REG - SSE Plc - Preliminary results for the year to 31 March 2017 <Origin Href="QuoteRef">SSE.L</Origin> - Part 5
17/05/2017 07:06
- Part 5: For the preceding part double click ID:nRSQ3515Fd
judgement, being a percentage reduction to unbilled consumption volume, to the
measurement of its unbilled revenue in the financial statements. It is expected that this judgement will become less
critical as the industry transitions to smart meter technology.
(iii) Valuation of trade receivables - Estimation Uncertainty
The Group's exposure to credit risk, and therefore the basis of determining the provisions for bad and doubtful debts, is
controlled by individual business units operating in accordance with Group polices and procedures. Generally, for
significant contracts, individual business units enter into contracts or agreements with counterparties having investment
grade credit ratings only, or where suitable collateral or other security has been provided. Counterparty credit validation
is undertaken prior to contractual commitment. While the provisions are considered to be appropriate, changes in
estimation basis or in economic conditions could lead to a change in the level of provisions recorded and consequently on
the charge or credit to the income statement.
(iv) Retirement benefit obligations - Estimation Uncertainty
The assumptions in relation to the cost of providing post-retirement benefits during the period are based on the Group's
best estimates and are set after consultation with qualified actuaries. While these assumptions are believed to be
appropriate, a change in these assumptions would impact the level of the retirement benefit obligation recorded and the
cost to the Group of administering the schemes.
Notes to the Preliminary Statement
for the year ended 31 March 2017
4 Accounting judgements and estimation uncertainty (continued)
4.2 Other key accounting judgements
Other key accounting judgements applied in the preparation of these Financial Statements include the following:
(i) Business Combinations and acquisitions - Accounting Judgement
Business combinations and acquisitions require a fair value exercise to be undertaken to allocate the purchase price to the
fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the
assets and liabilities is based, to a certain extent, on management's judgement. The amount of goodwill initially
recognised as a result of a business combination is dependent on the allocation of this purchase price to the identifiable
assets and liabilities with any unallocated portion being recorded as goodwill. Business combinations are disclosed in Note
10.
(ii) Treatment of disputes and claims - Accounting Judgement
The Group is exposed to the risk of litigation, regulatory judgements and contractual disputes through the course of its
normal operations. The Group considers each instance separately in accordance with legal advice and will provide or
disclose information as deemed appropriate. Changes in the assumptions around the likelihood of an outflow of economic
resources or the estimation of any obligation would change the values recognised in the Financial Statements.
(iii) Consolidation of interest in investments and trading arrangements - Accounting Judgement
Judgement is often required in assessing the level of control held by the Group in its investments or trading arrangements.
Depending on the balance of facts and circumstances in each case, the Group may either have control, joint control or
significant influence over the entity or arrangement. Where the Group has joint control of an arrangement, judgement is
also required to assess whether the arrangement is a joint operation or a joint venture.
Clyde Windfarm (Scotland) Limited
In the prior financial year, the Group completed the sale of 49.9% of the equity in Clyde Windfarm (Scotland) Limited
('Clyde'). Details of this transaction are included at Note 10. As part of the Group providing project and contract
management services for and 100% of the funding for the construction of the 172.8MW extension of the wind farm, the Group
had retained rights around the engineering, procurement and construction of the extension and therefore concluded to confer
power to control the relevant activities of Clyde to the Group. As a consequence, this entity was fully consolidated into
the Group's financial statements as a subsidiary at 31 March 2016.
On 13 May 2016, the Group agreed to waive those contractual rights which gave rise to the judgement that power to control
the relevant activities existed over Clyde. All other contractual arrangements remained in place. As a consequence, the
Group has since accounted for its interest in Clyde as that of an investment in an equity-accounted joint venture. One of
the impacts of the change to the consolidation basis was to remove the equivalent to the £200.7m of non-recourse borrowings
held by Clyde at 31 March 2016 from the Group's consolidated balance sheet and from the Group's 'adjusted net debt and
Hybrid equity' measure. The principal adjustments made to reflect the change in consolidation basis on the date control was
lost are noted below, and comprise the derecognition of the consolidated subsidiary balances, the reclassification of
borrowings as loans to joint ventures, and the recognition of an equity investment in a joint venture at fair value as
required by IFRS 10 'Consolidated Financial Statements'. Subsequent increases in loan, share of profits and other reserves
as part of the normal course of business are also noted, giving a bridge to the recognised position at 31 March 2017.
