REG - SSE Plc - Preliminary Results for the year to 31 March 2023
24/05/2023 07:00
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RNS Number : 4276A SSE PLC 24 May 2023
This announcement contains inside information under Article 7 of the Market
Abuse Regulation (EU) No 596/2014, as it forms part of UK domestic law by
virtue of the European Union (Withdrawal) Act 2018 ("UK MAR").
SSE PLC: Preliminary Results
for the Year ended 31 March 2023
24 MAY 2023
BUILDING FOR CLEAN, SECURE, AFFORDABLE ENERGY
· Record £2.8bn of capex and investment, greater than profits, in
projects across low-carbon electricity infrastructure that will enhance energy
security while creating green jobs and supporting local communities.
· Reporting adjusted earnings per share of 166.0p, in line with
pre-close guidance, reflecting the performance from a balanced, integrated
business model in a year of market volatility.
· Continued focus on Safety, however increased construction
activity has contributed to a Total Recordable Injury Rate of 0.19, an
increase from 0.17.
· Strategic debt refinancing and increasing cash flow generation
provides the group with more financial strength to weather future market
uncertainty, seize opportunities and create value.
· Guiding to adjusted EPS of more than 150p for 2023/24, with
capital expenditure and investment of more than £2.8bn in 2023/24, exceeding
the record investment in 2022/23.
· Contributed over £6bn to UK GDP, supporting nearly 40,000 UK
jobs with further €429m contribution to Ireland GDP and over 2,000 Irish
jobs supported.
ANNOUNCEMENT OF "NET ZERO ACCELERATION PROGRAMME PLUS"
Continuing the acceleration of investment through the "NZAP Plus" five-year
strategic plan to 2027, upgrading targets whilst also advancing previous plan
by 12 months, to account for changing investment mix:
· Upgraded £18.0bn capital investment plan, an over 40% increase
on previous plan.
· Reshaped capital allocation between regulated electricity
networks (c.50%), renewable electricity generation (c.40%), low-carbon
flexible thermal generation and other businesses (c.10%).
· Investment will deliver c.5GW net renewables capacity additions
and grow net electricity networks RAV to between £12-14bn by 2027.
· Adjusted EPS CAGR of 13 - 16% over the five-year period,
excluding developer profits.
· Investment plan remains fully funded, supported by strong balance
sheet with average 3.5 - 4.0x net debt / EBITDA across the plan, well within
strong investment grade credit ratios.
· Rebased 60 pence dividend for 2023/24, enabling growth with
annual dividend increases of between 5 - 10% now targeted to 2026/27.
Recognising the significant strengthening of the balance sheet and the
well-balanced upgraded investment plan, the NZAP Plus reflects SSE's
conclusion that retaining 100% ownership of SSEN Distribution is the right
strategy at this time.
Alistair Phillips-Davies, SSE plc Chief Executive, said:
"Action, not just ambition, is what is needed to provide lasting solutions to
the problems of climate change, energy affordability and security - and, with
a record-breaking investment programme, that is what we are delivering.
Through delivery of our societally-aligned strategy we are accelerating the
build-out of renewables, reinforcing the networks needed to decarbonise,
providing much-needed flexible generation, and working hard to ensure no-one
is left behind in the transition to net zero. The results that we have
reported today are profits with a purpose. We are creating value for all of
our stakeholders and our investments exceed our earnings.
"On the back of our strong financial performance in the year, the resilience
of SSE's balanced business mix and underlying finances, the pace of strategic
delivery and the wealth of opportunities coming our way, we have updated our
Net Zero Acceleration Programme (NZAP) that we announced 18 months ago.
"The "NZAP Plus" raises the bar on our ambitions to 2027, and provides a solid
platform for growth that could see us invest up to £40bn over the next
decade. The energy landscape is changing fast, and the macroeconomic and
geopolitical environment has its challenges, but these are exciting times for
SSE and we have both the financial footing and capabilities to go after high
quality growth opportunities that will create value for years to come."
FINANCIAL SUMMARY (continuing operations)
Adjusted Reported
Mar 2023 Mar 2022 % mvmt Mar 2023 Mar 2022 % mvmt
Operating profit / (loss) (£m) 2,529.2 1,530.9 +65% (146.3) 3,749.5 -104%
Profit / (loss) before tax (£m) 2,183.6 1,158.1 +89% (205.6) 3,476.3 -106%
Earnings / (loss) per share (p) 166.0 94.8 +75% (14.7) 241.2 -106%
Investment, capital and acquisitions (£m) 2,803.3 2,067.8 +36% 3,188.7 2,313.9 +38%
Net Debt and Hybrid Capital (£bn) 8,894.1 8,598.2 +3% 8,168.1 8,015.4 +2%
Strategic Highlights
· Progress on a significant Transmission investment programme,
including ongoing projects such as the Shetland HVDC link and East Coast
upgrade. The business is now focussed on preparing to deliver its share of
Ofgem's Accelerated Strategic Transmission Investment ("ASTI") programme.
· Completed the sale of a 25% non-controlling equity interest in
SSEN Transmission on 30 November 2022, for total cash proceeds of £1,465m,
supporting further growth.
· SSEN Distribution delivering in line with expectations on the
final year of RIIO-ED1 whilst reaching a final settlement with Ofgem on the
RIIO-ED2 five-year price control period.
· First power achieved at 1,075MW Seagreen offshore wind project,
with all foundations now installed ahead of commercial operations in summer
2023, continuing progress on Dogger Bank and at Viking, where the first of 103
turbines was installed in April 2023.
· Completed the acquisition of a Southern European onshore wind
development platform, adding 2.4GW (secured) and c.2.5GW (future prospects) of
onshore wind and solar projects.
· Acquisition of 1.3GW Triton Power, in a 50:50 Joint Venture with
Equinor, which offers decarbonisation opportunities whilst contributing to
security of supply and grid stability.
· Finished construction of 0.9GW Keadby 2 CCGT in March 2023, the
most efficient plant of its type in Europe which will provide important and
efficient flexibility to the electricity system.
financial highlights
· Adjusted earnings per share of 166.0p, in line with pre-close
guidance.
· Reported loss per share of (14.7)p mainly driven by a net £2.3bn
adverse fair value movement on derivatives, leaving a £(0.3)bn net derivative
liability remaining on balance sheet.
· Profitability in Renewables reflects strong prices captured by
flexible hydro and wind hedging position offset by unfavourable weather
conditions, hedge buy-back costs and the effect of the Electricity Generator
Levy.
· Strong performance in Thermal Energy, with the addition of 670MW
from the Triton acquisition, thermal generation offering flexibility to the
market and supporting security of supply with gas storage managing gas supply
volatility.
· Raised £1.7bn in Hybrid Capital, Eurobonds and Private
Placements in the first half of the year at well-below current market prices.
· Cash collateral remains comfortably within existing facilities
with 8% utilised at 18 May 2023
· Adjusted investment, capital and acquisition expenditure of
£2.8bn.
· Adjusted net debt and hybrid capital at £8.9bn, in line with
pre-close guidance and well below targeted gearing levels.
FINAL dividend in line with dividend plan
· Intention to recommend a final dividend of 67.7p for payment on
21 September 2023, representing a weighted average annual RPI rate of 12.9%,
making a full year dividend of 96.7p per share.
· Full year dividend rebased to 60p for 2023/24, with increases of
5 - 10% p.a. to 2026/27.
· Scrip uptake continues to be capped at 25% on 2022/23 full-year
dividend and thereafter.
Key Performance Indicators
Key Financial Indicators Adjusted Reported
(continuing operations) Mar 2023 Mar 2022 Mar 2023 Mar 2022
Operating profit / (loss) by business £m
- SSEN Transmission 372.7 380.5 405.5 380.5
- SSEN Distribution 382.4 351.8 382.4 351.8
- SSE Renewables 580.0 568.1 446.3 427.8
- SSE Thermal & Gas Storage 1,244.4 331.1 1,338.7 749.6
- Other businesses inc. corporate unallocated (50.3) (100.6) (2,719.2) 1,839.8
Operating profit / (loss) £m 2,529.2 1,530.9 (146.3) 3,749.5
EBITDA £m 3,382.1 2,251.3 557.9 4,361.5
Profit / (loss) before tax £m 2,183.6 1,158.1 (205.6) 3,476.3
Earnings / (loss) per share (EPS) pence 166.0 94.8 (14.7) 241.2
Full year dividend per share (DPS) pence 96.7 85.7 96.7 85.7
Investment and capital expenditure £m
- SSEN Transmission 495.5 614.4 543.8 614.4
- SSEN Distribution 421.0 364.8 502.0 456.1
- SSE Renewables 837.5 811.0 997.0 595.1
- SSE Thermal & Gas Storage 159.5 125.5 71.6 70.8
- Other businesses (inc project finance devex refunds) 247.1 10.8 1,074.3 563.6
Acquisition consideration £m 642.7 141.3 642.7 141.3
Investment, capital and acquisitions £m 2,803.3 2,067.8 3,831.4 2,441.3
Net debt and hybrid capital £m 8,894.1 8,598.2 8,168.1 8,015.4
Notes: 2021/22 numbers above restated to recognise Keadby 2 pre-commissioning
revenues and costs in Income Statement following adoption of amendments to IAS
16 Property, Plant and Equipment - Proceeds Before Intended Use.
Operational Key Performance Indicators Mar 2023 Mar 2022
Thermal generation - GWh(1) 18,313 14,265
Renewable generation - GWh (inc. pumped storage and constrained off) 10,159 9,423
Distributed Energy - GWh 96 104
Total generation output - all plant - GWh 28,568 23,792
SSEN Transmission RAV - £m(2) 4,836 4,155
SSEN Distribution RAV - £m 4,720 4,054
SSE Total Electricity Networks RAV - £m(2) 9,556 8,209
Business Energy Electricity Sold - GWh 12,108 12,645
Business Energy Gas Sold - mtherms 200 218
Airtricity Electricity Sold - GWh 5,795 5,219
Airtricity Gas Sold - mtherms 193 177
Notes: (1)2022/23 excludes 1,184GWh of pre-commissioning output from Keadby 2
which entered commercial operation on 15(th) March 2023 (2)Gross of 25%
non-controlling interest in SSEN Transmission
ESG Key Performance Indicators Mar 2023 Sept 2022 Mar 2022
Carbon emissions (scopes 1&2) MtCO(2)e 6.52 - 6.24
Scope 1 GHG intensity gCO(2)e/kWh 254 271 259
Total water consumed (million cubic meters) 1.4 - 0.8
Total recordable injury rate per 100,000 hours worked 0.19 0.15 0.17
Total economic contribution - UK/Ireland (£bn/€m)(1) 6.0/429 - 5.8/438
Jobs supported - UK/Ireland (headcount)(2) 39,940/2,430 - 45,290/1,840
Total taxes paid UK/Ireland (£m/€m) 501.7/53.8 - 335.3/46.4
Employee retention/turnover rate (%)(3) 89.5/10.5 - 90.5/9.5
Employee engagement index (%)(4) 84 84 82
Average board tenure - years(5) 4.4 3.9 3.8
Female board members (%)(6) 46 46 50
Independent board members (%)(7) 75 75 73
Total number of board members 13 13 12
Notes: (1) Direct, indirect and induced Gross Value Added, from PwC analysis.
(2) Direct, indirect and induced jobs supported, PwC analysis. (3) Includes
voluntary and involuntary turnover, excludes end of fixed term contracts and
internal transfers. (4) Results from SSE's annual employee engagement survey.
(5) Non-Executive directors including non-Executive Chair (6)At 23 May 2023,
changes to the Board mean the proportion of women board members is now 42%.
(7)Excludes non-Executive Chair.
Further Information
Investor Timetable
2023 Annual Report published on sse.com/reportsandresults 16 June 2023
2023 Sustainability Report published on sse.com/reportsandresults 16 June 2023
2023 Annual Report published on sse.com/reportsandresults 16 June 2023
Q1 Trading Statement 20 July 2023
Annual General Meeting 20 July 2023
Ex-dividend date 27 July 2023
Record date 28 July 2023
Scrip reference pricing days 27 July - 2 August 2023
Scrip reference price confirmed and released via RNS 3 August 2023
Final day for receipt of scrip elections 24 August 2023
Final dividend payment date 21 September 2023
Notification of Closed Period 4 October 2023
Interim Results for the six months ended 30 September 2023 15 November 2023
Contact Details
Institutional investors and analysts ir@sse.com (mailto:ir@sse.com) + 44 (0)345 0760 530
Shareholder services SSE@linkgroup.co.uk (mailto:SSE@linkgroup.co.uk) + 44 (0)345 143 4005
Media, Glenn Barber, Raymond Buchanan media@sse.com (mailto:media@sse.com) + 44 (0)345 0760 530
MHP Communications, Oliver Hughes oliver.hughes@mhpc.com (mailto:oliver.hughes@mhpc.com) + 44 (0)7885 224 532
MHP Communications, Simon Hockridge simon.hockridge@mhpc.com (mailto: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 2023 on
Wednesday 24 May at 10:00am BST.
You can join the webcast by visiting www.sse.com and following the links on
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Online Information
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Strategic Overview
RIGHT ACTIONS, RIGHT NOW
As a purpose-led developer, builder and operator investing in low-carbon
electricity infrastructure, SSE is working to deliver a strategy that is
making energy cleaner, more secure, and more affordable. The Net Zero
Acceleration Programme that we launched in November 2021 was designed to meet
demand for what SSE has to offer as the world weans itself off carbon. But, in
the intervening 18 months, that demand has grown exponentially, and we have
acted now to upgrade our plans to keep pace.
Getting everyone who works for SSE home safe every day will always be SSE's
top priority and we recognise there is a correlation between record levels of
investment and heightened risk from the associated increase in construction
activity. With the tragic death of a young contractor, Liam Macdonald, in June
2022 - and an overall increase in injuries during the year - we continue to
prioritise and focus on all aspects of safety.
Against the backdrop of war in Ukraine, market upheaval and cost inflationary
pressures on energy users, 2022/23 has not been without its challenges. I'd
like to thank our direct employees and contractors for the hard work and
commitment that has gone into a year of excellent financial and operational
performance.
And on behalf of the Board and the executive team I'd like to thank Gregor
Alexander for the indispensable part he has played as Finance Director for the
past 21 years. We are losing one of the FTSE's finest FDs but, after a
rigorous selection process, we have a highly capable successor in Barry
O'Regan.
creating value for shareholders and society
This has been a year of strong financial performance that will create lasting
shareholder and societal value. These results show the value of a balanced
portfolio of market-focused energy assets that are supported by regulated
income from electricity networks.
While still weather and project timetables have impacted wind generation
output, this has been offset by efficient operation of our thermal and gas
storage businesses, and flexible hydro assets, which provided timely backup
for the market when it was needed.
The profit we are making has an underlying purpose as we reinvest additional
earnings back into critical national infrastructure. We invested £2.8bn in
2022/23 - an all-time record level of capital expenditure and investment for
SSE which represented a 36% increase year-on-year - and much of that spend was
on major projects in networks and renewables. We have said that we expect to
break that record again in 2023, as we continue to put profits to work for all
our stakeholders.
delivering on OUR strategy
Delivery of our net zero-focused strategy is amply demonstrated by a long list
of milestones summarised here but covered in greater detail in the Operating
Review to be found in the following pages.
Progress was made in the year on flagship projects like Dogger Bank, Seagreen
and Viking wind farms; exploratory works got under way on the Coire Glas
pumped storage hydro development and repowering continued on the Tummel hydro
scheme. The purchase of SGRE's Southern European onshore development platform
started to bear fruit, with construction shortly to be under way on the first
project in France. And the pipeline continues to grow at home, with Irish
developments and domestic solar and battery projects, and abroad, with
development projects in Spain, France, Italy and Greece as well as
opportunities being explored in Japan, the US, the Netherlands and Poland.
SSE Thermal's performance in the year is matched by our longer-term ambitions
for the fleet's lower-carbon future. We were pleased with the delivery of our
new high-efficiency Keadby 2 CCGT; Tarbert and Platin secured capacity
contracts for new biofuel plant; the signs are good for our Aldborough
Pathfinder Hydrogen project and we remain confident that CCS will in time be
built at both Keadby 3 and Peterhead 2, both of which are needed to meet net
zero targets. The acquisition of Triton Power, meanwhile, added new
decarbonisation options to the SSE Thermal portfolio and paid for itself in
the year as it provided vital flexible capacity in an exceptionally tight
market.
