REG - SSE Plc - Half Yearly Report <Origin Href="QuoteRef">SSE.L</Origin> - Part 7
12/11/2014 08:01
- Part 7: For the preceding part double click ID:nRSL7750Wf
0.8 Inventories 0.5 0.4 0.9 -
260.5 Trade and other receivables 5.8 303.3 309.1 -
261.3 Current assets 6.3 303.7 310.0 -
332.5 Total assets 36.2 317.5 353.7 2.3
(14.9) Trade and other payables (27.7) (4.0) (31.7) -
(0.7) Provisions - (1.4) (1.4) -
(15.6) Current liabilities (27.7) (5.4) (33.1) -
(2.7) Deferred tax liabilities (0.5) - (0.5) -
(0.9) Provisions - - - -
(3.6) Non-current liabilities (0.5) - (0.5) -
(19.2) Total liabilities (28.2) (5.4) (33.6) -
313.3 Net assets 8.0 312.1 320.1 2.3
The assets and liabilities identified as held for sale at 30 September 2014 include a number of offshore and onshore
developments and certain thermal power generation plants. On 30 September 2014, the Group announced it had agreed to sell
the Telecoms data centre business (net asset value of £14.5m), to SCC, which is part of the Rigby Group, with the
transaction expected to complete in advance of 31 March 2015.
In addition, on 11 November 2014, the Group announced the completion of the sale of part of its portfolio of Lighting
Service PFI business to Equitix Infrastructure 3 Limited. Further details are included at Note 22.
Notes on the Condensed Interim Statements
for the period 1 April 2014 to 30 September 2014
14. Loans and other borrowings
March2014 September2014 September2013
Restated (note 3) Restated (note 3)
£m £m £m
Current
0.3 Bank Overdraft 0.1 -
600.3 Other short-term loans 835.2 1,288.3
18.1 Obligations under finance leases 17.5 15.5
618.7 852.8 1,303.8
Non current
5,365.5 Loans 5,185.5 4,840.8
310.8 Obligations under finance leases 301.9 307.2
5,676.3 5,487.4 5,148.0
6,295.0 Total loans and borrowings 6,340.2 6,451.8
(458.9) Cash and cash equivalents (244.4) (553.9)
5,836.1 Unadjusted net debt 6,095.8 5,897.9
Add/(less):
2,186.8 Hybrid capital (note 15) 2,186.8 2,186.8
(328.9) Obligations under finance leases (319.4) (322.7)
(51.2) Cash held as collateral (56.1) (40.5)
7,642.8 Adjusted Net Debt and Hybrid Capital 7,907.1 7,721.5
In August 2014, the Group arranged a new £200m bank facility from which £150m was drawn down in October 2014 as an eight
year fixed rate term loan at a rate of 2.871%. The remaining £50m of this bank facility is available to be drawn, until
August 2015. An existing £500m floating rate bank term loan which was due to mature in September 2014, was extended by a
year and now matures in September 2015.
In the six months to 31 March 2015 the Group has £61.5m of debt reaching maturity, which will be refinanced from existing
facilities. Also the £750m and E500m hybrid capital bonds issued on 20 September 2010 reach their first issuer call option
on 1 October 2015, which gives the Group the option to redeem the securities at par. This redemption would be funded
through the issue of new securities in the capital markets in advance of the first issuer call date. Adjusted net debt and
hybrid capital is stated after removing obligations on finance leases and cash held as collateral. 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 2013 - £1.5bn) of committed credit facilities in
place, maturing in April and July 2018 which provide a back up to the commercial paper programme. At 30 September 2014,
£60m of these facilities were drawn but have since been repaid.
