REG - SSE Plc - Preliminary results for the year to 31 March 2016 <Origin Href="QuoteRef">SSE.L</Origin> - Part 3
18/05/2016 07:06
- Part 3: For the preceding part double click ID:nRSR5345Yb
price control settlement resulted
in a significant income reduction in 2015/16. This was set out in Ofgem's Final Determination in November 2014.
SGN - SSE's share of SGN's operating profit fell by 5.7% primarily due to a decrease in Allowed Revenue in 2015/16 compared
to the prior year. The drop was mainly linked to the regulatory mechanism for sharing the benefit of previously earned
outperformance with customers in RIIO GD1, for which there is a two year lag.
Impact of revenue recovery
If in any year, regulated network companies' revenue is greater (over recovery) or lower (under recovery) than is allowed
under the relevant Price Control, the difference is carried forward and the subsequent prices the companies may charge are
adjusted. This particularly impacts Electricity Distribution and during 2014/15 there was an under recovery of
approximately £38m in this business. Under the regulatory framework the £38m under recovery in 2014/15 was reflected in
customer charges published in December 2015 for 2016/17. The under recovery in 2015/16 was significantly lower, at
approximately £5m. There were no material under or over recovery positions in Transmission or Gas Distribution reflecting
a more capacity based revenue recovery mechanism.
Electricity Transmission
Scottish Hydro Electric Transmission Plc (SHE Transmission) is responsible for maintaining and investing in the electricity
transmission network in the north of Scotland.
Completing projects which add to the RAV
During 2015/16 SHE Transmission completed a number of upgrades and reinforcements to its transmission network in the north
of Scotland. The projects, which were all completed on time and within their Ofgem allowances (nominal prices), are:
· the £94m reconductoring of the Beauly-Blackhillock-Kintore overhead line;
· the £68m substation and overhead line works on the Beauly-Mossford project; and
· the £210m subsea upgrade and associated onshore infrastructure on the Kintyre-Hunterston projects.
The replacement Beauly-Denny 400kV overhead line was energised in November 2015 and provides additional flexibility and
electricity network resilience. As well as connecting new electricity generation to the transmission network one of the
additional benefits of the new overhead line was realised during the big storms of the winter - storms Frank, Gertrude and
Henry - when there was no loss of supply to generation customers. The replacement of its section of the Beauly-Denny line
has required a total investment to date by SHE Transmission of around £650m and it is continuing discussions with Ofgem
regarding recovery of efficiently incurred costs additional to the original allowance of the project. Total costs are now
not expected to exceed £670m.
SHE Transmission's investment in these and other projects demonstrates its commitment towards supporting the transition to
lower carbon forms of electricity generation. In delivering these essential infrastructure projects SHE Transmission has
built on its continuing expertise in delivering increased capacity for electricity generation.
The investment that SHE Transmission has made in its network has helped connect over 2GW of additional capacity and as a
result has made its network more secure and resilient. With the current pipeline of development SHE Transmission is
expected to increase its RAV from £2.3bn as at March 2016 to around £3bn by March 2018.
Delivering the Caithness-Moray project
With an agreed investment of £1,118m (2013/14 prices), the Caithness-Moray transmission reinforcement is SHE Transmission's
flagship project and its largest single capital investment to date. The project, which will enable the connection of up to
1,200MW of additional generation capacity in the north of Scotland and the Northern Isles is progressing well and is
scheduled to be operational by the end of 2018. For example, both land and subsea cable manufacture are continuing ahead
of programme, with land cable production completed and delivered to site for both Caithness and Moray. The subsea cable
manufacture is on course for completion by the end of 2016. Subsea activities will commence in the first quarter of 2017.
First revenues were received in 2015/16 under the Strategic Wider Works mechanism.
Fulfilling responsibilities for potential island links
Developers of generation capacity on the Scottish Islands continue to await clarity from the UK Government on whether EU
State Aid clearance is obtained and their projects are eligible for Contracts for Difference (CfD) in forthcoming auctions.
Whilst this uncertainty remains, developers are unable to commit to final funding decisions on their projects. While it
continues to engage with stakeholders, SHE Transmission is not therefore in a position to submit 'Needs Cases' to Ofgem for
the island links to the Western Isles and Shetland. SHE Transmission continues to engage with Ofgem and developers and
will submit Needs Cases for the island links later this year, if circumstances allow.
Adapting to policy and regulatory change
Following the publication in March 2015 of the final conclusions of its Integrated Transmission Planning and Regulation
(ITPR) project, Ofgem has continued the development of the regime for extending the use of competition in onshore
transmission.
While ITPR poses some potential risks, the extension of competition into onshore transmission also presents opportunities
for SHE Transmission. The experience it has built up both in-house and with its supply chain means that SHE Transmission is
well placed for competitive delivery when it is implemented.
