REG - SSE Plc - Preliminary Results for the year to 31 March 2022
25/05/2022 08:31
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RNS Number : 7349M SSE PLC 25 May 2022
This announcement contains inside information under Article 7 of the Market
Abuse Regulation (EU) No 596/2014, as it forms part of retained EU Law as
defined in the European Union (Withdrawal) Act 2018 ("UK MAR").
SSE PLC
Preliminary Results for the year ended 31 March 2022
25 May 2022
strong PERFORMANCE, strategic progress and record investment IN VOLATILE
MACROECONOMIC CONDITIONS
· Adjusted earnings per share of 95.4p, within pre-close guidance,
reflects the resilience of the Group's integrated and balanced business model
in volatile market conditions.
· £12.5bn strategic capital investment plan to FY26 on track with
record investment of £2.1bn reported for the year.
· Total Recordable Injury Rate of 0.17, an increase from 0.14,
reflecting growing construction activity.
· Progressing well on flagship SSE Renewables projects, with 2.4GW
under construction.
· Over 1GW pipeline additions through ScotWind wins and site
optimisation, with up to 4.9GW future additions through Southern Europe
acquisition expected to complete by September 2022.
· Advancing major infrastructure projects in Transmission and
greater clarity on asset base growth with gross RAV now expected to reach
£6.5-7bn by FY26, and over £12bn by FY31.
· Guiding to adjusted EPS of at least 120p for 2022/23 and updating
to an adjusted EPS CAGR of between 7-10% over the five year period to 2025/26.
· Net investment into vital UK and Ireland infrastructure could
exceed £25bn this decade, creating thousands of jobs and directly addressing
the energy crisis in the longer term.
· Contributed over £5.8bn to UK GDP, supporting over 45,000 UK
jobs, and €438m contribution to Ireland GDP and over 1,800 Irish jobs
supported.
Financial Summary Adjusted Reported
(continuing operations) Mar 2022 Mar 2021 % mvmt Mar 2022 Mar 2021 % mvmt
Operating profit (£m) 1,536.8 1,333.5 15% 3,755.4 2,654.9 41%
Profit before tax (£m) 1,164.0 948.9 23% 3,482.2 2,418.0 44%
Earnings per share (p) 95.4 78.4 22% 241.6 206.3 17%
Investment, capital and acquisitions (£m)** 2,073.7 912.0 127% 2,319.8 1,803.8 29%
Net Debt and Hybrid Capital (£bn) 8,598.2 8,898.9 (3%) 8,015.4 7,810.4 3%
* Comparative information has been re-presented to reflect the classification
of Scotia Gas Networks as a discontinued operation and the changes to
segmental disclosures made in the period (see note 2.3 of the Summary
Financial Statements). ** includes discontinued operations and is net of
refund proceeds from project financing.
Alistair Phillips-Davies, Chief Executive, said:
"This was a year in which our resilient business mix and balanced portfolio of
assets helped us navigate volatile markets and meet our financial objectives
whilst making record investments in the critical UK infrastructure needed to
tackle climate change and deliver more secure, independent energy supplies.
"We set out in November our Net Zero Acceleration Programme, which acts as a
floor, not a ceiling, to our ambitions and we are delivering on that plan at
pace. In the context of a global energy crisis and intense pressure on the
cost of living, we are helping to drive the build-out of vital electricity
infrastructure that will reduce dependency on imported gas and help protect
consumers from future price spikes, and in doing so we are investing
significantly more than we are making in profits.
"We are delivering major projects, building pipelines, and have made inroads
in Southern Europe and Japan as we export our renewables capabilities
internationally to fulfil SSE's considerable potential. Strategically,
operationally and financially, SSE is well-placed to continue to create value
for all of our stakeholders and wider society as we create the infrastructure
needed to deliver net zero, secure energy supplies and ultimately drive
consumer prices down."
Strategic Highlights
· Execution of fully-funded Net Zero Acceleration Programme
continues, with investment accelerating across a number of low-carbon
opportunities, offering the optimal pathway for SSE to grow.
· Completed final disposal of Scotia Gas Networks for £1.3bn,
representing the final divestment in SSE's non-core asset disposal programme
with total headline consideration exceeding £2.8bn.
· Increasingly supportive UK policy environment following
publication of Government's British Energy Security Strategy, with increased
commitment to accelerate delivery of offshore wind and associated network
infrastructure and flexible technologies for the second half of the decade.
· Published Net Zero Transition Plan setting out the actions to
meet SSE's net zero targets for emissions by 2050.
financial summary for the year to march 2022
· Adjusted earnings per share up 22% to 95.4p, or up 9% against the
87.5p Net Zero Acceleration Programme baseline, within the expected 92p - 97p
range.
· Adjusted operating profit up 15% to £1.5bn / Reported operating
profit up 41% to £3.8bn
· Adjusted profit before tax up 23% to £1.2bn / Reported profit
before tax up 44% to £3.5bn
· Reported earnings per share increased to 241.6p, including
c.£2.1bn fair value remeasurements
· Adjusted investment, capital and acquisition expenditure of
£2.1bn, in line with pre-close guidance.
· Adjusted net debt and hybrid capital at £8.6bn, better than
pre-close guidance of below £9bn.
* Comparative information has been re-presented to reflect the classification
of Scotia Gas Networks as a discontinued operation and the changes to
segmental disclosures made in the period (see note 2.3 of the Summary
Financial Statements).
Final dividend in line with dividend plan to 2026
· Intention to recommend a final dividend of 60.2p for payment on 22
September 2022, representing a weighted average annual RPI rate of 5.8%,
making a full-year dividend of 85.7p per share.
· Continue to target RPI increase for FY23 followed by rebase to 60p in
FY24, with attractive annual growth of at least 5% to FY26.
· Scrip uptake capped at 25% on FY22 full-year dividend and thereafter
as previously announced.
Financial outlook for 2022/23 and beyond
· SSE's focus continues to be on long-term, sustainable financial
performance. With high levels of investment expected in Transmission, a step
up in earnings expected in Thermal generation and an expected return to normal
weather for Renewables, the Group is confident about delivering strong
earnings growth for this financial year.
· SSE currently expects to report full year adjusted earnings per share
of at least 120p.
· Capital expenditure and investment is expected to total in excess of
£2.5bn in 2022/23 (including acquisitions but net of project finance
development expenditure refunds) assuming the recent Southern European
acquisition successfully completes as planned.
· Over the five-year period to March 2026, SSE now expects to deliver
an adjusted EPS CAGR of between 7-10% on the 87.5 p Net Zero Acceleration
Programme baseline as a result of: confidence derived from strong delivery in
2021/22; higher RPI forecasts; higher and more volatile energy commodity
prices; and evidence of increased value creation potential from flexibility
provided by SSE's Thermal and Hydro generation, and gas storage assets as they
continue to perform a vital role for the system.
· In line with the plan for disposal of a minority stake, SSE has
recently initiated a sales process for a 25% share of the SSEN Transmission
business which is expected to formally commence in Summer 2022. Given the SSEN
Distribution business is currently progressing its ED2 price control
negotiations, a decision on the timing of a similar stake sale will be made
later in the financial year.
Key PERFORMANCE INDICATORS
Key Financial Indicators Adjusted Reported
(continuing operations) March 2022 March 2021 March 2022 March 2021
Operating profit by business £m
- SSEN Transmission 380.5 220.9 380.5 220.9
- SSEN Distribution 351.8 275.8 351.8 275.8
- SSE Renewables 568.1 731.8 427.8 856.0
- Other businesses 236.4 105.0 2,595.3 1,302.2
Operating profit £m 1,536.8 1,333.5 3,755.4 2,654.9
EBITDA £m 2,257.2 1,995.3 4,514.0 3,355.0
Profit before tax £m 1,164.0 948.9 3,482.2 2,418.0
Earnings per share (EPS) pence 95.4 78.4 241.6 206.3
Full year dividend per share (DPS) pence 85.7 81.0 85.7 81.0
Investment and capital expenditure £m
- SSEN Transmission 614.4 435.2 614.4 436.2
- SSEN Distribution 364.8 350.8 456.1 412.6
- SSE Renewables 811.0 294.3 458.4 223.9
- Other businesses 278.9 260.3 777.0 704.3
Project finance development expenditure refunds £m (136.7) (428.6) (136.7) (428.6)
Acquisition consideration £m 141.3 - 141.3 -
Investment, capital and acquisitions £m 2,073.7 912.0 2,310.5 1,348.4
Net debt and hybrid capital £m 8,598.2 8,898.9 8,015.4 7,810.4
* Comparative information has been re-presented to reflect the classification
of Scotia Gas Networks as a discontinued operation and the changes to
segmental disclosures made in the period (see note 2.3 of the Summary
Financial Statements). ** net of refund proceeds from project financing.
Operational Key Performance Indicators March 2022 March 2021
Thermal generation - GWh 14,265 18,008
Renewable generation - GWh (inc. pumped storage and constrained off) 9,423 10,171
Other generation - GWh(1) 104 108
Total generation output - all plant - GWh 23,792 28,287
SSEN Transmission RAV - £m 4,155 3,631
SSEN Distribution RAV - £m 4,054 3,792
SSE Total Electricity Networks RAV - £m 8,209 7,423
Business Energy Electricity Sold - GWh 12,645 13,070
Business Energy Gas Sold - mtherms 218 245
Airtricity Electricity Sold - GWh 5,219 7,595
Airtricity Gas Sold - mtherms 177 219
Notes:
(1)Other generation comprises SSE's small biomass capability which is managed
by SSE Distributed Energy and which generated 73GWh in 2021/22; and 71GWh
2020/21 in addition to 31GWh in 2021/22 and 37GWh 2020/21 generated by other
SSE Distributed Energy assets.
ESG Key Performance Indicators March 2022 Sept 2021 March 2021
Carbon emissions (scopes 1&2) MtCO(2)e 6.24 - 7.64
Scope 1 GHG intensity gCO(2)e/kWh 259 - 256
Total water consumed (million cubic meters) 0.8 - 3.9
Total recordable injury rate per 100,000 hours worked(1) 0.17 0.16 0.14
Total economic contribution - UK/Ireland (£bn/€m)(2) 5.8/438 - 5.21/439
Jobs supported - UK/Ireland (headcount)(3) 45,290/1,840 - 41,400/2,160
Total taxes paid UK/Ireland (£m/€m) 335.3/46.4 - 379/20.4
Employee retention/turnover rate (%)(4) 90.5/9.5 92.1/7.9
Employee engagement index (%)(5) 82 82 82
Average board tenure - years(6) 3.8 3.3 5.0
Female board members (%) 50 50 36
Independent board members (%)(7) 73 73 70
Total number of board members 12 12 11
Notes:
March 2021 figures relate to 12 months to 31 March 2021
(1) Comparators restated to exclude impact of Contracting and Neos Networks
(2) Direct, indirect and induced Gross Value Added, from PwC analysis
(3) Direct, indirect and induced jobs supported, PwC analysis
(4) Includes voluntary and involuntary turnover, excludes end of fixed term
contracts and internal transfers.
(5) Results from SSE's annual employee engagement survey.
(6) Non-Executive directors including non-Executive Chair
(7) Excludes non-Executive Chair.
Further Information
Investor Timetable
Annual Report 2022 published on sse.com/reportsandresults 17 June 2022
(https://www.sse.com/reportsandresults)
Sustainability Report 2022 published on sse.com/reportsandresults 17 June 2022
(https://www.sse.com/reportsandresults)
Consolidated Segmental Statement 2022 sse.com/reportsandresults 17 June 2022
(https://www.sse.com/reportsandresults)
Q1 Trading Statement 21 July 2022
Annual General Meeting 21 July 2022
Ex-dividend date 28 July 2022
Record date 29 July 2022
Scrip reference pricing days 28 July - 3 Aug 2022
Scrip reference price confirmed and released via RNS 4 August 2022
Final date for receipt of scrip elections 25 August 2022
Final dividend payment date 22 September 2022
Notification of Closed Period By 30 September 2022
Interim Results for the six months ended 30 September 2022 16 November 2022
Contact Details
Institutional investors and analysts ir@sse.com + 44 (0)345 0760 530
Shareholder services SSE@linkgroup.co.uk + 44 (0)345 143 4005
Media media@sse.com + 44 (0)345 0760 530
MHP Communications, Oliver Hughes oliver.hughes@mhpc.com + 44 (0)7885 224 532
MHP Communications, Simon Hockridge simon.hockridge@mhpc.com + 44 (0)7709 496 125
Management presentation webcast and teleconference
SSE will present its preliminary results for the year to 31 March 2022 on
Wednesday 25 May at 09:30am BST. You can join the webcast by visiting
www.sse.com and following the links on either the homepage or investor pages;
or directly using https://edge.media-server.com/mmc/p/v8vdin73
(https://edge.media-server.com/mmc/p/v8vdin73) . This will also be available
as a teleconference, details below. Both facilities will be available to
replay.
Confirmation Code: 5144499
Location Phone Type Phone Number
United Kingdom Toll free 0800 279 6619
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Online Information
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Disclaimer
This financial report contains forward-looking statements about financial and
operational matters. These statements are based on the current views,
expectations, assumptions and information of the management, and are based on
information available to the management as at the date of this financial
report. Because they relate to future events and are subject to future
circumstances, these forward-looking statements are subject to unknown risks,
uncertainties and other factors which may not been in contemplation as at the
date of the financial report. As a result, actual financial results,
operational performance and other future developments could differ materially
from those envisaged by the forward-looking statements. Neither SSE plc nor
its affiliates assumes any obligations to update any forward-looking
statements.
SSE plc gives no express or implied warranty, representation, assurance or
undertaking as to the impartiality, accuracy, completeness, reasonableness or
correctness of the information, opinions or statements expressed in the
presentation or any other information (whether written or oral) supplied as
part of it. Neither SSE plc, its affiliates nor its officers, employees or
agents will accept any responsibility or liability of any kind for any damage
or loss arising from any use of this presentation or its contents. All and any
such responsibility and liability is expressly disclaimed. In particular, but
without prejudice to the generality of the foregoing, no representation,
warranty, assurance or undertaking is given as to the achievement or
reasonableness of any future projections, forward-looking statements about
financial and operational matters, or management estimates contained in the
financial report.
This financial report does not constitute an offer or invitation to
underwrite, subscribe for, or otherwise acquire or dispose of any SSE plc
shares or other securities, or of any of the businesses or assets described in
the financial report, and the information contained herein cannot be relied
upon as a guide to future performance.
Definitions
The financial information set out in these consolidated financial results for
the year ended 31 March 2022 have been prepared in conformity with the
requirements of the Companies Act 2006 and in accordance with UK adopted
International Financial Reporting Standards ('UK IFRS').
In order to present the financial results and performance of the Group in a
consistent and meaningful way, SSE applies a number of adjusted accounting
measures throughout this financial report. These adjusted measures are used
for internal management reporting purposes and are believed to present the
underlying performance of the Group in the most useful manner for ordinary
shareholders and other stakeholders.
The definitions SSE uses for adjusted measures are explained in the
Alternative Performance Measures section before the Summary Financial
Statements. SSE continues to prioritise the monitoring of developing practice
in the use of Alternative Performance Measures, ensuring the financial
information in its results statements is clear, consistent, and relevant to
the users of those statements.
For the purpose of calculating the 'Net Debt to EBITDA' metric, 'adjusted
EBITDA' is further adjusted to remove the proportion of adjusted EBITDA from
equity-accounted joint ventures relating to project financed debt (see note
6.3 of the Summary Financial Statements).
Important note: Discontinued Operations - Gas Production and Scotia Gas
Networks
On 14 October 2021 the Group completed the sale of its Gas Production business
and on 22 March 2022 the Group completed the sale of its 33.3% investment in
Scotia Gas Networks ('SGN') (see note 12.2 of the Summary Financial
Statements). Both businesses have been classified as discontinued operations.
The Group's adjusted measures therefore exclude the contribution from both of
these businesses in all periods presented.
Important note: Other disposals
On 30 June 2021, the Group completed the sale of its Contracting and Rail
business and on 10 February 2022 the Group competed the sale of a 10% stake in
the Dogger Bank C offshore wind farm development (see note 12.2 of the Summary
Financial Statements). Furthermore, in the prior year to 31 March 2021, the
Group completed the sale of a 50% stake in Slough Multifuel on 2 April 2020, a
51% stake in Seagreen Wind Farm on 3 June 2020, its investment in Walney
offshore wind farm on 2 September 2020 and its investment in MapleCo
smart-metering on 23 September 2020.
As these businesses do not individually constitute a separate major line of
business for SSE, they have not been classified as discontinued operations,
and their result continues to be included within the Group's adjusted
profit-based measures to the point of disposal.
Important note: Presentation of Reporting Segments
Following the Group's sale of its Contracting and Rail business during the
year, the primary retained activities of the Enterprise business is
Distributed Energy which will develop and provide the Group's solar and
battery storage operations and focus on distributed generation, heat and
cooling networks, smart buildings and EV charging. Accordingly, the result
from the Group's out of areas networks business and Neos Networks Limited
joint venture will now be reported within SSEN Distribution and Corporate
Unallocated respectively. Comparative information has been re-presented to
reflect the change to these segments (see note 2.3 of the Summary Financial
Statements).
Impact of discontinued operations on the Group's Alternative Performance
Measures ('APM')
The following Alternative Performance Measures have been adjusted in all
periods presented to exclude the contribution of the Group's Gas Production
operations and Scotia Gas Networks Limited which have been presented as
discontinued operations as at 31 March 2022:
• Adjusted EBITDA;
• Adjusted operating profit;
• Adjusted net finance costs;
• Adjusted profit before tax;
• Adjusted current tax charge; and
• Adjusted earnings per share.
'Adjusted net debt and hybrid capital', 'adjusted investment and capital
expenditure' and the new metric 'adjusted investment, capital and acquisition
expenditure', have not been amended as the Group continued to fund the
discontinued operations until the date of disposal.
Strategic overview
DELIVERING ON OUR PROMISE
In November 2021, SSE laid out a fully-funded strategic growth plan to 2026 -
the Net Zero Acceleration Programme - focused on delivering new investment in
the assets needed to underpin a net zero energy system. In the months since,
we have wasted no time in delivering on that promise. Excellent progress has
been made on major electricity infrastructure and net zero-focused projects,
with record levels of capex. This has consolidated SSE's standing as a
national clean energy champion contributing to a more secure energy system
which will be less reliant on imported gas and therefore better able to
protect consumers from future price spikes.
The fact that the strong financial and operational performance of the past
year has played out against the backdrop of volatile macroeconomic and market
conditions, as well as adverse weather conditions, is testament to SSE's
resilient operating model and the people who make it work. It is thanks to the
commitment and capability of our 11,000-strong workforce that SSE is able to
stay true to its central purpose of providing energy needed today while
building a better world of energy for tomorrow.
I am extremely grateful to colleagues who have shown admirable courage in
maintaining critical national infrastructure and helping customers through
severe weather challenges and a cost-of-living crisis that has had a direct
impact on all energy users. Our ongoing success is dependent on a
highly-skilled, diverse and expanding workforce and we anticipate our numbers
will rise by 1,000 people per year over the five-years of our current
strategic growth plans.
RESILIENCE IN A VOLATILE WORLD
While SSE is not alone among energy companies going for growth in the
transition to net zero, our ability to manage output variability through a
diverse and well-balanced mix of businesses has served us well through a
period that saw energy markets buffeted first by a spike in post-pandemic
global demand, and more recently by the war in Ukraine. Having operations
across the clean electricity value chain gives SSE a valuable natural hedge
against market volatility.
SSE is well positioned thanks to a prudent approach to hedging and an
integrated but wide-ranging asset portfolio. In still conditions, reduced
output from wind assets can be compensated through the flexibility the Group
has elsewhere in the generation fleet. Indeed, flexible generation assets
performed particularly well in the balancing market in 2021/22, because the
system needed the capacity and flexibility that SSE's thermal and hydro assets
provide. Right across the portfolio, much of SSE's revenue is index linked, be
it through CfDs, ROCs or Capacity Market payments, while networks income and
Regulated Asset Values are backed by price controls and increase in line with
inflation. This optimal blend of regulated and market-based income across a
balanced range of businesses means we can continue delivering for shareholders
and society in exceptionally volatile times, and means we are well placed to
capture emerging growth opportunities as they emerge right across the clean
energy value chain.
INVESTING IN CLEAN, SECURE ENERGY
While supporting efforts to maintain a 1.5C global warming pathway, the Net
Zero Acceleration Programme has been given added impetus by the pressing need
for clean, indigenous sources of energy as a long-term solution to an
over-reliance on imported gas. SSE is well-placed to deliver on this and it
welcomed the supportive policy signals within the British Energy Security
Strategy. There are clear opportunities in the latest commitments, including:
increasing offshore wind capacity to 50GW by 2030, including more floating
wind; approving more strategic networks expenditure more quickly; bringing
forward a support mechanism for long-duration storage projects like SSE's
Coire Glas; and a doubling of hydrogen production ambitions and continued
commitment to carbon capture and storage (CCS). Assuming a continued
supportive policy environment, our investment in the UK and Ireland could
total in excess of £25bn this decade contributing towards tackling climate
change whilst providing indigenous energy supplies and creating high quality
low-carbon jobs.
In Europe, meanwhile, the search for alternatives to Russian oil and gas is
driving demand for more renewables, more renewables-enabling networks and more
low-carbon flexibility. Against this backdrop SSE is securing a foothold in
Southern Europe through the agreement to acquire Siemens Gamesa Renewable
Energy's development platform. Most of the 3.9GW of onshore wind in the
portfolio is in the early stages of development, but the experienced local
teams will be integral to SSE's growth strategy in Europe and complement SSE's
world-class renewables capability with local expertise.
STRATEGY IN ACTION
Financial strength underpinned by investment-grade credit ratings and a stable
debt profile is enabling SSE to execute a strategy of developing, building,
operating and investing in the electricity infrastructure needed in the
transition to net zero, and we are growing both at home and abroad as a
result. We have completed the sale of our remaining stake in SGN - a key step
in the strategic streamlining of the Group - and we invested a record £2.1bn
in 2021/22.
Among many strategic delivery highlights we have progressed our major SSE
Renewables projects at Dogger Bank, Seagreen and Viking; made progress
internationally through our acquisitions in Southern Europe and Japan; and
added 1GW to our domestic pipeline with a significant win in the ScotWind
auction with our partners CIP and Marubeni.
The future looks bright for SSEN Transmission, too. Our flagship Shetland HVDC
link continues at pace, while National Grid's Network Options Assessment made
clear the extent of future network development that will be needed and the UK
Government threw its weight behind a faster, more strategic networks
build-out. In Distribution, we worked through six exceptional weather events
in 12 weeks, including back-to-back named storms, while progressing a
stakeholder-led plan for ED2 that we continue to engage on with Ofgem and
other key stakeholders.
In SSE Thermal, construction at Keadby 2 was highly successful and it will be
a useful provider of system flexibility. Elsewhere in the Group we acquired
our first new solar and battery sites and signed Green PPAs with customers as
we look for well-aligned growth opportunities.
SUSTAINABILITY IN ACTION
SSE is proud of its ESG commitments and this year we announced an update to
our interim 2030 Goals, which are aligned to the UN's Sustainable Development
Goals. This revision is to keep pace with the bolder ambitions set out in the
Net Zero Acceleration Programme. The goals will see us cut carbon intensity by
80%; increase renewable energy output fivefold; enable low-carbon generation
and demand; and champion a fair and just energy transition on the journey to
net zero.
Shareholder support is critical to meeting the Group's net zero ambitions and
that is why they will be given a vote at the 2022 AGM, and subsequent AGMs, on
the progress being made by the Company towards decarbonising. The
recently-published Net Zero Transition Plan sets out targets for scope 1 and
scope 2 emissions by 2040 (subject to security of supply requirements) and for
the remaining scope 3 emissions, by 2050 - alongside interim annual
science-based targets aligned to a 1.5°C pathway.
CREATING LASTING VALUE
SSE's conviction - that a deliberately integrated and well-balanced group of
market-based and economically regulated businesses offers the optimal route to
value creation for shareholders - continues to be borne out. We are proposing
payment of a full-year dividend of 85.7p, in line with plan, and we remain
committed to our existing five-year dividend plan to 2023, which targets
dividend increases in line with RPI each year. Our increased confidence in
both our operational performance and the growth opportunities ahead means we
have today set out our expectation that we will deliver adjusted earnings per
share of at least 120p in 22/23, and increased our five year CAGR target to
7-10%, from the same 2021 base of 87.5p.
Through the progress being made on delivery of the Net Zero Acceleration
Programme we are providing long-term, homegrown solutions to both climate
change and the current energy crisis and we already see scope for contributing
much more to efforts to decarbonise the energy system.
Alistair Phillips-Davies
Chief Executive
SSE plc
Group financial review
year to 31 march 2022
This Group Financial Review sets out the financial performance of the SSE
Group for the year ended 31 March 2022. See also the separate sections on
Group Financial Outlook, 2022/23 and beyond and Supplemental Financial
Information.
The definitions SSE uses for adjusted measures are consistently applied and
are explained in the Alternative Performance Measures section of this
document, before the Summary Financial Statements.
Key Financial Metrics Adjusted Reported
(continuing operations) March 2022 March 2021 March 2022 March 2021
£m £m £m £m
Operating profit from continuing operations 1,536.8 1,333.5 3,755.4 2,654.9
Net Finance costs (372.8) (384.6) 273.2 (236.9)
Profit before Tax 1,164.0 948.9 3,482.2 2,418.0
Current Tax charge (107.1) (85.9) (882.8) (224.3)
Effective current tax rate (%) 9.2 9.1 25.4 9.3
Profit after Tax on continuing operations 1,056.9 863.0 2,599.4 2,193.7
Less: hybrid equity coupon payments (50.7) (46.6) (50.7) (46.6)
Profit after Tax from continuing operations attributable to ordinary 1,006.2 816.4 2,548.7 2,147.1
shareholders
EPS from continuing operations (pence) 95.4 78.4 241.6 206.3
Number of shares for basic/reported and adjusted EPS (million) 1,055.0 1,040.9 1,055.0 1,040.9
Shares in issue at 31 March (million)** 1,067.6 1,043.0 1,067.7 1,043.0
* Comparative information has been re-presented to reflect the classification
of Scotia Gas Networks as a discontinued operation and the changes to
segmental disclosures made in the year (see note 2.3 of the Summary Financial
Statements). ** Excludes treasury shares.
Dividend per Share March 2022 March 2021
Interim Dividend (pence) 25.5 24.4
Final Dividend (pence) 60.2 56.6
Full Year Dividend (pence) 85.7 81.0
Impact from market volatility
The Group reduces direct exposure to short term commodity price volatility
through its business mix, the disciplined application of its clearly defined
approach to hedging and low VAR trading limits. Nevertheless, the higher and
more volatile gas and power market prices, combined with increasing inflation
rates have had some impact upon SSE's businesses which can be summarised as
follows:
SSEN Transmission and SSEN Distribution operate under a regulatory price
control framework which is set by Ofgem. Returns under this framework have no
direct relationship to gas and power market prices, however both allowed
revenues and Regulated Asset Values are index linked (Transmission to CPI(H).
Distribution to RPI (for ED1 price control) and CPI(H) (for ED2 price
control)).
Within SSE Renewables, in periods where wind volume output was significantly
lower than expected, excess forward sale contracts had to be 'bought back' in
the market at higher prices, further reducing the trading result.
For SSE Thermal (as well as the Hydro plant within SSE Renewables), value has
come from the ability of the plant to respond to market conditions and provide
vital balancing services to provide security of supply and flexibility in
higher, more volatile market conditions. The current market conditions are
therefore generally positive for these businesses, although this is dependent
upon plant availability at times of system stress.
Both EPM and Gas Storage, through their respective exposure to unsettled
commodity contracts and physical gas inventory, have experienced significant
positive unrealised mark-to-market remeasurement gains in the year. However,
EPM is not expected to realise significant gains upon settlement of the
contracts, as they are largely offset by significant adversely
marked-to-market 'own use' operating derivatives which are excluded from
disclosure as remeasurements under IFRS 9. In addition, for EPM, market
volatility and retail energy supplier failure has resulted in a significant
increase in the collateral requirements necessary to allow the businesses to
continue to trade with counterparties and on exchanges as required. To date
these increased collateral requirements have generally been managed by issuing
new Letters of Credit, Guarantees and Performance Bonds, however exchange cash
collateral requirements have been subject to volatility in recent months. The
Group closely monitors this and maintains more than sufficient liquidity to
manage these increased collateral requirements.
SSE Business Energy and SSE Airtricity (aside from Northern Ireland, where SSE
Airtricity is subject to a regulatory pricing mechanism) are not subject to a
regulated price cap and therefore variable tariffs are adjusted dynamically
and fixed tariff rates are reset for new customers as wholesale costs increase
or decrease. Although the businesses are insulated against gas price rises
insofar as they are fully hedged, there are external circumstances that would
result in hedge adjustments such as weather, supplier failures and broader
economic conditions. A dynamic forecasting approach has been in place to
quickly respond to volume changes. In relation to Airtricity, vertical
integration of generation and customer businesses in the Irish market limits
commodity exposures with some benefit received through REFIT receipts on
legacy wind assets.
Finally, SSE Group is well funded with a strong investment grade credit
rating, a high proportion of the £8.6bn adjusted net debt (c.96%) is fixed
rate and the long average maturity of SSE's debt is 6.8 years. The Group has
been successful in challenging debt markets, issuing a €1bn Hybrid and
£350m Private Placement post year-end. SSE's balance sheet strength allows
the Group to meet additional collateral increases on higher and volatile
commodity contracts, while the high proportion of fixed rate debt provides
robust financing in an inflationary environment.
Operating profit performaNce 2021/22
Business-by-business segmental Adjusted Reported
March 2022 March 2021 March 2022 March 2021
£m £m £m £m
Operating profit/(loss)
SSEN Transmission 380.5 220.9 380.5 220.9
SSEN Distribution 351.8 275.8 351.8 275.8
Electricity networks total 732.3 496.7 732.3 496.7
SSE Renewables 568.1 731.8 427.8 856.0
SSE Thermal 306.3 160.5 630.1 775.3
Gas Storage 30.7 (5.7) 125.4 2.8
Thermal Total 337.0 154.8 755.5 778.1
Business Energy (GB) (21.5) (24.0) (21.5) (3.9)
SSE Airtricity (NI and Ire) 60.4 44.0 60.4 50.0
Energy Customer Solutions Total 38.9 20.0 38.9 46.1
Energy Portfolio Management (16.8) 18.4 2,083.6 608.5
Distributed Energy (10.9) (27.0) (29.2) (76.1)
Neos (16.1) (2.8) (140.0) (14.1)
Corporate unallocated (95.7) (58.4) (113.5) (40.3)
Total operating profit from continuing operations 1,536.8 1,333.5 3,755.4 2,654.9
Net finance costs (372.8) (384.6) (273.2) (236.9)
Profit before tax from continuing operations 1,164.0 948.9 3,482.2 2,418.0
Discontinued operations:
Gas Production Assets 101.4 33.0 (19.4) 33.0
Scotia Gas Networks 21.0 173.0 495.4 88.6
Total operating profit / (loss) from discontinued operations 122.4 206.0 476.0 121.6
* Comparative information has been re-presented to reflect the classification
of Scotia Gas Networks as a discontinued operation and the changes to
segmental disclosures made in the year (see note 2.3 of the Summary Financial
Statements).
In order to present the financial results and performance of the Group in a
consistent and meaningful way, SSE applies a number of adjusted accounting
measures throughout this financial report. These adjusted measures are used
for internal management reporting purposes and are believed to present the
underlying performance of the Group in the most useful manner for ordinary
shareholders and other stakeholders.
The definitions SSE uses for adjusted measures are explained in the
Alternative Performance Measures section before the Summary Financial
Statements. A reconciliation of adjusted operating profit by segment to
reported operating profit by segment can be found in Note 6.2 to the Summary
Financial Statements.
Segmental EBITDA results are included in Note 6.3 to the Summary Financial
Statements.
Operating profit
Adjusted and reported operating profit/losses in SSE's business segments for
the year to 31 March 2022 are set out below; comparisons are with the same
period to 31 March 2021 unless otherwise stated.
SSEN Transmission: Adjusted and reported operating profit increased by 72% to
£380.5m. This was mainly due to higher allowed revenues in FY22 (the first
year of the RIIO-T2 price control) resulting from an increased proportion of
higher totex allowances received through the 'fast money' mechanism, and an
over-recovery of £9m, as timing impacts passed from the Electricity System
Operator to Transmission Operators. This higher revenue was partially offset
by increases in operating costs and depreciation charges, as the business
continues to expand its operational capability and asset base.
SSEN Distribution: Adjusted and reported operating profit increased by 28% to
£351.8m compared to £275.8m which was lower than expected due to a c.£40m
impact of coronavirus in FY21 which will be recovered in FY23. In FY22, higher
allowed revenue and an over-recovery of £17m were partially offset by a £51m
increase in operating costs, c£40m of which related to expenditure incurred
managing the impact of several severe weather events during the year.
SSE Renewables: Adjusted operating profit decreased by 22% to £568.1m,
compared to £731.8m, mainly as developer profits of £64m from a 10% stake
disposal in Dogger Bank C on 10 February 2022 were lower than the £226m of
developer profits in the prior year. Excluding developer profits, operating
profit was broadly flat as exceptionally still and dry weather in the summer
months led to a decrease in output of 7% or 0.7TWh compared to the prior year,
offset by strong financial performance from hydro and pumped storage in
volatile markets. The financial impact of lower output - equivalent to 13% or
1.4TWh below planned levels - included the cost of buying back hedged volumes
at high market prices.
In addition to the factors outlined above, reported operating profit of
£427.8m compared to £856.0m which included one-off exceptional gains of
£214.5m. In addition, reported operating profit was also impacted by a
£21.5m increase in joint venture share of interest and tax charges and the
impact of the UK Corporation tax rate change on deferred tax balances in joint
ventures.
