REG - SSE Plc - Half Year Results <Origin Href="QuoteRef">SSE.L</Origin> - Part 4
09/11/2016 07:06
- Part 4: For the preceding part double click ID:nRSI6798Oc
£m
585.2 Profit for the period 550.1 205.2
Other comprehensive income:
Items that will not be reclassified to profit or loss:
254.3 Actuarial (losses)/gains on retirement benefit schemes (302.6) 260.3
(58.9) Taxation on actuarial losses/(gains) on defined benefit pension schemes 48.1 (52.1)
195.4 (254.5) 208.2
94.8 Share of joint ventures actuarial (losses)/gains on retirement benefit schemes (104.2) (25.6)
(18.4) Share of joint ventures taxation of actuarial losses/(gains) on retirement benefit schemes 17.4 5.1
76.4 (86.8) (20.5)
Items that will be reclassified subsequently to profit or loss:
79.4 Gains on effective portion of cash flow hedges 21.3 20.6
4.7 Transferred to assets and liabilities on cash flow hedges 15.5 (1.5)
(15.1) Taxation on cashflow hedges (4.0) (4.1)
69.0 32.8 15.0
4.7 Share of joint ventures and associates (loss)/gains on effective portion of cash flow hedges (15.0) 7.5
(0.8) Share of joint ventures and associates taxation on cashflow hedges 2.0 (1.5)
3.9 (13.0) 6.0
(8.4) Losses on revaluation of available for sale investments, net of taxation - -
85.1 Exchange gain on translation of foreign operations 76.0 21.4
(40.7) Loss on net investment hedge (45.0) (14.8)
7.3 Taxation on net investment hedge 8.1 3.0
51.7 39.1 9.6
388.0 Other comprehensive (loss)/income, net of taxation (282.4) 218.3
973.2 Total comprehensive income for the period 267.7 423.5
Attributable to:
848.6 Ordinary shareholders of the parent 193.8 411.0
124.6 Other equity holders 73.9 12.5
973.2 267.7 423.5
Consolidated Balance Sheet
as at 30 September 2016
At 31 March2016 At 30 September 2016 At 30 September 2015
£m Note £m £m
Assets
12,525.0 Property, plant and equipment 12,377.1 11,752.3
- Biological assets - 1.8
Intangible assets:
609.9 Goodwill 617.6 600.4
249.5 Other intangible assets 334.2 185.3
1,045.1 Equity investments in joint ventures and associates 837.8 963.5
591.6 Loans to joint ventures and associates 733.9 544.3
16.7 Other investments 16.5 26.4
512.0 Deferred tax assets 289.0 250.1
537.7 Derivative financial assets 16 760.0 582.0
16,087.5 Non-current assets 15,966.1 14,906.1
500.1 Other intangible assets 167.6 198.8
215.4 Inventories 220.5 339.1
3,274.3 Trade and other receivables 2,472.9 3,332.3
360.2 Cash and cash equivalents 257.9 1,678.4
1,615.0 Derivative financial assets 16 1,934.9 2,051.8
134.2 Current assets held for sale 12 406.5 97.7
6,099.2 Current assets 5,460.3 7,698.1
22,186.7 Total assets 21,426.4 22,604.2
Liabilities
923.3 Loans and other borrowings 13 338.8 734.3
4,184.4 Trade and other payables 3,343.4 3,960.8
298.2 Current tax liabilities 320.2 307.9
94.0 Provisions 71.3 111.6
1,783.8 Derivative financial liabilities 16 1,814.5 2,496.3
115.0 Liabilities held for sale 12 111.4 0.3
7,398.7 Current liabilities 5,999.6 7,611.2
6,245.5 Loans and other borrowings 13 7,083.9 5,931.6
917.5 Deferred tax liabilities 584.4 694.9
452.4 Trade and other payables 491.4 476.7
703.3 Provisions 699.7 393.9
394.8 Retirement benefit obligations 17 676.1 388.3
857.5 Derivative financial liabilities 16 987.4 1,067.7
