REG - SSE Plc - Half Year Results <Origin Href="QuoteRef">SSE.L</Origin> - Part 5
09/11/2016 07:06
- Part 5: For the preceding part double click ID:nRSI6798Od
calculations. The impact of a change in estimated proven and probable reserves is
dealt with prospectively by depreciating the remaining book value of producing assets over the expected future production.
If proven and probable reserves estimates are revised downwards, earnings could be affected by higher depreciation expense
or an immediate write-down (impairment) of the asset's book value.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
5. Segmental information
The Group's operating segments are those used internally by the Board to run the business and make strategic decisions. The
Group's main businesses and operating segments are the Networks business, compromising Electricity Distribution,
Electricity Transmission and Gas Distribution; the Retail business, compromising Energy Supply, Enterprise and
Energy-related Services; and Wholesale, comprising Energy Portfolio Management and Electricity Generation, Gas Storage and
Gas Production.
The types of products and services from which each reportable segment derives its revenues are:
Business Area Reported Segments Description
Networks Electricity Distribution The economically regulated lower voltage distribution of electricity to customer premises in the North of Scotland and the South of England
Electricity Transmission The economically regulated high voltage transmission of electricity from generating plant to the distribution network in the North of Scotland
Gas Distribution SSE's share of Scotia Gas Networks, which operates two economically regulated gas distribution networks in Scotland and the South of England
Retail Energy Supply The supply of electricity and gas to residential and business customers in the UK and Ireland
Enterprise The integrated provision of services in competitive markets for industrial and commercial customers including electrical contracting, private energy networks, lighting services and telecoms capacity and bandwidth
Energy-related Services The provision of energy-related goods and services to customers in the UK including meter reading and installation, boiler maintenance and installation and domestic telecoms and broadband services
Wholesale Energy Portfolio Management and Electricity Generation The generation of power from renewable and thermal plant in the UK and Ireland and the optimisation of SSE's power and gas and other commodity requirements
Gas Storage The operation of gas storage facilities in the UK
Gas Production The production and processing of gas and oil from North Sea fields
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 IAS 39, the net
interest costs associated with defined benefit pension schemes and after the removal of taxation and interest on profits
from joint ventures and associates.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
5. Segmental information (continued)
(a) Revenue by segment
Six months ended 30 September 2016 Six months ended 30 September 2015
External revenue Intra-segment revenue Total revenue External revenue Intra-segment revenue Total revenue
£m £m £m £m £m £m
Networks
Electricity Distribution 367.4 114.8 482.2 316.9 113.3 430.2
Electricity Transmission 179.4 - 179.4 179.5 - 179.5
546.8 114.8 661.6 496.4 113.3 609.7
Retail
Energy Supply 3,043.6 47.4 3,091.0 3,125.9 46.2 3,172.1
Enterprise 190.8 46.1 236.9 205.4 72.3 277.7
Energy-related Services 39.6 62.6 102.2 58.7 54.3 113.0
3,274.0 156.1 3,430.1 3,390.0 172.8 3,562.8
Wholesale
Energy Portfolio Management and Electricity Generation 7,374.2 1,287.2 8,661.4 9,892.3 1,476.4 11,368.7
Gas Storage 7.6 126.9 134.5 2.8 100.3 103.1
Gas Production 16.6 108.1 124.7 0.9 79.4 80.3
7,398.4 1,522.2 8,920.6 9,896.0 1,656.1 11,552.1
Corporate unallocated 43.6 120.9 164.5 49.1 112.0 161.1
Total 11,262.8 1,914.0 13,176.8 13,831.5 2,054.2 15,885.7
