REG - SSE Plc - Half Year Results <Origin Href="QuoteRef">SSE.L</Origin> - Part 6
09/11/2016 07:06
- Part 6: For the preceding part double click ID:nRSI6798Oe
Deferred tax 24.6 2.4 29.6 3.0
5.8 0.6 Deferred tax from share of joint ventures 27.0 2.7 (1.3) (0.1)
1,195.5 119.5 Adjusted 344.8 34.2 456.1 45.9
460.6 46.1 Basic 476.2 47.2 192.7 19.4
- (0.1) Dilutive effect of convertible debt and share options - - - (0.1)
460.6 46.0 Diluted 476.2 47.2 192.7 19.3
The weighted average number of shares used in each is as follows:
Year ended 31 March 2016Number of shares(millions) Six months ended 30 September 2016Number of shares (millions) Six months ended 30 September 2015Number of shares (millions)
1,000.0 For basic and adjusted earnings per share 1,008.0 993.8
1.2 Effect of exercise of share options 1.7 2.6
1,001.2 1,009.7 996.4
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
11. Notes to the Consolidated Cash Flow Statement
(a) Reconciliation of Group operating profit to cash generated from operations
Year ended31 March 2016 Six months ended 30 September2016 Six months ended 30 September2015
£m £m £m
585.2 Profit for the period/year 550.1 205.2
Add back:
8.1 Taxation 65.8 25.6
192.1 Net finance costs 120.6 112.3
785.4 Operating profit 736.5 343.1
(204.8) Less: share of profit of ventures and associates (99.8) (79.7)
580.6 Operating profit before joint ventures and associates 636.7 263.4
Add/(less):
31.1 Movement on operating derivatives (162.1) 276.2
(35.9) Pension service charges net of contributions paid (28.0) (26.3)
889.8 Exceptional charges - 2.2
676.8 Depreciation of assets 369.1 323.6
2.3 Amortisation and impairment of intangible assets 1.2 1.5
6.7 Other fixed asset impairments - -
(7.8) Release of provisions - -
(17.9) Release of deferred income (9.3) (8.9)
16.5 Charge in respect of employee share awards (before tax) 6.6 8.7
(30.1) (Profit)/loss on disposal of assets, investments and businesses (19.9) (40.0)
2,112.1 Cash generated from operations before working capital movements 794.3 800.4
(b) Reconciliation of net increase in cash and cash equivalents to movement in adjusted net debt and hybrid capital
Year ended31 March 2016 Six months ended 30 September2016 Six months ended 30 September2015
£m £m £m
(1,151.9) Increase/(Decrease) in cash and cash equivalents (102.3) 166.3
(Add)/less:
1,161.4 Redemption of hybrid capital - -
(1,070.1) New borrowings (1,089.5) (541.1)
77.7 Repayment of borrowings 910.3 5.5
(94.8) Non cash movement on borrowings (84.9) (41.0)
50.1 (Decrease)/increase in cash held as collateral and other short term loans (33.3) 41.6
200.7 Balances due to partners in Clyde Windfarm (Scotland) Limited (200.7) -
(826.9) Movement in adjusted net debt and hybrid capital (600.4) (368.7)
Other movement on borrowings includes non-cash revaluation of fair value items, exchange movements and accretion of
index-linked bonds and minimum payments under finance leases. Cash held as collateral refers to amounts deposited on
commodity trading exchanges which are reported within trade and other receivables on the face of the balance sheet. The
balances due to partners in Clyde Windfarm (Scotland) were no longer included in reported borrowings from 13 May 2016
following change in consolidation basis as described at Note 4.2(v) with the movement being shown in repayment of
borrowings.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
12. Acquisitions, disposals and held for sale
Significant disposals
On 21 January 2016, the company sold a 10% share in Beatrice Offshore Windfarm Limited to CI Beatrice I Limited and CI
Beatrice II Limited split equally between the two entities for total consideration of £32.7m of which £22.2m was deferred.
The deferred element of the consideration was contingent on certain events occurring after the balance sheet date.