Through continued engagement with Ofgem and DECC SHE Transmission aims to ensure that its development portfolio, and
specifically some of its more advanced projects, can be delivered as far as possible under the existing regulatory
framework. It is also contributing to discussions on future arrangements that will deliver the transmission infrastructure
required in a way that supports the UK Government's policy objectives, delivers value for end consumers and achieves a fair
and reasonable return to investors.
Ofgem announced on 12 May 2016 that it would not conduct a mid-period review into SHE Transmission's RIIO T1 price control.
SHE Transmission remains committed to delivering against its outputs while ensuring value for money for the remainder of
RIIO T1.
Working with stakeholders
SHE Transmission is also engaging with stakeholders through its Visual Impact of Scottish Transmission Assets (VISTA)
project which is seeking views on how to mitigate the impacts of transmission infrastructure in National Parks and National
Scenic Areas. The views of stakeholders are central to understanding the impact of existing infrastructure and
investigating potential options for mitigation.
Electricity Distribution
Scottish and Southern Energy Power Distribution (SSEPD) is responsible for maintaining the electricity distribution
networks supplying over 3.7 million homes and businesses across central southern England and north of the Central Belt of
Scotland.
Putting customers first
During 2015/16, its first year under the incentives-based RIIO ED1 price control, SSEPD has made significant steps in
driving real change in its operations, processes and standards. The introduction of a change programme is ensuring that the
business is able to meet the demands of the eight year price control. Its new sustainable business model, built on a
combination of customer service and innovation, will bring benefits to customers while ensuring financial targets are
achieved and a fair return is delivered to investors.
The focus of the new price control is the delivery of efficient operations and the best possible experience for customers;
and the business has prioritised its efforts on the incentives built into RIIO ED1 that are designed to encourage
improvements in customer service.
The most financially significant of these are the two measures of loss of electricity supply: Customer Interruptions and
Customer Minutes Lost (CIs and CMLs). In the first year of the new price control SSEPD's adoption of the 'restore first,
repair second' method was a driver in bringing down its CIs and CMLs. The continued investment in automation, network
reinforcement and tree cutting also delivered improvements to help secure financial incentives. SSEPD's adoption of a
regionalised model across its distribution areas has assigned responsibility and decision making to local teams which has
helped to improve the response to power supply disruption during extreme weather events.
SSEPD's commitment to minimising the occurrence and duration of customer interruptions saw the Customer Minutes Lost reduce
to 55minutes (SHEPD) and 41minutes (SEPD) per customer and for Customer Interruptions to reduce to 66 per 100 customers
(SHEPD) and 47 per 100 customers (SEPD). This is the best-ever performance for SSE's Networks business.
The first awards from SSEPD's £1.3m Resilient Communities Fund, which was established to support local communities in their
preparation and response to emergencies, were made in 2015/16. The second round of nominations for funding has opened. The
fund was established using money remaining from an amount agreed with Ofgem following weather-related electricity supply
disruption over the Christmas period in 2013/14.
During the winter of 2015/16 SSEPD delivered its largest ever customer communications campaign, including advertising on
TV, radio and digital outputs. The campaign raised awareness of its contact details in response to storms and to promote
the services it provides for customers, including those who may need extra help during a power cut that are registered on
its Priority Service Register.
Keeping costs down
The main focus for SSEPD during RIIO ED1 is to deliver the outputs outlined in its business plan in an efficient and
sustainable manner. In order to meet these challenges the business is transforming continually to ensure that its
processes, procedures and supply chain are efficient.
Improving through innovation
Innovation is a key priority at SSEPD and its projects will play a crucial role in balancing the country's future energy
needs, while helping to keep the cost of energy down. SSEPD has a pipeline of innovations, at various stages of
development, and is on target to achieve cost savings over the period of the price control while creating direct benefits
for customers.
The innovation projects are funded through Ofgem's incentive schemes, which are designed to help Britain's electricity
networks achieve energy efficiencies and become smarter. Projects have included:
· SSEPD's My Electric Avenue monitored what impact people charging their electric vehicles could have on the
electricity network and tested real solutions to allow more to connect with minimal disruption. The trial will help all
Distribution Network Operators (DNOs) to safeguard, maintain and develop smarter networks to cope with the increase in
electric vehicle usage in the future. This project is now informing work on developing a standard solution for smart
charging where networks are heavily loaded, working closely with the other DNOs.
· The findings from the Thames Valley Vision project on energy characterisation and forecasting could revolutionise
the way that DNOs manage and effectively maintain the electricity networks of the future.
· Following a number of trials SSEPD has created the first "Constraint Managed Zones (CMZs)" on its network. The CMZs
ensure that security of supply is met for sections of the network through the use of load variation techniques, such as
Demand Side Response, Energy Storage and stand-by generators. The first deployment is deferring £9m of capital cost beyond
RIIO ED1.
SSEPD actively shares the learning from these projects within the Networks business and with other networks operators in
the UK and across Europe, helping to promote best practice and bring new techniques and technologies into 'business as
usual' operation across Britain's electricity network.
