REG - SSE Plc - Half-year Report
15/11/2023 07:15
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RNS Number : 4630T SSE PLC 15 November 2023
SSE PLC: interim results for the
six months ended 30 September 2023
15 November 2023
creating value by Delivering on critical infrastructure
· Major progress on flagship projects including first power at
Dogger Bank and full power at Seagreen offshore wind farms, and planning and
supply chain secured for Eastern Green Link 2 subsea transmission cable.
· Reporting adjusted earnings per share of 37.0p, ahead of
pre-close guidance and reflecting the normal seasonal nature of operations
that deliver the majority of annual earnings in the second half of SSE's
financial year.
· Maintaining balance sheet strength with 91% of adjusted debt
paying a fixed rate and less than £1.5bn long-term debt refinancing required
over the next 24 months.
· Focus on safety remains the number one priority for the group,
with initiatives put in place as increased construction activity contributes
to a Total Recordable Injury Rate of 0.24, an increase from 0.15.
· Reaffirming guidance for full year 2023/24 of more than 150p
adjusted earnings per share.
increasing visibility over medium-term outlook
· Delivery, capital discipline and optionality provide greater
certainty over Net Zero Acceleration Programme Plus (NZAP Plus) targets for
the five years to 2026/27:
· Capital investment expectations upgraded to £20.5bn for the
five-year programme reflecting increasing visibility over regulated networks
spend and associated supply chain costs, with around 90% of the upweighted
investment plan expected to be invested in electricity networks and
renewables.
· Continue to target c.5GW net renewables capacity additions over
the period and, given the additional clarity over networks investment, now
expecting to grow net electricity networks RAV to more than £15bn by 2027
from the previous net target of £12 - 14bn.
· Increased investment provides greater certainty that we will be
comfortably within an adjusted EPS CAGR of 13 - 16% over the five-year period,
excluding developer profits, with the existing operational assets and
committed capex together expected to contribute around 95% of 2026/27 adjusted
EPS target.
· Investment plan remains fully funded, supported by strong balance
sheet with a continued expectation to stay within or below a 3.5 - 4.0x net
debt / EBITDA range across the plan.
· Reiterating commitment to target annual dividend increases of
between 5 - 10% to 2026/27, based on an expected 60 pence full year dividend
for 2023/24, with retention of the scrip option and dilution from uptake
capped at 25%.
Alistair Phillips-Davies, Chief Executive, said:
"Our performance in the first half of 2023/24 demonstrates SSE's well-balanced
business mix and our ability to adapt and create value while maintaining
capital discipline in a fast-evolving energy landscape. As visibility of
growth options improves, we have upweighted our capex plans to meet the
ambitions of the NZAP Plus plan.
"With an enduring broad political consensus behind the need to build the
electricity infrastructure required for net zero, a supportive power price
outlook, balance sheet strength underpinned by world-class assets and
unrivalled optionality across the clean energy value chain, we have increased
confidence in our earnings forecasts not only for this year, but out to
2026/27."
FINANCIAL SUMMARY (continuing operations(1))
Adjusted Reported
Sep 2023 Sep 2022 % mvmt Sep 2023 Sep 2022 % mvmt
Operating profit / (loss) (£m) 693.2 716.0 (3%) 602.3 (635.1) 195%
Profit / (loss) before tax (£m) 565.2 559.4 1% 573.3 (511.0) 212%
Earnings / (loss) per share (p) 37.0 41.8 (11%) 28.3 (39.7) 171%
Investment, capital & acquisitions (£m) 1,054.3 1,743.2 (40%) 1,320.4 1,432.6 (8%)
Net Debt and Hybrid Capital (£bn)(2) (8.9) (10.0) (11%) (8.1) (9.1) (11%)
(1) Excluded discontinued operation relates to the disposal of the Gas
Production business which contributed £35.0m to Reported profit for the
period ended 30 September 2022 (30 September 2023: £nil). (2) Reported
numbers exclude equity accounted hybrid capital.
Strategic Highlights
· Historic moment for GB energy system as first power achieved by
SSE Renewables at Dogger Bank, which will be the world's largest offshore farm
at 3.6GW.
· Critical milestones also reached at 1.1GW Seagreen offshore wind
farm where full power achieved and 440MW Viking onshore wind farm where the
final turbines have been installed.
· Successful in AR5, the UK's fifth Contract for Difference
auction, with 605MW of onshore wind contracted as well as Ireland's third RESS
process where the 101MW Yellow River onshore wind farm secured a contract.
· Installation of SSEN Transmission's Shetland HVDC on track for
energisation in Summer 2024 whilst approval of need agreed with Ofgem on
reinforcements at Orkney, Skye and Argyll.
· Secured supply chain and planning consent for Eastern Green Link
2, a 2GW subsea HVDC which will help unlock renewable resource in Scotland and
be delivered in partnership with National Grid.
· First RIIO-ED2 Uncertainty Mechanism funding secured by SSEN
Distribution as it makes a strong start to delivering increasing investment
under its new price control.
financial highlights
· Adjusted earnings per share of 37.0p, ahead of pre-close guidance
reflecting stronger operational performance combined with a lower anticipated
effective rate of tax for the full year.
· Reported earnings per share of 28.3p, as a non-cash accounting
impairment on Triton Power and a movement on financial guarantee liabilities
were only partially offset by a favourable fair value movement on derivatives.
· Greater investment led to increasing profitability in SSEN
Transmission, offset by the 25% non-controlling interest divested in November
2022, whilst the timing of cost inflation recovery in SSEN Distribution
principally led to lower profitability.
· Profitability in Renewables reflects higher hedged prices
combined with lower hedge buybacks required, albeit with unfavourable weather
conditions leading to a shortfall against planned output.
· Strong financial performance in SSE Thermal with additional
year-on-year capacity from Triton Power and Keadby 2 offering increased
flexibility to the market and supporting security of supply.
· Gas Storage recorded seasonal half-year loss due to inventory
churn, expected to revert back to profitability of more than £75m for the
full financial year as gas is sold over the winter.
· €750m eight-year Green Bond successfully issued in September
2023 at a fixed coupon of 4.0% and nearly three-times oversubscribed. SSE is
now the UK's largest issuer of Green Bonds.
· Adjusted investment, capital and acquisition expenditure of
£1.1bn.
· Adjusted net debt and hybrid capital at £8.9bn, broadly
unchanged after the first six months of the financial year and in line with
pre-close guidance.
interim dividend in line with growth-enabling plan
· Announced an interim dividend of 20p for payment on 8 March 2024.
· Interim dividend represents a third of the expected full year
dividend of 60p per share.
Key Performance Indicators
Key Financial Indicators Adjusted Reported
(continuing operations) Sep 2023 Sep 2022 Sep 2023 Sep 2022
Operating profit / (loss) by business £m
- SSEN Transmission 215.6 208.4 287.3 208.4
- SSEN Distribution 120.1 174.6 120.1 174.6
- SSE Renewables 86.8 15.0 (23.7) (36.8)
- SSE Thermal & Gas Storage 226.2 248.2 143.3 887.5
- Other businesses inc. corporate unallocated 44.5 69.8 75.3 (1,868.8)
Operating profit / (loss) £m 693.2 716.0 602.3 (635.1)
EBITDA £m 1,109.6 1,109.3 1,050.2 (224.7)
Profit / (loss) before tax £m 565.2 559.4 573.3 (511.0)
Earnings / (loss) per share (EPS) pence 37.0 41.8 28.3 (39.7)
Interim dividend per share (DPS) pence 20.0 29.0
Investment and capital expenditure £m
- SSEN Transmission 242.6 270.9 324.8 270.9
- SSEN Distribution 245.5 175.8 336.9 222.0
- SSE Renewables 447.1 477.8 381.2 686.9
- SSE Thermal & Gas Storage 38.4 95.7 20.8 37.8
- Other businesses 80.7 83.0 256.7 215.0
Acquisition consideration £m - 640.0 - -
Investment, capital and acquisitions £m 1,054.3 1,743.2 1,320.4 1,432.6
Net debt and hybrid capital £m 8,943.8 9,988.6 8,050.6 9,076.4
Notes: HY2022/23 segmental numbers above restated to reflect movement of Solar
and Battery business to SSE Renewables and Building Energy Management Systems
to Business Energy, both previously reported under SSE Enterprise. Excluded
discontinued operation relates to the disposal of the Gas Production business
which contributed £35.0m to Reported profit for the period ended 30 September
2022 (30 September 2023: £nil).
Operational Key Performance Indicators Sep 2023 Sep 2022
Thermal generation - GWh(1) 7,020 9,158
Renewable generation - GWh (inc. pumped storage and constrained off in GB) 3,723 3,725
Distributed Energy - GWh 49 38
Total generation output - all plant - GWh 10,792 12,921
SSEN Transmission RAV - £m(2) 5,289 4,590
SSEN Distribution RAV - £m 5,138 4,525
SSE Total Electricity Networks RAV - £m(2) 10,427 9,115
Business Energy Electricity Sold - GWh 5,203 5,806
Business Energy Gas Sold - mtherms 60.8 65
Airtricity Electricity Sold - GWh 3,110 2,693
Airtricity Gas Sold - mtherms 67 69
(1)HY2022/23 excludes 651GWh of pre-commissioning output from Keadby 2 which
entered commercial operation on 15 March 2023
(2)Gross of 25% non-controlling interest in SSEN Transmission
ESG Key Performance Indicators Sep 2023 March 2023 Sep 2022
Carbon emissions (scopes 1&2) MtCO(2)e 2.14 (6 months) 6.52 (12 months) 3.26 (6 months)
Scope 1 GHG intensity gCO(2)e/kWh 232 254 271
Total water consumed (million cubic meters) - 1.4 -
Total recordable injury rate per 100,000 hours worked 0.24 0.19 0.15
Total economic contribution - UK/Ireland (£bn/€m)(1) - 6.0/429 -
Jobs supported - UK/Ireland (headcount)(2) - 39,940/2,430 -
Total taxes paid UK/Ireland (£m/€m) - 501.7/53.8 -
Employee retention/turnover rate (%)(3) - 89.5/10.5 -
Employee engagement index (%)(4) 85 84 84
Average board tenure - years(5) 3.3 4.4 3.9
Female board members (%)(6) 42 46 46
Independent board members (%)(6) 73 75 75
Total number of board members 12 13 13
(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.
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 this Interim Results Statement 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 performance management 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 ("APMs") section before the Interim Financial
Statements. SSE continues to prioritise the monitoring of developing practice
in the use of APMs, 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's 'Adjusted Net Debt and Hybrid Capital" APM and 'EBITDA'
represents the full year group "Adjusted EBITDA" APM and including a further
adjustment to remove the proportion of "Adjusted EBITDA" from equity-accounted
Joint Ventures which relates to project financed debt.
Important note: Discontinued Operations - Gas Production
On 14 October 2021, the Group completed the sale of its Gas Production
business which had been presented as a discontinued operation prior to
disposal as the transaction constituted the exit of all activity in that
industry. The Group's adjusted measures therefore exclude the contribution
from this business in all periods presented. The Group continues to retain a
60% share of the decommissioning obligation of the Gas Production business
following disposal. Any 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: Non-controlling equity stake sale
On 30 November 2022, the Group completed the sale of a 25% non-controlling
equity stake in Scottish Hydro Electric Transmission plc ('SHET') (see note 11
of the Interim Financial Statements).
As this transaction did not result in a loss of control, the business
continues to be classified as a continuing operation and its result continues
to be included within the Group's adjusted profit-based measures, after
removing the relevant share of profit attributable to holders of
non-controlling equity stakes from the point when the ownership structure
changed in accordance with the APM definitions
Strategic Overview
DELIVERY, DRIVE AND DISCIPLINE
Recent months have shown yet again the benefit that both shareholders and
society derive from a truly balanced energy business with an unwavering
strategic focus on a value-creating transition to net zero.
We continue to make excellent progress against our plans, but we are sensitive
to events in the world around us and so far in 2023/24 there has been much for
us to consider and navigate. We have seen abnormal weather patterns and
meteorological events, geopolitical conflict on two fronts with related
economic aftershocks, and heightened uncertainty over short-term domestic
policy as a UK General Election approaches.
Through it all, at SSE we have concentrated on a purpose that enjoys broad
political and societal consensus. We are delivering on the execution of a
long-term, climate-based strategy, and maintained our commitment to health and
safety.
BUILDING MOMENTUM BEHIND OUR STRATEGY
In practice, this has meant building even more momentum behind our Net Zero
Acceleration Programme Plus and creating real value for all of our
stakeholders.
Our strategy is built on the knowledge that networks, renewables and flexible
thermal generation will be major features of a future energy system with
electricity at its heart. And while the policy and delivery pace of all three
will shift over time, there are tailwinds behind each of them and a wealth of
increasing opportunities for value and growth as we transition to net zero.
The unrivalled optionality and balance of the SSE business mix means that our
capital allocation will move across the value chain, reflecting changes to the
visibility of growth opportunities and the relative attractiveness of returns.
The changes to the capex weightings within the NZAP Plus as announced today
are evidence of that strategy in action.
delivering on INVESTMENT
We have further strengthened our standing as a national clean energy champion,
investing £10m a day over the five years of the NZAP Plus plan in the
critical infrastructure that is so clearly needed for a future energy system
that is cleaner, more secure and more affordable.
Dogger Bank, which will be the world's biggest offshore wind farm, exported
first power last month; Seagreen offshore wind farm is now fully operational,
with capacity to power 1.6m UK homes; and Viking, which will be Europe's most
productive onshore wind farm, has all of its turbines installed on Shetland.
These flagship renewables projects support our growth targets and earnings
guidance as they enter a market that is offering prices that are likely to be
higher for longer, but equally will help keep those prices lower for consumers
than they would otherwise be.
At the same time, Ofgem's Large Onshore Transmission Investments (LOTI)
re-opener and the Accelerated Strategic Transmission Investment (ASTI)
framework have given SSEN Transmission greater visibility of future growth.
This visibility, along with greater certainty over supply chain costs, has
allowed us to update our investment forecasts and we now expect £2.5bn of
additional capex to be spent across the five years to 2026/27 in that business
- contributing to a net increase to the NZAP Plus investment of £20.5bn.
Investment on this scale comes with a surge in construction activity, and with
it an increased level of physical risk. This has been reflected in a
regrettable rise in our TRIR measure of safety performance in the first half.
Getting people home safe at the end of each working day remains SSE's primary
objective; we take our responsibility in this regard very seriously, and we
have put measures in place to address the underlying causes of the recent rise
in incidents.
DRIVING SUSTAINABLE EARNINGS
We have stability, reliable earnings and natural hedges right across the
Group. The networks and renewables businesses are highly complementary in
terms of their growth characteristics, asset focus, and combined financial
strength, whilst elsewhere in our energy businesses we have assets that offer
important flexibility to manage the variability of wind.
Networks have long been an underlying value driver for SSE, and that is even
clearer now. The resulting revision to our capex plan not only grows our
regulated asset base, but also gives us greater confidence in being
comfortably within our earnings guidance to 2026/27.
In the near term, attractive returns are being delivered from our existing
portfolio of world-class assets. Over the medium term we expect our large,
multi-year capital programmes to increase earnings over the course of the NZAP
Plus. And looking to the long term, our growing development pipeline promises
more value over the decade to come and beyond.
mAINTAINING CAPITAL DISCIPLINE
Our capital discipline has stood us in good stead in the recent market
environment. In the Contracts for Difference Allocation Round 5 we held back
from an offshore process that did not meet our investment criteria, but
onshore we were rewarded with contracts secured for over 600MW at attractive
returns.
Put simply, when we cannot see attractive returns from contracts, or where
seabed is too expensive, we will exercise discretion in our decision making.
Our very deliberate business mix supports this approach by providing
wide-ranging optionality.
We have the flexibility to dial our capital allocation up or down -
prioritising investment to the asset classes offering the best returns in the
prevailing market conditions. With this in mind, on a risk-adjusted basis,
increasing investment in regulated networks is the sensible choice right now.
This disciplined approach extends to new technologies too. As we transition to
net zero, we will need lower-carbon thermal generation such as hydrogen and
carbon capture and storage; and pumped hydro storage; but our commitment to
development expenditure is measured, and clarity on supportive policy is
needed for us to invest at scale. All credible pathways to existing government
targets indicate these assets will be needed quickly and we expect policy to
recognise this.
mEETING LONG-Term, ESG-ALIGNED, TARGETS
SSE is an ESG-rated stock with business goals aligned to a 1.5°C global
warming pathway. The revised targets we set out in May as part of the NZAP
Plus contribute to those goals and are well within reach. But those targets
were only ever a floor, not a ceiling, to our ambitions and today we have made
further refinements to our capex projections.
With the increase in networks investment announced today, we have already
secured the vast majority of the assets that will deliver our expected
earnings growth to 2026/27. Our balanced portfolio of regulated and
market-based businesses provides us with a defensive earnings mix which has
significant indexation to inflation and is supported by a strong balance
sheet, with the vast majority of debt held at fixed rates.
SSE is a long-term business with excellent prospects over the next decade and
beyond. Credit for much of this goes to Gregor Alexander. His stewardship as
Finance Director has been central to leading us to the strong position we are
in today. I thank him for his 33 years of tireless service with the Company to
date, and wish him well in his continued involvement as Chair of the SSEN
Transmission Board and as a member of the Neos Networks Board.
We have a highly capable successor to Gregor in Barry O'Regan. In his role as
Chief Financial Officer, I have every confidence that Barry will help us meet
our targets and build on a compelling investment proposition featuring
exposure across the clean energy value chain; balance sheet strength;
exceptional optionality and capability; and visibility of sustainable earnings
growth.
Alistair Phillips-Davies
Chief Executive
SSE plc
Group financial review
six months ended 30 september 2023
This Group Financial Review sets out the financial performance of the SSE
Group for the six months ended 30 September 2023. See also the separate
sections on Group Financial Outlook, 2023/24 and beyond, and Supplemental
Financial Information.
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.
Both the SSE Renewables and SSE Enterprise comparative results have been
restated to reflect the transfer of responsibility for the Solar and Battery
business to SSE Renewables from April 2023.
The definitions SSE uses for adjusted measures are consistently applied and
are explained - including a detailed reconciliation to reported measures - in
the Alternative Performance Measures section of this document before the
Interim Financial Statements.
Key Financial Metrics Adjusted Reported
(continuing operations)(1) Sep 2023 Sep 2022 Sep 2023 Sep 2022
£m £m £m £m
Operating profit / (loss) 693.2 716.0 602.3 (635.1)
Net finance (costs) / income (128.0) (156.6) (29.0) 124.1
Profit / (loss) before tax 565.2 559.4 573.3 (511.0)
Current tax (charge) / credit (88.4) (70.3) (140.0) 122.4
Effective current tax rate (%) 15.6 12.6 24.4 24.0
Profit / (loss) after tax 476.8 489.1 433.3 (388.6)
Less: hybrid equity coupon payments (73.1) (38.8) (73.1) (38.8)
Less: profits attributable to non-controlling interests - - (51.2) -
Profit / (loss) after tax attributable to ordinary shareholders 403.7 450.3 309.0 (427.4)
Earnings / (loss) per share (pence) 37.0 41.8 28.3 (39.7)
Number of shares for basic/reported and adjusted EPS (million) 1,090.4 1,077.2 1,090.4 1,077.2
Shares in issue at 30 September (million)(2) 1,092.1 1,085.9 1,092.1 1,085.9
(1) Excluded discontinued operation relates to the disposal of the Gas
Production business which contributed £35.0m to Reported profit for the
period ended 30 September 2022 (30 September 2023: £nil).
(2) Excludes Treasury shares
Dividend per Share (pence) Mar 2024 Mar 2023
Interim Dividend 20.0 29.0
Final Dividend(1) 40.0 67.7
Full Year Dividend 60.0 96.7
(1)Final dividend 2023/24 expected to be recommended by the Directors for
approval by shareholders at the 2024 AGM.
Operating profit performance for the six months to 30 september 2023
Business-by-business segmental Adjusted Reported
(continuing operations) Sep 2023 Sep 2022 Sep 2023 Sep 2022
£m £m £m £m
Operating profit / (loss)
SSEN Transmission 215.6 208.4 287.3 208.4
SSEN Distribution 120.1 174.6 120.1 174.6
Electricity networks total 335.7 383.0 407.4 383.0
SSE Renewables 86.8 15.0 (23.7) (36.8)
SSE Thermal 312.9 100.4 234.6 342.7
Gas Storage (86.7) 147.8 (91.3) 544.8
Thermal Total 226.2 248.2 143.3 887.5
GB Business Energy 88.0 59.4 88.0 59.4
SSE Airtricity (NI and Ire) 5.8 14.9 5.3 14.8
Energy Customer Solutions Total 93.8 74.3 93.3 74.2
SSE Energy Markets (formerly EPM) 9.0 30.3 88.9 (1,958.0)
SSE Enterprise (formerly Distributed Energy) (8.4) 0.6 (8.4) 0.6
Neos Networks (14.7) (6.5) (16.3) (11.2)
Corporate unallocated (35.2) (28.9) (82.2) 25.6
Total operating profit / (loss) 693.2 716.0 602.3 (635.1)
Net finance (costs) / income (128.0) (156.6) (29.0) 124.1
Profit / (loss) before tax 565.2 559.4 573.3 (511.0)
Notes: HY2022/23 segmental numbers above restated to reflect movement of Solar
and Battery business to SSE Renewables and Building Energy Management Systems
to Business Energy, both previously reported under SSE Enterprise. Excluded
discontinued operation relates to the disposal of the Gas Production business
which contributed £35.0m to Reported profit for the period ended 30 September
2022 (30 September 2023: £nil).
Segmental EBITDA results are included in Note 5(d) 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 2023 are set out below; comparisons are with
the same period to 30 September 2022 unless otherwise stated.
SSEN Transmission: Adjusted operating profit increased by 3% to £215.6m,
despite a £(71.7)m basis difference to reflect the non-controlling interest
share of operating profit in the current period following the 25% divestment
of this business on 30 November 2022. SSEN Transmission's higher allowed
revenues, together with a positive timing variance following under-recovery of
revenues in the previous year, were partially offset by increases in operating
costs and depreciation charges as the business continues to expand its asset
base and operational capabilities under the RIIO-T2 price control.
Reported operating profit increased by 38% to £287.3m, reflecting all of the
adjustments above except for the non-controlling interest basis difference, as
non-controlling interests are fully consolidated for all profit metrics under
IFRS.
SSEN Distribution: Adjusted and reported operating profit reduced by 31% to
£120.1m in the period. The allowed revenue under the price control for FY24
is based on tariffs which were set in December 2021 and therefore do not
reflect the inflationary increases to the operating cost base since that date.
As a result, the increase in operating costs is the main driver of the
year-on-year variance in operating profit, with increases in employee costs
due to inflation and additional headcount, alongside higher network costs due
to maintenance volumes, and depreciation reflecting the continually increasing
asset base.
SSE Renewables: Adjusted operating profit increased by 479% to £86.8m. The
increase in profitability was driven primarily through onshore and offshore
wind revenues which achieved higher average hedge prices whilst incurring
lower levels of costs associated with hedged output buy-backs in a less
volatile market. Output for the period was driven by exceptionally still and
dry weather conditions, particularly in the first quarter of 2023/24, and
additional but delayed capacity as Seagreen offshore wind farm commissioned
left SSE Renewables' output around 0.8TWh or 19% behind planned levels year to
date (representing around 7% of the full year volume budget) but broadly in
line with the prior period.
The SSE Renewables reported operating result improved to £(23.7)m versus
£(36.8)m in the prior period. In addition to the factors noted above, the
reported loss reflects an increase in the share of Joint Venture interest and
tax of £(6.7)m and an exceptional remeasurement in the current period of
£(51.5)m mainly relating to net movement on remeasurement of SSE's affiliate
CfD with Seagreen for c.30% of the project's output.
SSE Thermal: Adjusted operating profit increased 212% to £312.9m, compared to
£100.4m in the prior period. The first half of the year saw lower
year-on-year output as lower spark spreads and volatility combined with
planned and unplanned outages across the summer. However, additional capacity
in the period from Triton Power (acquired on 1 September 2022) and Keadby 2
(entered commercial operation on 15 March 2023) together contributed £103m
adjusted operating profit, excluding capacity market income. This additional
capacity combined with a lower financial impact from plant outages, and an
increase in capacity market earnings of £72m relative to prior period, saw
earnings increase significantly year-on-year.
Reported operating profit decreased by 32% to £234.6m, compared to £342.7m
in the prior period which included £247.6m of non-recurring gains from the
acquisition of Triton Power, the disposal of Fiddler's Ferry land and the
reversal of historic Great Island impairment charges. The current period
result includes a £63.2m accounting impairment charge in addition to a
£13.5m adverse mark-to-market movement on operating derivatives, both driven
by decreases in observable forward commodity prices and both relating to the
Triton Power Joint Venture.
Gas Storage: Adjusted operating profit decreased by 159% to a loss of
£(86.7)m, compared to £147.8m of profit in the prior period. As a seasonal
business, a typical year sees gas injected in the summer months when prices
are low and then withdrawn and sold in the winter months when prices are
higher. The first half of the current financial year has seen significant
trading churn of the injected gas held in storage, which has the effect of
lowering the average cost of gas and creating an adjusted operating loss. This
stored gas has been sold forward into the second half of the year and
therefore the business is expected to record a full-year profit of more than
£75m after gas is withdrawn over the winter months. The prior period result
reflected a higher and more volatile gas market as well as an inversion of the
typical spread between higher-priced winter gas and lower-priced summer gas
due to low Russian gas supplies and high demand as gas stores were built up.
Reported operating profit decreased by 117% to a loss of £(91.3)m in the
period. In addition to the factors outlined above, the reported result for the
current period accounts for a £(4.6)m mark-to-market loss on the fair value
of physical gas inventory compared to a £195.9m uplift recorded for the same
purpose in the prior period. As has been noted in prior years, this does not
take account of mark-to-market movements on forward contracted sales and
therefore does not reflect valuation movements expected to be realised by the
business. In addition to that fair value movement, the prior period also
included a £201m impairment reversal which represented a full reversal of
historic impairments on the Aldbrough Gas Storage assets.
GB Business Energy: Adjusted and reported profitability increased by 48% to
£88.0m of profit in the period due in the main to the seasonal phasing of
margins; with greater margins expected to be achieved in the first half and
profitability expected to partially reverse to a lower level for the full
financial year. It remains a challenging environment for consumers and
customer-facing businesses with bad debt expenses increasing by c.25% on the
prior period to £(56.6)m. A customer support fund of £15m was established in
the period to support customers including small businesses, voluntary and
charitable organisations.
SSE Airtricity: Adjusted profitability decreased to £5.8m from £14.9m in the
prior period. Airtricity's primary focus remains supporting customers through
the ongoing cost-of-living crisis and at the start of the current period it
honoured its commitment to give all FY23 profits back to households in Ireland
via a household credit. Lower margins resulting from higher commodity costs
and higher indirect costs including bad debt expenses were partially offset by
upside from REFIT onshore wind contracts which are recorded within SSE
Airtricity.
Reported profitability has decreased to £5.3m from £14.8m in the prior
period reflecting the movements above, as well as a £(0.5)m share of interest
and tax in the current year from Joint Ventures.
SSE Energy Markets (formerly Energy Portfolio Management): Adjusted operating
profit has decreased to £9.0m from a £30.3m profit in the prior period.
Energy Markets continues to generate a relatively low level of baseline
operating earnings through service provision to those SSE businesses requiring
access to the Energy Markets. In addition to this, the business is permitted
to take small optimisation opportunities whilst managing liquidity and shape
on external trades but these optimisation opportunities are subject to strict
internal VAR limits and controls. The decrease in profitability is mainly due
to a lower level of volatility and price of power and gas trades in the
market, which has driven lower profits from the trading and optimisation
activities.
A reported operating profit of £88.9m was recognised in the period, compared
to a £(1,958.0)m loss in the prior period. In addition to the movements
above, the reported operating result includes the net remeasurement gain in
the current period and loss in the prior period on forward commodity
derivatives in the period which are fair valued in accordance with IFRS 9. In
line with previous years, this excludes any remeasurement on 'own use'
contracts and is unrelated to underlying operating performance.
SSE Enterprise (formerly Distributed Energy): An adjusted and reported
operating loss of £(8.4)m was recognised, compared to a profit of £0.6m in
the prior period. The business continues to incur losses as it invests to
support business growth in localised and flexible, smart energy
infrastructure.