Following confirmation of those events, in May 2016, the Group received cash of £32.7m which also included an element of
deferred consideration associated with a prior divestment (£10.5m). The Group consequently recognised a £20.3m gain on
disposal in the current year. This gain was deemed not to be exceptional due to the value not meeting the Group's stated
criteria (see Note 2(ii)).
On 26 May 2016, the Group disposed of £43.5m of smart meter assets to Meter Fit 10 Limited for cash consideration equal to
book value resulting in nil gain/(loss) on disposal and entered into a contract with the purchaser for meter asset
services. The assets disposed were held for sale at 31 March 2016.
In the period to 30 September 2015, the Group sold and recognised a gain on the disposal of three onshore wind development
sites (98MW) to Blue Energy of £39.3m based on deferred and cash consideration of £52.4m. In addition the company also
received £0.7m for sales of property assets, resulting in nil gain/ (loss) on disposal.
In the financial year to 31 March 2016, in addition to the disposals noted in the period to 30 September 2015, the Group
also sold its stake in the Galloper Offshore Windfarm Limited to its co-venture partner RWE Innogy for cash consideration
of £18.3m recording an exceptional gain of the same amount. This was deemed exceptional due to the investment having
previously being impaired following the March 2014 announcement on the Group's offshore investment strategy. The Group also
sold a 49.9% stake in its wholly owned operational 349.6MW Clyde Wind Farm to for total cash consideration of £339.2
million. The stake held by the co-investors was deemed at 31 March 2016 to be that of a non-controlling interest which
necessitated that the £128.6m gain on the part disposal was recognised directly in equity instead of in the income
statement. However, following the waiver by the Group on 13 May 2016 of certain contractual entitlements, the Group's
ongoing interest in the wind farm vehicle is that of a joint venture equity holder. Further detail on this key financial
judgement is included at Note 4.2(v).
Held for sale assets
A number of assets and liabilities associated with activities are deemed available for immediate sale and have been
separately presented on the face of the balance sheet at 30 September 2016. The assets have been stated at their fair value
less costs to sell.
March2016 Networks 2016 Enterprise 2016 Total September 2016 TotalSeptember2015
£m £m £m £m £m
- Property plant and equipment - - - 47.4
27.9 Other intangible - - - 10.3
- Equity investments in joint ventures and associates 214.4 - 214.4 -
- Loans to joint ventures and associates 89.1 - 89.1 -
27.9 Non-current assets 303.5 - 303.5 57.7
106.3 Trade and other receivables - 103.0 103.0 40.0
106.3 Current assets - 103.0 103.0 40.0
134.2 Total assets 303.5 103.0 406.5 97.7
(11.2) Trade and other payables - (6.6) (6.6) -
(5.9) Provisions - - - -
(17.1) Current liabilities - (6.6) (6.6) -
(97.9) Loans and borrowings - (104.8) (104.8) -
- Deferred tax liabilities - - - (0.3)
(97.9) Non-current liabilities - (104.8) (104.8) (0.3)
(115.0) Total liabilities - (111.4) (111.4) (0.3)
19.2 Net assets/(liabilities) 303.5 (8.4) 295.1 97.4
The Enterprise assets and liabilities identified as held for sale at 30 September 2016 relate to the group's three
remaining UK PFI street lighting companies. On 21 July 2016 the Group announced it had signed a sale and purchase agreement
with DIF Infrastructure IV for the equity interest in these companies. The sale process for these transactions is expected
to be completed in the second half of the financial year.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
12. Acquisitions, disposals and held for sale (continued)
Held for sale assets (continued)
The networks assets in the table relate to the group's 16.7% equity stake in Scotia Gas Networks (SGN). On 17 October 2016,
the Group announced it had entered into an agreement to sell this stake to wholly owned subsidiaries of the Abu Dhabi
Investment Authority (ADIA), for a headline consideration, before costs and adjustments, of £621.0m. Cash proceeds were
received on 26 October 2016 and following the divestment, the Group will retain a 33.3% equity stake in SGN. The
contribution to the Group's results in the periods reported in this statement from the divested 16.7% stake is set out
below.