9,571.0 Non-current liabilities 10,522.9 8,953.1
16,969.7 Total liabilities 16,522.5 16,564.3
5,217.0 Net assets 4,903.9 6,039.9
Equity:
503.8 Share capital 15 508.5 501.9
880.4 Share premium 876.6 858.4
22.0 Capital redemption reserve 22.0 22.0
(2.2) Hedge reserve 17.6 (51.1)
(17.8) Translation reserve 21.3 (59.9)
1,598.6 Retained earnings 1,248.2 1,397.5
2,984.8 Equity attributable to ordinary shareholders of the parent 2,694.2 2,668.8
2,209.7 Hybrid capital 14 2,209.7 3,371.1
5,194.5 Total equity attributable to equity holders of the parent 4,903.9 6,039.9
22.5 Non-controlling interests - -
5,217.0 Total equity 4,903.9 6,039.9
Consolidated Statement of Changes in Equity
for the period 1 April 2016 to 30 September 2016
Statement of changes in equity Share capital Share premium account Capital redemptionreserve Hedge reserve Translationreserve Retained earnings Total attributable to ordinary shareholders Hybrid capital Total Non-control-ling interest Total Equity
£m £m £m £m £m £m £m £m £m £m £m
At 1 April 2016 503.8 880.4 22.0 (2.2) (17.8) 1,598.6 2,984.8 2,209.7 5,194.5 22.5 5,217.0
Profit for the period - - - - - 476.2 476.2 73.9 550.1 - 550.1
Other comprehensive income - - - 32.8 39.1 (254.5) (182.6) - (182.6) - (182.6)
Share of joint ventures and associates other comprehensive income - - - (13.0) - (86.8) (99.8) - (99.8) - (99.8)
Total comprehensive income for the period - - - 19.8 39.1 134.9 193.8 73.9 267.7 - 267.7
Dividends to shareholders - - - - - (629.5) (629.5) - (629.5) - (629.5)
Scrip dividend related share issue 4.7 (4.7) - - - 142.6 142.6 - 142.6 - 142.6
Distributions to hybrid capital holders - - - - - - - (73.9) (73.9) - (73.9)
Issue of shares - 0.9 - - - - 0.9 - 0.9 - 0.9
Credit in respect of employee share awards - - - - - 6.6 6.6 - 6.6 - 6.6
Investment in own shares - - - - - (5.0) (5.0) - (5.0) - (5.0)
Non controlling interest (i) - - - - - - - - (22.5) (22.5)
At 30 September 2016 508.5 876.6 22.0 17.6 21.3 1,248.2 2,694.2 2,209.7 4,903.9 - 4,903.9
Statement of changes in equity Share capital Share premium account Capital redemption reserve Hedge reserve Translationreserve Retained earnings Total attributable to ordinary shareholders Hybrid capital Total
£m £m £m £m £m £m £m £m £m
At 1 April 2015 496.5 862.7 22.0 (72.1) (69.5) 1,469.8 2,709.4 3,371.1 6,080.5
Profit for the period - - - - - 192.7 192.7 12.5 205.2
Other comprehensive income - - - 15.0 9.6 208.2 232.8 - 232.8
Share of joint ventures and associates other comprehensive income - - - 6.0 - (20.5) (14.5) - (14.5)
Total comprehensive income for the period - - - 21.0 9.6 380.4 411.0 12.5 423.5
Dividends to shareholders - - - - - (613.5) (613.5) - (613.5)
Scrip dividend related share issue 5.3 (5.3) - - - 159.5 159.5 - 159.5
Distributions to hybrid capital holders - - - - - - - (12.5) (12.5)
Issue of shares 0.1 1.0 - - - - 1.1 - 1.1
Credit in respect of employee share awards - - - - - 8.7 8.7 - 8.7
Investment in own shares - - - - - (7.4) (7.4) - (7.4)
At 30 September 2015 501.9 858.4 22.0 (51.1) (59.9) 1,397.5 2,668.8 3,371.1 6,039.9
(i) This represents the reclassification of the non-controlling interest in Clyde Windfarm (Scotland) Limited which is now
accounted as a joint venture (see Note 4.2(v)).