Neos Networks: SSE's remaining 50% share in the Telecoms business Neos
Networks Limited recorded an adjusted operating loss of £(14.7)m compared to
£(6.5)m in the prior period, and a reported operating loss of £(16.3)m
compared to a loss of £(11.2)m in the prior period. These results reflect
losses incurred to support future business growth.
Corporate Unallocated: Adjusted operating loss of £(35.2)m compares against a
loss of £(28.9)m in the prior period. This reflects the continuing unwind of
income from historic transitional service agreements with Energy Services
(disposed to Ovo in January 2020), Neos Networks (part-disposed in January
2019) and SSE Contracting (disposed to Aurelius in July 2021), as well as
increasing overhead costs.
Reported operating loss of £(82.2)m compares against a profit of £(25.6)m in
the prior period. The current period included a £(50.5)m exceptional charge
which relates to the movement on the Group's exposure to financial guarantee
liabilities relating to disposed businesses following adoption of IFRS 17, and
a £3.5m positive revaluation adjustment relating to the legacy Gas Production
decommissioning provision. In the previous period, a £54.5m positive
revaluation adjustment was recognised on the same provision.
Adoption of IFRS 17 "Insurance Contracts"
On 1 April 2023, the Group adopted IFRS 17 'Insurance Contracts' on a modified
retrospective basis from the earliest period presented in this Interim Results
Statement.
The Group provides guarantees in respect of certain activities of former
subsidiaries and to certain current joint venture investments. Prior to
adoption of IFRS 17, these contracts were designated as insurance contracts
under IFRS4, where existing accounting practices were grandfathered and the
contracts were treated as contingent liabilities until such time as it became
probable the Group would be required to make payment to settle the obligation.
The adoption of IFRS 17 from 1 April 2022 resulted in a reassessment of these
contracts and the Group elected to apply the valuation principles of IFRS 9 to
these contracts. Adoption resulted in the fair value recognition of financial
guarantee liabilities of £(45.4)m; a £17.6m increase in equity investments
in joint ventures and associates; a related deferred tax liability of £1.1m;
and a £28.9m adjustment to retained earnings. On 1 September 2022, the Group
acquired a 50% joint venture in Triton Power Holdings Limited and provided
parent company guarantees to Saltend Cogeneration Company Limited (acquired as
part of the Triton Power 50% equity accounted joint venture). In the
comparative 6 month period to 30 September 2022, the Group has therefore
recognised a further £(16.0)m increase to the Group's financial guarantee
liabilities to reflect this guarantee and a £16.0m increase to the Group's
equity investment in Triton.
During the 6 month period to 30 September 2023, the Group recognised a net
charge of £(46.5)m, of which a £(50.5)m expense has been treated as an
exceptional charge, in relation to the increase in liabilities associated with
certain guarantee contracts under IFRS 17.
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,
results attributable to non-controlling interest holders and the impact of
certain remeasurements.
SSE's adjusted EPS measure provides an important and meaningful measure of
underlying financial performance. In adjusting for these items, 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 ended 30 September 2023, SSE's adjusted earnings per share
on continuing operations was 37.0p. This compares to 41.8p for the previous
year and reflects the movements in adjusted operating profit outlined in the
section above, as well as the normal seasonal nature of operations that
deliver the majority of annual earnings in the second half of SSE's financial
year.
Group financial outlook - 2023/24
and beyond
FINANCIAL OUTLOOK for 2023/24
SSE's balanced portfolio of economically-regulated and market-based businesses
have continued to navigate the risks and opportunities from variable market
conditions in the first half of the year. In particular, whilst renewables
output has been significantly below expectations, the flexible thermal
generation portfolio has continued to perform well in the market thereby
demonstrating the portfolio effect of the two technologies.
SSE remains focused on delivering long-term sustainable financial performance.
Whilst energy prices and energy price volatility continue to fall from the
highs of the last financial year, the group remains confident that its
businesses will collectively deliver strong adjusted operating profit in the
2023/24 financial year, specifically:
· SSEN Transmission: Expect adjusted operating profit to be higher
than the previous financial year, even after taking account of an additional 8
months of non-controlling interest.
· SSEN Distribution: Expect adjusted operating profit to be lower
than the previous financial year, as inflationary impacts on the operating
cost base will not be reflected in regulatory tariffs until FY25.
· SSE Renewables: Following Seagreen reaching full commercial
operations in October 2023, continue to expect to deliver to the planned
levels of output for the second half of the year, excluding any Dogger Bank A
commissioning volumes and subject to normal weather conditions.
· SSE Thermal and Gas Storage: Assuming normal plant availability
and supportive market conditions, adjusted operating profit for both
businesses is expected to be more than £750m, of which Gas Storage is
expected to contribute adjusted operating profit of more than £75m.
Taking the above factors into account, and with the key winter months to come,
SSE continues to expect to report full-year 2023/24 adjusted Earnings Per
Share of more than 150 pence and expects to provide updated EPS guidance later
in the financial year.
The Group is on course to report capital, investment and acquisition
expenditure for 2023/24 of around £2.5bn with leverage as at March 2024
expected to be below the target of 3.5 - 4.0x net debt to EBITDA.
Net Zero Acceleration Programme PLUS
Further upgrading capital investment plan to 2027
In May 2023, SSE announced an update to the Net Zero Acceleration Programme or
NZAP (originally presented November 2021) which rolled the plan forward by 12
months whilst also upgrading the targets, ambitions and investment mix. In the
six months since that update was announced, the Group has been focussed on
delivery of that strategy whilst recognising the impact from a changing
macroeconomic environment.
As a result of increased visibility over the scale of investment opportunities
available within the SSEN Transmission business, SSE has further revised its
plan by increasing the expected investment by £2.5bn to around £20.5bn over
the five years to 2026/27. This increase to SSE's capital investment plans -
which is solely allocated to the regulated SSEN Transmission business - has
the effect of upweighting the proportion of Electricity Networks spend as
outlined below:
Investment Plan (5 years) NZAP (Nov 2021) NZAP+ (May 2023) NZAP+ Nov 23 update
Total adjusted investment ~£12.5bn ~£18.0bn ~£20.5bn
- Electricity Networks ~40% ~50% ~55%
- Market based ~60% ~50% ~45%
Following this increase, SSE anticipates the investment will be focussed on:
· SSEN Transmission (~37% or ~£7.5bn) to continue to comprise the
majority of expected investment in regulated electricity networks. With the
RIIO-T2 baseline investment programme continuing at pace, the £2.5bn increase
in capital investment is expected to be incurred across the three Large
Onshore Transmission Investment ('LOTI') projects that have received approval
of need from Ofgem, in addition to increased visibility over the early
construction costs expected on the Accelerated Strategic Transmission
Investment ('ASTI') framework projects - the first of which is Eastern Green
Link 2. This increased investment is expected to increase gross RAV to more
than £10bn by the end of 2026/27, whilst delivering expected adjusted
operating profits (net of 25% Non-Controlling Interest) of more than £400m on
average across the five year plan.
· SSEN Distribution (~17% or ~£3.5bn) remains on track to deliver
its £3.6bn RIIO-ED2 investment programme which - alongside growth
opportunities from Uncertainty Mechanisms, the first of which has already been
secured - continues to expect gross RAV to increase to between £6 - 7bn by
the end of 2026/27 and deliver expected adjusted operating profits of at least
£450m on average across the five year plan.
· SSE Renewables (~34% or ~£7bn) is continuing to deliver on its
ambitious construction programme, with critical milestones achieved in the
period such as first power from Dogger Bank offshore wind farm and full power
from Seagreen offshore wind farm. Whilst the target to reach around 9GW of
installed capacity by 2026/27 remains, the business continues to focus on
financial discipline and selective renewables growth only where value
accretive. With that focus, the allocation of capital continues to move across
a diverse mix of renewable technologies such as the investment in over 500MW
of battery storage projects that are currently under construction. As such,
the business continues to expect to invest around £7bn net across the
five-year period and is expected to deliver a ~20% adjusted profit CAGR across
the five-year plan subject to normal weather and a c.£85/MWh baseload power
price in 2026/27.
· SSE Thermal and other businesses (~12% or ~£2.5bn) comprise the
remaining expected investment, with SSE Thermal's pipeline of low-carbon
thermal generation projects - such as sustainable biofuels, carbon capture and
ultimately hydrogen - making solid progress over the last six months with the
existing efficient, flexible thermal fleet continuing to expect to deliver
adjusted operating profits of around £500m on average across the remaining
four years to 2026/27.
With around 90% of the upweighted investment plan expected to be invested in
electricity networks and renewables, the substantial majority is focussed on
climate solutions to achieve SSE's 2030 Goals which are linked to its most
highly-material UN Sustainable Development Goals (SDGs) and aligned to the
Technical Screening Criteria of the EU Taxonomy.
Upweighted investment plan remains fully-funded, with continued strong balance
sheet
SSE has continued to demonstrate its ability to realise value from disposals,
create sustainable earnings growth and raising capital at highly attractive
terms, most recently the €750m 8-year Green Bond issued in September 2023 at
a fixed coupon of 4.0%.
The Group's business mix, capital investment and funding plans continue to be
designed to ensure that it retains an investment grade credit rating which
provides capacity to reach a 4.5x net debt / EBITDA ratio.
And whilst the incremental £2.5bn investment is expected to be mainly funded
by the issuance of around £2bn of additional debt towards the end of the five
year plan, the financial strength of the Group and continued earnings growth
means that it expects to still be within the target 3.5 - 4.0x net debt /
EBITDA by the end of 2026/27.
Maintaining disciplined investment and returns
SSE maintains its focus on allocating capital based on clear internal
investment criteria intended to maximise investment returns whilst ensuring
strategic alignment with SSE's vision to be a leading energy company in a net
zero world.
With the backdrop of a changing macroeconomic environment, SSE remains fully
committed to its disciplined approach of focussing investment on high-quality
assets where SSE's capabilities can deliver favourable risk-adjusted project
returns, namely continuing to target:
· Solar: returns between 50-300 bps over WACC for unlevered
projects, depending on the balance of merchant, technology and construction
risk for each project;
· Onshore wind: returns between 100-300 bps over WACC for unlevered
projects, also depending on the balance of merchant, technology and
construction risk for each project;
· Offshore wind: more than 11% equity returns (excluding developer
profits but including seabed lease fees) for project financed developments;
· Networks: between 7 - 9% return on equity assuming a level of
outperformance, CPIH inflation of 2% p.a. and an average gearing ratio of 60%;
and
· Emerging technologies (principally Batteries, CCS and Hydrogen):
between 300-500 bps over WACC for unlevered projects, reflecting the expected
increased operating and technology risk from newer, first of a kind
technologies.
These investment criteria - and targeted returns - continue to be applied in
both domestic and overseas markets.
Reaffirming expected earnings growth and dividend plan
Taking account of the Group's latest view of Renewables and Networks project
delivery out to 2026/27, in addition to the upweighted investment in Networks
announced today, SSE now has greater confidence in being comfortably within
its 175 - 200p adjusted earnings per share guidance range for 2026/27. This
increased visibility over investment means that existing operational assets
and committed capex are together expected to deliver around 95% of the 2026/27
EPS guidance, with key assumptions remaining unchanged since May 2023. These
include an ~£85/MWh nominal baseload power price for Renewable output in
2026/27; no assumed developer profits on project sell-downs; normal weather
and plant availability; a ~4.5% average cost of debt across the plan which in
turn assumes a 5.5% coupon on new debt issuance; and an ~16% average effective
tax rate across the plan.
Reflecting the SSE Boards' confidence in delivering this future earnings
growth, the commitment to target dividend increases following the rebase to 60
pence per share in 2023/24 of between 5 to 10% per year across 2024/25,
2025/26 and 2026/27 remains unaffected by the upweighted investment plan. This
plan retains the scrip dividend option for shareholders, with the cap on
take-up still set at 25% and implemented (if necessary) by means of a share
buy-back.
Supplemental financial information
Adjusted Investment and Capex Summary Sep 2023 Sep 2023 Sep 2022
Share % £m £m
SSEN Transmission (excluding 25% MI from 1 Dec 2022) 23% 242.6 270.9
SSEN Distribution 23% 245.5 175.8
Regulated networks total 46% 488.1 446.7
SSE Renewables 43% 447.1 477.8
SSE Thermal 4% 38.2 89.2
Gas Storage - 0.2 6.5
Thermal Energy Total 4% 38.4 95.7
Energy Customer Solutions 4% 36.8 26.2
SSE Energy Markets (formerly Energy Portfolio Management) - 3.4 2.3
SSE Enterprise (formerly Distributed Energy) 1% 15.2 10.5
Corporate unallocated 2% 25.3 44.0
Adjusted investment and capital expenditure 100% 1,054.3 1,103.2
Acquisitions - 640.0
Adjusted investment, capital and acquisitions expenditure 1,054.3 1,743.2
Note: HY2022/23 segmental numbers above restated to reflect movement of Solar
and Battery business to SSE Renewables and Building Energy Management Systems
to Business Energy, both previously reported under SSE Enterprise
SSE'S Capital Expenditure Programme
During the six months to 30 September 2023, SSE's adjusted investment, capital
and acquisitions expenditure totalled £1,054.3m, compared to £1,743.2m in
the same period last year. The reduction is driven primarily by prior period
acquisition expenditure relating to the purchase of the Southern European
onshore wind development platform, and the acquisition of Triton Power
Holdings, in separate transactions which both completed on 1 September 2022.
Investment in the reporting period was driven mainly by SSE's Renewables and
Electricity Networks divisions, with limited deployment of capital in Thermal
Energy and other businesses, and no acquisitions expenditure.
In SSEN Transmission, £242.6m net capex was delivered, including £59m on the
next stage of the Shetland connection with the entire 260km HVDC cable now
laid beneath the North sea, albeit some cable protection has still to be
installed. The East Coast Upgrade also progresses at pace including a further
£11m invested at Kintore during the period. First energisation of Phase 1
at Kintore was completed successfully in October 2023, with this phase due for
completion towards the end of FY24; and all 3 Phases of this 400kV upgrade and
132kV substation replacement due by 2026. This site will be a world leader in
400kV SF6 free Gas Insulated Switchgear.
In the first 6 months of RIIO-ED2, SSEN Distribution invested £116.9m in the
North network across a broad range of projects. Within this, £49m was
invested in subsea cables, including the Pentland Firth East cable which
energised during the period. In the South, total capex of £128.6m was
delivered during the period covering a broad range of projects, with
significant investment in Bramley Thatcham and Iver Reinforcement.
SSE Renewables invested a total of £447.1m during the period, including
£161.4m on Viking onshore wind farm on Shetland, where all turbines have now
been installed and commissioning is underway. In Ireland, £47.3m of capex was
delivered on the construction of the 101MW Yellow River project, which is
expected to be commissioned in early 2025. In the North Sea, £52.5m equity
was drawn down to fund the final stages of construction of Seagreen offshore
wind farm, which reached commercial operations in October 2023. In addition,
the first equity contribution to Dogger Bank A of £2m was drawn down in the
period, the project having previously been funded by non-recourse project
financing in the Joint Venture.
In SSE Thermal, around £18m of the £38.2m investment in the period was
incurred on the continued construction of the 50MW Slough Multifuel station, a
joint venture with CIP, which is progressing towards handover during
2024/25.
SSE's Hedging Position at 30 September 2023
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. 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:
In previous reporting periods, energy output hedges have been progressively
established through the forward sale of either electricity, or gas and carbon
equivalents. This approach was developed in response to lower levels of
available market depth and liquidity for electricity forward sales -
particularly more than 12 months out - and therefore facilitated the continued
reduction of exposure to volatile spot market outcomes.
During the period, the emerging pricing dislocation between UK Carbon and EU
Carbon - combined with poor liquidity in forward periods for UK Carbon - has
meant that a proportion of forward hedging has been conducted in gas
equivalents only. This serves to anchor the underlying energy value for future
output, whilst recognising that carbon and spark spread exposures remain,
which will be managed as liquidity emerges on nearer term markets.
For transparency, the table below has been expanded to note both the
proportion of hedges and prices of those hedges for electricity and
equivalents (i.e. where gas and carbon equivalents have been hedged) and for
gas alone (i.e. where the carbon leg has been unable to be hedged).
At 31 March 2023 Update at 30 September 2023
2023/24 2024/25 2025/26
Wind
Expected volume - TWh 6.5 6.8 6.8
Volume hedged - % 85% 84% 44%
- Hedge in electricity & equivalents - TWh 5.5 2.1 0.8
- Electricity hedge price - £MWh £75 £97 £109
- Hedge in Gas - TWh - 3.6 2.1
- Gas hedge price - p/therm - 138p 117p
Hydro
Expected volume - TWh 3.5 3.6 3.6
Volume hedged - % 85% 79% 43%
- Hedge in electricity & equivalents - TWh 3.0 1.0 0.1
- Electricity hedge price - £MWh £86 £103 £107
- Hedge in Gas - TWh - 1.7 1.2
- Gas hedge price - p/therm - 138p 120p
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 table excludes additional volumes and income for Balancing Mechanism
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.
The expected volumes include SSE's equity share of forecast pre-CFD volumes
from Seagreen offshore wind farm. No volumes have been included for Viking
onshore wind farm nor Dogger Bank offshore wind farm as hedging for these
assets has not yet commenced.
For wind energy output, SSE's established approach to hedging seeks to
minimise the volumetric downside risk 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 market and wind capture insights. The last such revision occurred in
September 2023, setting a baseline target hedge of around 80% of the
anticipated energy output from wind and hydro for the coming twelve months
from that date.
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).
Where possible, target hedge levels are achieved through the forward sale of
either electricity, or gas and carbon equivalents. 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 increase the
previously published average hedge price or decrease it.
However, where the market depth and liquidity significantly differs between
gas and carbon, the hedging approach allows for the separate forward sale of
either commodity, and for time periods beyond the 36 months prior to delivery,
where it is believed that it would reduce risk against or secure value for
generation assets. 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 hedges are subsequently converted
into electricity hedges ahead of delivery, a carbon and spark spread value is
realised which will lead to changes in the average hedge price expected.
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 18 months prior to delivery.
This hedging approach is adjusted to take into account any changes in
exposures as a result of current market conditions, such as the plant
availability exposure, counterparty credit risk, and changes to cost of
capital for collateral.
Hedging activity also depends on the availability of sufficient market depth
and liquidity, which can be limited, particularly for periods further into the
future.
Gas Storage: 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. At 30 September 2023, 109 mTh of gas
inventory was physically held which represents c.58% of SSE's share of
capacity (at 30 September 2022, 151mTh of gas inventory representing c.90% of
SSE's share of capacity).
GB 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.
SSE Energy Markets (formerly EPM): This business 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 this business to
manage around shape and liquidity whilst taking small optimisation
opportunities. This is contained within a total VAR limit of £5m.
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 ended 30 September 2023, SSE recognised a net exceptional
charge within continuing operations of £(113.5)m before tax. The following
table provides a summary of the key components making up the net charge:
Exceptional credits / (charges) Total
within continuing operations £m
Thermal Generation impairment of Triton Power investment (63.2)
Movement on financial guarantee liabilities relating to disposed businesses (50.5)
following adoption of IFRS 17
Unwind of discounting on deferred consideration in respect of a historic 0.2
disposal
Total exceptional charge (113.5)
Note: The definition of exceptional items can be found in Note 2 (iii) of the
Interim Financial Statements.
For a full description of exceptional items, see Note 6 of the Interim
Financial Statements.
Certain remeasurements
In the six months ended 30 September 2023, SSE recognised a favourable net
remeasurement within continuing operations of £55.9m before tax. The
following table provides a summary of the key components making up the
favourable movement:
Certain remeasurements Total
within continuing operations £m
Operating derivatives (including Joint Ventures, before tax) 19.5
Commodity stocks held at fair value (4.6)
Financing derivatives 41.0
Total net favourable remeasurement 55.9
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 2023 is expected to be within the
next 6 - 12 months.
The change in the operating derivative mark-to-market valuation was a £19.5m
positive movement from the start of the year, reflecting a £1.2m positive
movement on fully consolidated operating derivatives combined with a £18.3m
share of positive movement on derivatives in jointly controlled entities
(before tax) driven by commodity contract revaluations mainly in the Seagreen
and Triton Power Joint Ventures.
The positive movement of £1.2m on fully consolidated operating derivatives
includes:
· Settlement during the period of £499.4m of previously net
"out-of-the-money" contracts in line with the contracted delivery periods; and
· An adverse net mark-to-market remeasurement of £(498.2)m on
unsettled contracts including affiliate CfDs, largely entered into during the
course of 2022/23 and 2023/24 and in line with the Group's stated approach to
hedging. This mark-to-market remeasurement - which compares to a £(1,044.0)m
adverse movement in the prior period - reflects the reduced volatility seen 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 £(4.6)m adverse movement in the year reflects the lower current
forward market price when compared to the actual weighted average cost of gas
stored at the period end.
However, whilst this movement reflects the net change in fair value of
physical gas inventory held at the period end, it does not take into account
any positive or negative mark-to-market movement on forward contracted sales.
Therefore, similar to derivative contracts held at fair value, we do not
expect that this valuation movement will reflect the final result realised by
the business.
Financing derivatives
In addition to the movements above, a positive movement of £41.0m was
recognised on financing derivatives in the period ended 30 September 2023,
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 continued higher
interest rates driving reductions in the "out of the money" position on SSE's
fixed rate swaps, in addition to settlement of previously "out-of-the-money"
contracts in line with the contracted delivery periods.
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 2023 are significantly higher than the previous year. In addition
to the £55.9m net pre-tax gain on forward commodity, gas inventory and
financing derivative fair value remeasurements and the £(113.5)m net pre-tax
exceptional charge noted above - reported results also include £12.8m of
interest income on the net pension asset and £68.4m of share of profits
attributable to non-controlling interests.
Reported results in the prior period reflected pre-tax certain re-measurement
losses of £(1,548.7)m mainly driven by the significant volatility in
commodity markets in the prior period, as well as historic impairment
reversals of £219m and net gains on acquisitions / disposals of £230m.
Financial management and balance sheet
Debt metrics Sep 2023 March 2023 Sep 2022
£m £m £m
Net Debt / EBITDA* N/A 2.7x N/A
Adjusted net debt and hybrid capital (£m) (8,943.8) (8,894.1) (9,988.6)
Average debt maturity (years) 5.9 6.4 6.5
Adjusted interest cover 3.9 7.6x 4.2x
Average cost of debt at period end (including all hybrid coupon payments) 4.02% 3.92% 3.83%
* Note: Net debt represents the group adjusted net debt and hybrid capital.
EBITDA represents the full year group adjusted EBITDA, less £147m (at March
2023) for the proportion of adjusted EBITDA from equity-accounted Joint
Ventures relating to project financed debt.
Net finance costs reconciliation Sep 2023 Sep 2022
£m £m
Adjusted net finance costs 128.0 156.6
Add/(less):
Lease interest charges (11.7) (14.1)
Notional interest arising on discounted provisions (11.0) (7.1)
Hybrid equity coupon payment 73.1 38.8
Adjusted finance costs for interest cover calculation 178.4 174.2
SSE Principal Sources of debt funding Sep 2023 Mar 2023 Sep 2022
Bonds 54% 54% 52%
Hybrid debt and equity securities 18% 18% 18%
European investment bank loans 5% 5% 7%
US private placement 8% 10% 10%
Short-term funding 11% 9% 10%
Index -linked debt 4% 4% 3%
% Of which has been secured at a fixed rate 91% 92% 92%
Rating Agency Rating Criteria Date of Issue
Moody's Baa1 'stable outlook' 'Low teens' Retained Cash Flow/Net Debt March 2023
Standard and Poor's BBB+ 'positive stable' About 18% Funds From Operations/Net Debt September 2023
Maintaining a strong balance sheet
A key objective of SSE's long-term approach to balancing capital investment,
debt issuance and securing value and proceeds from disposals is by maintaining
a strong net debt/EBITDA ratio. SSE calculates this ratio based on a
methodology that it believes best reflects its activities and commercial
structure, in particular its strategy to secure value from partnering by using
Joint Ventures and non-recourse project financing.
SSE considers it has the capacity to reach a ratio of up to around 4.5x,
comparable with private sector utilities across Europe, whilst remaining above
the equivalent ratios required for an investment grade credit rating.
While there may be short-term fluctuations in leverage as demonstrated by the
2.7 net debt/EBITDA achieved at 31 March 2023 (2022: 4.0x), it is expected
that this ratio will generally fall between 3.5 - 4.0x across the five years
to 31 March 2027.
SSE's S&P credit rating were updated in December 2022 to BBB+ 'positive
outlook' and its Moody's rating was reaffirmed in March 2023 at Baa1 with
'stable outlook'.
Adjusted net debt and hybrid capital
SSE's adjusted net debt and hybrid capital was £8.9bn at 30 September 2023,
broadly unchanged from 31 March 2023. With no significant acquisitions or
divestments in the period, the debt movement relates to dividends, capex
spends and revaluation of currency debt as well as various working capital
movements being offset by operating cash flows.
Debt summary as at 30 September 2023
The Group issued €750m of new medium- long-term debt in the first half of
the financial year whilst also continuing to roll Commercial Paper at the same
level as at 31 March 2023:
· In September 2023, SSE plc issued an 8 year €750m Eurobond at a
coupon of 4.0% with an all-in cost of funding rate of just above 4% once fees
have been included. The bond was left in Euros as a net investment hedge for
the Group's Euro denominated subsidiaries.
· Over the course of the year, SSE plc rolled maturing short-term
debt which takes the total outstanding Commercial Paper at 30 September 2023
to €1,048m (£902m). Commercial Paper has been issued in Euros and swapped
back to Sterling at an average cost of debt of 5.92% and matures between
October 2023 and January 2024.
In the six months to 30 September 2023, £0.7bn of medium-to-long-term debt
has matured comprising £155m (US Private Placement) which matured in April
2023 and September 2023, €700m (£514m) (Eurobond) which matured in
September 2023 and £50m European Investment Bank fixed rate loan which
matured in September 2023.
In the next twelve months, there is a further £204m of medium-to-long-term
debt maturing being £204m US Private Placement maturing in April 2024. As
noted above, €1,048m (£902m) of short-term debt in the form of Commercial
Paper is also due to mature in the second half of 2023/24, however the current
intention is to roll this maturing short-term debt forward throughout the
2023/24 financial year. In addition to these contractual maturities, it is
anticipated that any capital expenditure related draw-downs of the
Transmission RCF facility will be refinanced with long-term debt in the
future, with £220m drawn on that facility at 30 September 2023.
Hybrid bonds summary as at 30 September 2023
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 31 March 2023 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 Note 13 to the Interim
Financial Statements and a table noting the amounts, timing and accounting
treatment of coupon payments is shown below:
Hybrid coupon payments 2023/24 2022/23
HYe FYe HYa FYa
Total equity (cash) accounted £73m £73m £39m £39m
Total debt (accrual) accounted - - £21m £21m
Total hybrid coupon £73m £73m £60m £60m
SSE's July 2020 and April 2022 hybrid bonds are perpetual instruments and are
therefore accounted for as part of equity within the Interim Financial
Statements but, consistent with previous years, have been included within
SSE's 'Adjusted net debt and hybrid capital' to aid comparability.
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 March 2017 hybrid bonds - which
were called and settled in April 2022 - had a fixed redemption date and were
therefore debt accounted with coupon payments treated as finance costs under
IFRS 9 "Financial Instruments".
Managing net finance Income / (costs)
SSE's adjusted net finance costs - which included interest on debt accounted
hybrid bonds but not equity accounted hybrid bonds - were £128.0m in the half
year ended 30 September 2023, compared to £156.6m in the previous period. The
lower level of finance costs from period to period mainly reflects the
refinancing of debt accounted hybrid bonds with equity accounted hybrid
capital in April 2022, combined with slightly higher capitalised interest
costs reflecting increasing construction activity.
Reported net finance costs were (£29.0m) compared to a reported net finance
income of £124.1m in the previous period, mainly reflecting a £202.7m
decrease in the movement on financing derivatives as previously referenced,
combined with an £18.7m increase in joint venture interest and tax.
Summarising cash and cash equivalents
At 30 September 2023, SSE's adjusted net debt included cash and cash
equivalents of £0.9bn, which is the same level as the £0.9bn at March 2023.