SSE Thermal: adjusted operating profit increased 91% to £306.3m, compared to
£160.5m. This increase was mainly due to higher achieved spark spread,
including buying back forward power sales on high wind days, and strong
performance in the balancing market. This was partially offset by
non-recurring developer profits on the disposal of a 50% stake in Slough
Multifuel in the prior period, lower profit contribution following divestment
of Ferrybridge Multifuel and increased depreciation following the
part-reversal of historic impairment charges at the half year.
Reported operating profit decreased to £630.1m from £775.3m in the prior
year which had included one-off gains of £669.7m on the sale of Multifuel
Energy and £21.3m on Slough Multifuel offset by a £58.1m exceptional
impairment charge for Great Island CCGT. In addition to the factors affecting
operational performance highlighted above, the reported result reflects the
associated impairment reversal of £331.6m to the carrying value of SSE's CCGT
assets following higher forward price curves, alongside other minor tax and
interest movements.
Gas Storage: Adjusted operating profit of £30.7m, compared with a prior year
loss of £(5.7)m. SSE continues to operate the plant on a merchant basis, with
the ability to capture positive gas price spreads during periods of heightened
market volatility. The operating result for the period reflects continued
volatile market conditions, which allows Gas Storage to optimise the value
from storage of physical gas against changes in the spread between summer and
winter prices.
Reported operating profit of £125.4m included an impairment reversal of
£97.3m as a result of improved operating prospects given projected gas price
volatility, together with a £(2.6)m revaluation loss on gas held in storage,
compared to a revaluation gain of £8.5m in the prior year.
SSE Business Energy: Adjusted operating loss of £(21.5)m has slightly
improved compared with an adjusted operating loss of £(24.0)m last year. Both
years have been impacted by significant volatility; the prior year result
included approximately £24m of losses on early settlement of excess commodity
hedges linked to Covid, while the current year has borne non-recoverable BSUoS
costs of around £20m and £14m of additional mutualisation costs due to a
significantly higher number of supplier failures. These were partially offset
by an improvement in bad debt recovery of £14m as the economy emerged from
the impact of coronavirus. The underlying business remains stable with a solid
customer book.
Reported operating loss was also £(21.5)m, compared to £(3.9)m loss in the
prior year which included a £20.1m release of excess bad debt provisioning
originally expected to arise from coronavirus impact.
SSE Airtricity: Adjusted operating profit increased to £60.4m compared to
£44.0m in the previous year, with the increased profit due to £51m of higher
generation receipts on wind assets which are contracted through Airtricity.
This was partially offset by a £25m adjustment in relation to historic use of
system costs.
The business has grown customer numbers year on year but seen a drop in
customer margins as energy prices increased; commodity costs increased
significantly in the year and were managed through our approach to hedging and
where necessary through tariff increases.
Reported operating profit was also £60.4m, compared to £50.0m profit in the
prior year which included a £6.0m release of excess bad debt provisioning
originally expected to arise from coronavirus impact.
Energy Portfolio Management: Adjusted operating loss of £(16.8)m, compared to
an adjusted operating profit of £18.4m which included a net £20.4m income
from legacy Gas Production hedges. The operating loss is primarily due to a
legacy power contract with Ovo which fully unwound during the year in a higher
commodity price environment. EPM continues to expect to earn a small adjusted
operating profit through service provision to those SSE businesses requiring
access to energy markets.
Reported operating profit of £2,083.6m reflects a material net remeasurement
gain in the year on unsettled fair value forward commodity contracts, under
IFRS 9. In line with reporting in previous years, this result excludes an
adverse remeasurement of 'own use' contracts of approximately £2.0bn which
largely offsets the IFRS 9 gain.
SSE Distributed Energy: An adjusted operating loss of £(10.9)m was reported,
compared with an adjusted operating loss of £(27.0)m which included an impact
from coronavirus. This reporting segment includes the result from the
Contracting and Rail business, which remains reported within this segment up
to the point of disposal on 30 June 2021. The segment no longer includes Out
of Area Networks, which is now reported within the Distribution segment, and
Neos Networks JV, which has been separately presented below.
Reported operating loss of £(29.2)m reflects the above factors together with
an exceptional loss on disposal of £18.3m upon completion of the sale of
Contracting and Rail.
Neos Networks JV: SSE's remaining 50% share in the Telecoms business Neos
Networks recorded an adjusted operating loss of £(16.1)m compared with
£(2.8)m in FY21. The reported loss of £(140.0)m includes both an impairment
of £(106.9)m and an adjustment to original transaction consideration.
Corporate unallocated: Adjusted operating loss of £(95.7)m compared with
£(58.4)m, reflecting a natural reduction in external revenues as enduring
service agreements with recently divested businesses roll-off, together with
higher central costs including increased Group IT costs as the Group
accelerates its investment in digitalisation.
Reported operating loss of £(113.5)m reflects the above factors together with
a £(13.1)m revaluation adjustment to the legacy Gas Production
decommissioning provision, part of Corporate unallocated following the
business disposal in the year, and other minor tax and interest movements.
Adjusted Earnings per share
To monitor its financial performance over the medium term, SSE reports on its
adjusted earnings per share measure. This measure is calculated by excluding
the charge for deferred tax, interest costs on net pension liabilities,
exceptional items, valuation movements on the retained Gas Production
decommissioning liabilities, depreciation on fair value adjustments and the
impact of certain remeasurements.
SSE's adjusted EPS measure provides an important and meaningful measure of
underlying financial performance. In adjusting for the items mentioned,
adjusted EPS reflects SSE's internal performance management, avoids the
volatility associated with mark-to-market IFRS 9 remeasurements and means that
items deemed to be exceptional due to their nature and scale do not distort
the presentation of SSE's underlying results. For more detail on these and
other adjusted items please refer to the Adjusted Performance Measures section
of this statement.
In the year to 31 March 2022, SSE's adjusted earnings per share on continuing
operations was 95.4p. This compares to 78.4p for the year to 31 March 2021
(restated for SGN disposal - 87.5p previously reported) and reflects the
movements in adjusted operating profit outlined in the section above.
Group financial outlook
- 2022/23 and beyond
Key Points for 2022/23
The group has enjoyed a strong start to delivery of the targets it set out in
its Net Zero Acceleration Programme with thermal and hydro plant performing
particularly well in the second half of 2021/22.
SSE's focus continues to be on long-term, sustainable financial performance.
Through high levels of investment expected in Transmission, a step up in
profits expected in Thermal generation and an expected return to normal
weather for Renewables, SSE is confident about delivery of strong earnings
growth for this financial year, specifically:
- For SSEN Transmission: SSE expects to report strong growth in adjusted
EBIT with a 20% increase in allowed revenues under the RIIO-T2 price control,
as the network continues to expand its operational capability and asset base;
- For SSE Renewables: assuming normal weather and plant availability, SSE
expects to report generation output of 11.4TWh, including 0.9TWh from
Seagreen; and
- For SSE Thermal and Gas Storage: assuming normal plant availability and
excluding the benefit of Keadby 2, SSE expects to report adjusted EBIT for
2022/23 of at least £337m, the same level as 2021/22.
Taking the above into account SSE currently expects to report full year
adjusted earnings per share of at least 120p.
The Group remains committed to its five-year dividend plan to March 2026 and
is recommending a 2022/23 full-year dividend of 85.7 pence in line with that
plan.
Capital expenditure and investment is expected to total in excess of £2.5bn
in 2022/23 (including acquisitions but net of project finance development
expenditure refunds) assuming the recent Southern European acquisition
successfully completes as planned. This is consistent with maintaining SSE's
target net debt to EBITDA ratio of 4.5 times or below.
Update to Net Zero Acceleration Programme
In November 2021 SSE set out that it expected to deliver adjusted EPS CAGR on
the 87.5 pence reported for the year ended March 2021 (before restatement) of
between 5-7% in the period to 31 March 2026. This was underpinned by
index-linked revenue streams driving 60% of EBITDA and was after a modelling
assumption of a 25% minority interest disposal of Transmission and
Distribution during FY24.
SSE now expects to deliver an adjusted EPS CAGR of between 7-10%* over the
same period as a result of: confidence derived from strong delivery in
2021/22; higher RPI forecasts; higher and more volatile energy commodity
prices; and evidence of increased value creation potential from flexibility
provided by SSE's Thermal and Hydro generation, and gas storage assets.
* Using the same baseline adjusted EPS of 87.5p (before restatement for SGN
disposal) and continuing to model a 25% minority interest disposal of
Transmission and Distribution during FY24.
Disposal of Minority Stake in Networks
SSE continues to regard partnering as vital for the future and an important
means of unlocking future opportunities in its businesses.
In line with the modelling assumption in its Net Zero Acceleration Programme,
announced in November 2021, the Group has recently initiated a sales process
with banking advisers for a 25% share of the SSEN Transmission business which
is expected to formally commence in Summer 2022. Given the SSEN Distribution
business is currently progressing its ED2 price control negotiations, a
decision on the timing of a similar stake sale will be made later in the
financial year.
While these are high-quality, core businesses and SSE will retain control, the
scale of potential growth and the associated investment required mean that
bringing in non-controlling partners will create greater long-term value by
enabling SSE to harness this significant growth whilst maintaining an
attractive balance of capital allocation across the Group.
Supplemental financial information
Adjusted Investment and Capex Summary March 2022 March 2022 March 2021
Share % £m £m
SSEN Transmission 30 614.4 435.2
SSEN Distribution 18 364.8 350.8
Regulated networks total 48 979.2 786.0
SSE Renewables 39 811.0 294.3
SSE Thermal 6 129.3 106.5
Gas Storage - 2.1 1.9
Thermal Total 6 131.4 108.4
Energy Customer Solutions 2 39.8 31.2
Energy Portfolio Management - 2.4 2.1
Gas Production* - - 26.8
Distributed Energy 1 26.6 17.6
Corporate unallocated 4 78.7 74.2
Adjusted investment and capital expenditure, before refunds 100 2,069.1 1,340.6
Project finance development expenditure refunds (136.7) (428.6)
Adjusted investment and capital expenditure 1,932.4 912.0
Acquisitions 141.3 -
Adjusted investment, capital and acquisitions expenditure 2,073.7 912.0
* Discontinued operation, the Gas Production business was disposed on 14
October 2021.
PROGRESS IN SSE'S CAPITAL EXPENDITURE PROGRAMME
During the year to March 2022, SSE's adjusted investment, capital and
acquisition expenditure, which now includes equity expenditure on acquisitions
per above, totalled £2,073.7m, an increase of 127% compared with the prior
year and representing the highest ever investment recorded by the Group.
Almost £2bn of this was invested within SSE's Renewables, Thermal and
Networks businesses, all which are fundamental to delivery of the UK's net
zero ambitions. In summary:
· Excellent progress was made in SSEN Transmission's investment
programme, with a total of £614.4m invested in building out and reinforcing
the network in the North of Scotland. Work was completed on Tealing Substation
Extension, required to facilitate the connection of Seagreen to the grid. In
addition, construction is well under way on the link between Shetland and
mainland Scotland, which will see a submarine cable laid in order to transmit
power beneath the seabed between converter stations at Weisdale Voe on
Shetland and Noss Head in Caithness.
· SSEN Distribution continued its capital investment programme
across both the north and south networks, with a total spend of £364.8m,
mainly on strategic investment and construction in both the north and south
regions, as well as progressing the replacement of the submarine cable between
Skye and Harris. All of which is designed to deliver improvements for
customers.
· Significant further capex was deployed on SSE Renewables'
flagship projects, including nearly £500m investment on Seagreen, Scotland's
largest offshore wind farm, and around £100m on Viking onshore wind farm,
which will be one of Europe's most productive onshore wind farms, once
complete. In addition, progress was made at the 30MW Lenalea onshore wind farm
in County Donegal and the 38MW Gordonbush Extension onshore wind farm in
Sutherland was commissioned during the year.
· Investment in SSE Thermal was focused on the final stages of the
893MW Keadby 2 CCGT, with commissioning started in October 2021 and full
commercial operation expected 1 October 2022.
In April 2022, an incident occurred on a sub-contractor S7000 installation
vessel which is contracted to the Seagreen offshore wind farm construction
project. The project team are working closely with contractors to manage and
mitigate project impacts and the project is currently expected to achieve
first power in July 2022 and full commercial operation in April 2023.
SSE's Hedging Position at 18 May 2022
SSE has an established approach to hedging through which it generally seeks to
reduce its broad exposure to commodity price variation at least 12 months in
advance of delivery. As market conditions change, SSE may decide to alter its
hedging approach in response to any changes in its exposure profile. SSE
will continue to provide a summary of its current hedging approach, including
details of any changes in the period, within its Interim and Full-year Results
statements.
A summary of the hedging position for each of SSE's market-based businesses is
set out below.
SSE Renewables - GB wind and hydro:
Forward power prices and volatility have been increasing, driven by
supply-demand tensions, the acceleration in carbon pricing, nuclear outages
and closures and the reconfiguration of the merit order in both GB and
Ireland. These trends have been amplified by scarcity concerns across Europe.
In response to this, SSE Renewables has increased its hedge position against
its target volume for financial years 2023/24 and 2024/25.
In order to show this hedge acceleration, the table below has been updated to
show the position at 18 May 2022 for those periods.
As at 31 March 2022 As at 18 May 2022
2021/22 2022/23 2023/24 2024/25 2025/26
Wind Expected volume - TWh 4.2 5.3 6.8 8.4 8.7
Volume hedged - % 85% 91% 78% 37% 1%
Hedge price - £MWh £48 £54 £69 £105 £108
Hydro Expected volume - TWh 3.6 3.5 3.7 3.8 3.8
Volume hedged - % 83% 85% 70% 38% 1%
Hedge price - £/MWh £50 £63 £74 £110 £108
Volumes are based on average expected output, and the contracted hedge price
is either at 31 March or 18 May as noted in the table above.
The expected volumes include anticipated volumes from SSE's wind farms in
construction, Seagreen (pre CFD) and Viking. No volumes have been included for
Dogger Bank wind farm. Seagreen accounts for approximately 0.9TWh in 22/23 and
2.5TWh in each of 23/24, 24/25 and 25/26 with Viking accounting for 1.6TWh in
24/25 and 1.9TWh in 25/26. These volumes represent SSE's most up to date view
of the output from Seagreen taking account of recent issues encountered by the
S7000 installation vessel. In the event that further construction delays
result in a shortfall against wind hedged volumes, it is expected that the
exposure will continue to be managed within the wider SSE generation
portfolio.
The table excludes additional volumes and income for BM activity, ROCs,
ancillary services, pre-commissioning, capacity mechanism and shape
variations. It also excludes volumes and income relating to Irish wind output,
pumped storage and CfDs.
Energy output hedges for both wind and hydro are progressively established
over the 36 months prior to delivery (although the extent of hedging activity
for future periods depends on the level of available market depth and
liquidity). Target hedge levels continue to be achieved through the forward
sale of either electricity, or gas and carbon equivalents (assuming a constant
1MWh : 69.444 th and 1MWh : 0.3815 te/MWh conversion ratio between
commodities), with the balance determined by the optimal hedge price across
those markets. This approach aims to reduce the exposure of renewables assets
to volatile spot power market outcomes whilst still providing an underlying
commodity price hedge.
For wind energy output, SSE's established approach to hedging seeks to account
for the effect of the 'wind capture price' by targeting a hedge of less than
100% of its anticipated wind energy output for the coming 12 months. The
targeted hedge percentage is reviewed and adjusted as necessary to reflect any
changes in future market and wind capture insights. The last such revision
occurred in May 2021, with at least 90% of the anticipated energy output from
wind for the coming twelve months being hedged from that date.
The approach to hedging hydro energy output remains unchanged at approximately
85% of its forecast energy output for the coming 12 months.
UK Business Energy: The business supplies electricity and gas to business and
public sector customers. Sales to contract customers are 100% hedged: at point
of sale for fixed contract customers; upon instruction for flexi contract
customers; and on a rolling hedge basis for tariff customers.
Given the pricing and macro-economic context Business Energy is dynamically
monitoring nearer term consumption actuals for any early signs of demand
variability, and adjusting future volumes hedged accordingly.
GB Thermal: In the six months prior to delivery, SSE aims to hedge all of the
expected output of its CCGT assets, having progressively established this
hedge over the preceding eighteen months. Hedging activity depends on the
availability of sufficient market depth and liquidity, which can be limited,
particularly for periods further into the future.
SSE continues to monitor market developments, in particular the recent energy
and carbon price volatility, and will adjust its hedging approach to take
account of any resultant change in exposures.
Gas Storage: The annual auction to offer gas storage capacity contracts from
Atwick, held in April 2022, resulted in no third-party contracts being
secured. As such the assets are being commercially operated to optimise value
arising from changes in the spread between summer and winter prices, market
volatility and plant availability.
Energy Portfolio Management (EPM): EPM provides the route to market and
manages the execution for all of SSE's commodity trading outlined above (spark
spread, power, gas, oil and carbon). This includes monitoring market
conditions and liquidity and reporting net Group exposures. The business
operates under strict position limits and VAR controls. There is some scope
for small position-taking to permit EPM to manage around shape and liquidity
whilst taking small optimisation opportunities. This is contained within a VAR
limit of £2m (£1m for the curve period and £1m for the prompt).
Ireland: Vertical integration of the generation and customer businesses in
Ireland limits the Group's commodity exposure in that market.
Summarising movements on exceptional items
and certain remeasurements
Exceptional items
In the year to 31 March 2022, SSE recognised a net exceptional gain within
continuing operations of £305.0m before tax. The following table provides a
summary of the key components making up the net gain position:
Exceptional Credits / (Charges) within continuing operations Total
£m
Disposals of non-core assets:
Contracting & Rail business - loss on disposal (18.9)
Impairments and other exceptional items
Thermal Electricity Generation historic impairment reversal 331.6
Gas Storage historic impairment reversal 97.3
Neos Networks investment impairment and adjustment to consideration (113.1)
Other historic true-up credits 8.1
323.9
Total exceptional items 305.0
Notes:
- The definition of exceptional items can be found in Note 4.2 of
the Summary Financial Statements.
- Non-core assets are defined as being assets in which SSE is not
the principal operator or are less aligned with the transition to net-zero
emissions.
In addition to the above exceptional items from continuing operations, a net
exceptional gain within discontinued operations of £455.7m before tax was
recognised. This net exceptional profit consisted of:
· a £576.5m gain recognised on completion of the disposal of the
Group's 33.3% investment in SGN on 22 March 2022; offset by
· a £120.8m loss relating to the disposal of the Gas Production
assets and liabilities on 14 October 2021.
For a full description of exceptional items, see Note 7 of the Summary
Financial Statements.
Certain remeasurements
In the year to 31 March 2022, SSE recognised a net remeasurement gain within
continuing operations of £2,118.8m before tax. The following table provides a
summary of the key components making up the net gain position:
Certain remeasurements within continuing operations Total
£m
Operating derivatives 2,100.4
Commodity stocks held at fair value (2.6)
Financing derivatives 21.0
Total 2,118.8
Operating derivatives
SSE enters into forward purchase contracts (for power, gas and other
commodities) to meet the future demands of its energy supply businesses and to
optimise the value of its generation assets. Some of these contracts are
determined to be derivative financial instruments under IFRS 9 and as such are
required to be recorded at their fair value as at the date of the financial
statements.
SSE shows the change in the fair value of these forward contracts separately
as this mark-to-market movement does not reflect the realised operating
performance of the businesses. The underlying value of these contracts is
recognised as the relevant commodity is delivered, which for the large
majority of the position at 31 March 2022 is expected to be within the next
12-18 months.
The change in the operating derivative mark-to-market valuation was a
£2,100.4m increase from a small "in-the-money" position at 31 March 2021 into
a significantly "in-the-money" position at 31 March 2022. This movement
consisted of:
· Settlement during the year of £(1,426.8)m of previously
"in-the-money" contracts in line with the contracted delivery periods; and
· Mark-to-market gains of £3,527.2m on unsettled contracts entered
into during the course of 2020/21 and 2021/22 in line with the Group's stated
approach to hedging. These mark-to-market gains reflect the significant
volatility in commodity markets during the period.
As in prior years, the reported result does not include remeasurement of 'own
use' adverse hedging agreements which would have settled at a mark-to-market
loss in the year of c.£1.95bn and which would be valued at c.£(2.1)bn at 31
March 2022; these contracts are excluded from recognition under IFRS 9 and
largely offset the IFRS 9 remeasurement noted above.
Commodity stocks held at fair value
Gas inventory purchased by the Gas Storage business for secondary trading
opportunities is held at fair value with reference to the forward month market
price. The £(2.6)m negative movement in the year mainly resulted from a
decrease in the underlying volumes of gas held at year end, as gas was sold in
the second half of the financial year realising the significant increase in
the fair value of that gas during the year.
Financing derivatives
In addition to the positive movements above, a positive movement of £21.0m
was recognised on financing derivatives in the year to 31 March 2022,
including SSE's share of joint venture financing derivative remeasurements,
and related to mark-to-market movements on cross-currency swaps and floating
rate swaps that are classed as hedges under IAS 39. These hedges ensure that
any movement in the value of net debt is predominately offset by a movement in
the derivative position. The adjustment was primarily driven by weaker
Sterling against the Dollar partially offset by stronger Sterling against the
Euro.
These remeasurements are presented separately as they do not represent
underlying business performance in the period. The result on financing
derivatives will be recognised in adjusted profit before tax when the
derivatives are settled.
Reported profit before tax and earnings per share
Taking all of the above into account, reported results for the year to 31
March 2022 are significantly higher than the previous year. In addition to the
£2,118.8m cumulative net gain on forward commodity, gas inventory and
financing derivative fair value remeasurements noted above, reported results
also reflect the reversal of historic SSE Thermal and Gas Storage impairment
charges of £428.9m as well as other pre-tax exceptional items totalling
£(123.9)m as detailed within Note 7 of the Summary Financial Statements.
Reported results in the prior year reflected pre-tax exceptional and certain
re-measurement gains of £1,503.7m recognised which were driven by a
combination of progression with the Group's £2bn plus non-core asset disposal
programme and IFRS 9 remeasurements on operating derivatives.
Financial management and balance sheet
Debt metrics March 2022 Sept 2021 March 2021
£m £m £m
Net Debt / EBITDA* 4.0 N/A 4.7
Adjusted net debt and hybrid capital (£m) (8,598.2) (9,611.4) (8,898.9)
Average debt maturity (years) 6.8 7.2 7.4
Adjusted interest cover (times) 4.0 1.6 3.5
Average interest rate for the period (excluding JV/assoc. interest and all 3.29% 3.35% 3.12%
hybrid coupon payments)
Average cost of debt at period end (including all hybrid coupon payments) 3.81% 3.89% 3.75%
* Note: Net debt represents the group adjusted net debt and hybrid capital.
EBITDA represents the full year group adjusted EBITDA, less £125.4m (at March
2022) for the proportion of adjusted EBITDA from equity-accounted Joint
Ventures relating to project financed debt.
Net finance costs reconciliation March 2022 March 2021
£m £m
Adjusted net finance costs 372.8 384.6
Add/(less):
Lease interest charges (30.4) (35.3)
Notional interest arising on discounted provisions (5.7) (3.8)
Hybrid equity coupon payment 50.7 46.6
Adjusted finance costs for interest cover calculation 387.4 392.1
SSE Principal Sources of debt funding March 2022 Sept 2021 March 2021
Bonds 55% 58% 58%
Hybrid debt and equity securities 21% 22% 24%
European investment bank loans 7% 7% 8%
US private placement 9% 9% 8%
Short-term funding 5% 1% 0%
Index -linked debt 3% 3% 2%
% Of which has been secured at a fixed rate 96% 100% 98%
Rating Agency Rating Criteria Date of Issue
Moody's Baa1 'negative outlook' 'Low teens' Retained Cash Flow/Net Debt November 2021
Standard and Poor's BBB+ 'outlook stable' About 18% Funds From Operations/Net Debt November 2021
Maintaining a strong balance sheet
While there may be short-term fluctuations, a key objective of SSE's approach
to managing cash outflow and securing value and proceeds from disposals is its
target of a net debt/EBITDA ratio of 4.5x or lower across the five years to 31
March 2026.
As well as promoting the long-term success of the Company, this approach is
also designed to ensure that SSE maintains credit rating ratios (Retained Cash
Flow (RCF)/Net Debt and Funds From Operations (FFO)/Net Debt) that are
comparable with private sector utilities across Europe and comfortably above
those required for an investment grade credit rating.
SSE's S&P credit rating remains at BBB+ 'stable outlook' and its Moody's
rating also remains at Baa1, but updated to 'stable outlook' following the
strategic review update in November 2021.
Adjusted net debt and hybrid capital
SSE's adjusted net debt and hybrid capital was £8.6bn at 31 March 2022, down
from £8.9bn at 31 March 2021. This movement reflects the completion of the
non-core asset disposal programme announced in 2020, which included completion
of the sale of the 33.3% investment in SGN in March 2022, partially offset by
the ongoing investment programme, including the acquisition of an 80% stake in
a Japanese development platform from Pacifico Energy in September 2021, as
well as various working capital movements.
Following the significant debt issued in the 20/21 financial year, where the
SSE Group accessed the debt and hybrid capital markets three times issuing
c.£2.5bn of debt over six tranches, no new medium- long-term debt was issued
in the 2021/22 financial year. The SSE Group did however re-enter the
short-term Commercial Paper market during the year and at 31 March 2022 had
£507m of Commercial Paper outstanding.
Debt summary as at 31 March 2022
As stated above no new medium- long-term debt was issued and received in
2021/22 however the following two debt issues were committed to or completed
either side of the financial year end:
· In March 2022, the SSE Group through its SSEN Transmission entity
priced and committed to a £350m dual tranche private placement, being a
£175m 10-year tranche at 3.13% and £175m 15-year tranche at 3.24% giving an
all-in average rate of 3.19%. The pricing was committed to in March 2022 and
the proceeds will be received on 30 June 2022.
· In April 2022, SSE plc issued a €1bn NC6 equity accounted
hybrid bond at 4% to refinance the dual tranche debt accounted hybrid bonds
issued in March 2017. SSE has taken advantage of the 3-month par call option
on these 2017 hybrid bonds, meaning they will now be repaid on 16 June 2022 in
advance of the first call date. The €1bn equity accounted hybrid bond has
been kept in Euros and the proceeds will be used to cover the portion of the
maturing hybrid that was swapped to Euros (€575m) and to finance a portion
of the Southern European onshore wind development platform acquisition cost
which is expected to complete by September 2022.
In addition to the hybrid bonds called in June 2022 a further £613m of
medium- long-term debt matures in 2021/22 being £163m (USPP) which matured in
April 2022, £300m (Eurobond) maturing in September 2022 and £150m (EIB)
maturing in October 2022. A further £507m of short-term debt in the form of
Commercial Paper is also due to mature in the first half of 2021/22, however
the current intention is to roll this maturing short-term debt forward where
possible.
Hybrid bonds summary as at 31 March 2022
Hybrid bonds are a valuable part of SSE's capital structure, helping to
diversify SSE's investor base and most importantly to support credit rating
ratios, with their 50% equity treatment by the rating agencies being positive
for SSE's credit metrics.
A summary of SSE's hybrid bonds as at 31 March 2022 can be found below:
Issued Hybrid Bond Value* All in rate First Call Date Accounting Treatment
March 2017 £300m 3.73% September 2022 Debt accounted
March 2017 $900m (£749m) 2.72% September 2022 Debt accounted
July 2020 £600m 3.74% Apr 2026 Equity accounted
July 2020 €500m (£454m) 3.68% July 2027 Equity accounted
In accordance with the first call date, the €600m (£440m) March 2015 Hybrid
Bond was called and redeemed in April 2021 and therefore not included in the
table above. The March 2017 hybrids have a 3-month par call option that SSE
has invoked meaning these two hybrids will now be called and settled on 16
June 2022.
Further details on each hybrid bond can be found in Notes 13 and 14 to the
Summary Financial Statements and a table noting the amounts, timing and
accounting treatment of coupon payments is shown below:
Hybrid coupon payments 2022/23 2021/22
HYe FYe HYe FYe
Total equity (cash) accounted £39m £39m £51m £51m
Total debt (accrual) accounted £21m £21m £15m £31m
Total hybrid coupon £60m £60m £66m £82m
SSE's March 2015 and July 2020 hybrid bonds are perpetual instruments and are
therefore accounted for as part of equity within the Summary Financial
Statements but, as in previous years, have been included within SSE's
'Adjusted net debt and hybrid capital' to aid comparability. The March 2017
hybrid bonds which have been called and will be settled in 2022/23 had a fixed
redemption date and have therefore been debt accounted and included within
Loans and Other Borrowings; as such they were already part of SSE's adjusted
net debt and hybrid capital.
The coupon payments relating to the equity accounted hybrid bonds are
presented as distributions to other equity holders and are reflected within
adjusted earnings per share when paid. The coupon payments on the debt
accounted hybrid bonds are treated as finance costs under IFRS 9.
Managing net finance costs
SSE's adjusted net finance costs - including interest on debt accounted hybrid
bonds but not equity accounted hybrid bonds - were £372.8m in the year to 31
March 2022, compared to £384.6m in the previous year after restatement for
SGN related finance costs. The relatively stable level of finance costs from
year to year, despite periods of high inflation, reflects the high proportion
of fixed rate debt held by the Group.
Reported net finance costs were £273.2m compared to £236.9m, after
restatement for SGN related finance costs, reflecting a £34.6m year-on-year
change in the mark-to-market revaluation of financing derivatives held at fair
value.
Summarising cash and cash equivalents
At 31 March 2022, SSE's adjusted net debt included cash and cash equivalents
of £1.0bn, down from £1.6bn at March 2021 which reflects the continued
strong cash generation from operating activities, offset by a significant
increase in capital investment, a reduction in year-on-year disposal proceeds
as the June 2020 non-core asset disposal programme came to an end and a net
repayment of borrowings. This continued strong cash position will allow SSE to
meet its near-term debt repayment and capital investment needs as set out
above.
As the fair value of forward commodity contracts has moved from an 'in the
money' position in the prior year to an 'out the money' position in the
current year, the related collateral required has similarly unwound. At 31
March 2022, £74.7m of cash was provided as collateral to third parties
compared to £37.1m held as collateral from third parties on these 'in the
money' contracts in the prior year.
Revolving Credit Facility / SHORT TERM FUNDING
SSE has £1.5bn of committed bank facilities in place to ensure the Group has
sufficient liquidity to allow day-to -day operations and investment programmes
to continue in the event of disruption to Capital Markets preventing SSE from
issuing new debt for a period of time. These facilities are set out in the
table below.
Date Issuer Debt type Term Value
Mar 19 SSE plc Syndicated Revolving Credit Facility with 10 Relationship Banks 2026 £1.3bn
Oct 19 SSE plc Revolving Credit Facility with Bank of China 2026 £200m
The facilities can also be utilised to cover short-term funding requirements;
however, they remain undrawn for most of the time and at 31 March 2022 they
were both undrawn.
Both facilities are classified as sustainable facilities with interest rate
and fees paid dependant on SSE's performance in environmental, social and
governance matters, as assessed independently by Vigeo Eiris.
In addition to these committed bank facilities, the Group has access to £100m
of uncommitted bank lines and a £15m overdraft facility.
Maintaining a prudent Treasury policy
SSE's treasury policy is designed to be prudent and flexible. In line with
that, cash from operations is first used to finance regulatory and maintenance
capital expenditure and then dividend payments, with investment and capital
expenditure for growth generally financed by a combination of cash from
operations, bank borrowings and bond issuance. In 2021/22 growth was also
financed by disposal proceeds.
As a matter of policy, a minimum of 50% of SSE's debt is subject to fixed
rates of interest. Within this policy framework, SSE borrows as required on
different interest bases, with financial instruments being used to achieve the
desired out-turn interest rate profile. At 31 March 2022, 96% of SSE's
borrowings were at fixed rates.
Borrowings are mainly in Sterling and Euros to reflect the underlying currency
denomination of assets and cash flows within SSE. All other foreign currency
borrowings are swapped back into either Sterling or Euros.
Transactional foreign exchange risk arises in respect of procurement
contracts, fuel and carbon purchasing, commodity hedging and energy portfolio
management operations, and long-term service agreements for plant.
SSE's policy is to hedge any material transactional foreign exchange risks
through the use of forward currency purchases and/or financial instruments.
Translational foreign exchange risk arises in respect of overseas investments;
hedging in respect of such exposures is determined as appropriate to the
circumstances on a case-by-case basis.
Ensuring a strong debt structure through
medium- and long-term borrowings
The ability to raise funds at competitive rates is fundamental to investment.
SSE's fundraising over the past five years, including senior bonds, hybrid
capital and term loans, now totals £7.7bn and SSE's objective is to maintain
a reasonable range of debt maturities. Its average debt maturity, excluding
hybrid securities, at 31 March 2022 was 6.8 years, down from 7.4 years at 31
March 2021. This movement reflects the £2.1bn of debt maturing in the next 12
months and is forecast to return to 7.5 years during 2022/23. SSE's average
cost of debt is now 3.81%, compared to 3.75% at 31 March 2021.
Going Concern
The Directors regularly review the Group's funding structure and have assessed
that the Summary Financial Statements should be prepared on a going concern
basis.
In making their assessment the Directors have considered sensitivities on the
forecast future cashflows of the Group for the period to 31 December 2023
resulting from the current volatile market conditions; the Group's credit
rating; the success of the Group's disposal programme through 2020/21 and
2021/22; and the successful issuance of £1.2bn of hybrid equity and private
placement debt issued since the March 2022 financial year end. The Directors
have also considered the Group's obligations under its debt covenants, with
projections to 31 December 2023 supporting the expectation that there will be
no breaches.
The Directors have also assessed that the Group remains able to access Capital
Markets, as demonstrated by the £3.7bn of debt issued over the last 24
months. There is also an expectation of continued availability of the
Commercial Paper market along with future available liquidity in the private
placement market in addition to the Group's existing liquidity with £1.5bn of
undrawn committed borrowing facilities.
SSE's principal joint ventures and associates
SSE's financial results include contributions from equity interests in joint
ventures ("JVs") and associates, all of which are equity accounted. The
details of the most significant of these are included in the table below. This
table also highlights SSE's share of off-balance sheet debt associated with
its equity interests in JVs which totals less than £2.5bn as at 31 March
2022.