Revenue from the Group's investment in Scotia Gas Networks Limited, the Group's share being £279.8m (2015 - £262.7m, March
2016 - £549.8m) is not recorded in the revenue line in the income statement
Year ended 31 March 2016
External revenue Intra-segment revenue Total revenue
£m £m £m
Networks
Electricity Distribution 689.0 243.6 932.6
Electricity Transmission 367.9 - 367.9
1,056.9 243.6 1,300.5
Retail
Energy Supply 7,548.3 83.2 7,631.5
Enterprise 455.1 96.6 551.7
Energy-related Services 118.2 112.9 231.1
8,121.6 292.7 8,414.3
Wholesale
Energy Portfolio Management and Electricity Generation 19,525.3 3,780.6 23,305.9
Gas Storage 5.7 214.3 220.0
Gas Production 2.2 144.9 147.1
19,533.2 4,139.8 23,673.0
Corporate unallocated 69.6 258.9 328.5
Total 28,781.3 4,935.0 33,716.3
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
5. Segmental information (continue)
(b) Operating profit by segment
Six months ended 30 September 2016
Adjusted operating profit reported to the Board Joint Venture/ Associate share of interest and tax (i) Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total
£m £m £m £m £m
Networks
Electricity Distribution 181.0 - 181.0 - 181.0
Electricity Transmission 135.6 - 135.6 - 135.6
Gas Distribution 139.3 (70.0) 69.3 23.8 93.1
455.9 (70.0) 385.9 23.8 409.7
Retail
Energy Supply 47.1 - 47.1 - 47.1
Enterprise 4.8 - 4.8 - 4.8
Energy-related Services 8.6 - 8.6 - 8.6
60.5 - 60.5 - 60.5
Wholesale
Energy Portfolio Management and Electricity Generation 123.2 (16.6) 106.6 162.1 268.7
Gas Storage (4.3) - (4.3) - (4.3)
Gas Production 2.1 - 2.1 - 2.1
121.0 (16.6) 104.4 162.1 266.5
Corporate unallocated (0.2) - (0.2) - (0.2)
Total 637.2 (86.6) 550.6 185.9 736.5
Six months ended 30 September 2015
Adjusted operating profit reported to the Board Joint Venture/ Associate share of interest and tax (i) Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total
£m £m £m £m £m
Networks
Electricity Distribution 178.6 - 178.6 - 178.6
Electricity Transmission 142.4 - 142.4 - 142.4
Gas Distribution 130.6 (72.5) 58.1 2.4 60.5
451.6 (72.5) 379.1 2.4 381.5
Retail
Energy Supply 73.8 - 73.8 - 73.8
Enterprise 16.5 - 16.5 - 16.5
Energy-related Services 11.2 - 11.2 - 11.2
101.5 - 101.5 - 101.5
Wholesale
Energy Portfolio Management and Electricity Generation 141.8 (10.3) 131.5 (278.4) (146.9)
Gas Storage 3.7 - 3.7 - 3.7
Gas Production 14.1 - 14.1 - 14.1
159.6 (10.3) 149.3 (278.4) (129.1)
Corporate unallocated (10.8) - (10.8) - (10.8)
Total 701.9 (82.8) 619.1 (276.0) 343.1
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
5. Segmental information (continued)
(b) Operating profit by segment (continued)
Year ended 31 March 2016
Adjusted operating profit reported to the Board Joint Venture/ Associate share of interest and tax (i) Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total
£m £m £m £m £m
Networks
Electricity Distribution 370.7 - 370.7 - 370.7
Electricity Transmission 287.2 - 287.2 - 287.2
Gas Distribution 268.7 (142.0) 126.7 48.6 175.3
926.6 (142.0) 784.6 48.6 833.2
Retail
Energy Supply 398.9 - 398.9 - 398.9
Enterprise 40.9 - 40.9 - 40.9
Energy-related Services 15.4 - 15.4 (17.8) (2.4)
455.2 - 455.2 (17.8) 437.4
Wholesale
Energy Portfolio Management and Electricity Generation 436.3 (24.7) 411.6 (586.4) (174.8)
Gas Storage 4.0 - 4.0 (150.9) (146.9)
Gas Production 2.2 - 2.2 (161.8) (159.6)
442.5 (24.7) 417.8 (899.1) (481.3)
Corporate unallocated 0.1 - 0.1 (4.0) (3.9)
Total 1,824.4 (166.7) 1,657.7 (872.3) 785.4
(i) The adjusted operating profit of the Group is reported after removal of the Group's share of interest, fair value
movements on financing derivatives and tax from joint ventures and associates and after adjusting for exceptional items and
certain re-measurements (note 6). The share of Scotia Gas Networks Limited interest includes loan stock interest payable to
the consortium shareholders. The Group has accounted for its 50% share of this, £11.5m (2015 - £13.2m, March 2016 -
£24.3m), as finance income (note 7).