The Group retains a 51% equity stake in Clyde at 31 March 2017 and the Group's interest in the entity is expected to remain
that of an equity-accounted joint venture following completion of the extension. On completion of the extension project,
the Group expects to convert the loans provided relating to the extension to equity and will consequently hold an increased
stake in the venture at that point.
Following the loss of control the Group recognised a fair value uplift of £51.9m in respect of its share in Clyde. This has
been recognised as an exceptional credit in the current year
Notes to the Preliminary Statement
for the year ended 31 March 2017
4 Accounting judgements and estimation uncertainty (continued)
4.2 Other key accounting judgements (continued)
Consolidation entries for control of Clyde at conversion date£m Derecognitionas subsidiary and recognition as joint venture£m Fair value uplift of equity interest under IFRS 10 £m Increase in loan, share of profits and other reserves£m Consolidation entries for joint control of Clyde at 31 March 2017£m
Property, plant & equipment 637.0 (637.0) - - -
Equity investments in joint ventures and associates - 85.1 59.1 3.6 147.8
Loans to joint ventures and associates - 264.9 - 78.3 343.2
Non current assets 637.0 (287.0) 59.1 81.9 491.0
Current assets 45.9 (45.9) - - -
Current liabilities1 (378.6) 113.7 - (78.3) (343.2)
Loans and borrowings (200.7) 200.7 - - -
Non current liabilities (200.7) 200.7 - - -
Net assets 103.6 (18.5) 59.1 3.6 147.8
1 Closing current liabilities represents the cash paid by parent companies to Clyde Windfarm (Scotland) Limited as loans.
Other arrangements
Beatrice Offshore Windfarm Limited has been deemed a joint venture in the current and previous year as following review of
the shareholders agreement it has been assessed that the Group does not have rights to the assets, nor obligations for the
liabilities, relating to the company. The Group holds a 40% equity stake at 31 March 2017.
The Group's interest in Greater Gabbard Offshore Winds Limited is that of a joint operation designed to provide output to
the parties sharing control. The liabilities of the arrangement are principally met by the parties through the contracts
for the output of the wind farm.
(iv) Lease classification for Smart Meter contracts - Accounting Judgement
Following the disposal of smart meter assets to Meter Fit 10 Limited in the period (see Note 10), the Group has entered
into an agreement for the provision of meter asset provider (MAP) services with that company. During the year, the Group
also entered into a framework agreement with a joint venture company, Maple Topco Limited, to provide MAP services for
further tranches of smart meter deployment.
The Group has assessed that both arrangements, in common with all similar arrangements, do not contain leases due to other
parties taking a significant amount of the output from the meters and due to the Group being unable to control either the
operation or the physical access to the meters.
(v) Pension scheme surplus restrictions - Accounting Judgement
At 31 March 2016, the value of scheme assets recognised were impacted by the asset ceiling test which (a) restricts the
surplus that could be recognised to assets that can be recovered through future refunds or reductions in future
contributions to the schemes and (b) may increase the value of scheme liabilities where there are minimum funding
liabilities in relation to agreed contributions. IFRIC 14 "IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction" clarifies that future refunds may be recognised in the assessment of the asset ceiling
if the sponsoring entity has an unconditional right to a refund in certain circumstances.
During the financial year, the rules of the Scottish Hydro Electric Pension Scheme ('SHEPS') were amended whereby the
Group's rights to any surplus upon final winding up of the scheme were clarified. This presented a change in circumstances
in that the 'asset ceiling' restriction to the SHEPS surplus is no longer applicable.