In networks, construction continues at pace on SSEN Transmission's pioneering
HVDC link to Shetland and the successful sale of a minority stake in the
business to Ontario Teachers will unlock capital for further growth. We
achieved final settlement on a RIIO-ED2 price control that balances the needs
of customers and net zero and SSEN Distribution is getting to work on
delivering its £3.6bn business plan. And, as ever, the business had to cope
with the worst of the British weather in the year but lessons learned from the
extreme, back-to-back weather events of 2021/22 led to an improved response to
the ice storm that hit Shetland and later during Storm Otto.
net zero acceleration programme plus
We are on a firm financial footing as we deliver our current portfolio of
large capital projects and plan for future investment and growth. World-class
assets underpin the balance sheet; our credit ratings compare favourably with
our peers; and the recent transmission stake sale, weighted against record
levels of capex, mean adjusted net debt and hybrid capital was £8.9bn at the
year-end.
This financial strength, combined with performance in 2022/23 and the wealth
of opportunities we are generating, gives us the confidence to upgrade the Net
Zero Acceleration Programme that was announced in November 2021. The NZAP, as
we call it, was only ever a baseline plan and now, 18 months on, the addition
of a "Plus" reflects new projections including upgraded capex and new growth
targets for Adjusted EPS, renewables capacity and networks RAV as well as
supporting a higher dividend growth rate than previously indicated.
Under the NZAP Plus we plan to invest £18bn out to 2026/27, or around £10m a
day, in the infrastructure needed for net zero and energy security, compared
to £7.5m a day under previous plans. The new plan also promises even more
balance than the original NZAP, with more geographical and technological
diversity, but also more stability, with higher capex percentages going into
regulated networks.
And we have concluded after careful consideration of the balance and financial
strength of the new plan, that retaining full ownership of SSEN Distribution
is the right strategy at this time. We remain focused on maximising the growth
potential in this core business as it plays a key role in enabling net zero
for consumers.
doing more for the planet
SSE's long-held purpose - providing energy needed today while building a
better world of energy tomorrow - means we seek to provide solutions to the
climate-related problems faced by people and the planet. We are doing that by
contributing to every stage of the clean electricity value chain and remain
accountable to verified business goals that are science-based and aligned to a
1.5C global warming pathway.
We understand decarbonisation of the economy will be disruptive, so every
effort must be made to leave no-one behind, and this is why we are championing
a just transition. An increasing number of the 1,000 quality green jobs we
create each year now go to people moving across from high-carbon industries.
One of the UK's first shareholder-approved Net Zero Transition Reports,
stretching business goals aligned to a 1.5C pathway, commitment to Fair Tax,
leadership on the Living Wage, and provision of safe and inclusive workplaces
are all reflected in our place in leading sustainability indices and confirm
SSE's standing as an ESG-rated stock.
more growth to come
SSE is a clean energy champion providing critical, low-carbon infrastructure
needed to meet net zero targets and bolster system security in our home
markets and further afield. We aim to deliver over 20% of the networks and
offshore wind investment required to meet UK climate targets.
Our original investment programme looked to optimise our growth and fulfil our
potential though accelerated investment, with net investment potentially
exceeding £25bn by 2030/31 in the UK and Ireland by the end of the decade.
Eighteen months on, and assuming a supportive policy environment, our
investment could total around £40bn by 2031/32, consolidating our position as
one of the FTSE's largest UK's capital investors.
We offer a compelling investment proposition: with balance sheet strength;
wide ranging optionality; depth in capability; investment in Thermal
flexibility now paying off and exciting and increasing growth prospects in all
our businesses. Ultimately this has allowed us to update our base case plans
and provide shareholders with sustainable earnings and dividend growth while
creating real value for society.
Alistair Phillips-Davies
Chief Executive
SSE plc
Group financial review
Year ended 31 March 2023
This Group Financial Review sets out the financial performance of the SSE
Group for the year ended 31 March 2023. See also the separate sections on
Group Financial Outlook, 2023/24 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) Mar 2023 Mar 2022 Mar 2023 Mar 2022
£m £m £m £m
Operating profit / (loss) 2,529.2 1,530.9 (146.3) 3,749.5
Net Finance (costs) / income (345.6) (372.8) (59.3) (273.2)
Profit / (loss) before Tax 2,183.6 1,158.1 (205.6) 3,476.3
Current Tax (charge) / credit (358.8) (107.1) 110.0 (881.3)
Effective current tax rate (%) 16.4 9.2 12.7 26.2
Profit / (loss) after Tax 1,824.8 1,051.0 (95.6) 2,595.0
Less: hybrid equity coupon payments (38.8) (50.7) (38.8) (50.7)
Less: profits attributable to minority interests - - (23.6) -
Profit / (loss) after Tax attributable to ordinary shareholders 1,786.0 1,000.3 (158.0) 2,544.3
Earnings / (loss) per share (pence) 166.0 94.8 (14.7) 241.2
Number of shares for basic/reported and adjusted EPS (million) 1,075.6 1,055.0 1,075.6 1,055.0
Shares in issue at 31 March (million)* 1,090.3 1,067.6 1,090.3 1,067.6
* Excludes treasury shares.
2021/22 numbers above restated to recognise Keadby 2 pre-commissioning
revenues and costs in Income Statement following adoption of amendments to IAS
16 Property, Plant and Equipment - Proceeds Before Intended Use.
Dividend per Share (pence) Mar 2023 Mar 2022
Interim Dividend 29.0 25.5
Final Dividend 67.7 60.2
Full Year Dividend 96.7 85.7
Impact from market volatility
The Group's balanced mix of economically regulated and market-based businesses
provides a natural hedge against short-term commodity price volatility.
Nevertheless, the volatile commodity price environment throughout the year
combined with the continued higher power price, gas price and inflation rate
environment, will have a continued impact on 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 power and gas market prices. However, both allowed
revenues and Regulated Asset Values are index linked (Transmission to CPI(H)
for the RIIO-T2 price control period which lasts from 1 April 2021 to 31 March
2026, and Distribution to RPI (for RIIO-ED1 which ended on 31 March 2023) and
CPI(H) (for RIIO-ED2 which lasts from 1 April 2023 to 31 March 2028).
Within SSE Renewables, the established hedging approach generally reduces its
broad exposure to commodity price variation at least 12 months in advance of
delivery. This approach secures value for the business, by reducing exposure
to short-term commodity price movements which would drive variable financial
performance.
Hedges may be achieved either through the forward sale of power or gas and
carbon equivalents. This approach aims to reduce the exposure of these wind
assets to volatile spot power market outcomes whilst still providing an
underlying commodity price hedge. When gas-and-carbon hedges are converted
into electricity hedges a "spark spread" is realised which can lead to changes
in the average hedge price expected. This can increase the previously
published average hedge price, as has been seen in 2022/23, or decrease it.
Whilst this hedging approach provides relatively stable realised power prices,
market volatility in periods where wind volumes are significantly lower than
expected can necessitate 'buy-backs' of excess forward sales contracts at
higher prices, which would reduce the trading result, as has also been seen in
2022/23.
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 support security of supply through flexibility
provision in less predictable market conditions.
The last twelve months has seen the Thermal business navigate extreme
volatility in the forward power markets. Whilst some of this volatility is
directly attributable to the war in Ukraine and ensuing gas crisis, there are
other more fundamental drivers relating to price uncertainty which are
longstanding. These longer-term price drivers include liquidity, carbon price
basis risk, regulatory or political interventions, and the availability of
risk capital and collateral within the markets. This business therefore aims
to reduce earnings volatility by establishing a hedge for the expected
economic output in the six months prior to delivery, although this approach is
closely monitored for any unexpected changes in exposures as a result of
current market conditions, such as the plant availability exposure,
counterparty credit risk, and changes to cost of capital for collateral.
Higher power and gas prices are generally more economically favourable for
these businesses, driving premiums over forward peak spark prices which
includes market-based income from other sources outside of the simple spark
spread such as Balancing Mechanism and ancillary Grid contracts. Income from
Capacity Mechanism is known ahead of each delivery year and is unrelated to
current market conditions.
However, if plant is unavailable at times of system stress then excess forward
sales contracts would again need to be 'bought back' in the market which would
negatively impact the trading result.
The Gas Storage assets are operated on a merchant basis, to optimise value
arising from changes in the spread between summer and winter prices, market
volatility and plant availability. As such, volatile gas prices are generally
positive for this business, to the extent that the assets can respond to
volatility and capture the positive gas price spreads arising. To the extent
that gas remains in storage at the period end, a remeasurement gain or loss
may also be recognised with reference to the forward month market price.
However, this remeasurement does not take into account the mark-to-market
movement on forward contracted sales in future periods, which will impact the
trading result.
Energy Portfolio Management, as the market-facing commodity trader for each
business unit, holds the Group's direct exposure to unsettled commodity
contracts and therefore may experience significant unrealised mark-to-market
remeasurement gains or losses in periods of volatility. However, these
revaluations are unrelated to operating performance with traded volumes backed
by SSE's future generation output or expected customer demand. Whilst EPM is
permitted to take small positions in the market to manage the Group's trading
requirements and execute optimisation opportunities, this is contained within
strict Value at Risk ('VAR') limits that limits trading exposure in volatile
markets.
During the year, market volatility and increased margining requirements
resulted in a significant increase in the collateral required for trade with
counterparties and on exchanges, this was monitored closely by the Group and
effectively managed with more than sufficient levels of liquidity maintained.
The level of collateral required has decreased over the second six months of
the financial year as older trades have been settled and newer trades have
experienced lower levels of volatility.
SSE Business Energy and SSE Airtricity (aside from Northern Ireland, where SSE
Airtricity's gas supply business 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 hedged, there are external
circumstances that would result in hedge adjustments such as weather, supplier
failures and broader economic conditions. Due to the difficult affordability
circumstances created by escalating wholesale prices across the year, a
decision was made to protect domestic customers in Ireland from the full
impact of these increases; tariff changes therefore did not fully reflect
increases in wholesale prices. A dynamic forecasting approach has been
implemented to help the business respond quickly to volume changes.
Both businesses have administered government-backed support schemes during the
year, intended to protect domestic and non-domestic customers from the full
impact of the heightened power and gas price environment. These schemes
provide discounts to customers based on estimated usage and recover amounts
from government based on actual customer usage - the most material of these
being the Energy Bills Relief Scheme ("EBRS").
In relation to Airtricity, vertical integration of generation and customer
businesses in the Irish market limits commodity exposures with some benefit
received through Renewable Energy Feed-in Tariffs ('REFIT') receipts on legacy
wind assets.
Finally, SSE Group is well funded with a strong investment grade credit
rating; a high proportion of the £8.9bn adjusted net debt (c.92%) is fixed
rate and the average maturity of SSE's debt is 6.4 years. The Group has been
successful despite challenging debt markets, issuing €1bn of Hybrid Bonds, a
£350m Private Placement and a €650m Eurobond earlier in the financial year
at well-below current market prices. SSE's balance sheet strength allows the
Group to meet additional collateral requirements on higher and more volatile
commodity contracts, while the high proportion of fixed-rate debt provides
robust financing in an inflationary environment.
Operating profit performance for the year to 31 March 2023
Business-by-business segmental Adjusted Reported
Mar 2023 Mar 2022 Mar 2023 Mar 2022
£m £m £m £m
Operating profit / (loss)
SSEN Transmission 372.7 380.5 405.5 380.5
SSEN Distribution 382.4 351.8 382.4 351.8
Electricity networks total 755.1 732.3 787.9 732.3
SSE Renewables 580.0 568.1 446.3 427.8
SSE Thermal 1,031.9 300.4 1,089.5 624.2
Gas Storage 212.5 30.7 249.2 125.4
Thermal Total 1,244.4 331.1 1,338.7 749.6
SSE Business Energy (GB) 17.9 (21.5) 17.9 (21.5)
SSE Airtricity (NI and Ire) 5.6 60.4 5.2 60.4
Energy Customer Solutions Total 23.5 38.9 23.1 38.9
Energy Portfolio Management 80.4 (16.8) (2,626.0) 2,083.6
Distributed Energy (27.4) (10.9) (33.5) (29.2)
Neos Networks (39.8) (16.1) (56.0) (140.0)
Corporate unallocated (87.0) (95.7) (26.8) (113.5)
Total operating profit / (loss) from continuing operations 2,529.2 1,530.9 (146.3) 3,749.5
Net finance (costs) / income (345.6) (372.8) (59.3) (273.2)
Profit / (loss) before tax from continuing operations 2,183.6 1,158.1 (205.6) 3,476.3
Notes: Table above excludes any result from discontinued operations, being the
Group's investment in Scotia Gas Networks Limited which was disposed on 22
March 2022 (2022/23: £nil; 2021/22: adjusted operating profit of £21.0m) and
the Group's Gas Production operations which were disposed on 14 October 2021
(2022/23: adjusted operating profit of £nil; FY2021/22: adjusted operating
profit of £101.4m).
2021/22 restated to recognise Keadby 2 pre-commissioning revenues and costs in
Income Statement following adoption of amendments to IAS 16 Property, Plant
and Equipment - Proceeds Before Intended Use.
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 shareholders
and other stakeholders.
Following the acquisition in the year of Triton Power Limited (JV with
Equinor, SSE's share 50%), the definitions SSE uses for adjusted measures have
been refined to consider the treatment of fair value gains arising from
acquisition of a business or a joint venture interest. Aside from this
refinement, the definitions are consistently applied and 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 profits/losses in SSE's business segments for
the year to 31 March 2023 are set out below; comparisons are with the same
period to 31 March 2022 unless otherwise stated.
SSEN Transmission: Adjusted operating profit decreased by 2% to £372.7m,
which includes a £(32.8)m minority interest adjustment following completion
of the 25% divestment on 30 November 2022. SSEN Transmission's significantly
higher allowed revenues in the year were partially offset by a combination of
a negative timing impact on lower-than-expected Transmission Network Use of
System "TNUoS" volumes, and increases in operating costs and depreciation
charges, as the business continues to grow the asset base and develop its
operational capacity.
Reported operating profit increased by 7% to £405.5m, reflecting all of the
adjustments above except for the £(32.8)m minority interest adjustment, as
minority interests are fully consolidated for all profit metrics except for
Earnings Per Share under IFRS.
SSEN Distribution: Adjusted and reported operating profit increased by 9% to
£382.4m in the year. Higher allowed revenues including previously
under-recovered allowances following the impact of coronavirus on Distribution
Use of System "DUoS" volumes in 2020/21, were broadly offset by a negative
timing impact on lower-than-expected volumes in 2022/23. In addition, 2022/23
operating costs were lower than prior year mainly driven by a reduction in
fault costs, given the impact of severe weather on the network during 2021/22.
SSE Renewables: Adjusted operating profit increased by 2% to £580.0m in the
year. Having experienced exceptionally still and dry weather in the prior
year, volumes increased 0.7TWh or 7% in the current year but were still around
1.5TWh or 13% behind planned levels due to less favourable weather than the
long-term average and delays to construction of the Seagreen project.
In line with SSE's hedging approach, SSE Renewables entered the financial year
with around 40% of its wind volume hedged in gas and carbon equivalents,
rather than electricity. The conversion of those gas and carbon trades into
electricity ahead of delivery in the year - combined with an unusually high
and volatile electricity price attributable to factors such as the war in
Ukraine and French nuclear outages - drove a significant uplift in the
achieved price on hedged volumes in the year, with approximately £216m
additional benefit captured. This uplift more than offset a £(143)m net loss
from Seagreen which mainly reflected the buy-back costs of undelivered hedged
volumes in a higher price environment.
Elsewhere, the higher and more volatile price environment was beneficial for
flexible hydro and pumped storage, as those assets efficiently responded to
capture peak prices in the market. Finally, the adjusted result also includes
a net £43m charge relating to the Electricity Generator Levy, which came into
effect from 1 January 2023 and is charged on receipts generated from eligible
generation sources which are in excess of a £75/MWh benchmark.
Reported operating profits have increased by 4% to £446.3m in the year. In
addition to the factors noted above, the reported result also reflects a
£18.6m reduction in exceptional charges mainly as a £28.6m exceptional tax
charge recognised in the prior year - driven by the impact on Joint Venture
deferred tax balances from the substantive enactment of the UK Corporation Tax
rate change, which - was non-recurring. However, this reduction in
exceptional charges was partially offset by a £10.1m increase in Joint
Venture share of interest and tax charges driven by higher profitability in
these entities.
SSE Thermal Generation: Adjusted operating profit increased 244% to
£1,031.9m, compared to £300.4m in the prior year. SSE has continued to
invest in optimising its thermal generation fleet despite many years of low
returns and significant write-downs because it believed the inherent value the
fleet offers the energy system through its flexibility would eventually be
recognised. As noted previously, the last twelve months has seen the Thermal
business navigate extreme volatility in the forward power markets through the
flexibility it offers. The increase in adjusted operating profit reflects
additional capacity in the year from Triton Power (acquired on 1 September
2022, £220m adjusted operating profit) and Keadby 2 (entered commercial
operation on 15 March 2023, £37m adjusted operating profit), and additional
generation volumes from SSE Thermal's existing fleet together with higher
power prices and a strong performance in the balancing market. In addition,
capacity market revenues - which are unaffected by market prices - were £33m
higher compared to the prior year.
