REG - SSE Plc - Half Year Results <Origin Href="QuoteRef">SSE.L</Origin> - Part 3
09/11/2016 07:06
- Part 3: For the preceding part double click ID:nRSI6798Ob
plan are network availability and reliability;
social obligations; safety; environmental impact; connections; and customer satisfaction. Each of these areas of focus has
the current and future needs of customers at its heart.
On 7 November 2016 Ofgem announced that it had accepted legally binding commitments from SSEN to improve services needed
for competitors to connect customers to its distribution network, following a Competition Act investigation. As a result
of accepting the commitments, Ofgem has closed its investigation into SSEN.
Putting customers first
The focus on operational excellence has continued to see strong gains made in customer service, which will ultimately
support improving performance against the incentives built into RIIO ED1.
The most financially significant of these incentives are the two measures of loss of electricity supply: Customer
Interruptions (CIs) and Customer Minutes Lost (CMLs). Despite more challenging weather conditions in the spring and summer
of 2016, compared with 2015, SSEN's continued adoption of the 'restore first, repair second' method has helped SSEN's CIs
and CMLs to remain relatively low. SSEN's commitment to minimising the occurrence and duration of customer interruptions
saw the CML at 27 minutes in Scotland and 23 minutes in England per customer; and CIs at 34 per 100 customers in Scotland
and 26 per 100 customers in England. While the figures are a marginal increase compared with the same period in 2016, they
continue to reflect SSEN's strong performance and its committed service to its customers.
The regionalised model introduced across SSEN's distribution business last year again responds to the price control. It
has created greater responsibility and decision-making at a regional level, driving further innovation, responsiveness to
stakeholders and improvements in performance against business plan commitments.
Further investment in network resilience, including additional automation, targeted tree cutting and other innovations,
means that SSEN is on track to achieve the performance it has targeted for incentive income during RIIO ED1.
Fulfilling obligations in respect of Shetland
In May 2016, Scottish and Southern Electricity Networks issued businesses and organisations a formal invitation to tender
for providing a new energy solution for Shetland. SSEN is continuing to work closely with Ofgem, its independent auditor
and specialist consultants. Proposals will be subject to detailed assessment and modelling, with the final recommendation
to Ofgem also subject to consultation.
Improving through innovation
Scottish and Southern Electricity Networks' commitment to innovation in the electricity networks industry is helping to
drive down costs and to increase engagement with customers, while supporting the transition to a low-carbon economy.
The innovation projects are funded through Ofgem's incentive schemes, which are designed to help Britain's electricity
networks adapt to technological change and achieve greater efficiency.
For example, a new project, called Smart EV, has been launched to invite stakeholder views to help secure a standardised
industry-wide agreement for the connection, charging and control of electric vehicles. This follows on from the success of
the My Electric Avenue project. In addition, SSEN's use of LiDAR aerial surveys to reduce inspection costs for asset and
vegetation management is the first at scale deployment of LiDAR by any UK Distribution Network Operator as part of normal
business, and is expected to result in a reduction in disruption to customers.
Work is also continuing to establish SSEN's first Constraint Managed Zones (CMZs) on its network. The CMZs will ensure that
security of supply is achieved for sections of the network through the use of load variation techniques, such as Demand
Side Response, Energy Storage and stand-by generators.
Engaging stakeholders in decision making
Stakeholders continue to play a key role in the decision making process for Scottish and Southern Electricity Networks,
shaping the way it serves its customers during the current price control and beyond.
Engagement has been continuing in the development of a new approach to the management of SSEN's submarine distribution
cables, which supply electricity to 59 island communities in Scotland. A recently developed Cost Benefit Analysis tool is
now being used, alongside further detailed consultation with local stakeholders, to bring forward licence applications for
the replacement of eight cables.
SSEN continues to work with Comhairle nan Eilean Siar (Western Isles Council) and other stakeholders to explore the
available options around current network restrictions in the Western Isles. The steering group continues to meet and is
working on solutions that may enable additional renewable energy generation to be accommodated.
Supporting resilient communities
As incentivised under both price controls, Scottish and Southern Electricity Networks understands the importance of
community engagement in its operations and customer-facing activities and the need to prioritise customers with additional
vulnerability.
The second round of awards from SSEN's £1.3m Resilient Communities Fund, which was established to support local communities
in their preparation for and response to emergencies, was made in the first half of 2016/17. SSEN has pledged to continue
this fund with one third of SSEN's Stakeholder Incentive award under RIIO-T1 and RIIO-ED1 assigned to the fund each year.