Year ended31 March 2016 Six months ended 30 September2016 Six months ended 30 September2015
£m £m £m
89.7 Share of operating profit 46.5 43.6
(36.7) Share of interest (17.5) (19.1)
0.8 Share of movement on derivatives 0.2 1.0
4.7 Share of tax 1.8 (5.3)
58.5 Share of profit on joint ventures and associates 31.0 20.2
26.4 Share of other comprehensive income/(loss) (31.4) (4.8)
Total disposals
The following table summarises all businesses and assets disposed of during the financial year including the significant
disposals referred to above. The table differentiates the disposals of previously 'held for sale' assets and businesses
from other disposals which include other assets and investments disposed of as part of the normal course of business.
March2016 September2016 September2015
£m £m £m
Net proceeds of disposal
137.0 - Previously held for sale 43.5 52.4
175.4 - Not held for sale - 0.7
- - Receipt of deferred consideration on Beatrice divestment 32.7 -
Less: Deferred consideration
- - Previously held for sale - (43.0)
312.4 Proceeds of disposal per cash flow statement 76.2 10.1
200.7 Cash from Clyde Windfarm (Scotland) Ltd transaction recorded as new borrowings (i) - -
513.1 Total cash proceeds 76.2 10.1
(i) prior to change in designation at 13 May 2016 (see note 4.2(v))
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
13. Loans and other borrowings
March2016 September2016 September2015
£m £m £m
Current
898.8 Other short-term loans 313.5 712.6
24.5 Obligations under finance leases 25.3 21.7
923.3 338.8 734.3
Non current
5,969.2 Loans 6,818.6 5,644.8
276.3 Obligations under finance leases 265.3 286.8
6,245.5 7,083.9 5,931.6
7,168.8 Total loans and borrowings 7,422.7 6,665.9
(360.2) Cash and cash equivalents (257.9) (1,678.4)
6,808.6 Unadjusted net debt 7,164.8 4,987.5
Add/(less):
2,209.7 Hybrid capital (note 14) 2,209.7 3,371.1
(300.8) Obligations under finance leases (290.6) (308.5)
(121.8) Cash held as collateral (88.5) (113.3)
(200.7) Balances due to partners in Clyde Windfarm (Scotland) Limited - -
8,395.0 Adjusted Net Debt and Hybrid Capital 8,995.4 7,936.8
SSE's adjusted net debt and hybrid capital was £9.0bn at 30 September 2016, compared with £8.4bn on 31 March in 2016 and
£7.9bn on 30 September 2015. The level of net debt and hybrid capital reflects SSE's ongoing investment programme and, in
the six months to 30 September 2016, includes an increase related to exchange rate movements following the Brexit vote,
which had the impact of increasing the value of SSE's foreign denominated borrowings by £270.7m.
Proceeds of £501.0m from the US Private Placement arranged in March 16 were received in over the course of the six months
to 30 September 2016. The £300m EIB bank facility signed in March 16 was fully drawn on 20 May 2016 as a 10 year fixed
rate term loan at a rate of 2.076%. The US private placement and EIB facility were used to repay £700m of maturing floating
rate term loans during the period. One year extension options relating to the £1.5bn of committed facilities were invoked
in the period with the facilities now maturing in July 2021 (£1.3bn) and November 2021 (£200m).
Adjusted net debt and hybrid capital is stated after removing obligations on finance leases and cash held as collateral in
line with the Group's presentation basis which is explained at Note 2(i). Cash held as collateral refers to amounts
deposited on commodity trading exchanges which are reported within Trade and other receivables on the face of the balance
sheet.
In addition the Group has an established E1.5bn Euro commercial paper programme (paper can be issued in a range of
currencies and swapped into Sterling). The Group has £1.5bn (September 2015 - £1.5bn) of committed credit facilities in
place, maturing in November 2021 (£200m) and July 2021 (£1.3bn). At 30 September 2016, £1.2bn of these facilities remains
undrawn.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
14. Hybrid Capital
March 2016 September 2016 September 2015
£m Perpetual subordinated capital securities £m £m
427.2 USD 700m 5.625% perpetual subordinated capital securities (i) 427.2 427.2
598.2 EUR 750m 5.625% perpetual subordinated capital securities (i) 598.2 598.2
748.3 GBP 750m 3.875% perpetual subordinated capital securities (ii) 748.3 748.3
436.0 EUR 600m 2.375% perpetual subordinated capital securities (ii) 436.0 436.0
- GBP 750m 5.453% perpetual subordinated capital securities (iii) - 744.5
- EUR 500m 5.025% perpetual subordinated capital securities (iii) - 416.9
2,209.7 2,209.7 3,371.1
The purpose of the outstanding hybrid capital bonds issues is to strengthen SSE's capital base and complement other sources
of finance. Further commentary is provided in the Capital Management section in Note 16.