15. Hybrid Capital
March2014 September2014 September2013
£m Perpetual subordinated capital securities £m £m
744.5 GBP 750m 5.453% perpetual subordinated capital securities 744.5 744.5
416.9 EUR 500m 5.025% perpetual subordinated capital securities 416.9 416.9
427.2 USD 700m 5.625% perpetual subordinated capital securities 427.2 427.2
598.2 EUR 750m 5.625% perpetual subordinated capital securities 598.2 598.2
2,186.8 2,186.8 2,186.8
The Company issued £750m and E500m hybrid capital bonds on 20 September 2010 and E750m and $700m hybrid capital bonds on 18
September 2012. 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. The 20 September 2010 issued capital may be
redeemed fully (not in part) at their principal amounts on 1 October 2015 or 1 October 2020 or any subsequent coupon
payment date. In addition, under certain circumstances defined in the terms and conditions of the issue, the Company may
at its sole discretion redeem all (but not part of) the bonds at their principal amount at any time prior to 1 October 2017
(for the 18 September 2012 securities) or at any time prior to 1 October 2015 (for the 20 September 2010 securities).
Notes on the Condensed Interim Statements
for the period 1 April 2014 to 30 September 2014
15. Hybrid Capital (continued)
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: (i) redemption of the bond; or (ii) dividend payment made in respect of
ordinary shares. Interest will accrue on any deferred coupon.
For the capital issued on 20 September 2010 and 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. The purpose of both issues was
to strengthen SSE's capital base and fund the Group's ongoing capital investment and acquisitions.
Coupon payments of £11.7m (2013 - £12.5m) in relation to the USD Capital issued on 18 September 2012 were paid on 2 April
2014. In addition coupon payments of £11.7m were paid in relation to the same hybrid capital bonds on 1 October 2013 and
payments of £98.7m were paid in relation to the other hybrid capital bonds on 1 October 2013.
16. Share capital
Number(millions) £m
Equity: Ordinary shares of 50p each:
Authorised:At 30 September 2014 and 1 April 2014 1,200.0 600.0
Allotted, called up and fully paid:
At 1 April 2014 974.9 487.4
Issue of shares 11.9 6.0
At 30 September 2014 986.8 493.4
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 2014 of 60.7p (59.0p
- September 2013 in relation to the final dividend for the year to 31 March 2013, 26.0p - March 2014, in relation to the
interim dividend for the year to 31 March 2014) per ordinary share under the terms of the Company's scrip dividend scheme.
This resulted in the issue of 11,775,169 (September 2013 - 1,128,181, March 2014 - 8,551,629) new fully paid ordinary
shares. The Company issued 112,913 shares (2013 - 18,918, March 2014 - 907,775) during the period under the savings-related
share option schemes, and discretionary share option schemes for a consideration of £1.09m (2013 - £0.19m, March 2014 -
£8.9m). During the period, on behalf of the Company, the employee share trust purchased 0.3 million shares (2013 - 0.3
million, March 2014 - 0.8 million) for a consideration of £4.3m (2013 - £3.9m, March 2014 - £7.7m) to be held in trust for
the benefit of employee share schemes.
17. 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. As at 30
September 2014, the Group's long term credit rating was A- negative outlook for Standard & Poor's, and this was
subsequently revised to A- with stable outlook on 15 October 2014. As at 30 September 2014, the Group's long term credit
rating was A3 negative 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.
From time to time the Group purchases its own shares on the market; the timing of these purchases depends on market prices
and economic conditions. The use of share buy-backs is the Group's benchmark for investment decisions and is utilised at
times when management believe the Group's shares are undervalued. No share buy-back was made during the period.
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 Groups 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.
Notes on the Condensed Interim Statements
for the period 1 April 2014 to 30 September 2014
17. Capital and Financial Risk Management (continued)
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, 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 and treasury operations. The specific financial risks
which involve the use of financial instruments are the Group's commodity, currency, credit, liquidity and interest rate
risks.
Exposure to the commodity, currency and interest rate risks referred to arise in the normal course of the Group's business
and the Group enters into derivative financial instruments to manage 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 year remain as stated in the Group's financial statements at March 2014.