Consolidated Statement of Changes in Equity
for the year ended 31 March 2016
Statement of changes in equity Share capital Share premium account Capital redemptionreserve Hedge reserve Translation reserve Retained earnings Total attributable to ordinary shareholders Hybrid capital Total equity attributable to equity holders of the parent Non-controlling interest Total Equity
£m £m £m £m £m £m £m £m £m £m £m
At 1 April 2015 496.5 862.7 22.0 (72.1) (69.5) 1,469.8 2,709.4 3,371.1 6,080.5 - 6,080.5
Profit for the year - - - - - 460.6 460.6 124.6 585.2 - 585.2
Other comprehensive income - - - 69.0 51.7 187.0 307.7 - 307.7 - 307.7
Share of joint ventures and associates other comprehensive income - - - 3.9 - 76.4 80.3 - 80.3 - 80.3
Total comprehensive income for the year - - - 72.9 51.7 724.0 848.6 124.6 973.2 - 973.2
Dividends to shareholders - - - - - (884.0) (884.0) - (884.0) - (884.0)
Scrip dividend related share issue 5.9 (5.9) - - - 175.8 175.8 - 175.8 - 175.8
Distributions to hybrid capital holders - - - - - - - (124.6) (124.6) - (124.6)
Issue of shares 1.4 23.6 - - - - 25.0 - 25.0 - 25.0
Redemption of hybrid capital - - - - - (8.5) (8.5) (1,161.4) (1,169.9) - (1,169.9)
Credit in respect of employee share awards - - - - - 13.5 13.5 - 13.5 - 13.5
Investment in own shares - - - - - (11.1) (11.1) - (11.1) - (11.1)
Disposal of non-controlling interest in Clyde Windfarm - - - - - 138.6 138.6 - 138.6 - 138.6
Non controlling interest (i) - - - (3.0) - (19.5) (22.5) - (22.5) 22.5 -
At 31 March 2016 503.8 880.4 22.0 (2.2) (17.8) 1,598.6 2,984.8 2,209.7 5,194.5 22.5 5,217.0
(i) This represents the recognition of the non-controlling interest in Clyde Windfarm (Scotland) Limited, the Group's share
in which is now accounted as a joint venture (see Note 4.2(v)).
Consolidated Cash Flow Statement
for the period 1 April 2016 to 30 September 2016
Yearended 31 March 2016 Note Six months ended 30 September 2016 Six months ended 30 September 2015
£m £m £m
2,112.1 Cash generated from operations before working capital movements 11 794.3 800.4
44.0 Decrease/(increase) in inventories (5.1) 3.2
1,098.5 Decrease in receivables 760.1 1,290.7
(879.5) Decrease in payables (344.0) (964.2)
(55.7) Decrease in provisions (23.2) (31.7)
2,319.4 Cash generated from operations 1,182.1 1,098.4
130.9 Dividends received from joint ventures and associates 20.8 17.5
101.8 Interest received 60.5 47.6
(254.1) Interest paid (126.9) (125.4)
(125.5) Income taxes paid (63.3) (84.9)
(13.6) Payment for consortium relief - (0.2)
2,158.9 Net cash from operating activities 1,073.2 953.0
Cash flows from investing activities
(1,495.4) Purchase of property, plant and equipment (741.1) (682.8)
(444.8) Purchase of other intangible assets (158.3) (146.3)
16.1 Deferred income received 0.8 -
312.4 Proceeds from disposals 12 76.2 10.1
(50.5) Loans to joint ventures and associates (15.6) (38.5)
(669.0) Purchase of businesses and subsidiaries - -
18.3 Loans and equity repaid by joint ventures 48.9 10.9
(9.8) Investment in joint ventures and associates (0.7) (2.9)
(0.2) Increase in other investments - -
(2,322.9) Net cash from investing activities (789.8) (849.5)
Cash flows from financing activities
25.0 Proceeds from issue of share capital 0.9 1.1
(708.2) Dividends paid to shareholders of the parent (486.9) (454.0)
(1,161.4) Redemption of hybrid capital - -
(124.6) Hybrid capital dividend payments (73.9) (12.5)
(11.1) Employee share awards share purchase (5.0) (7.4)
1,070.1 New borrowings 1,089.5 541.1
(77.7) Repayment of borrowings (910.3) (5.5)
(987.9) Net cash from financing activities (385.7) 62.8
(1,151.9) Net (decrease)/increase in cash and cash equivalents (102.3) 166.3
1,512.1 Cash and cash equivalents at the start of period 360.2 1,512.1
(1,151.9) Net (decrease)/increase in cash and cash equivalents (102.3) 166.3
360.2 Cash and cash equivalents at the end of period 257.9 1,678.4
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
1. Condensed Financial Statements
SSE plc (the Company) is a company domiciled in Scotland. The condensed interim statements comprise those of the Company