This was partially offset by £97m of hedge buy-back losses due to unplanned
outages - mainly arising from Great Island CCGT but also the reduction in
capacity from Tarbert oil-fired station - as well as higher operating costs
and increases in depreciation charges due to historic impairment reversals
recognised in September 2021 and March 2022.
Reported operating profit increased by 75% to £1,089.5m in the year. The
acquisition in September 2022 of Triton Power has resulted in a number of
exceptional items being recognised: a £140.7m fair value uplift on
acquisition and a £172.0m fair value remeasurement on operating derivatives
(net of tax) were mostly offset by a £(291.6)m impairment charge reflecting
the profitability delivered to date by that business. These movements,
combined with a £89.1m gain on disposal of Fiddlers Ferry land, a £17.8m
reversal of historic Great Island CCGT impairment and an increase in the Joint
Venture share of interest and tax charges of £50.9m account for the majority
of the difference. The prior year result included £333.3m of exceptional
items, mainly comprising the reversal of historic impairment charges relating
to the Groups' CCGT plants.
Gas Storage: Adjusted operating profit increased by 592% to £212.5m, compared
to £30.7m in the prior year. The higher and more volatile gas market price
environment during the year benefitted these assets which operated on a
merchant basis to capture positive gas price spreads. In normal market
conditions, the seasonal price spread occurs between summer and winter which
results in minimal profitability for this segment in the first half of the
year. However, due to low Russian gas supplies and increased European demand
as gas stores were built up for winter, the usual spread was inverted, with
summer gas prices higher than winter at points during the period. That
inversion led to around £46m of incremental profitability in the first six
months of the year. Aside from that one-off benefit, the assets continued to
capture the usual summer-winter spread while supporting vital energy security
in times of high gas demand across the winter. Again, the strong performance
of the Gas Storage business affirms SSE's decision during previous years when
earnings were weaker to continue investing in these critical assets.
Reported operating profit increased by 99% to £249.2m in the year. In
addition to the movements above, the prior year included an impairment
reversal of £97.3m compared to a £45.7m further reversal during 2022/23 as
historic impairment charges against these assets were partially reversed. In
addition, the reported results include a £(9.0)m revaluation loss on gas held
in storage, compared to a £(2.6)m loss in the prior year.
SSE Business Energy: Adjusted and reported profitability increased to £17.9m
of profit in 2022/23 compared to a £(21.5)m loss in the prior year. Market
volatility since the start of 2022 continues to create a challenging
environment for consumers and consumer-facing businesses such as Business
Energy and Airtricity. With the prior year loss including around £34m of
one-off charges relating to non-recoverable Balancing System use of Service
"BSUoS" costs and additional mutualisation costs, 2022/23 has demonstrated a
recovery in underlying profitability as the economy continued to emerge from
the impact of coronavirus. However, even with the UK Government's EBRS support
scheme, bad debt expenses have increased by £(89.5)m from prior year
reflecting the deterioration of aged debt as consumers' finances are
stretched.
SSE Airtricity: Adjusted profitability decreased to £5.6m from £60.4m in the
prior year. Airtricity responded to the hugely challenging circumstances faced
by its domestic energy customers during the 2022/23 financial year and -
through a combination of keeping tariffs as low as possible for all consumers
through not passing through the full impact of wholesale costs, a price freeze
for financially vulnerable consumers, customer support funds and finally, in
April 2023, a €35 rebate to each customer - honoured its commitment not to
make a profit in the year in recognition of the cost-of-living crisis. The
cost of the €35 rebate will be reflected in Airtricity's financial results
for 2023/24.
Reported profitability has decreased to £5.2m from £60.4m in the prior year
reflecting the movements above as well as a £(0.4)m share of interest and tax
in the current year from Joint Ventures.
Energy Portfolio Management: Adjusted operating profit has increased to
£80.4m from a £(16.8)m loss in the prior year. EPM continues to generate a
relatively low level of baseline operating earnings through service provision
to those SSE businesses requiring access to the energy markets. However, in
addition to this, the business is permitted to take small optimisation
opportunities whilst managing liquidity and shape on external trades. As
outlined above, these optimisation opportunities are subject to strict
internal VAR limits and controls. The increase in profitability is mainly due
to the heightened volatility and price of power and gas trades in the market,
which has driven higher profits from the trading and optimisation activities
for this business.
A reported operating loss of £(2,626.0)m was recognised in the year, compared
to a £2,083.6m profit in the prior year. In addition to the movements
above, the reported operating result includes the net remeasurement loss on
forward commodity derivatives in the period which are fair valued in
accordance with IFRS 9. In line with previous years, this excludes any
remeasurement on 'own use' contracts and is unrelated to underlying operating
performance.
Distributed Energy: An adjusted operating loss of £(27.4)m was recognised,
compared to a loss of £(10.9)m in the prior year. The business continues to
incur losses as it invests to support business growth, particularly in the
solar and battery storage business which will be reported under SSE Renewables
from April 2023.
The reported operating loss of £(33.5)m has increased from a prior year loss
of £29.2m which reflects the above factors partially offset by a smaller
£(6.1)m charge mainly related to the sale of the Contracting and Rail
business in June 2021 compared to the £18.3m charge recognised in the prior
year.
Neos Networks: SSE's remaining 50% share in the Telecoms business Neos
Networks Limited recorded an adjusted operating loss of £(39.8)m compared to
£(16.1)m in the prior year, and a reported operating loss of £(56.0)m
compared to a loss of £(140.0)m in the prior year. This result reflects the
losses incurred to support future business growth, and includes a £37.7m
impairment of the Group's investment in that business of which £31.8m has
been treated as non-exceptional.
Corporate unallocated: Adjusted operating loss of £(87.0)m compares against a
loss of £(95.7)m in the prior year. Whilst there continues to be an unwind of
historic transitional service agreements with SSE Energy Services (disposed to
Ovo in January 2020), Neos Networks (part-disposed in January 2019) and SSE
Contracting (disposed to Aurelius in July 2021), the segment has also
benefited from a review of the corporate cost base at the start of the year.
Reported operating loss of £(26.8)m compares against a loss of £(113.5)m in
the prior year which included a £(13.1)m adverse revaluation adjustment
relating to the legacy Gas Production decommissioning provision. In the
current year, a £50.5m positive revaluation adjustment was recognised on the
same provision.
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, depreciation on fair value adjustments, revaluation
adjustments to the retained 60% Gas Production decommissioning obligation and
the impact of certain remeasurements.
SSE's adjusted EPS measure provides an important and meaningful measure of
underlying financial performance. In adjusting for depreciation on fair value
adjustments, revaluation adjustments to the retained 60% Gas Production
decommissioning obligation, exceptional items and certain remeasurements,
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 ended 31 March 2023, SSE's adjusted earnings per share on
continuing operations was 166.0p. This compares to 94.8p for the previous year
and reflects the movements in adjusted operating profit outlined in the
section above.
Group financial outlook - 2023/24
and beyond
FINANCIAL OUTLOOK for 2023/24
The 2022/23 financial year saw SSE's balanced portfolio of market-based and
economically-regulated businesses successfully navigate the risks and
opportunities arising from the higher and more volatile price environment. In
particular, the strong performance from flexible thermal and hydro plant more
than offset the impact of the challenges faced by onshore and offshore wind,
namely lower than expected windspeeds and construction delays and the
associated buy-back costs on Seagreen offshore wind farm.
SSE remains focused on delivering long-term sustainable financial performance.
And whilst energy prices and energy price volatility have been reducing from
the highs of the last financial year, SSE expects a relatively higher price
environment to endure.
Against this backdrop, SSE remains confident that its businesses will continue
to deliver strong adjusted operating profit in the 2023/24 financial year,
specifically:
· For SSEN Transmission, increases to the allowed revenue under
RIIO-T2 combined with timing effects from under-recoveries in the prior year
are expected to more than offset both increases to the cost base as well as
the impact from an additional eight months of earnings attributable to
minority interests;
· For SSEN Distribution, increases to the operational cost base are
not expected to be recovered until future periods under the tariff setting
process, with allowed revenue therefore expected to be broadly flat.
· For SSE Renewables, assuming normal weather and plant
availability, SSE expects to report around 12.5TWh of generation output during
2023/24, excluding any output from the Dogger Bank A wind farm which is
expected to achieve first power during the year and remains unhedged.
· For SSE Thermal and Gas Storage, assuming normal plant
availability, SSE expects adjusted operating profit to be more than £750m as
the full-year effect from the additional Keadby 2 and Triton Power capacity is
combined with a sustained higher price environment in the medium-term.
Taking the above factors into account, SSE currently expects to report
full-year 2023/24 adjusted earnings per share of more than 150p.
SSE is fulfilling its commitment to growing the 2022/23 dividend by RPI and is
recommending a 96.7p full-year dividend in line with that plan. Also in line
with that plan, in 2023/24, the dividend will be rebased to 60p in order to
align future dividends with SSE's ambitious growth profile.
Capital expenditure and investment in 2023/24 is expected to exceed the
£2.8bn record investment in 2022/23, with the net debt to EBITDA ratio
expected to be within the 3.5x - 4.0x target range.
Net Zero Acceleration Programme PLUS
SSE is a purpose-led company, seeking to provide the energy needed today while
building a better world of energy for tomorrow. It is a long-term business
with a clear strategy aligned with the transition to net zero.
In November 2021, SSE set out a five-year capex plan that aligned capital
allocation with the Group's 2030 Business Goals and its changing energy mix.
This plan, referred to as the Net Zero Acceleration Programme, or NZAP,
provided the optimal pathway at that time to maximise total shareholder
returns from both earnings and asset value growth, whilst remunerating
shareholders through a rebased dividend with attractive growth.
This plan and the targets contained within it - which were partially updated
in May 2022 to reflect the evidence of increasing value creation potential -
represented a floor, not a ceiling, and were intended to position SSE to take
other opportunities as they emerge.
In the time since the NZAP was launched, the global green transition has
accelerated as countries look towards providing energy security by increasing
their renewables and low-carbon generation ambitions. It is against this
backdrop, and in light of recent business performance, that SSE now expects to
meet or exceed the original NZAP financial targets. SSE has therefore
announced an "NZAP Plus" which rolls the plan forward by 12 months and
upgrades the targets, ambitions and investment mix to match the enhanced
opportunity.
Key targets and ambitions NZAP (previous) NZAP Plus (new)
Five-year targets: to 2025/26 to 2026/27
- Capital investment (net) £12.5bn £18.0bn
- Adjusted earnings per share CAGR 7 - 10% 13 - 16%
From 2020/21 87.5p From 2021/22 94.8p
- Dividend growth beyond 2023/24 60p rebase At least 5% to 2025/26 Between 5 - 10% to 2026/27
- Net debt / EBITDA expectations Below 4.5x Between 3.5 - 4x
- Net installed Renewable capacity Around 8GW More than 9GW
- Net Networks RAV >£9bn £12 - 14bn
Ten-year ambition: to 2030/31 to 2031/32
- Net installed Renewable capacity >13GW >16GW
- Net installed low-carbon flexible capacity >3GW* >2GW
- Net Networks RAV >£14bn >£20bn
* included Distributed Energy capacity from Solar & Battery, now included
within Renewable capacity ambition
Upgraded capital investment plan to 2027
The NZAP Plus is a five-year £18.0bn capital investment plan to 2026/27 -
mainly driven by new growth (c.£2.2bn or c.20%) but also updating for supply
chain cost increases (c.£2.0bn or c.15%), removal of the Distribution
minority interest assumption (c.£0.6bn or c.5%) and project phasing
(c.£0.7bn or c.5%). This increase - which collectively represents an
increase of over 40% on the NZAP - is focused on:
· Regulated electricity networks (c.50%)
SSEN Transmission (c.30%) will comprise the majority of expected investment in
electricity networks, as the RIIO-T2 baseline investment programme has
increased through uncertainty mechanism projects such as the Skye and Orkney
subsea links. Whilst the majority of Ofgem's Accelerated Strategic
Transmission Investment (ASTI) framework will be delivered towards the end of
the decade, the five-year plan also includes early construction costs as these
projects are progressed. As such, SSEN Transmission investment is expected to
increase to over £5bn from over £3bn in the previous plan, net of the 25%
Minority Interest share, driving the gross Regulatory Asset Value ('RAV') to
between £8 - 9bn by the end of 2026/27, and deliver expected adjusted
operating profits of at least £400m on average across the five year plan.
Whilst SSEN Distribution (c.20%) has a lower share of networks investment, the
absolute amount of investment is increasing with around £3.5bn of expected
investment compared to around £2bn in the previous plan. This increase
reflects 100% ownership of the business over the period, and is driven by the
£3.6bn of totex in the RIIO-ED2 Final Determination, which runs from April
2023 to March 2028, with the potential for additional investment in other net
zero-aligned projects to meet the increasing electrification demands of
consumers. This investment is expected to drive the gross RAV to between £6 -
7bn by the end of 2026/27, and deliver expected adjusted operating profits of
at least £450m on average across the five year plan.
Overall, as SSEN Transmission and SSEN Distribution continue to form a key
part of the low-carbon electricity core in SSE, the total electricity networks
RAV is expected to increase from £8.2bn at the start of the plan to between
£14 - 16bn by the end, of which SSE's share after Minority Interest is
expected to be between £12 - 14bn. On a gross basis, this equates to a c.14%
compound average growth rate ('CAGR') over the five-year plan.
· Renewable energy generation (c.40%)
Since November 2021, SSE Renewables has continued to grow its secured pipeline
of projects - which currently stands at c.15GW - and also the quality and
diversity of these prospects. With a continued focus on financial discipline
through targeting attractive returns on new projects, it is expected that
around 5GW of additional net capacity will be added across the five-year plan,
with net installed capacity of more than 9GW by March 2027. This growth will
be fulfilled through a diverse mix of technologies, with an increasing number
of attractive battery and solar projects adding to SSE Renewables' core hydro,
onshore and offshore wind projects. The incremental capacity, combined with
changing mix and inflationary impacts, means around £7bn of net investment is
expected across the five-year period - a £2bn increase on the expected
investment in the previous plan - and is expected to drive a c.20% adjusted
operating profit CAGR across the five-year plan subject to normal weather and
a c.£85/MWh baseload power price in 2026/27.
· Low-carbon flexible thermal generation and other businesses
(c.10%)
The extreme volatility seen in energy markets over the last year has made it
clear that investment in flexible, low-carbon thermal generation - such as
sustainable biofuels, carbon capture and storage and ultimately hydrogen -
will be critical to society in the transition to net zero as a counterbalance
for increasing intermittent renewables generation. The NZAP Plus expects to
invest up to £2.5bn in SSE Thermal's increasing pipeline of low-carbon
flexible generation prospects, which currently stands at around 5GW across a
range of technologies, and deliver expected adjusted operating profits of
around £500m on average across the remaining four years to 2026/27.
The remaining capital investment will be spent across SSE's corporate centre,
distributed energy and customers businesses, which remain part of a very
deliberate business model with each playing its own role in delivering SSE's
net zero-focused strategy.
With around 90% of the NZAP Plus expected to be invested in renewables and
networks, the substantial majority of the investment plan is focused on
climate solutions to achieve SSE's interim 2030 Business Goals which are
linked to material UN Sustainable Development Goals (SDGs), and it is aligned
to the Technical Screening Criteria of the EU Taxonomy.
Maintaining disciplined investment at attractive returns
The changing investment mix within the NZAP Plus reflects SSE's focus on
allocating capital based on clear internal investment criteria intended to
maximise total shareholder returns whilst ensuring strategic alignment with
SSE's net zero electricity focus. This investment criteria includes:
· Strategic fit - aligned with SSE's commitment to its 1.5-degree
science-based carbon targets, business mix and capabilities;
· Optimum mix - balancing risk and returns through a mix of
economically regulated and unregulated, market-based assets; and
· Targeted returns - focusing investment on high-quality assets
where SSE's capabilities can deliver favourable risk-adjusted project returns,
namely targeting:
o Onshore wind and solar: returns between 50 - 300 bps over WACC for
unlevered projects, depending on the balance of merchant, technology and
construction risk for each project;
o Offshore wind: more than 11% equity returns (excluding developer profits)
for project financed developments;
o Networks: between 7 - 9% return on equity, assuming a level of
outperformance, CPIH inflation of 2% p.a. and an average gearing ratio of 60%;
o Emerging technologies: between 300 - 500 bps over WACC for unlevered
projects, reflecting the expected increased risk on newer, first-of-a-kind
technologies including carbon capture and storage, hydrogen-fuelled generation
and battery storage.