Co-operating with an investigation
On 20 January 2015, SSE plc was notified that the Gas and Electricity Markets Authority opened an investigation into
whether SSE plc had infringed Chapter II of the Competition Act 1998 and/or Article 102 Treaty on the Functioning of the
European Union in respect of the provision of points of connection services in the Southern Electric Power Distribution
area. The investigation is ongoing.
Engaging stakeholders in decision making
A key feature of SSEPD's first year in the price control is making sure its stakeholders have a say in its business
decisions. This influence allows them to hold the DNOs to account and it has been vital to maintaining SSEPD's reputation.
This has included:
· A consultation launched in 2015/16 to give stakeholders the opportunity to nominate the undergrounding of 90km of
overhead lines in Areas of Outstanding Natural Beauty, National Parks and National Scenic Areas in the north of Scotland
and central southern England.
· SHEPD working with Comhairle nan Eilean Siar and other stakeholders to explore the available options around current
network restrictions in the Western Isles. A steering group has been formed and it is investigating possible solutions that
may accommodate the connection of additional renewable energy generation.
Stakeholder engagement will continue to play a vital role at SSEPD and is a requirement for further regulated incentives
during the price control.
SGN
SGN manages the network that distributes natural and green gas to 5.9 million homes and businesses across Scotland and the
south of England. In line with its equity holding, SSE receives 50% of the distributable earnings from SGN Ltd while,
through a managed service agreement, continues to provide some back-office support.
Working with the Gas Distribution Price Control
SGN is focused on ensuring all its outputs under Ofgem's RIIO framework are met, incentives are maximised and innovation is
delivered effectively while running an efficient, safe and reliable network.
SGN's investment programme is a key element of this and, within overall total cost allowances of over £4.6bn (at 2012/13
prices), Ofgem has allowed around £2.8bn over the current eight year price control running to 2021 to cover new capital
investment and to manage the risks relating to SGN's existing assets. This investment enables SGN to:
· deliver a safe and reliable network for customers;
· minimise its impact on the environment and communicate its work to stakeholders; and
· deliver new customer-driven initiatives to help reduce fuel poverty and increase awareness of Carbon Monoxide
dangers.
In terms of operational performance and safety, 98.5% of uncontrolled gas escapes reported by the public were attended
within one hour of notification, exceeding Ofgem's 97% standard.
Networks - Conclusion and Priorities
SSE's economically-regulated Networks businesses are key to the provision of energy in the north of Scotland and central
southern England. SSE aims to put the current and future needs of customers at the heart of these businesses and, in doing
so, earn a return that is value for money for customers and fair to investors. This will be its aim in 2016/17 and
beyond.
Networks priorities for 2016/17 and beyond
· operate safely and meet all compliance requirements;
· provide an excellent service to all customers who rely on its network;
· deliver required outputs while maintaining tight controls over expenditure;
· deliver every customer connection to quoted cost, time and budget;
· develop and maintain effective stakeholder relationships;
· progress innovations that improve network reliability, efficiency and customer service.
RETAIL (including Enterprise)
Retail (including Enterprise) Key Performance Indicators
Mar 16 Mar 15
Energy Supply
Operating Profit * - £m 398.9 368.7
Capital expenditure (Energy Supply and Energy Related Services) - £m 169.0 109.6
Electricity customer accounts (GB domestic) - m 4.16 4.37
Gas customer accounts (GB domestic) - m 2.79 2.96
Energy customers (GB business sites) - m 0.47 0.45
All-Island energy market customers (Ire) - m 0.79 0.80
Total energy customer accounts (GB, Ire) - m 8.21 8.58
Electricity supplied household average (GB) - kWh 3,763 3,842
Gas supplied household average (GB) - th 426 438
Household/small business aged debt (GB, Ire) - £m 103.2 106.2
Bad debt charge - £m 44.0 65.3
Customer complaints to third parties (GB)1 1,416 1,528
1 Ombudsman: Energy Services and Citizens Advice
Energy related services
Operating profit*- £m 15.4 17.7
Home Services customer accounts (GB) - m 0.40 0.35
Meters read - m 11.4 13.0
Supply customers' bills based on actual reading % 95.1 96.2
Smart Meters installed over 180,000 over 40,000
Enterprise
Operating profit* - £m 40.9 70.4
Capital expenditure - £m 48.5 25.1
SSE Contracting Order Book - £m 133 133
Supplying energy and essential services across the Great Britain and Ireland markets
SSE is one of the largest energy suppliers in the competitive markets in Great Britain and Ireland. At 31 March 2016 it
supplied electricity and gas to 8.21million household and business accounts. It also provides other related products and
services including telephone, broadband and boiler care to 0.40 million household and business customers. The Retail
segment includes the Enterprise business which provides energy services to meet the needs of businesses and public sector
organisations in a reliable and sustainable way. Taken together these businesses provide balance to the SSE Group and
demonstrate SSE's commitment to efficient operations and industry-leading customer service.