and its subsidiaries (together referred to as the Group).
The financial information set out in these condensed interim statements does not constitute the Group's statutory accounts
for the periods ended 30 September 2016, 31 March 2016 or 30 September 2015 within the meaning of Section 435 of the
Companies Act 2006. Statutory accounts for the year ended 31 March 2016, which were prepared in accordance with
International Financial Reporting Standards as adopted by the EU (adopted IFRS), have been reported on by the Group's
auditors and delivered to the Registrar of Companies. The financial information set out in these interim statements has
been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34
Interim Financial Reporting as adopted by the EU.
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 interim financial information is unaudited but has been formally reviewed by the
auditor and its report to the Company is set out on page 77.
These interim statements were authorised by the Board on 8 November 2016.
2. Basis of preparation
These condensed interim statements for the period to 30 September 2016 and the comparative information for the period to 30
September 2015 have been prepared applying the accounting policies and presentation used in the Group's consolidated
financial statements for the year ended 31 March 2016.
The Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable
future. The financial information has therefore been prepared on a going concern basis.
The Group applies the use of adjusted accounting measures throughout these statements. These measures enable the Directors
to present the underlying performance of the Group and its segments to the users of the statements in a consistent and
meaningful manner. The adjustments applied and certain terms such as 'adjusted operating profit', 'adjusted EPS' and
'adjusted net debt and hybrid capital' are not defined under IFRS and are explained in more detail below.
(i) Adjusted measures
The Directors assess the performance of the Group and its reportable segments based on 'adjusted measures'. These measures
are used for internal performance management and are believed to be appropriate for explaining underlying performance to
users of the accounts. These measures are also deemed the most useful for the ordinary shareholders of the Company and for
other stakeholders.
The performance of the reportable segments is reported based on adjusted profit before interest and tax ('adjusted
operating profit'). This is reconciled to reported profit before interest and tax by adding back exceptional items and
certain re-measurements (see (ii) below) and after the removal of interest and taxation on profits from equity-accounted
joint ventures and associates.
The performance of the Group is reported based on adjusted profit before tax which excludes exceptional items and certain
re-measurements (see below), the net interest costs associated with defined benefit schemes and taxation on profits from
equity-accounted joint ventures and associates. The interest costs removed are non-cash and are subject to variation based
on actuarial valuations of scheme liabilities.
The Group's key performance measure is adjusted earnings per share (EPS), which is based on basic earnings per share before
exceptional items and certain re-measurements (see below), the net interest costs associated with defined benefit schemes
and after the removal of deferred taxation.
The financial statements also include an 'adjusted net debt and hybrid capital' measure. This presents financing
information on the basis used for internal liquidity risk management. This measure excludes obligations due under finance
leases and includes cash held as collateral on commodity trading exchanges. The measure represents the capital owed to
investors, lenders and equity holders other than the ordinary shareholders. As with 'adjusted earnings per share', this
measure is considered to be of particular relevance to the ordinary shareholders of the Group as well as other stakeholders
and interested parties.