SSE principal JVs and associates(1) Asset type SSE holding SSE share of external debt as at 31 March 2022 SSE Shareholder loans as at 31 March 2022
Seabank Power Ltd 1,234MW CCGT 50% No external debt No loans outstanding
Marchwood Power Ltd 920MW CCGT 50% No external debt £39m
Clyde Windfarm (Scotland) Ltd 522MW onshore wind farm 50.1% No external debt £127m
Dogger Bank A Wind Farm Up to 1,200MW offshore wind farm. 40% £532m Project financed
Dogger Bank B Wind Farm Up to 1,200MW offshore wind farm. 40% £364m Project financed
Dogger Bank C Wind Farm Up to 1,200MW offshore wind farm. 40% £185m Project Financed
Seagreen Windfarm Ltd 1,075MW offshore wind farm 49% £570m £477m(2)
Seagreen 1a Ltd Offshore wind farm extension 50% No external debt £9m
Lenalea Wind Energy Ltd 30MW of onshore windfarm 50% No external debt £3m
Beatrice Offshore Windfarm Ltd 588MW offshore wind farm 40% £736m Project financed
Cloosh Valley Wind Farm 105MW onshore windfarm (part of Galway Wind Park) 25% £25m Project financed
Neos Networks Ltd Private telecoms network 50% No external debt £91m
Slough Multifuel Ltd 50MW energy-from-waste facility 50% No external debt £63m
Stronelairg Windfarm Ltd 228MW onshore wind farm 50.1% No external debt £88m
Dunmaglass Windfarm Ltd 94MW onshore windfarm 50.1% No external debt £47m
Notes:
(1) Greater Gabbard, a 504MW offshore windfarm (SSE share 50%) is
proportionally consolidated and is reported as a Joint Operation with no loans
outstanding.
(2) For accounting purposes, £205m of the £477m of SSE Shareholder loans
advanced to Seagreen Windfarm Limited as at 31 March 2022 have been classified
as equity.
Taxation
SSE is one of the UK's biggest taxpayers, and in the PwC survey published in
November 2021 was ranked 16th out of the 100 Group of Companies in 2021 in
terms of taxes borne (those which represent a cost to the company, and which
are reflected in its financial results).
SSE considers being a responsible taxpayer a core element of its social
contract with the societies in which it operates. SSE seeks to pay the right
amount of tax on its profits, in the right place, at the right time, and was
the first FTSE 100 company to be awarded the Fair Tax Mark. While SSE has an
obligation to its shareholders, customers and other stakeholders to
efficiently manage its total tax liability, it does not seek to use the tax
system in a way it does not consider it was meant to operate, or use tax
havens to reduce its tax liabilities.
Under its social contract SSE has an obligation to the society in which it
operates, and from which it benefits - for example, tax receipts are vital for
the public services SSE relies upon. Therefore, SSE's tax policy is to operate
within both the letter and spirit of the law at all times.
In December 2021, SSE published 'Talking Tax 2021: Tax as a driver for change'
report. It did this because it believes building trust with stakeholders on
issues relating to tax is important to the long-term sustainability of the
business.
In the year to 31 March 2022, SSE paid £335.3m of taxes on profits, property
taxes, environmental taxes, and employment taxes in the UK, compared with
£379.0m in the previous year. The reduction in total taxes paid in 2021/22
compared with the previous year was primarily due to:
- The sale of SSE's Contracting business in June 2021. Only three months
of profit taxes, property taxes and employment taxes are included in relation
to that business in 2021/22 compared with a full year in 2020/21;
- Lower Climate Change Levy being paid as a result of outages at SSE's
gas-fired power stations.
In 2021/22 SSE also paid €46.4m of taxes in Ireland, compared to €20.4m
the previous year, due to increased profits in SSE's Irish businesses. Ireland
is the only country outside the UK in which it currently has significant
trading operations. SSE's operations elsewhere are still at an early stage and
are not yet paying material amounts of tax.
As with other key financial indicators, SSE's focus is on adjusted profit
before tax and, in line with that, SSE believes that the adjusted current tax
charge on that profit is the tax measure that best reflects underlying
performance. SSE's adjusted current tax rate, based on adjusted profit before
tax, was 9.2%, compared with 9.1% in 2020/21 on the same basis. Total deferred
tax for the period increased to £797.4m from £145.4m and was principally
driven by the tax effect on the significant mark-to-market valuation movement
on derivative contracts, in addition to a £244.7m adjustment relating to the
tax rate change to 25% which was substantively enacted on 24 May 2021.
pensions
Contributing to employees' pension schemes - IAS 19 March 22 Sept 21 March 21
Pension scheme asset recognised in the balance sheet before deferred tax £m 584.9 501.7 543.1
Pension scheme liability recognised in the balance sheet before deferred tax - (63.7) (186.1)
£m
Net pension scheme asset recognised in the balance sheet before deferred tax 584.9 438.0 357.0
£m
Employer cash contributions Scottish Hydro Electric scheme £m 1.0 0.5 1.1
Employer cash contributions Southern Electric scheme £m 58.0 30.7 55.2
Deficit repair contribution included above £m 40.9 20.4 37.9
In the year to 31 March 2022, the net surplus across SSE's two pension schemes
increased by £227.9m, from £357.0m to £584.9m, primarily due to actuarial
gains of £197.3m and contributions made to the schemes offset by current
service costs.
The valuation of the Southern Electric Pension Scheme ('SEPS') increased by
£253.5m in 2021/22 primarily due to actuarial gains of £221.9m, in
particular the impact of higher discount rates, and deficit repair
contributions exceeding service costs.
The Scottish Hydro Electric Pension Scheme ('SHEPS') has insured against
volatility in its deferred and pensioner members through the purchase of
'buy-in' contracts meaning that the Group only retains exposure to volatility
in active employees. During the year the SHEPS surplus decreased by £25.6m.
Additional information on employee pension schemes can be found in Note 15 to
the Summary Financial Statements.
business operating review
SSE's strategy of developing, building, operating and investing in the
electricity infrastructure and businesses needed in the transition to net zero
is delivered through a focused mix of market-based and economically-regulated
energy businesses.
SSE's businesses are key to enabling a net zero economy, have significant
growth potential and, importantly, fit together. With common skills and
capabilities in the development, building and operation of world-class, highly
technical electricity assets, there are strong synergies between them. SSE's
business mix is very deliberate, highly effective, fully focused and well set
to prosper on the journey to net zero and beyond.
The review of the Business Units that follows provides visibility of
performance and future priorities.
Economically-regulated networks
SSE owns and operates an electricity transmission network in the North of
Scotland and two electricity distribution networks, one in the North of
Scotland and the other in central southern England. SSE completed the sale of
its entire 33.3% financial stake in Scotia Gas Networks on 22 March 2022 to a
consortium comprising existing SGN shareholder Ontario Teachers' Pension Plan
Board (Ontario Teachers') and Brookfield Super-Core Infrastructure Partners
(Brookfield).
Owners of energy networks in Great Britain are remunerated according to the
RIIO (Revenue = Incentives + Innovation + Outputs) framework set by Ofgem,
under which the regulator determines an annual allowed level of required
capital expenditure and operating costs, in order to meet required network
outputs. These are added together to form total expenditure or 'totex', which
is split by defined capitalisation rates which differ between networks.
Regulatory operational expenditure ('fast money') flows into licensee revenue,
whereas regulatory capex ('slow money') is added to the regulatory asset value
('RAV') for each network. Licensees earn a return on regulatory equity and
receive an allowance for the cost of debt, both of which are calculated based
on a notional split of their RAV. Revenues and RAV are index-linked under the
regulatory mechanism, providing a valuable hedge against rising inflation.
SSEN Distribution's income and asset base is linked to RPI until the end of
its current price control in March 2023; while SSEN Transmission is linked to
CPIH under its RIIO-T2 price control until March 2026.
Each licensee has the opportunity to earn above its base return on equity
through delivering efficiency savings on totex. Additionally, if service
levels improve against targets, there is an opportunity to earn additional
income through incentives. In the event that service levels fall below targets
set out in the price control, a penalty will be incurred which reduces network
revenue and therefore customer bills. This ensures that customers only
compensate networks for improving service levels. Further, customers benefit
from reduced bills when network providers achieve efficiency savings on totex
expenditure.
In Distribution, charges per MWh ('tariffs') are set by licensees 15 months in
advance of the regulatory year and are based on forecasts of: (a) revenue
which licensees are entitled to collect in respect of the regulatory year
('allowed revenue'); (b) the incentives and totex outperformance for the last
three months of the year in which the tariffs are set; and (c) the level of
volumes which will be distributed within the regulatory year. Differences in
collected versus allowed revenue (referred to as 'over- or under-recovery')
are accommodated in allowed revenue two years after the year in which they
occur.
In Transmission, licensees are paid by the System Operator based on a forecast
of allowed revenue amount set three months in advance of the regulatory year.
While under RIIO-T1 the System Operator assumed the risk of forecast volumes
being different to outturn (paying Transmission Operators a fixed allowed
revenue irrespective of volumes transported), under the RIIO-T2 price control
settlement this risk has been transferred to the Transmission Operators and
collected revenue for Transmission Operators can vary depending on actual
versus forecast volumes transported. For 2021/22, volumes transported are
higher than forecast and therefore SSEN Transmission recovered around £9m in
excess of its allowed revenue. Over- or under-recovered volumes are
accommodated in allowed revenue in the following regulatory year, based on a
forecast set in November prior to that year, with a true-up in the subsequent
year for any variance to forecast.
SSEN Transmission
SSEN Transmission March 22 March 21
Transmission adjusted and reported operating profit - £m 380.5 220.9
Regulated Asset Value (RAV) - £m 4,155 3,631
Renewable Capacity connected to SSEN Transmission Network - MW 7,790 6,750
Transmission adjusted investment and capital expenditure - £m 614.5 435.2
SSEN Transmission overview
SSEN Transmission owns, operates and develops the high voltage electricity
transmission system in the North of Scotland and its islands. Over the
duration of the five-year RIIO-T2 price control, which began in April 2021,
total expenditure by SSEN Transmission is expected to reach at least £2.8bn
(the Certain View) which would take Transmission RAV to in excess of £5bn by
the end of RIIO-T2.
In addition to the Certain View expenditure, under Ofgem's Uncertainty
Mechanisms changes to the allowed revenue are permitted during the price
control period to reflect additional investment requirements, when their need
or expected timeframe are not known at the outset. These Uncertainty
Mechanisms are used to fund further upgrades to the network during the price
control period, when there is more certainty around the scope of work
required. This investment plays a pivotal role in providing critical national
infrastructure and to maintain network reliability for the communities SSEN
Transmission serves as it delivers a network for net zero.
Operational delivery
SSEN Transmission has made a strong start in delivering against its regulatory
settlement during the first year of the new five-year RIIO-T2 price control
period. Building on its strong track record of consistently delivering over
99.99% network reliability - and in line with its RIIO-T2 goal to aim for 100%
transmission network reliability for homes and businesses - in 2021/22, SSEN
Transmission achieved the full reward of £0.7m through the Energy Not
Supplied Incentive. This is the second consecutive year SSEN Transmission has
achieved the full Energy Not Supplied Incentive available and the 2021/22
reward will be reflected in revenue in 2023/24.
In addition to exceptional operational performance in the year, SSEN
Transmission continues to deliver against its strategic objective to enable
the transition to a low-carbon economy as it builds a network for net zero in
the North of Scotland. The RIIO-T2 period is expected to deliver significant
growth in the capacity of renewables connected to SSEN Transmission's network,
from under 7GW at the start of RIIO-T2 to around 14GW by March 2026. This
includes growth of around 1GW in 2021/22, which brings the total installed
capacity connected to the North of Scotland transmission network to around
9GW, of which just under 8GW is from renewable sources. SSEN Transmission is
well on its way to delivering its RIIO-T2 goal to transport the renewable
electricity that powers 10m homes, which will be met once the installed
capacity of renewables reaches 10GW.
This forecast growth in renewables will be enabled by a series of strategic
investments in new and upgraded infrastructure. Excellent progress continues
to be made on the Shetland HVDC transmission link, which has now been in
construction for over 18 months and will see Shetland connected to the GB
transmission system for the first time, enabling the connection of renewables
and supporting Shetland's future security of supply. The substation and
convertor station sites at Kergord (Shetland) and switching station at Noss
Head (Caithness) are taking shape, with all main building structures now
complete. Cable installation preparatory works have also progressed well, with
all land cable ducting now in place and the first phase of subsea boulder
clearing successfully completed. Subsea cable installation works will follow
from 2022/23, alongside the fit out of substation and convertor station
buildings, with the project on track for completion and energisation in 2024.
The second phase of the Inveraray to Crossaig overhead line replacement
project in Argyll, from Port Ann to Crossaig, is also progressing well, with
the replacement line remaining on track for completion by summer 2023.
Excellent progress continues on works to increase incrementally the capacity
of the north east and east coast transmission network to 275kV then to 400kV,
with new substations at New Deer and Rothienorman now energised at 275kV, to
be subsequently upgraded to 400kV in 2023. The 400kV overhead line (OHL)
upgrade works between Peterhead, Rothienorman and Blackhillock are also well
under way and are due for completion in 2023, with the overall upgrade of the
east coast network to 400kV remaining on track for completion in 2026.
At both Alyth and Kinardochy, construction of new substations, including
specialist voltage control devices, have commenced with good progress also
being made at Peterhead substation and an upgrade to Tealing substation.
To support SSEN Transmission's 1.5°C science-based targets for emissions
reductions, including its RIIO-T2 goal to deliver a one third reduction in
greenhouse gas emissions, the business remains at the forefront of industry
efforts to remove harmful SF(6) gases from its infrastructure, working with
its supply chain to develop and deliver innovative alternatives. This includes
the world's largest installation of GE's g3 gas-insulated substation at New
Deer substation and the world's first g3 400kV substation at Kintore.
For financial performance commentary please refer to the Group Financial
Review.
growth opportunities in RIIO-T2
During 2021/22, SSEN Transmission has made excellent progress progressing
plans for a number of investments over and above its £2.8bn Certain View.
These additional investments, which are being taken forward through Ofgem's
Uncertainty Mechanisms, will be key to delivering a pathway for net zero.
In March 2022, Ofgem provisionally approved the Final Needs Case (FNC) for the
first of two planned HVDC links connecting Peterhead to demand centres in
England. Work on the initial 2GW Peterhead to Drax link, with a combined
investment of around £2.1bn, will be progressed jointly by SSEN Transmission
and National Grid Electricity Transmission (NGET). Development and early
construction activity and expenditure will continue during RIIO-T2, with
delivery and energisation in 2029 (RIIO-T3).
Also in March 2022, SSEN Transmission submitted its Initial Needs Case (INC)
to Ofgem for the Argyll and Kintyre 275kV Strategy. At an estimated total
investment of around £400m, this is required to upgrade the main Argyll
transmission network from 132kV, supporting the forecast growth in renewables
in the region.
In April 2022, Ofgem published its response to SSEN Transmission's INC for the
replacement and upgrade of the Fort Augustus to Skye transmission line,
recognising the clear need for the project, paving the way to progress to the
FNC stage of the regulatory approvals process. At an estimated total
investment of around £400m, the replacement line is required to maintain
security of supply and to enable the connection of renewable electricity
generation along its route.
Further expenditure to connect new renewable generation, rail electrification
and system security is also expected throughout the RIIO-T2 period and beyond
when the need for this investment becomes certain. These investments could see
the total installed generation capacity increase to around 14GW by the end of
RIIO-T2, with up to 13GW of this expected from renewable sources. Subject to
regulatory approval, combined, these investments, alongside the Certain View,
could bring the total expenditure across the RIIO-T2 period to over £4bn,
with SSEN Transmission RAV increasing to between £6.5bn to £7bn by the end
of RIIO-T2.
growth Opportunities beyond riio-t2
In January 2022, Crown Estate Scotland published the outcome of the ScotWind
leasing round, awarding leases with a potential capacity of around 25GW,
vastly exceeding the anticipated 10GW of potential capacity expected to be
leased. In April 2022, the UK Government published its British Energy Security
Strategy (BESS), which included an increased offshore wind ambition from 40GW
to 50GW by 2030 and a clear direction for Ofgem to support anticipatory
investment in strategic network projects ahead of demand, which will be
formalised in a Strategic Policy Statement from BEIS to Ofgem later this year.
Enabling ScotWind's ambition and the UK Government's 50GW target will require
significant transmission upgrades in both onshore and offshore transmission
infrastructure.
In January 2022, National Grid Electricity Transmission (NGESO) published its
2022 Networks Options Assessment (NOA). This provided strong 'proceed' signals
recommending several major reinforcements in the North of Scotland to meet
forecast future energy scenarios, although these will still require Ofgem
approval. The NOA recommended the following investments in SSEN Transmission's
network region:
· Two subsea high-voltage direct current (HVDC) links from
Peterhead to England;
· A second HVDC link from Spittal in Caithness, connecting to
Peterhead; and
· Strategic onshore reinforcements north of Inverness and between
Inverness and Peterhead.
In addition to the opportunities outlined above, SSEN Transmission continues
to work with stakeholders in Orkney and the Western Isles to develop and take
forward proposals to enable mainland transmission connections. Changes to the
structure of the forthcoming Contracts for Difference (CfD) auction, with
offshore wind now in a separate pot to remote island wind, may increase the
competitiveness of remote island wind which, in turn, could support the
investment case for the proposed transmission links. The outcome of the next
CfD auction is expected in the summer of 2022.
Ssen distribution
SSEN Distribution March 22 March 21
Distribution adjusted and reported operating profit - £m 351.8 275.8
Regulated Asset Value (RAV) - £m 4,054 3,792
Distribution adjusted investment and capital expenditure - £m 364.8 350.8
Electricity Distributed - TWh 37.6 36.1
Customer minutes lost (SHEPD) average per customer 57 57
Customer minutes lost (SEPD) average per customer 42 44
Customer interruptions (SHEPD) per 100 customers 56 64
Customer interruptions (SEPD) per 100 customers 42 48
SSEN Distribution overview
SSEN Distribution, operating under licence as Scottish Hydro Electric Power
Distribution plc (SHEPD) and Southern Electric Power Distribution plc (SEPD),
is responsible for safely and reliably maintaining the electricity
distribution networks supplying over 3.8m homes and businesses across central
southern England and the North of Scotland. SSEN Distribution's networks cover
the greatest land mass of any of the UK's Distribution Network Operators over
75,000km² of extremely diverse terrain.
In December 2021, SSEN Distribution published its RIIO-ED2 Final Business Plan
for 2023 to 2028. Titled 'Powering Communities to Net Zero' it sets out the
£3.99bn of flexibility and network investment required to accelerate net zero
in a way that is efficient and affordable.
Operational delivery
SSEN Distribution continues to undertake a major capital investment programme
across both its networks, delivering significant improvements for customers
and increasing its Regulated Asset Value. In the 12 months to 31 March 2022,
the business invested £364.8m, bringing the total invested since the
beginning of the RIIO-ED1 price control to around £2.3bn. This is part of a
forecast £2.7bn investment throughout the RIIO-ED1 period, supporting future
earnings through RAV growth. This includes progressing £41m of strategic
investment approved through the Green Recovery programme in 2021.
2021/22 investment has included a multi-million pound upgrade to an essential
section of Hampshire's infrastructure in Fareham, completed in January 2022;
and a substantial programme of works to boost power supplies to homes and
businesses on the Isle of Wight comprising the complete refurbishment of two
132kV transformers along with the replacement of two 33kV circuit breakers. In
the North of Scotland, work commenced on a £9.5m project to boost the
resilience and reliability of the network around Aultbea and Ullapool, and a
£7m investment programme to enhance security of supply across Tayside.
Incentive performance remains a revenue driver and SSEN prioritises improving
reliability of network performance and supporting a positive customer
experience. Under the RIIO regulatory regime, and the Interruptions Incentive
Scheme (IIS), SSEN Distribution is incentivised on its performance against the
loss of electricity supply through the recording of Customer Interruptions
(CI) and Customer Minutes Lost (CML) which includes both planned and unplanned
supply interruptions. These incentives will typically be collected two years
after they are earned.
The winter of 2021/22 saw six exceptional weather incidents which had a major
impact on SSEN Distribution's network, causing in excess of 2,600 points of
damage. In total, 10 Met Office Weather Warnings were in place last winter for
both licence areas.
Whilst SSEN Overall Customer Satisfaction (CSAT) is broadly in line with last
year at 87%, the incentive reward has been impacted due to the unprecedented
storm season. The volume of calls presented during the winter period (October
to February) was equivalent to a normal year's worth of calls, resulting in
reduced customer satisfaction metrics. As a result, the overall incentive
reward under the Broad Measure of Customer Satisfaction reduced in 2021/22 to
£2.7m from £4.9m the previous year. It is expected that a best ever score
from the Stakeholder Engagement and Customer Vulnerability (SECV) incentive
will be achieved in 2021/22, which would result in an increased incentive
revenue from £1.6m to £1.9m.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities In RIIO-ED2
As a provider of critical national infrastructure, SSEN Distribution is
playing a vital role in accelerating the transition to net zero. The business
is on track to deliver its key ED1 outputs and, in October 2021, became the
first DNO to set a 1.5°C-aligned target accredited by the Science Based
Target initiative.
In April 2022, the UK Government's British Energy Security Strategy recognised
the importance of strategic network investment which is essential to meeting
the expected demand growth in RIIO-ED2 and future price control periods. DNOs
will unlock billions of pounds in investment in wider economic benefits for a
net zero future.
SSEN Distribution now awaits Ofgem's draft determination on its ambitious,
stakeholder-led business plan for the RIIO-ED2 period. This will be an acid
test of the regulator's alignment with the British Energy Security Strategy
and fundamentally its approach to delivering the necessary strategic
investment for networks to be an enabler, rather than a blocker, of net zero.
SSEN Distribution continues to engage proactively with Ofgem and government on
achieving a fair ED2 outcome that protects current and future consumers, and
delivers the outcomes customers want at a pace consistent with a rapid growth
environment.
The proposals within SSEN Distribution's Final Business Plan for ED2 are a key
part of SSE's Net Zero Acceleration Programme. The plan was co-created with
stakeholders and this engagement will continue to ensure that their ambitions
are reflected in the process. The Final Business Plan proposes a total base
expenditure of £3.99bn representing a 32% increase over an equivalent
timeframe in RIIO-ED1, and reflecting additional requirements for customers
over the five years to 2028. The proposed baseline spend provides a low-regret
foundation enabling all scenarios and optionality, without which DNOs risk
becoming a blocker to customer demands for EV and heat pump connections
through ED2 and beyond and increasing costs for future generations.
Late 2021 saw much-awaited publications and strategies related to heat
decarbonisation. The UK Government confirmed its ambition to upscale the
installation of heat pumps to at least 600,000 a year by 2028 and to make its
Boiler Upgrade Scheme available for early adopters, while the Scottish
Government has set a 2030 target for at least 1m homes to have switched to
zero emissions heat. It is anticipated that there will be over 800,000 heat
pumps across SSEN Distribution's networks by the end of RIIO-ED2. The Final
Business Plan sets out the required investment to ready the network for net
zero, consistent with this projection.
The Scottish Government's January 2022 publication, A Network Fit For The
Future: Draft Vision for Scotland's Public Electric Vehicle Charging Network,
confirmed its desire to enable new models of public electric vehicle
chargepoint financing and delivery, focused on public and private
partnerships, to support and coordinate investment. In March 2022, the UK
Government's EV Infrastructure Strategy set out ambitions for EV chargepoints
to be seamlessly integrated into a smart energy system with at least 300,000
public chargepoints installed by 2030. By this date, the 2021 DFES projects
that SSEN Distribution's licence areas could support up to 10.8GW of electric
vehicle charging capacity. SSEN Distribution has set out investment plans to
help provide the increased capacity needed to enable these projections and to
ready its network to facilitate 1.3m electric vehicles by 2028.
SSE Renewables
SSE Renewables key performance indicators
SSE Renewables March 22 March 21
Renewables adjusted operating profit - £m 568.1 731.8
Renewables reported operating profit - £m 427.8 856.0
Renewables adjusted investment and capital expenditure before refunds - £m 811.0 294.3
Generation capacity - MW
Onshore wind capacity (GB) - MW 1,285 1,247
Onshore wind capacity (NI) - MW 122 122
Onshore wind capacity (ROI) - MW 567 567
Total onshore wind capacity - MW 1,974 1,936
Offshore wind capacity (GB) - MW 487 487
Conventional hydro capacity (GB) - MW 1,159 1,159
Pumped storage capacity (GB) - MW 300 300
Total renewable generation capacity (inc. pumped storage) - 3,920 3,882
MW
Contracted capacity 2,792 2,792
Generation output - GWh
Onshore wind output (GB) - GWh 2,502 2,377
Onshore wind output (NI) - GWh 264 282
Onshore wind output (ROI) - GWh 1,196 1,354
Total onshore wind output - GWh 3,962 4,013
Offshore wind output (GB) - GWh 1,430 1,845
Conventional hydro output (GB) - GWh 3,107 3,476
Pumped storage output (GB) - GWh 227 244
Total renewable generation (inc. pumped storage) - GWh 8,726 9,578
Total renewable generation (also inc. constrained off) - GWh 9,423 10,171
Note 1: Capacity and output based on 100% of wholly owned sites and share of
joint ventures
Note 2: Contracted capacity includes sites with a CfD, eligible for ROCs, or
contracted under REFIT
Note 3: Onshore wind output excludes 469GWh of constrained off generation in
2021/22 and 592GWh in 2020/21; Offshore wind output excludes 228GWh
constrained off generation in 2021/22 and 1GWh in 2020/21
Note 4: Onshore wind capacity in GB reflects the commissioning of Gordonbush
Extension in August 2021
Note 5: Biomass capacity of 15MW and output of 73GWh in 2021/22 and 71GWh
2020/21 is excluded, with the associated operating profit or loss reported
within Distributed Energy
SSE Renewables overview
SSE Renewables comprises the Group's existing operational assets and those
under development in onshore wind, offshore wind, flexible hydro electricity,
run-of-river hydro electricity and pumped storage. Its operational offshore
wind installed capacity is 487MW with its onshore wind and hydro electric
installed capacity at 1,936MW and 1,459MW respectively.
Operational delivery
SSE Renewables' hydro assets continue to play an important role in providing
cost-effective, low-carbon flexibility to the system, which is providing
additional diversified revenue streams. Hydro assets performed very strongly
across the year, with availability at an all-time high between December and
March and providing much needed flexible peak capacity to the market. In
addition, Foyers pumped hydro station was fully available through periods of
very high demand.
Despite natural wind resources being below normal yearly averages, a steady
second half of the year - coupled with high plant performance to maximise
production - led to a year-end position of onshore wind volumes at 88% of
planned volume.
Offshore, Beatrice saw excellent availability in the second half and Greater
Gabbard saw improved turbine availability over the 12 months. Offshore wind
speeds returned to average after low wind speeds in the first half of the
year, resulting in improved volumes.
As part of SSE Renewables' continued investment into its asset management
capabilities, it has just been awarded certification in the ISO55001 standard
for asset management for its operational organisation.
For financial performance commentary please refer to the Group Financial
Review.
Construction programme
All three phases of the world's largest offshore wind farm at Dogger Bank
(each 1,200MW, SSE share 40%) remain on track. Onshore works are continuing,
and offshore construction is now under way with installation of the HVDC
export cables for Dogger Bank A. Dogger Bank C reached financial close in
December 2021, and in February 2022, SSE Renewables and Equinor each sold a
10% share in this third phase to Eni.
On Seagreen 1 (1,075MW, SSE share 49%) there are currently 21 jackets and
turbines installed on what will be the world's deepest, fixed-bottom offshore
wind farm once operational. The offshore substation platform is successfully
installed and commencing commissioning works. All onshore cabling works and
export cable installation is progressing as planned. SSE currently expects
first power in July with commercial operations by mid-April 2023. In April
2022, an incident occurred on a sub-contractor S7000 installation vessel which
is contracted to the Seagreen project. The project team is working closely
with contractors to manage and mitigate project impacts. Seagreen 1 is
eligible to participate in the UK CfD Allocation Round 4 (AR4). Bids are due
to be submitted by 15 June 2022 with the results of the auction expected by 8
July 2022.
Construction is progressing well on Viking (443MW) with almost all of the
access tracks completed and 83 of 103 bases excavated. Work on the DC
substation is continuing with the first two transformers due to be delivered
by June 2022. Turbines will be installed in early 2023 and completion is
planned for July 2024. Viking is expected to be amongst the highest-yielding
onshore wind farms in Europe, producing almost 2TWh annually. It is also
eligible to enter AR4.
At Lenalea wind farm (30MW, SSE share 50%) in Ireland, construction is
progressing and is to be commissioned in late 2022/early 2023.
In July 2021, Beatrice Offshore Wind Farm Limited, a joint venture owned 40%
by SSE Renewables, agreed divestment of its Offshore Transmission Owner assets
at an asset value of £437.9m and full asset transfer took place on 5 August
2021.
Gordonbush Extension (38MW), SSE's first merchant onshore wind project, was
fully commissioned and handed over to operations following its official
opening in August 2021.
In Hydro, investment in works to modify three key stations, Sloy, Glendoe and
Errochty, has started and will increase the capability of these stations in
providing essential services to the grid. And in April 2022, a £50m
investment to upgrade Tummel Bridge power station commenced which will
increase the station's potential power output from 34MW to 40MW, with a return
to service expected in Autumn 2023.
Growth opportunities - domestic
SSE Renewables' core markets of the UK and Ireland still offer considerable
opportunities for growth over the near, medium and long term.
Near term, onshore wind growth can be delivered through SSE Renewables'
consented sites at Strathy South (208MW) and Tangy repower (57MW) in Scotland.
Yellow River (104MW) in Ireland was provisionally successful in the May 2022
RESS-2 auction in Ireland and will now progress towards a final investment
decision. Consent applications have been submitted to the Scottish Government
for Bhlaraidh Extension (in excess of 100MW), and Achany Extension (in excess
of 80MW).
Offshore, near-term growth is expected to come from the consented Seagreen 1A
(500MW, SSE Renewables share 49%), which is an extension to the Seagreen 1
offshore wind site. Seagreen 1A is eligible to participate in AR4. Should a
Financial Investment Decision (FID) be reached, it could be operational by
2025/26.
In the medium term, out to the end of the decade, there is a wealth of
opportunities. In addition to the UK's increased offshore target of 50GW by
2030, from 40GW noted above, the British Energy Security Strategy set out a
raft of measures which will see permitting of offshore wind projects
accelerated. SSE Renewables' unrivalled offshore wind pipeline will play a key
role in meeting this new target.
SSE Renewables is working towards a consent application submission in Q3 2022
for the up to 4.1GW Berwick Bank wind farm with the aim of securing consent in
2024 and being operational around the end of the decade.
North Falls wind farm (up to 504MW, SSE Renewables share 50%), which is an
extension to the Greater Gabbard wind farm off the east coast of England,
continues to progress with local consultation under way for a potential grid
connection in North Essex. North Falls could also be operational by 2030.
SSE Renewables has added its first floating offshore wind project to its
domestic pipeline with the success in Crown Estate Scotland's ScotWind
offshore wind seabed leasing process as part of a consortium with Marubeni
Corporation and CIP (Copenhagen Infrastructure Partners). The up to 2.6GW site
(SSE Renewables share 40%) in the E1 Zone in the Firth of Forth will be one of
the largest floating wind projects in the world and aims to start generating
by 2030. This will play an important part in meeting the UK Government's
increased floating wind target of 5GW by 2035.
SSE Renewables also aims to contribute additional capacity needed to meet
Ireland's offshore wind target of 5GW by 2030. Following the introduction by
the Irish Government of the Maritime Area Planning (MAP) Act in December 2021,
SSE Renewables will now progress Arklow Bank Wind Park 2 via this new
consenting regime. The revised project will proceed with an increased capacity
of 800MW. Subject to securing the necessary consents and if successful in the
first Offshore Renewable Energy Support Scheme (ORESS) auction, expected at
the end of 2022, Arklow Bank Wind Park 2 could be operational by 2028.
A foreshore licence has been secured for site investigations for the 1,000MW
Braymore Wind Park project off the north-east coast and an application has
been submitted for the 1,200MW Celtic Sea Array off the south-east coast.
Celtic Sea Array and Braymore Wind Park will both apply for a Marine Area
Consent (akin to a seabed lease) in the Irish Government's next phase,
expected in 2023.
Onshore, there continues to be positive progress on SSE Renewables' consented
Coire Glas pumped hydro storage project (up to 1,500MW). Coire Glas would
double the current amount of electricity storage capacity in Great Britain and
create energy storage capacity of 30GWh, equivalent to powering around 3m
homes for up to 24 hours. The British Energy Security Strategy identified the
importance of long duration storage, and a policy decision in response to the
BEIS call for evidence on possible policy interventions, such as cap and floor
mechanism to support long duration storage, is expected imminently. Subject to
the outcome of these policy decisions, Coire Glas could progress to an FID
decision by 2023/24 with the objective of being completed before the end of
the decade.
SSE has ambitions to develop, build and operate >1 GW of 'green' hydrogen
in industrial clusters and co-located with wind by 2031. As part of this, SSE
Renewables has kickstarted its first electrolysis projects. Currently in the
early stages of development, the Gordonbush H2 project will use a portion of
the renewable energy from the 100MW-plus Gordonbush onshore wind farm to
produce up to 2,000 tonnes of green hydrogen each year, contributing to the
new UK 5GW electrolytic hydrogen target. SSE Renewables is also part of Galway
Hydrogen Hub (GH2), a consortium proposing to develop an initial flagship
demonstrator project at Galway Harbour, for the indigenous production and
supply of green hydrogen fuel for public and private vehicles.