For 2017/18 this will result in £300,000 in funding being made available to community groups in each network area.
Following the success of its 2015/16 Winter Ready campaign, SSEN will build upon the customer communications improvements
achieved, including advertising on TV, radio and digital channels. The campaign will promote the services it provides for
customers, including those who may need extra help during a power cut via its Priority Service Register.
SGN
SGN manages the network that distributes natural and green gas to 5.9 million homes and businesses across Scotland and the
south of England. In line with its equity holding, SSE historically received 50% of the distributable earnings from SGN
Ltd. This reduced to 33.3% following completion of the part disposal to ADIA and SSE will continue to provide SGN with
some back office support which is manged via a service agreement.
Working with the Gas Distribution Price Control
SGN is focused on ensuring all its outputs under Ofgem's RIIO framework are met, incentives are maximised and innovation is
delivered effectively while running an efficient, safe and reliable network.
SGN's investment programme is a key element of this and, within overall total cost allowances of over £4.6bn (2012/13
prices), Ofgem has allowed around £2.8bn over the current eight year price control running to 2021 to cover new capital
investment and to manage the risks relating to SGN's existing assets. This investment enables SGN to:
· deliver a safe and reliable network for customers;
· minimise its impact on the environment and communicate its work to stakeholders; and
· deliver new customer-driven initiatives to help reduce fuel poverty and increase awareness of Carbon Monoxide
dangers.
In terms of operational performance and safety, 98.7% of uncontrolled gas escapes reported by the public were attended
within one hour of notification, exceeding Ofgem's 97% standard.
Networks - Conclusion and Priorities
SSE's economically-regulated Networks businesses are key to the provision of energy in Scotland and southern England. SSE
aims to put the current and future needs of customers at the heart of these businesses and, in doing so, earn a return that
is value for money for customers and fair to investors. This will be its aim in 2016/17 and beyond.
Networks priorities for 2016/17 and beyond
SSE's Networks businesses' priorities in 2016/17 and beyond are to:
· operate safely and meet all compliance requirements;
· provide an excellent service to all customers who rely on its networks;
· deliver required outputs while maintaining tight controls over expenditure;
· deliver every customer connection to quoted cost, time and budget;
· develop and maintain effective stakeholder relationships; and
· progress innovations that improve network reliability, efficiency and customer service.
RETAIL (including Enterprise)
Retail (including Enterprise) Key Performance Indicators
Sep 16 Sep 15
Energy Supply
Energy Supply adjusted and reported operating profit - £m 47.1 73.8
Capital expenditure (Energy Supply and Energy Related Services) - £m 86.8 70.5
Electricity customer accounts (GB domestic) - m 4.11 4.27
Gas customer accounts (GB domestic) - m 2.76 2.88
Energy customers (GB business sites) - m 0.47 0.46
All-Island energy market customers (Ire) - m 0.79 0.80
Total energy customer accounts (GB, Ire) - m 8.13 8.41
Electricity supplied household average (GB) - kWh 1,544 1,577
Gas supplied household average (GB) - th 111 115
Household/small business aged debt (GB, Ireland) - £m 120.3 128.3
Bad debt expense (GB, Ireland) - £m 27.0 26.8
Customer complaints to third parties (GB)1 703 792
1 Ombudsman: Energy Services and Citizens Advice
Energy Related Services
Energy Related Services adjusted and reported operating profit- £m 8.6 11.2
Home Services customer accounts (GB) - m 0.44 0.38
Meters read - m 5.6 5.4
Supply customers' bills based on actual reading % 95.3 95.5
Smart Meters installed over 310,000 Over 100,000
Enterprise
Enterprise adjusted and reported operating profit - £m 4.8 16.5
Capital expenditure - £m 23.1 12.7
SSE Contracting Order Book - £m 161 148
Supplying energy and essential services across the Great Britain and Ireland markets
SSE is one of the largest energy suppliers in the competitive markets in Great Britain and Ireland. At 30 September 2016 it
supplied electricity and gas to 8.13 million household and business accounts. It also provides other related products and
services, including telephone, broadband and boiler care, to 0.44 million household and business customers. The Retail
segment includes the Enterprise business which provides energy services to meet the needs of businesses and public sector
organisations in a reliable and sustainable way. Taken together, these businesses provide balance to the SSE group and
demonstrate SSE's commitment to efficient operations and industry-leading customer service.