(ii) Exceptional items and certain re-measurements
Exceptional items are those charges or credits that are considered unusual by nature and scale and of such significance
that separate disclosure is required for the financial statements to be properly understood. The trigger events for
exceptional items will be tend to be non-recurring although exceptional charges may impact the same asset class or segment
over time. Market conditions that have deteriorated significantly over time will only be captured to the extent observable
at the balance sheet date. Examples of items that may be considered exceptional include material asset or business
impairment charges, business restructuring costs, significant gains or losses on disposal of assets and businesses and
contractual settlements following significant disputes and claims. The Directors consider that any gain or loss on disposal
of greater than £30.0m would be disclosed as being exceptional by nature of its scale. Other gains or losses on disposal
below this level may be considered to be exceptional by reference to specific circumstances which will be explained on a
case-by-case basis.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
2. Basis of preparation (continued)
(ii) Exceptional items and certain re-measurements (continued)
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. This excludes commodity contracts not treated as financial instruments under IAS 39 where held for the Group's
own use requirements which are not recorded until the underlying commodity is delivered.
(iii) 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.
3. Summary of significant new accounting policies and reporting changes
In the period, the Group has adopted the amendments to IFRS 11 'Accounting for acquisitions of interests in joint
operations' which were effective on 1 January 2016. These clarify that the acquisition of an interest in a joint operation
will be accounted for in accordance with IFRS 3 Business Combinations. Adopting this standard has not had an impact on
these financial statements.
The following issued standards have not yet been adopted by the Group:
i) IFRS 15 'Revenue from contracts with customers' is effective on 1 January 2018 (and thus to the Group from 1 April
2018), subject to European Union (EU) endorsement;
ii) IFRS 16 'Leases' is effective on 1 January 2019 (1 April 2019 to the Group), subject to EU endorsement;
iii) IFRS 9 'Financial instruments' which will be effective on 1 January 2018 (1 April 2018 to the Group), subject to EU
endorsement.
The Group has commenced initial assessment of the impact of these standards on the consolidated financial statements.
However, at this stage, it is not yet practicable to quantify the impact these standards will have. The assessment of IFRS
15 will consider matters such as bundled goods and services, the allocation of transaction price to performance
obligations, treatment of customer acquisition costs and contracts with variable consideration. The assessment of IFRS 16
will require, with certain exceptions, obligations associated with contracts currently designated as operating leases to be
recognised on balance sheet as lease liabilities. The definition of a lease has also been modified which may impact which
contracts the Group accounts for as leases. Further comment will be provided on the Group's assessment of these matters in
the financial statements for the year to 31 March 2017.
In addition to these, there are a number of other amendments and annual improvement project recommendations that are not
yet effective but which have been endorsed by the EU. These are not anticipated to have a material impact on the Group's
consolidated financial statements.
4. Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the Group's accounting policies, management necessarily makes judgements and estimates that 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 with the most Significant Financial Judgement areas as specifically discussed by the Audit
Committee being highlighted separately.
4.1 Significant Financial Judgements - Estimation Uncertainties
The preparation of these Financial Statements has specifically considered the following Significant Financial Judgements
all of which are areas of estimation uncertainty.
(i) Impairment testing and valuation of certain Non-Current Assets - Estimation Uncertainty
The Group annually reviews the carrying amounts of its goodwill, other intangible assets and specific property, plant and
equipment assets to determine whether any impairment of the carrying value of those assets requires to be recorded. In
conducting its reviews, the Group makes judgements and estimates in considering the recoverable amount of the respective
assets or cash-generating units (CGUs). The specific assets under review in the period ended 30 September 2016 are
goodwill, thermal power generation assets, wind farm CGUs, gas storage assets and exploration and production (E&P) assets.