SSE is focused on addressing the decline in customer numbers it has experienced in recent years. In the context of the
rapidly evolving competitive environment in which its Retail business operates, SSE has embarked on a transition from
commodity provider towards its vision of becoming a market-leading retailer of energy and essential services, by
digitalising and diversifying its business, and consistently excelling in customer service.
Financial performance in Retail and Enterprise
In 2015/16, SSE's profit margin (operating profit as a percentage of revenue) in Energy Supply was 5.2% (before tax)
compared with 4.6% in 2014/15 and 2.9% in 2013/14. Energy supply profit margin has averaged4.1% over the past five years.
During the year to 31 March 2016, total operating profit in Retail was £455.2m with the principal movements in operating
profit as follows:
Energy Supply - The overall increase in operating profit was driven primarily by strong performance in Business Energy, in
particular due to increasing market share in the industrial and commercial (I&C) sector. This more than offset a reduction
in operating profit in domestic energy as a result of customer losses and lower consumption. This is in line with the
expectations set out by SSE at its interim results that operating profit in domestic energy supply would fall in 2015/16
relative to 2014/15.
Energy Related Services - Operating profit fell as SSE continues to invest in building scale in these businesses, making a
number of operational improvements to support its plans for future growth in non-energy as part of its diversification
strategy. In line with that strategy, overall customer numbers in Energy-Related Services, which includes broadband and
fixed-line telephone, gas boiler and electrical maintenance, repair and installation, increased to 0.40million from
0.35million in the year to 31 March 2016.
Enterprise - The reduction in operating profit mainly reflects strategic business disposals that took place in the previous
year (including the £15.3m profit from the disposal of SSE's gas pipeline business), alongside numerous revisions to the
overall structure of the SSE Enterprise business.
Preparing Consolidated Segmental Statements
SSE is required by Ofgem to publish a Consolidated Segmental Statement (CSS) each year setting out the revenues, costs and
profits or losses of businesses in its Wholesale and Retail segments.
In line with that requirement, SSE expects to publish its CSS for 2015/16 in July 2016. The CSS for 2015/16, which will be
reconciled to SSE's published financial statements and reviewed by SSE's auditors KPMG. It is expected to show that SSE's
profit margin (before tax) from supplying electricity and gas to households in Great Britain was relatively flat at 6.2%,
compared with 6% in 2014/15. SSE's CSS is also expected to highlight the increasing divergence between electricity and gas
margins, primarily due to cumulative costs associated with the long-term upgrade of the country's electricity system that
began around a decade ago and which is continuing in the interests of ensuring that customers benefit from a secure and
lower-carbon energy system. These costs are levied more heavily against electricity.
Responding to the Competition and Markets Authority inquiry
On 10 March 2016 the Competition and Markets Authority (CMA) published its Provisional Decision on Remedies (PDR) summary,
setting out for consultation its final proposed remedies as it approaches the conclusion of its two-year energy market
investigation. As outlined in SSE's published response, the PDR largely reflects the position that GB energy markets are
generally competitive and well-functioning, and, in particular:
· that the key elements of the wholesale markets are working well and highly competitive;
· the significant number of positive features that the CMA has identified in the domestic supply markets, including
that over 30 suppliers compete vigorously on price, tariff and product innovation; and
· that market developments, and particularly smart meters, will have (and are already having) a materially positive
impact on the energy sector.
However, SSE does not recognise either the CMA's assessment of profitability in the sector and associated customer
detriment or the overall picture of the GB energy supply market implied by the PDR findings. SSE remains concerned that,
despite some of the in-depth analysis undertaken, the PDRs still display a considerable lack of appreciation for the
dynamic and evolving nature of this market.
Nevertheless, SSE supports many of the remedies proposed by the CMA, including the withdrawal of the simpler choices
component of the Retail Market Review (RMR) rules; improving the framework for effective competition through a clear path
towards mandatory half-hourly settlement; and improving industry governance, among others. However, SSE has concerns that
prepayment meters (PPMs) are a poor proxy for vulnerable customers and the PPM price cap stands out as a potentially flawed
remedy which may have a detrimental impact on competition and endanger the efficacy of the rest of the package.
While SSE strongly supports efforts to maximise customer engagement, it also has concerns over the proposed database for
"disengaged" customers.
SSE will continue to work constructively with the CMA and other appropriate stakeholders to reach a practical delivery of
this substantial package, whilst recognising it is already a busy period of change in the industry, particularly against
the backdrop of the smart meter roll-out.
Energy Supply and Energy Related Services
Treating customers fairly
Underpinning SSE's approach to the provision of both energy and energy-related services is the principle of treating
customers fairly. This is central to the decisions SSE takes both at Executive Committee and Board level, as documented in
its annual Treating Customers Fairly Statement, published in August each year. This means actively addressing any issues
that arise relating to the quality of the service provided, as well as looking for ways to improve service quality in the
future.