(i) 18 September 2012 E750m and US$700m Hybrid Capital Bonds
Each bond has no fixed redemption date but the Company may, at its sole discretion, redeem all, but not part, of these
capital securities at their principal amount. The date for the discretionary redemption of the capital issued on 18
September 2012 is 1 October 2017 and every five years thereafter.
For the E750m capital issued on 18 September 2012, coupon payments are expected to be made annually in arrears on 1 October
in each year. For the US$700m capital issued on 18 September 2012, coupon payments are expected to be made bi-annually in
arrears on 1 April and 1 October each year.
(ii) 10 March 2015 £750m and E600m hybrid Capital Bonds
On 10 March 2015, the Company issued £750m and E600m hybrid capital bonds with no fixed redemption date, but the Company
may, at its sole discretion, redeem all, but not part, of the capital securities at their principal amount. The date for
the first potential discretionary redemption of the £750m hybrid capital bond is 10 September 2020 and then these can occur
every 5 years thereafter. The date for the first discretionary redemption of the E600m hybrid capital bond is 1 April 2021
and then these can occur every 5 years thereafter.
For the £750m capital issued the first coupon payment was made on 10 September 2016 and then annually in arrears
thereafter, and for the E600m capital issued on 10 March 2016, the first coupon payment was made on 1 April 2016 and then
annually in arrears thereafter.
(iii) 20 September 2010 £750m and E500m Hybrid Capital Bonds
On 1 October 2015 the company redeemed the £750m and E500m hybrid capital bonds issued on 20 September 2010. The redemption
was funded by the proceeds of the £750m and E600m hybrid capital bonds issued on 10 March 2015.
(iv) Coupon Payments
In relation to the $700m hybrid capital bond, coupon payments of £11.5m (2015 - £12.4m) were made on 1 April 2016 and of
£11.8m (2015 - £12.5m) on 1 October 2016. In relation to the E750m hybrid capital bond a coupon payment of £33.6m (2015 -
£36.2m) was made on 1 October 2016.
The hybrid capital bonds issued on 10 March 2015 were both issued with long first coupon payment dates, for the E600m
hybrid capital bond a first coupon payment of £18.6m was paid on 1 April 2016 and for the £750m hybrid capital bond a first
coupon payment of £43.8m was paid on 10 September 2016.
The coupon payments in the six month period to 30 September 2016 consequently totalled £73.9m with a further £45.4m being
paid on 1 October 2016.
The Company has the option to defer coupon payments on the bonds on any relevant payment date, as long as a dividend on the
ordinary shares has not been declared. Deferred coupons shall be satisfied only in the following circumstances, all of
which occur at the sole option of the Company:
· redemption; or
· dividend payment on ordinary shares.
Interest will accrue on any deferred coupon.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
15. Share capital
Number(millions) £m
Allotted, called up and fully paid:
At 1 April 2016 1,007.6 503.8
Issue of shares 9.4 4.7
At 30 September 2016 1,017.0 508.5
The Company has one class of ordinary share which carries no right to fixed income. The holders of ordinary shares are
entitled to receive dividends as declared and are entitled to one vote per share at meetings of the Company.
Shareholders were able to elect to receive ordinary shares in place of the final dividend for the year to 31 March 2016 of
62.5p (61.8p - September 2015 in relation to the final dividend for the year to 31 March 2015; 26.9p - March 2016, in
relation to the interim dividend for the year to 31 March 2016) per ordinary share under the terms of the Company's scrip
dividend scheme. This resulted in the issue of 9,395,092 (September 2015 - 10,600,639, March 2016 - 1,172,973) new fully
paid ordinary shares.