In the context of the rapidly evolving and challenging competitive environment in which its Retail businesses operate, SSE
has embarked on a transition from commodity provider towards its vision of becoming a market-leading retailer of energy and
essential services, by digitalising and diversifying its business, and consistently excelling in customer service. As part
of this strategy, it continues to focus on addressing the decline in its energy customer account numbers while investing in
the expansion of its non-energy businesses.
Financial performance in Retail and Enterprise
During the six months to 30 September 2016, total adjusted operating profit in Retail fell by 40% to £60.5m, with the
principal movements as follows:
· Energy Supply: adjusted and reported operating profit overall decreased, by £26.7m to £47.1m. While adjusted
operating profit from supplying energy to non-domestic customers improved in the period, this was more than offset by the
impact on the adjusted operating profit in domestic energy supply of lower customer account numbers in a competitive
market, the costs of delivering the smart meter roll-out and rising non-energy costs for electricity customers;
· Energy-related Services: adjusted and reported operating profit fell by £2.6m to £8.6m, as SSE continues to invest
in building scale in these businesses; and
· Enterprise: adjusted and reported operating profit fell by £11.7m to £4.8m, reflecting continued competitive
pressures.
Publishing Consolidated Segmental Statements for 2015/16
In July 2016, SSE published its annual Consolidated Segmental Statement (CSS), setting out the revenues, costs and profits
or losses of businesses in its Wholesale and Retail segments.
The CSS for 2015/16 showed that SSE's profit margin (before tax) from supplying electricity and gas to households in Great
Britain was relatively flat at 6.2%, compared with 6% in 2014/15. Within this, SSE's CSS also highlighted an increasing
divergence between electricity and gas margins, primarily due to cumulative costs associated with the long-term upgrade of
the country's electricity system that began around a decade ago and which is continuing in the interests of ensuring that
customers benefit from a secure and lower-carbon energy system. These costs are levied more heavily against electricity.
Implementing the Competition and Markets Authority's remedies
SSE engaged constructively with the Competition and Markets Authority (CMA) throughout its two-year investigation into the
energy markets in Great Britain. Since a market investigation was first proposed in March 2014, SSE has argued that energy
markets in Great Britain are generally well-functioning and competitive; while recognising the benefits of reforms that are
in the interests of customers.
Now, after two years of thorough scrutiny of what is an ever-changing and dynamic GB energy market, the end product of the
CMA investigation is a substantial package of reforms, announced in June 2016, that will help deliver meaningful changes
for customers. These reforms will be delivered in the course of a crowded implementation timetable between now and April
2018, and include many interventions that will be delivered in 2017, such as the prepayment tariff cap which will come into
effect in April.
This is a challenging set of measures; however, SSE recognises that as a whole they should help drive the energy market
forward to deliver for customers. SSE will continue to engage constructively as it undertakes the substantial
implementation work in the months ahead. It is also mindful, however, that there remains considerable political interest
in energy supply markets and that the sector will continue to be subject to scrutiny and, possibly, further intervention.
SSE will therefore continue to engage actively and constructively with the UK Government as it develops and takes forward
its policies with regard to energy retail.
Energy Supply and Energy Related Services
Treating customers fairly
Underpinning SSE's approach to the provision of both energy and energy-related services is the principle of treating
customers fairly. This is central to the decisions SSE takes both at Executive Committee and Board level, as documented in
its annual Treating Customers Fairly Statement, published in August each year, including 2016. This means actively
addressing any issues that arise relating to the quality of the service provided, as well as looking for ways to improve
service quality in the future.
In its 2016 TCF Statement, SSE set out a series of measures it will be taking to help ensure it delivers better outcomes
for customers, including further training for its customer-facing employees.
SSE continues to lead the industry in regular assessments published by independent third parties:
· In September 2016, SSE achieved the best ever performance in the Citizens Advice Energy Supplier Performance Report
with a score of 22.5 complaints per 100,000 customers. This score is almost 800 times better than the worst performing
supplier and 10 times better than the average performance among the five other largest suppliers. SSE has been ranked
number one in this league table every single quarter bar one since it was first published in 2011.
· The Ombudsman for Energy Services reported that for the period April to June 2016 the ratio of complaints from SSE
customers was the lowest of all eleven suppliers covered, including the largest independent suppliers, with 4.4 complaints
per 100,000 customers.