The cash collateral position has decreased from £316.3m of cash provided as
collateral at 31 March 2023 to £140.6m of cash provided at 30 September 2023.
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
decrease in cash collateral reflects the lower forward power and gas price
environment, alongside reduced-price volatility in those markets.
Revolving Credit Facility / SHORT-TERM FUNDING
SSE has £3.5bn 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
Nov 22 SHET plc Syndicated Revolving Credit Facility with 11 Relationship Banks 2026 £750m
Nov 22 SHEPD plc and SEPD plc Syndicated Revolving Credit Facility with 11 Relationship Banks 2026 £250m
Feb 23 SSE plc Syndicated Revolving Credit Facility with 10 Relationship Banks 2024 £1.0bn
Ahead of the 25% non-controlling interest stake disposal, SSEN Transmission
entered a three-year £750m facility, including two one-year optional
extensions with the first year's option exercised in September 2023. This
facility was entered into to help cover the future long-term funding
requirements and the working capital of this business as it looks to become
financially independent of the Group. A £250m facility on the same terms has
been entered into by SSEN Distribution. These facilities support the ongoing
capital expenditure investment programmes that are required to deliver their
ambitious future growth plans and will be drawn on a regular basis.
The £1bn facility signed in February 2023 was executed to cover potential
cash collateral requirements required to cover commodity positions on
exchanges or via credit support annexes on bilateral contracts.
The facilities can also be utilised to cover short-term funding requirements;
however, the majority remain undrawn for most of the time and at 30 September
2023, £220m was drawn on the £750m Scottish Hydro Electric Transmission plc
facility.
The two SSE plc facilities totalling £1.5bn that mature in 2026 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. The new £750m
Transmission facility is also classified as a sustainable facility with
interest rate and fees paid dependant on four ESG-related KPI's being
achieved.
In addition to the above, a $300m private placement shelf facility exists with
NY Life which can be drawn in approximately two equal tranches 12 months apart
over the next three years. At 30 September 2023, no drawings have been made on
this facility.
In addition to these committed bank facilities, the Group has access to 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 2023, 91% 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
using 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 2023
was 6.4 years, consistent with the position at 31 March 2023. This position
reflects the £0.7bn of new long-term debt issued in the last six months,
which has been entirely offset by maturing long term debt.
SSE's average cost of debt is now 4.02%, compared to 3.92% at 31 March 2023.
The increase relates to rates moving higher during the year predominately on
short term funding partially offset by higher floating rate fixings on fixed
rate swaps.
Going Concern
The Directors consider that the Group has adequate resources to continue in
operational existence for the period to 31 December 2024. 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 12) 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 2024.
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 as at 30
September 2023 there was £903m commercial paper outstanding (31 March 2023:
£919m). In the six months ended 30 September 2023, the Group has issued new
debt instruments totalling £650m and has redeemed £204m of maturing debt in
the period. The Group also continues to have access to its £3.5bn of
revolving credit facilities. As at 30 September 2023 there were £220m of
drawings against these committed facilities being less than 6% utilisation.
The details of the five committed facilities at 30 September 2023 are:
· a £1.3bn revolving credit facility for SSE plc maturing March
2026;
· a £0.2bn bilateral facility for SSE plc maturing October 2026;
· a £0.75bn facility for Scottish Hydro Electric Transmission plc
maturing November 2026;
· a £0.25bn facility for Scottish Hydro Electric Power
Distribution plc and Southern Electric Power Distribution plc maturing
November 2026; and
· a £1.0bn committed facility for SSE plc maturing February 2024.
The £1.3bn revolving credit facility and £0.2bn bilateral facility are both
in place to provide back-up to the commercial paper programme and support the
Group's capital expenditure plans. The Transmission and Distribution related
facilities, both of which have 1 year extension options at the borrower's
discretion, were entered into to help cover the capital expenditure and
working capital of those businesses. The £1bn committed facility at SSE plc
has a 1 year extension option at the lender's discretion and was entered into
to provide cover for potential cash collateral requirements, if periods of
extreme volatility return to the commodity markets. The only facility that was
drawn at 30 September 2023 was the £750m Transmission facility, with £220m
drawn to cover capital expenditure requirements.
Operating a Scrip Dividend Scheme
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 out
to 2026/27, 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 approval of the dividend at the Annual General Meeting on 20 July
2023, and receipt of the final dividend scrip elections on 24 August 2023, the
overall scrip dividend take-up for the financial year was less than the 25%
threshold and therefore no buy-back to limit scrip dilution was required.
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 around £3.4bn as at 30 September
2023.
SSE principal JVs and associates(1) Asset type SSE holding SSE share of external debt SSE Shareholder loans
as at 30 Sep 2023 as at 30 Sep 2023
Marchwood Power Ltd 920MW CCGT 50% No external debt £19m
Seabank Power Ltd 1,234MW CCGT 50% No external debt No loans outstanding
SSE Slough Multifuel Ltd 50MW energy-from-waste facility 50% No external debt £144m
Triton Power Holdings Ltd 1,200MW CCGT & 140MW OCGT 50% No external debt No loans outstanding
Beatrice Offshore Windfarm Ltd 588MW offshore wind farm 40% £648m Project financed
Dogger Bank A Wind Farm 1,200MW offshore wind farm 40% £900m Project financed
Dogger Bank B Wind Farm 1,200MW offshore wind farm 40% £728m Project financed
Dogger Bank C Wind Farm 1,200MW offshore wind farm 40% £454m Project financed
Ossian Offshore Windfarm Ltd ScotWind seabed 40% No external debt No loans outstanding
Seagreen Wind Energy Ltd 1,075MW offshore wind farm 49% £670m £868m(2)
Seagreen 1a Ltd Offshore wind farm extension 49% No external debt £18m
Clyde Windfarm (Scotland) Ltd 522MW onshore wind farm 50.1% No external debt £127m
Dunmaglass Windfarm Ltd 94MW onshore windfarm 50.1% No external debt £46m
Stronelairg Windfarm Ltd 228MW onshore wind farm 50.1% No external debt £88m
Neos Networks Ltd Private telecoms network 50% No external debt £103m
Notes:
(1) Greater Gabbard, a 504MW offshore windfarm and North Falls Offshore Wind
Farm Ltd (a further 504MW extension to Greater Gabbard, SSE share 50%) are
proportionally consolidated and reported as Joint Operations with no loans
outstanding.
(2) For accounting purposes, £257m of the £868m of SSE Shareholder loans
advanced to Seagreen Wind Energy Limited as at 30 September 2023 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 2023, based on
adjusted profit before tax, is 15.6%, as compared with 12.6% for the same
period last year on the same basis, and after discrete items. The increase in
rate is largely driven by an increase to the headline rate of tax from 19% to
25% and higher expected profit before tax across the full year, less increased
capital allowances.
The adoption during the period of the amendments to IAS 12 "Income Taxes"
resulted in an increase of £50.1m (2022: £22.8m, March 2023: £45.5m) to the
Group's gross deferred tax assets and gross deferred tax liabilities
recognised in relation to the Group's decommissioning obligations. Adoption
had no impact on retained earnings or profits recognised in presented periods.
On 23 March 2023, the Group's case concerning the availability of capital
allowances on Glendoe Hydro Electric Station was heard at the Supreme Court.
On 17 May 2023, the Supreme Court released its decision, which rejected HMRC's
appeal in full. The matter is now concluded and is not subject to further
appeal. Accordingly, the financial statements to 31 March 2023 reflected the
release of the Group's provision on its uncertain tax position of £27.9m and
the associated recognition of £23.4m deferred tax liabilities in relation to
Glendoe's capital allowances.
The UK Budget in March 2023 introduced "full expensing" for qualifying capital
expenditure incurred during the period from 1 April 2023 to 31 March 2026.
Capital allowances rates of 100% 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.
The UK has now introduced legislation in respect of Multinational Top-up Tax
in line with OECD BEPS pillar 2 principles. The Group has applied the
exemption from recognising and disclosing information about deferred tax
assets and liabilities related to Pillar Two income taxes as required by the
amendments to IAS 12 - International Tax Reform-Pillar Two Model Rules, which
were issued in May 2023.The legislation will come into force for the year
ended 31 March 2025. Similar draft legislation has been introduced in the
Republic of Ireland and other EU jurisdictions. The Group is assessing the
impact of the changes but does not expect a material impact to arise.
Pensions
Contributing to employees' pension schemes - IAS 19 Sept 23 March 23 Sept 22
Net pension scheme asset / (liability) recognised in the balance sheet before 411.0 541.1 648.5
deferred tax £m
Employer cash contributions Scottish Hydro Electric scheme £m 0.5 1.0 0.5
Employer cash contributions Southern Electric scheme £m 15.2 52.1 26.8
Deficit repair contribution included above £m 9.1 38.0 18.8
In the 6 months to 30 September 2023, the surplus across SSE's two pension
schemes decreased by £(130.1)m, from £541.1m to £411.0m, primarily due to
actuarial losses of £(149.8)m which were partially offset by contributions
made to the schemes.
The valuation of the SSE Southern scheme decreased by £87.7m in the six month
period primarily due to actuarial losses of £102.1m, as losses on plan assets
were partially offset by the impact of higher discount rates.
The Scottish Hydro Electric scheme has partly 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 scheme's surplus decreased by £42.4m. This
decrease also mainly related to actuarial losses from plan assets, which were
partially offset by the increased discount rates.
Additional information on employee pension schemes can be found in Note 16 to
the Interim Financial Statements.
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 highly complementary with significant growth potential
given their key role in enabling a net zero economy. With common skills and
capabilities in the development, construction, financing and operation of
highly technical and world-class electricity assets, there are strong
synergies between 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 details of performance
and future priorities.
Economically-regulated networks
SSE's regulated electricity networks businesses benefit from inflation-linked
remuneration under the RIIO (Revenue = Incentives + Innovation + Outputs)
framework set by Ofgem. The regulator determines an annual allowed level of
required capital expenditure and operating costs 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 revenue, whereas
regulatory capex ('slow money') is added to the regulatory asset value ('RAV')
for each network. Both SSEN Transmission and SSEN Distribution 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. Under the RIIO T2
and ED2 regulatory mechanisms, revenues and RAV for both businesses are CPIH
index-linked, providing a valuable hedge against rising inflation.
Each business can earn above its base return on equity through delivering
efficiency totex savings that flow through to customer bills. If service
levels improve against targets, there is also an opportunity to earn
additional income through incentives. If service levels fall below targets set
out in the price control, a penalty is incurred which reduces network revenue
and therefore customer bills. In addition, RIIO-2 Uncertainty Mechanisms
provide opportunities for each business to progress projects not included
within their original business plans, or to recover supplementary costs which
were not anticipated when the baseline expenditure was agreed.
SSEN Transmission, is paid by the Electricity System Operator based on a
forecast of allowed revenue amount set three months in advance of the
regulatory year. Revenue varies depending on collected actual versus forecast
volumes transported and over- or under-recovered volumes are accommodated in
allowed revenue in the following regulatory year.
In SSEN Distribution, charges per MWh ('tariffs') are set by licensees 15
months in advance of the regulatory year and based on forecasts of: (a)
revenue which licensees are entitled to collect in respect of the regulatory
year ('allowed revenue'); (b) the incentives and totex outperformance for the
last three months of the year in which the tariffs are set; and (c) the level
of volumes which will be distributed within the regulatory year. Differences
in collected versus allowed revenue (referred to as 'over- or under-recovery')
are accommodated in allowed revenue two years after the year in which they
occur.
SSEN Transmission
SSEN Transmission Sep 23 Sep 22
Transmission adjusted operating profit(1) - £m 215.6 208.4
Transmission reported operating profit - £m 287.3 208.4
Transmission adjusted investment and capital expenditure - £m 242.6 270.9
Gross Regulated Asset Value (RAV) - £m 5,289 4,590
SSE Share Regulated Asset Value (RAV) (1) - £m 3,967 4,590
Renewable Capacity connected to SSEN Transmission Network(2) - MW 9,217 7,870
(1) Excludes 25% non-controlling interest from 1 December 2022
(2) September 2023 includes full Seagreen Transmission Entry Capacity
SSEN Transmission overview
SSEN Transmission owns, operates and develops the high voltage electricity
transmission system in the North of Scotland and its islands. The business is
well placed to capture the significant long-term growth opportunities from the
development of renewables across the North of Scotland and the North Sea.
Following a minority stake sale completed on 30 November 2022, the business is
owned 75% by SSE plc and 25% by Ontario Teachers' Pension Plan Board. All
capex and RAV references in this update relate to 100% of the business unless
otherwise stated.
Operational delivery
In the six months to 30 September 2023, SSEN Transmission delivered a strong
operational performance and remains on track to achieve the maximum reward
available through the 'Energy Not Supplied Incentive' for the fourth
consecutive year, which equates to £770k pa in 18/19 prices. This consistency
is underpinned by a robust and ongoing programme of inspection, maintenance,
refurbishment and replacement of SSEN Transmission's assets, keeping the
lights on for communities across the North of Scotland and ensuring reliable
network access for electricity generators to support security of supply in
Great Britain.
SSEN Transmission's capital investment programme continues to make good
progress across its major RIIO-T2 projects. This includes the second phase of
the Inveraray-Crossaig overhead line replacement project, which was
successfully energised in June 2023. 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) link also continues to make
excellent progress with all 260km of subsea cable now installed. Cable
protection works continue, with rock placement expected to be completed in
early 2024. The project remains on track for completion and full energisation
in summer 2024.
Following the Scottish Government granting consent for the Kergord to Gremista
132kV Section 37 connection in May 2023, work is now underway on this project
which will connect Shetland's electricity distribution network to the Shetland
HVDC link and therefore connecting Shetland's homes and business to the GB
electricity network for the first time.
Good progress continues to be made to increase the capacity of the North East
Scotland transmission network to 400kV, where the first circuits were
completed and energised in October 2023, with the final circuits on track for
completion and energisation before the end of 2023. Work to incrementally
increase the east coast transmission network - to 275kV by the end of 2023 and
then to 400kV by 2026 - are also progressing.
These strategic investments in new and upgraded infrastructure are key to
enabling the continued growth in renewable electricity generation across the
North of Scotland.
As at 30 September 2023, the total installed capacity of the North of Scotland
transmission network was around 10.5GW, of which just over 9.2GW is from
renewable sources.
Factoring in the forecast growth in renewables in the remaining years of the
RIIO-T2 period, SSEN Transmission remains well on track to meeting, if not
exceeding, its goal to transport the renewable electricity that powers 10m
homes.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities in RIIO-T2
Uncertainty Mechanism Projects
The business has made significant progress in unlocking several major
investments over and above its baseline investment case secured at the start
of RIIO-T2. Some of these additional projects are being taken forward through
Ofgem's Large Onshore Transmission Investment (LOTI) Uncertainty Mechanism and
have been in development for several years. These will make a substantial
contribution to delivering a pathway to net zero, help support GB energy
security, and minimise constraint costs.
Large Onshore Transmission Investment ('LOTI') Projects
The LOTI projects are all wholly owned by SSEN Transmission:
Project Name Asset Type
Skye Overhead Line & substations
Argyll Overhead Line & substations
Orkney HVDC Subsea cable & land-based convertor stations
SSEN Transmission is owned 75% SSE Plc, 25% OTPP (Ontario Teachers Pension
Plan) from 1 December 2022
In July 2023, Ofgem approved the Final Needs Case for the Orkney transmission
link, the final piece in the jigsaw in connecting all three of Scotland's main
island groups to the GB electricity network. The Orkney transmission link
will accommodate around 220MW of renewable electricity generation, helping
further unlock Orkney's vast renewable potential alongside supporting the
continued development and growth of Orkney's marine energy sector. Main
construction works are due to commence in summer 2024, with full energisation
expected in 2028.
In August 2023, Ofgem also approved the Final Needs Case for the Skye
reinforcement project, which will see the replacement and upgrade of the
existing Fort Augustus to Skye transmission line. The replacement line is
required to maintain security of supply and enable the connection of renewable
electricity generation along its route. A decision on the Section 37
planning application is expected in early 2024 with construction works due to
commence in 2024, with full energisation in 2028.
In October 2023, Ofgem approved the Final Needs Case for the Argyll and
Kintyre 275kV Reinforcement, subject to all material planning consents being
secured. The Argyll 275kV Reinforcement is required to upgrade the local
transmission network from 132kV to 275kV operation, supporting the forecast
growth in renewables in the region.
With all substation planning consents now secured, SSEN Transmission awaits
the outcome of the Inveraray to Creagh Dhubh 275kV connection Section 37
planning application and the Public Local Inquiry for the Creag Dhubh to
Dalmally 275kV connection, both of which are expected in 2024. Construction
is planned to commence in 2024, with full energisation in 2028.
Further growth Opportunities
Accelerated Strategic Transmission Investment ('ASTI') Projects
The SSEN Transmission ASTI projects identified as part of the Holistic Network
Design (HND1) include several subsea cables, overhead line and substation
installations and upgrades to support the connection of offshore wind and
onshore electricity generation. Based on latest estimates, SSEN
Transmission's share of all ASTI projects are collectively expected to total
around £17bn of capital expenditure on a nominal basis (excluding capitalised
interest).
The ASTI Projects are wholly owned by SSEN Transmission, with the exception of
EGL2 and EGL3, which are Joint Ventures with National Grid:
Project Name Asset Type
Beauly - Spittal Overhead Line & substations
Beauly - Peterhead Overhead Line & substations
Beauly - Denny upgrade Overhead Line & substations
Kintore - Westfield Overhead Line & substations
Western Isle Link HVDC Subsea cable & land-based convertor stations
Spittal - Peterhead HVDC Subsea cable & land-based convertor stations
Peterhead - Drax (EGL2) HVDC Subsea cable & land-based convertor stations
Peterhead - Humber (ELG3) HVDC Subsea cable & land-based convertor stations
SSEN Transmission is owned 75% SSE Plc, 25% OTPP (Ontario Teachers Pension
Plan) from 1 December 2022
Securing the Supply Chain and Planning Consents for ASTI Investment
Supply chain management will be crucial in delivering these growth
opportunities and importantly, the business has secured the supply chain for
its 100% owned ASTI projects and the Eastern Green Link (EGL2) joint venture
with National Grid Electricity Transmission.
In May 2023, Marine Scotland granted a Marine Licence for cable protection
measures for the EGL2 project, which will see the installation of a 2GW subsea
superhighway of electricity transmission between Peterhead in the north east
of Scotland and Drax in Yorkshire. The project has also reached preferred
bidder status and entered into Capacity Reservation Agreements with the supply
chain for both the HVDC cable and convertor station components. With the
onshore works for EGL2 now underway in Peterhead, the project remains on track
for completion in 2029.
Also in May 2023, SSEN Transmission reached 'preferred bidder' status with its
supply chain partners for its ASTI subsea HVDC projects, Spittal to Peterhead
and the Western Isles. In August 2023, it then entered into Capacity
Reservation Agreements for the HVDC cable and converter stations, securing
supply chain manufacturing capacity in what is an extremely competitive and
constrained global supply chain market.
In August 2023, SSEN Transmission reached 'preferred bidder' status for all of
its onshore ASTI projects, a key milestone in securing the supply chain for
the delivery of all overhead line, cabling and substation components.
Work to progress the Eastern Green Link 3 project, another joint venture with
NGET, is also progressing, with the supply chain tender expected before the
end of 2023.
SSEN Transmission has also concluded its first round of public consultation
across its 100% owned onshore and subsea ASTI projects. Further consultation
is planned in early 2024, with a final round of public consultation expected
next summer in advance of submitting consent applications to the relevant
consenting authorities.
Subject to timely and positive planning decisions and the successful
conclusion of supply chain contract awards for delivery of these projects,
SSEN Transmission is committed to 2030 delivery of these projects.
Other Growth Projects
Further investment beyond the Pathway to 2030 will be required to unlock the
North of Scotland's full renewable potential and to deliver energy security
and net zero targets. This includes the Scottish Government's target for an
additional 12GW of onshore wind by 2030.
These additional onshore and offshore network reinforcements are expected to
be set out by National Grid Electricity System Operator through the
publication of the second transitional Centralised Strategic Network Plan
(tCSNP) in early 2024. This will include the Holistic Network Design Follow Up
Exercise (HNDFUE) and is expected to include several new transmission
reinforcements in SSEN Transmission's network region.
These further potential growth and investment opportunities, alongside UK and
Scottish Government energy targets and ambitions, underline the importance of
the Transmission network, particularly in the North of Scotland, in delivering
energy security and transitioning the GB energy system to net zero.
In October 2023, Ofgem published its decision on the Future System and Network
Regulation (FSNR) framework, an important first step in the next price control
review process. SSEN Transmission will work constructively with Ofgem and
wider stakeholders through the development of the Sector Specific Methodology
to ensure the future regulatory framework provides the flexibility and agility
required to deliver the unprecedented level of investment in infrastructure
necessary to secure the country's future energy independence and fully
decarbonise our economy.
Given the scale of investment required to deliver net zero, it is crucial that
the policy landscape and regulatory framework, particularly financial
parameters, continue to attract the investment required to support delivery of
the most ambitious investment plan in low carbon infrastructure for a
generation.
SSEN Distribution
SSEN Distribution Sep 23 Sep 22
Distribution adjusted and reported operating profit - £m 120.1 174.6
Regulated Asset Value (RAV) - £m 5,138 4,525
Distribution adjusted investment and capital expenditure - £m 245.5 175.8
Electricity Distributed - TWh 16.7 16.7
Customer minutes lost (SHEPD) average per customer 28 27
Customer minutes lost (SEPD) average per customer 27 24
Customer interruptions (SHEPD) per 100 customers 25 30
Customer interruptions (SEPD) per 100 customers 26 23
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 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. The business has significant growth
opportunities as a key enabler of the local and national transition to a net
zero future.
Operational delivery
On 1 April 2023, SSEN Distribution started operating under the new RIIO-ED2
price control period, in accordance with Ofgem's December 2022 Final
Determination. The price control, which will run until March 2028, will see
Distribution deliver £3.6bn of baseline expenditure, representing an increase
of 22% on respective ED1 levels, alongside the opportunity to trigger up to
£700m in additional funding under Uncertainty Mechanisms. This will include
investment to meet new generation and demand growth and improve subsea cable
resilience for the Scottish Islands.
SSEN Distribution is working closely with the regulator and other stakeholders
to ensure that the price control has the agility and flexibility required to
deliver infrastructure in line with net zero requirements. This is aided by a
three-point strategy centred on growing the RAV and underpinning the net zero
transition; enabling targeted improvements in customer performance and
operational efficiency; and taking the lead on delivering the future energy
system.
Major capital investment to underpin net zero transition
The start of the new price control period has seen an acceleration of SSEN
Distribution's major capital investment programme across both its networks,
delivering continued improvements in performance, benefits for customers and
supporting future earnings growth.
In the SEPD licence area, the completion of a new RIIO-ED2 contracting
strategy will enable the efficient delivery of the investment required for
future net zero growth and increased asset resilience. With an investment
envelope of over £1bn, representing 25% of ED2 plan volume, this is the
largest programme of contract awards ever issued by SSEN Distribution. Three
UK companies, Keltbray, OCU and Clancy will share over £1bn in investment,
with each firm being responsible for a regional delivery zone. This new
approach will reduce supply chain risk and is expected to deliver material
efficiency benefits compared to a disaggregated programme.
Improving customer performance and operational efficiency
Under the RIIO regulatory regime, SSEN Distribution is incentivised to improve
service levels for its customers. Incentive rewards will typically be
collected two years after they are earned. In RIIO-ED2 the ability to secure
higher incentive returns has been tightened in comparison to previous price
controls.
Under 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.
SHEPD CI performance has improved compared to the same point last year. The
CML performance is broadly in line with performance for the first six months
of 2022/23. In SEPD, very hot and dry conditions followed by very wet and
windy weather over the summer of 2023 significantly impacted network
performance whilst not qualifying as exceptional under IIS provisions. This
has led to a three-point decrease on CI and CML performance from the same
period last year. We are investing in automation across both our networks, and
work continues on a targeted change and investment programme to improve
performance in the SEPD licence area.
SSEN Distribution's Customer Satisfaction performance remains a clear focus
for the business, increasing to an average of 89% compared to 88% at this
point last year. While significantly tougher targets will apply in the
RIIO-ED2 period, our performance trend compares favourably to the rest of the
industry, where customer satisfaction is improving at seven times the rate of
the industry average as a direct result of customer service improvements
across the business.
A programme to deliver ongoing efficiencies across the new price control has
commenced.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
SSEN Distribution's RIIO-ED2 Business Plan, which was co-created with
stakeholders, is a core component of SSE Group's NZAP+ plan. In addition to
the total base expenditure of £3.6bn, there are further investment
opportunities of up to £700m over the period through Uncertainty Mechanisms
and reopeners.
In the six months to 31 September 2023, SSEN Distribution has already
successfully triggered its first uncertainty mechanism with Ofgem approving
over £30m in additional funding for cyber security following a submission in
April 2023. A further submission has been made in the October 2023 reopener
window.
SSEN Distribution continues to work proactively with its stakeholders and the
regulator to prepare robust, evidence-based submissions for a range of
uncertainty mechanisms due to trigger in the second half of the financial
year.
Looking further ahead to load-related uncertainty mechanisms which will open
for submissions in January 2025, SSEN Distribution is leading the way in
taking a 'Net Zero First' approach to investment in distribution
infrastructure to meet future generation and demand needs.
Leading on the delivery of the future system
SSEN Distribution is seeing a significant rise in the uptake of low-carbon
technologies across its licence areas, both at a demand and generation level
and, in many cases, beyond both national and regional projections. For
example, SSEN Distribution's current pipeline of distributed generation
projects, at 23.8 GW, is already double the 10.9 GW that was forecast to come
forward by 2030. Demand connections are also rising, with a three-fold
increase in the number of electric vehicles connecting in the last two years.
This increased growth in low carbon development is welcome and SSEN
Distribution is committed to ensuring its network acts as an enabler to net
zero goals. This includes playing a leading role in collaborating with
transmission companies, the Electricity System Operator and other Distribution
Network Operators to modernise the connections system to facilitate more
connection-ready projects and reduce the impact of first-come, first served
queuing. As an early test case, the adoption of new thresholds and phased
connections in West London, allowed 80% of small demand connections to
progress behind wider transmission constraints.
SSEN Distribution's Net Zero First investment approach will enable strategic
investment to go ahead now to meet 2035 and 2045/2050 goals. In that context,
SSEN Distribution also continues to increase and develop its relationships
with Local Authorities, with advanced Local Area Energy Planning (LAEP)
programmes under way with 15 authorities. To extend this reach and further
support LAEP development, SSEN Distribution recently launched a free Local
Energy Net Zero Accelerator (LENZA) tool which links network and spatial
planning, allowing local authorities to road test solutions against available
capacity and SSEN to secure the robust evidence for regulatory funding of
future network investment.
On a practical level, SSEN Distribution is also increasing tendering of
flexibility services in areas where localised high demand can be offset to
extend overall network capacity. In the first six months of 2023/24, SSEN
contracted 259MW of flexibility services for dispatch in ED2, and a global
flexibility call launched between now and March 2024 will drive further
progress towards target of 5GW by end of RIIO-ED2.