The Company issued 0.1m shares (2015 - 0.2m, March 2016 - 2.8m) during the period under the savings-related share option
schemes, and discretionary share option schemes for a consideration of £0.9m (2015 - £1.1m, March 2016 - £25.0m).
During the period, on behalf of the Company, the employee share trust purchased 0.3 million shares (2015 - 0.4 million,
March 2016 - 0.8 million) for a consideration of £5.0m (2015 - £7.4m, March 2016 - £11.1m) to be held in trust for the
benefit of employee share schemes.
16. Capital and Financial Risk Management
Capital management
The Board's policy is to maintain a strong balance sheet and credit rating so as to support investor counterparty and
market confidence and to underpin future development of the business. The Group's credit ratings are also important in
maintaining an efficient cost of capital and in determining collateral requirements throughout the Group. Based on latest
assessment, the Group's long term credit rating was A- negative outlook for Standard & Poor's, and was A3 stable outlook
for Moody's. Further detail of the capital management objectives, policies and procedures are included in the 'Financial
management and balance sheet' section of the Strategy and Finance section of this report.
The maintenance of a medium-term corporate model is a key control in monitoring the development of the Group's capital
structure, and allows for detailed scenarios and sensitivity testing. Key ratios drawn from this analysis underpin regular
updates to the Board and include the ratios used by the rating agencies in assessing the Group's credit ratings.
The Group has the option to purchase its own shares on the market; the timing of these purchases depends on market prices
and economic conditions. The use of share buy-backs shall be implemented if the Directors believe that doing so would be in
the best interests of shareholders. Following the disposal of 16.7% of the group's stake in Scotia Gas Networks, this
method of returning capital to shareholders could have the advantage of offsetting the earnings per share (EPS) reduction
resulting from the potential disposal and reducing the total dividend outflow in future years.
The Group's debt requirements are principally met through issuing bonds denominated in Sterling and Euros as well as
private placements and medium term bank loans including those with the European Investment Bank. In addition the Group has
issued hybrid capital securities which bring together features of both debt and equity, are perpetual and subordinate to
all senior creditors. The Group has £1.5bn of committed bank facilities which relate to the Group's revolving credit and
bilateral facilities that can be accessed at short notice for use in managing the Group's short term funding requirements;
however, these committed facilities remain undrawn for the majority of the time.
The Group's intent is to balance returns to shareholders between current returns through dividends and long-term capital
investment for growth. In doing so, the Group will maintain its capital discipline and will continue to operate within the
current economic environment prudently. There were no changes to this capital management approach during the period.
Financial risk management
The Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Risk
and Trading Committee, which reports to the Executive Committee, comprises the two Executive Directors and senior managers
from the Energy Portfolio Management, Generation, Retail, Corporate and Finance functions. Its specific remit is to support
the Group's risk management responsibilities by reviewing the strategic, market, credit, operational and liquidity risks
and exposures that arise from the Group's energy portfolio management, generation, energy supply and treasury operations.
The membership and deliberations of the Risk and Trading Committee are designed to ensure strict business separation
requirements are maintained. The specific financial risks which involve the use of financial instruments are the Group's
commodity, currency, credit, liquidity and interest rate risks.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
16. Capital and Financial Risk Management (continued)
Financial risk management
Exposure to the commodity, currency and interest rate risks referred to arise in the normal course of the Group's business
and derivative financial instruments are entered into to hedge exposure to these risks. The objectives and policies for
holding or issuing financial instruments and similar contracts, and the strategies for achieving those objectives that have
been followed during the period remain as stated in the Group's financial statements at March 2016.
In the six months to 30 September 2016, the Group continued to be exposed to difficult economic conditions. In reference to
credit risk, the impairment provision for credit losses remained at the same level as March 2016. The Group has continued
to commit significant internal resource to managing credit risk in the period.
The Group's policy in relation to liquidity risk continues to be to ensure, in so far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to its reputation. Further detail is noted under 'capital management' above.
For financial reporting purposes, the Group has classified derivative financial instruments into two categories, operating
derivatives and financing derivatives. Operating derivatives relate to qualifying commodity contracts which includes
certain contracts for electricity, gas, oil, coal and carbon. Financing derivatives include all fair value and cash flow
interest rate hedges, non-hedge accounted (mark-to-market) interest rate derivatives, cash flow foreign exchange hedges and
non-hedge accounted foreign exchange contracts. Non-hedge accounted contracts are treated as held for trading.