These investment criteria - and targeted returns - are applied in both
domestic and overseas markets.
Updating the growth-supporting dividend plan
The original NZAP set out a five-year dividend plan to support accelerated
growth by confirming previous commitments to target dividend increases in line
with RPI for 2021/22 and 2022/23, before rebasing to 60 pence in 2023/24 and
targeting at least 5% dividend increases in 2024/25 and 2025/26.
The Board has delivered on this dividend commitment for 2021/22 and 2022/23
and continues to consider that the rebased dividend to 60 pence in 2023/24
supports SSE's ongoing ambitions to accelerate investment in the assets
required to reach net zero.
The capital allocation outlined in the NZAP Plus is expected to drive a 13-16%
Group adjusted earnings per share CAGR over the five-year plan - against the
2021/22 baseline of 94.8 pence - with around 50% of adjusted EBITDA expected
to be underpinned by index-linked revenue streams.
The NZAP Plus extends the original NZAP dividend plan to 2027 and, reflecting
the SSE Board's confidence in future earnings growth, now sets out a
commitment to target dividend increases of between 5 to 10% per year in
2024/25, 2025/26 and 2026/27. This updated dividend plan aims to balance
income to shareholders with funding and a strong investment grade credit
rating alongside an upgraded investment plan that will ultimately create
greater value and total returns for shareholders over the long term. This plan
also retains the scrip dividend option for shareholders with the cap on
take-up still set at 25% and implemented if necessary by means of a share
buyback.
A fully-funded plan, supported by a strong balance sheet
Through effective capital allocation, raising debt at highly attractive terms,
capital recycling and unlocking value through partnerships, SSE continues to
demonstrate that it can take advantage of the accretive opportunities it
creates. It has a proven ability to realise value from disposals, create
sustainable earnings growth and maintain strong investment grade credit
ratings - all whilst aligning with a 1.5-degree pathway.
The Group's business mix, future capital investment and funding plans are
designed to ensure that it retains an investment grade credit rating which
provides capacity to reach a 4.5x net debt / EBITDA ratio. The financial
strength of the Group means that it expects to be within an average of 3.5 -
4.0x net debt / EBITDA across the five-year plan.
More ambitious targets to 2032
The upgraded targets and ambitions within the NZAP Plus provide the platform
for SSE's businesses to grow substantially through the remainder of the
decade, and are necessary to deliver the Group's 2030 Business Goals and
associated 1.5 degree aligned carbon targets.
Looking further ahead, SSE is therefore also rolling forward and upgrading key
targets for the 10 years to 2032 as set out below:
· A fourfold increase in SSE's owned renewables capacity to over
16GW (net) from c.4GW today;
· Delivering more than 2GW of net installed low-carbon flexible
thermal capacity;
· An increase to more than £20bn (net) in SSE's electricity
networks RAV, from £8.2bn (gross) in March 2022, equivalent to a 14% gross
RAV CAGR.
Disposal of Minority Stake in Networks
The selected use of partnerships remains a key part of SSE's strategy: to
spread risk and financial exposure; to unlock value whilst avoiding
non-earning debt; and to enable future investment and growth.
During 2022/23, the Group completed a 25% minority interest disposal of the
SSEN Transmission business to Ontario Teachers' Pension Plan Board for
consideration of £1,465m at a premium to RAV of around 1.9x at 30 September
2022. This successful transaction reflected both the current value and
significant growth potential of SSEN Transmission as one of Europe's fastest
growing transmission networks, with the proceeds released by the sale
supporting the significant growth and investment across the Group.
While the November 2021 NZAP assumed that a similar 25% minority stake in the
SSEN Distribution business would be disposed by the 2025/26 financial year,
SSE consistently reviews strategic options and direction and the NZAP Plus
plan now reflects retaining 100% of the business. Strategies evolve and a
significant strengthening of SSE's balance sheet and an upgraded NZAP Plus
investment plan which remains well balanced are the main factors contributing
to the Board assessment that continuing to hold 100% of SSEN Distribution is
the right strategy at this time.
SSEN Distribution is a high-quality, core business for the Group and will make
a significant contribution to delivering sustainable long-term value as it
plays a key role in enabling net zero for consumers.
Supplemental financial information
Adjusted Investment and Capex Summary Mar 2023 Mar 2023 Mar 2022
Share % £m £m
SSEN Transmission (excluding 25% MI from 1 Dec 2022) 23% 495.5 614.4
SSEN Distribution 19% 421.0 364.8
Regulated networks total 42% 916.5 979.2
SSE Renewables 39% 837.5 811.0
SSE Thermal 7% 153.2 123.4
Gas Storage - 6.3 2.1
Thermal Total 7% 159.5 125.5
Energy Customer Solutions 2% 49.4 39.8
Energy Portfolio Management - 4.7 2.4
Distributed Energy 6% 124.7 26.6
Corporate unallocated 4% 68.3 78.7
Adjusted investment and capital expenditure, before refunds 100% 2,160.6 2,063.2
Project finance development expenditure refunds - (136.7)
Adjusted investment and capital expenditure 2,160.6 1,926.5
Acquisitions 642.7 141.3
Adjusted investment, capital and acquisitions expenditure 2,803.3 2,067.8
Notes: 2021/22 restated to recognise Keadby 2 pre-commissioning revenues and
costs in Income Statement following adoption of amendments to IAS 16 Property,
Plant and Equipment - Proceeds Before Intended Use.
SSE'S Capital Expenditure Programme
During the year to 31 March 2023, SSE's adjusted investment, capital and
acquisitions expenditure totalled £2,803.3m, representing an increase of 36%
versus the prior year. Included within the amount recorded are acquisitions
totalling £642.7m of which £519.5m is in respect of the Southern European
onshore wind development platform acquisition and £123.2m in respect of SSE's
share of the purchase of Triton Power, both transactions completed on 1
September 2022.
The remaining investment was delivered mainly by SSE's Renewables, Networks
and Thermal business units including the highlights discussed below.
In SSEN Transmission, the second year of RIIO-T2 saw deployment of a further
£495.5m of capex (SSE share, excluding 25% from 1 December 2022 onwards),
including £152m on the Shetland connection with 160km of the total 260km
subsea cable which will connect the Shetland islands to the GB Transmission
system now installed. In addition, £144m of spend was invested progressing
the East Coast development project which will increase the overhead lines from
132kV to 275kV and ultimately to 400kV, as well as a further £55m on the
Argyll project.
In the final year of RIIO-ED1, SSEN Distribution invested £178m in the North
networks across a broad range of projects, with additional reinforcement spend
needed following storm damage in FY22. SSEN Distribution's SHEPD network
delivered investment of £10m to upgrade infrastructure at Aultbea-Ullapool
and £5m on Islay to maintain and enhance network reliability to these island
communities. Both projects are under way and will be complete by 2023/24.
Further south, major capital investment continued in the SEPD network with a
total spend of £243m in the period, including upgrades to the network in
Bordon and Alton to enhance resilience and future proof it for predicted
uptake in consumer led low-carbon-technology.
Significant expenditure was delivered on SSE Renewables' flagship construction
projects, including £339m of equity drawdown for Seagreen Offshore Windfarm,
as the development progresses towards commercial operations over the summer of
2023. Construction of Viking wind farm on the Shetland islands has continued
according to plan, with an additional £202m deployed, the first turbine
erected in April 2023 and the project on track to achieve commercial
operations in Summer 2024, while all spend on the Dogger Bank wind farm in the
year was funded by debt raised at the project level, and therefore not
included in SSE's adjusted investment, capital and acquisitions expenditure.
In SSE Thermal, around £88m was invested on the development of the 50MW
Slough Multifuel station, a joint venture with CIP, which is progressing
towards handover during 2024/25. As well as around £20m of residual spend on
Europe's most efficient gas fired station at Keadby 2, which entered
commercial operation on 15 March 2023, limited early development expenditure
on Keadby 3 was included within Thermal's reported number.
SSE's Hedging Position at 31 March 2023
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. SSE continues to monitor market developments and
conditions and alters its hedging approach in response to changes in its
exposure profile, such as the acceleration of hedging by SSE Renewables
previously disclosed in May 2022. SSE will continue to provide a summary of
its 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:
The following table provides an update for SSE's GB Wind and Hydro generation
hedge positions against the forecast merchant volume exposure as at 31 March
2023.
2021/22 2022/23 2023/24 2024/25 2025/26
Wind Expected volume - TWh 4.2 5.3 6.5 6.8 6.8
Volume hedged - % 85% 91% 85% 77% 17%
Proportion of hedge in electricity - % 100% 62% 68% 30% 20%
Hedge price - £MWh £48 £54 £75 £115 £116
Hydro Expected volume - TWh 3.6 3.5 3.5 3.6 3.6
Volume hedged - % 83% 85% 85% 68% 23%
Proportion of hedge in electricity - % 100% 100% 84% 31% 10%
Hedge price - £/MWh £50 £63 £86 £113 £113
Note: where gas and carbon trades have been used as a proxy for electricity, a
constant 1 MWh :69.444 th and 1MWh : 0.3815 te/MWh conversion ratio between
commodities has been applied.
The expected volumes include SSE's equity share of forecast pre-CFD volumes
from Seagreen offshore wind farm. No volumes have yet been included for
Viking onshore wind farm nor Dogger Bank offshore wind farm as hedging for
these assets has not commenced.
The table excludes additional volumes and income for BM activity, ROCs,
ancillary services, capacity mechanism and shape variations and optimisations.
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). Normal target hedge levels continue to be achieved through the
forward sale of either electricity, or gas and carbon equivalents. Where the
market depth and liquidity significantly differs between gas and carbon, the
hedging approach allows for the separate forward sale of either commodity, and
for time periods beyond the 36 months prior to delivery, where it is believed
that it would reduce risk against or secure value for generation assets. This
has not been applied to date.
This approach aims to reduce the exposure of these wind assets to volatile
spot power market outcomes whilst still providing an underlying commodity
price hedge. When gas-and-carbon hedges are converted into electricity hedges
a "spark spread" is realised which can lead to changes in the average hedge
price expected. This can increase the previously published average hedge
price, as has been seen in 2022/23, or decrease it.
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 March 2022, with around 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 anticipated energy output for the coming twelve months.
GB Thermal: In the six months prior to delivery, SSE aims to hedge all of the
expected economic output of its CCGT assets, having progressively established
this hedge over the 18 months prior to delivery.
This hedging approach is adjusted to take into account any changes in
exposures as a result of current market conditions, such as the plant
availability exposure, counterparty credit risk, and changes to cost of
capital for collateral.
Hedging activity also depends on the availability of sufficient market depth
and liquidity, which can be limited, particularly for periods further into the
future.
Gas Storage: 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. At 31 March 2023, 125.6 mTh of gas
inventory was physically held which represents c.65% of SSE's share of
capacity (at 31 March 2022, 0.9mTh of gas inventory representing c.1% of SSE's
share of capacity).
UK Business Energy: The business supplies electricity and gas to business and
public sector customers. Sales to contract customers are 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.
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
total VAR limit of £5m.
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 ended 31 March 2023, SSE recognised a net exceptional charge
within continuing operations of £(0.4)m before tax. The following table
provides a summary of the key components making up the net charge:
Exceptional credits / (charges) Total
within continuing operations £m
Thermal Electricity Generation historic impairment reversal 17.8
Gas Storage historic impairment reversal 45.7
Fiddlers Ferry land sale 89.1
Triton Power Joint Venture bargain purchase gain and impairment (150.9)
Neos Networks impairment (5.9)
Reversal of previously recognised exceptional charges or judgements 3.8
Total exceptional charge (0.4)
Note: The definition of exceptional items can be found in Note 4.2 of the
Summary Financial Statements.
In addition to the above exceptional items from continuing operations, a net
exceptional gain within discontinued operations of £35.0m after tax was
recognised. This related to the release of a provision following further
clearance granted in respect of the Group's disposal of its Gas Production
business which completed on 14 October 2021.
For a full description of exceptional items, see Note 7 of the Summary
Financial Statements.
Certain remeasurements
In the year ended 31 March 2023, SSE recognised an adverse net remeasurement
within continuing operations of £(2,351.5)m before tax. The following table
provides a summary of the key components making up the adverse movement:
Certain remeasurements Total
within continuing operations £m
Operating derivatives (including Joint Ventures, net of tax) (2,544.4)
Commodity stocks held at fair value (9.0)
Financing derivatives 201.9
Total net adverse remeasurement (2,351.5)
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 2023 is expected to be within the next 6
- 12 months.
The change in the operating derivative mark-to-market valuation was a
£(2,544.4)m adverse movement from the start of the year, reflecting a
£(2,708.2)m adverse movement on fully consolidated operating derivatives
offset by a £163.8m share of positive movement on derivatives in jointly
controlled entities (net of tax) which mainly results from commodity hedging
within the Triton Power Joint Venture.
The adverse movement of £(2,708.2)m on fully consolidated operating
derivatives includes:
· Settlement during the year of £272.0m of previously net
"out-of-the-money" contracts in line with the contracted delivery periods; and
· An adverse net mark-to-market remeasurement of £(2,980.2)m on
unsettled contracts, largely entered into during the course of 2021/22 and
2022/23 and in line with the Group's stated approach to hedging. This
mark-to-market remeasurement - which compares to a £3,527.2m positive
movement in the prior year - reflects the extreme volatility seen in commodity
markets during the period.
As in prior years, the reported result does not include remeasurement of 'own
use' hedging agreements which do not meet the definition of a derivative
financial instrument under IFRS 9 "Financial Instruments".
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 £(9)m adverse movement in the year reflects the increase in the
underlying volumes of gas held at year end have been negatively impacted by
lower forward market prices.
However, whilst this movement reflects the net change in fair value of
physical gas inventory held at the year end, it does not take into account any
positive or negative mark-to-market movement on forward contracted sales.
Therefore, similar to derivative contracts held at fair value, we do not
expect that all of this valuation movement will be realised by the business.
Financing derivatives
In addition to the movements above, a positive movement of £201.9m was
recognised on financing derivatives in the year ended 31 March 2023, including
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 higher interest rates driving
significant reductions in the "out of the money" position on SSE's fixed rate
swaps, in addition to settlement of previously "out-of-the-money" contracts in
line with the contracted delivery periods.
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 2023 are significantly lower than the previous year. In addition to
the £(2,351.5)m net pre-tax loss on forward commodity, gas inventory and
financing derivative fair value remeasurements and the £(0.4)m net pre-tax
exceptional charge noted above - reported results also include £16.2m of
interest income on the net pension asset.
Reported results in the prior year reflected pre-tax certain re-measurement
gains of £2,118.8m mainly driven by the significant volatility in commodity
markets in the prior year, as well as pre-tax exceptional items of £305.0m
mainly driven by the reversal of historic SSE Thermal and Gas Storage
impairment charges, and £7.6m of interest income on the net pension asset.
Financial management and balance sheet
Debt metrics Mar 2023 Sept 2022 Mar 2022
£m £m £m
Net Debt / EBITDA* 2.7x N/A 4.0x
Adjusted net debt and hybrid capital (£m) (8,894.1) (9,988.6) (8,598.2)
Average debt maturity (years) 6.4 6.5 6.8
Adjusted interest cover 7.6x 4.2x 4.0x
Average interest rate for the period (excluding JV/assoc. interest and all 3.35% 3.25% 3.29%
hybrid coupon payments)
Average cost of debt at period end (including all hybrid coupon payments) 3.92% 3.83% 3.81%
* Note: Net debt represents the group adjusted net debt and hybrid capital.
EBITDA represents the full year group adjusted EBITDA, less £147m (at March
2023) for the proportion of adjusted EBITDA from equity-accounted Joint
Ventures relating to project financed debt.
Net finance costs reconciliation Mar 2023 Mar 2022
£m £m
Adjusted net finance costs 345.6 372.8
Add/(less):
Lease interest charges (29.4) (30.4)
Notional interest arising on discounted provisions (22.1) (5.7)
Hybrid equity coupon payment 38.8 50.7
Adjusted finance costs for interest cover calculation 332.9 387.4
SSE Principal Sources of debt funding Mar 2023 Sept 2022 Mar 2022
Bonds 54% 52% 55%
Hybrid debt and equity securities 18% 18% 21%
European investment bank loans 5% 7% 7%
US private placement 10% 10% 9%
Short-term funding 9% 10% 5%
Index -linked debt 4% 3% 3%
% Of which has been secured at a fixed rate 92% 92% 96%
Rating Agency Rating Criteria Date of Issue
Moody's Baa1 'stable outlook' 'Low teens' Retained Cash Flow/Net Debt March 2023
Standard and Poor's BBB+ 'positive stable' About 18% Funds From Operations/Net Debt December 2022
Maintaining a strong balance sheet
A key objective of SSE's long-term approach to balancing capital investment,
debt issuance and securing value and proceeds from disposals is by maintaining
a strong net debt/EBITDA ratio. SSE calculates this ratio based on a
methodology that it believes best reflects its activities and commercial
structure, in particular its strategy to secure value from partnering by using
Joint Ventures and non-recourse project financing.