SSE Renewables
SSE Renewables Sep 23 Sep 22
Renewables adjusted operating profit - £m 86.8 15.0
Renewables reported operating (loss) - £m (23.7) (36.8)
Renewables adjusted investment and capital expenditure before acquisitions - 447.1 477.8
£m
Generation capacity - MW
Onshore wind capacity (GB) - MW 1,285 1,285
Onshore wind capacity (NI) - MW 117 122
Onshore wind capacity (ROI) - MW 567 567
Total onshore wind capacity - MW 1,969 1,974
Offshore wind capacity (GB) - MW 1,014 487
Conventional hydro capacity (GB) - MW 1,159 1,159
Pumped storage capacity (GB) - MW 300 300
Total renewable generation capacity (inc. pumped storage) - MW 4,442 3,920
Contracted capacity 3,015 2,792
Generation output - GWh
Onshore wind output (GB) - GWh 788 1,207
Onshore wind output (NI) - GWh 98 112
Onshore wind output (ROI) - GWh 532 509
Total onshore wind output - GWh 1,418 1,828
Offshore wind output (GB) - GWh 944 558
Conventional hydro output (GB) - GWh 884 1,020
Pumped storage output (GB) - GWh 144 113
Total renewable generation (inc. pumped storage) - GWh 3,390 3,519
Total renewable generation (also inc. constrained off in GB) - GWh 3,723 3,725
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 in GB excludes 272GWh of constrained off
generation in HY2023/24 and 134GWh in HY2022/23; Offshore wind output in GB
excludes 62GWh constrained off generation in HY2023/24 and 72GWh in HY2022/23
Note 4: Biomass capacity of 15MW and output of 37GWh in HY2023/24 and 30GWh
HY2022/23 is excluded, with the associated operating profit or loss reported
within SSE Enterprise
Note 5: Offshore capacity increased by 527MW with all turbines having been
installed at Seagreen offshore windfarm by the period end and the windfarm
fully operational on 17 October 2023
Note 6: Onshore NI reduced by 5MW in the period following the sale of Bessy
Bell I in July 2022
SSE Renewables overview
SSE Renewables develops and generates zero carbon electricity at scale from
wind farms and provides clean flexible power from its hydro schemes. The
business comprises 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 grid-scale solar and battery
storage. The business' operational offshore wind installed capacity is
1,014MW with its onshore wind and hydroelectric installed capacity at 1,969MW
and 1,459MW respectively.
Operational delivery
In the first six months of the financial year, operational onshore and
offshore wind fleet availability remained high whilst the Hydro Operations
teams managed an intensive period of summer maintenance outages, the majority
of which were delivered to plan. The early summer saw prolonged low wind
speeds, particularly in the first quarter of the financial year, in addition
to a delayed commissioning profile at the now fully-operational Seagreen
project. This leaves onshore wind 14% behind and offshore wind 23% behind
planned volume levels for the six month period.
In hydro, production is around 22% below plan for the first six months. This
reflects a very dry summer with extreme droughts in the far northwest of
Scotland earlier in the period, partially offset by well above average rain in
September. These wet conditions enabled an above average storage position at
the period end and continued into October, providing a strong start to hydro
production in the second half of the financial year.
Collectively, this leaves the business 19% below planned output for the first
six months, which equates to around 7% behind on the full year planned level
of output.
For financial performance commentary please refer to the Group Financial
Review.
delivering world-class assets
Seagreen 1 (1,075MW, SSE share 49%) formally entered into commercial
operations in October 2023 with all 114 Vestas V164-10.0 MW turbines now fully
operational. Seagreen is now Scotland's largest wind farm as well as the
world's deepest fixed-bottom offshore wind farm, with its deepest foundation
installed at 58.7 metres below sea level.
All three phases of the world's largest offshore wind farm at Dogger Bank
(each 1,200MW, SSE share 40%) continue to progress. First power was achieved
at Dogger Bank A on 8 October 2023 with power transmitted via Dogger Bank's
HVDC transmission system, making it the first project in the UK to use this
technology which ensures that losses are minimised in the efficient
transmission of electricity over long distances. This also represents the
first time that GE's Haliade-X 13MW turbine units have been energised
offshore anywhere in the world.
The Dogger Bank A foundation installation campaign continues. All 95 monopiles
have been installed and foundation transition pieces have been installed in 56
of the locations. The inter-array cable installation is also well underway
with 34 cables installed to date. SSE Renewables is leading the construction
and build out phase of the project together with Tier 1 suppliers, including
GE Vernova. The project is working towards its commercial operations date for
Dogger Bank A of the second half of 2024.
Onshore, construction is progressing well on Viking (443MW) in Shetland with
all turbines erected in August 2023, ahead of schedule. Turbine commissioning
is well underway, with the first power made to a load bank in September.
Viking is expected to be fully operational by the second half of 2024.
SSE Renewables is also adding portfolio diversity through the progression of
its secured 1.2GW pipeline of near-term solar and battery projects across the
UK and Ireland. Battery storage is a key part of the net zero jigsaw providing
flexibility to the grid and helping to manage peaks in energy demand.
All the battery units have been delivered to the 50MW Salisbury site, which
will be the first battery project in SSE's portfolio to go operational when it
comes online in early 2024. Construction continues at the 150MW battery
storage project at Ferrybridge, with completion expected at the end of 2024.
Construction will begin in earnest at the 30MW solar project at Littleton by
the end of this year and it is also due to become operational later in 2024.
In November, SSE Renewables took a final investment decision to build one of
the UK's largest battery storage sites - a 320MW project at Monk Fryston in
Yorkshire - with construction expected to start in early 2024.
In hydro, SSE Renewables is making good progress with the Tummel Bridge power
station refurbishment project with the final components for the second turbine
delivered at the end of September. Aqueduct works are also progressing well,
remaining aligned with the power station replant works and completion of the
project is expected in early 2024.
In Ireland, construction is progressing on Lenalea onshore wind farm (30MW,
SSE share 50%) and, having reached full power on 31 October 2023, it is
scheduled to be fully operational towards the end of November.
Construction is ongoing at Yellow River (101MW) and is on track to be
completed by Summer 2024 with commissioning expected in early 2025. Yellow
River secured a CfD under RESS 3 for all of the site's planned installed
capacity. The contract is due to commence shortly after commissioning.
SSE's first onshore wind project in France, the c. 28MW Chaintrix project, is
now in construction. The project, which is also the first to be constructed
from the Southern Europe development portfolio acquired in 2022, will see the
installation of eight Siemens Gamesa SG 3.4-132 turbines and is targeting
commissioning at the end of 2024.
Growth opportunities - DOMESTIC
SSE Renewables' core markets of the UK and Ireland continue to offer
considerable growth opportunities for the Group.
In September 2023, SSE Renewables was the biggest winner in the UK
Government's fifth Contracts for Difference (CfD) Allocation Round. Strathy
South, Aberarder, and Bhlaraidh Extension onshore wind farm projects in the
Scottish Highlands, and the Viking Wind Farm project, currently under
construction, secured CfDs for a total of 605MW at a guaranteed strike price
of £52.29/MWh, based on 2012 prices but annually indexed for CPI inflation.
The Aberarder, Bhlaraidh Extension, and Strathy South projects are each at
late-stage of development, having previously been granted planning consents by
the Scottish Government, and will be targeting final investment decisions in
2024. As previously announced, SSE Renewables did not enter Seagreen 1A
offshore wind farm into the auction. It will continue to seek a route to
market to progress this project.
Located in the North Sea, in the outer Firth of Forth, Berwick Bank Wind Farm
has the potential to deliver 4.1GW of installed capacity, making it one of the
largest offshore opportunities in the world. The project is currently awaiting
consent for the offshore array from the Scottish Government which is expected
in 2024. The first grid connection date is scheduled for 2027 and, subject to
taking a final investment decision, the full project could be complete in time
to contribute to our 2032 NZAP+ ambitions.
SSE Renewables is actively developing a fourth phase of Dogger Bank wind farm,
Dogger Bank D (up to 2GW, SSE share 50%). The project is considering different
opportunities to utilise the energy that would be produced: Dogger Bank D
could provide electricity for homes and businesses by linking to the
transmission system, either via a connection into the UK national grid or a
connection offshore to a wider coordinated network to Europe; or producing
green hydrogen. The project's progression remains subject to agreement with
The Crown Estate which in early November set out its intention to establish an
assessment process to unlock additional capacity in the UK offshore wind
portfolio in an efficient way, with the aim of seeking a determination of
additional capacity within 12 months, subject to regulated planning processes.
Exploratory tunnelling at Coire Glas pumped hydro storage project (c. 1,300MW)
is over halfway complete, with the tunnel now measuring over 500m deep. SSE
Renewables awaits the expected announcement from the UK Government regarding a
revenue stabilisation mechanism for long duration electricity storage which
could enable Coire Glas to play a significant role in the UK Government's 2035
target for a decarbonised power system.
In Ireland, the business remains committed to delivering Arklow Bank Wind Park
2 (up to 800MW), despite being unsuccessful in Ireland's first Offshore
Renewable Energy Support Scheme (ORESS) auction in May 2023. It will proceed
to submit a planning application in early 2024 to Ireland's planning board, An
Bord Pleanála, and will continue to demonstrate discipline whilst it
considers alternative routes to market.
The Irish Government has confirmed a target of 5GW of offshore wind by 2030,
20GW by 2040 and 32GW by 2050. The next Offshore auction (ORESS 2.1) is
expected to take place in the in the second half 2024 in line with 'plan-led'
designated zones identified by the Government. A third auction (ORESS 2.2) is
likely to take place following the conclusion of ORESS 2.1.
Growth opportunities - international
Europe
SSE Renewables is progressing its Southern Europe development portfolio with
over 150MW of projects aiming for a final investment decision in the next
twelve months.
SSE Renewables sees solar photovoltaics ('solar PV') as a complementary
technology to sit alongside wind in its European markets' portfolio with
significant growth potential over the coming decades. In addition to the
co-located and standalone solar PV opportunities being developed by the
Southern Europe team, SSE Renewables has acquired circa 500MW of early-stage
solar PV projects in Poland to be progressed under a Developer Services
Agreement with local developer, Optisol. Poland has ambitious renewables
targets required to deliver deeper decarbonisation of its economy.
SSE Renewables also remains focused on selective offshore wind opportunities
in Northern Europe. In the Netherlands, it continues to work on the upcoming
Ijmuiden Ver zone tenders (2 x 2GW), with bids now expected in Q1 2024. The
group will continue to assess its potential participation in a number of
upcoming offshore leasing rounds across selected markets in Northern Europe,
where it believes those opportunities offer attractive returns.
Asia-Pacific
SSE Renewables is continuing to pursue offshore wind opportunities in Japan
through its joint venture SSE Pacifico (80% stake). The Japanese Government
has announced future promising zones which is a step towards designation for
future auction rounds. The government also continues to develop its plans
related to potential future floating wind projects in its Exclusive Economic
Zone (beyond 12 nautical miles from shore).
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
Viking GB Onshore wind 443 443
Yellow River Ireland Onshore wind 101 101
Lenalea Ireland Onshore wind 30 15
Chaintrix France Onshore wind 28 28
Littleton GB Solar 30 30
Salisbury GB Battery 50 50
Ferrybridge GB Battery 150 150
Monk Fryston GB Battery 320 320
Total in construction 2.6GW
Late-stage development
Seagreen 1A GB Offshore wind 500 245
Strathy South GB Onshore wind 208 208
Aberarder GB Onshore wind 50 50
Bhlaraidh Extension GB Onshore wind 99 99
Other GB & Ireland GB & Ire. Onshore wind 117 87
Spanish projects Spain Onshore wind(1) 319 319
France, Italy and Greece Various Onshore wind(1) 100 100
Coire Glas GB Pumped storage 1,300 1,300
ByPass GB Solar 50 50
Fiddler's Ferry GB Battery 150 150
Tawnaghmore GB Battery 100 100
Total late-stage development 2.7GW
Early-stage development
Berwick Bank GB Offshore wind 4,100 4,100
Ossian GB Offshore wind 3,600 1,440
Arklow Bank 2 Ireland Offshore wind 800 800
North Falls GB Offshore wind 504 252
Cloiche GB Onshore wind 125 125
Other GB & Ireland GB & Ire. Onshore wind - 319
Spanish projects Spain Onshore wind(1) 636 636
France, Italy and Greece Various Onshore wind(1) 1,247 1,247
Staythorpe GB Battery 350 350
Total early-stage development 9.3GW
TOTAL SECURED PIPELINE 14.5GW
Other Future prospects
Dogger Bank D(2) GB Offshore wind ~2,000 ~1,000
Ireland Ireland Offshore wind ~3,000 ~3,000
Japanese projects Japan Offshore wind ~6,000 ~4,800
Other GB GB Onshore wind - ~450
Other Ireland Ire Onshore wind - ~200
Spanish projects Spain Onshore wind(1) ~1,750 ~1,750
France, Italy and Greece Various Onshore wind(1) ~450 ~450
Other GB Hydro GB Hydro 75 75
Other GB Solar GB Solar ~400 ~400
Poland Solar Poland Solar ~500 ~500
Other Battery GB Battery ~900 ~900
Total future prospects >13GW
Notes: All capacities are subject to change as projects refined. Table
reflects ownership and development status as at May 2023. 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. Additional solar and battery storage projects reflects Solar and Battery
team now forming part of SSE Renewables.
Note 1: Includes solar hybridisation. Note 2: Current grid connection offer
for 1,320MW (SSE share 660MW) with potential capacity up to ~2,000MW.
SSE Thermal
SSE Thermal key performance indicators
SSE Thermal Sep 23 Sep 22
Thermal adjusted operating profit - £m 312.9 100.4
Thermal reported operating profit - £m 234.6 342.7
Thermal adjusted investment and capital expenditure, before acquisitions - £m 38.2 89.2
Generation capacity - MW
Gas- and oil-fired generation capacity (GB) - MW 5,538 4,645
Gas- and oil-fired generation capacity (ROI) - MW 672 1,292
Total thermal generation capacity - MW 6,210 5,937
Generation output - GWh
Gas- and oil-fired output (GB) - GWh 6,099 8,715
Gas- and oil-fired output (ROI) - GWh 921 443
Total thermal generation - GWh 7,020 9,158
Note 1: Capacity is wholly owned and share of joint ventures, and reflects
Transmission Entry Capacity
Note 2: Output is based on SSE 100% share of wholly owned sites and 100% share
of Marchwood PPAs due to the contractual arrangement.
Note 3: Keadby 2 CCGT commissioned 15 March 2023 and is reflected in September
2023 GB capacity, GB output in six months to September 2022 excluding 651GWh
of Keadby 2 pre-commissioning output.
Note 4: ROI capacity in September 2023 reflects closure of the Tarbert
oil-fired station.
SSE Thermal overview
SSE Thermal owns and operates conventional flexible thermal generation in GB
and Ireland which provide much-needed system flexibility. SSE Thermal is
actively developing options to progressively decarbonise its portfolio, most
notably in carbon capture and storage and hydrogen technologies, with
sustainable biofuels as a bridge to hydrogen.
Operational delivery
The Thermal fleet continues to use its inherent flexibility to sell output to
the market and contract ahead of delivery, capturing value through forward
spark spreads, while optimising in response to market conditions. The first
half of the year saw lower spark spreads and volatility in GB than 2022/23,
despite low wind periods, as a result of increased interconnector imports.
This, combined with planned and unplanned outages across the summer, has
resulted in comparably lower output for the year to date.
Managing availability responsibly continues to be a key focus for SSE
Thermal. A programme of outages across the summer is an important part of a
robust asset management approach. This has included planned outages at Keadby
1, Keadby 2 and Peterhead ahead of the winter.
Keadby 2, which entered commercial operation in March 2023, includes a
first-of-a-kind turbine which means it is Europe's most efficient CCGT,
displacing older more carbon intensive plant on the system. A planned outage
is underway at Keadby 2, with all major works having been completed and the
asset entering the recommissioning stage. Keadby 2's 15-year Capacity Market
agreement commenced in October 2023, with all milestones to secure this
agreement having been completed.
In Ireland, Great Island has seen increased output year-on-year, demonstrating
the ongoing need for dispatchable plant in that constrained market. Following
the announcement in March 2023 that Tarbert oil-fired power station would
close by the end of December 2023, in line with requirements under the
Industrial Emissions Directive, its final capacity contracts expired at the
end of September 2023.
To underline the importance of asset management for a flexible fleet, in April
2023, SSE Thermal secured ISO 55001 certification for Peterhead and its two
gas storage facilities in the Humber. This is an international asset
management standard which underlines the approach we take to ensure effective
management of asset availability across the lifecycle of our portfolio. Work
is now underway to secure the certification for the remaining operational
sites within the SSE Thermal portfolio, all of which already hold ISO 45001
(health and safety) and ISO 14001 (environment) certification.
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 2027
Keadby (GB) CCGT 755MW 100% To September 2027
Keadby 2 (GB) CCGT 893MW 100% 16 years commencing October 2022
Peterhead (GB) CCGT 1,180MW 100% To September 2027
Seabank (GB) CCGT 1,234MW 50% To September 2027
Marchwood (GB) CCGT 920MW 100% To September 2027
Saltend (GB) CCGT 1,200MW 50% To September 2027
Indian Queens (GB) OCGT 140MW 50% To September 2027
Slough Multifuel (GB) Energy from Waste 50MW 50% 15 years commencing October 2024
Burghfield (GB) OCGT 45MW 100% To September 2027
Chickerell (GB) OCGT 45MW 100% To September 2027
Great Island (Ire) CCGT 464MW 100% To September 2028*
Rhode (Ire) Gas/oil peaker 104MW 100% To September 2028*
Tawnaghmore (Ire) Gas/oil peaker 104MW 100% To September 2028*
Tarbert (Ire) Biofuel 300MW 100% 10 years commencing October 2026
Platin (Ire) Biofuel 150MW 100% 10 years commencing October 2026
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 which 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 2023/24, 2025/26 and 2026/27 but none in
2024/25.
Medway has capacity obligation in 2023/24and 2026/27 but none in 2024/25 and
2025/26.
Keadby 2 16 year obligation comprised of a T-1 and a 15 year contract.
The Tarbert oil-fired station previously reported was closed in September
2023.
*2027/28 Irish capacity contracts reflect provisional results which are
subject to approval.
CONSTRUCTION PROGRAMME
Construction activity continues on Slough Multifuel - a 50:50 Joint Venture
with Copenhagen Infrastructure Partners - and remains on track to complete in
summer 2024.
At the request of the Irish authorities, construction activity has commenced
to deliver a Temporary Emergency Generation unit at Tarbert. Following
legislation and a site selection process undertaken by EirGrid, approved by
the Commission for the Regulation of Utilities, the Tarbert site was selected
to host 150MW of generation capacity, to run on distillate oil. It will
operate as an emergency plant with a maximum running time of 500 hours per
annum. Under the Irish Government's emergency generation legislation, this
capacity is to cease operations as soon as the temporary electricity emergency
has been addressed, and no later than March 2028. The unit would only be
utilised when it is clear that market-sourced generation will not be
sufficient to meet system needs.
Growth opportunities
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 1.5°C global warming
scenario.
In GB, SSE Thermal is developing projects that include carbon capture and
storage (CCS) and hydrogen; technologies that will be critical to the
transition to net zero, enabling enhanced renewables deployment by balancing
the system. CCS and hydrogen remain at the heart of the UK Government's plans.
The UK Government has identified a need for up to 10GW of power CCS capacity
by 2035 to meet Carbon Budget Six requirements. To facilitate the delivery of
further CCS projects, Acorn in Scotland and Viking in the Humber have been
confirmed as Track 2 clusters for the deployment of shared CCS infrastructure.
Proposals have also been shared with industry for additional emitter projects
to access the already identified Track 1 clusters in north-east and north-west
England. There are opportunities for Keadby 3 Carbon Capture Power Station to
access CO2 storage through either Track 1 or Track 2 clusters, and Peterhead
Carbon Capture Power Station remains well-placed to access CO2 storage through
Acorn, with both being developed jointly with Equinor and seeking to
participate in future allocation processes for a Dispatchable Power Agreement.
Next steps on cluster sequencing are expected later in 2023 and FEED work is
continuing for both projects.
In Ireland, SSE Thermal is advancing projects using sustainable biofuel as a
lower carbon alternative to fossil-fuels and as a bridge to hydrogen. Since
securing 10-year Capacity Market agreements for two new low-carbon power
stations to commence in 2026/27 delivery year, work is underway to secure
planning consents for Tarbert Next Generation Power Station and Platin Power
Station.
A planning application for the Tarbert project is expected to be submitted
later in 2023, with a planning application lodged with Meath County Council in
August 2023 for Platin Power Station.
The proposed low-carbon units at Tarbert in Co. Kerry and Platin in Co. Meath
would help to protect security of supply and provide flexible backup to
Ireland's growing renewables sector. The proposed units will initially run on
Hydrotreated Vegetable Oil (HVO), which is produced by processing waste oils
to create a fossil-free alternative to diesel in accordance with EU
sustainability standards. This would provide a bridge to a hydrogen future
with both units having the potential to convert to the fuel. As with Aldbrough
Hydrogen Pathfinder in the UK, these projects reflect the expected role
peaking generation will play in the system.
Recognising the centrality of low carbon hydrogen to the SSE Thermal strategy,
a hydrogen centre of excellence has been established within SSE Thermal to
consolidate expertise and provide a service to other SSE business units with
an interest in hydrogen. Aldbrough Hydrogen Pathfinder and Gordonbush Hydrogen
have both progressed to the next stage of the UK Government's Net Zero
Hydrogen Fund, which can provide capital and revenue support for electrolytic,
or green, hydrogen production projects. SSE is also exploring other options to
develop electrolytic hydrogen production at its existing sites, including
Ferrybridge and Peterhead, in addition to assessing partnership options for
alternative production of hydrogen.
This sits alongside the UK Government's support for CCS-enabled, or blue,
hydrogen production projects through the development of industrial clusters.
Both green and blue hydrogen are expected to play an important role in the
development of a UK hydrogen economy, including future hydrogen-fired power
generation as set out in the Climate Change Committee's report on delivering a
reliable and decarbonised power system.
SSE is continuing to develop options for hydrogen blending into Keadby 2, with
pre-FEED activity under way. Option assessment and scoping activity for a
further 100% hydrogen-fired CCGT at Keadby also continues. The Triton Power
portfolio, a joint venture with Equinor, adds to this hydrogen pipeline, with
plans to blend up to 30% low carbon hydrogen.
Gas Storage
Gas Storage Sep 23 Sep 22
Gas Storage adjusted operating (loss) / profit - £m (86.7) 147.8
Gas Storage reported operating (loss) / profit - £m (91.3) 544.8
Gas storage adjusted investment and capital expenditure - £m 0.2 6.5
Gas storage level at period end - mTh 109 151
Gas storage level at period end - % 58 90
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.
Operational delivery
SSE Gas Storage continues to respond to market needs, optimising assets to
help ensure security of gas supply for the UK whilst providing important
liquidity to the market. These assets are an important risk management tool to
the Group's generation portfolio by offering short-notice flexibility to
mitigate exposures from wind speeds and demand variability.
The patterns of operation, withdrawing gas when the system needs and injecting
gas when the market incentivises it, give rise to seasonal variations in
financial performance depending on the market dynamics.
In Aldbrough, after successfully returning to service ahead of winter 2022/23,
Caverns 6 and 9 have continued to perform well, providing valuable additional
capacity and deliverability to the UK system. And with the equivalent of two
caverns being added over the past three years at Atwick, work to optimise
maximum and minimum operation pressures also continues.
In April 2023 SSE Gas Storage secured ISO 55001 certification, an
international asset management standard, for Atwick and Aldbrough facilities.
For financial performance commentary please refer to the Group Financial
Review.
GROWTH OPPORTUNITIES
Underlining the clear societal value these assets provide, the UK Government's
Powering Up Britain Energy Security Plan, published in March, highlighted that
gas storage had operated successfully over the winter helping to meet demand
caused by cold weather spells. The UK Government will consider the future role
that storage can play in the longer term, considering the need to align with
future plans for hydrogen and CO2 storage with an update expected from UK
Government on this in due course. SSE Thermal remains committed to working
with UK Government departments and Ofgem to ensure the critical role of UK
storage is properly valued, and low-carbon options can be delivered in tandem.
The UK Government has published its minded-to position on the design of a
business model to support investments in nationally strategic assets such as
Aldbrough Hydrogen Storage. The minded-to position proposes a revenue floor to
mitigate demand risk for storage providers, with geological storage, such as
salt caverns, being the initial focus of support. The UK Government is aiming
to deliver Hydrogen Storage Business Model support by 2025.
Energy Customer Solutions
Energy customer solutions overview
SSE Business Energy in Great Britain (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. Across Great Britain and the island of Ireland, the primary focus
during the first six months of the financial year has been on supporting
customers, managing external market volatility, modernising systems and
expanding the green energy product offering to enable customers to reduce
their energy consumption.
SSE Business Energy
GB Business Energy key performance indicators
GB Business Energy Sep 23 Sep 22
Business Energy adjusted and reported operating profit/(loss) - £m 88.0 (59.4)
Electricity Sold - GWh 5,203 5,806
Gas Sold - mtherms 60.8 65.2
Aged Debt (60 days past due) - £m 230.3 127.3
Bad debt expense - £m 59.1 47.4
Bad debt provision - £m
Energy customers' accounts - m 0.41 0.46
Operational delivery
In the first half, Business Energy continued to prioritise the roll out of
smart meters that give valuable consumption trends and enables customers to
better manage their overall demand. It also saw increased demand for
Corporate Power Purchase Agreements that provide access to SSE's renewable
resources.
As customers continued to deal with the cost-of-living crisis, the business
supported the roll out of government support schemes providing alternate
payment and contract options for customers. In addition, it also announced a
£15m customer support fund in September 2023, targeting support towards
approximately 20,000 customers on fixed long-term contracts who were worst
affected by peak market volatility. Under the support scheme, 8,000 businesses
with registered charitable status are expected to receive a £500 credit to
their bills.
Business Energy also signed up to National Grid ESO's Demand Flexibility
Service (DFS) for Winter 23/24 on a trial basis. The trial includes specific
cohorts of SSE smart metered customers, facilitating greater efficiency in the
management of energy on the grid.
SSE Airtricity
SSE Airtricity key performance indicators
SSE Airtricity Sep 23 Sep 22
Airtricity adjusted operating profit - £m 5.8 14.9
Airtricity reported operating profit - £m 5.3 14.8
Aged Debt (60 days past due) - £m 19.8 9.7
Bad debt expense - £m 5.4 1.8
Airtricity Electricity Sold - GWh 3,110 2,693
Airtricity Gas Sold - mtherms 67.0 68.8
All Ireland energy market customers (Ire) - m 0.74 0.73
Operational delivery
The business delivered new products including launching its premium microgen
tariff, with joint venture partners Active8 solar energies. This is a
first-to-market innovation that directly links solar installation to an
exclusive export rate thereby incentivising decarbonisation. The business also
installed its 500(th) EV charger in Northern Ireland.
In keeping with its commitment to supporting customers through the
cost-of-living crisis SSE Airtricity announced tariff reductions in September
2023 for domestic customers in the Republic of Ireland, in addition to
reductions for household electricity customers in Northern Ireland. Its
support fund continued to benefit households including giving free home energy
upgrades as part of a programme that will eventually see 600 vulnerable
households, including those completed in partnership with Bryson Charitable
Group in Northern Ireland. The business was awarded Gold and Silver at the
All-Island Sustainability Awards for its partnership with Dun-Laoghaire
Rathdown County Council on the Beaufort home energy upgrade project. The
business is also expanding its offering in business-to-business markets in
both the Republic of Ireland and NI markets, as well as delivering 45,000 home
retrofits under the ROI national retrofit programme.
SSE Airtricity was also recognised with the Social Responsibility Award at the
annual Business & Finance ESG awards; and was named 'Outstanding Company'
at the GALAS, Ireland's LGBTQ+ awards programme for commitment to LGBTQ+
initiatives.
For additional financial performance commentary please refer to the Group
Financial Review.
SSE enterprise
SSE enterprise key performance indicators
SSE ENTERPRISE Sep 23 Sep 22
SSE Enterprise adjusted and reported operating (loss)/profit - £m (8.4) 0.6
SSE Heat Network Customer Accounts 11,493 11,799
Biomass, heat network and other capacity - MW 26 26
Biomass, heat network and other output - GWh 49 38
SSE enterprise overview
SSE Enterprise (formerly known as Distributed Energy) brings low-carbon energy
solutions to business-to-business markets - including major regional and
partnership opportunities. With private wires, heat networks, behind-the-meter
solar and battery, EV charging and competitive networks all part of the UK's
net zero plans, it is well positioned for future growth.
Operational delivery
In addition to continuing to operate its heat networks and deliver electric,
water and steam at Slough Trading Estate, SSE Enterprise initiated innovative
behind-the-meter collaborations with Medway Council and Sky Studios at
Elstree, introducing localised solutions to drive energy decarbonisation.
These projects involve the implementation of advanced energy management
systems, on-site renewable energy generation and energy storage solutions, all
aimed at reducing carbon emissions and enhancing energy sustainability within
these communities.