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
6. Exceptional items and certain re-measurements
Year ended 31 March2016£m Six months ended 30 September 2016£m Six months ended 30 September 2015£m
Exceptional items (i)
(892.5) Asset impairments and related charges - (25.3)
(54.9) Provisions for restructuring and other liabilities - (16.2)
(947.4) - (41.5)
57.6 Net gains on disposals of businesses and other assets - 39.3
(889.8) - (2.2)
46.7 Share of effect of change in UK corporation tax on deferred tax liabilities and assets of associate and joint venture investments 23.2 -
(843.1) Total exceptional items 23.2 (2.2)
Certain re-measurements (ii)
(31.1) Movement on operating derivatives 162.1 (276.2)
14.3 Movement on financing derivatives (20.2) (11.3)
1.9 Share of movement on derivatives in jointly controlled entities (net of tax) 0.6 2.4
(14.9) 142.5 (285.1)
(858.0) Exceptional items before taxation 165.7 (287.3)
Taxation (iii)
41.5 Effect of change in UK corporation tax rate on deferred tax assets and liabilities 51.8 -
227.6 Taxation on other exceptional items - 8.3
269.1 51.8 8.3
3.4 Taxation on certain re-measurements (28.4) 55.2
272.5 Taxation 23.4 63.5
(585.5) Exceptional items after taxation 189.1 (223.8)
Exceptional items are disclosed across the following categories within the income statement:
Year ended 31 March2016£m Six months ended 30 September 2016£m Six months ended 30 September 2015£m
Cost of sales:
(287.0) Coal-fired Generation related provisions and charges - (41.5)
(326.4) Gas-fired Generation related charges - -
(31.1) Movement on operating derivatives (note 16) 162.1 (276.2)
(644.5) 162.1 (317.7)
Operating costs:
(161.8) Gas Production (E&P) related charges - -
(150.9) Gas Storage related charges - -
(21.3) Other exceptional provisions and charges - -
(334.0) - -
Operating income:
57.6 Net gains on disposals of businesses and other assets - 39.3
Joint ventures and associates:
46.7 Effect of change in UK corporation tax on deferred tax liabilities and assets 23.2 -
1.9 Movement on derivatives (net of tax) 0.6 2.4
48.6 23.8 2.4
(872.3) Operating profit/(loss) 185.9 (276.0)
Finance costs
14.3 Movement on financing derivatives (note 16) (20.2) (11.3)
(858.0) Profit/(loss) before taxation 165.7 (287.3)
(i) Exceptional items
In the previous financial year, a number of exceptional charges and credits were recognised following impairment reviews
and disposal transactions. Details of those exceptional items are noted. Other than the impact of the change in UK
corporation tax rates noted at (iii), below, no exceptional charges or credits have been recorded in the period to 30
September 2016.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
6. Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
Exceptional items and certain re-measurements (continued)
(i) Exceptional items (continued)
(i) Coal-fired Generation. On 20 May 2015, the Group announced that operations at Ferrybridge would cease at 31 March 2016
and consequently exceptional charges of £72.0m were recognised (£41.5m recognised at 30 September 2015). On 30 March 2016,
the Group announced that operations at Fiddler's Ferry would continue and that SSE would enter 'all or part of' the
capacity at Fiddler's Ferry into any 2017/18 Capacity Market auction. Despite this, further exceptional charges were
recognised totalling £215.0m.