Notes to the Preliminary Statement
for the year ended 31 March 2017
4 Accounting judgements and estimation uncertainty (continued)
4.3 Other areas of estimation uncertainty
(i) Provisions and contingencies
The assessments undertaken in recognising provisions and contingencies have been made in accordance with IAS 37. Provisions
are calculated based on estimations. The evaluation of the likelihood of the contingent events has required best judgement
by management regarding the probability of exposure to potential loss. Should circumstances change following unforeseeable
developments, this likelihood could alter.
(ii) Decommissioning costs
The estimated cost of decommissioning at the end of the useful lives of certain property, plant and equipment assets is
reviewed periodically and has been reassessed in the year to 31 March 2017. Decommissioning costs in relation to gas
exploration and production assets are periodically agreed with the field Operators and reflect the latest expected economic
production lives of the fields. Provision is made for the estimated discounted cost of decommissioning at the balance sheet
date. The dates for settlement of future decommissioning costs are uncertain, particularly for gas exploration and
production assets where reassessment of gas and liquids reserves can lengthen or shorten the field life as well as the
upward and downward movement in commodity prices and operating costs, but are currently expected to be incurred
predominantly between 2017 and 2040.
(iii) Gas and liquids reserves
The volume and production profile of proven and probable (2P) gas and liquids reserves is an estimate that affects the unit
of production depreciation of producing gas and liquids property, plant and equipment. This is also a significant input
estimate to the associated impairment and decommissioning calculations. The estimation of gas and liquid reserves is
subject to change between reporting periods, following the review and updating of inputs such as regional activity,
geological data, reservoir performance data, well drilling activity, commodity prices and production costs. Proven and
probable (2P) reserves, and other reserve classifications, can both increase and decrease following assessment of the
inputs.
The estimates of gas and liquid reserves are formally reviewed on an annual basis using an Independent Reserves Auditor,
and the impact of a change in estimated proven and probable reserves is dealt with prospectively by depreciating the
remaining book value of producing assets over the expected future production. If proven and probable reserves estimates are
revised downwards, earnings could be affected by an immediate write-down (impairment) of the asset's book value or a higher
future depreciation expense.
Notes to the Preliminary Statement
for the year ended 31 March 2017
5. Segmental information
The Group's operating segments are those used internally by the Board to run the business and make strategic decisions. The
types of products and services from which each reportable segment derives its revenues are:
Business Area Reported Segments Description
Networks Electricity Distribution The economically regulated lower voltage distribution of electricity to customer premises in the North of Scotland and the South of England
Electricity Transmission The economically regulated high voltage transmission of electricity from generating plant to the distribution network in the North of Scotland
Gas Distribution SSE's share of Scotia Gas Networks, which operates two economically regulated gas distribution networks in Scotland and the South of England
Retail Energy Supply The supply of electricity and gas to residential and business customers in the UK and Ireland
Enterprise The integrated provision of services in competitive markets for industrial and commercial customers including electrical contracting, private energy networks, lighting services and telecoms capacity and bandwidth
Energy-related Services The provision of energy-related goods and services to customers in the UK including meter reading and installation, boiler maintenance and installation and domestic telecoms and broadband services
Wholesale Energy Portfolio Management (EPM) and Electricity Generation The generation of power from renewable and thermal plant in the UK and Ireland and the optimisation of SSE's power and gas and other commodity requirements
Gas Storage The operation of gas storage facilities in the UK
Gas Production The production and processing of gas and oil from North Sea fields
The internal measure of profit used by the Board is 'adjusted profit before interest and tax' or 'adjusted operating
profit' which is arrived at before exceptional items, the impact of financial instruments measured under IAS 39, the net
interest costs associated with defined benefit pension schemes and after the removal of taxation and interest on profits
from joint ventures and associates.
Analysis of revenue and operating profit by segment is provided below. All revenue and profit before taxation arise from
operations within the UK and Ireland.