As a result of its approach to customers, SSE continues to be recognised by a variety of trusted third parties for the
quality of its service:
· The Ombudsman for Energy Services reported in March that SSE received the fewest complaints of all ten suppliers
covered, including the largest independent suppliers, with 3.09 complaints per 100,000 customers.
· SSE continues to perform strongly in the Citizens Advice Energy Supplier Performance Report, with a score 44 times
better than the worst performing supplier and seven times better than the other major suppliers' average score. SSE
remained top for the period June-September 2015, a position held for five years, before slipping fractionally to second
place for Q4 2015. SSE is working hard to improve on this and is confident that it will remain an industry leader.
· SSE was also ranked best for customer service among the largest six energy suppliers by uSwitch, the best performing
major energy supplier in the Which? customer service survey of the top 100 consumer brands, and number one energy supplier
in the annual UK National Consumer Satisfaction Index (NICIS-UK).
Supplying energy to customers across Great Britain and Ireland
SSE appreciates that customers rely on its core products of electricity and gas to power and heat their homes in order to
live safely and comfortably, and is therefore committed to keeping energy prices as low as possible. On 29 March 2016, SSE
implemented its third price cut in Great Britain during the period of its unique two and a half year price freeze, reducing
gas prices by a further 5.3%. SSE's household energy customers have not seen a price increase since November 2013 and SSE's
new gas prices are now 12% lower for a typical household customer than they were in 2013. While electricity wholesale
prices have also fallen, this has been offset by non-energy costs and in particular the cumulative impact of programmes to
upgrade the country's energy infrastructure, which are levied predominantly against electricity.
In the year to 31 March 2016, SSE's energy customer accounts in Great Britain and Ireland fell from 8.58 million to 8.21
million. SSE is focused on addressing the decline in customer numbers it has experienced in recent years and is aiming to
reduce significantly the rate of customer losses during the coming year. The market for energy supply in GB in particular
continues to be intensely competitive, with political, regulatory and market factors all contributing to the rapid growth
of new market entrants, of which 11 have come to market in the past year alone. Customers are also highly engaged: in March
2016 alone, over 475,000 customers switched supplier, with 43% switching to a smaller provider, according to Energy UK
data. Increasingly, customers are switching via internet comparison sites (ICSs), which now account for around 50% of
switches compared to 25% seven years ago, and are driven almost exclusively by price. Similar forces are at work in the
competitive markets in Ireland.
Having made significant improvements in the past 12 months in order to compete more effectively in this environment, SSE
will continue to offer market-leading deals to new and existing customers in 2016/17. However, it is, fundamentally, a
business focused on the long-term and its strategy therefore centres around providing customers with additional value in
order to create stronger, deeper and more sustainable customer relationships based on high-quality customer service,
provision of a range of different, competitively priced products in the home and a programme of rewards. To support this
strategy, SSE is also focused on building a strong brand that customers want to engage with and on delivering operational
efficiencies that enable it to do more for less.
Investing in becoming a market-leading retailer of energy and essential services
SSE firmly believes that its strategy of becoming a market-leading retailer of energy and essential services, by
digitalising and diversifying its business, and consistently leading in customer service, is the right response to an
increasingly competitive market, and one which will enable it to leverage its strong competencies in customer service and
efficient operations.
It now has a number of key initiatives under way, including:
· a significant upgrade of its customer-facing digital channels and websites to simplify and improve customer service
while also minimising its cost to serve;
· diversifying though the national expansion of its Home Services business, which provides boiler and electrical
services to customers;
· offering market-leading deals in the broadband and fixed-line telephony market in order to build scale in this
business and further diversify SSE's customer base, seeking to offer additional products and value to existing energy
customers;
· introducing additional resources, training and telephony services to its call centres to deliver on its ambition to
build differentiation through service; and
· optimising the smart meter roll-out and developing new in-home customer experiences linked to smart data to drive
digital customer engagement and achieve its service ambition.
At the same time SSE continues to invest in its brand to ensure it not only appeals to customers but is able to offer
additional value and rewards linked to its sponsorship of sports, such as the SSE Women's FA Cup, and leading entertainment
venues The SSE Hydro, The SSE Arena, Wembley, and The SSE Arena, Belfast.
This investment is underpinned by SSE's ongoing efforts to streamline its operations and generate process efficiencies.
Meeting customers' need for energy
Following a colder first six months of the year relative to 2014/15, winter temperatures were again near or above average,
impacting consumption volumes in the second half of the year. The average UK temperature for the 12 months to 31 March 2016
was 0.4 degrees Celsius warmer than the 30-year (1981-2010) average, though it was 0.3 degrees Celsius colder than in
2014/15.