Sse renewables project pipeline
Project Location Technology Capacity (MW) SSE Share (MW)
Due FID or in Construction
Dogger Bank A GB Offshore wind 1,200 480
Dogger Bank B GB Offshore wind 1,200 480
Dogger Bank C GB Offshore wind 1,200 480
Seagreen 1 GB Offshore wind 1,075 527
Viking GB Onshore wind 443 443
Lenalea ROI Onshore wind 30 15
Consented
Seagreen 1A(1) GB Offshore wind 500 245
Yellow River ROI Onshore wind 104 104
Tangy GB Onshore wind 57 57
Strathy South GB Onshore wind 208 208
Coire Glas GB Pumped storage Up to 1,500 Up to 1,500
Requiring consent
Berwick Bank(2) GB Offshore wind Up to 4,100 Up to 4,100
ScotWind E1 Lease GB Offshore wind 2,600 1,040
Arklow Bank 2(3) ROI Offshore wind 800 800
North Falls GB Offshore wind 504 252
Cloiche GB Onshore wind 155 155
Other - Onshore wind c200 c200
Future prospects(4)
Braymore Point ROI Offshore wind 1,000 1,000
Celtic Sea Array ROI Offshore wind 1,200 1,200
Japanese development projects Japan Offshore wind 10,000 8,000
Other GB GB Onshore wind c250 c250
Other NI NI Onshore wind c50 c50
Other ROI ROI Onshore wind c250 c250
Other GB GB Hydro 75 75
Note 1: Seeking variation to existing consent
Note 2: Berwick Bank and Marr Bank offshore wind farms were combined into one
wind farm in September 2021, known as Berwick Bank Wind Farm
Note 3: Entering new Irish Marine Area Planning process with revised capacity
proposed
Note 4: Reflects named development areas where some form of development
activity is underway and therefore excludes any future or in-flight auction
processes
Note 5: SSE agreed to acquire 4.9GW Siemens Gamesa Renewable Energy onshore
wind and solar platform in April 2022 with projects excluded above ahead of
the acquisition completing. Completion is expected by end September 2022
Growth opportunities - international
SSE Renewables made important progress in its international expansion plans in
April 2022 when it entered into an agreement with Siemens Gamesa Renewable
Energy for the acquisition of an onshore wind development platform totalling
c.3.9GW across Spain, France, Italy and Greece for a consideration of €580m.
The portfolio includes scope for up to 1GW of additional co-located solar
development opportunities. The move marks SSE Renewables' entry into Southern
Europe and creates a wider opportunity to pursue a balanced range of
technologies, e.g. wind, solar, hydrogen, and storage. As part of the
transaction, SSE Renewables will take on a team of around 40 employees with
vast local experience in the sector. The transaction is likely to complete by
the end of September 2022, subject to receipt of relevant foreign direct
investment and regulatory approvals.
In September 2021, SSE Renewables progressed into Japan with the creation of a
new joint ownership company, SSE Pacifico (80% stake), which includes the
acquisition of an interest in an offshore development platform for US$208m.
The new company will develop the acquired 10GW gross portfolio, comprising a
number of early development stage offshore wind projects in Japan. It includes
a mix of fixed bottom and floating sites with the most advanced projects
expected to be constructed by the end of this decade.
SSE Renewables has submitted an application to the Polish government for an
Offshore Location License (OLL) for the allocation of development rights for
an offshore wind farm in the Baltic Sea, which would be developed in
partnership with Acciona Energia. The process is expected to run until Q3
2022.
SSE Renewables also continues to work with Acciona Energia on offshore wind
opportunities in Spain. The Spanish Government published its draft offshore
wind roadmap in August which set out an ambition to target up to 3GW by 2030.
In the Netherlands, SSE Renewables has submitted bids in the 1.4GW Hollandse
Kust (west) offshore wind tender for two separate sites of 750MW each.
Ecological innovation and energy systems integration are key assessment
criteria. SSE Renewables has formed a 50/50 strategic partnership with
Brookfield for the bid, who have strong offtaker relationships in the
Netherlands. SSE Renewables has also recently opened an office in Rotterdam.
SSE Renewables is also assessing other growth options across selected markets
in Northern Europe and the United States. Towards the end of the financial
year, it opened an office in Boston and is assessing participation in upcoming
offshore leasing rounds, for example, in California, which is expected to take
place in Autumn 2022.
SSE Thermal
SSE Thermal key performance indicators
SSE Thermal March 22 March 21
Thermal adjusted operating profit - £m 306.3 160.5
Thermal reported operating profit - £m 630.1 775.3
Thermal adjusted investment and capital expenditure - £m 129.3 106.5
Generation capacity - MW
Gas- and oil-fired generation capacity (GB) - MW 3,975 3,992
Gas- and oil-fired generation capacity (ROI) - MW 1,292 1,292
Total thermal generation capacity - MW 5,267 5,284
Generation output - GWh
Gas- and oil-fired output (GB) - GWh 11,303 15,324
Gas- and oil-fired output (ROI) - GWh 2,962 2,433
Multifuel output - GWh - 251
Total thermal generation - GWh 14,265 18,008
Note 1: Capacity is wholly owned and share of joint ventures
Note 2: Output is based on SSE 100% share of wholly owned sites and 100% share
of Marchwood PPAs due to the contractual arrangement. In September 2021 SSE's
offtake agreement for 100% of output from its Seabank CCGT JV expired, with
output following that date only recognised to the extent of its 50% equity
share.
Note 3: SSE announced the sale of its stake in Ferrybridge and Skelton Grange
multifuel assets on 13 October 2020
Note 4: Decreased gas- and oil-fired capacity relates to closure of 17MW small
diesel plant
SSE Thermal overview
SSE Thermal owns and operates conventional thermal generation in the UK and
Ireland. These assets play a key transitional role in the SSE Group and wider
energy system, supporting the Balancing Mechanism on the journey to net zero.
While providing much-needed system flexibility to ensure stability and
security of supply in the short term, SSE Thermal is actively developing
options to progressively decarbonise its fleet.
Operational delivery
SSE Thermal's combined cycle gas turbine (CCGT) fleet has played an important
role in the UK, providing flexibility at scale to support a tight and volatile
energy market, demonstrating the value it delivers within the SSE Group
portfolio, providing balance when wind resource is scarce, and the importance
of flexible assets in securing a resilient transition to net zero.
In the GB market, significant periods of scarcity in the year have led to
increased forward spark spreads allowing value to be secured by the fleet
ahead of delivery. This has been complemented by the fleet's ability to
respond to on-the-day market requirements to balance the system, through the
Balancing Mechanism. In the Irish market, the system has been tighter than
normal, with lower generation capacity available. As a result, SSE Thermal's
assets in Ireland have played an important role in keeping the lights on.
With the value of the SSE Thermal portfolio coming from its ability to respond
to market conditions, plant availability has been managed responsibly to
respond to system balancing needs; an approach that is likely to become more
important as the volume of renewable capacity on the system increases. In
providing these vital balancing services, strong operational performance is
therefore less dependent upon the volume of its output and more on the
availability of the plant at times of system stress. Reduced plant
availability in the year was predominantly concentrated in the first six
months and was driven by a number of factors including unplanned outages to
respond to faults and maintenance requirements, slight overrun of planned
outages and the phasing of outages towards the first half of the year to
respond to system needs.
SSE's UK-based CCGT fleet has secured valuable Capacity Market agreements for
winter 2022/23 and for future years out to September 2026, demonstrating the
role thermal plant plays in ensuring security of supply. Agreements have also
been secured for all of SSE Thermal's fleet in Ireland.
For financial performance commentary please refer to the Group Financial
Review.
The following agreements have been awarded through competitive auctions:
SSE Thermal Capacity Contract Awards
Station Asset type Station Capacity SSE share of contract Capacity obligation
Medway (GB) CCGT 735MW 100% To September 2023
Keadby 1 (GB) CCGT 755MW 100% To September 2026
Keadby 2 (GB) CCGT 893MW 100% 16-years commencing October 2022
Peterhead (GB) CCGT 1,180MW 100% To September 2026
Seabank (GB) CCGT 1,234MW 50% To September 2026
Marchwood (GB) CCGT 920MW 100% To September 2026
Slough Multifuel Energy from Waste 50MW 50% 15-years commencing October 2024
Great Island (Ire) CCGT 464MW 100% To September 2026
Rhode (Ire) Gas/oil peaker 104MW 100% To September 2026
Tawnaghmore (Ire) Gas/oil peaker 104MW 100% To September 2026
Tarbert (Ire) Oil 620MW 100% To September 2023
Capacity contracts are based on de-rating factors issued by the delivery body
for each contract year, therefore will not directly match SSE's published
station capacity.
Capacities stated reflect Transmission Entry Capacity
Keadby 1 has capacity obligation in 2022/23 and 2025/26 but none in 2023/24 or
2024/25 contract years
Keadby 2 16 year obligation comprised of a T-1 and a 15 year contract
Marchwood (SSE equity share 50%) tolling arrangement means SSE receives 100%
of economic benefit from capacity contract
Growth opportunities
Delivering lower-carbon flexibility is a key pillar of SSE's Net Zero
Acceleration Programme. Developing more efficient alternatives to the existing
CCGT fleet will be vital to deliver SSE's goal to cut carbon intensity by 80%
by 2030 and achieve its science-based carbon reduction targets, aligned with a
1.5°C global warming scenario. SSE Thermal is developing projects using
carbon capture and storage (CCS) and hydrogen; technologies which will be
critical to society in the transition to net zero, enabling enhanced
renewables deployment by balancing the system.
In 2021/22 SSE Thermal progressed its carbon capture power stations, which it
is co-developing with Equinor, through the planning process. In June 2021, SSE
Thermal submitted a planning application for Keadby Carbon Capture Power
Station to the UK's Planning Inspectorate. In March 2022 SSE Thermal submitted
a planning application for Peterhead Carbon Capture Power Station to
Scotland's Energy Consents Unit.
In October 2021 the UK Government announced that the East Coast Cluster -
comprising the Humber and Teesside regions - and the HyNet Cluster in
north-west England would be Track 1 clusters, or the first clusters supported
to deploy shared CCS infrastructure by the middle of this decade. The Scottish
cluster was identified as a 'reserve' Track 1 cluster and remains in line to
progress to deployment as a Track 2 cluster by the end of the decade. The UK
Government's commitment to supporting four clusters by 2030, including two by
the middle of this decade, was galvanised in its CCUS Investor Roadmap which
emphasised that the technology is a necessity not an option to deliver net
zero emissions by 2050. Published in April 2022, it also confirmed its
intention to engage with industry on the 'Track 2' process this calendar year.
In November 2021, the UK Government launched the second phase of the Cluster
Sequencing Competition to identify which projects would be supported to
connect to Track 1 clusters; this process was also open to projects seeking a
connection into the 'reserve' Scottish Cluster. SSE Thermal submitted
applications for Keadby Carbon Capture Power Station, seeking to connect into
the East Coast Cluster, and Peterhead Carbon Capture Power Station, seeking to
connect into the Scottish Cluster. Successful projects will secure a
Dispatchable Power Agreement; a revenue support scheme designed by the UK
Government. A decision on which projects will progress into negotiations is
expected from July 2022.
Low-carbon hydrogen will be an important facet of a net zero economy. The UK
Government's inaugural hydrogen strategy, published in August 2021,
highlighted the role it will play in providing flexible energy for power, heat
and transport and the need for large hydrogen storage facilities. SSE Thermal
is continuing to develop low-carbon hydrogen projects, alongside Equinor,
including Keadby Hydrogen Power Station and Aldbrough Hydrogen Storage and
sees significant further growth opportunities in this space, in line with the
UK's target to deliver 10GW of low-carbon hydrogen production by 2030. SSE
Thermal is also involved in Project Cavendish, an initiative to promote the
Isle of Grain as a location for a low-carbon hydrogen economy. This could
provide the opportunity to bring low-carbon hydrogen to SSE's Medway site.
Commissioning of Keadby 2, SSE Thermal's 893MW CCGT, started in October 2021
and full commercial operation is targeted for 1 October 2022. Keadby 2 brings
Siemens' cutting-edge turbine technology to the UK; this first-of-a-kind
turbine will be Europe's most efficient CCGT and will displace older, more
carbon intensive plant on the system. It is capable of being upgraded to
decarbonise the system further, through hydrogen blending or carbon capture
and storage.
Keadby 2 also provides a testing ground for SSE Thermal's new digital strategy
to deliver intelligent asset management, building on the digital capabilities
already used to manage the SSE Thermal fleet. Using data and technology, the
digital strategy aims to enhance asset management and maintenance
capabilities.
Gas Storage
Gas Storage key performance indicators
Gas Storage March 22 March 21
Gas Storage adjusted operating (loss)/profit - £m 30.7 (5.7)
Gas Storage reported operating profit/(loss) - £m 125.4 2.8
Gas storage adjusted investment and capital expenditure - £m 2.1 1.9
Gas Storage overview
SSE Thermal holds around 40% of the UK's conventional underground gas storage
capacity. These assets can play an important role in the transition to net
zero, supporting stability and security of gas supply in the short term as
well as potential conversion to hydrogen storage for a net zero future.
In 2021/22 SSE's Gas Storage business has navigated highly volatile gas
markets and optimised assets to help ensure security of gas supply for the UK
and provide important liquidity to the market. The assets also offer a
significant risk management value to the portfolio by offering spot,
short-notice flexibility. This helps defend the portfolio from exposures
emanating from wind speed or consumer demand variability. Given the increasing
focus around gas supply response across Europe, and the need for additional
reserve to protect markets against significant geopolitical exposures, SSE
anticipates this trend will continue. On that basis Gas Storage assets are
likely to make a substantial contribution to the Group in the next financial
year.
SSE Thermal remains committed to working with UK Government departments and
Ofgem to ensure the critical role of UK storage in relation to security of
supply and stability of gas price is properly valued. It is also looking to
play a future role as a source of low-carbon hydrogen storage which will be
needed to balance supply and demand in a hydrogen economy.
Plans to develop a potentially world-leading hydrogen storage project at
Aldbrough, announced in July 2021 with Equinor, are progressing. Since this
announcement, the UK Government has committed to develop business models for
hydrogen storage as part of the British Energy Security Strategy and SSE is
particularly close to this policy discussion.
For financial performance commentary please refer to the Group Financial
Review.
Energy Customer Solutions
overview
SSE Business Energy in GB (non-domestic) and SSE Airtricity in Ireland
(domestic and non-domestic) provide a shopfront and route to market for SSE's
low-carbon energy solutions and renewable green products.
SSE's customer businesses are committed to high service standards covering all
aspects of operations, within contact centres and among colleagues visiting
and working in customers' homes and premises. Throughout the coronavirus
pandemic and more recent energy wholesale price volatility the businesses have
worked with customers across GB and Ireland to provide support through a
variety of payment options, and additional support funds have been established
for financially vulnerable domestic customers in Ireland. In addition, it was
announced on 12 May 2022 that existing financially vulnerable domestic
customers in the Republic of Ireland would be insulated from any further price
rises for the remainder of the 2022 calendar year.
Considerable focus has been placed on training teams to provide market-leading
energy advice across a range of energy solutions to provide a highly skilled
level of partnership with customers. Across the customer businesses SSE has
extended the range of energy products and digital service capabilities and
continues to invest in digital and energy solutions to adapt and evolve the
offerings in GB and Ireland.
Throughout all periods, but especially during the pandemic, the safety and
wellbeing of employees has been prioritised. Regular employee surveys are
acted upon to further improve the working environment. This includes a range
of topics from SSE's "Belonging Groups" (e.g. supporting gender and ethnic
diversity) to "Flexible First" working practices.
SSE Business Energy
SSE Business Energy key performance indicators
SSE Business Energy March 22 March 21
Business Energy adjusted operating (loss)/profit - £m (21.5) (24.0)
Business Energy reported operating profit/(loss) - £m (21.5) (3.9)
Electricity Sold - GWh 12,645 13,070
Gas Sold - mtherms 218 245
Aged Debt (60 days past due) - £m 79.3 73.8
Bad debt expense - £m 18.5 37.8
Exceptional bad debt (credit) / expense - £m - (20.1)
Energy customers' accounts - m 0.47 0.48
SSE Business Energy overview
Business Energy GB retains a solid book and customer base and amongst
non-domestic suppliers is ranked for power 4th by meters (market share 11.6%)
and 4th by volume (market share 7%); and for gas is ranked 7th by meters
(market share 6.5%) and 9th by volume (market share 2.3%). The business
markets its products under the SSE Energy Solutions brand alongside SSE
Distributed Energy, selling power to over 469,000 non-domestic customers
across GB.
Operational delivery
During 2021, Business Energy increased its green customer propositions
including the launch of a new and simplified Corporate Power Purchase
Agreement product, to make them increasingly accessible to a wider range of
businesses. This was followed in July by a commitment to businesses on fixed
power contracts that they will receive their electricity from renewable
sources. Green credentials associated with this electricity supply are
independently verified by EcoAct, an Atos company, and customers are provided
with Renewable Energy Guarantees of Origin (REGOs) certification. Business
Energy's 'Green Gas plus' tariff, a renewable gas tariff which is also
independently certified by EcoAct, performed well through the year since its
launch.
Smart meters are a key factor in supporting customers on their net zero
journey and 2021/22 saw strong performance for the rollout of smart meter
installations. Business Energy continues to work towards its first year of
challenging smart regulatory installation targets in calendar year 2022.
For detailed financial performance commentary please refer to the Group
Financial Review.
Growth opportunities
The platform SSE Business Energy growth is via the SSE Energy Solutions
business-to-business brand, launched in July 2021 in partnership with SSE
Distributed Energy. The platform provides a single shopfront for a range of
SSE customer product offerings to support all business segments on their net
zero journey; from renewable power and flexible Corporate Power Purchase
Agreement offerings, to customer workplace EV charging solutions and larger
scale distributed energy systems. As SSE's electricity generation businesses
continue to expand and deliver new technologies, so will SSE Energy Solutions
as an important route to market for the Group.
Sse Airtricity
SSE Airtricity key performance indicators
SSE Airtricity March 22 March 21
Airtricity adjusted operating profit - £m 60.4 44.0
Airtricity reported operating profit - £m 60.4 50.0
Aged Debt (60 days past due) - £m 7.3 7.9
Bad debt expense - £m 4.6 6.9
Exceptional bad debt (credit) / expense - £m - (6.0)
Airtricity Electricity Sold - GWh 5,219 7,595
Airtricity Gas Sold - mtherms 177 219
All Ireland energy market customers (Ire) - m 0.70 0.68
SSE Airtricity overview
SSE Airtricity provides a valuable route to market for SSE's low-carbon energy
solutions and green products to customers across the island of Ireland.
Airtricity retains a strong market position as Ireland's largest supplier of
100% green energy, supplying approximately 701,000 customers and holding 21.2%
market share by load.
Operational delivery
As a responsible business, SSE Airtricity has recognised that current market
volatility has created challenges for many households and has taken various
measures to support financially vulnerable customers. An all-island customer
support fund (€1m) has been established, €1m was donated to a trusted
all-island charity partner, and a home energy efficiency upgrade programme has
been rolled our for up to 600 homes in fuel poverty. In addition Airtricity's
financially vulnerable domestic customers in the Republic of Ireland will be
insulated from any further price rises for the remainder of the 2022 calendar
year.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
A positive public policy environment aimed at improving the thermal efficiency
of 0.5m buildings provides the backdrop for the Generation Green Home Upgrade
product. This is enabling the rapid rollout of a first of its kind
one-stop-shop business model, in partnership with An Post, in the Republic of
Ireland market. The growth of this business segment remains a key priority for
2022.
Further areas of strategic focus include building on the success of
partnerships with brands such as Volkswagen and ePower delivering electric
vehicle charging infrastructure and green end-to-end solutions for customers;
and continued innovation and delivery of extended customer offerings to help
support decarbonisation.
SSE DISTRIBUTED ENERGY
SSE Distributed Energy key performance indicators
SSE DISTRIBUTED ENERGY March 22 March 21
SSE Distributed Energy adjusted operating (loss)/profit - £m (10.9) (27.0)
SSE Distributed Energy reported operating profit/(loss) - £m (29.2) (76.1)
SSE Heat Network Customer Accounts 11,291 10,482
Biomass, heat network and other capacity - MW 33 34
Biomass, heat network and other output - GWh 104 108
SSE Distributed Energy overview
SSE's reporting of its Enterprise segment has been updated following the sale
of its Contracting and Rail businesses. The primary retained activity of the
former SSE Enterprise businesses is now distributed energy. The business
provides solar and battery storage asset development and operation and focuses
on distributed generation, EV infrastructure, heat and cooling networks, and
smart buildings and places.
The financial results from the Group's out of areas networks business and Neos
Networks Limited (formerly SSE Telecoms) joint venture are now reported within
SSEN Distribution and Corporate Unallocated respectively. Comparative
information has been re-stated to reflect these changes.
Operational delivery
Over the past 12 months SSE has announced significant milestones in its
nascent solar and battery storage business including a secured 380MW solar and
battery pipeline, with over 1GW more of other sites currently under
assessment. The secured pipeline includes a 50MW battery storage asset on a
consented site in Wiltshire, where construction gets under way this summer,
with full energisation expected in summer 2023. SSE has also acquired a 30MW
solar farm at Littleton Pastures in Worcestershire and, once complete in late
2023, this 77-acre site will be capable of powering some 9,400 homes.
Growth opportunities
A key focus will be on battery storage and solar technology. Existing grid
connections at legacy coal-fired sites, such as Ferrybridge and Fiddlers
Ferry, also puts SSE in a strong position to deploy battery storage at scale
and pace.
SSE's Distributed Energy team is helping people and places reach their net
zero targets by adopting a 'whole system' approach to connect localised and
flexible energy assets. These include energy optimisation, heat and cooling
networks, electrical networks, smart buildings, and EV charging. Distributed
Energy therefore seeks to help provide the platform for a data-driven and
sustainable world.
Distributed Energy has ambitions to build a network of EV charging hubs across
the UK - with the first of potentially 300 hubs being built in summer 2022 in
Glasgow. Innovation also remains a key tool to unlocking net zero; its heat
sector division for example, has an exciting partnership under way with
National Grid to utilise heat from electricity transformers that would
otherwise go to waste.
ENERGY PORTFOLIO MANAGEMENT (EPM)
EPM key performance indicators
EPM March 22 March 21
EPM adjusted operating profit/(loss) - £m (16.8) 18.4
EPM reported operating profit/(loss) - £m 2,083.6 608.5
EPM overview
Energy Portfolio Management (EPM) is the energy markets heart of the SSE
Group, securing value and managing volatility through risk-managed trading of
energy-related commodities for SSE's market-based Business Units.
SSE trades the principal commodities to which its asset portfolios are
exposed, as well as the spreads between two or more commodity prices (e.g.
spark spreads): power (baseload and other products); gas; and carbon
(emissions allowances). Each commodity has different liquidity
characteristics, which impacts the quantum of hedging possible. See also SSE's
Hedging Position.
Operational Delivery
In 2021/22 EPM navigated unprecedented energy market volatility, ensuring the
SSE portfolio was hedged in accordance with the Group's approach to hedging
and optimised through prompt periods. The value EPM secures for SSE's asset
portfolio continues to be reported against individual Business Units. 2021/22
also saw successful delivery of the first year of operation under the UK
Emissions Trading Scheme.
For detailed financial performance commentary please refer to the Group
Financial Review.
Growth Opportunities
Transformation of the EPM Business Unit continues with key external recruits
into risk, prompt trading and analytics. Trading has started in France,
Belgium and the Netherlands as the business looks to expand into Europe.
Investment in SGN
(Scotia Gas Networks - discontinued operation)
SGN key performance indicators
SGN (Discontinued Operation) March 22 March 21
SSE's 33.3% share - Disposed on 22 March 2022
SGN adjusted operating profit/(loss) - £m 21.0 173.0
SGN reported operating profit/(loss) - £m 495.4 88.6
SGN overview
As part of its strategic refocusing of the Group, SSE's entire 33.3% financial
investment stake in gas distribution operator SGN (Scotia Gas Networks
Limited) was sold to a consortium comprising existing SGN shareholder Ontario
Teachers' Pension Plan Board and Brookfield Super-Core Infrastructure Partners
on 22 March 2022.
Whilst the business had been a good long-term financial investment for SSE
since 2005, SSE's focus is now on low-carbon electricity businesses and the
role they have in transition to net zero. This disposal marked the completion
of SSE's £2bn plus disposals programme announced in June 2020, with a
headline consideration amounting to over £2.8bn exceeding that original
target.
The adjusted operating profit for the business of £21.0m is retained by the
Group for the period to 11 June 2021 when the investment was designated as
'held for sale' and equity accounting ceased. On disposal, the Group recorded
an exceptional gain on disposal of £576.5m.
Alternative Performance Measures
When assessing, discussing and measuring the Group's financial performance,
management refer to measures used for internal performance management. These
measures are not defined or specified under International Financial Reporting
Standards (IFRS) and as such are considered to be Alternative Performance
Measures ("APMs").
By their nature, APMs are not uniformly applied by all preparers including
other participants in the Group's industry. Accordingly, APMs used by the
Group may not be comparable to other companies within the Group's industry.
Purpose
APMs are used by management to aid comparison and assess historical
performance against internal performance benchmarks and across reporting
periods. These measures provide an ongoing and consistent basis to assess
performance by excluding items that are materially non-recurring,
uncontrollable or exceptional. These measures can be classified in terms of
their key financial characteristics:
· Profit measures allow management to assess and benchmark
underlying business performance during the year. They are primarily used by
operational management to measure operating profit contribution and are also
used by the Board to assess performance against business plan. The Group has
six profit measures, of which adjusted operating profit and adjusted profit
before tax are the main focus of management through the financial year and
adjusted earnings per share is the main focus of management on an annual
basis. In order to derive adjusted earnings per share, the Group has defined
adjusted operating profit, adjusted net finance costs, and adjusted current
tax charge as components of the adjusted earnings per share calculation.
Adjusted EBITDA is used by management as a proxy for cash derived from
ordinary operations of the Group.
· Capital measures allow management to track and assess the
progress of the Group's significant ongoing investment in capital assets and
projects against their investment cases, including the expected timing of
their operational deployment and also to provide a measure of progress against
the Group's strategic Net Zero Acceleration Programme objectives.
· Debt measures allow management to record and monitor both
operating cash generation and the Group's ongoing financing and liquidity
position.
Changes to APMs in the Year
The Group has defined a new capital APM in the year of 'Adjusted investment,
capital and acquisition expenditure'. The APM is comprised of the existing
'Adjusted investment and capital expenditure' metric, but also includes cash
consideration paid for business combination acquisitions. During the year the
Group completed the acquisition of a controlling 80% stake in its Japanese
offshore renewable development platform, SSE Pacifico (see note 12) and
announced the expected acquisition, in financial year ended 31 March 2023, of
a European onshore renewable energy development platform from Siemens Gamesa
Renewable Energy ("SGRE"). As the Group expands internationally it is expected
that there will be further acquisitions to enhance the Group's development
portfolio. These acquisition costs are included in this new APM to better
represent the Group's overall investments associated with its Net Zero
Acceleration Programme.
As referred above, during the year the Group acquired a controlling 80% stake
in SSE Pacifico (see note 12). As a result, the Group has now updated its APMs
to clarify how non-controlling interests will be presented in future periods
where there are expected to be material non-controlling interests. The Group
believes that removing the non-controlling interest share from all of its
profit, capital and debt measures on a consistent basis is the most simple,
understandable and reflective presentation of the Group's interest in these
businesses. There is no significant impact on adjusted metrics in the year
ending 31 March 2022.
On 14 October 2021, the Group disposed of its Gas Production business (see
note 12), but retained 60% of the decommissioning provision of the business.
The Group has amended its adjusted profit measures to remove the effect of
prospective revaluation adjustments to the decommissioning provision as it is
not considered to be part of the Group's core continuing operations.
The following section explains the key APMs applied by the Group and referred
to in these statements:
Profit Measures
Group APM Purpose Closest Equivalent IFRS measure Adjustments to reconcile to primary financial statements
Adjusted EBITDA (Earnings before interest, tax, depreciation and amortisation) Profit measure Operating profit · Movement on operating and financing derivatives ('certain
re-measurements')
· Exceptional items
· Adjustments to retained Gas Production decommissioning provision
· Share of joint ventures and associates' interest and tax
· Depreciation and amortisation before exceptional charges
(including depreciation and amortisation expense on fair value uplifts)
· Share of joint ventures and associates' depreciation and
amortisation
· Non-controlling share of operating profit
· Non-controlling share of depreciation and amortisation
· Release of deferred income
Adjusted Operating Profit Profit measure Operating profit · Movement on operating and financing derivatives ('certain
re-measurements')
· Exceptional items
· Adjustments to retained Gas Production decommissioning provision
· Depreciation and amortisation expense on fair value uplifts
· Share of joint ventures and associates' interest and tax
· Non-controlling share of operating profit
Adjusted Profit Before Tax Profit measure Profit before tax · Movement on operating and financing derivatives ('certain
re-measurements')
· Exceptional items
· Adjustments to retained Gas Production decommissioning provision
· Non-controlling share of profit before tax
· Depreciation and amortisation expense on fair value uplifts
· Interest on net pension assets/liabilities (IAS 19)
· Share of non-recurring joint venture refinancing costs
· Share of joint ventures and associates' tax
Adjusted Net Finance Costs Profit measure Net finance costs · Exceptional items
· Movement on financing derivatives
· Share of joint ventures and associates' interest
· Share of non-recurring joint venture refinancing costs
· Non-controlling share of finance costs
· Interest on net pension assets/liabilities (IAS 19)
Adjusted Current Tax Charge Profit measure Tax charge · Share of joint ventures and associates' tax
· Non-controlling share of current tax
· Deferred tax including share of joint ventures, associates and
non-controlling interests
· Tax on exceptional items and certain re-measurement
· Reclassification of tax liabilities
Adjusted Earnings Per Share Profit measure Earnings per share · Exceptional items
· Adjustments to retained Gas Production decommissioning provision
· Movements on operating and financing derivatives ('certain
re-measurements')
· Depreciation and amortisation expense on fair value uplifts
· Interest on net pension assets/liabilities (IAS 19)
· Share of non-recurring joint venture refinancing costs
· Deferred tax including share of joint ventures, associates and
non-controlling interests
Rationale for Adjustments to Profit Measure
1. Movement on operating and financing derivatives ('certain
re-measurements')
This adjustment can be designated between operating and financing derivatives.
Operating derivatives are contracts where the Group's Energy Portfolio
Management ('EPM') function enters into forward commitments or options to buy
or sell electricity, gas and other commodities to meet the future demand
requirements of the Group's Business Energy and Airtricity operating units, or
to optimise the value of the production from SSE Renewables and Thermal
generation assets. Certain of these contracts (predominately purchase
contracts) are determined to be derivative financial instruments under IFRS 9
and as such are required to be recorded at their fair value. Changes in the
fair value of those commodity contracts designated as IFRS 9 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 due to the volatility
that can arise on revaluation. The Group will recognise the underlying value
of these contracts as the relevant commodity is delivered, which will
predominantly be within the subsequent 12 to 24 months. Conversely, commodity
contracts that are not recorded as financial instruments under IFRS 9
(predominately sales contracts) are accounted for as 'own use' contracts and
are consequently not recorded until the commodity is delivered and the
contract is settled. In addition, gas inventory purchased by the Group's Gas
Storage business for secondary trading opportunities is also held at fair
value with gains and losses on re-measurement recognised as part of 'certain
re-measurements'.
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 entered into by the Group to manage its banking and liquidity
requirements as well as risk management relating to interest rate and foreign
exchange exposures. Changes in the fair value of those financing derivatives
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 re-measurements arising from operating and financing derivatives, and the
tax effects thereof, are disclosed separately to aid understanding of the
underlying performance of the Group.
2. Exceptional Items
Exceptional charges or credits, and the tax effects thereof, are considered
unusual by nature or scale and of such significance that separate disclosure
is required for the underlying performance of the Group to be properly
understood. Further explanation for the classification of an item as
exceptional is included in note 4.2.
3. Adjustments to retained Gas Production decommissioning provision
On 14 October 2021, the Group disposed of its Gas Production business but
retained a 60% share of the decommissioning obligation of the business. Gas
Production was presented as a discontinued operation prior to disposal as the
transaction constituted the exit of all activity in that industry. Future
adjustments to the decommissioning obligation will be accounted for through
the Group's consolidated income statement. The adjustment is removed from the
Group's adjusted profit measures as the revaluation of the provision is not
considered to be part of the Group's core continuing operations.
4. Share of joint ventures and associates' interest and tax
This adjustment can be split between the Group's share of interest and the
Group's share of tax arising from its investments in equity accounted joint
ventures and associates.
The Group is required to report profit before interest and tax ('operating
profit') including its share of the profit after tax of its equity accounted
joint ventures and associates. However, for internal performance management
purposes and for consistency of treatment, SSE reports its adjusted operating
profit measures before its share of the interest and/or tax on joint ventures
and associates.
5. Share of joint ventures and associates' depreciation and
amortisation
For management purposes, the Group considers EBITDA (earnings before interest,
tax, depreciation and amortisation) based on a sum-of-the-parts derived metric
which includes a share of the EBITDA from equity accounted investments. While
this is not equal to adjusted cash generated from operating activities, it is
considered useful by management in assessing a proxy for such a measure, given
the complexity of the Group structure and the range of investment structures
utilised. For the purpose of calculating the 'Net Debt to EBITDA' metric
referred at page 77, 'adjusted EBITDA' is further refined to remove the
proportion of adjusted EBITDA from equity-accounted joint ventures relating to
off-balance sheet debt (see note 6.3).
6. Depreciation and amortisation expense on fair value uplifts
The Group's strategy includes the realisation of value and recycling of
proceeds from divestments of stakes in its early stage offshore and
international SSE Renewables developments. In addition, for strategic purposes
the Group may also decide to bring in equity partners to other businesses and
assets. Where SSE's interest in such vehicles changes from full to joint
control, and the subsequent arrangement is classified as an equity accounted
joint venture, SSE will recognise a fair value uplift on the remeasurement of
its retained equity investment. Those uplifts will be treated as exceptional
(and non-cash) gains in the year of the relevant transactions completing.