· In September 2016, Ofgem published its biennial survey on energy supplier complaint handling performance. Though this
highlighted areas for improvement across the board, SSE was the best performing supplier in the poll, with the highest
level of satisfied complainants in the industry and of those who found it easy to register a complaint.
Supplying energy to customers across Great Britain and Ireland
SSE appreciates that customers rely on its core products of electricity and gas to power and heat their homes in order to
live safely and comfortably, and is therefore committed to keeping energy prices as low as possible. SSE aims to protect
its customers from short-term price volatility and as a result has not increased standard prices for three years, having
also reduced prices three times during that period.
In the 6 months to 30 September 2016, SSE's energy customer accounts in Great Britain and Ireland fell from 8.21 million to
8.14 million, which represents the smallest net decrease in SSE's customer account numbers since 2013 and reflects a slow
down in the net losses in the first half of the year. During this period, SSE has also successfully competed for over
350,000 new customer accounts across both Energy Supply and Energy Related Services, demonstrating it can compete on
products, service and value, as well as highlighting the challenging nature of the operating environment. Looking ahead,
SSE aims to achieve the right mix of investment in digitalising customer service while also managing cost efficiency.
SSE is continuing to work to address the decline in customer numbers it has experienced in recent years and, as set out in
its Annual Report 2016, is aiming to reduce significantly the rate of customer losses. The markets for energy supply in GB
and Ireland both continue to be intensely competitive. In GB, for example, political, regulatory and market factors are
all contributing to the rapid growth of new market entrants and increasing levels of customer engagement in the market,
meaning there are now more than 40 suppliers operating in the GB market alone. At the same time the regulatory environment
in which SSE operates is changing following the conclusions of the CMA inquiry, and with continuing government and
regulatory focus; many of the changes are designed to unlock innovation in the market and drive further customer engagement
and switching.
Against this backdrop, SSE is adapting and competing by offering a range of market-leading deals through a diverse mix of
channels. At the same time, SSE is seeking to develop stronger, more enduring customer relationships by investing in
high-quality customer service, offering a broader range of products in the home and a programme of rewards that recognise
the value of customer loyalty.
Investing in becoming a market-leading retailer of energy and essential services
SSE firmly believes that its strategy of becoming a market-leading retailer of energy and essential services, by
digitalising and diversifying its business, and consistently leading in customer service, is the right response to an
increasingly competitive, challenging and rapidly evolving market, and one which will enable it to leverage its strong
competencies in customer service and efficient operations.
It continues to make progress in the delivery of this strategy, with developments in the first half of the year including:
· the launch of market-leading boiler cover propositions as it moves closer to completing the national expansion of its
Home Services business;
· introduction of a range of market-leading, well subscribed tariffs in energy and broadband to attract new customers;
· the deployment of resources into its customer-facing operations to deliver on its service ambitions;
· a successful pilot of its smart prepayment solution, to be rolled out later this year;
· delivery of further operational efficiencies across the Retail business; and
· further work to scope out partners and solutions for possible improvements to back-end systems to ensure that SSE is
able to meet the future needs of customers.
In terms of allocating resources to back-end systems and customer-facing services, SSE takes a rigorous approach to
identifying the right priorities, based on its overall capacity to execute change successfully for the benefit of
customers.
At the same time, SSE continues to invest in its brand, having become the flagship sponsor of the ITV national weather and
the first major sponsor of women's football in Scotland, complementing existing sponsorships in sport and entertainment to
ensure SSE not only appeals to customers but is able to offer additional value and rewards in areas that interest them.
Meeting customers' need for energy
With average UK temperatures during the first six months of the year one degree Celsius warmer than the same period in the
previous year, gas consumption fell by approximately 3% relative to the same period in 2015. Indeed, five of the six months
to 30 September 2016 recorded higher than average temperatures. This highlights that consumption can vary considerably
year-on-year based on weather conditions; the longer-term trend is that customers are using less energy as a result of
structural, technological and behavioural energy efficiency. On a weather-corrected basis, domestic consumption fell by
1.1% for electricity and 1.8% for gas relative to the first half of 2015/16.
Helping vulnerable customers through inclusive provision
SSE recognises that as an essential service provider, it must be both sensitive and flexible in how it deals with
customers. With that goal in mind, in August 2016 SSE became the first energy supplier in Great Britain to commit to
achieving the British Standard for Inclusive Service Provision. This represents the gold standard in recognising and
catering for vulnerability in all its forms and SSE is currently working towards achieving this accreditation by 2018.
