REG - SSE Plc - Half Yearly Report <Origin Href="QuoteRef">SSE.L</Origin> - Part 4
12/11/2014 08:01
- Part 4: For the preceding part double click ID:nRSL7750Wc
naturally go up and down. Guaranteeing not to increase prices for
such a long period of time requires a long-term view of costs; wholesale energy now accounts for less than 50% as other
costs have increased, and SSE therefore believes that this commitment should also be judged over the long term. In the
meantime, SSE will continue to make the most competitive offers it can whilst providing absolute peace of mind for those
customers who prefer the flexibility of a standard variable tariff.
SSE would like to extend its price freeze beyond 2016, or even cut prices if further costs can be taken out of energy
supply, and will work with any political party or stakeholder to find such solutions. It believes further savings for
consumers worth around £100 - forecast to rise to around £200 by 2020 - could be made with political action to end the
practice of levying policy costs on energy bills. Recouping the cost through energy bills takes no account of an
individual's ability to pay and is therefore socially regressive. SSE has therefore continued to call for more of these
levies to be moved into general taxation, making bills cheaper and helping those less able to pay.
Supplying energy to customers across Great Britain and Ireland
In the six months to 30 September 2014, SSE's energy customer accounts in Great Britain and Ireland fell from 9.10 million
to 8.89 million. This comprised:
SSE Energy Supply customer account numbers Sep 14 Mar 14
Electricity customer accounts(GB domestic) - m 4.56 4.66
Gas customer accounts (GB domestic) - m 3.12 3.21
Energy customers (GB business sites) - m 0.43 0.42
All-Island energy market customers (Ire) - m 0.78 0.81
Total SSE Energy Customers 8.89 9.10
The decline in customer account numbers reflects the challenging and highly competitive market conditions in Great Britain,
in which there are 10 suppliers of scale (with over 250,000 customers) aiming to retain and gain customers. This is in
addition to a growing number of smaller suppliers, who are exempt from the cost of certain government social and
environmental policies and therefore have a competitive advantage. Despite this decline, SSE's price freeze to 2016 is a
very positive commitment to household customers in Great Britain, which has contributed to a significant reduction in
levels of customer 'churn'.
SSE welcomes competition and will continue in its efforts to attract and retain customers. While sales volumes have been
relatively low so far in this financial year, SSE is responding with attractive tariffs and propositions, underpinned by a
stronger brand and industry-leading customer service. As well as launching its new brand campaign in October 2014, SSE
launched a competitive new tariff, SSE Direct, for both new and existing customers choosing to commit to stay with SSE for
a fixed term. With significant investments also being made in improving the customer experience through SSE's digital
platforms, SSE is positioned to compete for customers in a healthy and vibrant market.
Meeting customers' need for energy
The loss incurred by SSE's Energy Supply business was in part due to a continuation of the particularly mild weather
conditions that have characterised the 18 months to 30 September 2014. This is illustrated by the fact that:
· five of the six months to 30 September were warmer than average (relative to the 1981-2010 climatology) for the UK;
and
· average temperatures recorded at Heathrow from April to September were provisionally the fourth warmest in a series
since 1951.
As a result, SSE estimates its household customers in Great Britain used, on average in the six months to 30 September
2014:
Sep 14 Sep 13
Electricity supplied household average (GB) - kWh 1,623 1,713
Gas supplied household average (GB) - th 102 133
While annual consumption varies, with weather in particular, customers' use of electricity and gas is now more than 15%
lower than it was five years ago (measured on an underlying year-on-year basis).
Putting customers first
SSE is committed to working with all stakeholders to minimise energy bills and improve the market for customers. It has
consistently stated its appetite for change that is in the genuine interests of customers, and it is in this spirit that it
is currently engaging with the Competition and Markets Authority (CMA) investigation into competition in the energy market.
Both within and outside of this process, SSE will continue to seek ways in which it can take or propose positive action
that makes a difference for customers.
Putting customers first means listening to them and acting on their feedback. SSE has therefore stepped up its engagement
with customers through its customer forums, which have helped shape a number of SSE's innovations, including simpler bills
and the introduction and implementation of a money-back Customer Service Guarantee.