(i) Revenue by segment
External revenue Intra-segment revenue Total revenue External revenue Intra-segment revenue Total revenue
2017£m 2017£m 2017£m 2016£m 2016£m 2016£m
Networks
Electricity Distribution 814.8 259.7 1,074.5 689.0 243.6 932.6
Electricity Transmission 358.2 0.2 358.4 367.9 - 367.9
1,173.0 259.9 1,432.9 1,056.9 243.6 1,300.5
Retail
Energy Supply 7,252.5 102.1 7,354.6 7,548.3 83.2 7,631.5
Enterprise 371.6 99.5 471.1 455.1 96.6 551.7
Energy-related Services 119.9 151.0 270.9 118.2 112.9 231.1
7,744.0 352.6 8,096.6 8,121.6 292.7 8,414.3
Wholesale
EPM and Electricity Generation 20,009.5 3,198.9 23,208.4 19,525.3 3,780.6 23,305.9
Gas Storage 13.5 280.4 293.9 5.7 214.3 220.0
Gas Production 35.5 235.4 270.9 2.2 144.9 147.1
20,058.5 3,714.7 23,773.2 19,533.2 4,139.8 23,673.0
Corporate unallocated 62.4 273.9 336.3 69.6 258.9 328.5
Total 29,037.9 4,601.1 33,639.0 28,781.3 4,935.0 33,716.3
Notes to the Preliminary Statement
for the year ended 31 March 2017
5 Segmental information (continued)
(i) Revenue by segment (continued)
Revenue within Energy Portfolio Management and Electricity Generation includes revenues from generation plant output and
the gross value of all wholesale commodity sales including settled physical and financial trades. These are entered into to
optimise the performance of the generation plants and to manage the Group's commodity risk exposure. Purchase trades are
included in cost of sales.
Revenue from the Group's investment in Scotia Gas Networks SSE share being £486.7m (2016 - £549.8m) is not recorded in the
revenue line in the income statement.
Revenue by geographical location is as follows:
2017 2016
£m £m
UK 28,291.3 28,035.4
Ireland 746.6 745.9
29,037.9 28,781.3
(ii) Operating profit/(loss) by segment
2017
Adjusted operating profit reported to the Board JV/ Associate share of interest and tax (i) Before exceptional items and certain re-measurements Exceptional items andcertain re-measurements Total
£m £m £m £m £m
Networks
Electricity Distribution 433.4 - 433.4 - 433.4
Electricity Transmission 263.7 - 263.7 - 263.7
Gas Distribution 239.4 (108.9) 130.5 21.2 151.7
936.5 (108.9) 827.6 21.2 848.8
Retail
Energy Supply 389.5 - 389.5 (76.3) 313.2
Enterprise 16.7 - 16.7 - 16.7
Energy-related Services 16.1 - 16.1 (36.4) (20.3)
422.3 - 422.3 (112.7) 309.6
Wholesale
EPM and Electricity Generation 501.2 (38.6) 462.6 273.5 736.1
Gas Storage (13.0) - (13.0) (23.8) (36.8)
Gas Production 26.4 - 26.4 (227.5) (201.1)
514.6 (38.6) 476.0 22.2 498.2
Corporate unallocated 0.6 - 0.6 283.3 283.9
Total 1,874.0 (147.5) 1,726.5 214.0 1,940.5
Notes to the Preliminary Statement
for the year ended 31 March 2017
5 Segmental information (continued)
(ii) Operating profit/(loss) by segment (continued)
2016
Adjusted operating profit reported to the Board JV/ Associate share of interest and tax (i) Before exceptional items and certain re-measurements Exceptional items andcertain re-measurements Total
£m £m £m £m £m
Networks
Electricity Distribution 370.7 - 370.7 - 370.7
Electricity Transmission 287.2 - 287.2 - 287.2
Gas Distribution 268.7 (142.0) 126.7 48.6 175.3
926.6 (142.0) 784.6 48.6 833.2
Retail
Energy Supply 398.9 - 398.9 - 398.9
Enterprise 40.9 - 40.9 - 40.9
Energy-related Services 15.4 - 15.4 (17.8) (2.4)
455.2 - 455.2 (17.8) 437.4
Wholesale
EPM and Electricity Generation 436.3 (24.7) 411.6 (586.4) (174.8)
Gas Storage 4.0 - 4.0 (150.9) (146.9)
Gas Production 2.2 - 2.2 (161.8) (159.6)
442.5 (24.7) 417.8 (899.1) (481.3)
Corporate unallocated 0.1 - 0.1 (4.0) (3.9)
Total 1,824.4 (166.7) 1,657.7 (872.3) 785.4
i) The adjusted operating profit of the Group is reported after removal of the Group's share of interest, fair value
movements on financing derivatives and tax from joint ventures and associates and after adjusting for exceptional items
(see Note 6). The share of Scotia Gas Networks Limited interest includes loan stock interest payable to the consortium
shareholders (included in Gas Distribution). The Group has accounted for its 33% share of this, £12.7m (2016 - 50% share;
£24.3m), as finance income (Note 7).