The business continued to advance its electric vehicle (EV) charging hub
infrastructure with new facilities opened in Gapton Hall, Great Yarmouth, and
Melksham, Wiltshire.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
The decarbonisation of large-scale energy users such as ports and airports, as
well as providing smart grid solutions to potential gigafactories offers a
significant long-term growth opportunity for SSE Enterprise. Similarly, the
decarbonisation of transport, and particularly, the strong demand for electric
vehicle infrastructure will also underpin the build-out of its EV charging
hubs with construction underway in Lough Sheever, in the Republic of Ireland,
and Myrekirk and Kingsway in Dundee, Scotland.
The business is also pursuing opportunities to help regional authorities
decarbonise and has signed a strategic partnership with the West Midlands
Combined Authority. This will focus on executing green energy projects in
the region, including the establishment of HGV EV refuelling hubs.
In heat networks, the business continues to prioritise deep geothermal, data
centre, transformer, and 'Energy from Waste' heat sources and has secured
government funding to help advance these efforts.
SSE Energy Markets
SSE ENERGY MARKETS key performance indicators
SSE ENERGY MARKETS Sep 23 Sep 22
SSE Energy Markets adjusted operating profit - £m 9.0 30.3
SSE Energy Markets reported operating profit/(loss) - £m 88.9 (1,958.0)
SSE Energy Markets overview
Formerly known as Energy Portfolio Management, or EPM, Energy Markets trades
commodities for SSE's market-based Business Units, 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
Energy Markets continues to navigate energy market volatility, with a focus on
short term trading decisions, on behalf of market-based business units.
As such, the value Energy Markets secured for SSE's asset portfolio continues
to be reported against individual Business Units.
Over the last two years, Energy Markets has worked to establish a centre of
excellence for electricity market related trading decisions. With the
successful implementation of this approach, Energy Markets will be able to
optimise the group's assets as one across all trading periods.
For financial performance commentary please refer to the Group Financial
Review.
Growth Opportunities
Alongside focusing on core delivery and developments in market modelling,
assurance, data governance and analytics, European trading volumes continue to
increase during the period. Additionally, in advance of SSE Renewables' first
battery storage project coming online in 2024, a process has been developed to
optimise batteries using Energy Markets' growing advanced data analytics
function, adding further asset optimisation capability to the business.
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 Plus objectives.
· Debt measures allow management to record and monitor both
operating cash generation and the Group's ongoing financing and liquidity
position.
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 operating 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 operating 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 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
· 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
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)
· 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 SSE Energy Markets
(formerly 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 GB Business Energy and
Airtricity operating units, or to optimise the value of the production from
its SSE Renewables and Thermal generation assets or to conduct other trading
subject to the value at risk limits set out by the Energy Markets Risk
Committee. 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. 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. Finally, the mark-to-market valuation movements on the Group's
contracts for difference contracts entered into by SSE Renewables that are not
designated as government grants and which are measured as Level 3 fair value
financial instruments are also included within 'certain re-measurements'.
Financing derivatives include all fair value and cash flow interest rate
hedges, non-hedge accounted (mark-to-market) interest rate derivatives, cash
flow foreign exchange hedges and non-hedge accounted foreign exchange
contracts entered into by the Group to manage its banking and liquidity
requirements as well as risk management relating to interest rate and foreign
exchange exposures. Changes in the fair value of those financing derivatives
are reflected in the income statement (as part of 'certain re-measurements').
The Group shows the change in the fair value of these forward contracts
separately as this mark-to-market movement is not relevant to the underlying
performance of its operating segments.
The re-measurements arising from operating and financing derivatives, and the
tax effects thereof, are disclosed separately to aid understanding of the
underlying performance of the Group.
2 Exceptional Items
Exceptional charges or credits, and the tax effects thereof, are considered
unusual by nature or scale and 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
The Group retains an obligation for 60% of the decommissioning liabilities of
its former Gas Production business which was disposed in October 2021. The
revaluation adjustments relating to these decommissioning liabilities are
accounted for through the Group's consolidated income statement and are
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.
For the purpose of calculating the 'Net Debt to EBITDA' metric, 'adjusted
EBITDA' is further refined to remove the proportion of adjusted EBITDA from
equity-accounted joint ventures relating to off-balance sheet debt. This
metric is not calculated for 30 September period ends.
6 Depreciation and amortisation expense on fair value uplifts
The Group's strategy includes the realisation of value (developer gains) from
divestments of stakes in SSE Renewables' offshore and international
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 non-cash accounting uplifts will be treated as exceptional
gains in the period 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 are 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 net interest income relating to defined benefit pension schemes is
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 period 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. The most significant of those is SSEN Transmission, a 25% stake in which
was divested on 30 November 2022 (see note 11 for more details of that
transaction). In the current period ended 30 September 2023 and the year ended
31 March 2023 the Group has removed the share of profit attributable to
holders of non-controlling equity stakes in such businesses from the point
when the ownership structure changed (i.e. for SSEN Transmission, with effect
from 1 December 2022) from all of its profit measures, to report all metrics
based on the share of profit items attributable to the ordinary equity holders
of the Group. The adjustment has been 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. There is no impact
to disclosures for 30 September 2022.
30 September 2023
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 Share of profits attributable to non-controlling interests Adjusted
Operating profit/(loss) 602.3 (14.9) 113.7 (3.5) 9.4 57.4 - - (71.2) 693.2
Net finance (costs)/income (29.0) (41.0) (0.2) - - (47.8) (12.8) - 2.8 (128.0)
Profit/(loss) before taxation 573.3 (55.9) 113.5 (3.5) 9.4 9.6 (12.8) - (68.4) 565.2
Taxation (140.0) 12.6 (3.2) - - (9.6) - 47.4 4.4 (88.4)
Profit/(loss) after taxation 433.3 (43.3) 110.3 (3.5) 9.4 - (12.8) 47.4 (64.0) 476.8
Attributable to other equity holders (124.3) - - - - - - (12.8) 64.0 (73.1)
Profit/(loss) attributable to ordinary shareholders 309.0 (43.3) 110.3 (3.5) 9.4 - (12.8) 34.6 - 403.7
Number of shares for EPS 1,090.4 1,090.4
Earnings per share 28.3 37.0
Adjusted EBITDA
30 September 2023
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 Share of depreciation, impairment and amortisation before exceptional items Adjusted EBITDA
attributable to non-controlling interests
£m £m £m £m £m
£m
£m
693.2 104.3 (6.4) (9.4) 343.6 (15.7) 1,109.6
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 income/(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)
(Loss)/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
(Losses)/earnings per share (39.7) 41.8
Adjusted 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
31 March 2023
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 Share of profits attributable to non-controlling interests Adjusted
Operating (loss)/profit (146.3) 2,514.3 0.6 (50.5) 28.8 213.2 - - (30.9) 2,529.2
Net finance costs (59.3) (201.9) (0.2) - - (70.1) (16.2) - 2.1 (345.6)
(Loss)/profit before taxation (205.6) 2,312.4 0.4 (50.5) 28.8 143.1 (16.2) - (28.8) 2,183.6
Taxation 110.0 (460.5) 34.1 - - (143.1) - 99.6 1.1 (358.8)
(Loss)/profit after taxation (95.6) 1,851.9 34.5 (50.5) 28.8 - (16.2) 99.6 (27.7) 1,824.8
Attributable to other equity holders (62.4) - - - - - - (4.1) 27.7 (38.8)
(Loss)/profit attributable to ordinary shareholders (158.0) 1,851.9 34.5 (50.5) 28.8 - (16.2) 95.5 - 1,786.0
Number of shares for EPS 1,075.6 1,075.6
(Losses)/ earnings Per Share (14.7) 166.0
Adjusted EBITDA
31 March 2023
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 Share of depreciation, impairment and amortisation before exceptional items Adjusted EBITDA
attributable to non-controlling interests
£m £m £m £m £m
£m
£m
2,529.2 201.1 (13.9) (28.8) 704.2 (9.7) 3,382.1
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
· Cash posted as collateral
· Lease obligations
· Non-controlling share of borrowings and cash
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 Cash posted as collateral
Cash posted as collateral are SSE cash balances held by counterparties
including trading exchanges. Collateral balances mostly represent initial and
variation margin, required as part of the management of the Group's exposures
on commodity contracts, 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. The most significant of those is SSEN Transmission, a 25% stake in which
was divested on 30 November 2022 (see note 11 for more details of that
transaction). Following completion of the transaction, the Group has removed
the share of external debt and cash in these subsidiaries proportionately
attributable to the non-controlling interest holders from its adjusted net
debt and hybrid capital metric. While legal entitlement to these items has not
changed, the Group makes this adjustment to present net debt attributable to
ordinary equity holders of the Group.
March September 2023 September 2022
2023
£m £m £m
(8,168.1) Unadjusted net debt (8,050.6) (9,076.4)
316.3 Cash posted as collateral 140.6 581.3
405.9 Lease obligations 394.4 388.9
434.2 External net debt attributable to non-controlling interests 454.2 -
(7,011.7) Adjusted Net Debt (7,061.4) (8,106.2)
(1,882.4) Hybrid equity (1,882.4) (1,882.4)
(8,894.1) Adjusted Net Debt and Hybrid Capital (8,943.8) (9,988.6)
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
· Joint ventures and associates' additions funding
· Non-controlling share of capital expenditure
· Lease asset additions
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
· Joint ventures and associates' additions funding
· Non-controlling share of capital expenditure
· Lease asset additions
· 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
additions in the period 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 acquired 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 21 below. Please refer to note 11 for
detail of the Group's acquisitions in the prior year.
18 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.
19 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. The most significant of those is SSEN Transmission, a 25% stake in which
was divested on 30 November 2022 (see note 11 for more details of that
transaction). In the current period and prior year, the Group has removed the
share of capital additions attributable proportionately to these equity
holders from the point when the ownership structure changed (i.e. for SSEN
Transmission, with effect from 1 December 2022) 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 prior
period metrics for September 2022.
20 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.
21 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 Plus.
March September 2023 September 2022
2023
£m £m £m
1,688.6 Capital additions to intangible assets 381.0 765.4
1,500.1 Capital additions to property, plant and equipment 939.4 667.2
3,188.7 Capital additions to intangible assets and property, plant and equipment 1,320.4 1,432.6
(80.9) Customer funded additions (91.4) (54.0)
(805.2) Allowances and certificates (163.3) (122.4)
(515.2) Additions through business combinations - (488.7)
498.4 Joint ventures and associates' additions 94.3 363.1
(46.7) Non-controlled interests share of capital expenditure (80.8) -
(78.5) Lease asset additions (24.9) (27.4)
2,160.6 Adjusted Investment and Capital Expenditure 1,054.3 1,103.2
642.7 Acquisition cash consideration - 640.0
2,803.3 Adjusted Investment, Capital and Acquisition Expenditure 1,054.3 1,743.2
INTERIM FINANCIAL STATEMENTS
Consolidated Income Statement
for the period 1 April 2023 to 30 September 2023
2023 2022
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 4,790.5 - 4,790.5 5,629.4 - 5,629.4
Cost of sales (3,295.3) (3.4) (3,298.7) (4,333.7) (1,792.4) (6,126.1)
Gross profit/(loss) 1,495.2 (3.4) 1,491.8 1,295.7 (1,792.4) (496.7)
Operating (costs)/income (734.2) (113.7) (847.9) (614.9) 218.9 (396.0)
Debt impairment charges (64.7) - (64.7) (49.6) - (49.6)
Other operating income 16.3 - 16.3 3.2 89.1 92.3
Operating profit/(loss) before joint ventures and associates 712.6 (117.1) 595.5 634.4 (1,484.4) (850.0)
Joint ventures and associates:
Share of operating profit 45.9 - 45.9 126.7 140.7 267.4
Share of interest (47.8) - (47.8) (29.1) - (29.1)
Share of movement in derivatives - 18.3 18.3 - - -
Share of tax (5.0) (4.6) (9.6) (23.4) - (23.4)
Share of profit on joint ventures and associates (6.9) 13.7 6.8 74.2 140.7 214.9
Operating profit/(loss) from continuing operations 5 705.7 (103.4) 602.3 708.6 (1,343.7) (635.1)
Finance income 7 103.6 41.2 144.8 58.2 243.7 301.9
Finance costs 7 (173.8) - (173.8) (177.8) - (177.8)
Profit/(loss) before taxation 635.5 (62.2) 573.3 589.0 (1,100.0) (511.0)
Taxation 8 (135.2) (4.8) (140.0) (89.5) 211.9 122.4
Profit/(loss) for the period from continuing operations 500.3 (67.0) 433.3 499.5 (888.1) (388.6)
Discontinued operations
Profit from discontinued operations, net of tax 6 - - - - 35.0 35.0
Profit/(loss) for the period 500.3 (67.0) 433.3 499.5 (853.1) (353.6)
Attributable to:
Ordinary shareholders of the parent 376.0 (67.0) 309.0 460.7 (853.1) (392.4)
Non-controlling interests 51.2 - 51.2 - - -
Other equity holders 73.1 - 73.1 38.8 - 38.8
Earnings/(losses) per share
Basic (pence) 10 28.3 (36.4)
Diluted (pence) 10 28.3 (36.4)
Earnings/(losses) per share - continuing operations
Basic (pence) 10 28.3 (39.7)
Diluted (pence) 10 28.3 (39.7)
The accompanying notes are an integral part of this interim statement.
Consolidated Income Statement
for the year ended 31 March 2023
Before exceptional items and certain Exceptional items and certain re-measure-ments Total
re-measure-ments
(note 6)
Note £m £m £m
Continuing operations
Revenue 5 12,490.7 - 12,490.7
Cost of sales (9,933.2) (2,717.2) (12,650.4)
Gross profit/(loss) 2,557.5 (2,717.2) (159.7)
Operating costs (1,431.6) (230.4) (1,662.0)
Debt impairment charges (91.0) - (91.0)
Other operating income 1,015.0 89.1 1,104.1
Operating profit/(loss) before joint ventures and associates 2,049.9 (2,858.5) (808.6)
Joint ventures and associates:
Share of operating profit 531.9 140.7 672.6
Share of interest (70.1) - (70.1)
Share of movement in derivatives - 202.9 202.9
Share of tax (104.0) (39.1) (143.1)
Share of profit on joint ventures and associates 357.8 304.5 662.3
Operating profit/(loss) from continuing operations 5 2,407.7 (2,554.0) (146.3)
Finance income 7 135.3 202.1 337.4
Finance costs 7 (396.7) - (396.7)
Profit/(loss) before taxation 2,146.3 (2,351.9) (205.6)
Taxation 8 (355.5) 465.5 110.0
Profit/(loss) for the year from continuing operations 1,790.8 (1,886.4) (95.6)
Discontinued operations
Profit from discontinued operations, net of tax 6 - 35.0 35.0
Profit/(loss) for the year 1,790.8 (1,851.4) (60.6)
Attributable to:
Ordinary shareholders of the parent 1,728.4 (1,851.4) (123.0)
Non-controlling interests 23.6 - 23.6
Other equity holders 38.8 - 38.8
Losses per share
Basic (pence) 10 (11.4)
Diluted (pence) 10 (11.4)
Losses per share - continuing operations
Basic (pence) 10 (14.7)
Diluted (pence) 10 (14.7)
The accompanying notes are an integral part of this interim statement.
Consolidated Statement of Comprehensive Income
for the period 1 April 2023 to 30 September 2023
Year ended 31 March 2023 Six months ended 30 September 2022
Six months ended 30 September 2023
£m £m £m
Profit/(loss) for the period
(95.6) Continuing operations 433.3 (388.6)
35.0 Discontinued operations - 35.0
(60.6) 433.3 (353.6)
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss:
43.3 Net gains on cash flow hedges 41.3 147.9
(12.7) Transferred to assets and liabilities on cash flow hedges 1.9 3.5
(8.1) Taxation on cash flow hedges (10.2) (33.5)
22.5 33.0 117.9
342.4 Share of other comprehensive income of joint ventures and associates, net of 84.4 508.2
taxation
72.5 Exchange difference on translation of foreign operations (27.1) 72.5
(43.1) Gain/(loss) on net investment hedge 7.4 (41.6)
394.3 97.7 657.0
Items that will not be reclassified to profit or loss:
(59.4) Actuarial (loss)/gain on retirement benefit schemes, net of taxation (112.3) 33.3
(0.4) Losses on revaluation of investments in equity instruments, net of taxation - -
(59.8) (112.3) 33.3
334.5 Other comprehensive gain/(loss), net of taxation (14.6) 690.3
273.9 Total comprehensive income for the period 418.7 336.7
Total comprehensive income for the period arises from:
238.9 Continuing operations 418.7 301.7
Discontinued operations
35.0 Profit from discontinued operations - 35.0
35.0 Total comprehensive income from discontinued operations - 35.0
273.9 Total comprehensive income for the period 418.7 336.7
Attributable to:
206.4 Ordinary shareholders of the parent 291.3 289.9
28.7 Non-controlling interest 54.3 8.0
38.8 Other equity holders 73.1 38.8
273.9 418.7 336.7
The accompanying notes are an integral part of this interim statement.
Consolidated Balance Sheet
as at 30 September 2023
At At 30 September 2023 At
31 March 30 September 2022
2023 (restated*)
(restated*)
£m Note £m £m
Assets
15,395.9 Property, plant and equipment 15,986.8 15,049.8
1,960.3 Goodwill and other intangible assets 2,122.1 1,796.3
1,970.6 Equity investments in joint ventures and associates 2,004.1 2,265.9
1,115.4 Loans to joint ventures and associates 1,196.8 886.0
27.4 Other investments 2.9 18.0
149.5 Other receivables 159.5 145.2
246.0 Derivative financial assets 15 132.4 1,124.7
541.1 Retirement benefit assets 16 411.0 648.5
21,406.2 Non-current assets 22,015.6 21,934.4
454.9 Intangible assets 263.9 169.7
394.9 Inventories 246.0 501.4
3,245.1 Trade and other receivables 2,343.5 2,954.3
19.9 Current tax asset 75.1 38.3
891.8 Cash and cash equivalents 902.4 289.3
759.2 Derivative financial assets 15 262.6 2,677.2
5,765.8 Current assets 4,093.5 6,630.2
27,172.0 Total assets 26,109.1 28,564.6
Liabilities
1,820.6 Loans and other borrowings 12 1,394.9 1,399.7
2,658.6 Trade and other payables 2,545.5 2,943.7
9.1 Current tax liabilities - -
4.0 Financial guarantee liabilities 47.0 4.0
29.4 Provisions 21.8 29.3
243.3 Derivative financial liabilities 15 505.2 2,195.4
4,765.0 Current liabilities 4,514.4 6,572.1
7,239.3 Loans and other borrowings 12 7,558.1 7,966.0
1,300.2 Deferred tax liabilities 1,352.9 1,521.1
959.9 Trade and other payables 1,034.1 927.6
57.4 Financial guarantee liabilities 34.5 57.4
742.7 Provisions 701.9 751.1
1,021.0 Derivative financial liabilities 15 197.9 956.7
11,320.5 Non-current liabilities 10,879.4 12,179.9
16,085.5 Total liabilities 15,393.8 18,752.0
11,086.5 Net assets 10,715.3 9,812.6
Equity:
547.0 Share capital 14 547.9 545.6
821.2 Share premium 820.3 826.0
52.6 Capital redemption reserve 52.6 49.2
441.2 Hedge reserve 556.0 703.6
32.1 Translation reserve 11.9 29.5
6,660.9 Retained earnings 6,140.8 5,727.7
8,555.0 Equity attributable to ordinary shareholders of the parent 8,129.5 7,881.6
1,882.4 Hybrid equity 13 1,882.4 1,882.4
649.1 Attributable to non-controlling interests 703.4 48.6
11,086.5 Total equity attributable to equity holders of the parent 10,715.3 9,812.6
*The comparative Consolidated Balance Sheet has been restated. See note 3.1.
The accompanying notes are an integral part of this interim statement.
Consolidated Statement of Changes in EQuity
for the period 1 April 2023 to 30 September 2023
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 2023 (restated*) 547.0 821.2 52.6 441.2 32.1 6,660.9 8,555.0 1,882.4 10,437.4 649.1 11,086.5
Profit for the period - - - - - 309.0 309.0 73.1 382.1 51.2 433.3
Other comprehensive income/(loss) - - - 114.8 (20.2) (112.3) (17.7) - (17.7) 3.1 (14.6)
Total comprehensive income for the period - - - 114.8 (20.2) 196.7 291.3 73.1 364.4 54.3 418.7
Dividends to shareholders - - - - - (738.1) (738.1) - (738.1) - (738.1)
Scrip dividend related share issue 0.9 (0.9) - - - 29.8 29.8 - 29.8 - 29.8
Issue of treasury shares - - - - - 0.4 0.4 - 0.4 - 0.4
Distributions to Hybrid equity holders - - - - - - - (73.1) (73.1) - (73.1)
Credit in respect of employee share awards - - - - - 10.8 10.8 - 10.8 - 10.8
Investment in own shares - - - - - (19.7) (19.7) - (19.7) - (19.7)
At 30 September 2023 547.9 820.3 52.6 556.0 11.9 6,140.8 8,129.5 1,882.4 10,011.9 703.4 10,715.3
*The comparative Consolidated Statement of Changes in Equity has been
restated. See note 3.1.
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 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
Impact of adoption of IFRS 17 (see note 3.1) - - - - - (28.9) (28.9) - (28.9) - (28.9)
At 1 April 2022 (adjusted) 536.5 835.1 49.2 77.5 6.6 6,544.0 8,048.9 1,051.0 9,099.9 40.6 9,140.5
(Loss)/profit for the period - - - - - (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/(loss) for the period - - - 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 (restated*) 545.6 826.0 49.2 703.6 29.5 5,727.7 7,881.6 1,882.4 9,764.0 48.6 9,812.6
Consolidated Statement of Changes in Equity
for the year ended 31 March 2023
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 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
Impact of adoption of IFRS 17 (see note 3.1) - - - - - (28.9) (28.9) - (28.9) - (28.9)
At 1 April 2022 (adjusted) 536.5 835.1 49.2 77.5 6.6 6,544.0 8,048.9 1,051.0 9,099.9 40.6 9,140.5
(Loss)/profit for the year - - - - - (123.0) (123.0) 38.8 (84.2) 23.6 (60.6)
Other comprehensive income/(loss) - - - 363.7 25.5 (59.8) 329.4 - 329.4 5.1 334.5
Total comprehensive income/(loss) for the year - - - 363.7 25.5 (182.8) 206.4 38.8 245.2 28.7 273.9
Dividends to shareholders - - - - - (955.8) (955.8) - (955.8) - (955.8)
Scrip dividend related share issue 13.9 (13.9) - - - 481.5 481.5 - 481.5 - 481.5
Issue of treasury shares - - - - - 18.0 18.0 - 18.0 - 18.0
Distributions to Hybrid equity holders - - - - - - - (38.8) (38.8) - (38.8)
Issue of hybrid equity - - - - - - - 831.4 831.4 - 831.4
Share buy back (3.4) - 3.4 - - (107.6) (107.6) - (107.6) - (107.6)
Partial disposal of interest in SSEN Transmission transaction - - - - - 868.3 868.3 - 868.3 579.8 1,448.1
Credit in respect of employee share awards - - - - - 18.7 18.7 - 18.7 - 18.7
Investment in own shares - - - - - (23.4) (23.4) - (23.4) - (23.4)
At 31 March 2023 (restated*) 547.0 821.2 52.6 441.2 32.1 6,660.9 8,555.0 1,882.4 10,437.4 649.1 11,086.5
Consolidated Cash Flow Statement
for the period 1 April 2023 to 30 September 2023
Year Note Six months ended 30 September 2023 Six months ended 30 September 2022
ended 31 March 2023
£m £m £m
(146.3) Operating profit/(loss) - continuing operations 5 602.3 (635.1)
(662.3) Less share of profit of joint ventures and associates (6.8) (214.9)
(808.6) Operating profit/(loss) before jointly controlled entities and associates 595.5 (850.0)
(19.2) Pension service charges, less contributions paid (6.9) (11.3)
2,691.6 Movement on operating derivatives 12.5 1,969.0
640.7 Depreciation, amortisation, write downs and impairments 343.6 115.3
329.3 Impairment of joint venture investment 6 63.2 -
18.7 Charge in respect of employee share awards (before tax) 10.8 9.1
(89.1) Profit on disposal of assets and businesses - (89.1)
(114.9) Release of provisions (8.5) (57.1)
(13.9) Release of deferred income 5 (6.4) (7.7)
2,634.6 Cash generated from operations before working capital movements 1,003.8 1,078.2
(137.3) (Increase)/decrease in inventories 141.2 (36.5)
(996.0) (Increase)/decrease in receivables 932.9 (713.2)
166.7 Increase in payables 36.6 257.8
(15.3) Decrease in provisions (16.8) (41.1)
1,652.7 Cash generated from operations 2,097.7 545.2
296.5 Dividends received from investments 112.2 144.1
(199.9) Interest paid (54.6) (103.1)
(255.3) Taxes paid (126.3) (74.9)
1,494.0 Net cash from operating activities 2,029.0 511.3
(1,479.7) Purchase of property, plant and equipment 5 (848.0) (620.2)
(336.4) Purchase of other intangible assets 5 (228.6) (119.7)
13.9 Deferred income received 18.8 8.5
60.0 Proceeds from disposals 6 - 60.0
(642.7) Purchase of businesses, joint ventures and subsidiaries 11 - (640.0)
(621.8) Loans and equity provided to joint ventures and associates (133.1) (436.1)
61.4 Loans and equity repaid by joint ventures 6.7 6.4
(19.1) Increase in other investments - (9.3)
(2,964.4) Net cash from investing activities (1,184.2) (1,750.4)
18.0 Proceeds from issue of share capital 14 0.4 0.5
(474.3) Dividends paid to the company's equity holders 9 (708.3) (320.1)
(107.6) Share buy backs 14 - -
1,448.1 Proceeds from divestments - -
(38.8) Hybrid equity dividend payments 13 (73.1) (38.8)
(23.4) Employee share awards share purchase 14 (19.7) (21.7)
831.4 Issue of hybrid equity instruments 13 - 831.4
1,914.7 New borrowings 1,751.0 2,068.6
(2,242.5) Repayment of borrowings (1,786.4) (2,044.3)
(12.7) Settlement of cashflow hedges 1.9 3.5
1,312.9 Net cash from financing activities (834.2) 479.1
(157.5) Net increase/(decrease) in cash and cash equivalents 10.6 (760.0)
1,049.3 Cash and cash equivalents at the start of period 891.8 1,049.3
(157.5) Net increase/(decrease) in cash and cash equivalents 10.6 (760.0)
891.8 Cash and cash equivalents at the end of period 902.4 289.3
The Consolidated cash flow statement for 30 September 2022 has been restated
to remove from discontinued operating income £35.0m in relation to Gas
Production, which had no cash impact and was non-operating income.
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 2023, 31 March 2023 or 30 September 2022 within the meaning
of Section 435 of the Companies Act 2006. Statutory accounts for the year
ended 31 March 2023, 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 2024 will be prepared in accordance with UK-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 at the end of this document.
These interim statements were authorised by the Board on 14 November 2023.
2. Basis of preparation
These condensed Interim Financial Statements for the period to 30 September
2023 and the comparative information for the period to 30 September 2022 have
been prepared applying the accounting policies used in the Group's
consolidated financial statements for the year ended 31 March 2023, with the
exception of the adoption of IFRS 17 'Insurance Contracts' ("IFRS 17") and the
amendment to IAS 12 'Deferred Tax relating to Assets and Liabilities arising
from a Single Transaction' ("IAS 12"), 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
financial 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.
(ii) Going concern
The Directors consider that the Group has adequate resources to continue in
operational existence for the period to 31 December 2024. 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 12) 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 2024.
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 as at 30
September 2023 there was £903m commercial paper outstanding (31 March 2023:
£919m). In the six months ended 30 September 2023, the Group has issued new
debt instruments totalling £650m and has redeemed £204m of maturing debt in
the period. The Group also continues to have access to its £3.5bn of
revolving credit facilities. As at 30 September 2023 there were £220m of
drawings against these committed facilities being less than 6% utilisation.
The details of the five committed facilities at 30 September 2023 are:
· a £1.3bn revolving credit facility for SSE plc maturing March
2026;
· a £0.2bn bilateral facility for SSE plc maturing October 2026;
· a £0.75bn facility for Scottish Hydro Electric Transmission plc
maturing November 2026;
· a £0.25bn facility for Scottish Hydro Electric Power
Distribution plc and Southern Electric Power Distribution plc maturing
November 2026; and
· a £1.0bn committed facility for SSE plc maturing February 2024.