SSE's focus on putting customers first has been acknowledged by three independent reports in the first six months of
2014/15:
· in June, SSE was named best major energy supplier for customer service for the fourth year in a row in the National
Customer Satisfaction Index UK (NCSI-UK);
· the Citizens Advice Energy Supplier Performance report, which measures complaint performance among major suppliers
based on customers seeking advice or support from independent organisations, has again awarded SSE the leading complaints
score of 33.7 per 100,000 customers for the period from April to June - almost 20 times less than the worst performing
supplier; and
· in September 2014, Ofgem published the results of its Complaints to Energy Companies report. In what has undoubtedly
been one of the most challenging periods in the history of the privatised energy supply market, SSE was the only major
supplier to improve its performance since the last survey two years ago.
Implementing changes to benefit customers
In line with its aim of providing excellent customer service at lowest possible cost, SSE has been undertaking a
fundamental review to identify the root cause of customer calls and complaints. The objective is to eradicate the causes
of - and reduce - customer dissatisfaction, while saving cost through reducing avoidable contact. The initial project has
been successful and SSE is currently implementing changes to reduce customer frustration and inconvenience. These include:
· improving automated phone answering systems;
· increasing first call resolution;
· reducing confusion arising from customer communication wherever possible, while observing all regulatory
requirements; and
· targeting improvements to billing.
Helping vulnerable customers
In addition to campaigning on energy bills and freezing household prices until at least January 2016, SSE helps vulnerable
customers manage their energy costs in a number of other ways:
· Its Warm Home Discount (WHD) scheme is open for applications. This scheme enables pensioners and vulnerable
customers to receive help with their fuel bills in the form of a £140 rebate.
· As part of the WHD Scheme, SSE's Priority Assistance Fund provides additional support to low income and vulnerable
customers, including debt relief, free energy efficient appliances, and help with bespoke payment arrangements.
· SSE also operates a free Careline priority service, dedicated to helping customers who are elderly, disabled or have
special medical needs.
· Between the start of December and the end of February (or longer if the weather is unseasonably cold), SSE has a no
disconnection policy covering all household customers.
Giving credit where it's due
In September, SSE and other major energy suppliers through Energy UK, launched the 'My Energy Credit' campaign to reunite
former customers with credit balances which could not previously be returned to them.
In addition, SSE and other suppliers have agreed to introduce 10 common actions to reduce the number of credits which
cannot be returned to customers in the future, and to help return more of the money which is currently unclaimed. SSE is on
course to implement all ten actions by the end of the year, helping to ensure that far fewer credit balances go unreturned
in future.
SSE has also committed to placing any future unreturnable credit balance still unclaimed after two years into a new fund to
help provide additional support to fuel poor and vulnerable customers. It will kick-start this fund with payments totalling
£8.8m over the next two years.
Making good progress on ECO
SSE remains fully supportive of the aims of the Energy Company Obligation (ECO) and in 2013/14 was able to help around
85,000 homes through the scheme.
SSE has made good progress towards delivering its obligation under ECO for the period to March 2015, and, with clarity now
provided on the design of the scheme to 2017, it is well positioned to deliver on its subsequent obligations.
Nevertheless, and despite the UK government's welcome decision to reduce ECO delivery costs, which enabled SSE to reduce
its prices before the necessary changes to legislation were confirmed in the autumn, SSE remains concerned about the impact
of this scheme because:
· it is volatile and, with several years and thousands of installations still ahead, it clearly remains subject to
significant political change - particularly in view of a general election in May 2015 - making delivery costs
unpredictable;
· it has a negative impact on competition because of the exclusion of smaller suppliers; and
· the cost of this and other government schemes levied on energy bills is not being paid for fairly.
SSE believes there remains significant scope to improve the cost-effectiveness, fairness and transparency of energy
efficiency programmes beyond 2017 and has been working with the Centre for Sustainable Energy (CSE) to analyse the
underlying issues with ECO as it stands to support the development of future policy in this area. SSE will continue to
engage with all political parties and stakeholders to identify more progressive ways to meet the important objective of
reducing household energy consumption and carbon emissions.
Stepping up the smart meter roll-out
A smart meter will be installed in every home in Great Britain, as part of UK and European law. Around 53 million smart
meters are due to be installed in around 30 million homes and businesses by the end of 2020. Of these, SSE is set to
install around nine million meters.
Having kept installation volumes low during the foundation phase due to its focus on a cost-effective roll-out and the lack
of maturity in the smart meter supply chain, SSE is now preparing for the mass roll-out of smart meters.