The Group's share of operating profit from joint ventures and associates has been recognised in the Energy Portfolio
Management and Electricity Generation segment other than that for Scotia Gas Networks Limited, which is recorded in Gas
Distribution.
Notes to the Preliminary Statement
for the year ended 31 March 2017
6. Exceptional items and certain re-measurements
2017£m 2016£m
Exceptional items
Asset impairments and related charges and credits (376.4) (892.5)
Provisions for restructuring and other liabilities 1.8 (54.9)
(374.6) (947.4)
Net gains on disposals of businesses and other assets 307.359.1 57.6-
Fair value uplift on loss of control of Clyde
(8.2) (889.8)
Share of effect of change in UK corporation tax on deferred tax liabilities and assets of associate and joint venture investments 19.5 46.7
Total exceptional items 11.3 (843.1)
Certain re-measurements
Movement on operating derivatives (note 14) 201.0 (31.1)
Movement on financing derivatives (note 14) 52.6 14.3
Share of movement on derivatives in jointly controlled entities (net of tax) 1.7 1.9
Total certain re-measurements 255.3 (14.9)
Exceptional items and certain re-measurements before taxation 266.6 (858.0)
Taxation
Effect of change in UK corporation tax rate on deferred tax liabilities and assets 35.4 41.5
Taxation on other exceptional items 118.7 227.6
154.1 269.1
Taxation on certain re-measurements (48.1) 3.4
Taxation 106.0 272.5
Exceptional items after certain re-measurements after taxation 372.6 (585.5)
Exceptional items are disclosed across the following categories within the income statement:
2017£m 2016£m
Cost of sales:
Thermal Generation related charges 31.6 (613.4)
Movement on operating derivatives (note 14) 201.0 (31.1)
232.6 (644.5)
Operating costs:
Gas Production related charges (227.5) (161.8)
Gas Storage related charges (23.8) (150.9)
Retail and technology development related charges (120.3) -
Other exceptional provisions and charges (34.6) (21.3)
(406.2) (334.0)
Operating income:
Net gains on disposals of businesses and other assets 307.3 57.6
Fair value uplift on loss of control of Clyde 59.1 -
366.4 57.6
Joint ventures and associates:
Effect of change in UK corporation tax rate on deferred tax liabilities and assets 19.5 46.7
Share of movement on derivatives in jointly controlled entities (net of tax) 1.7 1.9
21.2 48.6
Operating profit/(loss) 214.0 (872.3)
Finance costs
Movement on financing derivatives (note 14) 52.6 14.3
Profit/(loss) before taxation 266.6 (858.0)
Notes to the Preliminary Statement
for the year ended 31 March 2017
6 Exceptional items and certain re-measurements (continued)
6.1 Exceptional items
In the year to 31 March 2017, the Group recognised a net exceptional charge of £8.2m. This consisted of asset impairment
and related charges totalling £376.4m, net exceptional credits for provisions of £1.8m, net exceptional gains on disposal
of £307.3m (2016: £57.6m) and net fair value uplift following loss of control of Clyde, £59.1m (2016: £nil). The £307.3m
gain on the part disposal of the Group's stake in Scotia Gas Networks is commented upon at Note 10.