SSE considers it has the capacity to reach a ratio of up to around 4.5x,
comparable with private sector utilities across Europe, whilst remaining above
the equivalent ratios required for an investment grade credit rating.
While there may be short-term fluctuations in leverage as demonstrated by the
2.7 net debt/EBITDA achieved at 31 March 2023 (2022: 4.0x), it is expected
that this ratio will generally fall between 3.5 - 4.0x across the five years
to 31 March 2027.
SSE's S&P credit rating were updated in December 2022 to at BBB+ 'positive
outlook' and its Moody's rating remains at Baa1 with 'stable outlook'.
Adjusted net debt and hybrid capital
SSE's adjusted net debt and hybrid capital was £8.9bn at 31 March 2023, up
from £8.6bn at 31 March 2022. In addition to dividends, capex spend and
revaluation of currency debt as well as various working capital movements,
this movement includes the completion of two acquisitions and one divestment
during the year:
· In September 2022, SSE Renewables completed the acquisition from
Siemens Gamesa Renewable Energy of an onshore development platform across
Spain, France, Italy and Greece for a consideration of €580m (£519.5m); and
· In September 2022, SSE Thermal, alongside Equinor as 50/50
partners, completed the acquisition of the Triton Power portfolio with SSE's
share of the purchase being £123.2m.
· In December 2022, a 25% Minority Interest stake in SSEN
Transmission was disposed of, with £1.46bn of proceeds received from Ontario
Teachers Pension Plan.
Debt summary as at 31 March 2023
The SSE Group issued £1.7bn of hybrid capital and new medium- long-term debt
in the year ended 31 March 2023 whilst also significantly increasing
short-term debt capacity in the form of Commercial Paper:
· 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 proceeds were 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 were 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 were used to cover the portion of the
maturing hybrid that was originally swapped to Euros (€575m) and to finance
a portion of SSE Renewables' European onshore development platform acquisition
as noted above.
· In August 2022, SSE plc issued a 7 year €650m Eurobond at a
coupon of 2.875% which was left in Euros as part of our net investment hedge
in overseas assets held in that currency. The bond was 8 times oversubscribed
which allowed SSE to secure a highly competitive rate for the issuance.
· Over the course of the year, SSE plc rolled maturing short-term
debt in the form of Commercial Paper in addition to raising a further £0.4bn,
which takes the total outstanding Commercial Paper at 31 March 2023 to
€1,376m (£1,048m). Commercial Paper has been issued in Euros and swapped
back to Sterling at an average cost of debt of 4.53% and matures between April
2023 and June 2023.
In addition to the March 2017 hybrid bonds which were called in June 2022 as
noted above, a further £613m of medium-to-long-term debt has matured in the
year comprising £163m (US Private Placement) which matured in April 2022,
£300m (Eurobond) which matured in September 2022 and £150m European
Investment Bank fixed rate loan which matured in October 2022. In the next
twelve months, there is a further £719m of medium-to-long-term debt maturing
being £50m (European Investment Bank) maturing in August 2023, £35m maturing
in April 2023 and £120m maturing in September 2023 (both US Private
Placements) and a €700m bond maturing in September 2023. Despite this, the
Group expects to have minimal long-term debt refinancing requirements to
2024/25, given expected asset disposal proceeds. As noted above, a further
€1,048m (£929m) of short-term debt in the form of Commercial Paper is also
due to mature in the second half of 2023/24, however the current intention is
to roll this maturing short-term debt forward throughout the 2023/24 financial
year.
Hybrid bonds summary as at 31 March 2023
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 2023 can be found below:
Issued Hybrid Bond Value(1) All in rate(2) First Call Date Accounting Treatment
July 2020 £600m 3.74% Apr 2026 Equity accounted
July 2020 €500m (£453m) 3.68% July 2027 Equity accounted
April 2022 €1bn (£831m) 4.00% Apr 2028 Equity accounted
(1) Sterling equivalents shown reflect the fixed exchange rate on date of
receipt of proceeds and is not subsequently revalued.
(2) All in rate reflects coupon on bonds plus any cost of swap into sterling
which currently only applies to July 2020 Hybrid.
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 2023/24 2022/23
HYe FYe HYa FYa
Total equity (cash) accounted £74m £74m £39m £39m
Total debt (accrual) accounted - - £21m £21m
Total hybrid coupon £74m £74m £60m £60m
SSE's July 2020 and April 2022 hybrid bonds are perpetual instruments and are
therefore accounted for as part of equity within the Summary Financial
Statements but, consistent with previous years, have been included within
SSE's 'Adjusted net debt and hybrid capital' to aid comparability. The March
2017 hybrid bonds which were called and settled in 2022/23 had a fixed
redemption date and were therefore 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 debt accounted
hybrid bonds are treated as finance costs under IFRS 9 "Financial
Instruments".
Managing net finance Income / (costs)
SSE's adjusted net finance costs - which includes interest on debt accounted
hybrid bonds but not equity accounted hybrid bonds - were £345.6m in the year
ended 31 March 2023, compared to £372.8m in the previous year. The lower
level of finance costs from year to year mainly reflects lower levels of net
debt during the financial year given proceeds from the disposal of Scotia Gas
Networks on 22 March 2022 (£1,225m) and a 25% minority interest stake in SSEN
Transmission on 30 November 2022 (£1,465m).
Reported net finance income was £59.3m compared to a reported net finance
cost of £273.2m in the previous year, reflecting the movements above as well
as the £201.9m positive movement on financial derivatives previously
referenced.
Summarising cash and cash equivalents
At 31 March 2023, SSE's adjusted net debt included cash and cash equivalents
of £0.9bn, down from £1.0bn at March 2022.
The cash collateral position has increased from £74.7m of cash provided as
collateral at 31 March 2022 to £316.3m of cash provided at 31 March 2023.
Cash collateral is only required for forward commodity contracts traded
through commodity exchanges, and generally comprises an 'initial margin'
element based on the size and period of the trade and a 'variation margin'
element which will change from day to day depending on the fair value of that
trade each day. The level of cash collateral either provided or received
therefore depends on the volume of trading through the exchanges, the periods
being traded and the associated price volatility. As collateral is only
required on a portion of trades, the movement in collateral provided or
received will not correlate to the IFRS 9 fair value movement recognised,
which also only covers a portion of the total Group trading activity. The cash
collateral position had increased at 31 March 2023 due to the continued higher
forward power and gas price environment, alongside heightened price volatility
in those markets. The collateral position is lower than earlier in the
financial year as volatility and risk factors have reduced, although prices do
remain heightened when compared to previous years.
Revolving Credit Facility / SHORT-TERM FUNDING
SSE has £3.5bn 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
Nov 22 SHET plc Syndicated Revolving Credit Facility with 11 Relationship Banks 2025 £750m
Nov 22 SHEPD plc and SEPD plc Syndicated Revolving Credit Facility with 11 Relationship Banks 2025 £250m
Feb 23 SSE plc Syndicated Revolving Credit Facility with 10 Relationship Banks 2024 £1.0bn
Ahead of the 25% minority interest stake disposal, SSEN Transmission entered a
three-year £750m facility and SSE Distribution entered a similar 3 year
£250m facility, both having two one-year optional extensions. These
facilities were entered into to help cover the future long-term funding
requirements and the working capital of those businesses as they look to
become financially independent of the Group. The facilities will therefore
support the ongoing capital expenditure investment programmes that are
required to deliver their ambitious future growth plans and will be drawn on a
regular basis.
The new £1bn facility signed in February 2023 was executed to cover potential
cash collateral requirements required to cover commodity position on exchanges
or via credit support annex's on bilateral contracts.
The facilities can also be utilised to cover short-term funding requirements;
however, the majority remain undrawn for most of the time and at 31 March
2023, £100m was drawn on the new £750m Scottish Hydro Electric Transmission
plc facility.
The two SSE plc facilities totalling £1.5bn that mature in 2026 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 Moody's ESG Solutions. The new £750m
Transmission facility is also classified as a sustainable facility with
interest rate and fees paid dependant on four ESG KPI's being achieved.
In addition to the above, a $300m private placement shelf facility exists with
NY Life which can be drawn in approximately two equal tranches 12 months apart
over the next three years. At 31 March 2023 no drawings have been made on this
facility.
In addition to these committed bank facilities, the Group has access to £50m
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.
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 2023, 92% 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 £9.5bn and SSE's objective is to maintain
a reasonable range of debt maturities. Its average debt maturity, excluding
hybrid securities, at 31 March 2023 was 6.4 years, down from 6.8 years at 31
March 2022. This movement reflects the £1.7bn of new hybrid capital and
long-term debt issued in the last twelve months but has been offset by a
higher short-term funding position via Commercial Paper. SSE's average cost of
debt is now 3.92%, compared to 3.81% at 31 March 2022.
Going Concern
The Directors regularly review the Group's funding structure and have assessed
that the Full Year 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 2024
resulting from the current volatile market conditions; the Group's credit
rating; the success of the Group's disposal programme through 2020/21 to
2022/23; the successful issuance of £1.7bn of hybrid equity, Eurobond and
private placement debt issued during the period; and the likelihood of
disposal of assets which have been announced as in progress and related debt
funding. The Directors have also considered the Group's obligations under
its debt covenants, with projections to 31 December 2024 supporting the
expectation that there will be no breaches.
The Directors have assessed that the Group remains able to access Capital
Markets, as demonstrated by the £3.6bn 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 £3.5bn of
undrawn committed borrowing facilities which has been increased by £2.0bn
during the 2022/23 financial year.
Operating a Scrip Dividend Scheme
SSE's Scrip Dividend Scheme was last renewed for a three-year period at the
2021 AGM and continues to be offered to all shareholders. For the period out
to 2026/27, take-up from the Scrip Dividend Scheme will be capped at 25%. SSE
plans to implement this cap by means of a share repurchase programme, or
'buyback', in October each year following payment of the final dividend. The
scale of any share repurchase program would be determined by shareholder
subscription to Scrip Dividend Scheme across the full year, taking into
account the interim and final dividend elections.
Following approval of the dividend at the Annual General Meeting on 20 July
2023, the scrip reference price will be determined across the period from 27
July to 2 August 2023, with notification of the final scrip reference price
issued on 3 August 2023. Following receipt of the final dividend scrip
elections on 24 August 2023, the overall scrip dividend take-up for the
financial year will be calculated and any intention to initiate a buy-back
will be announced. It is intended that any scrip buy-backs in respect of
2022/23 will be completed before 31 March 2024.
SSE believes limiting the dilutive effect of the Scrip in this way strikes the
right balance in terms of giving shareholders choice, potentially securing
cash dividend payment savings and managing the number of additional shares
issued.
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 around £3bn as at 31 March 2023.
SSE principal JVs and associates(1) Asset type SSE holding SSE share of external debt SSE Shareholder loans
as at 31 Mar 2023 as at 31 Mar 2023
Marchwood Power Ltd 920MW CCGT 50% No external debt £26m
Seabank Power Ltd 1,234MW CCGT 50% No external debt No loans outstanding
SSE Slough Multifuel Ltd 50MW energy-from-waste facility 50% No external debt £128m
Triton Power Holdings Ltd 1,200MW CCGT & 140MW OCGT 50% No external debt No loans outstanding
Beatrice Offshore Windfarm Ltd 588MW offshore wind farm 40% £681m Project financed
Dogger Bank A Wind Farm Up to 1,200MW offshore wind farm. 40% £745m Project financed
Dogger Bank B Wind Farm Up to 1,200MW offshore wind farm. 40% £616m Project financed
Dogger Bank C Wind Farm Up to 1,200MW offshore wind farm. 40% £344m Project financed
North Falls Offshore Wind Farm Ltd Offshore wind farm extension 50% No external debt No loans outstanding
Ossian Offshore Windfarm Ltd ScotWind seabed 40% No external debt No loans outstanding
Seagreen Offshore Windfarm Ltd 1,075MW offshore wind farm 49% £628m £816m(2)
Seagreen 1a Ltd Offshore wind farm extension 49% No external debt £16m
Cloosh Valley Wind Farm 105MW onshore windfarm (part of Galway Wind Park) 25% No external debt £26m
Clyde Windfarm (Scotland) Ltd 522MW onshore wind farm 50.1% No external debt £127m
Dunmaglass Windfarm Ltd 94MW onshore windfarm 50.1% No external debt £46m
Lenalea Wind Energy DAC 30MW of onshore windfarm 50% No external debt £8m
Stronelairg Windfarm Ltd 228MW onshore wind farm 50.1% No external debt £88m
Neos Networks Ltd Private telecoms network 50% No external debt £56m
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, £223m of the £816m of SSE Shareholder loans
advanced to Seagreen Windfarm Limited as at 31 March 2023 have been classified
as equity.
Taxation
SSE is one of the UK's biggest taxpayers, and in the 2022 PwC Total Tax
Contribution survey published in November 2022 was ranked 16th out of the 100
Group of Companies in 2022 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 to be a core element of its social
contract with the societies in which it operates and seeks to pay the right
amount of tax on its profits, in the right place, at the right time. 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.
SSE was the first FTSE 100 company to be Fair Tax Mark accredited and has now
been accredited for nine years. The group's overseas expansion presented the
opportunity to move to Fair Tax Foundation's Global Multinational Business
Standard Accreditation, which was launched in late 2021, SSE being the first
company to transition from the UK headquartered accreditation to the global
accreditation.
In November 2022, SSE published 'Talking Tax 2022: Fair tax in a time of
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.
As part of the Spring Finance Bill, released on 23 March 2023, the UK
Government published the final draft legislation behind the Electricity
Generator Levy ("EGL"). This measure introduces a temporary 45% charge on
exceptional receipts generated by specific generation sources which are in
excess of a £75/MWh benchmark price (adjusted in line with Consumer Price
Index). The levy will be in effect from 1 January 2023 to 31 March 2028, and
therefore a net charge of £43.4m has been recognised in respect of the EGL
within the 2022/23 financial year which has been excluded from the Income Tax
disclosure in line with current accounting practice.
In the year to 31 March 2023, SSE paid £501.7m of profit taxes, property
taxes, environmental taxes, and employment taxes in the UK, compared with
£335.3m in the previous year. The increase in total taxes paid in 2022/23
compared with the previous year was primarily due to higher levels of
corporation tax being paid on UK profits and higher levels of Climate Change
Levy being paid as a result of fewer outages at SSE's gas-fired power stations
compared with the previous year.
In 2022/23 SSE also paid €53.8m of taxes in Ireland, compared to €46.4m
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 16.4%, compared with 9.2% in 2021/22 on the same basis. The increase
in rate is primarily as a result of higher profit before tax, partly mitigated
by increased capital allowances. In addition, a decision finding in SSE's
favour was released by the Supreme Court on 17 May 2023 on the group's
long-running capital allowances case in relation to Glendoe Hydro Electric
Station. The successful outcome has resulted in the release of a £27.9m
corporation tax provision, which in turn reduced SSE's adjusted underlying
current tax rate for the year by 1.3%.
The UK Budget in March 2021 introduced a "super-deduction" for qualifying
capital expenditure incurred during the two-year period from 1 April 2021 to
31 March 2023. Capital allowances rates of 130% and 50% replace the existing
rates of 18% and 6% respectively for qualifying capital expenditure in that
period, significantly increasing the amount of capital allowances available on
the Group's capital investment programme.
Pensions
Contributing to employees' pension schemes - IAS 19 Mar 2023 Mar 2022
£m £m
Pension scheme asset recognised in the balance sheet before deferred tax £m 541.1 584.9
Pension scheme liability recognised in the balance sheet before deferred tax - -
£m
Net pension scheme asset recognised in the balance sheet before deferred tax 541.1 584.9
£m
Employer cash contributions Scottish Hydro Electric scheme £m 1.0 1.0
Employer cash contributions SSE Southern scheme £m 52.1 58.0
Deficit repair contribution included above £m 38.0 40.9
In the year to 31 March 2023, the surplus across SSE's two pension schemes
decreased by £43.8m, from £584.9m to £541.1m, primarily due to actuarial
losses of £79.2m and contributions made to the schemes.