While consumption can vary greatly year-on-year based on temperatures, on a weather-corrected basis SSE estimates that gas
and electricity consumption by household customers in the 12 months to 31 March 2016 fell by 3.1% and 1.8% respectively. As
well as reflecting underlying changes in SSE's customer base, this can be attributed to the ongoing impact of structural,
technological and behavioural energy efficiency improvements. SSE estimates that, at today's prices, a typical customer
bill is now approximately 12% lower than in 2011 as a result of reduced energy consumption, largely due to energy
efficiency improvements.
SSE continues to play its role in the delivery of important energy efficiency improvements to customers' homes under the
Energy Company Obligation (ECO). SSE is on course to meet its ECO targets to 31 March 2017 and, since the scheme was
launched in 2013, SSE has:
· promoted the installation of 282,000 energy efficiency measures including loft, cavity and solid wall insulation and
boiler replacements;
· helped improve the efficiency of over 242,000 homes across Great Britain; and
· provided over £1,000m of notional lifetime bill savings for customers.
Helping vulnerable customers
Energy is an essential service; SSE therefore takes its responsibility to vulnerable customers very seriously and helps
them manage their energy costs in a number of ways.
The Warm Home Discount (WHD) scheme enables pensioners and vulnerable customers to receive help with their fuel bills in
the form of a yearly £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 efficiency advice, and help with bespoke payment
arrangements. In the year to 31 March 2016 around 325,000 customers received assistance from SSE worth over £48.5 million
through these initiatives and partnership projects with National Energy Action (NEA), Citizens Advice and the Home Heat
Helpline.
SSE also operates a free Careline priority service, dedicated to helping customers who are elderly, disabled or have
special medical needs. It takes a proactive approach to monitoring the top-up behaviour of its prepayment customers to
minimise the risk of 'self-disconnection'. In line with its licence condition, 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.
Further to its commitment to use any future unclaimed credit balances which cannot be returned to customers to help give
additional support for vulnerable customers, SSE has also now reallocated historic unclaimed credits to the value of more
than £28m.
Debt levels continue to reduce, partly reflecting lower prices and falling consumption, but also due to SSE's efforts to
engage constructively and understandingly with customers in arrears as early as possible, making sure support is provided
and payment plans are manageable.
Rolling out smart meters to customers across Great Britain
SSE's metering business is undergoing a transformation through the smart meter roll-out; however, it still undertakes meter
reading operations and meter operator work in all parts of Great Britain. SSE believes in the potential for the national
roll-out of smart meters to transform the relationship between customers, their energy usage and their supplier in the
coming years. It is therefore committed to delivering its roll-out in a way that is both cost-effective and
customer-centric, with the primary objective of maximising the net benefits to customers.
SSE has been gradually ramping up its capacity and delivery of smart meters with a view to getting it right for customers
first time to maximise engagement. As of 31 March 2016, SSE had installed more than 180,000 smart meters and installed its
200,000th meter in April 2016. 2016/17 is a pivotal year for the smart programme, with the central communications
infrastructure provided by the Data Communications Company (DCC) due to be delivered to a revised timetable which will see
phased introduction in August and October 2016. While there remain other constraints to be addressed, getting the DCC up
and running is a critical first step towards enabling suppliers to build up to mass deployment. Any further delays to the
DCC's delivery timetable must be reflected in the overall delivery timetable to avoid any negative impacts for customers.
Doing more for business energy customers
Business Energy performed strongly in 2015/16, driven by growth in the Industrial and Commercial (I&C) market and ongoing
efforts to control operating costs. SSE has continued to build its offering in the commercial sector with the launch of a
new renewable energy proposition 'SSE Green', a new customer website and a change in approach to service with a greater
focus on the needs of customers. This has resulted in Business Energy's service team moving closer to its sales team,
working with the customer to define requirements at an early stage and then providing ongoing support on a continuous
basis.
For Business Energy's micro business customers, SSE has continued its emphasis on Treating Customers Fairly by relaunching
its TCF statement and establishing a Performance team to focus on operational excellence by driving continuous improvement.
Third Party Intermediaries (TPIs) remain an important channel for Business Energy growth and SSE continues to provide
ongoing support to its TPIs by providing access to its industry experts via sales channels, engagement sessions and regular
industry updates.
Key to the continued success of Business Energy is a willingness to listen to customers, review processes and act on what
customers are saying. At the same time, SSE remains focused on giving business customers direct access to people who will
support and work in partnership with them throughout the lifetime of their contract.
Supplying energy and energy-related services to customers in Ireland
SSE Airtricity is the second-largest energy provider in Ireland and the only energy supply brand to operate in all of the
competitive gas and electricity markets across the island. At 31 March 2016, SSE Airtricity supplied electricity and gas
to 0.79 million household and business customer accounts in the Republic of Ireland (ROI) and Northern Ireland (NI),
representing a 20% share of the total combined gas and electricity markets in which it operates.