The net movement reflected in the interim income statement can be summarised thus:
Year ended 31 March 2016£m Six months ended 30 September 2016£m Six months ended 30 September 2015£m
Operating derivatives
(1,375.4) Total result on operating derivatives (i) (501.6) (1,253.7)
1,344.3 Less: amounts settled (ii) 663.7 977.5
(31.1) Movement in unrealised derivatives 162.1 (276.2)
Financing derivatives (and hedged items)
(214.9) Total result on financing derivatives (i) 8.6 (97.6)
229.2 Less: amounts settled (ii) (28.8) 86.3
14.3 Movement in unrealised derivatives (20.2) (11.3)
(16.8) Total 141.9 (287.5)
(i) Total result on derivatives (and hedged items) in the income statement represents the total amounts (charged) or
credited to the income statement in respect of operating and financial derivatives.
(ii) Amounts settled in the period represent the result on derivatives transacted which have matured or been delivered and
have been included within the total result on derivatives.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
16. Capital and Financial Risk Management (continued)
Financial risk management (continued)
The fair values of the primary financial assets and liabilities of the Group together with their carrying values are as
follows:
March 2016 September 2016 September 2015
Carrying Value£m Fair Value£m Carrying Value£m Fair Value£m CarryingValue£m FairValue£m
Financial Assets
Current
1,966.8 1,966.8 Trade receivables 1,555.6 1,555.6 2,265.7 2,265.7
23.7 23.7 Other receivables 16.6 16.6 69.9 69.9
121.8 121.8 Cash collateral and other short term loans 88.5 88.5 113.3 113.3
360.2 360.2 Cash and cash equivalents 257.9 257.9 1,678.4 1,678.4
1,615.0 1,615.0 Derivative financial assets 1,934.9 1,934.9 2,051.8 2,051.8
4,087.5 4,087.5 3,853.5 3,853.5 6,179.1 6,179.1
Non-current
9.9 9.9 Unquoted equity investments 9.7 9.7 11.2 11.2
591.6 591.6 Loans to joint ventures and associates 733.9 733.9 544.3 544.3
537.7 537.7 Derivative financial assets 760.0 760.0 582.0 582.0
1,139.2 1,139.2 1,503.6 1,503.6 1,137.5 1,137.5
5,226.7 5,226.7 5,357.1 5,357.1 7,316.6 7,316.6
Financial Liabilities
Current
(1,868.3) (1,868.3) Trade payables (1,477.4) (1,477.4) (2,767.5) (2,767.5)
(898.8) (900.6) Bank loans and overdrafts (313.5) (315.8) (712.6) (714.2)
(24.5) (24.5) Finance lease liabilities (25.3) (25.3) (21.7) (21.7)
(1,783.8) (1,783.8) Derivative financial liabilities (1,814.5) (1,814.5) (2,496.3) (2,496.3)
(4,575.4) (4,577.2) (3,630.7) (3,633.0) (5,998.1) (5,999.7)
Non-current
(5,969.2) (6,889.9) Loans and borrowings (6,818.6) (8,038.2) (5,644.8) (6,510.7)
(276.3) (276.3) Finance lease liabilities (265.3) (265.3) (286.8) (286.8)
(857.5) (857.5) Derivative financial liabilities (987.4) (987.4) (1,067.7) (1,067.7)
(7,103.0) (8,023.7) (8,071.3) (9,290.9) (6,999.3) (7,865.2)
(11,678.4) (12,600.9) (11,702.0) (12,923.9) (12,997.4) (13,864.9)
(6,451.7) (7,374.2) Net financial liabilities (6,344.9) (7,566.8) (5,680.8) (6,548.3)
Fair Value Hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
· Level 1 fair value measurements are those derived from unadjusted quoted market prices for identical assets or
liabilities.
· Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
· Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or
liability that are not based on observable market data.