The £1.3bn revolving credit facility and £0.2bn bilateral facility are both
in place to provide back-up to the commercial paper programme and support the
Group's capital expenditure plans. The Transmission and Distribution related
facilities, both of which have 1 year extension options at the borrower's
discretion, were entered into to help cover the capital expenditure and
working capital of those businesses. The £1bn committed facility at SSE plc
has a 1 year extension option at the lender's discretion and was entered into
to provide cover for potential cash collateral requirements, if periods of
extreme volatility return to the commodity markets. The only facility that was
drawn at 30 September 2023 was the £750m Transmission facility, with £220m
drawn to cover capital expenditure requirements.
(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 estimates that any qualifying item greater
than £40.0m 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 SSE Renewables international
or offshore windfarm development projects within SSE Renewables, which are
considered non-exceptional in line with the Group's strategy to generate
recurring gains from developer divestments. Where a gain arises on a non-cash
transaction, the gain is treated as exceptional.
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; re-measurements on stocks of commodities held at the
balance sheet date; or movements in fair valuation of contracts for difference
not designated as government grants. The amount recorded in the adjusted
results for these contracts is the amount settled in the year as disclosed in
note 15.
This excludes commodity contracts not treated as financial instruments under
IFRS 9 where the contracts are held for the Group's own use requirements; the
fair value of these contracts are not recorded and the value associated with
the contract is not recognised 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
The prior year comparatives at 31 March 2023 and 30 September 2022 have been
restated following the adoption of IFRS 17 as disclosed in the section below.
Segments
In accordance with the requirements of IFRS 8 'Operating Segments' the Group
has aligned its segmental disclosures with its revised internal reporting
following changes to the Group's structure and operations. These segments are
used internally by the Group Executive Committee in order to assess operating
performance and to make decisions on how to allocate capital. Consequently,
the segmental results reported in the Group's operating segments have been
restated with effect from 1 April 2022. During the period to 30 September
2023, SSE Renewables assumed responsibility for the development, delivery and
operation of battery storage and solar assets in Great Britain from SSE
Enterprise (formerly Distributed Energy), aligning that activity with its
international operations. In addition, the Building Energy Management Systems
('BEMS') activity has been assumed by GB Business Energy. Accordingly, the
result from the Group's battery and solar business and BEMS will now be
reported within SSE Renewables and Energy Customers Solutions respectively.
Comparative segmental information in note 5 has been re-presented to reflect
the change to these segments. The impacts of the restatements are a decrease
to the adjusted operating profit of SSE Renewables (2022: £7.5m, March 2023:
£18.2m), a decrease to the adjusted operating profit of GB Business Energy
(2022: £1.1m, March 2023: £2.2m) and a decrease to the adjusted operating
loss of SSE Enterprise (2022: £8.6m, March 2023: £20.4m). Additionally,
adjusted capital expenditure has been re-presented with an increase to SSE
Renewables (2022: £51.5m, March 2023: £74.0m), an increase to GB Business
Energy (2022: £0.2m, March 2023: £0.4m) and a decrease to SSE Enterprise
(2022: £51.7m, March 2023: £74.4m). Revenue has been re-presented with an
increase to GB Business Energy (2022: £22.9m, March 2023: £46.0m) and a
decrease to SSE Enterprise (2022: £22.9m, March 2023: £46.0m). Finally, note
that there were two changes to the names of segments in the period: 1)
Distributed Energy was renamed SSE Enterprise and 2) EPMI was renamed SSE
Energy Markets.
Investment presentation change
In the current period the classification of an investment of £33.7m (2022:
£14.8m, March 2023: £24.1m) has been reassessed and reclassified from 'Other
investments' to 'Equity investments in joint ventures and associates'. The
investment has been recognised as an associate reflecting the Group's level of
ownership and influence over the investee; comparative amounts have not been
re-presented.
New accounting policies and reporting changes
Except for the adoption of IFRS 17 and the amendment to IAS 12, 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 2023.
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
On 1 April 2023, the Group adopted IFRS 17 'Insurance Contracts' and the
amendments to IAS 12 'Income Taxes' on a modified retrospective basis from the
earliest period presented in these financial statements.
The Group provides guarantees in respect of certain activities of former
subsidiaries and to certain current joint venture investments. Prior to
adoption of IFRS 17, these contracts were designated as insurance contracts
under IFRS 4, where existing accounting practices were grandfathered and the
contracts were treated as contingent liabilities until such time as it became
probable the Group would be required to make payment to settle the obligation.
The adoption of IFRS 17 from 1 April 2022 resulted in a reassessment of these
contracts and the Group elected to apply the valuation principles of IFRS 9 to
these contracts. Adoption resulted in the recognition of financial guarantee
liabilities of £45.4m; a £17.6m increase in equity investments in joint
ventures and associates; a related deferred tax liability of £1.1m; and a
£28.9m adjustment to retained earnings. On 1 September 2022, the Group
acquired a 50% joint venture in Triton Power Holdings Limited and provided
parent company guarantees to Saltend Cogeneration Company Limited (acquired as
part of the Triton Power 50% equity accounted joint venture). In the
comparative 6 month period to 30 September 2022, the Group has therefore
recognised a further £16.0m increase to the Group's financial guarantee
liabilities to reflect this guarantee and a £16.0m increase to the Group's
equity investment in Triton.
During the 6 month period to 30 September 2023, the Group recognised a net
increase in financial guarantee liabilities of £20.1m, a reduction in the
value of its joint venture investments of £14.1m and a settlement of £12.3m
resulting in a net income statement charge of £46.5m, of which a £50.5m
expense has been treated as an exceptional charge (see note 6 for further
details) in relation to the adoption of IFRS 17.
The adoption of the amendments to IAS 12 resulted in an increase of £50.1m
(2022: £22.8m, March 2023: £45.5m) to the Group's gross deferred tax assets
and gross deferred tax liabilities recognised in relation to the Group's
decommissioning obligations. Adoption had no impact on retained earnings or
profits recognised in presented periods.
In the period, the Group also adopted the amendments to:
· IAS 1 'Presentation of Financial Statements' and IFRS Practice
Statement 2 'Making Materiality Judgements' in relation to disclosure of
accounting policies;
· IAS 8 'Accounting Policies, Changes in Accounting Estimates and
Errors' in relation to the definition of accounting estimates; and
· Pillar Two Model Rules (Amendments to IAS 12) as issued on 23 May
2023, was substantively enacted in the United Kingdom from 20 June 2023. The
amendments to IAS 12 introduce a temporary mandatory relief from accounting
for deferred tax that arises from legislation implementing OECD Pillar Two.
SSE has applied the exception to recognising and disclosing information about
deferred tax assets and liabilities related to Pillar Two income taxes.
Adoption of these amendments had no material impact on the presentation of
these Interim Financial Statements.
3.2 New standards, amendments and interpretations issued, but not yet
adopted by the Group
A number of standards, amendments and interpretations have been issued but not
yet adopted by the Group within these Interim Financial Statements, because
application is not yet mandatory or because adoption by the UK remains
outstanding at the date the financial statements were authorised for issue.
These amendments 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.
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 and investment assets to
determine whether any impairments or reversal of impairments 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 2023, 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 2023. The
Group has also performed an assessment of indicators of impairment over the
carrying value of its joint venture investments in Neos Networks Limited and
Triton Power Holdings Limited. The main assumptions in the Group's impairment
assessments performed at 31 March 2023 were: regulation and legislation
changes (including the Electricity Generator Levy and climate change related
regulation), 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 2023, observable prices for power and gas have
decreased, which is considered an indicator of impairment necessitating the
formal reassessment of the carrying value of certain thermal assets and the
Triton Power Holdings Limited joint venture that have been impaired
previously. The conclusions from this impairment assessment are set out in
note 6.1 (i). Wind generation assets in GB and Ireland, Southern Europe and
Japan have not been impaired previously and while the decline in observable
power prices is noted, no indicators of impairment were identified in the
review conducted; as a result, no formal detailed reassessment was performed
at 30 September 2023.
At 30 September 2023, 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 2023. 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 2024.
(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 16 of these condensed
Interim Financial Statements.
(iii) Revenue recognition - Customers unbilled supply of energy -
estimation uncertainty
Revenue from energy supply activities undertaken by GB 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 estimated customer consumption, taking account of various
factors including usage patterns, tariff changes, changes to the proportion of
customers on different contract types, levels of unread meters, weather trends
and externally notified aggregated volumes supplied to customers from national
settlement bodies. During the period and the prior year both of the Group's
Supply businesses have administered government support backed customer support
schemes, where the Group provides discounts to customers based on estimated
usage and recovers amounts from the government based on actual customer usage.
The administration of these support schemes has increased the complexity and
level of estimation uncertainty of the Group's unbilled calculations. The most
material support scheme administered by the Group in the year was the Energy
Bills Relief Scheme ("EBRS") within the GB Business Energy Business. A change
in the assumptions underpinning the calculation would have an impact on the
amount of revenue recognised in any given period.
This unbilled estimation is subject to an internal corroboration process which
compares calculated unbilled volumes to a theoretical 'perfect billing'
benchmark measure of unbilled volumes (in GWh and millions of therms) derived
from historical weather-adjusted consumption patterns and aggregated metering
data used in industry reconciliation processes. Furthermore, actual meter
readings and billings continue to be compared to unbilled estimates between
the balance sheet date and the finalisation of the financial statements. The
estimation of the government receivable included within the Group's unbilled
revenue accrual is based on claimed and unclaimed values based on the same
customer consumption detail and derived from consideration of tariffs applied
to customers, metered and estimated volumes and other factors. The EBRS claims
submitted by SSE will be audited by the UK government and are subject to
volumetric risk as estimated consumption data is replaced by actual metered
data over the 14 month electricity industry reconciliation period. The value
of outstanding EBRS claims recognised at 30 September 2023 was £13.4m (March
2023: £326.6m), which includes a risk provision of £6.0m (March 2023:
£15.1m) related to amounts where the Group has provided the discount to the
customer but has assessed that it will be unable to recover the amount from
the government during the open claim window.
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 5%
sensitivity on the unbilled energy accrual would equate to an increase or
decrease in the receivable balance of £12.8m (March 2023: £19.4m). 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 2023 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
2023, the carrying value (net of expected credit loss provision of £1.5m
(March 2023: £1.5m)) is £159.5m (March 2023: £149.5m).
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 2022
statutory financial statements; considering available Government support
schemes; and discussions with Ovo management. While the carrying value is
considered to be 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. Where relevant assumptions have
been applied that are consistent to a Paris-aligned 1.5(O)C 2050 net zero
pathway. The Group has a clearly articulated Net Zero Acceleration Programme
Plus ('NZAP Plus'), to lead in the UK's transition to net zero and accordingly
aligns its investment plans and business activities to that strategy. These
plans are supported by the Group's Green Bond framework under which the sixth
green bond was issued in September 2023. The proceeds of the sixth green bond
were allocated to fund Renewables' wind projects.
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 net book
value held at 30 September 2023, only four assets are forecast to continue to
operate beyond 2030 being: Great Island; Keadby 2; Marchwood (which is
operated by SSE under a lease); and the Saltend Power Station within the
Triton joint venture. 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 commenced commercial operation on 15 March 2023 and has an efficiency
of around 63% making it the most efficient plant of its type in the UK and
Europe. Work is also underway to explore how to decarbonise Keadby 2 further
with the potential to blend hydrogen into the plant. Marchwood is a 50% equity
accounted joint venture and is considered one of the most efficient CCGTs in
the UK. Saltend was acquired as part of Triton Power 50% equity accounted
joint venture and supports the long-term decarbonisation of the UK's power
system, and also contributes to security of supply and grid stability. Initial
steps are underway at Saltend, targeting abatement by 2027 through blending up
to 30% of low-carbon hydrogen. Therefore, the Group considers that other
assets operating in the market would be more likely to close before Keadby 2,
Marchwood and Saltend and the plants will continue to be required to balance
the UK electricity market beyond 2030. As a result, the useful economic life
of the four assets have not been shortened when preparing the 31 March 2023
financial statements. The Group assesses the useful economic life of its
property, plant and equipment assets annually.
A significant increase in renewable generation capacity in the Group's core
markets in the UK and Ireland 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 2023 as the Group's baseline
investment case models assume a centrally approved volume of new build in
these markets over the life of the existing assets. The Group's policy is to
test the goodwill balances associated with wind generation portfolio for
impairment on an annual basis in line with the requirements of IAS 36.
Changes to weather patterns resulting from global warming have also been
considered as a potential risk to future returns from the Group's wind and
hydro assets. Changes to weather patterns 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 for operating assets in the UK and Ireland at 30
September 2023, 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 2023 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 £201.5m (March 2023:
£201.4m). At 30 September 2023, the impact of discounting of this retained
provision is £78.2m (March 2023: £64.5m), 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.
Defined Benefit scheme assets
The Group holds defined benefit pension scheme assets at 30 September 2023
which could be impacted by climate-related risks. The Trustees of the schemes
have a long term investment strategy that seeks to reduce investment risk as
and when appropriate and takes into consideration the impact of
climate-related risk.
Going concern
The implications of near term climate-related risks have been considered in
the Group's going concern assessment.
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 2023 Annual Report.
4.3 Other areas of estimation uncertainty
(i) Tax provisioning
In the condensed interim Financial Statements at 30 September 2023, the Group
has no provision for uncertain tax positions included in current tax
liabilities (2022: £27.9m; March 2023: £nil). The provision held by the
Group at 30 September 2022 related to the Group's case concerning the
availability of capital allowances on Glendoe Hydro Electric Station. This
case was heard at the Supreme Court on 23 March 2023 and a final decision on
the case was released on 17 May 2023. This decision upheld SSE's position in
relation to the dispute and accordingly at 31 March 2023, the provision held
was released as an adjusting post balance sheet event and a related deferred
tax liability of £23.4m in relation to the associated capital allowances was
recognised. The Group has no other open tax positions against which a
provision has required to be recognised.
The Group applies IFRIC 23 'Uncertainty over Income Tax Treatments' in respect
of uncertain tax positions. 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
progress 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.
(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 the majority of the Group's 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 2023. 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 2023, the carrying value of decommissioning provisions have
decreased due to increases in discount rate and minimal movement in inflation
assumptions since 31 March 2023. With the exception of the increase of £0.1m
(March 2023: decrease £48.1m) to the provision relating to Gas Production
activities, 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
The changes to the Group's segments in the period are explained at note 2(v)
and includes the realignment of the activities of the Distributed Energy (now
SSE Enterprise) business. Comparative information has been re-presented to
reflect the change to these segments. The Group's 'Corporate unallocated'
segment is the Group's residual corporate central costs which cannot be
allocated to individual segments and includes the contribution from the
Group's Neos Networks joint venture.
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. On 25
November 2022 the Group sold a 25.0% non-controlling interest in this business
to the Ontario Teachers' Pension Plan.
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
and the development of wind, solar and battery opportunities. During the
period, Renewables has taken responsibility for the development, delivery and
operation for battery storage and solar assets in Great Britain from SSE
Enterprise, aligning that activity with its international operations.
Thermal SSE Thermal The generation of electricity from thermal plants including CCGTs and the
Group's interests in multifuel assets in the UK and Ireland.
Gas Storage The operation of gas storage facilities in Great Britain, utilising capacity
to optimise trading opportunities associated with the assets.
Energy Customer Solutions GB Business Energy The supply of electricity and gas to business customers in Great Britain and
smart buildings (BEMS) activity.
SSE Airtricity The supply of electricity, gas and energy related services to residential and
business customers in the Republic of Ireland and Northern Ireland.
SSE Enterprise SSE Enterprise The provision of low carbon energy solutions to customers; behind-the-meter
solar and battery solutions, EV charging activities, private electric
networks and heat and cooling networks. As noted above, during the period, the
front of the meter battery storage and solar assets activity in Great Britain
was transferred to SSE Renewables and smart buildings (BEMS) activity was
transferred to GB Business Energy.
SSE Energy Markets SSE Energy Markets 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.
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,
share of profits attributable to non-controlling interests, the net interest
costs/income 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, capital expenditure 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. Details of revenue recognition policies are
included in the Group's consolidated financial statements for the year to 31
March 2023.
5. (a) Revenue by segment
Six months ended 30 September 2023 Six months ended 30 September 2022
(restated*)
Reported revenue Inter-segment revenue Segment revenue Reported revenue Inter-segment revenue Segment revenue
2023 2023 2023 2022 2022 2022
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 441.1 - 441.1 325.4 - 325.4
SSEN Distribution 468.2 24.4 492.6 522.5 28.2 550.7
SSE Renewables 140.6 185.0 325.6 151.2 29.8 181.0
SSE Thermal 279.0 1,530.7 1,809.7 249.9 1,592.0 1,841.9
Gas Storage 4.6 1,302.3 1,306.9 5.2 1,760.0 1,765.2
Energy Customer Solutions
GB Business Energy 1,544.5 21.0 1,565.5 1,487.9 32.4 1,520.3
SSE Airtricity 949.6 75.1 1,024.7 753.3 101.2 854.5
SSE Enterprise 38.3 10.1 48.4 38.0 8.9 46.9
SSE Energy Markets:
Gross trading 6,812.4 4,010.0 10,822.4 9,697.0 5,213.4 14,910.4
Optimisation trades(i) (5,916.2) (1,327.2) (7,243.4) (7,632.0) (1,028.0) (8,660.0)
Energy Markets 896.2 2,682.8 3,579.0 2,065.0 4,185.4 6,250.4
Corporate unallocated 28.4 119.0 147.4 31.0 74.1 105.1
Total SSE Group 4,790.5 5,950.4 10,740.9 5,629.4 7,812.0 13,441.4
Year ended 31 March 2023
(restated*)
Reported revenue Inter-segment revenue Segment revenue
2023 2023 2023
£m £m £m
Continuing operations
SSEN Transmission 656.1 - 656.1
SSEN Distribution 1,102.7 81.0 1,183.7
SSE Renewables 334.8 602.7 937.5
SSE Thermal 740.4 3,863.8 4,604.2
Gas Storage 12.2 5,147.5 5,159.7
Energy Customer Solutions
GB Business Energy 3,359.5 59.4 3,418.9
SSE Airtricity 1,776.9 233.1 2,010.0
SSE Enterprise 93.1 20.1 113.2
SSE Energy Markets:
Gross trading 24,700.6 11,972.4 36,673.0
Optimisation trades(i) (20,351.8) (937.3) (21,289.1)
SSE Energy Markets 4,348.8 11,035.1 15,383.9
Corporate unallocated 66.2 232.1 298.3
Total SSE Group 12,490.7 21,274.8 33,765.5
*The comparative has been restated. See note 2(v).
(i) The Group continues to provide optimisation volume disclosures
to disclose the volume of trading in the period by its SSE Energy Markets
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 2023
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 429.8 - - 9.3 - - 2.0 441.1 - 441.1
SSEN Distribution 445.1 - - 6.5 - - 7.4 459.0 9.2 468.2
SSE Renewables - 25.1 - 49.6 63.7 - 2.2 140.6 - 140.6
SSE Thermal - 264.5 - - - - 14.5 279.0 - 279.0
Gas Storage - - - - - 4.6 - 4.6 - 4.6
Energy Customer Solutions
GB Business Energy - 1,523.5 - - - - 21.0 1,544.5 - 1,544.5
SSE Airtricity - 937.8 - - - - 11.8 949.6 - 949.6
SSE Enterprise 8.6 14.3 6.3 1.9 - - 1.7 32.8 5.5 38.3
SSE Energy Markets - - - - 757.1 - 139.1 896.2 - 896.2
Corporate unallocated - - - - - - 28.4 28.4 - 28.4
Total SSE Group 883.5 2,765.2 6.3 67.3 820.8 4.6 228.1 4,775.8 14.7 4,790.5
5. Segmental information (continued)
5. (a) Revenue by segment (continued)
Disaggregation of revenue (continued)
Six months ended 30 September 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 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
GB Business Energy - 1,465.0 - - - - 22.9 1,487.9 - 1,487.9
SSE Airtricity - 741.7 - 11.6 - - - 753.3 - 753.3
SSE Enterprise 7.9 13.4 11.4 2.4 - - - 35.1 2.9 38.0
SSE Energy Markets - - - - 1,879.5 - 185.5 2,065.0 - 2,065.0
Corporate unallocated - - - - - - 31.0 31.0 - 31.0
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
*The comparative has been restated. See note 2(v).
5. Segmental information (continued)
5. (a) Revenue by segment (continued)
Disaggregation of revenue (continued)
Year ended 31 March 2023 (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 634.0 - - 20.4 - - 1.7 656.1 - 656.1
SSEN Distribution 1,054.0 - - 12.3 - - 17.9 1,084.2 18.5 1,102.7
SSE Renewables - 49.7 - 87.5 184.3 - 13.3 334.8 - 334.8
SSE Thermal - 736.9 - - - - 3.5 740.4 - 740.4
Gas Storage - - - - - 12.2 - 12.2 - 12.2
Energy Customer Solutions
GB Business Energy - 3,313.5 - - - - 46.0 3,359.5 - 3,359.5
SSE Airtricity - 1,756.7 - - - - 20.2 1,776.9 - 1,776.9
SSE Enterprise 16.4 29.5 14.4 - - - 27.0 87.3 5.8 93.1
SSE Energy Markets - - - - 4,158.7 - 190.1 4,348.8 - 4,348.8
Corporate unallocated - - - - - - 66.2 66.2 - 66.2
Total SSE Group 1,704.4 5,886.3 14.4 120.2 4,343.0 12.2 385.9 12,466.4 24.3 12,490.7
*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 2023
Adjusted operating profit reported to the Board Depreciation on fair value uplifts Joint Venture/ Associate share of interest and tax Non-controlling interests 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 £m
Continuing operations
SSEN Transmission 215.6 - - - 71.7 287.3 - 287.3
SSEN Distribution 120.1 - - - - 120.1 - 120.1
SSE Renewables 86.8 (9.4) (49.1) - (0.5) 27.8 (51.5) (23.7)
SSE Thermal 312.9 - (1.6) - - 311.3 (76.7) 234.6
Gas Storage (86.7) - - - - (86.7) (4.6) (91.3)
Energy Customer Solutions
GB Business Energy 88.0 - - - - 88.0 - 88.0
SSE Airtricity 5.8 - (0.5) - - 5.3 - 5.3
SSE Enterprise (8.4) - - - - (8.4) - (8.4)
SSE Energy Markets 9.0 - - - - 9.0 79.9 88.9
Corporate
Corporate (35.2) - - 3.5 - (31.7) (50.5) (82.2)
unallocated
Neos (14.7) - (1.6) - - (16.3) - (16.3)
Total SSE Group 693.2 (9.4) (52.8) 3.5 71.2 705.7 (103.4) 602.3
The adjusted operating profit of the Group is reported after removal of the
Group's share of interest, fair value movements on operating derivatives, the
depreciation charge on fair value uplifts and tax from joint ventures and
associates, Gas Production decommissioning costs, operating profit from
non-controlling interests and after adjusting for exceptional items and
certain re-measurements (note 6).
5. Segmental information (continued)
5. (b) Operating profit/(loss) by segment (continued)
Six months ended 30 September 2022 (restated*)
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 15.0 (9.4) (42.4) - (36.8) - (36.8)
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
GB Business Energy 59.4 - - - 59.4 - 59.4
SSE Airtricity 14.9 - (0.1) - 14.8 - 14.8
SSE Enterprise 0.6 - - - 0.6 - 0.6
SSE Energy Markets 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 SSE Group 716.0 (9.4) (52.5) 54.5 708.6 (1,343.7) (635.1)
*The comparative has been restated. See note 2(v).
5. Segmental information (continued)
5. (b) Operating profit/(loss) by segment (continued)
Year ended 31 March 2023 (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 Non-controlling interests Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total
£m £m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 372.7 - - - 32.8 405.5 - 405.5
SSEN Distribution 382.4 - - - - 382.4 - 382.4
SSE Renewables 561.8 (18.8) (103.0) - (1.9) 438.1 (10.0) 428.1
SSE Thermal 1,031.9 (10.0) (60.4) - - 961.5 128.0 1,089.5
Gas Storage 212.5 - - - - 212.5 36.7 249.2
Energy Customer Solutions
GB Business Energy 15.7 - - - - 15.7 - 15.7
SSE Airtricity 5.6 - (0.4) - - 5.2 - 5.2
SSE Enterprise (7.0) - - - - (7.0) (6.1) (13.1)
SSE Energy Markets 80.4 - - - - 80.4 (2,706.4) (2,626.0)
Corporate
Corporate unallocated (87.0) - - 50.5 - (36.5) 9.7 (26.8)
Neos (39.8) - (10.3) - - (50.1) (5.9) (56.0)
Total SSE Group 2,529.2 (28.8) (174.1) 50.5 30.9 2,407.7 (2,554.0) (146.3)
*The comparative has been restated. See note 2(v).
5. Segmental information (continued)
5. (c) Capital expenditure by segment
(restated*) (restated*)
Capital additions to intangible assets Capital additions to property, plant and equipment Capital additions to intangible assets Capital additions to property, plant and equipment Capital additions to intangible assets Capital additions to property, plant and equipment
30 September 2023 30 September 2023 30 September 2022 30 September 2022 31 March 31 March
£m £m £m £m 2023 2023
£m £m
Continuing operations
SSEN Transmission - 324.8 - 270.9 7.2 536.6
SSEN Distribution 4.7 332.2 6.7 215.3 15.2 486.8
SSE Renewables 134.4 246.8 583.1 103.8 731.5 340.5
SSE Thermal 15.4 5.2 10.5 20.8 20.8 44.5
Gas Storage - 0.2 - 6.5 - 6.3
Energy Customer Solutions
GB Business Energy 27.8 - 22.2 0.2 38.9 0.4
SSE Airtricity 8.6 0.4 - 3.8 10.5 -
SSE Enterprise 11.1 4.7 4.2 14.5 16.2 37.0
SSE Energy Markets 166.7 - 124.7 - 809.9 -
Corporate unallocated 12.3 25.1 14.0 31.4 38.4 48.0
Total SSE Group 381.0 939.4 765.4 667.2 1,688.6 1,500.1
Increase in prepayments related to capital expenditure - 76.7 - 2.1 - 6.8
Decrease/(increase) in trade payables related to capital expenditure 10.9 (51.8) (34.7) 32.3 (31.8) 132.2
IFRS 15 adjustment - (91.4) - (54.0) - (80.9)
Lease asset additions - (24.9) - (27.4) - (78.5)
Less non-cash items:
Allowances and certificates (68.1) - (80.3) - (208.4) -
Assets acquired through acquisitions - - (488.7) - (515.2) -
Net cash outflow 323.8 848.0 161.7 620.2 933.2 1,479.7
*The comparative has been restated. See note 2(v).
Capital additions do not include assets acquired in acquisitions or assets
acquired under leases. Capital additions to intangible assets includes the
cash purchase of emissions allowances and certificates £95.2m (2022: £42.0m;
March 2023: £596.8m). These purchases are presented in the cash flow
statement within operating activities since they relate to the obligation to
surrender the allowances and certificates in line with operating volumes of
emissions. Other non-cash additions comprise self-generated renewable
obligation certificates.
No segmental analysis of assets is required to be disclosed as this
information is not presented to the Board.
5. Segmental information (continued)
5. (c) Capital expenditure by segment (continued)
Six months ended 30 September 2023
Capital additions to intangible assets Capital additions to property, plant and equipment Capital Investment relating to Joint Ventures and Associates (i) Allowances and certificates Customer funded additions Lease asset additions (iv) Share of non-controlling interests Adjusted
£m £m £m (ii) (iii) £m (v) Investment and Capital Expenditure
£m £m £m £m
Continuing operations
SSEN Transmission - 324.8 - - - (1.4) (80.8) 242.6
SSEN Distribution 4.7 332.2 - - (91.4) - - 245.5
SSE Renewables 134.4 246.8 67.4 - - (1.5) - 447.1
SSE Thermal 15.4 5.2 17.6 - - - - 38.2
Gas Storage - 0.2 - - - - - 0.2
Energy Customer Solutions
27.8 - - - - - - 27.8
Business
Energy
SSE Airtricity 8.6 0.4 - - - - - 9.0
SSE Enterprise 11.1 4.7 - - - (0.6) - 15.2
SSE Energy Markets 166.7 - - (163.3) - - - 3.4
Corporate unallocated 12.3 25.1 9.3 - - (21.4) - 25.3
Total SSE Group 381.0 939.4 94.3 (163.3) (91.4) (24.9) (80.8) 1,054.3
i) Represents equity or debt funding provided to
joint ventures or associates in relation to capital expenditure projects.
ii) 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 alternative performance measure.
iii) Represents removal of additions to electricity
and other networks funded by customer contributions.
iv) Represents removal of additions in respect of right
of use assets recognised on the commencement date of a lease arrangement.
v) Represents the share of capital additions
attributable to non-controlling interests.