(ii) Gas-fired Generation. Following the failure of Peterhead Power Station to win a capacity contract under the Capacity
Market Auction for 2019/20 and the announcement, on 25 November 2015, that the UK Government was withdrawing funding
support for the proposed carbon capture and storage project at Peterhead Power Station, exceptional charges of £129.3m have
been recognised in relation to the assets at the site. In addition, further impairment charges of £197.1m in relation to
the Group's other main Gas-fired Generation plants in Great Britain (Medway, Keadby and Marchwood) were recognised.
(iii) Gas Production. Impairment of the Group's Gas Exploration and Production assets in the North Sea has been recognised
predominately due to declining wholesale gas prices. The exceptional charges recognised include (£121.2m) related to the
impairment of Greater Laggan field assets and other E&P assets at Sean, Lomond, Bacton and ECA (£40.6m).
(iv) Gas Storage. Current and forecast demand for gas storage in Great Britain continued to be impacted by reduced short
term price volatility and seasonal spreads in the wholesale gas market. Exceptional charges of £150.9m have been recognised
in relation to both the group's assets Hornsea (Atwick) and Aldbrough.
(v) Other charges. Other exceptional charges of £21.3m were recognised in relation to impairment of system development
projects, restructuring charges and exit costs associated with the strategic exit from certain non-core activities.
The Group recognised £57.6m of exceptional net credits arising from the disposal of three onshore wind development sites to
Blue Energy (£39.3m) and the disposal of its interest in the Galloper offshore wind development (£18.3m).
(ii) Certain re-measurements
The Group enters into forward commodity purchase contracts to meet the future demands of its Energy Supply business and to
optimise the value of its Generation and other 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 (and hedged items) as described in
Note 16.
(iii) Change in UK corporation tax rates
The Finance (no.2) Act 2016 which received royal assent on 15 September 2016 enacted a Corporation tax rate of 17% from 1
April 2020, this adds to the Finance (No.2) Act 2015 (substantively enacted in the prior financial period), which enacted a
rate of 19% (currently 20%) from 1 April 2017. As the Finance (no.2) Act 2016 has been substantively enacted it has the
effect of reducing the Group's deferred tax liability by £98.2m, including the impact of changes recognised in the
statement of other comprehensive income (£46.4m).
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
7. Net finance costs
Year ended 31 March 2016 Six months ended 30 September 2016 Six months ended 30 September 2015
£m £m £m
Finance income:
4.7 Interest income from short term deposits 1.0 4.7
9.0 Foreign exchange translation of monetary assets and liabilities 19.8 -
Other interest receivable:
24.3 Scotia Gas Networks loan stock 11.5 13.2
18.8 Other joint ventures and associates 16.4 19.5
45.0 Other receivable 11.8 10.2
88.1 39.7 42.9
101.8 Total finance income 60.5 47.6
Finance costs:
(27.9) Bank loans and overdrafts (15.9) (12.8)
(257.1) Other loans and charges (134.0) (133.6)
(20.4) Interest on net pension scheme liabilities (6.7) (10.3)
(15.7) Notional interest arising on discounted provisions (7.4) (1.7)
(34.7) Finance lease charges (16.5) (16.2)
47.6 Less: interest capitalised 19.6 26.0
(308.2) Total finance costs (160.9) (148.6)
14.3 Movement on financing derivatives and exceptional items (20.2) (11.3)
(192.1) Net finance costs (120.6) (112.3)
Presented as:
101.8 Finance income 60.5 47.6
(293.9) Finance costs (181.1) (159.9)
(192.1) Net finance costs (120.6) (112.3)
Adjusted net finance costs are arrived at after the following adjustments:
Year ended 31 March 2016 Six months ended 30 Six months ended 30
September September2015
2016
£m £m £m
(192.1) Net finance costs (120.6) (112.3)
(add)/less:
Share of interest from joint ventures and associates:
(24.3) Scotia Gas Networks loan stock (11.5) (13.2)
(102.5) Other jointly controlled entities and associates (55.6) (50.2)
(126.8) (67.1) (63.4)
20.4 Interest on pension scheme liabilities 6.7 10.3
1.9 Share of interest on net pension liabilities in joint ventures (0.6) 1.0
(14.3) Movement on financing derivatives (note 16) 20.2 11.3
(310.9) Adjusted net finance costs (161.4) (153.1)
15.7 Notional interest arising on discounted provisions 7.4 6.9
34.7 Finance lease charges 16.5 16.2
(124.6) Hybrid coupon payment (73.9) (12.5)
(385.1) Adjusted net finance costs for interest cover calculations (211.4) (142.5)
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
8. Taxation
The income tax expense reflects the anticipated effective rate of tax on profits before taxation for the Group for the year
ending 31 March 2017, 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 is 19.8% (2015 - 17.2%, March 2016 - 19.3%). The reported tax rate on the profit before tax after
exceptional items, including the effect of changes in tax rate, and certain re-measurements was 10.6% (2015 - 11.1%, March
2016 - 1.4%).