This builds on the additional training SSE has provided to customer-facing staff in areas like mental health and,
specifically, dementia, to ensure its advisers are equipped to provide the best possible support.
Energy is an essential service; SSE therefore takes its responsibility to vulnerable customers very seriously and helps
them manage their energy costs in a number of enduring ways:
· The Warm Home Discount (WHD) scheme enables qualifying pensioners and vulnerable customers to receive help with their
fuel bills in the form of a yearly £140 rebate. This year's scheme was delayed slightly due to regulations being laid later
than usual and will run from July 2016 to the end of May 2017. While this will mean SSE's spend will be reported across two
financial years, SSE expects to provide equivalent levels of support to customers through this revised period.
· SSE's Priority Assistance Fund providing additional support to low income and vulnerable customers, including debt
relief, free energy efficiency advice, and help with bespoke payment arrangements.
· SSE offers a free Careline priority service, dedicated to helping customers who are elderly, disabled or have special
medical needs.
· SSE has identified and referred over 1,600 customers for Benefits Entitlement Checks with over £680,000 of additional
support made available to customers at an average of more than £3,000 per customer.
In line with its licence condition, between the start of October and the end of March (or longer if the weather is
unseasonably cold), SSE has a no-disconnection policy covering all household customers.
Overall total debt levels continue to reduce, with aged debt falling by 6.2%. This partly reflects lower prices and falling
consumption, but is also due to SSE's efforts to engage constructively and understandingly with customers in arrears as
early as possible, making sure support is provided and payment plans are manageable.
In July 2016, Ofgem launched an investigation into historic issues relating to SSE customers with debts being moved onto
prepayment meters. Ofgem has been clear, however, that the opening of this investigation does not imply any findings of
non-compliance and SSE is engaging constructively with Ofgem's investigation.
Rolling out smart meters to customers across Great Britain
SSE's metering business still undertakes meter reading operations and meter operator work in all parts of Great Britain;
however it is continuing to undergo a transformation through the smart meter roll-out.
SSE believes strongly in the potential for the national roll-out of smart meters to transform the relationship between
customers, their energy usage and their supplier in the coming years. Capitalising on this opportunity is fundamental to
the strategy of its Retail business.
Doing so requires a roll-out which is both cost-effective and customer-centric, not only installing the meters efficiently
but also engaging customers with the technology so that the benefits outweigh the costs to customers. SSE has continued to
ramp up its capacity and delivery of smart meters and, as of 31 October 2016, SSE had installed more than 340,000 smart
meters. So far, overall customer feedback on their experience of the installation has been positive.
In its 2015/16 Annual Report, SSE described 2016/17 is a pivotal year for the smart programme, with the central
communications infrastructure provided by the Data Communications Company (DCC), which will enable suppliers to build up to
mass deployment, due to be delivered after significant delays. SSE also stated that any further delays to the DCC's
delivery must be reflected in the overall programme timetable to avoid any negative impacts for customers.
Unfortunately, delays to delivery of the DCC's infrastructure have continued, with both outstanding releases now beyond all
contingency agreed by the then Secretary of State in March 2015. Combined with a range of other outstanding constraints,
this is undermining confidence in the programme and compressing the window in which suppliers can roll out the enduring
solution at scale, driving up costs and creating challenges for the industry. It is therefore SSE's view that a
reconsideration of the delivery timetable is urgently required in order to protect customers and ensure benefits are
delivered; smart meters are a means to an end, not an end in themselves. With that in mind, SSE believes that government's
commitment to the offer of a smart meter to all by 2020 should be honoured, but with a flexible and pragmatic approach that
recognises constraints and does not require suppliers to jeopardise cost and experience for customers in pursuit of taking
all reasonable steps to install smart meters.
Doing more for business energy customers
Business Energy performed strongly in the first half of 2016/17, driven by a continued focus on meeting business customer's
core energy needs, ongoing efforts to control operating costs and an enhanced proactive approach to its key customers and
partners.
Over the last six months, SSE Business Energy adapted the way in which it engages with customers, and is evolving their
service, in order to offer a customer service commitment. Business Energy has continued to build its offering in the
commercial sector and has launched a new 100% renewable energy proposition known as 'SSE Green'.
For Business Energy's micro business customers, SSE has continued its emphasis on Treating Customers Fairly by relaunching
its TCF statement and establishing a Performance team to focus on operational excellence by driving continuous improvement.