As permitted by IAS 34 Interim Financial Reporting, the Group has focused on reviewing the key changes in estimates and
assumptions as applied in the preparation of the financial statements to 31 March 2016.
Changes to the estimates and assumptions on factors such as regulation and legislation changes, power, gas, carbon and
other commodity prices, volatility of gas prices, plant running regimes and load factors, expected 2P reserves, discount
rates and other inputs could impact the assessed recoverable value of assets and CGUs and consequently impact the Group's
income statement and balance sheet.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
4. Critical accounting judgements and key sources of estimation uncertainty
4.1 Significant Financial Judgements - Estimation Uncertainties (continued)
(ii) Revenue recognition - estimated energy consumption - Estimation Uncertainty
Revenue from Retail energy supply activities includes an estimate of the value of electricity or gas supplied to customers
between the date of the last meter reading and the year end. This estimation will comprise of values for billed revenue in
relation to consumption from unread meters based on estimated consumption taking account of various factors including usage
patterns and weather trends (disclosed as trade receivables) and for unbilled revenue (disclosed as accrued income). The
volume of unbilled electricity or gas is calculated by assessing a number of factors such as externally notified aggregated
volumes supplied to customers, amounts billed to customers and other adjustments. Unbilled income is calculated by applying
the tariffs relevant to the customer type to the calculated volume of electricity or gas. This estimation methodology is
subject to an internal corroboration process that provides support for the judgements made by management. This process
requires the comparison of calculated unbilled volumes to a benchmark measure of unbilled volumes which is derived using
independently verified data and by assessing historical weather-adjusted consumption patterns and actual meter data that is
used in industry reconciliation processes for total consumption by supplier. This aspect of the corroboration process,
which requires a comparison of the estimated supplied quantity of electricity or gas that is deemed to have been delivered
to customers and the aggregate supplied quantity of electricity or gas applicable to the Group's customers that is measured
by industry system operators, is a key judgement. The assessment of electricity unbilled revenue is further influenced by
the impact on national settlements data of feed-in-tariff supported volumes and spill from solar PV generation. The
experience of the Group is that the industry estimated supplied quantities in gas have historically been higher than actual
metered supply. To take account of this, the Group applies a further judgement, being a percentage reduction to unbilled
consumption volume, to the measurement of its unbilled revenue in the financial statements. It is expected that this
judgement will become less critical as the industry transitions to smart meter technology.
(iii) Valuation of trade receivables - Estimation Uncertainty
The basis of determining the provisions for bad and doubtful debts is explained at Note 16 of the financial statements in
the section on credit risk and aged debt. While the provisions are considered to be appropriate, changes in estimation
basis or in economic conditions could lead to a change in the level of provisions recorded and consequently on the charge
or credit to the income statement.
(iv) Retirement benefits - 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. The value of scheme assets are impacted by the asset ceiling test which
(a) restricts the surplus that can be recognised to assets that can be recovered fully through refunds and (b) may increase
the value of scheme liabilities where there are minimum funding liabilities in relation to agreed contributions. Further
detail on the estimation basis is contained in Note 17 of the financial statements.
4.2 Other key accounting judgements
Other key accounting judgements applied in the preparation of these Financial Statements include the following:
(i) Business Combinations and acquisitions - Accounting Judgement
Business combinations and acquisitions require a fair value exercise to be undertaken to allocate the purchase price to the
fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the
assets and liabilities is based, to a certain extent, on management's judgement. The amount of goodwill initially
recognised as a result of a business combination is dependent on the allocation of this purchase price to the identifiable
assets and liabilities with any unallocated portion being recorded as goodwill. There were no business combinations in the
period.
(ii) Energy Company Obligation (ECO) costs - Accounting Judgement
The Energy Company Obligation ('ECO') legislation, in force since 1 January 2013, requires qualifying energy suppliers such
as the Group's Energy Supply business, to meet defined targets by providing measures to improve the energy efficiency of
and level of carbon emissions from UK domestic households. Delivery of the measures is required by 31 March 2017. As the
Group is not technically obligated to deliver the measures until 31 March 2017, the costs of ECO are recorded when measures
are delivered or other qualifying expenditure has been incurred.