These uplifts create assets which are subsequently depreciated or amortised
over the remaining life of the underlying assets or contracts in those
businesses with the charge being included in the Group's adjusted depreciation
and amortisation expense. The Group's adjusted operating profit, adjusted
profit before tax and adjusted earnings per share have therefore been adjusted
to exclude this additional depreciation and amortisation expense from the fair
value uplift given the charges derived from significant one-off gains which
are treated as exceptional when initially recognised.
7. Release of deferred income
The Group deducts the release of deferred income in the year from its adjusted
EBITDA metric as it principally relates to grants or customer contributions
towards the build of depreciating assets. As the metric adds back
depreciation, the amortisation credit is also deducted.
8. Non-recurring joint venture refinancing costs
The Group's joint venture investment, Beatrice Offshore Winds Limited
('BOWL'), completed a refinancing of its debt in the year ended 31 March 2020,
which resulted in transaction costs from the original debt of £27.2m being
expensed to the income statement of the joint venture. In addition, £3.5m of
costs related to the repayment of the original instrument were incurred. The
Group's 40% share of the £30.7m expense was £12.3m, which was adjusted from
the Group's adjusted profit before tax and the Group's adjusted finance costs
in the year ended 31 March 2020 as refinancing of this scale is non-recurring,
considered to be specific to this instance and therefore not representative of
normal operations.
9. Interest on net pension assets/liabilities (IAS 19 "Employee
Benefits")
The Group's interest charges relating to defined benefit pension schemes are
derived from the net assets/liabilities of the schemes as valued under IAS 19.
This will mean that the charge recognised in any given year will be dependent
on the impact of actuarial assumptions such as inflation and discount rates.
The Group excludes these from its adjusted profit measures due to the non-cash
nature of these charges or credits.
10. Deferred tax
The Group adjusts for deferred tax when arriving at adjusted profit after tax,
adjusted earnings per share and its adjusted effective rate of tax. Deferred
tax arises as a result of differences in accounting and tax bases that give
rise to potential future accounting credits or charges. As the Group remains
committed to its ongoing capital programme, the liabilities associated are not
expected to reverse and accordingly the Group excludes these from its adjusted
profit measures.
11. Results attributable to non-controlling interest holders
The Group's structure includes non-wholly owned but controlled subsidiaries
which are consolidated within the financial statements of the Group under
IFRS. There is no impact to current or future years but in future the Group
will remove the share of profit attributable to holders of non-controlling
equity stakes in these businesses from all of its profit measures, to report
to all metrics based on the share of profits items attributable to the
ordinary equity holders of the Group. The adjustment will be applied
consistently to all of the Group's adjusted profit measures, including
removing proportionate non-controlling share of operating profit and
depreciation and amortisation from the Group's adjusted EBITDA metric;
removing the non-controlling share of operating profit from the Group's
adjusted operating profit metric; removing the non-controlling share of net
finance costs from the Group's adjusted net finance costs metric; and removing
the non-controlling interest share of current tax from the Group's adjusted
current tax metric.
March 2022
Continuing operations (£m) Reported Movement on derivatives Exceptional items Adjustments to Gas Production decommissioning provision Depreciation on FV uplifts Joint venture interest and tax Interest on net pension asset Deferred tax Adjusted
Operating profit 3,755.4 (2,097.8) (301.8) 13.1 20.6 147.3 - - 1,536.8
Net finance costs (273.2) (21.0) (3.2) - - (67.8) (7.6) - (372.8)
Profit before taxation 3,482.2 (2,118.8) (305.0) 13.1 20.6 79.5 (7.6) - 1,164.0
Taxation (882.8) 408.0 323.7 - - (79.5) - 123.5 (107.1)
Profit after taxation 2,599.4 (1,710.8) 18.7 13.1 20.6 - (7.6) 123.5 1,056.9
Attributable to other equity holders (50.7) - - - - - - - (50.7)
Profit attributable to ordinary shareholders 2,548.7 (1,710.8) 18.7 13.1 20.6 - (7.6) 123.5 1,006.2
Number of shares for EPS 1,055.0 1,055.0
Earnings per share 241.6 95.4
EBITDA
March 2022
Adjusted operating profit from continuing operations Share of joint venture and associates' depreciation and amortisation Release of deferred income Depreciation on FV uplifts Depreciation, impairment and amortisation before exceptional charges Adjusted EBITDA
£m £m £m £m £m £m
1,536.8 146.6 (17.6) (20.6) 612.0 2,257.2
March 2021 (restated*)
Continuing operations (£m) Reported Movement on derivatives Exceptional items Adjustments to Gas Production decommissioning provision Depreciation on FV uplifts Joint venture interest and tax Interest on net pension asset Deferred tax Adjusted
Operating profit 2,654.9 (597.8) (848.9) - 20.6 104.7 - - 1,333.5
Net finance costs (236.9) (55.6) (1.4) - - (82.4) (8.3) - (384.6)
Profit before taxation 2,418.0 (653.4) (850.3) - 20.6 22.3 (8.3) - 948.9
Taxation (224.3) 125.9 (3.1) - - (22.3) - 37.9 (85.9)
Profit after taxation 2,193.7 (527.5) (853.4) - 20.6 - (8.3) 37.9 863.0
Attributable to other equity holders (46.6) - - - - - - - (46.6)
Profit attributable to ordinary shareholders 2,147.1 (527.5) (853.4) - 20.6 - (8.3) 37.9 816.4
Number of shares for EPS 1,040.9 1,040.9
Earnings per share 206.3 78.4
*The comparative Alternative Performance Measures have been restated. See note
2.3.
EBITDA
March 2021 (restated*)
Adjusted operating profit from continuing operations Share of joint venture and associates' depreciation and amortisation Release of deferred income Depreciation on FV uplifts Depreciation, impairment and amortisation before exceptional charges Adjusted EBITDA
£m £m £m £m £m £m
1,333.5 143.9 (17.7) (20.6) 556.2 1,995.3
March 2020 (restated*)
Continuing operations (£m) Reported Movement on derivatives Exceptional items Depreciation on FV uplifts Joint venture interest and tax Interest on net pension asset Share of non-recurring joint venture financing costs Deferred tax Adjusted
Operating profit 882.6 40.0 212.1 20.6 130.8 - - - 1,286.1
Net finance costs (385.2) 83.0 (2.4) - (98.9) (6.6) 12.3 - (397.8)
Profit before taxation 497.4 123.0 209.7 20.6 31.9 (6.6) 12.3 - 888.3
Taxation (121.5) - (2.3) - (31.9) - - 67.4 (88.3)
Profit after taxation 375.9 123.0 207.4 20.6 - (6.6) 12.3 67.4 800.0
Attributable to other equity holders (46.5) - - - - - - (46.5)
Profit attributable to ordinary shareholders 329.4 123.0 207.4 20.6 - (6.6) 12.3 67.4 753.5
Number of shares for EPS 1,032.5 1,032.5
Earnings per share 31.9 73.0
EBITDA
March 2020 (restated*)
Adjusted operating profit from continuing operations Share of joint venture and associates' depreciation and amortisation Release of deferred income Depreciation on FV uplifts Depreciation, impairment and amortisation before exceptional charges Adjusted EBITDA
£m £m £m £m £m £m
1,286.1 151.4 (14.7) (20.6) 530.1 1,932.3
*The comparative Alternative Performance Measures have been restated. See note
2.3.
Debt Measure
Group APM Purpose Closest Equivalent IFRS measure Adjustments to reconcile to primary financial statements
Adjusted Net Debt and Hybrid Capital Debt measure Unadjusted net debt · Hybrid equity
· Outstanding liquid funds
· Lease obligations
· Non-controlling share of borrowings and cash
rationale for Adjustments to Debt measure
12. Hybrid equity
The characteristics of certain hybrid capital securities mean they qualify for
recognition as equity rather than debt under IFRS. Consequently, their coupon
payments are presented within dividends rather than within finance costs. As a
result, the coupon payments are not included in SSE's adjusted profit before
tax measure. In order to present total funding provided from sources other
than ordinary shareholders, SSE presents its adjusted net debt measure
inclusive of hybrid capital to better reflect the Group's funding position.
13. Outstanding liquid funds
Outstanding liquid funds are SSE cash balances held by counterparties as
collateral at the year end. SSE includes these as cash until they are utilised
for the purposes of calculating adjusted net debt. Loans with a maturity of
less than three months are also included in this adjustment. The Group
includes this adjustment in order to better reflect the immediate cash
resources to which it has access, which in turn better reflects the Group's
funding position.
14. Lease obligations
SSE's reported loans and borrowings include lease liabilities on contracts
under the scope of IFRS 16, which are not directly related to the Treasury
managed external debt financing of the Group. The Group excludes these
liabilities from its adjusted net debt and hybrid capital measure to better
reflect the Group's underlying funding position with its primary sources of
capital.
15. Debt and cash attributable to non-controlling equity holders
The Group's structure includes non-wholly owned but controlled subsidiaries
which are consolidated within the financial statements of the Group under
IFRS. There is no impact to current or prior years but in future the Group
will remove the share of debt and cash in these subsidiaries proportionately
attributable to the non-controlling interest holders from its adjusted net
debt and hybrid capital metric to present net debt attributable to ordinary
equity holders of the Group.
March 2022 March 2021 March 2020
£m £m £m
Unadjusted net debt (8,015.4) (7,810.4) (10,007.8)
Outstanding liquid funds 74.7 (37.1) 256.4
Lease obligations 393.5 421.0 455.2
Adjusted Net Debt (7,547.2) (7,426.5) (9,296.2)
Hybrid equity (1,051.0) (1,472.4) (1,169.7)
Adjusted Net Debt and Hybrid Capital (8,598.2) (8,898.9) (10,465.9)
Capital Measures
Group APM Purpose Closest Equivalent IFRS measure Adjustments to reconcile to primary financial statements
Adjusted Investment and Capital Expenditure Capital measure Capital additions to intangible assets and property, plant and equipment · Customer funded additions
· Allowances and certificates
· Additions acquired through business combinations
· Disposed or impaired additions
· Joint venture and associates' additions funding
· Non-controlling share of capital expenditure
· Refinancing proceeds
Adjusted Investment, Capital and Acquisition Expenditure Capital measure Capital additions to intangible assets and property, plant and equipment · Customer funded additions
· Allowances and certificates
· Additions acquired through business combinations
· Disposed or impaired additions
· Joint venture and associates' additions funding
· Non-controlling share of capital expenditure
· Refinancing proceeds/refunds
· Acquisition cash consideration
rationale for Adjustments to Capex Measure
16. Customer funded additions
Customer funded additions represents additions to electricity and other
networks funded by customer contributions. Given these are directly funded
by customers, these have been excluded to better reflect the Group's
underlying investment position.
17. Allowances and certificates
Allowances and certificates consist of purchased carbon emissions allowances
and generated or purchased renewable obligations certificates (ROCs) and are
not included in the Group's 'capital expenditure and investment' APM to better
reflect the Group's investment in enduring operational assets.
18. Additions through business combinations
Where the Group acquires an early stage development company, which is
classified as the acquisition of an asset, or group of assets and not a
business, the acquisition is treated as an addition to intangible assets or
property, plant and equipment and is included within 'adjusted investment and
capital expenditure'. Where the Group acquires an established business
requiring a fair value assessment in line with the principles of IFRS 3
'Business Combinations', the fair value of consolidated tangible or intangible
assets are excluded from the Group's 'adjusted investment and capital
expenditure', as they are not direct capital expenditure by the Group.
However, these are included in the Group's new 'adjusted investment, capital
and acquisition expenditure' metric, see 24 below.
19. Additions subsequently disposed/impaired
In the current year there were capex additions of £13.9m related to the Gas
Production business, which was disposed on 14 October 2021. In the prior year
the Group funded £19.7m of capex additions in relation to the Seagreen
windfarm prior to part disposal. On 3 June 2020, the Group disposed of a 51%
stake in Seagreen 1, therefore the capex incurred prior to that date has been
excluded from the Group's net adjusted investment and capital expenditure
metric. In the year ended 31 March 2020, there were additions of £44.6m in
the Group's Gas Production segment which were subsequently impaired following
the annual impairment assessment. This adjustment also includes any
subsequently derecognised development expenditure.
20. Joint venture and associates' additions funding
Joint ventures and associates' additions included in the Group's capital
measures represent the direct loan or equity funding provided by the Group to
joint venture and associate arrangements in relation to capital expenditure
projects. This has been included to better reflect the Group's use of directly
funded equity accounted vehicles to grow the Group's asset base. Asset
additions funded by project finance raised within the Group's joint ventures
and associates is not included in this adjustment.
21. Non-controlling share of capital expenditure
The Group's structure includes non-wholly owned but controlled subsidiaries
which are consolidated within the financial statements of the Group under
IFRS. In future, the Group will remove the share of capital additions
attributable proportionately to these equity holders from its "adjusted
investment and capital expenditure" and "adjusted investment, capital and
acquisition expenditure" metrics. This is consistent with the adjustments
noted elsewhere related to these non-controlling interests. This has no impact
on the current or prior year metrics.
22. Refinancing proceeds/refunds
The Group's model for developing large scale capital projects within joint
ventures and associates involves project finance being raised within those
entities. Where the Group funds early stage capex which is then subsequently
reimbursed to SSE following the receipt of project finance within the vehicle,
the refinance proceeds are included in the Group's net adjusted investment and
capital expenditure metric. This is consistent with the inclusion of the
initial investment in the metric as explained at 18, above. In the year ended
31 March 2021, the Group received reimbursed capex of £246.1m in relation to
Seagreen windfarm and £182.5m in relation to Doggerbank windfarm. These
receipts have been deducted from the Group's adjusted investment and capital
expenditure metric.
23. Lease additions
Additions of right of use assets under the Group's IFRS 16 compliant policies
for lease contracts are excluded from the Group's adjusted capital measures as
they do not represent directly funded capital investment. This is consistent
with the treatment of lease obligations explained at 14, above.
24. Acquisition cash consideration in relation to business combinations
The Group has outlined a significant investment programme which will partly be
achieved through the acquisition of businesses with development opportunities
for the Group. The cash consideration paid for these entities is included
within the Group's new adjusted investment, capital and acquisition
expenditure metric as it provides stakeholders an accurate basis of cash
investment into the Group's total development pipeline and is consistent with
the reporting of the Group's Net Zero Acceleration Programme.
March 2022 March 2021 March 2020
£m £m £m
Capital additions to intangible assets 921.0 701.3 973.6
Capital additions to property, plant and equipment 1,398.8 1,102.5 1,097.6
Capital additions to intangible assets and property, plant and equipment 2,319.8 1,803.8 2,071.2
Customer funded additions (91.3) (61.8) (110.7)
Allowances and certificates (544.5) (509.0) (652.7)
Additions through business combinations (197.8) - (26.4)
Additions subsequently disposed/impaired (13.9) (19.7) (44.6)
Joint ventures and associates' additions 682.5 172.7 167.1
Refinancing proceeds/refunds (136.7) (428.6) -
Lease asset additions (85.7) (45.4) (46.5)
Adjusted Investment and Capital Expenditure 1,932.4 912.0 1,357.4
Acquisition cash consideration 141.3 - -
Adjusted Investment, Capital and Acquisition Expenditure 2,073.7 912.0 1,357.4
Impact of discontinued operations on the Group's APMs
The following metrics have been adjusted in all periods presented to exclude
the contribution of the Group's investment in Scotia Gas Networks Limited
("SGN") which was disposed on 22 March 2022 and Group's Gas Production
operations which were disposed on 14 October 2021 (see note 12):
· Adjusted EBITDA;
· Adjusted operating profit;
· Adjusted net finance costs;
· Adjusted profit before tax;
· Adjusted current tax charge; and
· Adjusted earnings per share.
'Adjusted net debt and hybrid capital'; 'adjusted investment and capital
expenditure'; and 'adjusted investment, capital and acquisition expenditure'
have not been adjusted as the Group continues to fund the discontinued
operations until the date of disposal.
The following table summarises the impact of excluding discontinued operations
from the continuing activities of the Group in current and prior years:
March 2022 March 2021 March 2020
£m £m £m
Adjusted EBITDA of SSE Group (including discontinued operations) 2,390.7 2,262.9 2,281.0
Less: SSE Energy Services - - (32.7)
Less: Gas Production (101.4) (33.0) (56.9)
Less: SGN (32.1) (234.6) (259.1)
Adjusted EBITDA of continuing operations 2,257.2 1,995.3 1,932.3
Adjusted operating profit of SSE Group (including discontinued operations) 1,659.2 1,539.5 1,546.9
Less: SSE Energy Services - - (32.7)
Less: Gas Production (101.4) (33.0) (25.8)
Less: SGN (21.0) (173.0) (202.3)
Adjusted operating profit of continuing operations 1,536.8 1,333.5 1,286.1
Adjusted net finance costs of SSE Group (including discontinued operations) 377.6 443.9 471.6
Less: Gas Production (0.1) (2.3) (6.6)
Less: SGN (4.7) (57.0) (67.2)
Adjusted net finance costs of continuing operations 372.8 384.6 397.8
Adjusted profit before tax of SSE Group (including discontinued operations) 1,281.6 1,095.6 1,075.3
Less: SSE Energy Services - - (32.7)
Less: Gas Production (101.3) (30.7) (19.2)
Less: SGN (16.3) (116.0) (135.1)
Adjusted profit before tax of continuing operations 1,164.0 948.9 888.3
Adjusted current tax of SSE Group (including discontinued operations) 109.4 107.8 110.3
Less: SSE Energy Services current tax credit - - 3.9
Less: SGN current tax charge (2.3) (21.9) (25.9)
Adjusted current tax of continuing operations 107.1 85.9 88.3
Adjusted earnings per share of SSE Group (including discontinued operations) 106.2 90.5 89.0
Less: SSE Energy Services earnings per share - - (3.6)
Less: Gas Production earnings per share (9.6) (3.0) (1.8)
Less: SGN earnings per share (1.2) (9.1) (10.6)
Adjusted earnings per share of continuing operations 95.4 78.4 73.0
*The comparative Alternative Performance Measures have been restated. See note
2.3.
The remaining APMs presented by the Group are unchanged in all periods
presented by the discontinued operations.
summary Financial Statements
Consolidated Income Statement
for the year ended 31 March 2022
2022 2021 (restated*)
Before Exceptional items and Total Before Exceptional items and Total
exceptional certain exceptional certain
items and re-measure-ments items and re-measure-ments
certain (note 7) certain (note 7)
re-measure ments re-measure-ments
Note £m £m £m £m £m £m
Continuing operations
Revenue 6 8,608.2 - 8,608.2 6,826.4 - 6,826.4
Cost of sales (6,310.8) 2,097.8 (4,213.0) (4,732.7) 598.6 (4,134.1)
Gross profit 2,297.4 2,097.8 4,395.2 2,093.7 598.6 2,692.3
Operating costs (1,118.5) 297.5 (821.0) (1,198.4) (127.1) (1,325.5)
Other operating income 67.1 4.3 71.4 268.7 976.0 1,244.7
Operating profit before joint ventures and associates 1,246.0 2,399.6 3,645.6 1,164.0 1,447.5 2,611.5
Joint ventures and associates:
Share of operating profit 257.1 - 257.1 149.0 - 149.0
Share of interest (67.8) - (67.8) (82.4) - (82.4)
Share of movement on derivatives - - - - (0.8) (0.8)
Share of tax (46.3) (33.2) (79.5) (22.4) - (22.4)
Share of profit on joint ventures and associates 143.0 (33.2) 109.8 44.2 (0.8) 43.4
Operating profit from continuing operations 6 1,389.0 2,366.4 3,755.4 1,208.2 1,446.7 2,654.9
Finance income 8 79.0 24.2 103.2 78.2 57.0 135.2
Finance costs 8 (376.4) - (376.4) (372.1) - (372.1)
Profit before taxation 1,091.6 2,390.6 3,482.2 914.3 1,503.7 2,418.0
Taxation 9 (151.1) (731.7) (882.8) (101.5) (122.8) (224.3)
Profit for the year from continuing operations 940.5 1,658.9 2,599.4 812.8 1,380.9 2,193.7
Discontinued operations
Profit from discontinued operation, net of tax 116.3 366.4 482.7 127.5 1.6 129.1
Profit for the year 1,056.8 2,025.3 3,082.1 940.3 1,382.5 2,322.8
Attributable to:
Ordinary shareholders of the parent 1,006.1 2,025.3 3,031.4 893.7 1,382.5 2,276.2
Other equity holders 50.7 - 50.7 46.6 - 46.6
Earnings/(loss) per share
Basic earnings per share (pence) 11 287.3 218.7
Diluted earnings per share (pence) 11 286.8 218.3
Earnings per share - continuing operations
Basic earnings per share (pence) 11 241.6 206.3
Diluted earnings per share (pence) 11 241.1 206.0
Dividends
Interim dividend paid per share (pence) 10 25.5 24.4
Proposed final dividend per share (pence) 10 60.2 56.6
85.7 81.0
*The comparative Consolidated Income Statement has been restated. See note
2.3.
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 2022
2022 2021 (restated*)
£m £m
Profit for the year
Continuing operations 2,599.4 2,193.7
Discontinued operations 482.7 129.1
3,082.1 2,322.8
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss:
Net gains/(losses) on cash flow hedges 22.9 (44.7)
Transferred to assets and liabilities on cash flow hedges 11.2 (5.1)
Taxation on cashflow hedges (4.4) 8.5
29.7 (41.3)
Share of other comprehensive gain of joint ventures and associates, net of 181.4 25.0
taxation
Exchange difference on translation of foreign operations (3.2) (43.3)
Gain on net investment hedge 9.4 37.3
217.3 (22.3)
Items that will not be reclassified to profit or loss:
Actuarial gain/(loss) on retirement benefit schemes, net of taxation 124.7 (12.8)
Share of other comprehensive (loss)/income of joint ventures and associates, (1.7) (23.3)
net of taxation
Gains on revaluation of investments in equity instruments, net of taxation - 1.1
123.0 (35.0)
Other comprehensive gain/(loss), net of taxation 340.3 (57.3)
Total comprehensive income for the year 3,422.4 2,265.5
Total comprehensive income for the year arises from:
Continuing operations 2,912.8 2,155.0
Discontinued operations
Items that will be reclassified subsequently to profit or loss:
Share of other comprehensive gain of joint venture and associates, net of 28.6 4.7
taxation
Items that will not be reclassified to the profit or loss:
Share of other comprehensive loss of joint ventures, net of taxation (1.7) (23.3)
Other comprehensive gain/(loss) from discontinued operations 26.9 (18.6)
Profit from discontinued operations 482.7 129.1
Total comprehensive income from discontinued operations 509.6 110.5
Total comprehensive income for the year 3,422.4 2,265.5
Attributable to:
Ordinary shareholders of the parent 3,371.7 2,218.9
Other equity holders 50.7 46.6
3,422.4 2,265.5
*The comparative Consolidated Statement of Other Comprehensive Income has been
restated. See note 2.3
The accompanying notes are an integral part of the financial information in
this announcement.
Consolidated Balance Sheet
as at 31 March
Note 2022 2021
£m £m
Assets
Property, plant and equipment 14,618.7 13,254.3
Goodwill and other intangible assets 1,127.8 841.3
Equity investments in associates and joint ventures 1,239.5 1,643.5
Loans to associates and joint ventures 736.9 554.3
Other investments 8.7 3.6
Other receivables 136.4 115.9
Derivative financial assets 371.7 114.7
Retirement benefit assets 15 584.9 543.1
Non-current assets 18,824.6 17,070.7
Intangible assets 459.3 374.9
Inventories 266.6 234.9
Trade and other receivables 2,211.0 1,488.2
Current tax asset 8.8 12.7
Cash and cash equivalents 1,049.3 1,600.2
Derivative financial assets 2,941.8 470.9
Assets held for sale 12 - 339.1
Current assets 6,936.8 4,520.9
Total assets 25,761.4 21,591.6
Liabilities
Loans and other borrowings 13 1,190.8 937.6
Trade and other payables 2,672.6 1,987.3
Current tax liabilities - 12.8
Provisions 93.3 79.3
Derivative financial liabilities 701.5 238.7
Liabilities held for sale 12 - 253.5
Current liabilities 4,658.2 3,509.2
Loans and other borrowings 13 7,873.9 8,473.0
Deferred tax liabilities 1,645.6 774.3
Trade and other payables 842.4 722.5
Provisions 1,017.9 793.3
Retirement benefit obligations 15 - 186.1
Derivative financial liabilities 549.6 452.1
Non-current liabilities 11,929.4 11,401.3
Total liabilities 16,587.6 14,910.5
Net assets 9,173.8 6,681.1
Equity
Share capital 14 536.5 524.5
Share premium 835.1 847.1
Capital redemption reserve 49.2 49.2
Hedge reserve 77.5 (133.6)
Translation reserve 6.6 0.4
Retained earnings 6,577.3 3,921.1
Equity attributable to ordinary shareholders of the parent 8,082.2 5,208.7
Hybrid equity 14 1,051.0 1,472.4
Attributable to non-controlling interests 40.6 -
Total equity 9,173.8 6,681.1
The accompanying notes are an integral part of the financial information in
this announcement
Consolidated Statement of Changes in Equity
for the year ended 31 March 2022
Share capital Share premium Capital redemption reserve Hedge reserve Translation reserve Retained earnings Total attributable to ordinary shareholders Hybrid equity Total equity before non-controlling interest Non-controlling interest Total equity
£m £m £m £m £m £m £m £m £m £m £m
At 1 April 2021 524.5 847.1 49.2 (133.6) 0.4 3,921.1 5,208.7 1,472.4 6,681.1 - 6,681.1
Profit for the year - - - - - 3,031.4 3,031.4 50.7 3,082.1 - 3,082.1
Other comprehensive income - - - 211.1 6.2 123.0 340.3 - 340.3 - 340.3
Total comprehensive income for the year - - - 211.1 6.2 3,154.4 3,371.7 50.7 3,422.4 - 3,422.4
Dividends to shareholders - - - - - (862.3) (862.3) - (862.3) - (862.3)
Scrip dividend related share issue 12.0 (12.0) - - - 355.7 355.7 - 355.7 - 355.7
Issue of shares - - - - - 6.3 6.3 - 6.3 - 6.3
Distributions to Hybrid equity holders - - - - - - - (50.7) (50.7) - (50.7)
Redemption of hybrid equity - - - - - (4.6) (4.6) (421.4) (426.0) - (426.0)
Credit in respect of employee share awards - - - - - 20.8 20.8 - 20.8 - 20.8
Investment in own shares - - - - - (14.1) (14.1) - (14.1) - (14.1)
Acquisition of subsidiary - - - - - - - - - 40.6 40.6
At 31 March 2022 536.5 835.1 49.2 77.5 6.6 6,577.3 8,082.2 1,051.0 9,133.2 40.6 9,173.8
Share capital Share premium Capital redemption reserve Hedge reserve Translation reserve Retained earnings Total attributable to ordinary shareholders Hybrid equity Total equity
£m £m £m £m £m £m £m £m £m
At 1 April 2020 523.1 875.6 49.2 (111.1) 6.4 2,407.2 3,750.4 1,169.7 4,920.1
Profit for the year - - - - - 2,276.2 2,276.2 46.6 2,322.8
Other comprehensive loss - - - (16.3) (6.0) (35.0) (57.3) - (57.3)
Total comprehensive income for the year - - - (16.3) (6.0) 2,241.2 2,218.9 46.6 2,265.5
Dividends to shareholders - - - - - (836.4) (836.4) - (836.4)
Scrip dividend related share issue 1.4 (1.4) - - - 39.0 39.0 - 39.0
Distributions to Hybrid equity holders - - - - - - - (46.6) (46.6)
Issue of hybrid equity - - - - - - - 1,051.0 1,051.0
Redemption of hybrid equity - - - - - (1.7) (1.7) (748.3) (750.0)
Credit in respect of employee share awards - - - - - 19.7 19.7 - 19.7
Investment in own shares - (27.1) - - - 24.6 (2.5) - (2.5)
Adjustment in relation to historic remeasurement of financial instruments, net - - - (6.2) - 27.5 21.3 - 21.3
of tax
At 31 March 2021 524.5 847.1 49.2 (133.6) 0.4 3,921.1 5,208.7 1,472.4 6,681.1
Consolidated Cash Flow Statement
for the year ended 31 March 2022
Note 2022 2021 (restated*)
£m £m
Operating profit - continuing operations 6 3,755.4 2,654.9
Operating (loss) - discontinued operations (100.5) 121.6
Operating profits - total operations 3,654.9 2,776.5
Less share of loss/(profit) of joint ventures and associates (28.7) (132.0)
Operating profit before jointly controlled entities and associates 3,626.2 2,644.5
Pension service charges less contributions paid (23.0) (22.8)
Movement on operating derivatives (2,100.4) (590.1)
Depreciation, amortisation, write downs and impairments 303.2 637.9
Impairment of joint venture investment 106.9 -
Charge in respect of employee share awards (before tax) 20.8 18.1
Profit on disposal of assets and businesses 12 (48.2) (1,227.9)
Release of provisions (1.6) (4.1)
Release of deferred income (17.6) (17.7)
Cash generated from operations before working capital movements 1,866.3 1,437.9
Increase in inventories (24.4) (71.7)
(Increase)/decrease in receivables (625.6) 155.3
Increase in payables 538.3 420.0
Increase in provisions 61.3 36.1
Cash generated from operations 1,815.9 1,977.6
Dividends received from investments 177.0 191.1
Interest paid (273.5) (288.7)
Taxes paid (91.5) (62.8)
Net cash from operating activities 1,627.9 1,817.2
Purchase of property, plant and equipment (1,273.6) (985.0)
Purchase of other intangible assets (182.2) (192.3)
Deferred income received 12.3 11.2
Proceeds from disposals 12 1,366.9 1,734.8
Cash disposed from disposals - (172.8)
Purchase of businesses and subsidiaries (145.3) -
Joint venture development expenditure refunds 136.7 182.5
Loans and equity provided to joint ventures and associates (676.0) (188.9)
Loans and equity repaid by joint ventures 10.9 54.2
Increase in other investments 5.4 -
Net cash from investing activities (744.9) 443.7
Proceeds from issue of share capital 14 6.3 10.4
Dividends paid to company's equity holders 10 (506.6) (797.4)
Hybrid equity dividend payments 14 (50.7) (46.6)
Employee share awards share purchase 14 (14.1) (12.9)
Issue of hybrid instruments 14 - 1,051.0
Redemption of hybrid instruments 14 (426.0) (750.0)
New borrowings 506.1 1,668.5
Seagreen development expenditure refinancing proceeds - 246.1
Repayment of borrowings (960.1) (2,189.3)
Settlement of cashflow hedges 11.2 (5.1)
Net cash from financing activities (1,433.9) (825.3)
Net increase/(decrease) in cash and cash equivalents (550.9) 1,435.6
Cash and cash equivalents at the start of year 1,600.2 164.6
Net (decrease)/increase in cash and cash equivalents (550.9) 1,435.6
Cash and cash equivalents at the end of year 1,049.3 1,600.2
*The comparative consolidated cash flow statement has been restated. See note
2.3
The accompanying notes are an integral part of these financial statements.
Notes to the Summary FInancial Statements
for the year ended 31 March 2022
1. Financial Information
The financial information set out in this announcement does not constitute the
Group's consolidated financial statement for the years ended 31 March 2022 or
2021 but is derived from those accounts. Consolidated financial statements for
the year ended 31 March 2021 were delivered to the Registrar of Companies, and
those for the year ended 31 March 2022 will be delivered in due course. The
auditors have reported on those accounts and their reports were (i)
unqualified; (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report;
and (iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006. This preliminary announcement was authorised by the
Board on 24 May 2022.
2. Basis of preparation and presentation
2.1 Basis of preparation
The financial information set out in this announcement has been extracted from
the consolidated financial statements of SSE plc for the year ended 31 March
2022. These consolidated financial statements were prepared under the
historical cost convention, excepting certain assets and liabilities stated at
fair value and the liabilities of the Group's pension schemes which are
measured using the projected unit credit method, in conformity with the
requirements of the Companies Act 2006 and in accordance with UK adopted
International Accounting Standards. This consolidated financial information
has been prepared on the basis of accounting policies consistent with those
applied in the consolidated financial statements for the year ended 31 March
2022 unless expressly stated otherwise.
The Directors consider that the Group has adequate resources to continue in
operational existence for the period to 31 December 2023. The financial
statements are therefore prepared on a going concern basis with the basis for
that conclusion explained in the consolidated financial statements at note
A6.3.
The financial statements are presented in Pounds Sterling.
2.2 Basis of presentation
The Group applies the use of adjusted accounting measures throughout these
statements. These measures enable the Directors to present the underlying
performance of the Group and its segments to the users of the statements in a
consistent and meaningful manner. The adjustments applied and certain terms
such as 'adjusted operating profit', 'adjusted EPS', 'investment and capital
expenditure', 'adjusted EBITDA', 'adjusted investment, capital and acquisition
expenditure' and 'adjusted net debt and hybrid equity' are not defined under
IFRS and are explained in more detail in note 4.
2.3 Changes to presentation
2.3.1 Discontinued operations
On 2 August 2021, the Group announced it had agreed to sell its 33.3% stake in
gas distribution operator SGN to a consortium comprising existing SGN
shareholders Ontario Teachers' Pension Plan Board and Brookfield Super-Core
Infrastructure Partners for cash consideration of £1,225m. The transaction
completed on 22 March 2022, with the Group recognising an exceptional gain on
disposal of £576.5m within discontinued activities. The Group assessed that
the investment met the criteria to be classified as held for sale on 11 June
2021 when an Exclusivity Agreement was signed by the consortium.
Accordingly, from 11 June 2021 the Group ceased to equity account for its
investment in SGN on designation as held for sale. As the investment in SGN
comprised a separate single major line of business, the investment was also
classified as a discontinued operation. Therefore, comparative information for
the year ended 31 March 2021 has been restated. The impact of reclassification
of the SGN investment to discontinued operations has been to reduce adjusted
operating profit for continuing operations for March 2021 by £173.0m; reduce
adjusted profit before tax for continuing operations for March 2021 by
£116.0m; and reduce adjusted earnings per share for continuing operations for
March 2021 by 9.1p. Total results of the Group in the prior year are
unchanged.
