provide support for winter 2022 energy bills through the
Energy Price Guarantee to domestic consumers and through the Energy Bill
Relief Scheme for businesses and non-domestic consumers. These took effect
from 1 October 2022.
Part of this Bill included the new 'Cost-Plus-Revenue Limit' which is planned
to be in place from the start of 2023. The Cost-Plus-Revenue Limit is a
temporary revenue limit proposed to apply a limit to revenue that low-carbon
generators can generate from renewable sources in England, Wales and Northern
Ireland which are not already under a UK government Contract for Difference
scheme. The exact scope and requirements of this scheme remain under
consultation at the date of these statements. Nonetheless, at 30 September
2022, the Group assessed that the introduction of a Cost-Plus-Revenue Limit
scheme was not in itself an indicator of impairment in relation to the Group's
renewable assets and no impairment assessment was carried out. The Group will
reassess its renewable assets for indicators of impairment, or impairment
reversal at 31 March 2023.
21.2 Gas Production - disposal gain
On 4 November 2022, RockRose Energy Limited received HMRC clearance in respect
of tax treatment in relation to the Group's disposal of its Gas Production
business to Viaro Energy (through its subsidiary RockRose Energy Limited),
which completed on 14 October 2021. The Group had indemnified RockRose Energy
Limited in relation to certain tax liabilities that it might suffer as a
result of the transaction, and this formed part of the provision which was
recognised on the disposal of the Gas Production business. The HMRC clearance
indicated that no such tax liabilities arise for RockRose Energy Limited and
as a result the Group has released £35.0m of provision relating to the
indemnity as an adjustment to the loss on disposal recognised. The adjustment
is recognised in discontinued operations in the period ended 30 September
2022.
17.
Principal risks and Uncertainties
SSE's established Risk Management Framework and wider system of internal
control continues to inform strategic decision-making in 2022/23. 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 2022 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.
An essential tenet of SSE's Risk Management process is the consideration of
potential emerging risks and whether any of those identified have the
potential to become a Group Principal risk in the medium to long-term. As
such, following the 2021/22 review process and due to the development of a
Joint Venture Governance framework throughout the year, the emerging risk
"Joint Venture and Partner Management" was not retained as an emerging risk.
Joint Venture and Partner Governance has however been included as a key
mitigating against the Group Principal Risks of Large Capital Projects
Management, People and Culture, Regulations and Compliance and Speed of
Change.
For more information on these risks, and the wider system of internal control,
please refer to pages 68 to 81 of the SSE plc 2022 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
15 November 2022
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 2022 which comprises 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 2022 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) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. 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 are
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".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
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.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
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, including our Conclusions
Relating to Going Concern, are 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) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. 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
15 November 2022
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