In the six months to 30 September 2014, 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 2014. 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 2014£m Six months ended 30 September 2014£m Six months ended 30 September 2013£m
Operating derivatives
(785.4) Total result on operating derivatives (i) (683.9) (373.8)
634.5 Less: amounts settled (ii) 673.4 362.0
(150.9) Movement in unrealised derivatives (10.5) (11.8)
Financing derivatives (and hedged items)
(754.7) Total result on financing derivatives (i) (187.2) (579.2)
690.5 Less: amounts settled (ii) 177.5 547.9
(64.2) Movement in unrealised derivatives (9.7) (31.3)
(215.1) Total (20.2) (43.1)
(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 2014 to 30 September 2014
17. 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 2014 September 2014 September 2013
Carrying Value£m Fair Value£m CarryingValue£m FairValue£m CarryingValue£m FairValue£m
Financial Assets
Current
2,759.3 2,759.3 Trade receivables 2,106.7 2,106.7 2,048.0 2,048.0
29.0 29.0 Other receivables 29.2 29.2 39.6 39.6
51.2 51.2 Cash collateral 56.1 56.1 40.5 40.5
458.6 458.6 Cash and cash equivalents 244.4 244.4 553.9 553.9
1,261.2 1,261.2 Derivative financial assets 1,189.9 1,189.9 543.8 543.8
4,559.3 4,559.3 3,626.3 3,626.3 3,225.8 3,225.8
Non-current
24.3 24.3 Unquoted equity investments 14.5 14.5 28.8 28.8
521.6 521.6 Loans to joint ventures and associates 529.4 529.4 1,280.7 1,280.7
368.4 368.4 Derivative financial assets 302.3 302.3 321.3 321.3
914.3 914.3 846.2 846.2 1,630.8 1,630.8
5,473.6 5,473.6 4,472.5 4,472.5 4,856.6 4,856.6
Financial Liabilities
Current
(2,496.2) (2,496.2) Trade payables (2,789.8) (2,789.8) (1,762.1) (1,762.1)
(600.6) (603.5) Bank loans and overdrafts (835.2) (836.9) (1,288.3) (1,299.8)
(18.1) (18.1) Finance lease liabilities (17.5) (17.5) (15.5) (15.5)
(1,470.2) (1,470.2) Derivative financial liabilities (1,405.9) (1,405.9) (664.2) (664.2)
(4,585.1) (4,588.0) (5,048.4) (5,050.1) (3,730.1) (3,741.6)
Non-current
(5,365.5) (6,001.3) Loans and borrowings (5,185.5) (5,920.4) (4,840.8) (5,489.1)
(310.8) (310.8) Finance lease liabilities (301.9) (301.9) (307.2) (307.2)
(681.7) (681.7) Derivative financial liabilities (641.2) (641.2) (510.4) (510.4)
(6,358.0) (6,993.8) (6,128.6) (6,863.5) (5,658.4) (6,306.7)
(10,943.1) (11,581.8) (11,177.0) (11,913.6) (9,388.5) (10,048.3)
(5,469.5) (6,108.2) Net financial liabilities (6,704.5) (7,441.1) (4,531.9) (5,191.7)
Fair Value Hierarchy
September 2014 September 2013
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 157.0 1,271.1 - 1,428.1 62.2 713.0 - 775.2
Interest rate derivatives - 60.2 - 60.2 - 65.9 - 65.9
Foreign exchange derivatives - 3.9 - 3.9 - 24.0 - 24.0
Equity investments - 29.7 - 29.7 - 10 - 10
Loans and borrowings - 39.3 - 39.3 - 9.9 - 9.9
157.0 1,404.2 - 1,561.2 62.2 822.8 - 885.0
Financial Liabilities
Energy derivatives (118.2) (1,585.7) - (1,703.9) (64.3) (837.2) - (901.5)
Interest rate derivatives - (312.5) - (312.5) - (253.3) - (253.3)
Foreign exchange derivatives - (30.7) - (30.7) - (19.8) - (19.8)
(118.2) (1,928.9) - (2,047.1) (64.3) (1,110.3) - (1,174.6)
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 2014.