Third Party Intermediaries (TPIs) remain an important channel for Business Energy growth and SSE continues to provide
ongoing support to its TPIs by providing access to its industry experts via sales channels, engagement sessions and regular
industry updates. Business Energy were recently rated the best supplier for TPIs in a study by Cornwall Energy.
Key to the continued success of Business Energy is a willingness to listen to customers, review processes and act on what
customers are saying. At the same time, SSE remains focused on giving business customers direct access to people who will
support and work in partnership with them throughout the lifetime of their contract. Looking forward, Finlay McCutcheon has
recently taken over as the new Director of Business Energy, and will be looking to take Business Energy to the next level
of delivery for customers, partners and shareholders.
Supplying energy and energy-related services to customers in Ireland.
SSE Airtricity is the second largest provider of energy and related services in Ireland (ROI) and Northern Ireland (NI),
and the only energy supply brand to operate in all of the competitive gas and electricity markets across the island. At 30
September 2016, SSE Airtricity supplied electricity and natural gas to 0.79 million household and business customer
accounts in ROI and NI, representing a 17% share of the total combined gas and electricity markets in which it operates.
While market conditions remain highly competitive in both markets, SSE Airtricity is seeing a return to growth, in
particular in Ireland where internet comparison sites are emerging as a popular consumer channel. In Northern Ireland's
regulated natural gas market in Greater Belfast, where SSE Airtricity is the incumbent supplier, the company is continuing
to show modest growth.
SSE Airtricity has continued to enhance its customer service offering for both domestic and business customers and, in line
with its commitment to being a 'digital-first' supplier, a dedicated Digital Services team has been established to manage
several new digital service channels, including webchat, online forums and social media. These digital channels now account
for 15% of all inbound customer contacts.
In NI, SSE Airtricity reduced its regulated natural gas prices by 10% from 1 April 2016, and its household electricity
prices by the same level from 1 June 2016. In ROI, the company reduced both its electricity and natural gas prices by 5%
with effect from 1 August 2016.
Enterprise
Shaping SSE Enterprise for the future
SSE Enterprise was formed in 2014 and now incorporates five of SSE's businesses: Contracting, Rail, Slough Heat and Power,
Telecoms and Utilities, supported by centralised sales and project delivery teams. As a multi-disciplined engineering
services partner for businesses, SSE Enterprise provides energy services to meet the needs of businesses and public sector
organisations in a reliable and sustainable way.
With a significant self-delivery capability, SSE Enterprise:
· designs, builds, maintains and operates complex mechanical and electrical engineering infrastructure;
· provides industry-leading telecoms connectivity and data centre services, meeting the connectivity and communication
needs of businesses with bespoke solutions; and
· designs builds, maintains and operates electricity, gas, water, heat and cooling networks for commercial and
residential developments.
To take the business forward in the next phase of its development, Neil Kirkby, currently Managing Director of Global Power
Networks at Balfour Beatty, will join SSE in January 2017 as its Managing Director.
Setting the right priorities for SSE Enterprise
The energy needs and expectations of private sector companies and public sector organisations are becoming increasingly
sophisticated, with growing requirements for effective energy management and robust energy and utility infrastructure. In
addition, those customers are increasingly seeking integrated and bespoke solutions to meet their energy and utility needs.
This changing landscape will inform the SSE Enterprise strategy going forward.
Laying the foundations for future growth
During 2016/17, despite continued competitive pressures, SSE Enterprise made some progress in laying the foundations to
deliver future growth.
· SSE Enterprise Telecoms has continued to grow its network, unbundling 33 additional BT exchanges, increasing telecoms
coverage by 50,000 postcodes nationwide; further expanding its network in London; and connecting a further three data
centres, bringing the total number of connected data centres to 74. New clients include Capita, NATS, Mitsubishi UFJ
Financial Group Inc. (MUFG) and Imperial College.
· SSE Enterprise Contracting is placing a greater emphasis on sales and major projects and a new regional-based
structure more aligned to customers' needs and adaptive to an evolving marketplace. The team has recently designed and
installed the electrical charging infrastructure network for London's first large-scale, zero emission, single deck bus
fleet based at Waterloo Station.
· SSE Enterprise Utilities' new Heat Networks division has doubled its team over the last year in anticipation of
further expansion and now operates 13 low carbon heat networks across the country. SSE Heat Networks has been selected a
preferred bidder for one of the UK's largest regeneration projects, Barking Riverside, a 443-acre brown-site development
for 10,800 new homes for London.