The net exceptional charges excluding gains on disposal recognised can be summarised as follows:
Property, Plant & Equipment £m Goodwill & Other Intangibles£m Inventories £m Provisions & other charges£m Total £m
Gas Production (i) 244.3 (20.0) - 3.2 227.5
Retail and technology development (ii) 42.2 78.1 - - 120.3
Gas Storage(iii) 23.8 - - - 23.8
Thermal Generation (iv) 30.7 - (62.3) - (31.6)
Other (v) 12.0 36.4 - (13.8) 34.6
353.0 94.5 (62.3) (10.6) 374.6
i) Gas Production. Significant impairment charges associated with the Group's North Sea Gas Production assets have been
recognised in 2016/17. An exceptional charge of £180.5m has been recognised in relation to the Greater Laggan field
following a reduction in the independently assessed quantity of available proved and probable (2P) hydrocarbon resources.
This reserves re-assessment considered the reserves recognisable under likely production and took into account reserve
shrinkage and contingent resource increases. In addition, an impairment charge of £63.8m has been recognised in relation to
Bacton field assets, predominantly as a result of higher than previously assessed decommissioning costs for the field which
were deemed to be irrecoverable through the remaining economic life. Against these charges, an exceptional credit of £20.0m
has been recognised in relation to previously impaired intangible development assets in the Greater Laggan development
area. This followed the identification of additional prospective resources for that development which, on a risk adjusted
basis, has resulted in the reversal of prior year exceptional charges. The exceptional charges recognised in 2016/17
primarily relate to revised assessments of economic reserves as opposed to the market price driven impairment charges
recognised in 2015/16. Following these charges and credit and the utilisation of field resources in the year, the residual
value of the Group's gas production assets is £679.8m.
ii) Retail and other technology developments. During the year the Group decided to cease the development of its replacement
customer service and billing system. As a result of this strategic decision, all amounts capitalised in relation to the
development of the system and related software and hardware have been impaired with the resulting impact being recognised
as an exceptional charge of £83.1m. At the same time, the Group conducted a detailed review of related technology
development projects and identified a further £37.2m of projects development which would be discontinued. Due to the
significant nature of this assessment, a combined charge of £120.3m has been recognised. These impairment charges are
recognised against both intangible development projects (£78.1m) and property, plant and equipment (£42.2m).
iii) Gas Storage. During the course of the year management revised their assessment of the anticipated decommissioning
costs associated with the Aldbrough and Atwick Gas Storage sites. This concluded that an additional decommissioning
provision of £23.8m was required. Due to the ongoing issues at the plants and in common with previous assessments of those
facilities, the consequential increase in asset values has been impaired. The carrying value of Gas Storage assets at 31
March 2017 is £19.6m, with a discounted decommissioning provision of £41.9m.
iv) Thermal Generation. As part of the Group's impact assessment of the imminent changes to the Integrated Single
Electricity Market (I-SEM) on the island of Ireland, it reassessed the value-in-use of its thermal generation portfolio in
Ireland. This review concluded that the Group's oil burning stations at Rhode and Tawnaghmor were impaired due to their age
and future competitive prospects. The impairment for these assets amounted to £30.7m. The residual value of thermal plants
in Ireland is £384.4m. In its financial statements to March 2016, the Group recognised significant impairments relating to
the Fiddlers Ferry power station due to ongoing uncertainty relating to its future operations despite the success in
securing a contract to provide ancillary capacity services for one year to March 2017. In the financial year to March 2017
the plant was able to operate more than projected due to positive dark spread margins being available in winter 2016/17. As
a result of this unexpected running, the plant has been able to utilise the coal stocks it had previously impaired and has
consequently reversed its previous impairment of inventory creating an exceptional credit of £62.3m in 2016/17. However, in
the context of the low settlement price in the January 2017 capacity auction for coal plants for 2017/18, the future
prospects for the plant remain uncertain and consequently the net book value of Fiddler's Ferry remains £nil. The carrying
value of GB gas-fired power stations at 31 March 2017 was £181.2m.