September 2016 September 2015
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Financial Assets
Energy derivatives 525.1 1,609.7 - 2,134.8 1,174.8 1,296.1 - 2,470.9
Interest rate derivatives - 486.1 - 486.1 - 142.5 - 142.5
Foreign exchange derivatives - 74.0 - 74.0 - 20.4 - 20.4
Equity investments - 16.5 - 16.5 - 26.4 - 26.4
525.1 2,186.3 - 2,711.4 1,174.8 1,485.4 - 2,660.2
Financial Liabilities
Energy derivatives (458.8) (1,878.2) - (2,337.0) (1,248.4) (1,832.0) - (3,080.4)
Interest rate derivatives - (464.6) - (464.6) - (442.1) - (442.1)
Foreign exchange derivatives - (0.3) - (0.3) - (41.5) - (41.5)
Loans and borrowings - 307.5 - 307.5 - (30.2) - (30.2)
(458.8) (2,035.6) - (2,494.4) (1,248.4) (2,345.8) - (3,594.2)
There were no significant transfers out of level 1 into level 2 and out of level 2 into level 1 during the 6 months ended
30 September 2016.
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
16. Capital and Financial Risk Management (continued)
Financial risk management (continued)
Fair Value Hierarchy (continued)
March 2016
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial Assets
Energy derivatives 378.7 1,475.3 - 1,854.0
Interest rate derivatives - 238.1 - 238.1
Foreign exchange derivatives - 60.6 - 60.6
Equity Investments - 25.1 - 25.1
378.7 1,799.1 - 2,177.8
Financial Liabilities
Energy derivatives (436.7) (1,781.6) - (2,218.3)
Interest rate derivatives - (415.5) - (415.5)
Foreign exchange derivatives - (7.5) - (7.5)
Loans and borrowings - 81.8 - 81.8
(436.7) (2,122.8) - (2,559.5)
There were no significant transfers out of level 1 into level 2 and out of level 2 into level 1 during the year ended 31
March 2016.
17. Retirement Benefit Obligations
Defined Benefit Schemes
The Group has two funded final salary pension schemes which provide defined benefits based on final pensionable pay. The
schemes are subject to independent valuations at least every three years, the Scottish Hydro Electric Scheme's valuation
was completed on 30 September 2016. The Group also has an Employer Financed Retirement Benefit scheme and a Group Personal
Pension Plan, details of which were provided in the Group's Financial Statements to 31 March 2016.
Summary of Defined Benefit Pension Schemes:
Movement recognised in the SoCI Pension (liability)/asset Movement recognised in respect of the pension liability in the SoCI Pension (liability)/asset
March2016 March2016 September2016 September2015 September2016 September2015
£m £m £m £m £m £m
191.3 272.7 Scottish Hydro Electric Pension Scheme (222.5) 176.7 59.3 262.2
112.5 (404.8) Southern Electric Pension Scheme (347.3) 134.1 (735.4) (390.1)
303.8 (132.1) (569.8) 310.8 (676.1) (127.9)
(49.5) (262.7) IFRIC 14 adjustment 267.2 (50.5) - (260.4)
254.3 (394.8) Net actuarial (loss)/gain and combined liability (302.6) 260.3 (676.1) (388.3)
The net pension liability of £676.1m (2015 - £388.3m, March 2016 - £394.8m) reported at 30 September 2016 is subject to an
adjustment in relation to the 'asset ceiling test' prescribed by IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction. Due to the relative valuation of the contributions payable to the
scheme against the maximum economic value of benefits due in respect of future service, no restriction on the surplus was
recognised at 30 September 2016. The IFRIC 14 restriction at 31 March 2016 was £262.7m and at 30 September 2015 was
£260.4m.
The major assumptions used by the actuaries in both schemes were:
March2016 September2016 September2015
4.1% Rate of increase in pensionable salaries 4.2% 4.2%
3.1% Rate of increase in pension payments 3.2% 3.2%
3.6% Discount rate 2.3% 3.8%
3.1% Inflation rate 3.2% 3.2%
Notes on the Condensed Interim Statements
for the period 1 April 2016 to 30 September 2016
18. Capital Commitments
March 2016£m September2016£m September2015£m
898.4 Capital ExpenditureContracted for but not provided 959.6 1,138.2
19. Related Party Transactions
The following trading transactions took place during the period between the Group and entities which are related to the
Group but which are not members of the Group. Related parties are defined as those in which the Group has joint control or
significant influence over.