Market conditions remain highly competitive, particularly in Northern Ireland where the regulated electricity market has
seen the emergence of new domestic entrants in the last 12 months. In light of competitive pressures, SSE Airtricity
continues to invest in its brand and in June 2015 announced a ten-year naming rights deal for The SSE Arena, Belfast,
adding to SSE's existing portfolio of UK-wide entertainment venues. SSE Airtricity's Energy Services business continues to
expand in both the ROI and NI markets. As a 'digital-first' supplier, around 70% of all SSE Airtricity customer
interactions are performed via the company's online, digital and mobile service platforms.
SSE Airtricity reduced its household electricity prices in Republic of Ireland by 2% from 11 January 2016, following an
earlier 2% cut to electricity along with a 4% cut to gas prices in April 2015. In Northern Ireland, the company reduced its
electricity prices by 8% in April 2015 and by a further 1.3% from 11 January 2016.
In Northern Ireland's Greater Belfast natural gas supply network, where SSE Airtricity is the regulated supplier with a 73%
market share, the company reduced its gas prices by 10% from 1 October 2015. This followed an earlier 7.8% cut in its
regulated prices in April 2015. The setting of SSE Airtricity's regulated natural gas prices, including any changes to
those prices, follows a Price Control review conducted every six months by the Northern Ireland Utility Regulator.
Enterprise
Business Structure
SSE Enterprise incorporates six of SSE's businesses: Contracting, Energy Solutions, Rail, Slough Heat and Power, Telecoms
and Utilities, supported by centralised sales and project delivery teams. As a multi-disciplined engineering services
partner for businesses, building a sustainable infrastructure for the future, SSE Enterprise provides energy services to
meet the needs of businesses and public sector organisations in a reliable and sustainable way.
With a significant self-delivery capability, SSE Enterprise:
· designs, builds, maintains and operates complex mechanical and electrical engineering infrastructure;
· provides sector-leading energy management and data analytic services to help businesses optimise their energy
performance, helping to reduce costs and emissions;
· provides industry-leading telecoms connectivity and data centre services, meeting the connectivity and communication
needs of businesses with bespoke solutions; and
· designs builds, maintains and operates electricity, gas, water, heat and cooling networks for commercial and
residential developments.
SSE Enterprise was formed in 2014 under the leadership of Managing Director Jim McPhillimy, who is also a member of SSE's
Executive Committee and a PDMR. Having successfully brought together the SSE Enterprise group of businesses and enhanced
their overall capability, Jim will step down from the role and retire from SSE at the end of the year. A successor will be
appointed in the next few months.
Setting the right priorities for SSE Enterprise
The energy needs and expectations of private sector companies and public sector organisations are becoming increasingly
sophisticated, with growing requirements for effective energy management and robust energy and utility infrastructure. In
addition, those customers are increasingly seeking integrated and bespoke solutions to meet their energy and utility
needs.
Laying the foundations for future growth
Since the start of 2015/16, SSE Enterprise has continued to make progress in laying the foundations to deliver future
growth.
· SSE Enterprise Telecoms has continued to grow its network, unbundling a further 33 BT exchanges, increasing telecoms
coverage by an additional 50,000 postcodes nationwide; further expanding its network in London; and connecting a further
four data centres, bringing the total number of connected data centres to 72. SSE Enterprise Telecoms sales grew 30% year
on year, with a number of notable new clients including NATS, Mitsubishi UFJ Financial Group Inc. (MUFG) and Imperial
College.
· SSE Enterprise Contracting and SSE Enterprise Energy Solutions have both undergone organisational restructures, with
enhanced sales organisations focused on operational efficiency and delivering value for customers. SSE Enterprise
Contracting has been selected by Bluepoint London, a subsidiary of the French group Bolloré, to be the installer of up to
6,000 Electric Vehicle Charging Points across London.
· SSE Enterprise Utilities has created a dedicated heat team with ambitious plans to significantly build on its
current portfolio of district heat networks and maintain its position as one of the UK's leading heat network providers. In
2015/16 SSE Enterprise Utilities delivered a low-carbon, multi-utility solution at the Riverlight development in London,
providing the installation and ongoing ownership, operation and maintenance of the water, heat, gas and electricity
networks.
· A dedicated rail business, SSE Enterprise Rail, has been created with the primary purpose of 'Powering Britain's
Railways', building on the extensive engineering experience and expertise SSE has built up in rail over the last 15 years.
Since its formation, SSE Enterprise Rail has significantly expanded its capabilities in the rail sector, increasing its
product portfolio of Railway Industry Supplier Qualification Scheme (RISQS) codes; the industry recognised qualification
for the supply of products and services to the rail industry, from 32 to over 200.
· Slough Heat and Power has transferred from SSE's Generation division to SSE Enterprise, recognising the opportunity
to broaden the offering of services that SSE Enterprise provides to Slough Heat and Power's existing and prospective
customers.
· A new Energy Performance team has been created, responsible for securing, structuring and delivering Energy
Performance Contracts (EPCs).