2.3.2 Segments
In accordance with the requirements of IFRS 8 'Operating Segments' the Group
has aligned its segmental disclosures with its revised internal reporting
following changes to the Group's structure and operations. These segments are
used internally by the Group Executive Committee to in order to assess
operating performance and to make decisions on how to allocate capital.
Consequently, the segmental results reported in the Group's operating segments
have been restated with effect from 1 April 2021. Following the Group's sale
of its Contacting and Rail business to Aurelius Group, the primary retained
activities of the Enterprise business is Distributed Energy which will develop
and provide the Group's solar and battery storage operations and focus on
distributed generation, heat and cooling networks, smart buildings and EV
charging. Accordingly, the result from the Group's out of areas networks
business and Neos Networks Limited joint venture will now be reported within
SSEN Distribution and Corporate Unallocated respectively. Comparative
segmental information in note 6 has been represented to reflect the change to
these segments. The impact of the restatements are an increase to reported
revenue of SSEN Distribution (March 2021: £25.0m) and a decrease to the
reported revenue of Distributed Energy (March 2021: £25.0m), and an increase
to the adjusted operating profit of SSEN Distribution (March 2021: £8.5m), an
increase to the adjusted operating loss of Distributed Energy (March 2021:
£5.7m) and an increase to the adjusted operating loss of Corporate
Unallocated (March 2021: £2.8m).
2.4 Changes to estimates
There have been no changes to the basis of accounting estimates during the
current and prior year.
3. New accounting policies and reporting changes
The basis of consolidation and principal accounting policies applied in the
preparation of these financial statements are set out below and will be
included within A1 Accompanying Information to the Group's consolidated
Financial Statements.
3.1 New standards, amendments and interpretations effective or
adopted by the Group
Phase 2 of the Interest Rate Benchmark Reform became effective for the Group
from 1 April 2021. Under Phase 2, provided that the new basis for calculating
cash flows is economically equivalent to the previous basis, reliefs permit
hedge accounting relationships to continue unaffected. The Group has applied
these reliefs to continue hedge accounting on affected instruments and
therefore adoption of the amendment had no impact on the financial statements.
The amendment to IFRS 16 'Covid-19 Related Rent Concessions beyond 30 June
2021' had no impact on the financial statements.
3.2 New standards, amendments and interpretations issued, but not
yet adopted by the Group
A number of standards, amendments and interpretations have been issued but not
yet adopted by the Group within these financial statements, because
application is not yet mandatory or because UK adoption remains outstanding at
the date the financial statements were authorised for issue.
Amendments to IAS 16 'Property, Plant and Equipment: Proceeds Before Intended
Use' is effective from 1 January 2022 and was endorsed by the UK Endorsement
Board in April 2022, subsequent to the balance sheet date. The standard will
be applied from 1 April 2022, with retrospective application in periods
presented. During the year ended 31 March 2022, the Group earned
pre-commissioning revenue during the testing and commissioning phases of its
Keadby 2 CCGT and Gordonbush windfarm extension project. Restatement of prior
year comparatives will not have a material impact on reported results in those
periods.
IFRS 17 'Insurance contracts' is expected to be effective from 1 January 2023
(1 April 2023 for the Group) but remains subject to UK endorsement. The
Group's initial expectation is that adoption of this standard will not have a
material impact on the Group's consolidated financial statements.
There are a number of other interpretations and amendments issued but not yet
effective at 31 March 2022. These are not anticipated to have a material
impact on the Group's consolidated financial statements.
4. Adjusted accounting measures
The Group applies the use of adjusted accounting measures or alternative
performance measures ('APMs') throughout the Annual Report and Financial
Statements. These measures enable the Directors to present the underlying
performance of the Group and its segments to the users of the statements in a
consistent and meaningful manner. The adjustments applied and certain terms
such as 'adjusted operating profit', 'adjusted earnings per share', 'adjusted
EBITDA', 'adjusted investment and capital expenditure', 'adjusted investment,
capital and acquisition expenditure' and 'adjusted net debt and hybrid equity'
that are not defined under IFRS and are explained in more detail below. In
addition, the section 'Alternative Performance Measures' at page 2 provides
further context and explanation of these terms.
4.1 Adjusted measures
The Directors assess the performance of the Group and its reportable segments
based on 'adjusted measures'. These measures are used for internal
performance management and are believed to be appropriate for explaining
underlying performance to users of the accounts. These measures are also
deemed useful for ordinary shareholders of the Company and for other
stakeholders.
The performance of the reportable segments is reported based on adjusted
profit before interest and tax ('adjusted operating profit'). This is
reconciled to reported profit before interest and tax by adding back
exceptional items and certain re-measurements, depreciation on fair value
uplifts, the share of operating profit attributable to non-controlling
interests, adjustments to the retained Gas Production decommissioning
provision and after the removal of interest and taxation on profits from
equity-accounted joint ventures and associates.
The performance of the Group is reported based on adjusted profit before tax
which excludes exceptional items and certain re-measurements, depreciation on
fair value uplifts, the share of profit before tax attributable to
non-controlling interests, non-recurring financing costs in joint ventures,
the net interest costs associated with defined benefit schemes, adjustments to
the retained Gas Production decommissioning provision and taxation on profits
from equity-accounted joint ventures and associates. The interest charges or
credits on defined benefit schemes removed are non-cash and are subject to
variation based on actuarial valuations of scheme liabilities.
The Group also uses adjusted earnings before interest, taxation, depreciation
and amortisation ('adjusted EBITDA') as an alternative operating performance
measure which acts as a management proxy for cash generated from operating
activities. This does not take into account the rights and obligations that
SSE has in relation to its equity-accounted joint ventures and associates.
This measure excludes exceptional items and certain re-measurements, the
depreciation charged on fair value uplifts, the share of EBITDA attributable
to non-controlling interests, adjustments to the retained Gas Production
decommissioning provision, non-recurring financing costs in joint ventures,
the net interest costs associated with defined benefit schemes, depreciation
and amortisation from equity-accounted joint ventures and associates and
interest and taxation on profits from equity-accounted joint ventures and
associates. For the purpose of calculating the 'Net Debt to EBITDA' metric
referred at page 77, 'adjusted EBITDA' is further adjusted to remove the
proportion of adjusted EBITDA from equity-accounted joint ventures relating to
off-balance sheet debt (see note 6.3.)
The Group's key performance measure is adjusted earnings per share (EPS),
which is based on basic earnings per share before exceptional items and
certain re-measurements, depreciation on fair value uplifts, adjustments to
the retained Gas Production decommissioning provision, non-recurring financing
costs in joint ventures, the net interest costs associated with defined
benefit schemes and after the removal of deferred taxation and other taxation
items. Deferred taxation is excluded from the Group's adjusted EPS because of
the Group's significant ongoing capital investment programme, which means that
the deferred tax is unlikely to reverse. Adjusted profit after tax is
presented on a basis consistent with adjusted EPS except for the non-inclusion
of payments to holders of hybrid equity.
The financial statements also include an 'adjusted net debt and hybrid equity'
measure. This presents financing information on the basis used for internal
liquidity risk management. This measure excludes obligations due under lease
arrangements and the share of net debt attributable to non-controlling
interests, and includes cash held as collateral on commodity trading
exchanges, cash presented as held for disposal and other short term loans. The
measure represents the capital owed to investors, lenders and equity holders
other than the ordinary shareholders. As with 'adjusted earnings per share',
this measure is considered to be of relevance to the ordinary shareholders of
the Group as well as other stakeholders and interested parties.
Finally, the financial statements include an 'adjusted investment and capital
expenditure' and an 'adjusted investment, capital and acquisition expenditure'
measure. These metrics represent the capital invested by the Group in projects
that are anticipated to provide a return on investment over future years or
which otherwise support Group operations and is consistent with internally
applied metrics. They therefore include capital additions to property, plant
and equipment and intangible assets and also the Group's direct funding of
joint venture and associates capital projects. The Group has considered it
appropriate to report these values both internally and externally in this
manner due to its use of equity-accounted investment vehicles to grow the
Group's asset base, where the Group is providing a source of funding to the
vehicle through either loans or equity. The Group does not include project
funded capital additions in these metrics, nor does it include other capital
invested in joint ventures and associates. Where initial capital funding of an
equity accounted joint venture is refunded, these refunds are deducted from
the metrics in the year the refund is received. In addition, the Group
excludes from this metric additions to its property, plant and equipment
funded by Customer Contributions and additions to intangible assets associated
with Allowances and Certificates. The Group also excludes the share of
investment and capital expenditure attributable to non-controlling interests.
The 'adjusted investment, capital and acquisition expenditure' measure also
includes cash consideration paid by the Group in business combinations which
contribute to growth of the Group's capital asset base and is considered to be
relevant metric in context of the Group's Net Zero Acceleration Programme. As
with 'adjusted earnings per share', these measures are considered to be of
relevance to the ordinary shareholders of the Group as well as other
stakeholders and interested parties.
Reconciliations from reported measures to adjusted measures along with further
description of the rationale for those adjustments are included in the
"Adjusted Performance Measures" section at pages 52 to 60 before the summary
Financial Statements.
4.2 Exceptional items and certain re-measurements
Exceptional items are those charges or credits that are considered unusual by
nature and/or scale and of such significance that separate disclosure is
required for the financial statements to be properly understood. The trigger
points for recognition of items as exceptional items will tend to be
non-recurring although exceptional charges (or credits) may impact the same
asset class or segment over time.
Market conditions that have deteriorated or improved significantly over time
will only be captured to the extent observable at the balance sheet date.
Examples of items that may be considered exceptional include material asset or
business impairment charges, reversals of historic impairments, business
restructuring costs and reorganisation costs, significant realised gains or
losses on disposal, unrealised fair value adjustments on part disposal of a
subsidiary and provisions in relation to contractual settlements associated
with significant or material disputes and claims.
The Group operates a policy framework for estimating whether items are
considered to be exceptional. This framework, which is reviewed annually,
estimates the materiality of each broad set of potentially exceptional
circumstances, after consideration of strategic impact and likelihood of
recurrence, by reference to the Group's key performance measure of adjusted
earnings per share. This framework estimates that any relevant item greater
than £30.0m will be considered exceptional, with lower thresholds applied to
circumstances that are considered to have a greater strategic impact and are
less likely to recur. The only exception to this threshold is for gains or
losses on disposal or divestment of early stage international or offshore wind
farm development projects which are considered non-exceptional in line with
the Group's strategy to generate recurring gains from developer divestments.
Certain re-measurements are re-measurements arising on certain commodity,
interest rate and currency contracts which are accounted for as held for
trading or as fair value hedges in accordance with the Group's policy for such
financial instruments, or remeasurements on stocks of commodities held at the
balance sheet date.
This excludes commodity contracts not treated as financial instruments under
IFRS 9 where held for the Group's own use requirements which are not recorded
until the underlying commodity is delivered.
The impact of changes in Corporation Tax rates on deferred tax balances are
also included within certain remeasurements.
4.3 Other additional disclosures
As permitted by IAS 1 'Presentation of financial statements', the Group's
income statement discloses additional information in respect of joint ventures
and associates, exceptional items and certain re-measurements to aid
understanding of the Group's financial performance and to present results
clearly and consistently.
5. Accounting judgements and estimation uncertainty
In the process of applying the Group's accounting policies, management are
required to make judgements and estimates that have a significant effect on
the amounts recognised in the financial statements. Changes in the assumptions
underlying the estimates could result in a significant impact to the financial
statements. The Group's key accounting judgement and estimation areas are
noted below, with the most significant financial judgement areas as
specifically considered by the Audit Committee being highlighted separately.
5.1 Significant financial judgements and estimation uncertainties
The preparation of the Group's Summary Financial Statements has specifically
considered the following significant financial judgements all of which are
areas of estimation uncertainty.
(i) Impairment testing and valuation of certain non-current
assets - financial judgement and estimation uncertainty
The Group reviews the carrying amounts of its goodwill, other intangible
assets, specific property, plant and equipment and investment assets to
determine whether any impairment of the carrying value of those assets
requires to be recorded. Where an indicator of impairment or impairment
reversal exists, the recoverable amount of those assets is determined by
reference to value in use calculations or fair value less cost to sell
assessments, if more appropriate. The specific assets under review in the year
ended 31 March 2022 are intangible development assets and specific property,
plant and equipment assets related to gas storage and thermal power
generation. In addition, the Group performed an impairment review over the
carrying value of its investment in Neos Networks Limited.
In conducting its reviews, the Group makes judgements and estimates in
considering both the level of cash generating unit (CGU) at which common
assets such as goodwill are assessed against, as well as the estimates and
assumptions behind the calculation of recoverable amount of the respective
assets or CGUs.
Changes to the estimates and assumptions on factors such as regulation and
legislation changes (including climate change related regulation), power, gas,
carbon and other commodity prices, volatility of gas prices, plant running
regimes and load factors, discount rates and other inputs could impact the
assessed recoverable value of assets and CGUs and consequently impact the
Group's income statement and balance sheet. Detail of the Group's impairment
testing is included in note 15 to the consolidated financial statements.
(ii) Retirement benefit obligations - estimation uncertainty
The assumptions in relation to the cost of providing post-retirement benefits
during the year 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.
Further detail of the calculation basis and key assumptions used, the
resulting movements in obligations, and the sensitivity of key assumptions to
the obligation is disclosed at note 15.
(iii) Revenue recognition - Customers unbilled supply of energy -
estimation uncertainty
Revenue from energy supply activities undertaken by the Business Energy and
Airtricity businesses includes an estimate of the value of electricity or gas
supplied to customers between the date of the last meter reading and the year
end. This estimation comprises both billed revenue and unbilled revenue and
is calculated based on applying the tariffs and contract rates applicable to
customers against estimated customer consumption, taking account of various
factors including usage patterns, weather trends and externally notified
aggregated volumes supplied to customers from national settlements bodies. A
change in the assumptions underpinning the calculation would have an impact on
the amount of revenue recognised in any given period. The sensitivity
associated with this judgement factor is disclosed at note 18 of the Group's
consolidated financial statements.
Given the non-routine process, the number and the extent of differing inputs
and the requirement of management to apply judgement noted above, the
estimated revenue is considered a significant estimate made by management in
preparing the financial statements.
This estimation is subject to an internal corroboration process which compares
of calculated unbilled volumes to a theoretical 'perfect billing' benchmark
measure of unbilled volumes (in GWh and millions of therms) derived from
historical weather-adjusted consumption patterns and aggregated metering data
used in industry reconciliation processes. Furthermore, actual meter
readings and billings continue to be compared to unbilled estimates between
the balance sheet date and the finalisation of the financial statements.
Given the non-routine process, the number and the extend of differing inputs
and the requirement of management to apply judgement noted above, the
estimated revenue is considered a significant estimate made by management in
preparing the financial statements.
(iv) Valuation of other receivables - financial judgement and
estimation uncertainty
The Group holds a £100m loan note due from Ovo Energy Limited following the
disposal of SSE Energy Services on 15 January 2020. The loan carries interest
at 13.25% and is presented cumulative of accrued interest payments, discounted
at 13.25%. At 31 March 2022, the carrying value (net of expected credit loss
provision of £1.8m) is £131.0m).
Consistent with the prior year, the Group has assessed recoverability of the
loan note receivable and has recognised a provision for expected credit loss
in accordance with the requirements of IFRS 9. Due to recent market
volatility, the Group's assessment of the value of the loan note is now
considered a more significant financial judgement. While the carrying value
is considered to be appropriate, changes in economic conditions could lead to
a change in the level of expected credit loss incurred by the Group.
(v) Impact of climate change and the transition to net zero -
financial judgement and estimation uncertainty
Climate change and the transition to net zero have been considered in the
preparation of these financial statements. The Group has a clearly articulated
Net Zero Acceleration Programme ('NZAP') to lead in the UK's transition to net
zero and aligns its investment plans and business activities to that strategy.
The impact of future climate change regulation could have a material impact on
the currently reported amounts of the Group's assets and liabilities.
In preparing these financial statements, the following has been considered:
Valuation of property, plant and equipment, and impairment assessment of
goodwill
In the medium term, the transition to net zero may result in regulation
restricting electricity generation from unabated gas fired power stations. The
Group's view is that flexible generation capacity, such as the Group's fleet
of CCGT power stations, will be an essential part of the net zero transition
in order to provide security of supply to a market which is increasingly
dependent upon renewable sources, which are inherently intermittent. The
majority of the Group's GB CCGT fleet is nearing the end of its economic life
and it is not currently expected that regulation to require abatement would be
introduced before the planned closure of those power stations. Of the value
capitalised at 31 March 2022, only two assets are forecast to continue to
operate beyond 2030, being Great Island and Keadby 2. The Group's view is that
Great Island will continue to be essential to providing security of supply in
the Irish electricity market. Keadby 2 is nearing completion and has achieved
market leading efficiency throughout test operations. Therefore, the Group
considers that other assets operating in the market would be more likely to
close before Keadby 2 and the plant will continue to be required to balance
the UK electricity market beyond 2030. As a result, the useful economic life
of both assets has not been shortened when preparing the 31 March 2022
financial statements. The Group assesses the useful economic life of its
Property, Plant and Equipment assets annually. In the short term, the
economic return from the balancing activity provided by the Group's GB CCGT
assets has increased due to scarcity of supply in the UK electricity market,
resulting in the reversal of historic impairments at 31 March 2022.
A significant increase in renewable generation capacity in the Group's core
markets could potentially result in an oversupply of renewable electricity at
a point in the future, which would lead to a consequential decrease in the
power price achievable for the Group's wind generation assets. The Group has
not assessed that this constitutes an indicator of impairment at 31 March 2022
as the Group's baseline investment case models assume a centrally approved
volume of new build in these markets. The Group's policy is to test the
goodwill balances associated with wind generation portfolio for impairment on
an annual basis. Through this impairment assessment, a sensitivity to power
price, which may arise in a market with significant new build, was modelled.
This scenario indicated that, despite a modelled 10% reduction in power price,
there remained significant headroom on the carrying value in the Group's wind
generation assets.
Another climate related risk to SSE's valuation bases could be changes to
weather patterns resulting from global warming. This in turn could result in
calmer, drier weather patterns, which would reduce volumes achievable for the
Group's wind and hydro generation assets (although noting that this would
likely lead to capacity constraints and hence higher prices). This has not
been assessed as an indicator of impairment at 31 March 2022, as there is no
currently observable evidence to support that scenario directly. However, the
Group has performed a sensitivity to its impairment modelling and has assessed
that a 15% reduction in achievable volume would result in significant headroom
on the carrying value of the assets at 31 March 2022.
Valuations of decommissioning provisions
The Group holds decommissioning provisions for its Renewable and Thermal
generation assets and has retained a 60% share for the decommissioning of its
disposed Gas Production business. As noted above, the Group's view at 31 March
2022 is that climate change regulation will not bring forward the closure
dates of its CCGT fleet, many of which are expected to close before 2030.
Similarly, it is expected that fundamental changes to weather patterns, or the
impact of new wind generation capacity will not bring forward the
decommissioning of the Group's current wind farm portfolio.
The discounted share of the Gas Production provision is £249.4m. At 31 March
2022, the impact of discounting of this retained provision is £33.8m, which
is expected to be incurred across the period to 31 March 2037. If the
decommissioning activity was accelerated due to changes in legislation, the
costs of unwinding the discounting of the provision would be recognised
earlier.
5.2 Other accounting judgements - changes from prior year
(i) Accounting for the impacts of coronavirus - accounting
judgement and estimation uncertainty
For the years ended 31 March 2020 and 31 March 2021, the Group included a
specific accounting judgement and estimation uncertainty in relation to the
impact of coronavirus on its operations and going concern assessments.
During the current year, the UK economy has continued to recover from the
effects of the pandemic, and therefore the specific accounting judgement and
estimation uncertainty in relation to the impact of coronavirus is no longer
required.
5.3 Other areas of estimation uncertainty
(i) Tax provisioning
The Group has open tax issues with the tax authorities in the UK. Where
management makes a judgement that an outflow of funds is probable, and a
reliable estimate of the dispute can be made, provision is made for the best
estimate of the most likely liability.
In estimating any such liability, the Group applies a risk-based approach,
taking into account the specific circumstances of each dispute based on
management's interpretation of tax law and supported, where appropriate, by
discussion and analysis by external tax advisors. These estimates are
inherently judgemental and could change substantially over time as disputes
progress and new facts emerge. Provisions are reviewed on an ongoing basis,
however the resolution of tax issues can take a considerable period of time to
conclude and it is possible that amounts ultimately paid will be different
from the amounts provided. Provisions for uncertain tax positions are included
in current tax liabilities, and total £27.9m at 31 March 2022 (2021:
£37.6m). The Group estimates that a reasonably possible range of settlement
outcomes for the uncertain tax provisions given their binary nature is between
nil and the full value of the provision.
(ii) Decommissioning costs
The calculation of the Group's decommissioning provisions involves the
estimation of quantum and timing of cash flows to settle the obligation. The
Group engages independent valuation experts to estimate the cost of
decommissioning its Renewable, Thermal and Gas Storage assets every three
years based on current technology and prices. The last independent assessment
for Renewable and Thermal generation assets was performed in the year to 31
March 2022. The last formal assessment for Gas Storage assets was performed in
the year to 31 March 2020. Retained decommissioning costs in relation to the
disposed Gas Production business are periodically agreed with the field
operators and reflect the latest expected economic production lives of the
fields.
The dates for settlement of future decommissioning costs are uncertain,
particularly for the disposed gas exploration and production business where
reassessment of gas and liquids reserves and fluctuations in commodity prices
can lengthen or shorten the field life.
Further detail on the assumptions applied, including expected decommissioning
dates, and movement in decommissioning costs during the year are disclosed at
note 20 of the Group's consolidated financial statements.
6. Segmental information
The changes to the Group's segments in the year are explained at note 2.3 and
includes the realignment of the activities of the Distributed Energy business
(from the Enterprise segment) and the impact of the Group's investment in SGN
being classified as a discontinued operation prior to disposal on 22 March
2022. Comparative information has been represented to reflect the change to
these segments. The Group's Gas Production business was disposed on 14 October
2021 and is presented separately as a discontinued operation. The Group's
'Corporate unallocated' segment is the Group's residual corporate central
costs which cannot be allocated to individual segments and which now includes
the contribution from the Group's Neos Networks joint venture.
The types of products and services from which each reportable segment derives
its revenues are:
Continuing operations
Business Area Reported Segments Description
Transmission SSEN Transmission The economically regulated high voltage transmission of electricity from
generating plant to the distribution network in the North of Scotland.
Revenue earned from constructing, maintaining and renovating our transmission
network is determined in accordance with the regulatory licence, based on an
Ofgem approved revenue model and is recognised as charged to National Grid.
The revenue earned from other transmission services such as generator plant
connections is recognised in line with delivery of that service over the
expected contractual period and at the contracted rate.
Distribution SSEN Distribution The economically regulated lower voltage distribution of electricity to
customer premises in the North of Scotland and the South of England. This
now includes the result from the Group's out of area networks business.
Revenue earned from delivery of electricity supply to customers is recognised
based on the volume of electricity distributed to those customers and the set
customer tariff. The revenue earned from other distribution services such as
domestic customer connections is recognised in line with delivery of that
service over the expected contractual period and at the contracted rate.
Renewables SSE Renewables The generation of electricity from renewable sources, such as onshore and
offshore windfarms and run of river and pumped storage hydro assets in the UK
and Ireland. Revenue from physical generation of electricity sold to SSE EPM
is recognised as generated, based on the contracted or spot price at the time
of delivery. Revenue from national support schemes (such as Renewable
Obligation Certificates or the Capacity Market) may either be recognised in
line with electricity being physically generated or over the contractual
period, depending on the underlying performance obligation.
Thermal SSE Thermal The generation of electricity from thermal plant and the Group's interests in
multifuel assets in the UK and Ireland. Revenue from physical generation of
electricity sold to SSE EPM is recognised as generated, based on the contract
or spot price at the time of delivery. Revenue from national support schemes
(such as the Capacity Market) and ancillary generation services may either be
recognised in line with electricity being physically generated or over the
contractual period, depending on the underlying performance obligation.
Gas Storage The operation of gas storage facilities in the UK, utilising capacity to
optimise trading opportunity associated with the assets. Contribution
arising from trading activities is recognised as realised based on the
executed trades or withdrawal of gas from caverns.
Energy Customer Solutions Business Energy The supply of electricity gas to business customers in Great Britain.
Revenue earned from the supply of energy is recognised in line with the volume
delivered to the customer, based on actual and estimated volumes, and
reflecting the applicable customer tariff after deductions or discounts.
Airtricity The supply of electricity, gas and energy related services to residential and
business customers in the Republic of Ireland and Northern Ireland. Revenue
earned from the supply of energy is recognised in line with the volume
delivered to the customer, based on actual and estimated volumes, and
reflecting the applicable customer tariff after deductions or discounts.
Revenue earned from energy related services may either be recognised over the
expected contractual period or following performance of the service, depending
on the underlying performance obligation.
Business Area Reported Segments Description
Distributed Energy Distributed Energy The provision of services to enable customers to optimise and manage low
carbon energy use; development and management of battery storage and solar
assets; distributed generation, independent distribution, heat and cooling
networks, smart buildings and EV charging activities. The results of the
Group's Contracting and Rail business was included within this segment until
it was disposed on 30 June 2021.
EPM & I Energy Portfolio Management (EPM) The provision of a route to market for the Group's Renewable, Thermal and
commodity procurement for the Group's energy supply businesses in line with
the Group's stated hedging policies. Revenue from physical sales of
electricity, gas and other commodities produced by SSE is recognised as
supplied to either the national settlements body or the customer, based on
either the spot price at the time of delivery or trade price where that trade
is eligible for "own use" designation. The sale of commodity optimisation
trades is presented net in cost of sales alongside purchase commodity
optimisation trades.
Discontinued operations
Business Area Reported Segments Description
EPM & I Gas Production The production and processing of gas and oil from North Sea fields. Revenue
is recognised based on the production that has been delivered to the customer
at the specified delivery point, at the applicable contractual market price.
Gas Distribution SGN SSE's share of Scotia Gas Networks, which operates two economically regulated
gas distribution networks in Scotland and the South of England. The revenue
earned from transportation of natural gas to customers is recognised based on
the volume of gas distributed to those customers and the set customer tariff.
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 IFRS 9,
the net interest costs associated with defined benefit pension schemes,
adjustments to the retained Gas Production decommissioning and after the
removal of taxation and interest on profits from joint ventures and
associates.
Analysis of revenue, operating profit, assets and earnings before interest,
taxation, depreciation and amortisation ('EBITDA') by segment is provided on
the following pages. All revenue and profit before taxation arise from
operations within the UK and Ireland.
6.1 Revenue by segment
Reported revenue Intra-segment revenue (i) Segment revenue Reported revenue Intra- Segment revenue
segment revenue (i)
2022 2022 2022 2021 (restated*) 2021 2021 (restated*)
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 589.7 - 589.7 404.9 - 404.9
SSEN Distribution 954.6 78.6 1,033.2 834.5 69.1 903.6
SSE Renewables 357.4 418.8 776.2 281.9 544.2 826.1
SSE Thermal 844.2 285.0 1,129.2 504.0 699.0 1,203.0
Gas storage 8.7 2,471.1 2,479.8 7.1 766.0 773.1
Energy Customer Solutions
Business Energy 2,289.0 34.5 2,323.5 1,934.5 30.5 1,965.0
SSE Airtricity 1,177.3 451.3 1,628.6 1,072.7 61.5 1,134.2
Distributed Energy 176.9 25.4 202.3 334.5 33.6 368.1
EPM:
Gross trading 12,808.3 7,160.2 19,968.5 8,811.9 2,699.3 11,511.2
Optimisation trades (10,667.6) (2,914.0) (13,581.6) (7,449.2) (155.8) (7,605.0)
EPM 2,140.7 4,246.2 6,386.9 1,362.7 2,543.5 3,906.2
Corporate unallocated 69.7 147.7 217.4 89.6 189.4 279.0
Total 8,608.2 8,158.6 16,766.8 6,826.4 4,936.8 11,763.2
Discontinued operations
Gas Production 8.1 133.9 142.0 14.2 90.8 105.0
Total SSE Group 8,616.3 8,292.5 16,908.8 6,840.6 5,027.6 11,868.2
*The comparative segment revenue has been restated. See note 2.3.
(i) Significant inter-segment revenue is derived from the sale of
power and stored gas from SSE Renewables, SSE Thermal, Gas Storage and
Distributed Energy to EPM; use of system income received by SSEN Distribution
from Business Energy; Business Energy provides internal heat and light power
supplies to other Group companies; EPM provides power, gas and other
commodities to Business Energy and SSE Airtricity; Gas Production
(discontinued) sells gas from producing upstream fields to EPM; and Corporate
unallocated provides corporate and infrastructure services to all segments as
well as third parties. All are provided at arm's length.
Revenue from the Group's joint venture investment in Scotia Gas Networks
Limited, SSE's share being £60.4m (2021: £411.8m) for the period to 11 June
2021, is not recorded in the revenue line in the income statement.
External revenue by geographical location on continuing operations is as
follows:
2022 2021
£m £m
UK 7,292.1 5,834.4
Ireland 1,316.1 992.0
8,608.2 6,826.4
6.2 Operating profit/(loss) by segment
2022
Adjusted operating profit reported to the Board Depreciation on fair value uplifts JV/ Associate share of interest and tax (i) Adjustments to Gas Production decommissioning provision Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total
£m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 380.5 - - - 380.5 - 380.5
SSEN Distribution 351.8 - - - 351.8 - 351.8
SSE Renewables 568.1 (18.8) (92.9) - 456.4 (28.6) 427.8
SSE Thermal 306.3 - (9.5) - 296.8 333.3 630.1
Gas Storage 30.7 - - - 30.7 94.7 125.4
Energy Customer Solutions
Business Energy (21.5) - - - (21.5) - (21.5)
SSE Airtricity (i) 60.4 - - - 60.4 - 60.4
Distributed Energy (10.9) - - - (10.9) (18.3) (29.2)
EPM (16.8) - - - (16.8) 2,100.4 2,083.6
Corporate
Corporate unallocated (95.7) - (4.7) (13.1) (113.5) - (113.5)
Neos (16.1) (1.8) (7.0) - (24.9) (115.1) (140.0)
Total continuing operations 1,536.8 (20.6) (114.1) (13.1) 1,389.0 2,366.4 3,755.4
Discontinued operations
Gas Production 101.4 - - - 101.4 (120.8) (19.4)
SGN 21.0 - (12.8) - 8.2 487.2 495.4
Total discontinued operations 122.4 - (12.8) - 109.6 366.4 476.0
Total SSE Group 1,659.2 (20.6) (126.9) (13.1) 1,498.6 2,732.8 4,231.4
(i)The adjusted operating profit reported to the Board for SSE Airtricity
includes a correction in respect of historic use of systems costs of
£25.0m. It has been assessed that adjustment in the current year does not
materially impact prior year financial statements.
2021 (restated*)
Adjusted operating profit reported to the Board Depreciation on fair value uplifts JV/ Associate share of interest and tax (i) Adjustments to Gas Production decommissioning provision Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total
£m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 220.9 - - - 220.9 - 220.9
SSEN Distribution 275.8 - - - 275.8 - 275.8
SSE Renewables 731.8 (18.8) (71.4) - 641.6 214.4 856.0
SSE Thermal 160.5 - (19.6) - 140.9 634.4 775.3
Gas Storage (5.7) - - - (5.7) 8.5 2.8
Energy Customer Solutions
Business Energy (24.0) - - - (24.0) 20.1 (3.9)
SSE Airtricity 44.0 - - - 44.0 6.0 50.0
Distributed Energy (27.0) - - - (27.0) (49.1) (76.1)
EPM 18.4 - - - 18.4 590.1 608.5
Corporate
Corporate unallocated (58.4) (1.8) (2.4) - (62.6) 22.3 (40.3)
Neos (2.8) - (11.3) - (14.1) - (14.1)
Total continuing operations 1,333.5 (20.6) (104.7) - 1,208.2 1,446.7 2,654.9
Discontinued operations
Gas Production 33.0 - - - 33.0 - 33.0
SGN 173.0 - (86.0) - 87.0 1.6 88.6
Total discontinued operations 206.0 - (86.0) - 120.0 1.6 121.6
Total SSE Group 1,539.5 (20.6) (190.7) - 1,328.2 1,448.3 2,776.5
*The comparative operating profit by segment information has been restated.
See note 2.3.
6.3 Earnings before interest, taxation, depreciation and
amortisation ('EBITDA')
2022
Adjusted operating profit reported to the Board Depreciation/ impairment/ JV/ Associate share of depreciation and amortisation Release of deferred income Adjusted EBITDA
amortisation before exceptional charges
(note 6.2) Depreciation on fair value uplifts
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 380.5 - 103.2 - (3.8) 479.9
SSEN Distribution 351.8 - 195.9 - (11.6) 536.1
SSE Renewables 568.1 (18.8) 160.9 85.4 - 795.6
SSE Thermal 306.3 - 70.2 19.0 - 395.5
Gas Storage 30.7 - 0.8 - - 31.5
Energy Customer Solutions
Business Energy (21.5) - 11.3 - - (10.2)
SSE Airtricity 60.4 - 1.7 - - 62.1
Distributed Energy (10.9) - 7.4 - (1.3) (4.8)
EPM (16.8) - 4.5 - - (12.3)
Corporate
Corporate unallocated (95.7) - 56.1 - (0.9) (40.5)
Neos (16.1) (1.8) - 42.2 - 24.3
Total continuing operations 1,536.8 (20.6) 612.0 146.6 (17.6) 2,257.2
Discontinued operations
Gas Production 101.4 - - - - 101.4
SGN 21.0 - - 11.1 - 32.1
Total discontinued operations 122.4 - - 11.1 - 133.5
Total SSE Group 1,659.2 (20.6) 612.0 157.7 (17.6) 2,390.7
Note that the Group's 'Net Debt to EBITDA' metric is derived after removing
the proportionate EBITDA from the following debt-financed JVs: Beatrice and
Cloosh. This adjustment is £125.4m (2021: £110.5m) (restated) resulting in
EBITDA on continuing operations for inclusion in the Debt to EBITDA metric of
£2,131.2m (2021: £1,884.8m restated).