Sale of goods and services Purchase of goods and services Amounts owed from Amounts owed to Sale of goods and services Purchase of goods and services Amounts owed from Amounts owed to
Sep 2016 Sep 2016 Sep 2016 Sep 2016 Sep 2015 Sep 2015 Sep 2015 Sep 2015
Equity accounted joint ventures: £m £m £m £m £m £m £m £m
Scotia Gas Networks Ltd 22.1 (78.4) 10.1 0.9 25.8 (78.4) 14.8 -
Seabank Power Ltd 2.5 (59.3) - 8.4 7.2 (60.0) 1.9 12.6
Marchwood Power Ltd 9.7 (72.8) 2.9 17.9 8.1 (56.2) 2.5 6.7
Clyde Windfarm (Scotland) Ltd 2.8 - 0.5 - - - - -
Other Joint Ventures 3.5 - 4.1 - 4.4 - 3.8 -
Associates 0.6 (23.9) 3.9 4.0 0.3 (23.8) 2.0 -
The Group's gas supply activity incurs gas distribution charges from Scotia Gas Networks while the Group also provides
services to Scotia Gas Networks in the form of a management service agreement for corporate services and stock procurement
services. The transactions with Seabank Power Limited and Marchwood Power Limited relate to the contracts for the provision
of energy or the tolling of energy under power purchase arrangements. The amounts outstanding are trading balances, are
unsecured and will be settled in cash. The transactions with Clyde Windfarm (Scotland) Limited relate to contracts for the
provisions of energy under power purchase agreements, and the build of an extension to the existing operating wind farm. No
guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by
related parties.
20. Seasonality of operations
Certain activities of the Group are affected by weather and temperature conditions and seasonal market price fluctuations.
As a result of this, the amounts reported for the interim period may not be indicative of the amounts that will be reported
for the full year due to seasonal fluctuations in customer demand for gas, electricity and services, the impact of weather
on demand, renewable generation output and commodity prices, market changes in commodity prices and changes in retail
tariffs. In Networks, the volumes of electricity and gas distributed or transmitted across network assets are dependent on
levels of customer demand which are generally higher in winter months. In Retail, notable seasonal effects include the
impact on customer demand of warmer temperatures in the first half of the financial year. In Wholesale, there is the impact
of lower customer demand on commodity prices, the weather impact on renewable generation such as hydro and wind and other
seasonal effects. The impact of temperature on customer demand for gas is more volatile than the equivalent demand for
electricity.
21. Post Balance Sheet Events
On 17 October 2016, SSE plc announced it had entered into an agreement to sell a 16.7% equity stake in Scotia Gas Networks
Limited ('SGN') to wholly owned subsidiaries of the Abu Dhabi Investment Authority (ADIA), for a headline consideration,
before costs and adjustments, of £621.0m based on an effective economic date of 1 April 2016. The transaction was
completed on 26 October with the consideration being settled in cash. The sale follows a review announced by SSE in May
2016. SSE will retain a 33.3% equity stake in SGN.
Statement of director's responsibilities in respect of the condensed interim financial statements
We confirm that to the best of our knowledge:
i) the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU;
ii) the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during
the first six months of the financial year and their impact on the condensed set of financial statements; and a description
of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the
first six months of the current financial year that have materially affected the financial position or performance of the
entity during that period; and any changes in the related party transactions described in the last annual report that could
do so.
For and on behalf of the Board
Alistair Phillips-Davies Gregor Alexander
Chief Executive Finance Director
London
8 November 2016
Independent review report to SSE plc
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report
for the six months ended 30 September 2016 which comprises the Consolidated and Condensed Income Statement, the
Consolidated and Condensed Statement of Comprehensive Income, the Consolidated and Condensed Balance Sheet, the
Consolidated and Condensed Statement of Changes in Equity, the Consolidated and Condensed Cash Flow Statement and the
related explanatory notes. We have read the other information contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting
the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK
FCA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by
the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the
half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor of the Entity issued by the
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