v) Other. Following reassessment of The Energy Services Group ('ESG)'s deployment within SSE, the Group has concluded that
an impairment adjustment against the goodwill recognised on acquisition of £36.4m is necessary. In addition, the Group has
assessed its position in relation to various legal claims and disputes. Consequently, a number of exceptional charges
(£18.2m) and credits (£20.0m) have been recognised. These have been classified as exceptional due to their previous
recognition as such in previous financial years or based on their characteristics. The net impact of these items is an
exceptional credit of £1.8m.
Notes to the Preliminary Statement
for the year ended 31 March 2017
6 Exceptional items and certain re-measurements (continued)
6.1 Exceptional items (continued)
31 March 2016
In the previous financial year, the Group recognised exceptional charges arising from and related to asset impairments
amounting to £892.5m and provisions of £54.9m. The exceptional charges recognised can be summarised as follows:
Property, Plant & Equipment £m Goodwill & Other Intangibles£m Inventories £m Other charges £m TotalImpairmentrelated£m Provisions £m Total charges £m
Coal Generation 67.6 - 87.9 83.2 238.7 48.3 287.0
Gas Generation 302.5 2.2 3.7 18.0 326.4 - 326.4
Gas Production 125.0 27.2 - 9.6 161.8 - 161.8
Gas Storage 150.9 - - - 150.9 - 150.9
Other - 11.2 - 3.5 14.7 6.6 21.3
646.0 40.6 91.6 114.3 892.5 54.9 947.4
In 2015/16, the Group announced the closure of Ferrybridge and highlighted significant uncertainty in relation to ongoing
operations at Fiddlers Ferry. These consequently gave rise to impairment and other charges totalling £287.0m. As noted, the
2016/17 operational performance at Fiddler's Ferry outturn was more positive than previously anticipated and gave rise to
certain impairment reversals. The Group's gas-fired generation plants at Peterhead, Medway and Marchwood were impaired in
2015/16 due to difficult economic conditions and factors such as the withdrawal of support for the proposed carbon capture
and storage project at Peterhead. More broadly, no observable recovery in "spark spread" margins were forecast. In total,
impairment and other charges of £326.4m were recognised in relation to gas generation. No further deterioration in the
values of GB gas plants was observed in the financial year to 31 March 2017. In 2015/16, impairment charges totalling
£161.8m were recognised in relation to the Group's Gas Exploration and Production assets in the North Sea, predominately
due to declining wholesale gas prices. The exceptionals charges recognised included an element (£121.2m) relating to the
impairment of Greater Laggan field assets acquired at 28 October 2016 which reflected the impact of the decline in expected
long term gas prices between the acquisition date and the financial year end. The group's gas storage assets at Hornsea
(Atwick) and Aldbrough saw reduced short term price volatility and seasonal spreads in the wholesale gas market, which
created exceptional charges relating to plant value.
31 March 2015
In the year to 31 March 2015, the Group recognised exceptional charges arising from and related to asset impairments
amounting to £667.5m and provisions of £56.0m. The exceptional charges recognised can be summarised as follows:
Property, Plant & Equipment £m Goodwill & Other Intangibles£m Inventories £m Other charges £m TotalImpairment related£m Provisions £m Total charges £m
Coal Generation 222.7 - 41.0 45.8 309.5 4.0 313.5
Gas Generation 14.9 51.5 - - 66.4 10.0 76.4
Gas Production 61.9 44.1 - 0.1 106.1 - 106.1
Gas Storage 162.4 - - - 162.4 1.5 163.9
Other 16.9 - - 6.2 23.1 40.5 63.6
478.8 95.6 41.0 52.1 667.5 56.0 723.5
The impairments of Coal generation plants followed the 31 July 2015 fire at Ferrybridge and the inability of both units at
Ferrybridge and one unit at Fiddler's Ferry to secure agreements to provide capacity under the auction process run by DECC
in December 2015. The impairments of Gas generation plants predominately related to development sites at Abernedd and
Seabank. The impairments of Gas Production assets related to the impact of declining wholesale prices on the Group's Sean,
ECA and Lomond fields. The charges associated with Gas Storage followed the strategic review of the Group's operations in
that segment the results of which were announced on 26 March 2016. The other charges mainly relate to asset impairments,
other charges in non-core businesses and provisions for certain disputes and claims. The exceptional disposal gains
recorded related to the sale of seven street lighting PFI companies to Equitix (£38.0m), the Group's share of the dividend
from the Environmental Energy Fund's disposal of its stake in Anesco (£19.6m) and the gain on disposal of non-core retail
assets (£17.2m).