As of 30 September, SSE had installed over 11,000 smart meters in customers' homes against its own full-year target of
50,000. Mass deployment will commence in early 2016 following the Initial Live Operations of the Smart Data Communications
Company (DCC) anticipated in late 2015, in line with the current DECC plans.
SSE is supportive of the smart meter roll-out as it will bring increased information and control to customers, but believes
there are opportunities to improve both the cost-effectiveness and the overall success of the smart roll-out by:
· pursuing a trajectory in line with EU requirements to deliver smart meters to 80%, rather than 100%, of homes by
2020;
· preventing any further delays to the introduction of critical infrastructure, such as the DCC, which would
considerably increase the number of SMETS1 meters deployed, increasing costs and potentially inconveniencing customers when
equipment develops faults due to lack of interchangeability; and
· allowing customers flexibility about how they choose to access the information from their smart meter, for instance
through an app or computer, rather than making the offer of an In-Home Display (IHD) mandatory for every home.
Engaging customers about smart metering will be a challenge. Recent polling for SSE by YouGov found that only half of
customers said they would currently be interested in having a smart meter in their home, while findings suggest that 50% of
customers may prefer to get information from their smart meter in ways other than an IHD. This further demonstrates that
all parties must put customers at the heart of the roll-out and take their concerns and preferences into account in order
to drive sufficient engagement with the programme to keep down costs and realise the full benefits.
Delivering for business customers
Business Supply continues to be an important area of focus for the Retail business. SSE has a clear strategy for developing
Business Supply over the next five years, with a view to becoming a business that offers solutions across the energy value
chain to its customers, working with them as their energy partner rather than simply their energy supplier.
In preparation for this, SSE has expanded the management team in Business Supply, introduced three 'centres of excellence'
in service and support, and sought to improve its competitiveness by reducing its cost to serve. Together with the newly
formed Enterprise division (see below), it is now focused on developing an enhanced product portfolio and opening up new
channels of engagement with business customers in order to add value.
SSE has also continued to focus on driving improvements for its small business customers. On 1 April, it ended the practice
of automatic contract rollovers for small business customers, as well as extending to these customers its existing
commitment not to back-bill micro-business customers for more than 12 months where they have previously been under-billed
due to a genuine billing error on SSE's part. Unlike some suppliers, SSE publishes its Variable Business Rates clearly on
its website to help smaller businesses benchmark and compare prices simply.
SSE is continuing to engage positively with the government, the Federation of Small Businesses and leading Third Party
Intermediaries (TPIs) in order to identify further ways in which it can make improvements for small business customers.
Supplying energy to customers in Ireland
SSE is the second largest energy provider across the island of Ireland. It is the only energy supply brand to operate in
each of the competitive gas and electricity markets across the island.
Through its retail brand SSE Airtricity the company supplies electricity and gas to782,000 household and business accounts
in the Republic of Ireland (ROI) and Northern Ireland (NI), representing a 21% share by customer numbers of the total
combined gas and electricity market on the island at 30 September 2014. The recent decline in customer account numbers
reflects the highly competitive market conditions in the Republic of Ireland in particular, which has seen the emergence of
new domestic market entrants.
Adding value for customers through sponsorship
As well as investing in its brand, SSE is differentiating itself from competitors through unique value-adding propositions,
underpinned by selected sponsorships in sports and entertainment.
Following the successful launch of SSE Rewards through the opening of The SSE Hydro just over a year ago, SSE has expanded
its sponsorships and during the first half of 2014/15, SSE customers have benefited from:
· priority access to tickets and experiences at The SSE Hydro entertainment venue in Glasgow, which has been ranked
number three in a Pollstar list of the world's best live music venues based on ticket sales, and the newly named SSE Arena,
Wembley; and
· SSE's sponsorship of the Glasgow 2014 Commonwealth Games, through which it highlighted its strong commitment to each
of the four home nations as well as offering tickets and experiences to customers to reward their loyalty to SSE.
SSE's strong portfolio of sponsorships in areas that appeal to and engage customers, such as entertainment and sport, is
helping to drive awareness of the SSE brand, and is intended to help drive customer retention and acquisition as SSE
further differentiates itself from others in the GB energy supply market.