· SSE Enterprise Rail is making determined steps to deliver a first class service for existing clients and actively
tendering for a significant amount of work with Network Rail as well as other major operators. It has successfully won
bids to design and deliver Liverpool Street Station's new Switch Panels and Distribution Board and to construct five new
Signal Equipment Rooms for the London Underground.
· Slough Heat and Power continues to establish itself within the SSE Enterprise function, growing its electricity
networks to meet increased customer demand and trialling progressive technologies to develop its distinctive proposition
for the Slough Trading Estate.
Retail (including Enterprise) - Conclusion and Priorities
SSE's Energy Supply, Energy-Related Services and Enterprise businesses operate in competitive markets and are each focused
on the changing energy and related services needs of household, commercial and public sector customers. This means
maintaining a clear focus on delivering the propositions and services that customers want and need is vital. Put simply,
the core requirement of these businesses is to put the current and future needs of customers at the heart of everything
they do.
Key priorities for the remainder of 2016/17 and beyond
· further stabilisation of domestic energy customer numbers through enhanced sales and retention activities, as well as
through realising SSE's customer service ambition;
· accelerating diversification through completing the national expansion of Home Services and continued growth in
broadband and telephone;
· taking the smart opportunity by optimising deployment of smart meters and developing and launching compelling
smart-enabled customer propositions;
· continuing to improve the customer experience and deliver operational efficiencies by further digitalising the
business and moving towards an operating model capable of meeting the future needs of customers;
· delivering continuing investment and growth in energy supply to commercial and public sector organisations; and
· taking forward the reform and development of the SSE Enterprise business, following the appointment of a new Managing
Director, who will take up his post in January 2017.
SSE financial results explained
Why do SSE have "adjusted" numbers for Profit Before Tax (PBT), Profit After Tax (PAT), Earnings Per Share (EPS) and Net
Debt and Hybrid Capital?
SSE's financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU
(IFRSs). SSE applies the use of a number of adjusted accounting measures throughout the Annual Report and Financial
Statements in order to present the underlying performance of the Group to the users of the statements in a consistent and
meaningful manner. Further detail on the basis of presentation is included in note 2 to the Financial Statements.
The adjustments made by SSE can be explained as follows:
1. Exceptional Items
Exceptional charges or credits 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 of the rationale for
deciding whether an item is exceptional is included at Note 2 of the Financial Statements.
2. Movements on derivatives ('certain re-measurements')
The Group enters into forward contracts to buy (or sell) electricity, gas and other commodities to meet the future demand
requirements of its Energy Supply business or to optimise the value of its Wholesale assets. Certain of these contracts are
determined to be derivative financial instruments under IAS 39 and as such are required to be recorded at their fair value.
Changes in the fair value of those commodity contracts designated as IAS 39 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. The Group will recognise the underlying value of these contracts as the relevant commodity is delivered, which
will predominately be within the subsequent 12 to 18 months. Conversely, commodity contracts that are not financial
instruments under IAS 39 are accounted for as 'own use' contracts. The re-measurements arising from IAS 39 are disclosed
separately to aid understanding of the underlying performance of the Group. This category also includes income statement
movement on financing derivatives such as interest rate swaps and forward currency contracts.
3. Interest on net pension liabilities - IAS 19R
The Group's interest charges relating to defined benefit pension schemes are derived from the net liabilities of the
schemes as valued under IAS 19R. This will mean that the charge recognised in any given year will be dependent on the
impact of actuarial assumptions such as inflation and discount rates. To avoid income statement volatility derived from
this basis of measurement the Group excludes these from its adjusted profit measures.
4. Tax and interest on JVs 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 before its share of the interest and tax on joint
ventures and associates.
5. Deferred tax
In line with its long standing approach, SSE adjusts for deferred tax when arriving at adjusted profit after tax and its
adjusted effective rate of tax. SSE believes consistency of presentation is essential for investors and other users of its
statements and does not therefore believe that changing these measures would result in improved clarity or transparency.
6. Hybrid capital securities
The characteristics of hybrid capital securities mean they qualify for recognition as equity rather than debt under IFRSs.
Consequently, their coupon payments are presented as dividends to other equity holders rather than within finance costs.
Consequently the coupon payments are not included in SSE's adjusted PBT 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.
7. Finance leases
SSE's reported loans and borrowings include finance lease liabilities, most significantly in relation to its tolling
contract with Marchwood Power Limited. The Group excludes these liabilities from its adjusted net debt and hybrid capital
measure to better reflect the Group's funding position.