The valuation of the SSE Southern Pension Scheme increased by £107.1m in
2022/23 primarily due to actuarial gains of £72.8m, in particular the impact
of higher discount rates, as well as deficit repair contributions exceeding
service costs.
The Scottish Hydro Electric Pension Scheme 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 Scottish Hydro Electric Pension Scheme surplus
decreased by £150.9m mainly as a result of actuarial losses from plan
assets.
Additional information on employee pension schemes can be found in note 15 to
the Summary Financial Statements.
BUSINESS OPERATING REVIEW
SSE's strategy of sustainably 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, are highly complementary. With common
skills and capabilities in the development, construction, financing and
operation of highly technical electricity assets, there are strong synergies
between them and valuable links across them. SSE's business mix is very
deliberate, highly effective, fully focused and well set to prosper on the
journey to net zero, whilst contributing to energy security and
affordability.
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 in the North of Scotland
and in central southern England.
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 was linked to RPI until the end of
the RIIO-ED1 price control in March 2023; both SSEN Transmission and SSEN
Distribution are linked to CPIH under their respective RIIO-2 price controls.
Each licensee can 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.
If 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. 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 Mar 23 Mar 22
Transmission adjusted operating profit(1) - £m 372.7 380.5
Transmission reported operating profit - £m 405.5 380.5
Gross Regulated Asset Value (RAV) - £m 4,836 4,155
SSE Share Regulated Asset Value (RAV) (1) - £m 3,627 4,155
Renewable Capacity connected to SSEN Transmission Network(2) - MW 9,208 7,790
Transmission adjusted investment and capital expenditure(1) - £m 495.5 614.5
(1) Excludes 25% minority interest from 1 December 2022
(2) Includes full Seagreen Transmission Entry Capacity
SSEN Transmission overview
SSEN Transmission owns, operates and develops the high voltage electricity
transmission system in the North of Scotland and its islands. Following a
minority stake sale completed in November 2022, the business is owned 75% by
SSE plc and 25% by Ontario Teachers' Pension Plan Board. All capex and RAV
references in this update relate to 100% of the business unless otherwise
stated. The business is well placed to capture significant long-term growth
opportunities from investment in enhancing energy security and enabling the
development of renewables across the North of Scotland.
Operational delivery
In 2022/23, SSEN Transmission delivered another year of exceptional
operational performance, achieving the maximum reward available through the
Energy Not Supplied Incentive of £0.8m for the third consecutive year, which
will be reflected in revenue in 2024/25. This strong operational performance
is underpinned by a robust programme of inspection, maintenance, refurbishment
and replacement of its transmission assets, keeping the lights on for
communities around the North of Scotland and ensuring reliable network access
for its electricity generation customers to support security of supply.
SSEN Transmission's capital investment programme remains on track with good
progress being made on all major projects. This includes the second phase of
the Inveraray-Crossaig overhead line replacement project, with the
installation of all steel towers now complete and the project on track for
energisation this summer. As well as maintaining and enhancing network
reliability to the communities it serves, the Inveraray-Crossaig project will
also enable the growth in renewable electricity generation across the region
as part of the wider Argyll and Kintyre 275kV Strategy.
The Shetland High Voltage Direct Current (HVDC) transmission link also
continues to make excellent progress with the second phase of the subsea cable
installation works, which commenced in March 2023, now complete. 160km of the
total 260km of subsea cable is now installed. Noss Head Switching Station in
Caithness, which the Shetland HVDC link will connect to, was successfully
energised in April 2023. Upon competition, the Shetland HVDC link will connect
to the existing Caithness-Moray HVDC link, becoming the world's first
multi-terminal HVDC system outside of China. It is a key innovation to support
the future development of integrated HVDC grids, with HVDC links to date
largely point-to-point connections. The project remains on track for
completion and energisation in 2024.
Good progress continues to be made to increase the capacity of the North East
transmission network to 400kV, with this phase of network upgrades remaining
on track for energisation by the end of 2023. Work to incrementally increase
the east coast transmission network also remains on track, to 275kV by the end
of 2023 and then to 400kV by 2026.
These strategic investments in new and upgraded infrastructure are key to help
enable the continued growth in renewable electricity generation across the
North of Scotland. These renewable connections includes the completion of the
third circuit of the Seagreen offshore wind farm connection to Tealing
substation in Angus which completed in November 2022.
As at 31 March 2023, the total installed capacity of the North of Scotland
transmission network was around 10.5GW, of which just over 9GW is from
renewable sources. This includes the successful energisation of the Creag
Rhiabhach wind farm (92MW) near Lairg in December 2022 and the successful
completion of all three phases of the Seagreen (1,075MW) grid connection.
Factoring in the forecast growth in renewables in the remaining years of the
RIIO-T2 period, SSEN Transmission remains well on track to meeting, and likely
exceeding, its goal to transport the renewable electricity that powers 10m
homes.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities in RIIO-T2
SSEN Transmission continues to make tangible progress in unlocking several
investments over and above its baseline investment case secured at the start
of RIIO-T2. These additional projects, which are being taken forward through
Ofgem's Uncertainty Mechanisms, will be key to delivering a pathway to net
zero and helping support energy security.
In October 2022, SSEN submitted to Scottish Ministers its Section 37 planning
application for the replacement and upgrade of the Fort Augustus to Skye
transmission line, with Highland Council's Planning Committee unanimously
supporting the application in March 2023. The replacement line is required to
maintain security of supply and enable the connection of renewable electricity
generation along its route. In May 2023, Ofgem published for consultation its
response to SSEN Transmission's FNC, setting out its 'minded-to approve'
provisional decision. Subject to timely planning and regulatory approvals, the
project is on track for completion in 2026.
Following Ofgem's approval of SSEN Transmission's Initial Needs Case for the
Argyll 275kV Strategy in December 2022, in May 2023, SSEN Transmission
submitted its FNC. This followed a direction from Ofgem to allow submission in
advance of securing all main planning consents due to the risk of delay and
likely increase in cost that would otherwise have been the case, alongside
providing certainty to support the project's procurement process. The Argyll
and Kintyre 275kV Strategy is required to upgrade the local transmission
network from 132kV to 275kV operation, supporting the forecast growth in
renewables in the region.
The decision in October 2022 by Argyll and Bute Council's Planning Committee
to raise an objection to SSEN Transmission's proposed overhead line between
Creag Dhubh and Dalmally has resulted in a Public Local Inquiry (PLI), which
is now under way. SSEN Transmission remains extremely disappointed by the
decision, which went against the recommendations of the Council's own Planning
Officer, with no other statutory stakeholder objections received, and
continues to review what this means for its delivery programme and will work
with all stakeholders to minimise the impact of this on new renewable
generation connections.
In March 2023, Ofgem provisionally approved long established plans to provide
a 220kV subsea transmission link to Orkney, the timing of which remains
subject to Ofgem's final decision and ongoing discussions with the supply
chain.
Further expenditure to connect new renewable generation, enable rail
electrification and support system security is also expected throughout the
RIIO-T2 period and beyond when the need for this investment becomes
certain.
Subject to regulatory and planning approvals, SSEN Transmission's expenditure
across the price control period could take its RAV to between £8bn to £9bn
by 2027.
Further growth Opportunities
In July 2022, the National Grid Electricity System Operator (ESO) published
the Pathway to 2030 Holistic Network Design (HND). It set out the onshore and
offshore electricity transmission network infrastructure required to deliver
the UK Government's 50GW by 2030 offshore wind target.
In December 2022, Ofgem published its Accelerated Strategic Transmission
Investment (ASTI) framework decision, which provided the regulatory framework
under which those investments will be taken forward. Ofgem's ASTI decision is
a major step forward in strategic network planning for electricity
transmission infrastructure and included 'approval of need' of all investments
in SSEN Transmission's network region set out in the HND report as 'required'
to enable 2030 targets. The ASTI framework also unlocks early pre-construction
expenditure to help secure the supply chain, alongside allowances to support
early construction activities.
In light of these developments, SSEN Transmission has upgraded its long term
RAV target, which is now expected to exceed £15bn by 2032. Subject to timely
and positive planning decisions and the outcome of competitive tenders for
delivery of these projects, SSEN Transmission is committed to 2030 delivery of
these projects.
Beyond these investments, in October 2022, Ofgem published its decision on the
onshore and offshore classification of the offshore HND assets. It confirmed
that a proposed subsea connection from Fetteresso to a new substation in
Lincolnshire will be classed as an onshore electricity transmission asset,
which is likely to support further growth.
With the HND enabling around 11GW of ScotWind's 28GW ambition, a follow-up
exercise is now under way which will set out how ScotWind's full offshore wind
ambition will be realised, the outcome of which is expected before the end of
2023. The Scottish Government is also consulting on its Draft Energy Strategy
and Just Transition Plan, which includes proposals for an additional 8-12GW of
onshore wind by 2030.
Recognition by Ofgem and the ESO of these further potential growth and
investment opportunities, alongside ever-increasing UK and Scottish Government
energy targets and ambitions, underlines the importance of the Transmission
network, particularly in the North of Scotland, in transitioning the GB energy
system to net zero.
Given the scale of investment required to deliver net zero, it is crucial that
the policy landscape and regulatory framework, particularly financial
parameters, continue to attract the investment required to support delivery of
the most ambitious investment plan in low carbon infrastructure for a
generation.
SSEN Distribution
SSEN Distribution March 23 March 22
Distribution adjusted and reported operating profit - £m 382.4 351.8
Regulated Asset Value (RAV) - £m 4,720 4,054
Distribution adjusted investment and capital expenditure - £m 421.0 364.8
Electricity Distributed - TWh 36.1 37.6
Customer minutes lost (SHEPD) average per customer 59 57
Customer minutes lost (SEPD) average per customer 46 42
Customer interruptions (SHEPD) per 100 customers 60 56
Customer interruptions (SEPD) per 100 customers 44 42
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 3.9m 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 with
over 75,000km² of extremely diverse terrain. The business has significant
growth opportunities as a key enabler of the local and national transition to
a net zero future.
Operational delivery
In December 2022, Ofgem published its Final Determinations for the RIIO-ED2
price control outlining its response to SSEN's Business Plan 'Powering
Communities to Net Zero'. SSEN Distribution accepted Ofgem's Final
Determination in March and will continue to work closely with the regulator to
ensure the price control has the agility and flexibility required to keep pace
with net zero requirements. The price control began in April 2023 and will run
until March 2028.
Major capital investment
The new price control period will see the acceleration of SSEN Distribution's
major capital investment programme across both its networks, delivering
significant improvements for customers and supporting future earnings through
RAV growth. This builds on continued capital delivery in the final year of
RIIO-ED1, where SSEN Distribution invested £421m, bringing the total
investment since the beginning of the price control to £2.7bn.
Customer interruptions and incentive score
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 SHEPD CI rate increased from 56 in 2021/22 to 60 in 2022/23, with CML
increasing from 57 to 59. Whilst performance in response to unplanned network
faults improved in comparison to 2021/22, reflecting investment in automation
and operational response, a rise in planned interruptions to facilitate new
connections has impacted IIS performance. In SEPD, the CI rate increased to 44
up from 42 the previous year and CMLs also increased to 46 from 42 the
previous year. Adverse weather which did not qualify as exceptional under IIS
provisions and a major transmission fault affecting 55,000 customers were also
contributory factors in performance for the period.
In 2022/23 the SSEN Distribution network was affected by two extreme weather
events, an ice storm in Shetland in December 2022 and Storm Otto in February
2023. Power restoration efforts during both weather events were swift and
effective as reflected in a motion in the Scottish Parliament praising SSEN
Distribution's 'exceptional response' to Storm Otto, citing improvements in
restoration, communications and customer service.
In response to the security of supply concerns across GB and possibility of
emergency disconnections, Distribution was the first Distribution Network
Operator (DNO) to develop an emergency planning portal for customers and
conducted engagement with over 2,500 stakeholders to help ensure preparedness
and community resilience.
Improving customer satisfaction: Broad Measure scores
SSEN Distribution's Broad Measure performance has again improved in 22/23
achieving a total incentive return of £4.4m and continuing the upward trend
which has been supported by a comprehensive improvement plan for each Broad
Measure category. In 2022/23 SSEN Distribution was the most improved DNO for
Customer Satisfaction, with the speed of improvement being five times that of
the industry average.
In 2022/23 SSEN Distribution received its highest ever league table position
in the Stakeholder Engagement and Customer Vulnerability (SECV) standings,
resulting in an estimated revenue of £1.5m. Support for customers in
vulnerable situations also increased with registrations to SSEN's Priority
Services Register rising by 11% compared to the previous financial year
through targeted communications and partnerships. In addition, over 14,500
households were supported by fuel poverty and energy efficiency measures, an
increase of almost 70% on 2021/22.
In March 2023, SSEN published its Fair Energy Future report, and in doing so
became the first DNO to publish a consumer-led just transition action plan
aimed at securing a fair and inclusive net zero transition for all.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
Delivering in the new RIIO-ED2 price control period
SSEN Distribution's RIIO-ED2 Business Plan, which was co-created with
stakeholders, is a core component of SSE Group's NZAP Plus. The Final
Determination from Ofgem provides SSEN Distribution with a proposed total base
expenditure of £3.6bn, an uplift of over 22% on the equivalent period in
RIIO-ED1, including potential additional investment opportunities of up to
£0.7bn over the period through uncertainty mechanisms and reopeners
Accelerating connections
With the transition to net zero gathering pace, SSEN Distribution is seeing a
significant rise in the uptake of low-carbon technologies, particularly EV
charge points, heat pumps, and battery storage. The business has seen a 75%
uplift in the number of electric vehicle charge points connected compared to
last year.
The SEPD network is experiencing rapid growth in both generation and demand
requests, with significant large load requests coming from data centres and
contracted batteries doubling over the past year. In SHEPD, generation demand
has tripled from 3.7GW to 9.5GW over the past 18 months.
Empowering local investment and growing flexibility
Project LEO, SSEN Distribution's industry-leading project established to
replicate the future energy system and test flexibility services at the 'grid
edge', has concluded. Insights are now being used to facilitate extensive
engagement with local authorities and stakeholders to support local net zero
planning. This includes collaborative work with the Isle of Wight Council and
local generators to produce a first-of-its-kind local net zero island study,
which has identified core network development needed to unlock renewables and
meet future demands. This provides a robust case to unlock further investment
through uncertainty mechanisms early in the price control.
SSEN Distribution is also increasing tendering its flexibility services in
areas where localised high demand can be offset to extend overall network
capacity. SSEN's RIIO-ED2 Distribution System Operator Strategy targets
delivery of 5GW in flexible services and 3.7GW of flexible connections by
2028. Overall, SSEN will invest around £70m in DSO capabilities in the
five-year period, enabling greater consumer take-up of low-carbon technologies
while delivering an estimated £460m of benefits through deferred
reinforcement and avoided capital expenditure.
Building a workforce for the future
During the RIIO-ED2 price control period, SSEN Distribution will increase its
workforce materially as it delivers the infrastructure required for net zero,
safely, efficiently and in line with customers' expectations. In the last year
alone, its graduate intake increased by 180% and trainee engineers by 90%,
with specific pipelines for digital skills, alignment to and a focus on
recruiting for difference, including neurodiversity.
SSE Renewables
SSE Renewables Mar 23 Mar 22
Renewables adjusted operating profit - £m 580.0 568.1
Renewables reported operating (loss) - £m 446.3 427.8
Renewables adjusted investment and capital expenditure before acquisitions - 837.5 811.0
£m
Generation capacity - MW
Onshore wind capacity (GB) - MW 1,285 1,285
Onshore wind capacity (NI) - MW 117 122
Onshore wind capacity (ROI) - MW 567 567
Total onshore wind capacity - MW 1,969 1,974
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) - MW 3,915 3,920
Contracted capacity 2,787 2,792
Generation output - GWh
Onshore wind output (GB) - GWh 2,770 2,502
Onshore wind output (NI) - GWh 286 264
Onshore wind output (ROI) - GWh 1,357 1,196
Total onshore wind output - GWh 4,413 3,962
Offshore wind output (GB) - GWh 1,846 1,430
Conventional hydro output (GB) - GWh 3,037 3,107
Pumped storage output (GB) - GWh 301 227
Total renewable generation (inc. pumped storage) - GWh 9,597 8,726
Total renewable generation (also inc. constrained off) - GWh 10,159 9,423
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 456GWh of constrained off generation in
FY2022/23 and 469GWh in FY2021/22; Offshore wind output excludes 106GWh
constrained off generation in FY2022/23 and 228GWh in FY2021/22
Note 4: Biomass capacity of 15MW and output of 68GWh in FY2022/23 and 73GWh
FY2021/22 is excluded, with the associated operating profit or loss reported
within Distributed Energy
Note 5: Onshore NI and contracted capacity reduced by 5MW in the period
following the sale of Bessy Bell I in July 2022
SSE Renewables overview
SSE Renewables develops and generates zero carbon electricity at scale from
wind farms and provides clean flexible power from its hydro schemes. The
business comprises existing operational assets and those under development in
onshore wind, offshore wind, flexible hydro electricity, run-of-river hydro
electricity, pumped storage, as well as solar and battery technology
co-located on existing UK and new international markets. In April 2023, the
standalone Solar and Battery business, that had previously reported alongside
SSE Distributed Energy, was integrated into SSE Renewables to optimise
technological, planning and development synergies.