(iii) Metering contracts
Following the disposal of smart meter assets to Meter Fit 10 Limited in the period (see Note 12), the Group has entered
into an agreement for the provision of meter asset provider (MAP) services with that company. The Group has assessed that
this arrangement, in common with all similar arrangements, is not a lease because other parties take a significant amount
of the output from the meters and due to the Group being unable to control either the operation or the physical access to
the meters.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
4. Critical accounting judgements and key sources of estimation uncertainty (continued)
4.2 Other key accounting judgements (continued).
(iv) Treatment of disputes and claims - Accounting Judgement
The Group is exposed to the risk of litigation, regulatory judgements and contractual disputes through the course of its
normal operations. The Group considers each instance separately in accordance with legal advice and will provide or
disclose information as deemed appropriate. Changes in the assumptions around the likelihood of an outflow of economic
resources or the estimation of any obligation would change the values recognised in the financial statements
(v) Consolidation of interest in Clyde Windfarm (Scotland) Limited- Accounting Judgement
In the prior financial year, the Group completed the sale of 49.9% of the equity in Clyde Windfarm (Scotland) Limited
('Clyde'). Details of this transaction are included at Note 12. The Group is providing project and contract management
services for and 100% of the funding for the construction of the 172.8MW extension of the wind farm. As part of this
arrangement, the Group had retained a casting vote over the engineering, procurement and construction of the extension and
certain rights over the construction of the extension. Under IFRS 10 Consolidated Financial Statements, the extension was
considered to be a 'relevant activity' which significantly affects the future returns from Clyde. The rights retained by
the Group were therefore concluded to confer power to control the relevant activities of Clyde to the Group. As a
consequence, this entity was fully consolidated into the Group's financial statements at 31 March 2016. This meant that the
gain on the transaction in that financial year was recorded in equity and the co-venturers' ownership share was represented
as a non-controlling interest.
On 13 May 2016, the Group agreed to waive those contractual rights which gave rise to the judgement that power to control
the relevant activities existed over Clyde. All other contractual arrangements remain in place. As a consequence, the Group
has since accounted for its interest in Clyde as that of an investment in an equity-accounted joint venture. One of the
impacts of the change to the consolidation basis was to remove the equivalent to the £200.7m of non-recourse borrowings
held by Clyde at 31 March 2016 from the Group's consolidated balance sheet. In addition, the Group's interest in the entity
is expected to remain that of an equity-accounted joint venture following completion of the extension construction project.
At 31 March 2016, the £200.7m debt item had been excluded from the Group's 'adjusted net debt and hybrid capital' measure.
4.3 Other areas of estimation uncertainty
(i) Provisions and contingencies
The assessments undertaken in recognising provisions and contingencies have been made in accordance with IAS 37. Provisions
are calculated based on estimations. The evaluation of the likelihood of the contingent events has required best judgement
by management regarding the probability of exposure to potential loss. Should circumstances change following unforeseeable
developments, this likelihood could alter.
(ii) Decommissioning costs
The estimated cost of decommissioning at the end of the useful lives of certain property, plant and equipment assets is
reviewed periodically and has been reassessed in the year to 31 March 2016. Decommissioning costs in relation to gas
exploration and production assets are based on expected lives of the fields and costs of decommissioning. Provision is made
for the estimated discounted cost of decommissioning at the balance sheet date. The dates for settlement of future
decommissioning costs are uncertain and are currently expected to be incurred predominantly between 2017 and 2040.
(iii) Gas and liquids reserves
The volume of proven and probable (2P) gas and liquids reserves is an estimate that affects the unit of production
depreciation of producing gas and liquids property, plant and equipment. This is also a significant input estimate to the
associated impairment and decommissioning
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