Notes on the Condensed Interim Statements
for the period 1 April 2014 to 30 September 2014
17. Capital and Financial Risk Management (continued)
Financial risk management (continued)
Fair Value Hierarchy (continued)
March 2014
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial Assets
Energy derivatives 107.3 1,466.4 - 1573.7
Interest rate derivatives - 47.9 - 47.9
Foreign exchange derivatives - 8.0 - 8.0
Loans and borrowings - 43.4 - 43.4
Equity Investments 43.0 43
107.3 1,608.7 - 1,716.0
Financial Liabilities
Energy derivatives (113.9) (1,725.3) - (1,839.2)
Interest rate derivatives - (286.6) - (286.6)
Foreign exchange derivatives - (26.1) - (26.1)
(113.9) (2,038.0) - (2,151.9)
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 2014.
18. 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 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 2014.
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
March2014 March2014 September2014 September2013 September2014 September2013
£m £m £m £m £m £m
(8.8) 18.4 Scottish Hydro Electric Pension Scheme 18.5 (31.5) 49.8 (17.5)
31.8 (455.0) Southern Electric Pension Scheme (29.6) 23.0 (467.3) (480.6)
23.0 (436.6) (11.1) (8.5) (417.5) (498.1)
(4.0) (201.1) IFRIC 14 (i) (21.5) 25.2 (226.9) (168.0)
19.0 (637.7) Net actuarial (loss)/gain and combined liability (32.6) 16.7 (644.4) (666.1)
(i) The net pension liability of £644.4m (2013 - £666.1m, March 2014 - £637.7m) reported at 30 September 2014 includes a
liability of £226.9m (2013 - £168.0m, March 2014 - £201.1m) calculated under IFRIC 14, which reflects the value of
contributions payable under a schedule of contributions agreed by the Group and the scheme Trustees (minimum funding
requirement) with a restriction on the surplus that can be recognised.
The major assumptions used by the actuaries in both schemes were:
March2014 September2014 September 2013
4.60% Rate of increase in pensionable salaries 4.40% 4.80%
3.50% Rate of increase in pension payments 3.40% 3.30%
4.30% Discount rate 4.00% 4.30%
3.60% Inflation rate 3.40% 3.30%
Notes on the Condensed Interim Statements
for the period 1 April 2014 to 30 September 2014
19. Capital Commitments
March September2014 September2013
2014 £m £m
£m
625.1 Capital Expenditure Contracted for but not provided 1,109.3 850.6
20. 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 2014 Sep 2014 Sep 2014 Sep 2014 Sep 2013 Sep 2013 Sep 2013 Sep 2013
Equity accounted joint ventures: £m £m £m £m £m £m £m £m
Scotia Gas Networks Ltd 24.3 (84.9) 12.1 0.3 28.2 (87.7) 14.5 0.4
Seabank Power Ltd 3.1 (60.3) 0.5 14.9 - (46.2) 0.1 7.9
Marchwood Power Ltd 10.3 (57.4) 0.6 14.3 - (36.3) 0.2 10.4
Other Joint Ventures 12.7 - 5.7 4 17.1 - 0.6 0.6
Associates 0.4 (18.7) 7.6 3.7 1.3 (16.0) 0.1 4.3
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. No guarantees have been given or received. No provisions have been made for doubtful
debts in respect of the amounts owed by related parties.
21. 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.
22. Post Balance Sheet Events
On 11 November 2014, the Group completed 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. The project SPEs have a 25 year agreement with their respective local authorities, under which
they have the responsibility for the replacement, operation and maintenance of the street lighting assets of that local
authority. Those operational responsibilities have been, and will continue to be, carried out by the Group's wholly owned
subsidiary SSE Contracting Limited under a parallel 25-year sub-contract with the Equitix-owned SPEs.
Statement of directors' 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 ofRecent news on SSE
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