5. Segmental information (continued)
5. (c) Capital expenditure by segment (continued)
Six months ended 30 September 2022 (restated*)
Capital additions to intangible assets Capital additions to property, plant and equipment Capital Investment relating to Joint Ventures and Associates (i) Allowances and certificates Customer funded additions Acquired through business combinations Lease asset additions (v) Adjusted
£m £m £m (ii) (iii) (iv) £m Investment and Capital Expenditure
£m £m £m £m
Continuing operations
SSEN Transmission - 270.9 - - - - - 270.9
SSEN Distribution 6.7 215.3 - - (46.1) - (0.1) 175.8
SSE Renewables 583.1 103.8 284.0 - - (488.7) (4.4) 477.8
SSE Thermal 10.5 20.8 57.9 - - - - 89.2
Gas Storage - 6.5 - - - - - 6.5
Energy Customer Solutions
22.2 0.2 - - - - - 22.4
Business
Energy
SSE Airtricity - 3.8 - - - - - 3.8
SSE Enterprise 4.2 14.5 - - (7.9) - (0.3) 10.5
SSE Energy Markets 124.7 - - (122.4) - - - 2.3
Corporate unallocated 14.0 31.4 21.2 - - - (22.6) 44.0
Total SSE Group 765.4 667.2 363.1 (122.4) (54.0) (488.7) (27.4) 1,103.2
*The comparatives have been restated. See note 2(v).
i) Represents equity or debt funding provided to joint ventures or
associates in relation to capital expenditure projects.
ii) 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 alternative performance measure.
iii) Represents removal of additions to electricity and other networks
funded by customer contributions.
iv) Represents removal of additions achieved through business
combinations; for Renewables additions of £488.7m refer to note 11. Note that
the Group's Adjusted Investment, Capital and Acquisitions metric includes the
£640.m cash consideration paid for Business Combinations and totals
£1,743.2m.
v) Represents removal of additions in respect of right of use assets
recognised on the commencement date of a lease arrangement.
5. Segmental information (continued)
5. (c) Capital expenditure by segment (continued)
Year ended 31 March 2023 (restated*)
Capital additions to intangible assets Capital additions to property, plant and equipment Capital Investment relating to Joint Ventures and Associates (i) Allowances and certificates Customer funded additions Acquired through business combinations Lease asset additions (v) Share of non-controlling interests Adjusted
£m £m £m (ii) (iii) (iv) £m (vi) Investment and Capital Expenditure
£m £m £m £m £m
Continuing operations
SSEN Transmission 7.2 536.6 - - - - (1.6) (46.7) 495.5
SSEN Distribution 15.2 486.8 - - (80.9) - (0.1) - 421.0
SSE Renewables 731.5 340.5 391.8 - - (515.2) (37.1) - 911.5
SSE Thermal 20.8 44.5 87.9 - - - - - 153.2
Gas Storage - 6.3 - - - - - - 6.3
Energy Customer Solutions
38.9 0.4 - - - - - - 39.3
Business
Energy
SSE Airtricity 10.5 - - - - - - - 10.5
SSE Enterprise 16.2 37.0 - - - - (2.9) - 50.3
SSE Energy Markets 809.9 - - (805.2) - - - - 4.7
Corporate unallocated 38.4 48.0 18.7 - - - (36.8) - 68.3
Total SSE Group 1,688.6 1,500.1 498.4 (805.2) (80.9) (515.2) (78.5) (46.7) 2,160.6
*The comparative has been restated. See note 2(v).
i) Represents equity or debt funding provided to joint ventures or
associates in relation to capital expenditure projects.
ii) 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 alternative performance measure.
iii) Represents removal of additions to electricity and other networks
funded by customer contributions.
iv) Represents removal of additions achieved through business
combinations; for Renewables additions of £515.2m refer to note 11. Note that
the Group's Adjusted Investment, Capital and Acquisitions metric includes the
£642.7m cash consideration paid for Business Combinations and totals
£2,803.3m.
v) Represents removal of additions in respect of right of use assets
recognised on the commencement date of a lease arrangement.
vi) Represents the share of capital additions attributable to
non-controlling interests.
5. Segmental information (continued)
5. (d) Earnings/(losses) before interest, taxation, depreciation and
amortisation ('Adjusted EBITDA')
30 September 2023
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 Share of non-controlling interest depreciation and amortisation Adjusted EBITDA
£m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 215.6 - 63.0 - (1.0) (15.7) 261.9
SSEN Distribution 120.1 - 94.0 - (4.9) - 209.2
SSE Renewables 86.8 (9.4) 81.7 59.5 - - 218.6
SSE Thermal 312.9 - 50.7 21.4 - - 385.0
Gas Storage (86.7) - 6.2 - - - (80.5)
Energy Customer Solutions
GB Business Energy 88.0 - 3.3 - - - 91.3
SSE Airtricity 5.8 - 4.1 - - - 9.9
SSE Enterprise (8.4) - 3.2 - (0.2) - (5.4)
SSE Energy Markets 9.0 - 2.6 - - - 11.6
Corporate
Corporate unallocated (35.2) - 34.8 - (0.3) - (0.7)
Neos (14.7) - - 23.4 - - 8.7
Total SSE Group 693.2 (9.4) 343.6 104.3 (6.4) (15.7) 1,109.6
5. Segmental information (continued)
5. (d) Earnings/(losses) before interest, taxation, depreciation and
amortisation ('Adjusted EBITDA') (continued)
30 September 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 208.4 - 55.9 - (1.5) 262.8
SSEN Distribution 174.6 - 89.6 - (5.5) 258.7
SSE Renewables 15.0 (9.4) 82.1 42.3 - 130.0
SSE Thermal 100.4 - 49.5 10.5 - 160.4
Gas Storage 147.8 - 5.6 - - 153.4
Energy Customer Solutions
GB Business Energy 59.4 - 2.1 - - 61.5
SSE Airtricity 14.9 - 3.6 - - 18.5
SSE Enterprise 0.6 - 2.5 - (0.2) 2.9
SSE Energy Markets 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 SSE Group 716.0 (9.4) 334.3 76.1 (7.7) 1,109.3
31 March 2023 (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 Share of non-controlling interest depreciation and amortisation Adjusted EBITDA
£m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 372.7 - 114.1 - (2.1) (9.7) 475.0
SSEN Distribution 382.4 - 182.2 - (10.6) - 554.0
SSE Renewables 561.8 (18.8) 179.8 92.8 (0.1) - 815.5
SSE Thermal 1,031.9 (10.0) 114.5 60.8 - - 1,197.2
Gas Storage 212.5 - 16.5 - - - 229.0
Energy Customer Solutions
GB Business Energy 15.7 - 4.7 - - - 20.4
SSE Airtricity 5.6 - 6.9 - - - 12.5
SSE Enterprise (7.0) - 6.8 - (0.2) - (0.4)
SSE Energy Markets 80.4 - 6.0 - - - 86.4
Corporate
Corporate unallocated (87.0) - 72.7 - (0.9) - (15.2)
Neos (39.8) - - 47.5 - - 7.7
Total SSE Group 2,529.2 (28.8) 704.2 201.1 (13.9) (9.7) 3,382.1
*The comparative has been restated. See note 2(v).
6. Exceptional items and certain re-measurements
Six months ended 30 September 2023 Six months ended 30 September 2022
Year ended 31 March £m £m
2023
£m
Continuing operations
Exceptional items (note 6.1)
(233.6) Asset impairments and related (charges) and credits (63.2) 218.9
- Other exceptional provisions and charges (50.5) -
233.2 Net gains on acquisitions/disposals of businesses and other assets 0.2 229.8
(0.4) Total exceptional items (113.5) 448.7
Certain re-measurements (note 6.2)
(2,708.2) Movement on operating derivatives 1.2 (1,988.3)
(9.0) Movement in fair value of commodity stocks (4.6) 195.9
201.9 Movement on financing derivatives 41.0 243.7
163.8 Share of movement on derivatives in jointly controlled entities (net of tax) 13.7 -
(2,351.5) Total certain re-measurements 51.3 (1,548.7)
(2,351.9) Exceptional items and certain re-measurements on continuing operations before (62.2) (1,100.0)
taxation
Taxation
(34.1) Taxation on other exceptional items 3.2 (63.5)
499.6 Taxation on certain re-measurements (8.0) 275.4
465.5 Taxation (4.8) 211.9
(1,886.4) Total exceptional items and certain re-measurements on continuing operations (67.0) (888.1)
after taxation
Discontinued operations
Exceptional items (note 6.1)
35.0 Gas Production asset impairments and related credits - 35.0
35.0 Total exceptional items on discontinued operations after taxation - 35.0
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 2023 Six months ended 30 September 2022
Year ended 31 March £m £m
2023
£m
Continuing operations
Cost of sales:
(2,708.2) Movement on operating derivatives (note 15) 1.2 (1,988.3)
(9.0) Movement in fair value of commodity stocks (4.6) 195.9
(2,717.2) (3.4) (1,792.4)
Operating costs:
(233.6) Asset impairments and reversals (63.2) 218.9
3.2 Other exceptional provisions and charges (50.5) -
(230.4) (113.7) 218.9
Operating income:
89.1 Net gains on disposals of businesses and other assets - 89.1
89.1 - 89.1
Joint ventures and associates:
140.7 Net gains on acquisition of a joint venture - 140.7
163.8 Share of movement on derivatives in jointly controlled entities (net of 13.7 -
tax)
304.5 13.7 140.7
(2,554.0) Operating loss: (103.4) (1,343.7)
Finance costs
201.9 Movement on financing derivatives (note 15) 41.0 243.7
0.2 Interest income on deferred consideration receipt 0.2 -
202.1 41.2 243.7
(2,351.9) Loss before taxation on continuing operations (62.2) (1,100.0)
Discontinued operations
35.0 Gas Production asset impairments and related credits - 35.0
35.0 Profit before tax on discontinued operations - 35.0
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 2023
i) Thermal Generation - impairment
At 30 September 2023, observable prices for power and gas have decreased
significantly from prices used in the last formal impairment assessment at 31
March 2023. This is considered an indicator of impairment necessitating
consideration in relation to balances associated with GB CCGTs, Great Island
CCGT and the investment in Triton Power Holdings Limited. Following
assessment, it was confirmed that a formal valuation review of the investment
in Triton Power Holdings Limited and the Group's Great Island CCGT power
station was required. The result of this review has been a recognition of an
exceptional impairment of £63.2m against the carrying value of the Group's
investment in Triton Power Holdings Limited and no change to the carrying
value of Great Island CCGT.
The results of this review in relation to Triton Power Holdings Limited were
as follows:
Assets Cash flow period assumption Operating and other valuation assumptions Commentary and impairment conclusions
Investment in Triton Power Holdings Limited Period to end of life Modelling methodology and assumptions Conclusion
The Group has valued its 50% joint venture investment Triton Power Holdings The Group has assessed the investment for indicators of impairment. At 30
Limited ('Triton') based on projected cashflows that will be derived from the September 2023 an exceptional impairment of £63.2m has been recognised
investment on a value in use ("VIU") basis. against the carrying value of the Group's investment within operating costs.
The VIU assessment of the Triton power stations (Saltend, Indian Queens and Following the impairment, the Group's carrying value of equity investment is
Deeside) were based on pre-tax discounted cash flows expected to be generated £151.6m.
by each plant, based on management's view of operating prospects and
operational flexibility within the GB wholesale market, including capacity
market clearing prices. Cash flows are subject to a pre-tax real discount rate
of 13.2% (blended). Sensitivity analysis
A 1% decrease in the discount rate would decrease the impairment recognised at
30 September 2023 from £63.2m to £54.4m. A 1% increase in the discount rate
would increase the impairment recognised from £63.2m to £71.2m.
A 20% increase in gross margin would result in reduce the impairment charge to
£47.5m, and a 20% decrease in gross margin would increase the impairment to
£79.0m.
A £10/KW increase in non-contracted capacity market price would decrease the
impairment charge to £44.7m and a £10/KW decrease would increase the
impairment charge to £81.9m.
ii) Other exceptional provisions and charges
On adoption of IFRS 17 on 1 April 2022, an opening balance liability of £5.1m
was recognised in relation to the Group's exposure to certain guarantee
contracts provided to disposed businesses and third parties. The increase in
the period of £50.5m represents the Group's estimation of the increasing
likelihood of settlement in relation to these contracts including settlement
of £12.3m and is considered to be exceptional as it relates to the original
transactions.
iii) Other credits
At 30 September 2023, the Group recognised a further exceptional credit of
£0.2m relating to the unwind of discounting on deferred consideration
recognised as an exceptional item on the part disposal of SSE Slough Multifuel
Limited in the year ended 31 March 2021.
Taxation
The Group has separately recognised the tax effect of the exceptional items
summarised above.
Exceptional items in the year ended 31 March 2023
i) Thermal Electricity Generation - impairment reversal
At 31 March 2023, the Group carried out a formal impairment review to reassess
the carrying value of its GB CCGT power stations and the Group's Great Island
CCGT plant in Ireland. As a result of the review, the Group recognised an
exceptional impairment reversal of £17.8m to the carrying value of the
Group's Great Island CCGT plant.
ii) Gas Storage - impairment reversal
At 30 September 2022, the Group recognised an impairment reversal of £201.1m
reflecting future market price assumptions at that time. The Group performed a
formal impairment review at 31 March 2023 to reassess the carrying value of
its Gas Storage operations at Atwick and Aldbrough. As a result of the
assessment, the Group recognised an exceptional impairment of £155.4m to the
carrying value of the assets at Aldborough, resulting in a net impairment
reversal of £45.7m. The impairment previously recognised in relation to
Atwick was fully reversed in the year ended 31 March 2022, and no impairment
was required for the financial year ended 31 March 2023.
iii) 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 recognised
an exceptional gain of £89.1m on disposal.
6. Exceptional items and certain re-measurements (continued)
iv) Triton Power 50% joint venture - acquisition and impairment
On 1 September 2022, the Group acquired 50% of the share capital of Triton
Power Holdings Limited from Energy Capital Partners for headline consideration
of £341.0m, shared equally with co-venturers Equinor (see note 11). The
purchase price was agreed based on prices prevalent in the market during the
summer, prior to completion of the transaction on 1 September 2022. The Group
assessed that, due to movements in near term market observable power prices
between the transaction agreement date and the completion date, the fair value
of the acquisition was £140.7m greater than the acquisition price. This
bargain purchase was recognised as an exceptional gain in the Group's half
year results to 30 September 2022. During the second half of the year ended 31
March 2023, the Group realised a significant proportion of the acquired fair
value of the business through trading operations of the joint venture. As a
result, the future recoverable value of the investment was lower at 31 March
2023 than at 1 September 2022 and the Group therefore recognised an impairment
charge at 31 March 2023 of £291.6m. A summary of exceptional items recognised
in relation to Triton in the financial year to 31 March 2023 is set out below:
Financial statement line item charge/(credit) is included within Exceptional items and certain re-measurements
£m
Recognition of bargain purchase Joint venture and associates share of profit (140.7)
Impairment of investment Operating costs 291.6
Total exceptional items 150.9
Mark-to-market movement on operating derivatives Joint venture and associates share of movement on derivatives (213.9)
Share of tax on mark-to-market movement on operating derivatives Joint venture and associates share of tax 41.9
Total certain remeasurements (172.0)
Total exceptional items and certain re-measurements (21.1)
v) Neos Networks - investment impairment and adjustments to consideration
At 31 March 2023, the Group assessed that the recoverable amount of its
investment in Neos Networks was impaired by £37.7m, of which £5.9m was
treated as exceptional. Under the Group's policy, an impairment charge of less
than £40.0m is not considered to be an exceptional item. However, £5.9m of
the impairment related to the fair value gain previously recognised on
acquisition of the joint venture investment in March 2019, which was
previously treated as an exceptional item. Therefore, for consistent
presentation, this reversal was recognised separately. The balance of the
impairment charge, being £31.8m, was recognised as part of adjusted operating
profit.
vi) Other credits
At 31 March 2023, the Group recognised further exceptional credits of £3.8m
relating to reversal of previously recognised exceptional charges or
judgements. These included i) reassessment of separation cost provisions
associated primarily with the disposals of SSE Energy Services and SGN (credit
of £9.7m) ii) credit of £0.2m in relation to 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) reassessment of impairments
associated with Heat Networks assets credit of £0.4m, partially offset by iv)
£6.5m charge recognised in relation to provisions in connection with the sale
of the Contracting and Rail business in June 2021.
Exceptional items within discontinued operations in the year ended 31 March
2023
vii) 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 released the £35.0m provision relating to the indemnity
as an adjustment to the loss on disposal recognised. The adjustment was
recognised in discontinued operations in the year ended 31 March 2023.
6.1. Certain re-measurements
The Group, through its SSE Energy Markets business, enters into forward
commodity purchase (and sales) contracts to meet the future demand
requirements of its GB Business Energy and SSE Airtricity supply businesses,
to optimise the value of its SSE Renewables and SSE Thermal power generation
assets or to conduct other trading subject to the value at risk limits set out
by the Energy Markets Risk Committee. 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. 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 with changes in value
recognised within 'certain re-measurements'. In addition, the mark-to-market
valuation movements on the Group's contracts for difference contracts entered
into by SSE Renewables that are not designated as government grants and which
are measured as Level 3 fair value financial instruments are also included
within 'certain re-measurements'.
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 2023, changes in global commodities markets and in SSE's
contractual positions have resulted in an adverse net mark-to-market
remeasurement on commodity contracts designated as financial instruments,
contracts for difference contracts and trading inventory of £3.4m (loss)
(2022: £1,792.4m (loss), March 2023: £2,717.2m (loss)). It should be noted
that the net IFRS 9 position on operating derivatives at 30 September 2023 is
a liability of £400.1m (March 2023: £386.9m liability).
6. Exceptional items and certain re-measurements (continued)
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 improve the total fair value remeasurement and
would offset the closing liability value moving it to an asset balance. These
predominately relate to financial hedges entered into on behalf of the SSE
Renewables and SSE Thermal businesses for future sales which were primarily
entered into before the significant decrease in market prices observed in
Summer 2023. The majority of the fair value associated with IFRS 9 'in the
money' mark-to-market contracts recorded at 30 September 2023 and unvalued
'own use' designated commodity contracts held at the same date are expected to
reverse in the second half of the financial year as the relevant commodity is
delivered. The remaining settlement of these contracts will predominately be
within the subsequent 12 to 24 months. The mark-to-market gain in the period
has resulted in a deferred tax charge of £8.0m (2022: £275.4m credit, March
2023: £499.6m credit), which has been reported separately as part of certain
re-measurements. In addition, the Group has recognised gains of £41.0m (2022:
£243.7m gains, March 2023: £201.9m gains) 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 £41.3m (2022: £147.9m, March 2023: £43.3m) in other comprehensive income
and gains on the equity share of the remeasurement of cash flow hedge
accounted contracts in joint ventures of £84.4m (2022: £508.2m, March 2023:
£342.4m).
The re-measurements arising from IFRS 9 and the associated deferred tax are
disclosed separately to aid understanding of the underlying performance of the
Group.
7. Finance income and costs
Year ended 31 March Six months ended 30 September 2023 Six months ended 30 September 2022
2023
£m £m £m
Finance income:
17.5 Interest income from short term deposits 32.4 7.9
16.2 Interest on pension scheme assets 12.8 7.9
- Foreign exchange translation of monetary assets and liabilities - 0.1
Other interest receivable:
67.6 Joint ventures and associates 34.4 30.5
34.2 Other receivable 24.2 11.8
101.8 58.6 42.3
135.5 Total finance income 103.8 58.2
Finance costs:
(50.1) Bank loans and overdrafts (37.1) (14.9)
(339.1) Other loans and charges (144.0) (161.6)
(22.1) Notional interest arising on discounted provisions (11.0) (7.1)
(29.4) Lease charges (11.7) (14.1)
44.0 Less: interest capitalised 30.0 19.9
(396.7) Total finance costs (173.8) (177.8)
201.9 Changes in fair value of financing derivative assets or liabilities at fair 41.0
value through profit or loss
243.7
(59.3) Net finance costs (29.0) 124.1
Presented as:
337.4 Finance income 144.8 301.9
(396.7) Finance costs (173.8) (177.8)
(59.3) Net finance costs (29.0) 124.1
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
2023
2023
2022
£m £m £m
(59.3) Net finance income/(costs) (29.0) 124.1
(add)/less:
(70.1) Share of interest from joint ventures and associates (47.8) (29.1)
(16.2) Interest on pension scheme assets (12.8) (7.9)
(201.9) Movement on financing derivatives (note 15) (41.0) (243.7)
(0.2) Exceptional item (0.2) -
2.1 Share of net finance cost attributable to non-controlling interests 2.8 -
(345.6) Adjusted net finance costs (128.0) (156.6)
22.1 Notional interest arising on discounted provisions 11.0 7.1
29.4 Lease charges 11.7 14.1
(38.8) Hybrid coupon payment (73.1) (38.8)
(332.9) Adjusted net finance costs for interest cover calculations (178.4) (174.2)
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 2024,
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 21.3% (2022: 15.2%, March 2023:
16.6%). The reported tax rate on the profit before tax after exceptional items
and certain remeasurements is 24.4% (2022: 24.0%, March 2023: 53.5%).
The charge recognised in the income statement is as follows:
Six months ended 30 September 2023 Six months ended 30 September 2022
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 97.3 (22.8) 74.5 51.4 (4.7) 46.7
Adjustments in respect of previous years (15.0) - (15.0) - - -
Total current tax 82.3 (22.8) 59.5 51.4 (4.7) 46.7
Deferred tax
Current year 52.9 27.6 80.5 38.1 (207.2) (169.1)
Total deferred tax 52.9 27.6 80.5 38.1 (207.2) (169.1)
Total taxation charge/(credit) 135.2 4.8 140.0 89.5 (211.9) (122.4)
Year ended 31 March 2023
Before exceptional items and remeasurements Exceptional items and remeasurements Total
£m £m £m
Current tax
UK corporation tax 292.3 (20.9) 271.4
Adjustments in respect of previous years (22.0) 5.3 (16.7)
Total current tax 270.3 (15.6) 254.7
Deferred tax
Current year 72.9 (444.6) (371.7)
Adjustments in respect of previous years 12.3 (5.3) 7.0
Total deferred tax 85.2 (449.9) (364.7)
Total taxation charge/(credit) 355.5 (465.5) (110.0)
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 2023
30 September 2022
31 March 2023
£m % £m % £m %
Continuing operations
(110.0) 12.7 Group tax charge/(credit) and effective rate 140.0 24.7 (122.4) 24.0
364.7 (42.0) Add: reported deferred tax (charge)/credit and effective rate (80.5) (14.2) 169.1 (33.1)
254.7 (29.3) Reported current tax charge and effective rate 59.5 10.5 46.7 (9.1)
41.0 Effect of adjusting items - 17.5
254.7 11.7 Reported current tax charge and effective rate on adjusted basis 59.5 10.5 46.7 8.4
add:
89.6 4.1 Share of current tax from joint ventures and associates 10.5 1.9 18.9 3.4
less:
15.6 0.7 Current tax charge on exceptional items 22.8 4.0 4.7 0.8
(1.1) (0.1) Share of current tax attributable to non-controlling interests (4.4) (0.8) - -
358.8 16.4 Adjusted current tax charge and effective rate 88.4 15.6 70.3 12.6
The adjusted effective current tax rate for the period after adjusting for
discrete events arising in the first half of the year is 15.6% (2022: 12.6%).
The forecast full-year effective current tax rate is expected to be 17.7%.
Change in UK corporation tax rates
There are no announced or enacted changes in corporation tax rates in the
interim period.
Finance Bill 2023 introduced legislation, effective from 1 April 2023 to 31
March 2026, to allow 'Full Expensing' of 100% General Pool plant and
machinery, alongside 50% for Special Rate Pool plant and machinery. The Group
expects these changes to significantly increase the deductions for Capital
Allowances in the financial years ending 31 March 2024 to 31 March 2026.
8. Taxation (continued)
Finance Act (No.2) 2023 also introduced legislation in respect of
Multinational Top-up Tax in line with OECD BEPS pillar 2 principles. The Group
has applied the exemption from recognising and disclosing information about
deferred tax assets and liabilities related to Pillar Two income taxes as
required by the amendments to IAS 12 - International Tax Reform-Pillar Two
Model Rules, which issued in May 2023.The legislation will come into force for
the year ended 31 March 2025. Similar draft legislation has been introduced in
the Republic of Ireland and other EU jurisdictions. The Group is assessing
the impact of the changes but does not expect a material impact to arise.
The Finance Bill 2021 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. An estimate of the
super-deduction has been taken into account when calculating the effective tax
for the prior year.
The Group has separately recognised the tax effect of the exceptional items
and certain re-measurements summarised above.
9. Dividends
Ordinary dividends
Year ended 31 March 2023 Six months ended 30 September 2023 Six months ended 30 September 2022
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 2023 738.1 29.8 67.7 - - -
313.2 159.0 29.0 Interim - year ended 31 March 2023 - - - - - -
642.6 322.5 60.2 Final - year ended 31 March 2022 - - - 642.6 322.5 60.2
955.8 481.5 738.1 29.8 642.6 322.5
The final dividend of 67.7p per ordinary share declared in respect of the
financial year ended 31 March 2023 (2022: 60.2p) was approved at the Annual
General Meeting on 20 July 2023 and was paid to shareholders on 21 September
2023. 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 2023 was 18.0%, and SSE
has therefore not initiated a share buy-back in the current period. For the
financial year ended 31 March 2022 the overall scrip dividend take-up was
38.3% and therefore under the share buyback programme 6.9m of shares were
repurchased and cancelled during the year ended 31 March 2023 for total
consideration of £107.6m (including stamp duty and commission).
An interim dividend of 20.0p per ordinary share (2022: 29.0p) has been
proposed and is due to be paid on 8 March 2024 to those shareholders on the
SSE plc share register on 12 January 2024. The proposed interim dividend has
not been included as a liability in these financial statements. A scrip
dividend will be offered as an alternative.
10. Earnings/(losses) per share
Basic earnings/(losses) per share
The calculation of basic earnings/(losses) per ordinary share at 30 September
2023 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 2023.
Adjusted earnings per share
Adjusted earnings/(losses) per share has been calculated by excluding the
charge for deferred tax, interest on net pension assets under IAS 19, retained
Gas Production decommissioning costs, the depreciation charged on fair value
uplifts, the share of profit attributable to non-controlling interests and the
impact of exceptional items and certain re-measurements.