Operational delivery
SSE Renewables' operational offshore wind installed capacity is 487MW with its
onshore wind and hydroelectric installed capacity at 1,969MW and 1,459MW
respectively. SSE Renewables is currently leading the construction of more
offshore wind than any other company in the world. Whilst availability across
all technologies has remained high, the lower-than-expected wind and rainfall
observed over the last three years continued in the last financial year,
resulting in lower than normal production.
SSE Renewables' hydro assets play an increasingly critical role in delivering
cost-effective, low-carbon flexibility to the system, providing additional
diversified revenue streams. Following a very dry summer, autumn rain was
above average followed by drier than average conditions over the winter months
resulting in output for the year being behind plan. Plant availability,
however, was very strong and following an intensive period of summer
maintenance outages, which were delivered to plan, winter plant availability
was exceptional with the fully flexible plant and the pumped storage asset at
Foyers performing particularly well.
SSE Renewables is actively progressing plans to enhance assets across its
operational hydro fleet, including the addition of pumping capacity,
generation capacity increases and grid services capabilities.
SSE Renewables is the leading owner, operator and developer of onshore
wind farms across the UK and Ireland. Operational onshore wind fleet
availability was high throughout the year. Volumes finished at 93% of plan at
year end with lower than forecast wind resource in Q4 impacting volumes.
While the end of the financial year saw lower wind resource than anticipated,
autumn and winter saw an improved performance with Beatrice and Greater
Gabbard offshore wind farms achieving 91% of plan overall, reducing to 73%
when including Seagreen and the impact of its construction delay. There are
now 50 turbines generating at Seagreen producing significant volumes and a
new-build Vestas operational service vessel has been mobilised to site.
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%) continue to progress. Onshore works are
continuing on all three phases, with the three convertor stations at various
stages of construction and the onshore HVDC cables already installed on Dogger
Bank A and B. The operation and maintenance base at Port of Tyne is complete
and was officially opened in March.
Offshore work is well under way for Dogger Bank A with successful installation
of the first monopiles and transition pieces and the 175km offshore export
cable. In April, Dogger Bank A reached another milestone with the installation
of the world's first unmanned HVDC offshore substation, making it the first
project in the UK to use this technology to transmit the electricity produced
back to shore, ensuring that the electricity is transmitted efficiently over
long distances while minimising losses.
Dogger Bank A is still expecting to achieve first power during Summer 2023,
assuming normal weather. However, due to delays to the manufacturing of
nacelles for the GE Haliade X turbine, the commercial operations date for
Dogger Bank A has been pushed back by a few months to Q3 2024. The project is
working with GE to assess whether impacts on Dogger Bank B and C are likely,
as well as options to mitigate.
On Seagreen 1 (1,075MW, SSE share 49%), which will be Scotland's largest and
the world's deepest fixed-bottom offshore wind farm once operational,
installation of all 114 foundations ('jackets') was completed in April 2023
including the world's deepest jacket at a depth of 58.6m. With 84 turbines
installed and 53 turbines exporting power to the grid as of 18 April 2023, the
project continues to make significant progress towards its commercial
operations date during the summer of 2023.
Onshore, construction is progressing well on Viking (443MW) in Shetland with
turbine installation under way and all turbines expected to be up by the end
of 2023. Viking is expected to be fully operational by Autumn 2024.
In Ireland, Lenalea wind farm (30MW, SSE share 50%) construction is
progressing and it is due to be completed by the end of 2023. Following a
final investment decision in August, Yellow River (101MW) started construction
at the beginning of November 2022 and will proceed on a merchant basis.
In hydro, phase one of the Tummel Bridge power station refurbishment was
completed on schedule. The two existing 'camelback' turbines and accompanying
machinery were removed in preparation for the installation of two new, bespoke
turbines in Q2 2023.
Growth opportunities - DOMESTIC
SSE Renewables' core markets of the UK and Ireland continue to offer
considerable growth opportunities.
In March, the UK Government opened the application window for Allocation Round
5 (AR5). SSE Renewables projects Seagreen 1A Strathy South, Bhlaraidh
Extension, Aberarder and Viking are all eligible to bid for the auction, with
results expected by September 2023. However, the low administrative strike
price (caps) in the auction, particularly for offshore wind, do not reflect
the cost increases faced by projects. As a result, SSE Renewables will not be
entering Seagreen 1A into the auction. It will continue to seek an alternative
route to market to progress this project.
Located in the North Sea, in the outer Firth of Forth, Berwick Bank wind farm
has the potential to deliver 4.1GW of installed capacity, making it one of the
largest offshore opportunities in the world. A consent application was
submitted to the Scottish Government in December 2022. The first connection
date is in 2027 and the full project could be complete around the end of the
decade.
Ossian offshore wind farm, owned by the SSE Renewables (3.6GW, share 40%),
Marubeni Corporation and Copenhagen Infrastructure Partners (CIP) consortium,
is one of the largest floating offshore wind projects in development worldwide
and could play a key role in meeting the UK Government's floating wind
targets. The project continues to progress through the early stages of
development with the Environmental Impact Assessment Scoping Report for the
Ossian Array submitted to the Scottish Government in March 2023.
North Falls offshore wind farm (up to 504MW, SSE Renewables share 50%), an
extension to Greater Gabbard off the east coast of England, continues to
progress through development ahead of planning submission next year. North
Falls could be operational by 2031, depending on the grid connection solution.
In February, SSE Renewables announced early scoping work to explore options
for developing a fourth phase of Dogger Bank wind farm. There are two options
being explored for the energy generated: a grid connection and/or green
hydrogen production. The project's progression remains subject to agreement
with the Crown Estate.
In March 2023, SSE Renewables' Gordonbush Hydrogen project was shortlisted for
funding from the UK Government's Net Zero Hydrogen Fund.
SSE Renewables recently announced additional plans to adapt its existing
conventional 152.5MW Sloy hydro power plant with pumping capabilities. Subject
to final design, the converted Sloy scheme could be capable of delivering up
to 25GWh of long-duration electricity storage capacity, providing vital
reserve capacity for an increasingly renewables-led energy system as well as
critical energy security back-up.
In March, SSE Renewables confirmed a £100m commitment to further develop
plans for the Coire Glas pumped hydro storage project (c. 1,300MW). The
project, which received planning consent from the Scottish Government in 2020,
would more than double Britain's total current electricity storage capacity.
Subject to a favourable revenue stabilisation mechanism for long duration
electricity storage, Coire Glas could reach a final investment decision by the
end of 2024 with the objective of being fully constructed and commissioned by
2031 and therefore play a significant role in the UK Government's 2035 target
for a decarbonised power system.
SSE Renewables remains committed to delivering Arklow Bank Wind Park 2 (up to
800MW), despite being unsuccessful in Ireland's first Offshore Renewable
Energy Support Scheme (ORESS) auction in May 2023. It will proceed to submit a
planning application later this year to Ireland's planning board, An Bord
Pleanála, whilst it explores future ORESS contracts and other routes to
market.
The Irish Government has confirmed a new target of 20GW of offshore wind by
2040 with at least four ORESS auctions starting next year with 'plan-led'
designated zones identified by the Government based on grid capacity.
Building on its existing Irish offshore development portfolio (Setanta
(1,000MW) and Celtic Sea Array (1,200MW), SSE Renewables has submitted an
application for an investigative foreshore licence for surveys of the seabed
for a possible new 1GW offshore wind farm in the Atlantic Ocean off the coast
of Tarbert, Co. Kerry.
In January, SSE Renewables announced plans for its first solar and battery
installation, co-located at its existing operational wind farm in Co. Wexford,
Ireland. The planning application for the project, a 21MW solar photovoltaic
(PV) array and a 10MW/2hr battery energy storage system, will be submitted in
the coming months.
Growth opportunities - international
Europe
SSE Renewables is progressing its Southern Europe development portfolio with
at least three projects (totalling c.100MW) aiming for a final investment
decision this year. The first two projects (in France and Spain) are targeting
construction commencing in Summer 2023, with at least one further project
targeting a final investment decision later in the financial year.
SSE Renewables remains focused on offshore wind in Northern Europe, despite
missing out on the Dutch and Polish tender processes. In the Netherlands, SSE
Renewables is now focused on the upcoming Ijmuiden Ver zone tenders (2 x 2GW),
with bids now expected in Q1 2024 following finalisation of the sites and
tender process by the Dutch authorities later this year. SSE Renewables has
partnered with APG, acting on behalf of Dutch pension fund ABP (the
Netherlands' largest), for the tenders. And in Poland, the business continues
to look at offshore partnering opportunities.
Asia-Pacific
SSE Renewables continues to pursue offshore wind development activities in
Japan through its joint venture SSE Pacifico (80% stake). It is assessing
participation in the upcoming Round 2 auction whilst also targeting future
auctions. The Japanese Government has announced its intention to open up its
Exclusive Economic Zone to potential future floating wind projects.
SSE Renewables has formed a 50/50 joint venture with Equis to bid for a
feasibility licence for an offshore wind farm project in Australia's first
Federal Government declared offshore wind zone of Gippsland, in waters off the
coast of Victoria. The outcome of the bid is expected by the end of 2023.
North America
SSE Renewables views the United States as an attractive growth market,
particularly following the introduction of the Inflation Reduction Act. It
continues to actively explore US market entry opportunities across onshore and
offshore wind and adjacent technologies.
Project Location Technology Capacity (MW) SSE Share (MW)
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
Yellow River Ireland Onshore wind 101 101
Lenalea Ireland Onshore wind 30 15
Littleton GB Solar 30 30
Salisbury GB Battery 50 50
Ferrybridge GB Battery 150 150
Total in construction - GW 2.8GW
Late-stage development
Seagreen 1A GB Offshore wind 500 245
Bhlaraidh Extension GB Onshore wind 99 99
Strathy South GB Onshore wind 208 208
Other GB & Ireland GB & Ire Onshore wind - 137
Spanish projects Spain Onshore wind(1) 281 281
France, Italy and Greece projects Various Onshore wind(1) 125 125
Coire Glas GB Pumped storage 1,300 1,300
ByPass GB Solar 50 50
Monk Fryston GB Battery 320 320
Tawnaghmore GB Battery 100 100
Total late-stage development - GW 2.9GW
Early-stage development
Berwick Bank GB Offshore wind 4,100 4,100
Ossian (ScotWind lease) GB Offshore wind 3,600 1,440
Arklow Bank 2 Ireland Offshore wind 800 800
North Falls GB Offshore wind 504 252
Cloiche GB Onshore wind 125 125
Other GB & Ireland GB & Ire Onshore wind - 311
Spanish projects Spain Onshore wind(1) 808 808
France, Italy and Greece projects Various Onshore wind(1) 1,190 1,190
Fiddler's Ferry GB Battery 150 150
Staythorpe GB Battery 350 350
Total early-stage development - GW 9.5GW
TOTAL SECURED PIPELINE - GW 15.1GW
Other Future prospects
Dogger Bank D GB Offshore wind 1,320 660
Setanta (Braymore Point) Ireland Offshore wind 1,000 1,000
Celtic Sea Array ROI Offshore wind 1,200 1,200
Tarbert Ireland Offshore wind 1,000 1,000
Japanese projects Japan Offshore wind ~6,000 ~4,800
Other GB GB Onshore wind - ~550
Other Ireland Ire Onshore wind - ~200
Spanish projects Spain Onshore wind(1) ~1,750 ~1,750
France, Italy and Greece projects Various Onshore wind(1) ~700 ~700
Other GB Hydro GB Hydro 75 75
Other Solar GB Solar ~400 ~400
Other Battery GB Battery ~900 ~900
Total future prospects >13,000
Notes: All capacities are subject to change as projects refined. Table
reflects ownership and development status as at May 2023. Late-stage is
consented in GB and grid or land security elsewhere, early-stage has land
rights in GB and some security over planning or land elsewhere. Future
prospects are named sites where non-exclusive development activity is under
way. Additional solar and battery storage projects reflects Solar and Battery
team now forming part of SSE Renewables.
Note 1: Includes solar hybridisation
SSE Thermal
SSE Thermal key performance indicators
SSE Thermal March 23 March 22
Thermal adjusted operating profit - £m 1,031.9 300.4
Thermal reported operating profit - £m 1,089.5 624.2
Thermal adjusted investment and capital expenditure, before acquisitions - £m 153.2 123.4
Generation capacity - MW
Gas- and oil-fired generation capacity (GB) - MW 5,538 3,975
Gas- and oil-fired generation capacity (ROI) - MW 1,292 1,292
Total thermal generation capacity - MW 6,830 5,267
Generation output - GWh
Gas- and oil-fired output (GB) - GWh 16,781 11,303
Gas- and oil-fired output (ROI) - GWh 1,532 2,962
Total thermal generation - GWh 18,313 14,265
Note 1: Capacity is wholly owned and share of joint ventures, and reflects
Transmission Entry Capacity; March 2023 capacity reflects share of Triton
Power portfolio with acquisition completed 1 September 2022.
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: Output in GB in year to March 2023 excludes 1,184GWh of
pre-commissioning output from Keadby 2 CCGT which commissioned 15 March 2023
SSE Thermal overview
SSE Thermal owns and operates conventional flexible thermal generation in GB
and Ireland, and around 40% of GB's conventional underground gas storage
capacity. These assets provide much-needed system flexibility. SSE Thermal is
actively developing options to progressively decarbonise its portfolio, most
notably in carbon capture and storage and hydrogen technologies, with
sustainable biofuels as a bridge to hydrogen.
Operational delivery
In a year of record performance, SSE Thermal's fleet delivered strong
availability In the GB market, which increased in the second half. The impact
of unplanned outages, most notably at Great Island, more than offset by strong
operational availability across the portfolio. This enabled the fleet to use
its inherent flexibility to sell output to the market and contract forward
ahead of delivery, capturing value through forward spark spreads. The fleet
has also been able to optimise in response to market conditions, particularly
during periods of low wind. Robust asset management allowed the fleet to meet
availability expectations and capture market value through a volatile period,
despite outages at Medway, Marchwood and Great Island. Managing availability
responsibly is and continues to be a key focus for SSE Thermal, both within
year and when taking a view of future system needs.
In March 2023, Keadby 2, Europe's most efficient CCGT, entered commercial
operation following a full commissioning phase which started in October 2021.
Keadby 2 includes a first-of-a-kind turbine that displaces older, more carbon
intensive plant on the system. Before entering commercial operation, Keadby 2
had been generating intermittently across the year, capturing early value.
Keadby 2's 15-year Capacity Market agreement is due to commence in October
2023 and all milestones to secure this agreement have been completed.
Following an agreement in June, SSE Thermal, alongside Equinor as 50/50
partner, completed the acquisition of the Triton Power portfolio on 1
September in a £341m transaction, providing additional flexibility and
decarbonisation options. The portfolio includes the 1.2GW Saltend power
station in the Humber along with two smaller plants, Indian Queens power
station, a 140MW OCGT in Cornwall, and Deeside power station in North Wales, a
decommissioned CCGT which provides carbon-free inertia to the system. While
the Triton portfolio delivered value on an unhedged basis immediately after
acquisition, a hedging strategy has since been implemented to reduce ongoing
merchant exposure.
In July, SSE Thermal completed the sale of the closed and decommissioned
Fiddlers Ferry power station.
In March, in line with requirements under the Industrial Emissions Directive,
SSE Thermal announced the closure of Tarbert oil-fired power station in
Ireland by the end of December 2023. Great Island CCGT and Rhode and
Tawnaghmore peaking plant continue to play an important role in a tight
system, where increased dispatchable capacity is required to meet system
needs.
For financial performance commentary please refer to the Group Financial
Review.