Energy Supply priorities in 2014/15 and beyond
For the remainder of 2014/15 and beyond, SSE's key priorities in Energy Supply are to:
· successfully build the new brand and maximise the opportunity this presents to engage with customers, the public and
all of SSE's stakeholders and illustrate that SSE is committed to progressive reform in energy;
· acquire and retain customers through competitively priced, compelling propositions, industry-leading customer
service, and enhanced Customer Relationship Management (CRM) driven by better use of data and segmentation;
· take the digital opportunity by creating an effortless online customer experience and developing best-in-class
applications, products and services;
· take costs out of supplying energy, both internally by driving operational efficiencies and externally by continuing
to push for energy policy costs to be as cost-effective as possible and, ultimately, funded more progressively through
taxation; and
· continue to grow the Business Supply business.
Energy-Related Services
A diverse offering of home and essential services
In addition to electricity and gas, SSE offers energy-related products and services including boiler, central heating and
wiring maintenance and installation as well as supplying and maintaining meters for household and commercial customers.
These areas represent a natural fit with the company's existing strengths and propositions and are an important part of
SSE's strategy to become a diversified retailer of energy and essential services.
Building Up SSE's home telephone and broadband business
In line with its plan to scale up its business in Home and Essential Services, SSE sees opportunities for growth in its
home telephone and broadband business, particularly as it builds a strong brand that customers trust to provide not just
energy but a suite of related essential services in the home. SSE's ongoing investment into CRM to understand and
communicate more effectively with its customer base will also enable it to unlock the significant opportunity to sell a
broader range of services to its existing customer base.
Operating a national metering business
The number of SSE electricity and gas supply customers who receive bills based on actual meter readings stands at 96.5%, in
line with last year. SSE Metering has also installed just over 23,500 AMR (automatic meter reading) meters which are read
remotely. In the six months to 30 September 2014, SSE collected 4.0 million electricity readings and 2.7 million gas
readings.
Energy-Related Services priorities in 2014/15 and beyond
During 2014/15 and beyond SSE's priorities in Energy-Related Services are to:
· scale up Home and Essential Services;
· generate greater awareness of the broader range of products and services SSE provides in the home, capitalising on
the new brand launch;
· harness the full potential of CRM to unlock the potential to cross-sell a broader suite of home services to SSE's
existing customer base; and
· in its metering business, meet the significant challenge of and execute its responsibilities within the national
smart meter roll-out.
Enterprise
Building a new division focused on business customers
SSE's Enterprise division brings together SSE's services in competitive markets for industrial and commercial customers so
that the energy and related needs of these customers can be met through an effectively integrated approach. These services
include:
· Contracting - one of the UK's largest mechanical and electrical contractors;
· Lighting - maintaining street lights and providing design, installation and electrical connections services;
· Utilities - building, owning, operating and maintaining 'out of area' electrical, gas, heat and water networks;
· Telecoms - owning and operating a 13,700km network in the UK and 15 other co-location facilities providing leading
edge carrier Ethernet, Internet and optical services.
Bringing together these businesses, supported by a dedicated relationship management function, giving business customers
one point of contact for multiple contracts, enables SSE's Enterprise division to provide key services for just under
250,000 customers in the private sector, such as property development and construction, and in the public sector, such as
local government and social housing.
In addition, the Energy Solutions Group (ESG) was acquired in July 2014 for a total cash consideration of £66m, with the
potential for a further £6m if agreed targets are achieved. ESG has traded for almost 20 years and employs around 340
people. It works with private and public sector customers to identify improvements in their management of energy and to
install, maintain and support building management systems and solutions. ESG can typically save its customers up to around
20% of their energy consumption.
These activities were previously reported under 'Other Networks' and 'Energy-related Services'. In the six months to 30
September 2014, this Enterprise segment, including ESG for two months, delivered operating profit of £42.9m, compared with
£27.8m in the same period in 2013. This followed disposal of the gas connections business in September 2014.
Enabling Enterprise to focus on core opportunities
In order to enable the Enterprise group of businesses to focus on the opportunities which are core to its future plans, the
following businesses have been sold:
· SSE Pipelines Ltd, a gas transportation business, was sold on 1 September 2014, to a new fund, the Environmental
Capital Fund (ECF) managed by Scottish Equity Partners LLP, for a total consideration of £52.6m. SSE has invested £13.8m
for a significant minority stake in the fund; and
· SSE's Data Centre in Hampshire, which provides a secure and connected service to a range of national and
international organisations, was sold to SCC on 1 October 2014, for a total consideration estimated to be £12m, subject to
capital adjustment and provision of transition services for a period of three months.