The total adjusted effective rate of tax on profits before taxation excluding exceptional items, certain re-measurements,
deferred tax associated with interest on net pension liabilities under IAS 19R and adjusted for tax on associates and
jointly controlled entities for the period can be represented as follows:
Year ended 31 March 2016 Six months ended 30 Six months ended 30
September September
2016 2015
Adjusted effective rate:
12.8% Current tax 12.0% 14.6%
8.8% Deferred tax 6.0% 5.1%
21.6% 18.0% 19.7%
9. Dividends
Ordinary dividends
Year ended31 March 2016 Total £m Settled via scrip £m Pence per ordinary share Six months ended 30 September 2016Total£m Settledvia scrip Pence per ordinary share Six months ended 30 September 2015 Total £m Settledvia scrip £m Pence per ordinary share
£m
- - - Final - year ended 31 March 2016 629.5 142.6 62.5 - - -
270.5 16.3 26.9 Interim - year ended 31 March 2016 - - - - - -
613.5 159.5 61.8 Final- year ended 31 March 2015 - - - 613.5 159.5 61.8
884.0 175.8 629.5 142.6 613.5 159.5
The final dividend of 62.5p per ordinary share declared in the financial year ended 31 March 2016 (2015 - 61.8p) was
approved at the Annual General Meeting on 21 July 2016 and was paid to shareholders on 23 September 2016. Shareholders were
able to elect to receive ordinary shares credited as fully paid instead of the interim cash dividend under the terms of the
Company's scrip dividend scheme.
An interim dividend of 27.4p per ordinary share (2015 - 26.9p) has been proposed and is due to be paid on 17 March 2017 to
those shareholders on the SSE plc share register on 20 January 2017. The proposed interim dividend has not been included as
a liability in these financial statements. A scrip dividend will be offered as an alternative.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
10. Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 September 2016 is based on the net profit attributable to ordinary
shareholders and the weighted average number of ordinary shares outstanding during the period ended 30 September 2016. All
earnings are from continuing operations.
Adjusted earnings per share
Adjusted earnings per share has been calculated by excluding the charge for deferred tax, the interest on net pension
liabilities under IAS 19R and the impact of exceptional items and certain re-measurements.
Year ended 31 March 2016 Six months ended Six months ended
30 September 2016 30 September 2015
Earnings£m Earnings per sharepence Earnings£m Earnings per sharepence Earnings£m Earnings per sharepence
460.6 46.1 Basic 476.2 47.2 192.7 19.4
585.5 58.5 Exceptional items and certain re-measurements (note 6) (189.1) (18.7) 223.8 22.5
1,046.1 104.6 Basic excluding exceptional items and certain re- measurements 287.1 28.5 416.5 41.9
Adjusted for:
20.4 2.0 Interest on net pension scheme liabilities (note 7) 6.7 0.7 10.3 1.0
1.9 0.2 Share of interest on net pension liabilities in joint venture (note 7) (0.6) (0.1) 1.0 0.1
121.3 12.1
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