6.3 Earnings before interest, taxation, depreciation and amortisation
('EBITDA') (continued)
2021 (restated*)
Adjusted operating profit reported to the Board Depreciation/ impairment/ JV/ Associate share of depreciation and amortisation Release of deferred income Adjusted EBITDA
amortisation before exceptional charges
(note 6.2) Depreciation on fair value uplifts
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 220.9 - 87.1 - (2.6) 305.4
SSEN Distribution 275.8 - 168.8 - (11.3) 433.3
SSE Renewables 731.8 (18.8) 158.0 90.1 - 961.1
SSE Thermal 160.5 - 54.3 15.8 (1.0) 229.6
Gas Storage (5.7) - 0.8 - - (4.9)
Energy Customer Solutions
Business Energy (24.0) - 4.6 - - (19.4)
SSE Airtricity 44.0 - 7.5 - - 51.5
Distributed Energy (27.0) - 8.2 - (1.7) (20.5)
EPM 18.4 - 5.3 - - 23.7
Corporate
Corporate unallocated (58.4) (1.8) 61.6 2.7 (1.1) 3.0
Neos (2.8) - - 35.3 - 32.5
Total continuing operations 1,333.5 (20.6) 556.2 143.9 (17.7) 1,995.3
Discontinued operations
Gas Production 33.0 - - - - 33.0
SGN 173.0 - - 61.6 - 234.6
Total discontinued operations 206.0 - - 61.6 - 267.6
Total SSE Group 1,539.5 (20.6) 556.2 205.5 (17.7) 2,262.9
*The comparative EBITDA by segment information has been restated. See note
2.3.
7. Exceptional items and certain re-measurements
2022 2021 (restated*)
£m £m
Continuing operations
Exceptional items
Asset impairments and related (charges) and credits 322.6 (50.4)
Provisions for restructuring and other liabilities - (75.3)
322.6 (125.7)
Net (losses)/gains on disposals of businesses and other assets (17.6) 976.0
Total exceptional items 305.0 850.3
Certain re-measurements
Movement on operating derivatives (note 16) 2,100.4 590.1
Movement in fair value of commodity stocks (2.6) 8.5
Movement on financing derivatives (note 16) 21.0 55.6
Share of movement on derivatives in jointly controlled entities (net of tax) - (0.8)
Total certain re-measurements 2,118.8 653.4
Exceptional items and certain re-measurements on continuing operations before 2,423.8 1,503.7
taxation
Taxation
Taxation on other exceptional items (79.0) 3.1
Taxation on certain re-measurements (408.0) (125.9)
Effect of deferred tax rate change in wholly owned entities (244.7) -
Effect of deferred tax rate change in jointly controlled entities (33.2) -
Taxation (764.9) (122.8)
Total exceptional items and certain re-measurements on continuing operations 1,658.9 1,380.9
after taxation
Discontinued operations
Exceptional items
Gas production disposal and related charges (120.8) -
Net gain on disposal of jointly controlled entities 576.5 -
Share of movement on derivatives in jointly controlled entities (net of tax) (3.8) 1.6
Effect of deferred tax rate change in jointly controlled entities (85.5) -
Exceptional items and certain re-measurements on discontinued operations after 366.4 1.6
taxation
Exceptional items and certain remeasurements are disclosed across the
following categories within the income statement:
2022 2021(restated*)
£m £m
Continuing operations
Cost of sales:
Movement on operating derivatives (note 16) 2,100.4 590.1
Movement in fair value of commodity stocks (2.6) 8.5
2,097.8 598.6
Operating costs:
Asset impairments and reversals 322.6 (30.1)
SSE Energy Services related restructuring costs and asset impairments - (24.2)
Other exceptional provisions and charges (25.1) (72.8)
297.5 (127.1)
Operating income:
Net gains on disposals of businesses and other assets 4.3 976.0
Joint ventures and associates:
Share of movement on derivatives in jointly controlled entities (net of tax) - (0.8)
Effect of deferred tax rate change in jointly controlled entities (33.2) -
(33.2) (0.8)
Operating profit 2,366.4 1,446.7
Finance income
Movement on financing derivatives (note 16) 21.0 55.6
Interest income on deferred consideration receipt 3.2 1.4
24.2 57.0
Profit before taxation on continuing operations 2,390.6 1,503.7
Discontinued operations
Gas Production asset impairments and related charges (120.8) -
Joint ventures and associates:
Net gain on disposal of jointly controlled entities 576.5 -
Share of movement on derivates in jointly controlled entities (net of tax) (3.8) 1.6
Profit before tax on discontinued operations 451.9 1.6
*The comparatives have been restated. See note 2.3.
7.1 Exceptional items
7.1.1 Exceptional items in the year ended 31 March 2022
In the year to 31 March 2022, the Group recognised a net exceptional credit of
£305.0m arising from its continuing operations. The net exceptional credit is
primarily due to impairment reversals of £331.5m in relation to the Group's
GB combined cycle gas turbine ('CCGT') power stations and the Group's Great
Island CCGT plant in Ireland and impairment reversals of £97.3m related to
the Group's Gas Storage operations at Atwick and Aldbrough. These credits
have been offset by an impairment loss of £106.9m recognised in relation to
the Group's investment in Neos Networks, a further £18.9m loss recognised on
completion of the disposal of SSE Contracting on 30 June 2021 and £6.2m
consideration adjustment associated with the disposal of the Group's 50% stake
in Neos Networks, which completed in the year ended 31 March 2019.
In discontinued operations, the Group recognised an exceptional gain on the
disposal of the Group's 33.3% investment in SGN of £576.5m, offset by an
exceptional charge of £120.8m associated with the disposal of its Gas
Production assets, which completed on 14 October 2021.
The net exceptional charges/(credits) recognised can be summarised as follows:
Property, plant and equipment Assets held for sale Provisions and other charges Investments in joint ventures Other receivables Total charges/ (credits)
£m £m £m £m £m £m
Thermal Electricity Generation (i) (331.6) - - - - (331.6)
Gas storage (ii) (97.3) - - - - (97.3)
SSE Contracting (iii) - - 18.9 - - 18.9
Neos Networks (iv) - - 6.2 106.9 - 113.1
Other credits (v) (0.6) - - - (7.5) (8.1)
Total exceptional items continuing operations (429.5) - 25.1 106.9 (7.5) (305.0)
SGN disposal gain (vi) - - - - (576.5) (576.5)
Gas Production (vii) - 120.8 - - - 120.8
Total exceptional items discontinued operations - 120.8 - - (576.5) (455.7)
Total exceptional items (429.5) 120.8 25.1 106.9 (584.0) (760.7)
(i) Thermal Electricity Generation - impairment reversals
At 31 March 2022, the Group has carried out a formal impairment review in
order to assess the carrying value of its GB combined cycle gas turbine
('CCGT') power stations and the Group's Great Island CCGT plant in Ireland. As
a result of the assessment, the Group has recognised an exceptional impairment
reversal of £331.6m to the carrying value of the assets.
(ii) Gas Storage - impairment reversals
At 31 March 2022, the Group has carried out a formal impairment review in
order to assess the carrying value of its Gas Storage operations at Atwick and
Aldbrough. As a result of the assessment, the Group has recognised an
exceptional impairment reversal of £97.3m to the carrying value of the
assets.
(iii) SSE Contracting - loss on disposal
On 30 June 2021, the Group completed the sale of its Contracting and Rail
business to the Aurelius Group for headline consideration of £22.5m and £5m
of contingent consideration, based on earning targets within the business. Due
to working capital adjustments, cash consideration received was £0.2m. The
Group recorded a further exceptional loss on disposal of £18.9m on
completion, in addition to the exceptional impairment loss of £51.2m
recognised during the year ended 31 March 2021.
(iv) Neos Networks - investment impairment and adjustments to
consideration
At 31 March 2022, the Group has assessed that the value of its investment in
Neos Networks has been impaired by £106.9m.
In the year ended 31 March 2019, the Group disposed of 50% of its stake in
Neos Networks Limited (formerly SSE Telecommunications Limited) to
Infracapital Partners III, 'Infracap', for initial consideration of £215.0m
and the potential for a further £165m of contingent consideration dependent
on achievement of certain targets. In the year ended 31 March 2022, the Group
reassessed its position relating to the retained contingent elements and its
contractual position with Infracap, with the net impact being the recognition
of an exceptional charge of £6.2m.
(v) Other credits
At 31 March 2022, the Group recognised further exceptional credits of £8.1m
relating to reversal of previously recognised exceptional charges or
judgements. These included i) reassessment of impairments associated with Heat
Networks assets (credit of £0.6m), ii) credit of £3.2m (2021: £1.4m) in
relation the unwind of discounting on deferred consideration recognised on the
part disposal of SSE Slough Multifuel Limited in the year ending 31 March
2021, iii) credit of £4.3m in relation to a gain on disposal of historically
impaired land at Seabank.
Exceptional items within discontinued operations in the year ended 31 march
2022
(vi) SGN disposal gain
On 2 August 2021, the Group announced it had agreed to sell its 33.3%
investment in SGN to a consortium comprising existing SGN shareholders Ontario
Teachers' Pension Plan Board and Brookfield Super-Core Infrastructure Partners
for cash consideration of £1,225m. The transaction completed on 22 March
2022, with the Group recognising an exceptional gain on disposal of £576.5m.
See note 12 for further information.
(vii) Gas Production - loss on disposal
The Group recorded an exceptional disposal loss of £120.8m related to sale of
its Gas Production assets and liabilities to Viaro Energy through its
subsidiary RockRose Energy Limited which completed on 14 October 2021. At 30
September 2021 an impairment charge of £93.9m was recognised in relation to
the loss on sale incurred to 30 September 2021 under the transaction's lock
box mechanism. The further £26.9m recognised in the second half of the
financial year represents the profit for the business due to the buyer between
1 October 2021 and the disposal date on 14 October 2021.
7.1.2 Exceptional items in the year ended 31 March 2021
In the year to 31 March 2021, the Group recognised a net exceptional credit of
£850.3m in its continuing operations. The net exceptional credit was
primarily due to gains on disposal of the Group's stakes in Ferrybridge
Multifuel (£669.9m), Walney offshore windfarm (£188.7m) and Maple
SmartMeterCo (£70.4m). In addition, the Group reversed £26.1m of prior year
exceptional provisions for bad debt arising from coronavirus and recorded
exceptional gains following the fair value uplift of its retained stakes in
SSE Slough Multifuel Limited (£21.3m) and Seagreen Holdco 1 Limited
(£25.7m). These exceptional credits were offset by an impairment to the
Group's Great Island Thermal CCGT plant of £58.1m and a write down to fair
value less costs to sell SSE Contracting, which was held for sale at 31 March
2021, of £51.2m. Finally, the Group incurred £24.2m of further charges
related to the disposal of SSE Energy Services which was completed in 2020 and
reduced the overall gain on disposal, completed in the year ended 31 March
2019, of Neos Networks Limited by £21.8m.
The net exceptional charges/(credits) recognised can be summarised as follows:
Property, plant and equipment Intangible assets Provisions and other charges Trade receivables Other receivables Total charges/ (credits)
£m £m £m £m £m £m
Thermal Electricity Generation (i) 58.1 - - - - 58.1
Customer bad debt provisioning (ii) - - - (26.1) - (26.1)
SSE Contracting (iii) - - 51.2 - - 51.2
SSE Energy Services disposal costs (iv) 15.1 5.2 3.9 - - 24.2
Neos Networks (v) - - 20.2 - 1.6 21.8
Other charges (vi) (1.9) - - - (1.6) (3.5)
Disposal gains (vii) - - - - (976.0) (976.0)
Total exceptional items 71.3 5.2 75.3 (26.1) (976.0) (850.3)
(i) Thermal Electricity Generation
At 31 March 2021, the Group carried out a formal impairment review in order to
assess the carrying value of its CCGT plant at Great Island. As a result of
the assessment, the Group recognised an exceptional impairment of £58.1m to
the carrying value of the asset, which arose following reductions in forward
price curves and forecast electricity demand in Ireland.
(ii) Customer bad debt provisioning
In the year ending 31 March 2020, the Group recognised an exceptional
provision for exposure to bad debts of £33.7m specifically related to the
coronavirus pandemic within its Business Energy (£27.7m) and Airtricity
(£6.0m) businesses. The initial outbreak of the pandemic happened late in
2019 and the UK remained in lockdown at the date of approval of the Annual
Report on 16 June 2020, which meant that there was significant uncertainty
surrounded the judgement at that date. The provision reflected the Group's
best estimate at that date and was treated as an adjusting post balance sheet
event. During the year to 31 March 2021, the Group achieved higher cash
collections in recovery of its debt than was expected, largely due to
government support schemes and other factors. As a result, an exceptional
reversal of the provision of £20.1m in its Business Energy and £6.0m in its
Airtricity businesses was recognised.
7.1.2 Exceptional items in the year ended 31 March 2021 (continued)
(iii) SSE Contracting - impairment charges
On 1 April 2021, subsequent to the balance sheet date, the Group announced the
sale of its Contracting & Rail business to Aurelius Group. The transaction
was for initial consideration of £17.5m, plus a loan note receivable of £5m,
and a further £5m of contingent consideration based upon future financial
performance of the business. At 31 March 2021, the Group classified its
interest in the business as held for sale and impaired the carrying amount of
the held for sale asset to its net realisable value, resulting in an
impairment of £51.2m. The transaction completed on 30 June 2021.
(iv) SSE Energy Services - disposal costs
In 2020, the Group disposed of its SSE Energy Services business to Ovo Energy
Limited, incurring an exceptional loss of £237.7m. The calculation of the
loss included estimates for costs of disposal and separation which were
subsequently re-estimated in the year to 31 March 2021. These additional costs
of disposal, which total £24.2m, included increased estimates of the cost of
IT separation and decommissioning and the impairment of SSE properties which
were wholly (or substantially) leased to the disposal group.
(v) Neos Networks adjustment to consideration
In the financial year to 31 March 2019, the Group disposed of 50% of its stake
in Neos Networks Limited (formerly SSE Telecommunications Limited) to
Infracapital Partners III, 'Infracap', for initial consideration of £215.0m
and the potential for a further £165m of contingent consideration dependent
on achievement of certain targets. In the year ended 31 March 2021, the Group
received further cash proceeds of £44m relating to previously accrued
deferred consideration but also reassessed its position relating to the
retained contingent elements and its contractual position with Infracap, with
the net impact being the recognition of an exceptional charge of £20.2m.
(vi) Other charges
At 31 March 2021, the Group recognised further exceptional credits of £3.4m
relating to reversal of previously recognised exceptional charges or
judgements. These included i) reassessment of impairments associated with Heat
Networks assets (credit of £2.1m), ii) credit of £1.3m in relation to a gain
on disposal of the historically impaired Barkip anaerobic digestion plant.
(vii) Disposal gains
During the year ended 31 March 2021 the Group progressed with its disposal
plan for non-core assets announced in June 2020, which resulted in exceptional
gains on disposal. The exceptional gains on disposal totalling £976.0m are
summarised below. Further detail on the disposals in the year is provided in
note 12.
On 13 October 2020, the Group announced it had reached an agreement to dispose
of its 50% investment in Multifuel Energy Limited and Multifuel Energy 2
Limited (together 'MEL') to European Diversified Infrastructure Fund III for
headline consideration of £995m. The transaction completed on 7 January 2021.
The Group recorded an exceptional gain on disposal of £669.9m.
On 2 September 2020, the Group agreed to sell its subsidiary, SSE Renewables
Walney Limited, to Greencoat UK Wind Plc for consideration of £350m,
resulting in an exceptional gain on sale of £188.7m. SSE Renewables Walney
Limited was the holding company of the Group's non-operated 25.1% stake in
Walney Offshore Wind Farm. The disposal was not considered to be aligned to
the Group's strategic objective of gaining value from divestment of stakes in
offshore or international wind developments, therefore the gain on disposal
was recognised as exceptional.
On 23 September 2020, the Group disposed of its 33% investment in Maple Topco
Limited, the smart meter services provider, for proceeds of £95.3m, and
recognised an exceptional gain on disposal of £70.4m.
On 3 June 2020, the Group disposed of a 51% stake in its wholly owned
subsidiary, Seagreen Holdco 1 Ltd ('Seagreen 1'), to Total. The transaction
was for initial cash proceeds of £70m, plus contingent consideration of up to
£60m dependent upon future criteria being met. The Group assessed that
control of the company was lost on that date, and that the investment in
Seagreen 1 should be accounted for as an equity accounted joint venture under
the principles of IFRS 11 "Joint Arrangements". The Group acquired the joint
venture investment at fair value under the principles of IFRS 10 "Consolidated
Financial Statements", resulting in a total gain of £49.0m. Of that gain,
£25.7m was recognised as exceptional, as it represented the fair value gain
on acquisition of the joint venture investment retained by the Group. The
remaining £23.3m of the gain was included in underlying operations, in line
with the Group's stated exceptional policy (see note 4.2).
On 2 April 2020, the Group disposed of a 50% stake in its wholly owned
subsidiary, SSE Slough Multifuel Ltd, to Copenhagen Infrastructure Partners.
The transaction was for initial cash proceeds of £10m, plus contingent
consideration of up to £59.1m dependent upon future criteria being met. The
Group assessed that control of the company was lost on that date, and that the
investment in Slough Multifuel should be accounted for as an equity accounted
joint venture under the principles of IFRS 11. The Group acquired the joint
venture investment at fair value under the principles of IFRS 10, resulting in
a total gain of £41.7m. Of that gain, £21.3m was recognised as exceptional,
as it represented the fair value gain on acquisition of the joint venture
investment retained by the Group. The remaining £20.4m of the gain was
included in underlying operations, in line with the Group's stated exceptional
policy (see note 4.2).
7.1.3 Exceptional items in the year ended 31 March 2020
In the year to 31 March 2020, the Group recognised a net exceptional charge of
£209.7m in its continuing operations and a charge of £529.0m in its
discontinued operations. The net exceptional charge in continuing operations
was primarily due to the closure of Fiddler's Ferry coal fired power station
(£112.3m), provisions for bad debts as a result of coronavirus of £33.7m,
impairments to SSE assets as a result of the disposal of SSE Energy Services
(£48.8m) and other asset impairments and restructuring costs of £45.6m.
These exceptional charges were offset by gains on disposal of £30.6m in total
related to recognition of additional contingent consideration, offset by
related costs and including £2.4m of discount unwind, in relation to the 31
March 2019 disposal of SSE Telecommunications and a completion accounts
adjustment to the gain on sale of Stronelairg and Dunmaglass windfarms, also
from 31 March 2019 financial year.
In the discontinued operations, the Group incurred an exceptional impairment
on its Gas Production assets of £291.3m to adjust the carrying value of the
assets to their expected fair value on disposal, a loss on disposal of SSE
Energy Services of £226.9m and restructuring costs of £10.8m within SSE
Energy Services.
The net exceptional items recognised can be summarised as follows:
Property, plant and equipment Intangible assets Inventories Provisions and other charges Trade receivables Other receivables Total charges/ (credits)
£m £m £m £m £m £m £m
Thermal Electricity Generation (i) - - 75.6 35.0 - 1.7 112.3
Other charges (ii) - 83.0 - 11.3 33.7 - 128.0
Other income (iii) - 1.9 - 5.3 - (37.8) (30.6)
Total continuing operations - 84.9 75.6 51.6 33.7 (36.1) 209.7
SSE Energy Services (iv) - - - 237.7 - - 237.7
Gas Production (v) 231.1 60.2 - - - - 291.3
Total SSE Group 231.1 145.1 75.6 289.3 33.7 (36.1) 738.7
7.2 Certain re-measurements
The Group, through its EPM business, enters into forward commodity purchase
(and sales) contracts to meet the future demand requirements of its Business
Energy and SSE Airtricity supply businesses and to optimise the value of its
SSE Renewables and SSE Thermal. Certain of these contracts (predominately
electricity, gas and other commodity purchase contracts) are determined to be
derivative financial instruments under IFRS 9 "Financial Instruments" and as
such are required to be recorded at their fair value. Conversely, commodity
contracts that are not financial instruments under IFRS 9 (predominately
electricity sales contracts) are accounted for as 'own use' contracts and are
not recorded at their fair value. In addition, inventory purchased to utilise
excess capacity ahead of an optimised sale in the market by the Gas Storage
business is held as trading inventory at fair value.
Changes in the fair value through the profit and loss statement of those
commodity contracts designated as financial instruments and trading inventory
are therefore reflected in the income statement. The Group shows the change
in the fair value of these forward contracts and trading inventory separately
as "certain re-measurements", as the Group does not believe this
mark-to-market movement is relevant to the underlying performance of its
operating segments.
At 31 March 2022, volatility in global commodity markets has resulted in an
'in the money' mark-to-market remeasurement on commodity contracts
(predominately gas purchases) designated as financial instruments and trading
inventory of £2,100.4m (2021: £590.1m). However, the Group has executory
'own use' designated commodity contracts (predominately electricity sales)
which, if classified as financial instruments and remeasured at fair value in
accordance with IFRS 9, would significantly reduce the total fair value
remeasurement and closing asset value. A significant proportion of 'in the
money' mark-to-market remeasurement recorded at 31 March 2022 and unvalued
'own use' designated commodity contracts are expected to reverse in the next
financial year as the relevant commodity is delivered. The remaining
settlement of these contracts will predominately be within the subsequent 12
to 24 months. The mark-to-market gain in the year has resulted in a deferred
tax charge of £408.0m, which has also been classified as exceptional.
The re-measurements arising from IFRS 9 and the associated deferred tax 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 16.
7.3 Change in UK corporation tax rates
The Government announced in the Budget on 3 March 2021 that the main rate of
corporation tax will increase to 25% for the financial year beginning 1 April
2023. Prior to this date, the rate of corporation tax will remain at 19%.
The increase to 25% was substantively enacted at 24 May 2021 and therefore the
deferred tax balances have been re-measured at 31 March 2022. The rate change
resulted in an income statement charge for continuing operations of £244.7m
and an increase to the Group's deferred tax liabilities (including the effect
of equity accounted items) of £279.5m. The impact of the rate change on the
Group's share of profits of its equity accounted investments was a charge of
£55.2m for continuing operations and a charge of £5.6m for discontinued
operations.
Finance Bill 2021 also included draft legislation in respect of Capital
Allowance 'Super-deductions' of 130% in respect of General Pool plant and
machinery, alongside First Year Allowances of 50% for Special Rate Pool plant
and machinery for the two years commencing 1 April 2021. The Group expects
these changes, which were substantively enacted on 24 May 2021, to
significantly increase the deduction for Capital Allowances in the financial
years ending 31 March 2022 and 31 March 2023. An estimate of the
super-deduction has been taken into account when calculating the effective tax
for the current year.
7.3.1 Taxation
The Group has separately recognised the tax effect of the exceptional items
and certain re-measurements summarised above.
8. Finance income and costs
2022 2021 (restated*)
Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total
£m £m £m £m £m £m
Finance income:
Interest income from short term deposits 0.8 - 0.8 1.9 - 1.9
Interest on pension scheme assets ((i)) 7.6 - 7.6 8.3 - 8.3
Foreign exchange translation of monetary assets and liabilities - - - 1.3 - 1.3
Other interest receivable:
Joint ventures and associates 46.8 - 46.8 43.9 - 43.9
Other receivable 23.8 3.2 27.0 22.8 1.4 24.2
70.6 3.2 73.8 66.7 1.4 68.1
Total finance income 79.0 3.2 82.2 78.2 1.4 79.6
Finance costs:
Bank loans and overdrafts (16.2) - (16.2) (24.0) - (24.0)
Other loans and charges (340.2) - (340.2) (323.2) - (323.2)
Foreign exchange translation of monetary assets and liabilities (14.6) - (14.6) - - -
Notional interest arising on discounted provisions (5.7) - (5.7) (3.8) - (3.8)
Lease charges (30.4) - (30.4) (35.3) - (35.3)
Less: interest capitalised ((ii)) 30.7 30.7 14.2 - 14.2
Total finance costs (376.4) - (376.4) (372.1) - (372.1)
Changes in fair value of financing derivatives at fair value through profit or - 21.0 21.0 - 55.6 55.6
loss
Net finance costs (297.4) 24.2 (273.2) (293.9) 57.0 (236.9)
Presented as:
Finance income 79.0 24.2 103.2 78.2 57.0 135.2
Finance costs (376.4) - (376.4) (372.1) - (372.1)
Net finance costs (297.4) 24.2 (273.2) (293.9) 57.0 (236.9)
*The comparatives have been restated. See note 2.3.
i) The interest income on net pension assets for the year ended 31
March 2022 of £7.6m (2021: £8.3m) represents the interest earned under IAS
19.
ii) The capitalisation rate applied in determining the amount of
borrowing costs to capitalise in the period was 3.86% (2021: 3.61%).
Adjusted net finance costs are arrived at after the following adjustments:
2022 2021 (restated*)
£m £m
Net finance costs (273.2) (236.9)
(add)/less:
Share of interest from joint ventures and associates (67.8) (82.4)
Interest on pension scheme liabilities (7.6) (8.3)
Movement on financing derivatives (note 16) (21.0) (55.6)
Exceptional item (3.2) (1.4)
Adjusted net finance costs (372.8) (384.6)
Notional interest arising on discounted provisions 5.7 3.8
Lease charges 30.4 35.3
Hybrid coupon payment (note 14) (50.7) (46.6)
Adjusted net finance costs for interest cover calculations (387.4) (392.1)
*The comparatives have been restated. See note 2.3.
9. Taxation
9.1 Analysis of charge recognised in the income statement
2022 2021 (restated*)
Before exceptional items and certain re-measure-ments Exceptional items and certain re-measure-ments Total Before exceptional items and certain re-measure-ments Exceptional items and certain re-measure-ments Total
£m £m £m £m £m £m
Current tax
UK corporation tax 82.5 8.8 91.3 84.1 6.2 90.3
Adjustments in respect of previous years (5.9) - (5.9) (11.4) - (11.4)
Total current tax 76.6 8.8 85.4 72.7 6.2 78.9
Deferred tax
Current year 76.7 478.2 554.9 34.0 113.3 147.3
Effect of change in tax rate - 244.7 244.7 - - -
Adjustments in respect of previous years (2.2) - (2.2) (5.2) 3.3 (1.9)
Total deferred tax 74.5 722.9 797.4 28.8 116.6 145.4
Total taxation charge 151.1 731.7 882.8 101.5 122.8 224.3
*The comparatives have been restated. See note 2.3
The Group has separately recognised the tax effect of the exceptional items
and certain re-measurements summarised above. The rate change to 25% in
respect of periods commencing after 1 April 2023 included in Finance Bill 2021
has been recognised during the year ended 31 March 2022, as it was
substantively enacted on 24 May 2021.
9.2 Adjusted current tax charge
The 'adjusted current tax charge' and the 'adjusted effective rate of tax',
which are presented in order to best represent underlying performance by
making similar adjustments to the 'adjusted profit before tax' measure, are
arrived at after the following adjustments:
2022 2022 2021 (restated*) 2021 (restated*)
£m % £m %
Group tax charge and effective rate 882.8 25.4 224.3 9.3
Less: reported deferred tax credit and effective rate (797.4) (22.9) (145.4) (6.1)
Reported current tax charge and effective rate 85.4 2.5 78.9 3.2
Effect of adjusting items 4.8 5.1
Reported current tax charge and effective rate on adjusted basis 85.4 7.3 78.9 8.3
add:
Share of current tax from joint ventures and associates 30.6 2.6 13.2 1.4
Less:
Current tax credit on exceptional items (8.9) (0.7) (6.2) (0.6)
Adjusted current tax charge and effective rate 107.1 9.2 85.9 9.1
*The comparatives have been restated. See note 2.3
10. Dividends
10.1 Ordinary dividends
Year ended 31 March 2022 Year ended 31 March 2021
Total Settled via scrip Pence per ordinary share Total Settled via scrip Pence per ordinary share
£m £m £m £m
Interim - year ended 31 March 2022 271.8 28.2 25.5 - - -
Final - year ended 31 March 2021 590.5 327.5 56.6 - - -
Interim - year ended 31 March 2021 - - - 254.3 13.5 24.4
Final - year ended 31 March 2020 - - - 582.1 25.5 56.0
862.3 355.7 836.4 39.0
The final dividend of 56.6p per ordinary share declared in respect of the
financial year ended 31 March 2021 (2020: 56.0p) was approved at the Annual
General Meeting on 22 July 2021 and was paid to shareholders on 23 September
2021. Shareholders were able to elect to receive ordinary shares credited as
fully paid instead of the cash dividend under the terms of the Company's scrip
dividend scheme. For dividends paid in relation to the financial year ended 31
March 2022 and in relation to the subsequent years to 31 March 2026, the Group
will repurchase shares to reduce the scrip's dilutive effects, if the scrip
take-up exceeds 25% of the full year dividend in any given year.
An interim dividend of 25.5p per ordinary share (2021: 24.4p) was declared and
paid on 10 March 2022 to those shareholders on the SSE plc share register on
14 January 2022. Shareholders were able to elect to receive ordinary shares
credited as fully paid instead of the interim cash dividend under the terms of
the Company's scrip dividend scheme.
The proposed final dividend of 60.2p per ordinary share based on the number of
issued ordinary shares at 31 March 2022 is subject to approval by shareholders
at the Annual General Meeting and has not been included as a liability in
these financial statements. Based on shares in issue at 31 March 2022, this
would equate to a final dividend of £646.0m.
11. Earnings per Share
11.1 Basic earnings per share
The calculation of basic earnings per ordinary share at 31 March 2022 is based
on the net profit attributable to ordinary shareholders and a weighted average
number of ordinary shares outstanding during the year ended 31 March 2022.
11.2 Adjusted earnings per share
Adjusted earnings per share has been calculated by excluding the charge for
deferred tax, interest on net pension liabilities under IAS 19, retained Gas
Production decommissioning costs, the depreciation charged on fair value
uplifts, the Group's share of non-recurring joint venture refinancing costs
and the impact of exceptional items and certain re-measurements (note 7).
Year ended 31 March 2022 Year ended 31 March 2022 Year ended 31 March 2021 (restated*) Year ended 31 March 2021 (restated*)
Continuing operations Earnings Earnings per share Earnings Earnings per share
£m pence £m pence
Basic earnings on continuing operations used to calculate adjusted EPS 2,548.7 241.6 2,147.1 206.3
Exceptional items and certain re-measurements (note 7) (1,658.9) (157.3) (1,380.9) (132.8)
Basic excluding exceptional items and certain re-measurements 889.8 84.3 766.2 73.5
Adjusted for:
Decommissioning Gas Production 13.1 1.2 - -
Depreciation charge on fair value uplifts 20.6 2.0 20.6 2.0
Interest on net pension scheme assets/(liabilities) (7.6) (0.7) (8.3) (0.8)
Deferred tax (note 9) 74.5 7.1 28.8 2.8
Deferred tax from share of joint ventures and associates 15.8 1.5 9.1 0.9
Adjusted 1,006.2 95.4 816.4 78.4
Basic 2,548.7 241.6 2,147.1 206.3
Dilutive effect of outstanding share options - (0.5) - (0.3)
Diluted 2,548.7 241.1 2,147.1 206.0
*The comparatives have been restated. See note 2.3
Reported earnings per share
2022 2022 2021 (restated*) 2021 (restated*)
Earnings Earnings per share Earnings Earnings
per share
£m pence £m
pence
Basic
Earnings per share on continuing operations 2,548.7 241.6 2,147.1 206.3
Earnings per share on discontinued operations 482.7 45.7 129.1 12.4
Earnings per share attributable to ordinary shareholders 3,031.4 287.3 2,276.2 218.7
Dilutive effect of outstanding share options - (0.5) - (0.4)
Diluted earnings per share attributable to ordinary shareholders 3,031.4 286.8 2,276.2 218.3
*The comparatives have been restated. See note 2.3.
The weighted average number of shares used in each calculation is as follows:
31 March 2022 31 March 2021
Number of shares Number of shares
(millions) (millions)
For basic and adjusted earnings per share 1,055.0 1,040.9
Effect of exercise of share options 2.0 1.6
For diluted earnings per share 1,057.0 1,042.5
11.3 Dividend cover
The Group's adjusted dividend cover metric is calculated by comparing adjusted
earnings per share to the projected dividend per share payable to ordinary
shareholders.
2022 2022 2022 2021 (restated*) 2021 2021 (restated*)
Earnings per share Dividend per share Dividend Cover Earnings per share Dividend per share Dividend cover
(pence) (pence) (times) (pence) (pence) (times)
Reported earnings per share (continuing operations) 241.6 85.7 2.82 206.3 81.0 2.55
Adjusted earnings per share (continuing operations) 95.4 85.7 1.11 78.4 81.0 0.97
*The comparatives have been restated. See note 2.3.
12. Acquisitions, disposals and held-for-sale assets
12.1 Acquisitions
12.1.1 Acquisition of 80% equity interest in Japanese offshore wind
development platform
On 29 October 2021 the Group, through its wholly owned subsidiary SSE
Renewables International Holdings Limited, completed the acquisition of an 80%
equity interest in an offshore wind development platform from Pacifico Energy
and its affiliates for $193m USD upfront cash consideration and a further $30m
USD deferred consideration subject to a number of conditions. This
acquisition is aligned to the Group's published strategy to pursue overseas
renewable opportunities.
An 80% equity stake was acquired in the following entities and vehicles: SSE
Pacifico K.K., Aichi Offshore Wind Power No.1 G.K., Aichi Offshore Wind Power
No.2 G.K., Enshunada Offshore Wind Power No.1 G.K., Goto-Fukue Offshore Wind
Power G.K., Izu Islands Offshore Wind Power G.K., Minami-Izu Offshore Wind
Power No.1 G.K., Niigata Offshore Wind Power No.1 G.K., Oki Islands Offshore
Wind Power G.K., Wakayama-West Offshore Wind Power No.1 G.K. and Wakayama-West
Offshore Wind Power No.2 G.K..
Acquisition costs of £7.2m were expensed to operating costs in the year.