· SSE has today announced the completion of the sale, to Equitix Infrastructure 3 Limited (Equitix), of its 100%
equity interest in the special purpose entities (SPEs) established in England under the Private Finance Initiative (PFI),
for the delivery of seven street lighting projects. The SPEs are funded through a mix of senior debt and equity, and the
removal of this project-related senior debt, along with the cash consideration of £97.5m, will have the immediate effect of
reducing SSE's net debt by £326.4m.
Setting the right priorities for Enterprise
As a new, single division focused on meeting the needs of industrial and commercial customers, Enterprise has three key
priorities over the next 18 months, in addition to the safe delivery of services:
· secure synergies across the Enterprise group of businesses;
· deploy effective dedicated customer account management; and
· focus on developing an integrated range of services that can be tailored to the specific needs of customers.
The potential of the Enterprise division has been significantly enhanced by the acquisition of ESG, which gives SSE a major
presence in a new and expanding part of the overall value chain: energy management.
In summary, the immediate focus for Enterprise is on realising the benefits from consolidation of activities and developing
effective customer relationship management and thereby laying the foundations for sustainable business growth in the period
up to 2020 and beyond.
Retail - Conclusion
The outlook for the energy industry - and the energy supply market in particular - remains challenging. However, with an
unprecedented, unconditional price freeze lasting through this winter and into next, a bold brand strategy to engage
customers and stakeholders, and an ongoing commitment to delivering sustained value and industry-leading standards of
service, SSE is responding positively to this challenge. In addition, the new Enterprise division has a strong opportunity
to achieve significant success in helping business, industrial and commercial customers manage their energy requirements.
Consolidated Income Statement
for the period 1 April 2014 to 30 September 2014
Six months ending 30 September 2014 2013
Beforeexceptionalitems andcertainre-measure-ments Exceptional items andcertainre-measure-ments(note 7) Total Beforeexceptionalitems andcertainre-measure-ments Exceptional items andcertainre-measure-ments(note 7) Total
Restated (note 3) Restated (note 3) Restated (note 3)
Note £m £m £m £m £m £m
Revenue 6 12,413.9 - 12,413.9 13,574.1 - 13,574.1
Cost of sales (11,452.1) (10.5) (11,462.6) (12,595.2) (11.8) (12,607.0)
Gross profit / (loss) 961.8 (10.5) 951.3 978.9 (11.8) 967.1
Operating costs (636.0) - (636.0) (636.0) - (636.0)
Other operating income 33.2 - 33.2 13.5 - 13.5
Operating profit / (loss) before joint ventures and associates 359.0 (10.5) 348.5 356.4 (11.8) 344.6
Joint ventures and associates:
Share of operating profit 170.8 - 170.8 162.3 - 162.3
Share of interest (69.3) - (69.3) (71.6) - (71.6)
Share of movement on derivatives - 2.9 2.9 - 1.0 1.0
Share of tax (21.4) (0.7) (22.1) (24.2) 64.5 40.3
Share of profit on joint ventures and associates 80.1 2.2 82.3 66.5 65.5 132.0
Operating profit / (loss) 6 439.1 (8.3) 430.8 422.9 53.7 476.6
Finance income 8 49.7 - 49.7 69.1 - 69.1
Finance costs 8 (154.2) (9.7) (163.9) (177.0) (31.3) (208.3)
Profit / (loss) before taxation 334.6 (18.0) 316.6 315.0 22.4 337.4
Taxation 9 (57.8) 4.2 (53.6) (71.3) 118.3 47.0
Profit / (loss) for the period 276.8 (13.8) 263.0 243.7 140.7 384.4
Attributable to:
Ordinary shareholders of the parent 265.1 (13.8) 251.3 231.2 140.7 371.9
Other equity holders 11.7 - 11.7 12.5 - 12.5
Basic earnings per share (pence) 11 25.8p 38.6p
Diluted earnings per share (pence) 11 25.5p 38.5p
The accompanying notes are an integral part of this interim statement.
Consolidated Income Statement
for the year ended 31 March 2014
Beforeexceptionalitems andcertainre-measure-ments Exceptional items andcertainre-measure-ments(note 7) Total
Restated(note 3) Restated (note 3) Restated(note 3)
Note £m £m £m
Revenue 6 30,585.0 - 30,585.0
Cost of sales (27,732.3) (560.2) (28,292.5)
Gross profit / (loss) 2,852.7 (560.2) 2,292.5
Operating costs (1,316.0) (303.0) (1,619.0)
Other operating income 17.3 - 17.3
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