Retail (including Enterprise) - Conclusion and Priorities
SSE's Energy Supply, Energy-Related Services and Enterprise businesses operate in competitive markets and are each focused
on the changing energy needs of household, commercial and public sector customers. This means maintaining a clear focus on
delivering the propositions and services that customers need. Put simply, the core requirement of these businesses is to
put the current and future needs of customers at the heart of everything they do.
Key priorities for 2016/17 and beyond
· moving towards a stabilisation of customer numbers through enhanced sales and retention activities, as well as
through realising SSE's customer service ambition;
· accelerating diversification through the national expansion of Home Services and continued growth in broadband and
telephone;
· taking the smart opportunity by optimising deployment of smart meters and developing compelling smart-enabled
customer propositions;
· continuing to improve the customer experience and deliver operational efficiencies by further digitalising the
business;
· delivering continuing investment and growth in energy supply to commercial and public sector organisations; and
· continuing development of integrated energy and utility solutions that meet the specific and evolving needs of
customers, in addition to the continued organic growth of each of the businesses within Enterprise.
Summary Financial Statements
Consolidated Income Statement
for the year ended 31 March 2016
2016 2015
Beforeexceptionalitems andcertainre-measure-ments Exceptional items andcertainre-measure-ments(note 6) Total Beforeexceptionalitems andcertainre-measure-ments Exceptional items andcertainre-measure-ments(note 6) Total
Note £m £m £m £m £m £m
Revenue 5 28,781.3 - 28,781.3 31,654.4 - 31,654.4
Cost of sales (25,859.4) (644.5) (26,503.9) (28,801.3) (432.8) (29,234.1)
Gross profit 2,921.9 (644.5) 2,277.4 2,853.1 (432.8) 2,420.3
Operating costs (1,449.8) (334.0) (1,783.8) (1,361.5) (358.5) (1,720.0)
Other operating income 29.4 57.6 87.0 47.2 74.8 122.0
Operating profit before joint ventures and associates 1,501.5 (920.9) 580.6 1,538.8 (716.5) 822.3
Joint ventures and associates:
Share of operating profit / (loss) 322.9 - 322.9 342.6 (25.9) 316.7
Share of interest (126.8) - (126.8) (124.2) - (124.2)
Share of movement on derivatives - 2.3 2.3 - 6.7 6.7
Share of tax (39.9) 46.3 6.4 (34.2) (1.4) (35.6)
Share of profit on joint ventures and associates 156.2 48.6 204.8 184.2 (20.6) 163.6
Operating profit 5 1,657.7 (872.3) 785.4 1,723.0 (737.1) 985.9
Finance income 7 101.8 - 101.8 95.9 - 95.9
Finance costs 7 (308.2) 14.3 (293.9) (302.4) (44.2) (346.6)
Profit before taxation 1,451.3 (858.0) 593.3 1,516.5 (781.3) 735.2
Taxation 8 (280.6) 272.5 (8.1) (271.2) 200.4 (70.8)
Profit for the year 1,170.7 (585.5) 585.2 1,245.3 (580.9) 664.4
Attributable to:
Ordinary shareholders of the parent 1,046.1 (585.5) 460.6 1,124.0 (580.9) 543.1
Other equity holders 124.6 - 124.6 121.3 - 121.3
Basic earnings per share (pence) 10 46.1 55.3
Diluted earnings per share (pence) 10 46.0 55.2
Interim dividend paid per share (pence) 9 26.9 26.6
Proposed final dividend per share (pence) 9 62.5 61.8
89.4 88.4
The accompanying notes are an integral part of the financial information in this announcement.
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2016
2016 2015
£m £m
Profit for the year 585.2 664.4
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Actuarial gains/(losses) on retirement benefit schemes 254.3 (79.3)
Taxation on actuarial (gains)/losses on defined benefit pension schemes (58.9) 16.3
195.4 (63.0)
Share of joint ventures actuarial gains/(losses )on retirement benefit schemes 94.8 (2.1)
Share of joint ventures taxation of actuarial gains/(losses) on retirement benefit schemes (18.4) 0.2
76.4 (1.9)
Items that will be reclassified subsequently to profit or loss:
Gains/(losses) on effective portion of cash flow hedges 79.4 (41.9)
Transferred to assets and liabilities on cash flow hedges 4.7 (4.5)
Taxation on cashflow hedges (15.1) 8.8
69.0 (37.6)
Share of joint ventures/associates gain/(loss) on effective portion of cash flow hedges 4.7 (9.4)
Share of joint ventures/associates taxation on cash flow hedges (0.8) 1.9
3.9 (7.5)
Losses on revaluation of available for sale investments, net of taxation (8.4) (3.2)
Exchange difference on translation of foreign operations 85.1 (119.7)
(Losses)/gains on net investment hedge (40.7) 61.7
Taxation on net investment hedge
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