The subsidiaries acquired had nil revenue and contributed a loss of £0.1m to
the consolidated result of the Group for the year. The assets and liabilities
acquired largely comprise tangible and intangible assets, being windfarm site
development costs and goodwill as set out in the table below. The goodwill
recognised represents early stage intangible development costs that do not
qualify for separate recognition. The non-controlling interest acquired was
measured at fair value, where fair value represents the non-controlling
interest's proportionate share of the assets and liabilities acquired through
the transaction.
12.1.1 Acquisition of 80% equity interest in Japanese offshore wind
development platform (continued)
The assets and liabilities acquired largely comprise tangible and intangible
assets, being early-stage development costs and goodwill as below:
Fair value at 29 October 2021
£m
Net assets acquired:
Intangible development assets 20.5
Cash 4.3
Other assets 0.4
Total net assets acquired 25.2
Non-controlling interest (40.6)
Goodwill 176.7
161.3
Cash consideration 141.3
Deferred consideration 20.0
161.3
During the year the Group made other smaller asset acquisitions (of special
purpose vehicles as opposed to businesses) for consideration of £4.0m. In
the prior year there were no significant acquisitions. The acquired intangible
assets of £197.8m consist of the goodwill balance and development assets
noted above (£197.2m) plus other immaterial acquired assets. The cash
consideration for the business combination of £141.3m is included in the
Group's Adjusted investment, capital and acquisition metric.
12.2 Disposals
12.2.1 Current year disposals
During the year the Group completed its strategic disposal plan for non-core
assets announced in June 2020, and continued its programme of strategic
partnering generating developer gains. As a result, it recognised an
exceptional gain on disposal of £576.5m of its investment in SGN
(discontinued), a combined exceptional loss of £120.8m on disposal of SSE
E&P UK Limited (discontinued) and other less material exceptional gains
and losses on disposal (see note 7) and a non-exceptional gain on disposal of
£67.1m. The disposals below primarily comprise sales of stakes in
non-operated investment assets, or the sale of a stake in early stage offshore
windfarm development, which aligns to the Group's stated policy to realise
value from these assets.
Sale of investment in SSE Contracting: On 30 June 2021, the Group completed
the sale of its Contracting and Rail business to the Aurelius Group for
headline consideration of £22.5m and £5m of contingent consideration, based
on earning targets within the business. Due to working capital movements in
the business subsequent to the transaction agreement, cash consideration
received was £0.2m. The Group recorded an additional exceptional loss on
disposal of £18.9m on completion, in addition to the exceptional impairment
loss of £51.2m recognised during the year ended 31 March 2021.
Sale of stake in Dogger Bank C: On 10 February 2022, SSE completed the sale of
a 10% stake in Dogger Bank C to Eni for consideration of £70.0m and
contingent consideration of up to £40m, resulting in a non-exceptional gain
on disposal of £64.3m. The gain has been recognised within the adjusted
profit of the Group in line with the Group's stated exceptional policy for
gains on disposal of divestments in early stage offshore windfarms (see note
4.2). After the sale the Group's shareholding in Dogger Bank C is 40%.
Other disposals: On 19 August 2021 the Group received a dividend of £4.8m
following the sale of Smarter Grid Solutions by the Environmental Energies
Fund Limited, resulting in a non-exceptional gain on sale of £2.8m.
Sale of discontinued operations
Sale of investment in SGN: On 2 August 2021, the Group announced it had agreed
to sell its 33.3% investment in SGN to a consortium comprising existing SGN
shareholders Ontario Teachers' Pension Plan Board and Brookfield Super-Core
Infrastructure Partners for cash consideration of £1,225m. The agreement was
conditional on certain regulatory approvals and completed on 22 March 2022,
with the Group recognising an exceptional gain on disposal of £576.5m.
Sale of investment in Gas Production: On 14 October 2021, the Group completed
the sale of its Gas Production business to Viaro Energy through its subsidiary
RockRose Energy Limited. In the period to 14 October 2021, the Gas Production
business had an operating profit (recognised in discontinued operations) of
£101.4m. The Group recorded a combined loss on sale of £120.8m following on
completion of the disposal.
12.2.2 Prior year disposals
Sale of investment in Ferrybridge Multifuel: On 13 October 2020, the Group
announced it had reached an agreement to dispose of its 50% joint venture
investment in Multifuel Energy Limited and Multifuel Energy 2 Limited
(together 'MEL'), to European Diversified Infrastructure Fund III for headline
consideration of £995m. The agreement was subject to antitrust approval by
the European Commission, which was granted on 7 January 2021 when the
transaction completed. The Group recorded an exceptional gain on disposal of
£669.9m on completion.
Sale of investment in Walney Windfarm: On 2 September 2020, the Group agreed
to sell its subsidiary, SSE Renewables Walney Limited, to Greencoat UK Wind
Plc for consideration of £350m, resulting in an exceptional gain on sale of
£188.7m. SSE Renewables Walney Limited was the holding company of the Group's
non-operated 25.1% joint venture stake in Walney Offshore Windfarm. As
essentially a financial investment and as Walney Offshore Wind Farm Limited
has been operational for several years, the disposal is not considered to be
aligned to the Group's strategic objective of gaining value from divestment of
stakes in offshore or international wind developments, therefore the gain on
disposal has been recognised as exceptional.
Sale of investment in Maple Smart Meter Assets: On 23 September 2020, the
Group disposed of its 33% joint venture investment in Maple Topco Limited, the
smart meter services provider, for proceeds of £95.3m, recognising an
exceptional gain on disposal of £70.4m.
Sale of stake in Doggerbank A&B Windfarms: On 4 December 2020, the Group
announced it had agreed to sell a 10% stake in Doggerbank A and Doggerbank B
windfarms to Eni for consideration of £206.3m, including an interest
adjustment of £3.8m, resulting in a non-exceptional gain on disposal of
£202.8m. The gain has been recognised within the adjusted profit of the Group
in line with the Group's stated exceptional policy for gains on disposal of
divestments in offshore windfarms (see note 4.2).
On the same date, Eni entered into an agreement with Equinor to purchase a
further 10% stake in the development. Following these transactions, SSE and
Equinor each hold a 40% equity stake and Eni a 20% stake.
Sale of stake in Seagreen 1 Windfarm: On 3 June 2020, the Group disposed of a
51% stake in its wholly owned subsidiary, Seagreen Holdco 1 Ltd ('Seagreen
1'), to Total. The transaction was for initial cash proceeds of £70m, plus
contingent consideration of up to £60m dependent upon future criteria being
met. The Group has assessed that control of the company was lost on that date,
and that the investment in Seagreen 1 should be accounted for as an equity
accounted joint venture under the principles of IFRS 11 "Joint Arrangements".
The Group acquired the joint venture investment at fair value under the
principles of IFRS 10 "Consolidated Financial Statements", resulting in a
total gain of £49.0m. Of that gain, £25.7m was recognised as exceptional, as
it represented the fair value gain on acquisition of the joint venture
investment retained by the Group. The remaining £23.3m of the gain was
included in underlying operations, in line with the Group's stated exceptional
policy (see note 4.2).
Sale of stake in Slough Multifuel: On 2 April 2020, the Group disposed of a
50% stake in its wholly owned subsidiary, SSE Slough Multifuel Ltd, to
Copenhagen Infrastructure Partners. The transaction was for initial cash
proceeds of £10m, plus contingent consideration of up to £59.1m dependent
upon future criteria being met. The Group has assessed that control of the
company was lost on that date, and that the investment in Slough Multifuel
should be accounted for as an equity accounted joint venture under the
principles of IFRS 11 "Joint Arrangements". The Group acquired the joint
venture investment at fair value under the principles of IFRS 10 "Consolidated
Financial Statements", resulting in a total gain of £41.7m. Of that gain,
£21.3m was recognised as exceptional, as it represented the fair value gain
on acquisition of the joint venture investment retained by the Group. The
remaining £20.4m of the gain was included in underlying operations, in line
with the Group's stated exceptional policy (see note 4.2).
12.2.3 Disposal reconciliation
The following table summarises disposals of subsidiaries, businesses and
assets during the financial year, including other assets and investments
disposed of as part of the normal course of business but before recognition of
impairment charges in the year, which are noted in the relevant respective
notes to the financial statements.
2022 2021
Total Total
£m £m
Net assets disposed:
Property, plant and equipment 105.1 25.7
Intangible and biological assets 28.4 348.4
Investments and loans - joint ventures 662.5 490.3
Other investments 2.0 -
Deferred tax asset 14.8 0.6
Inventories 6.9 -
Trade and other receivables 28.5 29.2
Cash and cash equivalents - 172.8
Trade and other payables (33.2) (23.8)
Deferred tax liability - (0.2)
Derivative financial liabilities - (3.1)
Provisions (159.8) -
Loans and borrowings (0.8) (438.7)
Net assets 654.4 601.2
Proceeds of disposal:
Consideration 1,372.1 1,753.6
Fair value uplift - 47.0
Recognition of investment on loss of control - 51.5
Provision recognised on disposal (35.0) -
Costs of disposal (29.8) (23.0)
Net proceeds 1,307.3 1,829.1
Recycle of amounts recognised in hedge reserve (28.2)
Gain on disposal 624.7 1,227.9
Presentation:
Continuing operations
Income statement exceptional (loss)/gain (18.9) 976.0
Income statement non-exceptional credit 67.1 251.9
48.2 1,227.9
Discontinued operations
Income statement exceptional credit 576.5 -
Total SSE Group 624.7 1,227.9
Net proceeds of disposal 1,279.1 1,829.1
Fair value uplift - (47.0)
Recycle of amounts recognised in hedge reserve 28.2 -
Provision recognised on disposal 35.0 -
Recognition of investment on loss of control - (51.5)
Costs of disposal 29.8 23.0
Deferred consideration (5.2) (18.8)
Total cash proceeds 1,366.9 1,734.8
Less: cash disposed - (172.8)
Net cash proceeds 1,366.9 1,562.0
12.3 Held-for-sale assets and liabilities
There were no assets and liabilities classified as held for disposal at 31
March 2022. The assets held for disposal at 31 March 2021 the Group's Gas
Production assets and liabilities, which were sold to Viaro Energy through its
subsidiary RockRose Energy Limited on 14 October 2021 and the assets and
liabilities of the Group's Enterprise Contracting and Rail Business, which was
sold to Aurelius Group on 30 June 2021.
Gas Production SSE Contracting Total
2021
£m £m £m
Property, plant and equipment 167.5 - 167.5
Goodwill and other intangible assets 49.6 - 49.6
Deferred tax asset 14.7 0.2 14.9
Inventories 2.6 2.1 4.7
Trade and other receivables 7.7 94.7 102.4
Total assets 242.1 97.0 339.1
Trade and other payables (9.1) (46.3) (55.4)
Current tax liabilities - (0.1) (0.1)
Provisions (149.3) (46.5) (195.8)
Loans and borrowings - (2.2) (2.2)
Total liabilities (158.4) (95.1) (253.5)
Net assets/(liabilities) held for sale 83.7 1.9 85.6
12.4 Discontinued operations
The discontinued operations during 31 March 2022 represent the Group's
investment in SGN, which was disposed on 22 March 2022 and the Group's
investment in Gas Production assets, which was sold on 14 October 2021. In the
prior year comparative, the discontinued operations included Gas Production,
and the Group's Enterprise Contracting and Rail Business, which was sold on 30
June 2021. The profit/(loss) of the discontinued operation is as follows:
2022 2021 (restated*)
Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total Before exceptional items and certain re-measurements Exceptional items and certain re-measurements Total
£m £m £m £m £m £m
Revenue 142.0 - 142.0 105.0 - 105.0
Cost of sales (38.9) - (38.9) (68.9) - (68.9)
Gross profit 103.1 - 103.1 36.1 - 36.1
Operating costs (1.7) (120.8) (122.5) (3.1) - (3.1)
Operating profit/(loss) before joint ventures 101.4 (120.8) (19.4) 33.0 - 33.0
Joint ventures:
Share of operating profit 21.0 - 21.0 173.0 - 173.0
Share of interest (11.1) - (11.1) (64.1) - (64.1)
Share of movement on derivatives - (4.6) (4.6) - 1.9 1.9
Share of tax (1.7) (84.7) (86.4) (21.9) (0.3) (22.2)
Share of profit/(loss) on joint ventures 8.2 (89.3) (81.1) 87.0 1.6 88.6
Operating profit/(loss) 109.6 (210.1) (100.5) 120.0 1.6 121.6
Finance income 6.8 - 6.8 9.8 - 9.8
Finance costs (0.1) - (0.1) (2.3) - (2.3)
Profit/(loss) for the year 116.3 (210.1) (93.8) 127.5 1.6 129.1
Profit on disposal of discontinued operations, after tax - 576.5 576.5 - - -
Profit/(loss) form discontinued operations, net of tax 116.3 366.4 482.7 127.5 1.6 129.1
*The comparatives have been restated. See note 2.3.
Other comprehensive income from discontinued operations
2022 2021
£m £m
Items that will subsequently be reclassified to profit or loss:
Share of other comprehensive gain/(loss) of joint ventures and associates, net 0.5 4.7
of taxation
Items that will not be reclassified to profit or loss:
Share of other comprehensive (loss)/income of joint ventures, net of taxation (1.7) (23.3)
Other comprehensive loss from discontinued operations (1.2) (18.6)
Cashflows from discontinued operations
2022 2021
£m £m
Cashflows from operating activities 11.6 26.8
Cashflows from investing activities (11.6) (26.8)
Net (decrease)/increase in cash and cash equivalents in discontinued - -
operations
13. Sources of finance
13.1 Capital management
The Board's policy is to maintain a strong balance sheet and credit rating to
support investor, counterparty and market confidence in the Group 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 31 March 2022, the Group's
long-term credit rating was BBB+ stable outlook for Standard & Poor's and
Baa1 stable outlook for Moody's.
The maintenance of a medium-term corporate model is a key control in
monitoring the development of the Group's capital structure and allows for
detailed scenarios and sensitivity testing. Key ratios drawn from this
analysis underpin regular updates to the Board and include the ratios used by
the rating agencies in assessing the Group's credit ratings.
The Group'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. On 1
April 2021, the Group exercised its option to redeem its €600m hybrid equity
bond (£421.1m). The bond had no fixed redemption date, but the Group had
the option to redeem all of the bond on 1 April 2021 or every 5 years
thereafter.
SSE's adjusted net debt and hybrid capital was £8.6bn at 31 March 2022,
compared with £8.9bn at 31 March 2021.
The £1.5bn of committed bank facilities, being a £1.3bn Revolving Credit
Facility with a March 2026 maturity and a £0.2bn bilateral facility with an
October 2026 maturity. These facilities can also be utilised to cover short
term funding requirements; however, they remain undrawn for most of the time
and were undrawn at 31 March 2022. In addition, the Group has an established
€1.5bn Euro commercial paper programme (paper can be issued in a range of
currencies and swapped into Sterling) and at 31 March 2022 £507m of
commercial paper was outstanding compared to £nil at 31 March 2021.
The Group capital comprises:
2022 2021
£m £m
Total borrowings (excluding lease obligations) 8,671.2 8,989.6
Less: Cash and cash equivalents (1,049.3) (1,600.2)
Net debt (excluding hybrid equity) 7,621.9 7,389.4
Hybrid equity 1,051.0 1,472.4
Cash held as collateral and other short term loans (74.7) 37.1
Adjusted Net Debt and Hybrid Equity 8,598.2 8,898.9
Equity attributable to shareholders of the parent 8,082.2 5,208.7
Total capital excluding lease obligations 16,680.4 14,107.6
13.1 Capital management (continued)
Under the terms of its major borrowing facilities, the Group is required to
comply with the following financial covenant:
· Interest Cover Ratio: The Group shall procure that the ratio of
Operating Profit to Net Interest Payable for any relevant period is not less
than 2.5 to 1.
The following definitions apply in the calculation of these financial
covenants:
· "Operating Profit" means, in relation to a relevant period, the
profit on ordinary activities before taxation (after adding back Net Interest
Payable) of the Group for that relevant period but after adjusting this amount
to exclude any exceptional profits (or losses) and, for the avoidance of
doubt, before taking account of any exceptional profits (or losses) and
excluding the effect of IFRS 9 remeasurements.
· "Net Interest Payable" means, in respect of any relevant period,
interest payable during that relevant period less interest receivable during
that relevant period.
In summary, 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 the Group's capital management approach during the year.
13.2 Loans and borrowings
2022 2021
£m £m
Current
Other short-term loans 1,118.7 864.7
Lease obligations 72.1 72.9
1,190.8 937.6
Non-current
Loans 7,552.5 8,124.9
Lease obligations 321.4 348.1
7,873.9 8,473.0
Total loans and borrowings 9,064.7 9,410.6
Cash and cash equivalents (1,049.3) (1,600.2)
Unadjusted net debt 8,015.4 7,810.4
Add/(less):
Hybrid equity (note 14) 1,051.0 1,472.4
Lease obligations (393.5) (421.0)
Cash held as collateral and other short term loans (74.7) 37.1
Adjusted net debt and hybrid capital 8,598.2 8,898.9
Cash and cash equivalents (which are presented as a single class of asset on
the face of the balance sheet) comprise cash at bank and short term highly
liquid investments with a maturity of six months or less. The cash and cash
equivalents are lower year on year due to a lower surplus cash position at
March 2022 as a result no debt issue in March 2022 compared to a £500m debt
issue in March 2021.
13.2.1 Borrowing facilities
The Group has an established €1.5bn Euro commercial paper programme (paper
can be issued in a range of currencies and swapped into sterling) and as at 31
March 2022 there was £507m commercial paper outstanding (2021: £nil). The
Group also has £1.5bn of revolving credit facilities (see note 21.1). These
facilities continue to provide back-up to the commercial paper programme and,
as at 31 March 2022 these facilities were undrawn (2021: undrawn).
During the year to 31 March 2022, the Group through its Scottish Hydro
Electric Transmission entity priced and committed to a £350m dual tranche
private placement being a £175m 10 year tranche @ 3.13% and £175m 15 year
tranche @ 3.24% giving an all in average rate of 3.19%. The pricing was
committed to in March 2022 and the proceeds will be received on 30 June 2022.
In April 2022 SSE plc issued a €1bn NC6 equity accounted Hybrid bond @ 4% to
re-finance the dual tranche debt accounted Hybrid bonds whose first call date
occurs on 16 September 2022 although SSE will take advantage of the 3 month
par call option on these Hybrid bonds meaning the bonds will be repaid on 16
June 2022. The €1bn equity accounted Hybrid bond was left in Euros with the
proceeds used to cover the portion of the maturing Hybrid that was swapped to
Euros and a portion of the costs associated with the acquisition of the
European onshore renewables development platform from Siemens Gamesa
Renewables Energy.
The weighted average incremental borrowing rate applied to lease liabilities
during the year was 4.92% (2021: 4.84%). Incremental borrowing rates applied
to individual lease additions in the year ranged between 4.81% to 5.06% (2021:
4.01% to 5.06%).
13.3 Reconciliation of net increase in cash and cash equivalents to
movement in adjusted net debt and hybrid equity
2022 2021
£m £m
(Decrease)/increase in cash and cash equivalents (550.9) 1,435.6
Add/(less):
New borrowing proceeds (506.1) (1,912.9)
New hybrid equity proceeds - (1,051.0)
Repayment of borrowings 865.0 1,895.9
Disposal of borrowings - 438.6
Repayment of hybrid equity (i) 421.4 748.3
Non-cash movement on borrowings (40.5) 306.0
Increase/(decrease) in cash held as collateral and other short-term loans 111.8 (293.5)
Movement in adjusted net debt and hybrids 300.7 1,567.0
(i) On redemption of the hybrid equity £4.6m of costs were
recognised within retained earnings.
14. Equity
14.1 Share capital
Number
(millions) £m
Allotted, called up and fully paid:
At 31 March 2021 1,049.1 524.5
Issue of shares (i) 24.0 12.0
At 31 March 2022 1,073.1 536.5
i. Shareholders were able to elect to receive ordinary shares in
place of the final dividend of 56.6p per ordinary share (in relation to year
ended 31 March 2021) and the interim dividend of 25.5p (in relation to the
current year) under the terms of the Company's scrip dividend scheme. This
resulted in the issue of 22,201,443 and 1,782,473 new fully paid ordinary
shares respectively (2021: 1,918,977 and 883,408). In addition, the Company
issued 0.6m (2021: 0.9m) shares during the year under the savings-related
share option schemes (all of which were settled by shares held in Treasury)
for a consideration of £6.3m (2021: £10.4m).
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.
Of the 1,073m shares in issue, 5.5m are held as treasury shares. These shares
will be held by the Group and used to award shares to employees under the
Sharesave scheme in the UK.
During the year, on behalf of the Company, the employee share trust purchased
0.9m shares for a total consideration of £14.1m (2021: 0.9m shares,
consideration of £12.9m) to be held in trust for the benefit of employee
share schemes. At 31 March 2022, the trust held 6.3m shares (2021: 7.7m) which
had a market value of £110.0m (2021: £112.5m).
14.2 Hybrid Equity
2022 2021
£m £m
EUR 600m 2.375% perpetual subordinated capital securities (i) - 421.4
GBP 600m 3.74% perpetual subordinated capital securities (ii) 598.0 598.0
EUR 500m 3.125% perpetual subordinated capital securities (ii) 453.0 453.0
1,051.0 1,472.4
(i) March 2015 €600m Hybrid Capital Bonds
The March 2015 hybrid equity bonds had no fixed redemption date, but the
Company may, at its sole discretion, redeem all, but not part, of the capital
securities at their principal amount. The date for the first discretionary
redemption of the €600m hybrid equity bond was executed and this hybrid bond
was redeemed on 1 April 2021.
(ii) 2 July 2020 £600m and €500m Hybrid Capital Bonds
The hybrid capital bonds issued in July 2020 have no fixed redemption date,
but the Company may, at its sole discretion, redeem all but not part of the
capital securities at their principal amount. The date for the first potential
discretionary redemption of the £600m hybrid bond is 14 April 2026 and then
every 5 years thereafter. The date for the first potential discretionary
redemption of the €500m hybrid capital bond is 14 July 2027 and then every 5
years thereafter. For the £600m Hybrid the coupon payments are made annually
on 14 April and for the €500m Hybrid the coupon payments are made annually
on 14 July.
(iii) Coupon Payments
In relation to the €600m hybrid equity bond, the final coupon payment of
£17.5m (2021: £17.5m) was made on 1 April 2021 and for the £750m hybrid
equity bond the final coupon payment of £29.1m was made on 10 September 2020.
In relation to the £600m hybrid equity bond a coupon payment of £16.8m
(2021: £nil) was made on 14 April 2021 and for the €500m hybrid equity bond
a coupon payment of £16.4m (2021: £nil) was made on 14 July 2021.
The coupon payments in the year to 31 March 2022 consequently totalled £50.7m
(2021: £46.6m).
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 on redemption; or on a
dividend payment on ordinary shares, both of which occur at the sole option of
the Company. Interest will accrue on any deferred coupon.
14.3 Equity attributable to non-controlling interests
Equity attributable to non-wholly owned subsidiaries which are consolidated
within the financial statements of the Group under IFRS.
15. Retirement Benefit Obligations
15.1 Valuation of combined pension schemes
Quoted Unquoted Value Quoted Unquoted Value
at 31 March 2022 at 31 March 2021
£m £m £m £m £m £m
Equities 511.5 - 511.5 626.8 - 626.8
Government bonds 1,332.7 - 1,332.7 1,139.9 - 1,139.9
Corporate bonds 167.6 - 167.6 176.7 - 176.7
Insurance contracts - 713.5 713.5 - 780.3 780.3
Other investments 1,585.9 - 1,585.9 1,588.4 - 1,588.4
Total fair value of plan assets 4,311.2 4,312.1
Present value of defined benefit obligation (3,726.3) (3,955.1)
Surplus in the schemes 584.9 357.0
Deferred tax thereon (i) (146.2) (67.8)
Net pension asset 438.7 289.2
(i) Deferred tax rate of 25% applied to pension surplus and deficit
positions (2021: 19%).
Balance sheet presentation Balance sheet presentation
2021
2022
£m £m
Retirement benefit asset 584.9 543.1
Retirement benefit liability - (186.1)
Net pension asset 584.9 357.0
15.1 Valuation of combined pension schemes (continued)
Movements in the defined benefit asset obligations and assets during the year:
2022 2021
Assets Obligations Total Assets Obligations Total
£m £m £m £m £m £m
at 1 April 4,312.1 (3,955.1) 357.0 3,922.9 (3,581.2) 341.7
Included in Income Statement
Current service cost - (31.0) (31.0) - (29.3) (29.3)
Past service cost - (5.1) (5.1) - (5.8) (5.8)
Settlements (2.5) 2.6 0.1 (7.7) 9.3 1.6
Interest income/(cost) 85.2 (77.6) 7.6 88.5 (80.2) 8.3
82.7 (111.1) (28.4) 80.8 (106.0) (25.2)
Included in Other Comprehensive Income
Actuarial gain/(loss) arising from:
Demographic assumptions - 16.8 16.8 - (23.1) (23.1)
Financial assumptions - 195.6 195.6 - (461.5) (461.5)
Experience assumptions - (41.5) (41.5) - 21.8 21.8
Return on plan assets excluding interest income 26.4 - 26.4 447.0 - 447.0
26.4 170.9 197.3 447.0 (462.8) (15.8)
Other
Contributions paid by the employer 59.0 - 59.0 56.3 - 56.3
Scheme participant's contributions 0.1 (0.1) - 0.1 (0.1) -
Benefits paid (169.1) 169.1 - (195.0) 195.0 -
(110.0) 169.0 59.0 (138.6) 194.9 56.3
Balance at 31 March 4,311.2 (3,726.3) 584.9 4,312.1 (3,955.1) 357.0
Charges/(credits) recognised:
2022 2021
£m £m
Service costs (charged to operating profit) 36.1 35.1
Settlements and curtailment gains (0.1) (1.6)
36.0 33.5
(Credited)/charged to finance costs:
Interest on pension scheme assets (85.2) (88.5)
Interest on pension scheme liabilities 77.6 80.2
(7.6) (8.3)
16. Financial risk management
16.1 Financial risk management
The Board has overall responsibility for the establishment and oversight of
the Group's risk management framework. The Group's policies for risk
management are established to identify the risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks and adherence to
limits. Exposure to commodity, currency and interest rate risks arise in the
normal course of the Group's business and derivative financial instruments are
entered into to hedge exposure to these risks.
SSE has a Group wide risk committee reporting to the Group Executive
Committee, which is responsible for reviewing the strategic, market, credit,
operational and liquidity risks and exposures that arise from the Group's
operating activities. In addition, the Group has two dedicated Energy Market
risk committees reporting to the Group Executive Committee and Board
respectively, with the Group Executive Sub-committee chaired by the Group
Finance Director and the Board Sub-committee chaired by Non-Executive Director
Tony Cocker. These Committees oversee the Group's management of its energy
market exposures, including its approach to hedging.
During the year ended 31 March 2022, the Group was exposed to exceptional
volatility in energy markets impacting the primary commodities to which it is
exposed (Gas, Carbon and Power). The Group's approach to hedging, and the
diversity of its energy portfolios (across Wind, Hydro, Thermal and Customers)
has provided significant mitigation of these exposures. Exceptional rises
and volatility in commodity prices have created a particular challenge in
managing counter-party credit and collateral exposures and requirements, to
ensure continued access to energy markets to enable hedging and prompt
optimisation of SSE's energy portfolios. This market access has been
successfully maintained.
Exposure to the commodity, currency and interest rate risks noted arise in the
normal course of the Group's business and derivative financial instruments are
entered into to hedge exposure to these risks. The objectives and policies for
holding or issuing financial instruments and similar contracts, and the
strategies for achieving those objectives that have been followed during the
year are explained within A6 Accompanying Information to the Group's
consolidated Financial Statements
The net movement reflected in the income statement can be summarised thus:
2022 2021
£m £m
Operating derivatives
Total result on operating derivatives (i) 3,527.2 429.1
Less: amounts settled (ii) (1,426.8) 161.0
Movement in unrealised derivatives 2,100.4 590.1
Financing derivatives (and hedged items)
Total result on financing derivatives (i) (43.3) 35.2
Less: amounts settled (ii) 64.3 20.4
Movement in unrealised derivatives 21.0 55.6
Net income statement impact 2,121.4 645.7
(i) Total result on derivatives 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 year represent the result on derivatives
transacted which have matured or been delivered and have been included within
the total result on derivatives.
16.2 Fair Value Hierarchy
The following table provides an analysis of financial instruments that are
measured subsequent to initial recognition at fair value, grouped into Levels
1 to 3 based on the degree to which the fair value is observable.
· Level 1 fair value measurements are those derived from unadjusted
quoted market prices for identical assets or liabilities.
· Level 2 fair value measurements are those derived from inputs
other than quoted prices included within level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices)
· Level 3 fair value measurements are those derived from valuation
techniques that include inputs for the asset or liability that are not based
on observable market data.
2022
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial Assets
Energy derivatives 884.1 2,246.4 - 3,130.5
Interest rate derivatives - 176.8 - 176.8
Foreign exchange derivatives - 6.1 - 6.1
Loan note receivable - - 136.4 136.4
Unquoted equity investments - - 8.7 8.7
884.1 2,429.3 145.1 3,458.5
Financial Liabilities
Energy derivatives - (828.7) - (828.7)
Interest rate derivatives - (376.1) - (376.1)
Foreign exchange derivatives - (46.3) - (46.3)
Loans and borrowings - (31.6) - (31.6)
- (1,282.7) - (1,282.7)
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 2022.
2021
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial Assets
Energy derivatives 68.8 275.9 - 344.7
Interest rate derivatives - 217.6 - 217.6
Foreign exchange derivatives - 23.3 - 23.3
Loan note receivable - - 115.9 115.9
Unquoted equity investments - - 3.6 3.6
68.8 516.8 119.5 705.1
Financial Liabilities
Energy derivatives - (138.1) - (138.1)
Interest rate derivatives - (489.7) - (489.7)
Foreign exchange derivatives - (63.0) - (63.0)
Loans and borrowings - (3.2) - (3.2)
- (694.0) - (694.0)
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 2021.
17. Capital commitments
2022 2021
£m £m
Capital expenditure:
Contracted for but not provided 985.9 1,189.5
Contracted for but not provided capital commitments include the fixed
contracted costs of the Group's major capital projects. In practice
contractual variations may arise on the final settlement of these contractual
costs.
18. Related party transactions
The following transactions took place during the year 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 control,
joint control or significant influence over.
2022 2021
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
£m £m £m £m £m £m £m £m
Joint ventures:
Seabank Power Ltd 51.9 (49.1) - - 75.2 (86.7) 0.1 (16.8)
Marchwood Power Ltd 104.3 (229.3) - (7.6) 45.3 (142.3) 0.6 (11.2)
Scotia Gas Networks Ltd 42.9 (10.1) - - 29.9 (13.1) 17.3 (1.1)
Clyde Windfarm (Scotland) Ltd 4.6 (259.3) 0.1 (74.2) 4.3 (116.1) 0.1 (38.2)
Beatrice Offshore Windfarm Ltd 5.0 (163.7) 0.9 (20.6) 5.3 (43.7) 1.1 (5.3)
Stronelairg Windfarm Ltd 2.1 (138.5) - (36.7) 1.9 (44.7) - (17.1)
Dunmaglass Windfarm Ltd 1.0 (57.9) - (13.7) 0.9 (22.2) - (6.6)
Neos Networks Ltd 31.2 (27.1) 52.2 (13.8) 38.0 (26.3) 41.4 (1.4)
Other Joint Ventures 54.5 (196.3) 15.8 (23.8) 22.5 (193.8) 54.8 (1.9)
Associates - - - - - (16.2) - -
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. Scotia Gas Networks Limited ('SGN') operates the
gas distribution networks in Scotland and the South of England. The Group's
gas supply activity incurs gas distribution charges while the Group also
provides services to SGN in the form of a management services agreement for
corporate and shared services. On 2 August 2021, the Group announced it had
agreed to sell its 33.3% stake in SGN. The Group assessed that the
investment met the criteria to be classified as held for sale on 11 June 2021
when an Exclusivity Agreement was signed by the acquiring consortium.
Accordingly, from 11 June 2021 the Group ceased to equity account for SGN. On
22 March 2022 the Group completed its disposal of its interest in SGN.
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.
19. Post balance sheet events
19.1 Acquisition of European onshore wind development platform
On 19 April 2022 the Group announced that it had entered into an agreement
with Siemens Gamesa Renewable Energy ("SGRE") to acquire SGRE's existing
European onshore renewable energy development platform for consideration of
€580m, subject to a number of conditions. The SGRE portfolio is mainly
located in Spain with the remainder across France, Italy and Greece. The
transaction is expected to complete by the end of September 2022 subject to
the receipt of relevant foreign direct investment and regulatory approvals.
This acquisition is aligned to the Group's published strategy to pursue
overseas renewable opportunities
19.2 Issuance of hybrid equity bond
In April 2022 SSE plc issued a €1bn NC6 equity accounted Hybrid bond @ 4% to
re-finance the dual tranche debt accounted Hybrid bonds whose first call date
occurs on 16 September 2022 although SSE will take advantage of the 3 month
par call option on these Hybrid bonds meaning the bonds will be repaid on 16
June 2022. The €1bn equity accounted Hybrid bond was left in Euros with the
proceeds used to cover the portion of the maturing Hybrid that was swapped to
Euros and a portion of the costs associated with the acquisition of the
European onshore renewable development platform from SGRE.
19.3 Issuance of private placement debt
In March 2022 the Group, through its Scottish Hydro Electric Transmission
entity, priced and committed to a £350m dual tranche private placement being
a £175m 10 year tranche @ 3.13% and £175m 15 year tranche @ 3.24% giving an
all in average rate of 3.19%. The pricing was committed to in March 2022 and
the proceeds will be received on 30 June 2022.
19.4 Fiddlers Ferry site disposal
Subsequent to the year end, the Board committed to dispose of the Fiddlers
Ferry site, pending resolution of a final agreement with anticipated
completion expected within 6 months.
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