8. Outstanding liquid funds and other short-term loans
Outstanding liquid funds are SSE cash balances held by counterparties as collateral at the year end. SSE includes these as
cash until they are utilised. Loans with a maturity of less than three months are also included in this adjustment.
9. Capital expenditure and investment
This metric represents the capital invested by the Group in projects that are anticipated to provide a return on investment
over future years and is consistent with internally applied metrics. The Group has considered it appropriate to report
these values both internally and externally in this manner due to its use of equity-accounted investment vehicles, to grow
the Group's asset base, where the Group is providing the source of funding to the vehicle through either loans or equity.
The Group does not include project-funded ventures in this metric.
Consolidated Income Statement
for the period 1 April 2016 to 30 September 2016
2016 2015
Before exceptional items and certain re-measurements 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
Revenue 5 11,262.8 - 11,262.8 13,831.5 - 13,831.5
Cost of sales (10,049.0) 162.1 (9,886.9) (12,608.2) (317.7) (12,925.9)
Gross profit / (loss) 1,213.8 162.1 1,375.9 1,223.3 (317.7) 905.6
Operating costs (763.7) - (763.7) (682.3) - (682.3)
Other operating income 24.5 - 24.5 0.8 39.3 40.1
Operating profit / (loss) before joint ventures and associates 474.6 162.1 636.7 541.8 (278.4) 263.4
Joint ventures and associates: - -
Share of operating profit 162.6 - 162.6 160.1 - 160.1
Share of interest (67.1) - (67.1) (63.4) - (63.4)
Share of movement on derivatives - 0.7 0.7 - 3.0 3.0
Share of tax (19.5) 23.1 3.6 (19.4) (0.6) (20.0)
Share of profit on joint ventures and associates 76.0 23.8 99.8 77.3 2.4 79.7
Operating profit / (loss) 5 550.6 185.9 736.5 619.1 (276.0) 343.1
Finance income 7 60.5 - 60.5 47.6 - 47.6
Finance costs 7 (160.9) (20.2) (181.1) (148.6) (11.3) (159.9)
Profit / (loss) before taxation 450.2 165.7 615.9 518.1 (287.3) 230.8
Taxation 8 (89.2) 23.4 (65.8) (89.1) 63.5 (25.6)
Profit / (loss) for the period 361.0 189.1 550.1 429.0 (223.8) 205.2
Attributable to:
Ordinary shareholders of the parent 287.1 189.1 476.2 416.5 (223.8) 192.7
Other equity holders 73.9 - 73.9 12.5 - 12.5
Basic earnings per share (pence) 10 47.2 19.4
Diluted earnings per share (pence) 10 47.2 19.3
The accompanying notes are an integral part of this interim statement.
Consolidated Income Statement
for the year ended 31 March 2016
Before exceptional items and certain Exceptional items and certain re-measure-ments Total
re-measure-ments (note 6)
Note £m £m £m
Revenue 5 28,781.3 - 28,781.3
Cost of sales (25,859.4) (644.5) (26,503.9)
Gross profit / (loss) 2,921.9 (644.5) 2,277.4
Operating costs (1,449.8) (334.0) (1,783.8)
Other operating income 29.4 57.6 87.0
Operating profit / (loss) before joint ventures and associates 1,501.5 (920.9) 580.6
Joint ventures and associates:
Share of operating profit 322.9 - 322.9
Share of interest (126.8) - (126.8)
Share of movement on derivatives - 2.3 2.3
Share of tax (39.9) 46.3 6.4
Share of profit on joint ventures and associates 156.2 48.6 204.8
Operating profit / (loss) 5 1,657.7 (872.3) 785.4
Finance income 7 101.8 - 101.8
Finance costs 7 (308.2) 14.3 (293.9)
Profit / (loss) before taxation 1,451.3 (858.0) 593.3
Taxation 8 (280.6) 272.5 (8.1)
Profit / (loss) for the year 1,170.7 (585.5) 585.2
Attributable to:
Ordinary shareholders of the parent 1,046.1 (585.5) 460.6
Other equity holders 124.6 - 124.6
Basic earnings per share (pence) 10 46.1
Diluted earnings per share (pence) 10 46.0
Consolidated Statement of Other Comprehensive Income
for the period 1 April 2016 to 30 September 2016
Year ended 31 March 2016 Six months ended 30 September 2016 Six months ended 30 September 2015
£m £m
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