Continuing operations
Year ended Six months ended Six months ended
30 September 2023
30 September 2022
31 March 2023
Earnings/(losses) Earnings/(losses) per share Earnings Earnings per share Earnings/ (losses) Earnings/(losses) per share
£m pence £m pence £m pence
(123.0) (11.4) Earnings/(losses) attributable to ordinary shareholders 309.0 28.3 (392.4) (36.4)
(35.0) (3.3) Less: (Earnings)/losses attributable to discontinued operations - - (35.0) (3.3)
(158.0) (14.7) Basic earnings on continuing operations used to calculate adjusted EPS 309.0 28.3 (427.4) (39.7)
1,886.4 175.4 Exceptional items and certain re-measurements (note 6) 67.0 6.1 888.1 82.4
1,728.4 160.7 Basic excluding exceptional items and certain re- measurements 376.0 34.4 460.7 42.7
Adjusted for:
(50.5) (4.7) Gas Production decommissioning adjustments (3.5) (0.3) (54.5) (5.1)
28.8 2.7 Depreciation charge on fair value uplifts 9.4 0.9 9.4 0.9
(16.2) (1.5) Interest on net pension scheme assets (note 7) (12.8) (1.2) (7.9) (0.7)
85.2 7.9 Deferred tax 52.9 4.9 38.1 3.6
14.4 1.3 Deferred tax from share of joint ventures and associates (12.8) (1.2) 4.5 0.4
(4.1) (0.4) Deferred tax on non-controlling interest (5.5) (0.5) - -
1,786.0 166.0 Adjusted 403.7 37.0 450.3 41.8
10. Earnings/(losses) per share (continued)
Year ended Six months ended Six months ended
31 March 2023 30 September 2023 30 September 2022
Losses Losses per share Earnings Earnings per share Losses Losses per share
£m pence £m pence £m pence
(158.0) (14.7) Basic 309.0 28.3 (427.4) (39.7)
- - Dilutive effect of outstanding share options - - - -
(158.0) (14.7) Diluted 309.0 28.3 (427.4) (39.7)
Reported earnings per share
Year ended Six months ended Six months ended
30 September 2023
30 September 2022
31 March 2023
(Losses)/earnings (Losses)/earnings per share Earnings Earnings per share (Losses)/earnings (Losses)/earnings per share
£m pence £m pence £m pence
Basic
(158.0) (14.7) Earnings/(losses) per share on continuing operations 309.0 28.3 (427.4) (39.7)
35.0 3.3 Earnings/(losses) per share on discontinued operations - - 35.0 3.3
(123.0) (11.4) Earnings/(losses) per share attributable to ordinary shareholders 309.0 28.3 (392.4) (36.4)
- - Dilutive effect of outstanding share options - - - -
(123.0) (11.4) Diluted 309.0 28.3 (392.4) (36.4)
The weighted average number of shares used in each calculation is as follows:
Year ended 31 March 2023 Six months ended 30 September 2023 Six months ended 30 September 2022
Number of shares Number of shares Number of shares
(millions) (millions) (millions)
1,075.6 For basic and adjusted earnings per share 1,090.4 1,077.2
1.7 Effect of exercise of share options 2.0 2.7
1,077.3 For diluted earnings per share 1,092.4 1,079.9
11. Acquisitions and disposals
Acquisitions and disposals in the current period
There have been no significant acquisitions and disposals in the current
period.
Prior year acquisitions and disposals
Acquisitions
European onshore renewables development platform: On 1 September 2022, the
Group completed the 100% acquisition of a European onshore renewable energy
development platform from Siemens Gamesa Renewable Energy ("SGRE") for cash
consideration of £519.5m. 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.
The intangible development assets acquired are late-stage windfarm development
costs. The goodwill recognised represents early-stage intangible development
costs that do not qualify for separate recognition as set out in the table
below.
Fair value at 1 September 2022
£m
Assets acquired and liabilities assumed
Intangible development assets 104.4
Inventories 3.0
Trade and other receivables 20.3
Cash 11.5
Trade and other payables (3.5)
Deferred tax liability (27.0)
Total net assets acquired 108.7
Goodwill 410.8
Cash consideration 519.5
Due to the acquisition date being close to the balance sheet date of 30
September 2022, SSE recognised purchase consideration £488.8m as an
intangible asset, as a provisional fair value and £28.0m as working capital.
11. Acquisitions and disposals (continued)
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 headline consideration
of £341.0m shared equally. The headline consideration included £96m of loans
which were settled on completion of the transaction and replaced with
shareholder loans of £48.0m each from SSE and Equinor. The Group's share of
the cash consideration paid for the equity investment was therefore £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. An exceptional gain on acquisition of £140.7m was
recognised at 30 September 2022 (see note 6) based on movements in the
underlying fair value of assets between agreeing and completing the
transaction. During the second half of the 2023 financial year a fair value
exercise and impairment review were completed which resulted in an impairment
loss of £291.6m and a £172.0m gain on financial instruments (net of tax)
being recognised.
The joint venture contributed £210.2m to operating profit before exceptional
items, but including £10.0m charge for fair value adjustments, in the year to
31 March 2023 on an equity accounted basis.
Other asset acquisitions: During the 12 months ended 31 March 2023, the Group
made other smaller asset acquisitions (of special purpose vehicles as opposed
to businesses) for cash consideration £19.8m and deferred consideration
£34.9m.
The total cash consideration for business combinations during the year ended
31 March 2023 of £642.7m (September 2023: £nil) is included in the Group's
Adjusted investment, capital and acquisition metric.
Disposals
During the year ended 31 March 2023 the Group recognised a gain of £868.3m
within equity from the sale of a 25% non-controlling equity stake in its SSEN
Transmission business (being the company Scottish Hydro Electric Transmission
plc ('SHET')) and an exceptional income statement gain of £89.1m from the
disposal of the Fiddlers Ferry site.
25% non-controlling equity stake in SHET: On 25 November 2022, the Group
announced it had agreed to sell a 25% non-controlling equity stake in SHET to
Ontario Teachers Pension Plan ('OTPP') for cash consideration of £1,465.0m,
less transactions costs of £16.9m. The transaction completed on 30 November
2022, at which time the consolidated carrying value of SHET's net assets was
£2,319.3m. Since the transaction did not result in a loss of control, the
Group recognised a gain of £868.3m within equity attributable to owners of
the parent company. The Group considered the rights and obligations and
operating protocols arising from the disposal and has determined that the
non-controlling interest in SHET has the characteristics of equity and has
classified the non-controlling interest as such.
30 November 2022
£m
Carrying value of non-controlling interests disposed (579.8)
Cash consideration paid by non-controlling interest holder 1,465.0
Transaction costs (16.9)
Excess of consideration received recognised in equity 868.3
Fiddler's Ferry land sale: On 30 June 2022, the Fiddlers Ferry site was sold
to Peel NRE Developments Limited for cash proceeds of £60m. The Group
released a decommissioning provision related to the site, which resulted in an
exceptional gain on disposal of £89.1m.
12. Sources of finance
12.1 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 2023, the
Group's long term credit rating was BBB+ positive outlook for Standard &
Poor's and Baa1 stable outlook for Moody's.
The maintenance of a medium-term corporate model is a key control in
monitoring the development of the Group's capital structure and allows for
detailed scenarios and sensitivity testing. Key ratios drawn from this
analysis underpin regular updates to the Board and include the ratios used by
the rating agencies in assessing the Group's credit ratings.
The Group'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 an 8 year €750m Green Bond at a coupon of
4.0% with an all-in cost of funding rate of just above 4% with fees included.
The bond will be left in Euros as a net investment hedge for the Group's Euro
denominated subsidiaries. In the period, SSE plc also redeemed US Private
Placement debt of combined £155.0m and a €700m Eurobond with coupon at
1.75%.
SSE's adjusted net debt and hybrid capital was £8.9bn at 30 September 2023,
compared with £8.9bn at 31 March 2023.
Adjusted net debt and hybrid capital is stated after removing lease
obligations, external net debt attributable to non-controlling interests and
cash posted as collateral in line with the Group's presentation basis which is
explained at note 2(i). Cash posted 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 £140.6m
(2022: £581.3m; March 2023: £316.3m) at 30 September 2023 and reflects the
lower levels of initial and variation margin required, following a reduction
in risk factors and lower commodity prices respectively, as part of the
management of the Group's exposures on commodity contracts traded on
exchanges. The adjustment related to the non-controlling interest share of
SHET external net debt is £454.2m at 30 September 2023 (2022: £nil; March
2023: £434.2m) and relates to 25% of external loans of £1,815.1m (2022:
£nil; March 2023: £1,744.8m) and overdrawn cash equivalents of £1.6m (2022:
£nil; March 2023: cash equivalent of £7.8m).
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 as at 30
September 2023 there was £903m commercial paper outstanding (March 2023:
£919m). In the six months ended 30 September 2023, the Group has issued new
debt instruments totalling £650m and has redeemed £204m of maturing debt in
the period. The Group also continues to have access to £3.5bn of revolving
credit facilities (March 2023: £3.5bn). As at 30 September 2023 there were
£220m of drawings against these committed facilities being than 6%
utilisation (March 2023: 3% utilisation).
12. Sources of finance (continued)
The details of the five committed facilities as at 30 September 2023 are:
· a £1.3bn revolving credit facility for SSE plc maturing March
2026 (March 2023: £1.3bn);
· a £0.2bn bilateral facility for SSE plc maturing October 2026
(March 2023: £0.2bn);
· a £0.75bn facility for Scottish Hydro Electric Transmission plc
maturing November 2026 (March 2023: £0.75bn);
· a £0.25bn facility for Scottish Hydro Electric Distribution plc
and Southern Electric Power Distribution plc maturing November 2026 (March
2023: £0.25bn); and
· a £1.0bn committed facility for SSE plc maturing February 2024
(March 2023: £1.0bn).
The £1.3bn revolving credit facility and £0.2bn bilateral facility are both
in place to provide back-up to the commercial paper programme and support the
Group's capital expenditure plans. The Transmission and Distribution related
facilities, both of which have 1 year extension options at the borrower's
discretion, were entered into to help cover the capital expenditure and
working capital of those businesses. The £1bn committed facility at SSE plc
has a 1 year extension option at the lender's discretion and was entered into
to provide cover for potential cash collateral requirements, if periods of
extreme volatility return to the commodity markets. The only facility that was
drawn at 30 September 2023 and 30 March 2023 was the £750m Transmission
facility, with £220m (March 2023: £100m) drawn to cover capital expenditure
requirements.
The Group capital comprises:
March September September
2023 2023 2022
(restated*) (restated*)
£m £m £m
8,654.0 Total borrowings (excluding lease obligations) 8,558.6 8,976.8
(891.8) Less: Cash and cash equivalents (902.4) (289.3)
7,762.2 Net debt (excluding hybrid equity) 7,656.2 8,687.5
1,882.4 Hybrid equity 1,882.4 1,882.4
(434.2) External net debt attributable to non-controlling interests (454.2) -
(316.3) Cash posted as collateral and other short-term loans (140.6) (581.3)
8,894.1 Adjusted net debt and hybrid capital 8,943.8 9,988.6
8,555.0 Equity attributable to shareholders of the parent 8,129.5 7,881.6
17,449.1 Total capital excluding lease obligations 17,073.3 17,870.2
*The comparative information has been restated. See note 3.1.
12.2 Loans and other borrowings
March 2023 September 2023 September 2022
£m £m £m
Current
1,738.5 Short term loans 1,313.3 1,323.1
82.1 Lease obligations 81.6 76.6
1,820.6 1,394.9 1,399.7
Non-current
6,915.5 Loans 7,245.3 7,653.7
323.8 Lease obligations 312.8 312.3
7,239.3 7,558.1 7,966.0
9,059.9 Total loans and borrowings 8,953.0 9,365.7
(891.8) Cash and cash equivalents (902.4) (289.3)
8,168.1 Unadjusted net debt 8,050.6 9,076.4
Add/(less):
1,882.4 Hybrid equity (note 13) 1,882.4 1,882.4
(434.2) External net debt attributable to non-controlling interests (454.2) -
(405.9) Lease obligations (394.4) (388.9)
(316.3) Cash posted as collateral and other short term loans (140.6) (581.3)
8,894.1 Adjusted net debt and hybrid capital 8,943.8 9,988.6
SSE's adjusted net debt and hybrid capital was £8.9bn at 30 September 2023,
compared with £8.9bn at 31 March 2023 and £10.0bn at 30 September 2022.
Adjusted net debt and hybrid capital is stated after removing lease
obligations, external net debt attributed to non-controlling interests and
cash posted as collateral in line with the Group's presentation basis which is
explained at note 2(i). Cash posted 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.
12.3 Reconciliation of net increase in cash and cash equivalents to movement
in adjusted net debt and hybrid capital
March 2023 September 2023 September 2022
£m £m £m
(157.5) (Decrease)/increase in cash and cash equivalents 10.6 (760.0)
Add/(less)
(1,914.7) New borrowing proceeds (1,751.0) (2,068.6)
(831.4) New hybrid equity proceeds - (831.4)
2,148.1 Repayment of borrowings 1,738.8 1,998.2
(216.2) Non-cash movement on borrowings 107.6 (235.2)
434.2 External debt attributable to non-controlling interests 20.0 -
241.6 Increase/(decrease) in cash posted as collateral and other short term loans (175.7) 506.6
(295.9) Increase in adjusted net debt and hybrid capital (49.7) (1,390.4)
12. Sources of finance (continued)
12.4 Equity attributable to non-controlling interests
Equity attributable to non-wholly owned but controlled subsidiaries which are
consolidated within the condensed interim financial statements of the Group
under IFRS. At 30 September 2023 the amount attributable to non-controlling
interests is £703.4m (2022: £48.6m; March 2023: £649.1m), which relates to
SHET of £660.8m (2022: £nil; March 2023: £606.5m) and SSE Pacifico £42.6m
(2022: £48.6m; March 2023 £42.6m). The profit and loss attributable to
non-controlling interests for the period ended 30 September 2023 is £51.2m
profit (2022: £nil; March 2023: £23.6m), which relates to SHET £51.7m
profit (March 2023: £25.5m profit) and SSE Pacifico £0.5m loss (March 2023:
£1.9m loss).
13. Hybrid Equity
March 2023 September 2023 September 2022
£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
831.4 EUR 1,000m 4.00% perpetual subordinated capital securities (ii) 831.4 831.4
1,882.4 1,882.4 1,882.4
(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 (March 2023: £22.4m) was made on 14 April 2023 and for the €500m
hybrid equity bond a discretionary coupon payment of £16.5m (March 2023:
£16.4m) was made on 14 July 2023. The first discretionary coupon payment on
the €1bn hybrid equity bond of £34.2m was paid on 21 April 2023. The coupon
payments in the six month period to 30 September 2023 consequently totalled
£73.1m (2022: £38.8m).
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.
14. Share capital
Number £m
(millions)
Allotted, called up and fully paid:
At 1 April 2023 1,093.9 547.0
Issue of shares 1.8 0.9
At 30 September 2023 1,095.7 547.9
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 2023 of 67.7p per ordinary share
(2022: 60.2p in relation to the final dividend for the year to 31 March 2022;
March 2023: 29.0p in relation to the interim dividend for the year to 31 March
2023) under the terms of the Company's scrip dividend scheme. This resulted in
the issue of 1,779,529 (2022: 18,241,941; March 2023: 18,241,941 and
9,413,103) new fully paid ordinary shares.
In addition, the Company issued 40k shares (2022: 33k, March 2023: 1.9m)
during the period under the savings-related share option schemes and
discretionary share option schemes (all of which were settled by shares held
in Treasury) for a consideration of £0.4m (2022: £0.5m, March 2023:
£18.0m).
Under the share buyback programme in the year to 31 March 2023 6.9m of shares
were repurchased and cancelled for a total consideration of £107.6m
(including stamp duty and commission). The nominal value of share capital
repurchased and cancelled is transferred out of share capital and into the
capital redemption reserve. The scrip dividend take-up for the financial year
ended 31 March 2023 was 18.0%, which is below the 25.0% required by the share
buyback programme, therefore there will be no share buybacks in the financial
year ended 31 March 2024.
Of the 1,095.7m (2022: 1,091.3m, March 2023: 1,093.9m) shares in issue, 3.6m
(2022: 5.4m, March 2023: 3.6m) 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 1.2m shares (2022: 1.3m, March 2023: 1.4m) for a consideration of
£19.7m (2022: £21.7m, March 2023: £23.4m) to be held in trust for the
benefit of employee share schemes.
15. 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 (the "Group Energy Markets Exposures Risk Committee") and the
Board Sub-committee chaired by Non-Executive Director Tony Cocker (the "Energy
Markets Risk Committee (EMRC)"). These Committees oversee the Group's
management of its energy market exposures, including its approach to
hedging.
During the period ended 30 September 2023, the Group continued to be exposed
to the economic conditions impacting the primary commodities to which it is
exposed (Gas, Carbon and Power) due to the ongoing 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.
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 2023.
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 and the
post-day 1 fair value movements on non-government backed contracts for
difference in SSE Renewables. 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 2023 Six months ended 30 September 2023 Six months ended 30 September 2022
£m £m £m
Operating derivatives
(2,980.2) Total result on operating derivatives (i) (498.2) (1,044.0)
272.0 Less: amounts settled (ii) 499.4 (944.3)
(2,708.2) Movement in unrealised derivatives 1.2 (1,988.3)
Financing derivatives (and hedged items)
81.3 Total result on financing derivatives (i) 211.9 225.0
120.6 Less: amounts settled (ii) (170.9) 18.7
201.9 Movement in unrealised derivatives 41.0 243.7
(2,506.3) Net income statement impact 42.2 (1,744.6)
(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 a £13.7m loss
(2022: £19.3m gain; March 2023: £16.6m gain) on proprietary trades, which
have been recognised in the underlying profit of the Group.
15. Financial risk management (continued)
The fair values of the primary financial assets and liabilities of the Group
together with their carrying values are as follows:
March 2023 (restated*) September 2023 September 2022 (restated*)
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
£m £m £m £m £m £m
Financial Assets
Current
1,404.0 1,404.0 Trade receivables 1,096.7 1,096.7 1,570.3 1,570.3
12.7 12.7 Other receivables 11.1 11.1 109.2 109.2
316.3 316.3 Cash collateral and other short term loans 140.6 140.6 1,113.1 1,113.1
891.8 891.8 Cash and cash equivalents 902.4 902.4 289.3 289.3
759.2 759.2 Derivative financial assets 262.6 262.6 2,677.2 2,677.2
3,384.0 3,384.0 2,413.4 2,413.4 5,759.1 5,759.1
Non-current
27.4 27.4 Unquoted equity investments 2.9 2.9 18.0 18.0
149.5 149.5 Loan note receivable 159.5 159.5 145.2 145.2
1,114.6 1,114.6 Loans to associates and jointly controlled entities 1,196.8 1,196.8 886.0 886.0
246.0 246.0 Derivative financial assets 132.4 132.4 1,124.7 1,124.7
1,537.5 1,537.5 1,491.6 1,491.6 2,173.9 2,173.9
4,921.5 4,921.5 3,905.0 3,905.0 7,933.0 7,933.0
Financial Liabilities
Current
(694.6) (694.6) Trade payables (622.5) (622.5) (986.9) (986.9)
- - Outstanding liquid funds - - (531.8) (531.8)
(1,738.5) (1,747.8) Loans and borrowings (1,313.3) (1,392.4) (1,323.1) (1,335.3)
(82.1) (82.1) Lease liabilities (81.6) (81.6) (76.6) (76.6)
(4.0) (4.0) Financial guarantee liabilities (47.0) (47.0) (4.0) (4.0)
(243.3) (243.3) Derivative financial liabilities (505.2) (505.2) (2,195.4) (2,195.4)
(2,762.5) (2,771.8) (2,569.6) (2,648.7) (5,117.8) (5,130.0)
Non-current
(6,915.5) (6,458.4) Loans and borrowings (7,245.3) (6,412.5) (7,653.7) (6,898.1)
(323.8) (323.8) Lease liabilities (312.8) (312.8) (312.3) (312.3)
(57.4) (57.4) Financial guarantee liabilities (34.5) (34.5) (57.4) (57.4)
(1,021.0) (1,021.0) Derivative financial liabilities (197.9) (197.9) (956.7) (956.7)
(8,317.7) (7,860.6) (7,790.5) (6,957.7) (8,980.1) (8,224.5)
(11,080.2) (10,632.4) (10,360.1) (9,606.4) (14,097.9) (13,354.5)
(6,158.7) (5,710.9) Net financial liabilities (6,455.1) (5,701.4) (6,164.9) (5,421.5)
*The comparative information has been restated to include financial guarantee
liabilities. See note 3.1.
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 2023 September 2022
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 - 224.8 - 224.8 - 3,402.4 - 3,402.4
Interest rate derivatives - 155.1 - 155.1 - 360.6 - 360.6
Foreign exchange derivatives - 15.1 - 15.1 - 38.9 - 38.9
Unquoted equity instruments - - 2.9 2.9 - - 18.0 18.0
- 395.0 2.9 397.9 - 3,801.9 18.0 3,819.9
Financial liabilities
Energy derivatives (37.3) (507.1) (80.5) (624.9) (9.5) (3,062.9) - (3,072.4)
Interest rate derivatives - (60.7) - (60.7) - (54.6) - (54.6)
Foreign exchange derivatives - (17.5) - (17.5) - (25.1) - (25.1)
Loans and borrowings - (37.1) - (37.1) - (199.3) - (199.3)
(37.3) (622.4) (80.5) (740.2) (9.5) (3,341.9) - (3,351.4)
15. Financial risk management (continued)
March 2023
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Energy derivatives - 743.9 22.0 765.9
Interest rate derivatives - 227.8 - 227.8
Foreign exchange derivatives - 11.5 - 11.5
Unquoted equity instruments - - 27.4 27.4
- 983.2 49.4 1,032.6
Financial liabilities
Energy derivatives (189.6) (939.4) (23.8) (1,152.8)
Interest rate derivatives - (92.6) - (92.6)
Foreign exchange derivatives - (18.9) - (18.9)
Loans and borrowings - (154.6) - (154.6)
(189.6) (1,205.5) (23.8) (1,418.9)
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 2023 (2022: none,
March 2023: none). There were no significant transfers out of Level 2 into
Level 3 and out of Level 3 into Level 2 during the 6 months ended 30 September
2023 (2022: none, March 2023: none).
The following table represents the difference between the Level 3 financial
instruments at fair value at the start of the reporting period and at the
reporting date:
31 March 2023 30 September 2023 30 September 2022
£m £m £m
8.7 Level 3 financial instruments fair value at 1 April 25.6 8.7
- Transfer from financial assets (note 2(v)) (24.1) -
18.7 Additions (cash contributions) - 9.3
(1.8) Remeasurement loss recognise in income statement (78.7) -
- Remeasurement loss recognised in other comprehensive income (0.4) -
400.1 Additions - new instruments entered in the period - -
(400.1) Deferred day 1 gains on instruments entered in the period - -
25.6 Level 3 financial instruments fair value (77.6) 18.0
16. 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 2023.
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
asset
March March September September September September
2023 2023 2023 2022 2023 2022
£m £m £m £m £m £m
(152.0) 366.6 Scottish Hydro Electric (47.7) (105.9) 324.2 413.4
72.8 174.5 SSE Southern (102.1) 150.3 86.8 235.1
(79.2) 541.1 Net actuarial (loss)/gain and combined assets (149.8) 44.4 411.0 648.5
The last triennial actuarial valuation of the Scottish Hydro Electric Pension
Scheme 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 2024.
The last triennial actuarial valuation of the SSE Southern Group of the
Electricity Supply Pension Scheme as at 31 March 2022 showed a deficit of
£79.6m on a projected unit basis. Following this valuation, the Group agreed
to a new schedule of contributions which, along with investment returns from
return-seeking assets, are expected to make good this shortfall by 31 March
2027. The Group also pays contributions in respect of current accrual. Total
contributions of approximately £28.2m are expected to be paid by the Group
during the year ending on 31 March 2024, including deficit repair
contributions of £16.3m of which £9.1m have been paid to 30 September 2023.
The deficit repair contribution will be made annually until March 2027,
increasing in line with inflation each year.
16. Retirement benefit obligations (continued)
A summary of the movement presented in the statement of comprehensive income
is shown below:
Year ended 31 March 2023 Six months ended 30 September Six months ended 30 September
2023
2022
£m
£m £m
(79.2) Actuarial (losses)/gains recognised (149.8) 44.4
19.8 Deferred tax thereon 37.5 (11.1)
(59.4) Net (loss)/gain recognised in statement of comprehensive income (112.3) 33.3
The major assumptions used by the actuaries in both schemes in preparing the
IAS19 valuations were:
March 2023 September 2023 September 2022
3.5% Rate of increase in pensionable salaries 3.5% 4.1%
3.2% Rate of increase in pension payments 3.2% 3.6%
4.8% Discount rate 5.5% 5.2%
3.2% Inflation rate 3.2% 3.6%
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 2023 September 2023 September 2022
Male Female Male Female Male Female
Scottish Hydro Electric Pension Scheme
22 24 Currently aged 65 22 24 22 24
24 26 Currently aged 45 24 26 24 27
SSE Southern Pension Scheme
22 24 Currently aged 65 22 25 23 25
24 26 Currently aged 45 24 26 24 26
17. Capital commitments
March 2023 September 2023 September 2022
£m £m £m
1,035.6 Capital Expenditure 1,190.0 848.2
Contracted for but not provided
18. 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 2023 September 2022
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:
Marchwood Power Limited 0.4 (17.4) - (17.7) 56.7 (125.5) - (34.7)
Clyde Windfarm (Scotland) Limited 2.8 (53.9) - (32.2) 2.4 (124.9) 1.6 (48.6)
Beatrice Offshore Windfarm Limited 2.6 (30.9) 2.7 (7.4) 2.3 (83.9) 1.3 (18.9)
Stronelairg Windfarm Limited 1.3 (29.2) - (17.2) 1.1 (74.1) - (28.4)
Dunmaglass Windfarm Limited 0.6 (13.2) - (7.4) 0.5 (34.1) - (13.1)
Neos Networks Limited 1.8 (14.6) 2.3 (3.9) 2.8 (11.7) 52.8 (19.0)
Seagreen Wind Energy Limited 14.3 (30.5) 10.3 (10.2) 14.8 (4.7) 13.7 (4.5)
Doggerbank A, B and C 17.2 - 13.0 - 12.4 - 7.1 -
Other Joint Ventures 8.2 (64.5) 3.0 (45.0) 5.5 (90.3) 1.8 (46.6)
March 2023
Sale of goods and services Purchase of goods and services Amounts owed from Amounts owed to
£m £m £m £m
Joint ventures:
Marchwood Power Limited 122.4 (228.5) - (16.8)
Clyde Windfarm (Scotland) Limited 4.8 (280.5) 0.1 (49.5)
Beatrice Offshore Windfarm Limited 4.7 (176.5) 1.0 (8.7)
Stronelairg Windfarm Limited 2.4 (146.2) - (21.7)
Dunmaglass Windfarm Limited 1.1 (66.4) - (9.1)
Neos Networks Limited 3.8 (23.8) 46.2 (5.8)
Seagreen Wind Energy Limited 35.2 (44.4) 22.9 (7.5)
Doggerbank A, B and C 25.4 - 7.6 -
Other Joint Ventures 14.0 (219.2) 1.1 (50.8)
18. Related party transactions (continued)
The transactions with Marchwood Power Limited relate to the contracts for the
provision of energy or the tolling of energy under power purchase
arrangements.
The amounts outstanding are trading balances, are unsecured and will be
settled in cash. 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 2023, the Group was owed the
following loans from its principal joint ventures: Marchwood Power Limited
£19.0m (2022: £32.6m, March 2023: £25.7m); Triton Power Holdings Limited
£nil (2022: £48.0m, March 2023: £nil); Clyde Windfarm (Scotland) Limited
£127.1m (2022: £127.1m, March 2023: £127.1m); Dunmaglass Windfarm Limited
£46.5m (2022: £46.5m, March 2023: £46.6m); Stronelairg Windfarm Limited
£88.7m (2022: £88.7m, March 2023: £88.7m); Neos Networks Limited £103.1m
(2022: £51.6m, March 2023: £56.0m); Seagreen Wind Energy Limited £611.4m
(2022: £344.1m, March 2023: £593.1m) and SSE Slough Multifuel Limited
£143.9m (2022: £102.0m, March 2023: £128.0m).
19. 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 GB
Business Energy and SSE 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. In Thermal
Generation and Renewables, there is the impact of lower Renewables production
in the summer as well as the related impact on commodity prices, which was not
as pronounced as in the previous year due to more available market capacity.
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.
Principal risks and Uncertainties
SSE's established Risk Management Framework and wider system of internal
control continues to inform strategic decision-making in 2023/24. 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 regularly monitor the Principal Risks and Uncertainties of the
Group and have determined that those reported in the 2023 Annual Report and
summarised below remain relevant for the remaining half of the financial year.
· Climate Change
· Cyber Security and Resilience
· Energy Affordability **
· Energy Infrastructure Failure
· Financial Liabilities
· Large Capital Projects Management
· People and Culture
· Political and Regulatory Change **
· Portfolio Exposure **
· 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 - Political and Regulatory Change and Portfolio
Exposure.
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. While
no new emerging Principal Risks were identified during the 22/23 review,
important revisions have been made to the descriptions of each Principal Risk
to take account of key changes and corresponding mitigations that were
introduced during the year.
For more information on these risks, and the wider system of internal control,
please refer to pages 68 to 77 of the SSE plc 2023 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
14 November 2023
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 2023 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 19. 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 2023 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
14 November 2023
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