Notes to the Preliminary Statement
for the year ended 31 March 2017
6 Exceptional items and certain re-measurements (continued)
6.2 Certain re-measurements
The Group enters into forward commodity purchase (and sales) contracts to meet the future demand requirements of its Energy
Supply business and to optimise the value of its Generation and other Wholesale assets. Certain of these contracts are
determined to be derivative financial instruments under IAS 39 and as such are required to be recorded at their fair value.
Changes in the fair value of those commodity contracts designated as IAS 39 financial instruments are reflected in the
income statement (as part of 'certain re-measurements'). The Group shows the change in the fair value of these forward
contracts separately as this mark-to-market movement is not relevant to the underlying performance of its operating
segments. The Group will recognise the underlying value of these contracts as the relevant commodity is delivered, which
will predominately be within the subsequent 12 to 18 months. Conversely, commodity contracts that are not financial
instruments under IAS 39 are accounted for as 'own use' contracts. The re-measurements arising from IAS 39 are disclosed
separately to aid understanding of the underlying performance of the Group. This category also includes the income
statement movement on financing derivatives (and hedged items) as described in note 14.
6.3 Change in UK corporation tax rates
Finance (No.2) Act 2015 which received royal assent on 18 November 2015 enacted a corporation tax rate of 19% (currently
20%) from 1 April 2017, and a rate of 18% from 1 April 2020. A further change to reduce the rate of corporation tax to 17%
from 1 April 2020 was announced in Finance Act 2016, as this change was enacted on 15 September 2016 it has the effect of
reducing the Group's deferred tax liabilities by £34.6m including the impact of changes recognised in the statement of
other comprehensive income.
Finance Act 2016 announced a reduction in the rate of Supplementary Charge on ring-fenced profits to 10% (previously 20%)
with effect from 1 January 2016. As this change was substantively enacted on 15 September 2016 it has the effect of
reducing the Group's deferred tax liabilities by £0.8m.
The Group has separately recognised the tax effect of the exceptional items and certain re-measurements summarised above.
Notes to the Preliminary Statement
for the year ended 31 March 2017
7. Finance income and costs
2017 2016
Before Exceptional items and certain re-measurements£m Exceptional items and certain re-measurements£m Total£m Before Exceptional items and certain re-measurements£m Exceptional items and certain re-measurements£m Total£m
Finance income:
Interest income from short term deposits 1.8 - 1.8 4.7 - 4.7
Foreign exchange translation of monetary assets and liabilities 20.5 - 20.5 9.0 - 9.0
Other interest receivable:
Scotia Gas Networks loan stock 12.7 - 12.7 24.3 - 24.3
Other joint ventures and associates
- More to follow, for following part double click ID:nRSQ3515FfRecent news on SSE
See all newsREG - SSE Plc JPMorgan Chase & Co - Holding(s) in Company
AnnouncementREG - SSE Plc - SCRIP Dividend
AnnouncementREG - Allianz Global Invs - Top 10 Holdings
AnnouncementREG - SSE Plc - Holding(s) in Company
AnnouncementREG - SSE Plc Bank of America Corp - Holding(s) in Company
Announcement