SSE Thermal Capacity Contract Awards
The following agreements have been awarded through competitive auctions:
Station Asset type Station Capacity SSE share of contract Capacity obligation
Medway (GB) CCGT 735MW 100% To September 2027
Keadby (GB) CCGT 755MW 100% To September 2027
Keadby 2 (GB) CCGT 893MW 100% 16 years commencing October 2022
Peterhead (GB) CCGT 1,180MW 100% To September 2027
Seabank (GB) CCGT 1,234MW 50% To September 2027
Marchwood (GB) CCGT 920MW 100% To September 2027
Saltend (GB) CCGT 1,200MW 50% To September 2027
Indian Queens (GB) OCGT 140MW 50% To September 2027
Slough Multifuel (GB) Energy from Waste 50MW 50% 15 years commencing October 2024
Burghfield (GB) OCGT 45MW 100% To September 2027
Chickerell (GB) OCGT 45MW 100% To September 2027
Great Island (Ire) CCGT 464MW 100% To September 2027
Rhode (Ire) Gas/oil peaker 104MW 100% To September 2027
Tawnaghmore (Ire) Gas/oil peaker 104MW 100% To September 2027
Tarbert (Ire) Oil 620MW 100% To September 2023
Tarbert (Ire) Biofuel 300MW 100% 10 years commencing October 2026
Platin (Ire) Biofuel 150MW 100% 10 years commencing October 2026
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
Marchwood (SSE equity share 50%) tolling arrangement means SSE receives 100%
of economic benefit from capacity contract
Keadby 1 has capacity obligation in 2023/24, 2025/26 and 2026/27 but none in
2024/25.
Medway has capacity obligation in 2023/24and 2026/27 but none in 2024/25 and
2025/26.
Keadby 2 16 year obligation comprised of a T-1 and a 15 year contract
Growth opportunities
Developing decarbonised 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 1.5C global warming
scenario.
In GB, SSE Thermal is developing projects that include carbon capture and
storage (CCS) and hydrogen; technologies that will be critical to the
transition to net zero, enabling enhanced renewables deployment by balancing
the system. CCS and hydrogen remain at the heart of the UK Government's plans.
In the past year, the UK Government has committed to deliver hydrogen
transport and storage business models by 2025 to support its 10GW hydrogen
production ambition, it has indicated that it will consult on the potential
for hydrogen-to-power market interventions later in 2023 and issued a call for
evidence on future support for power-CCS projects.
Aldbrough Hydrogen Pathfinder, SSE Thermal's hydrogen value chain
proof-of-concept project, was shortlisted to progress to a due diligence phase
after submitting a bid for funding and Hydrogen Production Business Model
support through the Net Zero Hydrogen Fund. Aldbrough Hydrogen Pathfinder
seeks to unite hydrogen production, hydrogen storage and a 100% hydrogen-fired
open-cycle gas turbine (OCGT) on one site by the middle of the 2020s. This
project will enable and inform the scaling up of SSE's, the wider Humber, and
the UK's hydrogen ambitions and help de-risk further hydrogen investment. With
the role of small-scale peaking plant expected to increase, this integrated
concept also delivers expertise and experience in low-carbon OCGTs.
SSE is continuing to develop options for hydrogen blending into Keadby 2, with
pre-FEED activity under way. Option assessment and scoping activity for a
further 100% hydrogen-fired CCGT at Keadby also continues. Pre-FEED activity
is also under way for Aldbrough Hydrogen Storage. The Triton Power portfolio
adds to this hydrogen pipeline, with plans to blend up to 30% low carbon
hydrogen by 2027.
In December Keadby 3 Carbon Capture Power Station became the first power-CCS
project to secure planning consent in the UK. Alongside the contract awarded
in June for the completion of FEED (Front End Engineering Design), this
demonstrates the project's advanced development. In March the UK Government
announced the first carbon capture projects to be supported by
government-backed contracts - this included projects located in Teesside and
the northwest of England. As a Humber-based project, Keadby 3 has not
progressed to the final stage of negotiations for a Dispatchable Power
Agreement. The UK Government has instead identified the Humber as a region to
be supported through subsequent phases of its cluster sequencing process by
2030 at the latest. There are opportunities for Keadby 3 to access CO2 storage
in either the Endurance store (a Track-1 CO2 transport and storage system) or
Viking (identified as a minded-to Track-2 CO2 transport and storage system by
UK Government). Next steps on cluster sequencing are expected later in 2023,
with work progressing to complete FEED for Keadby 3.
The UK Government also set out further detail for Track-2 clusters. Acorn was
identified as a "minded-to" Track-2 CO2 transport and storage system,
alongside Viking, for deployment by 2030. Acorn would provide CO2 storage for
Peterhead Carbon Capture Power Station. Further expressions of interest for
Track-2 clusters are being accepted by the UK Government ahead of next steps
being communicated later in 2023. Peterhead Carbon Capture Power Station is
continuing to develop with a planning application submitted in March 2022 and
announcement of the award of a FEED contract in July. It remains well-placed
to participate in future Dispatchable Power Agreement allocation processes.
SSE Thermal is seeking opportunities to expand its GB low-carbon pipeline. It
continues to explore the decarbonisation of the Medway site through hydrogen
or CCS. It has identified a potential new location for low-carbon power
generation in northwest England, where CCS and hydrogen operations are being
developed, well-located relative to the HyNet cluster. It is also
investigating options to use alternative fuels, such as hydrogen derivatives.
Construction activity for Slough Multifuel remains on track to complete in
summer 2024.
In Ireland, SSE Thermal is advancing projects using sustainable biofuel as a
lower carbon alternative to fossil-fuels and as a bridge to hydrogen. In March
it provisionally secured 10-year Capacity Market agreements for two new
low-carbon power stations to commence in 2026/27 delivery year:
- 260MW of de-rated electricity generation at Tarbert (€129,000/MW)
- 140MW de-rated electricity generation at Platin (€177,000/MW)
The proposed low-carbon units at Tarbert in Co. Kerry and Platin in Co. Meath
would help to protect security of supply and provide flexible backup to
Ireland's growing renewables sector. The proposed units will initially run on
Hydrotreated Vegetable Oil (HVO), which is produced by processing waste oils
to create a fossil-free alternative to diesel in accordance with EU
sustainability standards. This would provide a bridge to a hydrogen future
with both units having the potential to convert to the fuel. As with Aldbrough
Hydrogen Pathfinder, these projects reflect the expected role peaking
generation will play in the system.
Low-carbon projects in Ireland are progressing alongside activity to deliver a
Temporary Emergency Generation unit, at the request of the Irish authorities.
Following legislation and a site selection process undertaken by EirGrid,
approved by the Commission for the Regulation of Utilities, the Tarbert site
was selected to host 150MW of generation capacity, to run on distillate oil.
It will operate as an emergency plant with a maximum running time of 500 hours
per annum. Under the Irish Government's emergency generation legislation, this
capacity is to cease operations as soon as the temporary electricity emergency
has been addressed, and no later than March 2028. The unit would only be
utilised when it is clear that market-sourced generation will not be
sufficient to meet system needs.
Gas Storage
Gas Storage March 23 March 22
Gas Storage adjusted operating profit - £m 212.5 30.7
Gas Storage reported operating profit - £m 249.2 125.4
Gas storage adjusted investment and capital expenditure - £m 6.3 2.1
Gas storage level at period end - mTh 123 1
Gas storage level at period end - % 65 1
Gas Storage overview
SSE Thermal holds around 40% of the UK's conventional underground gas storage
capacity. These assets support stability and security of gas supply and can
potentially be converted to hydrogen storage for a net zero future.
Operational delivery
SSE Gas Storage performed strongly, navigating highly volatile gas markets and
optimising assets to help ensure security of gas supply for the UK whilst
providing important liquidity to the market. These assets are a significant
risk management tool to the portfolio by offering short-notice flexibility to
mitigate exposures from wind speeds and demand variability.
SSE's gas storage assets have made a substantial contribution this year, with
high withdrawals and the technical ability to cycle quickly in response to
market signals. Over the past three years the equivalent of two caverns of
storage have been added through studies into maximum and minimum operating
pressures. Aldbrough Caverns 6 and 9 were successfully returned to service
ahead of winter 2022/23, adding further capacity. As a result of an increase
in future market revenues forecast from these types of assets, the historical
impairments have been almost fully reversed on Aldbrough at the year end.
For financial performance commentary please refer to the Group Financial
Review.
GROWTH OPPORTUNITIES
Underlining the clear societal value these assets provide, the UK Government's
Powering Up Britain Energy Security Plan, published in March, highlighted that
gas storage had operated successfully over the winter helping to meet demand
caused by cold weather spells. The UK Government will consider the future role
that storage can play in the longer term, considering the need to align with
future plans for hydrogen and CO2 storage. SSE Thermal remains committed to
working with UK Government departments and Ofgem to ensure the critical role
of UK storage is properly valued, and low-carbon options can be delivered in
tandem.
Plans to develop an innovative hydrogen storage project at Aldbrough with
Equinor, announced in July 2021, are progressing. Following the commitment in
the British Energy Security Strategy to deliver hydrogen transport and storage
business models by 2025, the UK Government published a consultation on this at
the end of August 2022. This consultation notes the importance of storage as a
'system balancer' and envisages underground hydrogen storage becoming
important to the functioning of the hydrogen economy by the end of the decade.
As described in the previous section, Aldbrough Hydrogen Pathfinder has
progressed to due diligence following a bid into the Net Zero Hydrogen Fund.
Energy Customer Solutions
Energy customer solutions overview
SSE Business Energy in GB (non-domestic) and SSE Airtricity on the island of
Ireland (domestic and non-domestic) provide a shopfront and route to market
for SSE's generation, renewable green products and low-carbon energy
solutions. Across Great Britain and the island of Ireland, focus remains on
supporting customers to reduce energy consumption, modernise systems and
expand the green energy product offering to ensure the business grows its
position as a trusted partner to customers on their net zero journey.
SSE Business Energy
SSE Business Energy key performance indicators
SSE Business Energy March 23 March 22
Business Energy adjusted and reported operating profit/(loss) - £m 17.9 (21.5)
Electricity Sold - GWh 12,108 12,645
Gas Sold - mtherms 200 218
Aged Debt (60 days past due) - £m 167 79.3
Bad debt expense - £m 108 18.5
Energy customers' accounts - m 0.43 0.47
SSE Business Energy overview
In GB, SSE Business Energy (BE) markets its low-carbon products such as green
energy tariffs and Corporate Power Purchase Agreements (CPPAs) under the SSE
Energy Solutions brand alongside SSE Distributed Energy, selling power and gas
to around 430,000 non-domestic customers across GB.
Operational delivery
The primary focus of the last year has been on delivering support to customers
during a period of extreme market instability. This included implementing
government bill supports for customers at an administrative cost of £2m that
the business absorbed.
Targeted support for customers included reducing contract lengths to help
manage customers' exposure to high prices and providing flexible repayment
options for customers struggling to pay. Under the UK Government's Energy Bill
Relief Scheme, Business Energy applied customer discounts to the value of
£721m in the year and was compensated for the reduction in wholesale gas and
electricity unit prices that was passed on. In other support measures, in
October 2022, the business voluntarily implemented a disconnection ban for
businesses (with a cumulative debt of £5m) where end-users were either
vulnerable or living in a residential setting aligned to a non-domestic
contract. Additional supports included the decision not to pass on £12m of
non-commodity costs to some customers with flexible contract terms.
Business Energy has continued to make progress on our Smart programme in
2022/23 installing more smart meters in proportion to our market share. Focus
remains on driving Smart adoption throughout 2023/24, building on our engaging
smart propositions and incentives to encourage adoption and helping customers
to manage and reduce demand.
The business launched a suite of new and enhanced digital offerings in the
period to improve the customer journey, including a small business
sustainability content hub, providing help to customers with net zero
guidance, and a free and easy-to-use carbon footprint calculator.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
Business Energy will continue to focus on giving customers increased choice
and flexibility to improve their green credentials and help with their paths
to net zero. This includes extending its product range and giving customers
greater transparency over the provenance of their renewable energy supply.
SSE Airtricity
SSE Airtricity key performance indicators
SSE Airtricity March 23 March 22
Airtricity adjusted operating profit - £m 5.6 60.4
Airtricity reported operating profit - £m 5.2 60.4
Aged Debt (60 days past due) - £m 11.0 7.3
Bad debt expense - £m 7.8 4.6
Airtricity Electricity Sold - GWh 5,795 5,219
Airtricity Gas Sold - mtherms 193 177
All Ireland energy market customers (Ire) - m 0.74 0.70
SSE Airtricity overview
SSE Airtricity retains a solid book, a strong brand and a growing customer
base, serving over 743,000 customers in homes and businesses across Ireland.
Operational delivery
The primary focus of 2022/23 has been on supporting customers, resulting in
the establishment of the most comprehensive customer support fund of any
supplier in Ireland, up to the value of €25m. Measures included a €2.5m
donation made to non-profit organisation EnergyCloud, which promotes system
efficiency, utilising surplus renewable energy to supply fuel-poor households.
Airtricity also applied discounts to the value of £116m in the year to
customers under the UK Government's Energy Bill Relief Scheme. Furthermore, as
referenced in the Group Financial Review, SSE Airtricity honoured its
commitment not to make a profit in the year in recognition of the
cost-of-living crisis. Residual profits of €8.6m were distributed to
domestic customers in full, with accounts credited after the year-end in April
2023. The cost of the rebate will be reflected in financial results for
2023/24.
The business continued to enhance service offerings as customer engagement
levels tripled year-on-year at their peak. The introduction of enhanced
digital service capabilities such as Live Chat resulted in a greater than 90%
reduction in customer wait times below peak levels.
During the period SSE Airtricity continued to evolve product offerings to
support demand reduction including the launch of a market-leading premium
microgeneration solar offering via our joint venture with Activ8 Solar
Energies. Through its pioneering Generation Green Home Upgrade home retrofit
proposition the business completed 1,500 solar installs, supplied over 300
batteries and retrofitted 650 homes this financial year, representing an
estimated carbon saving of 8.9GWh.
Partnerships with RTÉ's DIYSOS, increasing our support for the women's game
through partnership with the Football Association of Ireland, and funding LGBT
Ireland's advice helpline are examples of Airtricity's values and active
community support.
For additional financial performance commentary please refer to the Group
Financial Review.
Growth opportunities
SSE Airtricity has laid solid foundations and led the way in proposition
innovation to more easily enable customers to reduce carbon emissions and
energy usage. It has ambitious plans for energy services across the island of
Ireland, aiming to deliver 45,000 home retrofits by 2030 and expanding the
offering into the (ROI) B2B and NI markets.
SSE Distributed Energy
SSE Distributed Energy key performance indicators
SSE DISTRIBUTED ENERGY March 23 March 22
SSE Distributed Energy adjusted operating (loss) - £m (27.4) (10.9)
SSE Distributed Energy reported operating (loss) - £m (33.5) (29.2)
SSE Heat Network Customer Accounts 11,431 11,291
Biomass, heat network and other capacity - MW(1) 26 33
Biomass, heat network and other output - GWh 96 104
Note 1: Capacity in March 2023 reflects sale of 8MW Chippenham gas-fired power
station and changes to capacity installed on heat networks
SSE Distributed Energy overview
Distributed Energy brings low-carbon energy solutions to business-to-business
markets - including major regional and partnership opportunities. With private
wires, heat networks, behind-the-meter solar and battery, EV charging and
competitive networks all part of the UK's net zero plans it is well positioned
for future growth. As mentioned above, grid-scale Solar and Battery will
report under the SSE Renewables segment from April 2023, but progress in
2022/23 is outlined below.
Operational delivery
SSE's Distributed Energy team has opened its first EV charging hub in Glasgow
with plans to roll out a further 300 such hubs across the UK and Ireland. It
has also launched its 'Enhance' technology platform which schedules,
dispatches, and controls flexible assets to facilitate trading or Grid
balancing actions.
SSE announced significant milestones in its solar and battery storage business
in the reporting period which now has a 1.2GW solar and battery pipeline
secured and a further 1.3GW of other prospective sites under development.
These milestones include breaking ground in September at its first 50MW
battery storage project at Salisbury with construction starting this summer at
a 30MW solar farm at Littleton in Worcestershire. Construction of a new 150MW
battery storage project at Ferrybridge in Yorkshire is also getting under way
with the assets expected to be fully operational in late 2024.
For financial performance commentary please refer to the Group Financial
Review.
Growth opportunities
Distributed Energy has significant growth opportunities including supporting
gigafactories and landmark redevelopment projects like Teesside. It is also
developing heat network technologies including a new £25m low carbon district
heating and electricity scheme in Aire Valley, Leeds.
Following its acquisition of the Imperial Park private wire network in Wales;
Distributed Energy will continue to explore opportunities to help businesses
cut carbon and costs as well as supporting the transition to net zero at a
local level.
Transferring the Solar and Battery business to SSE Renewables allows it to
scale up and develop opportunities both domestically and internationally, as
well as take on co-location projects. Solar is a cost-effective low carbon
technology and the UK Government has reaffirmed its commitment to its 70GW
target by 2035; whilst battery storage is a key part of the net zero jigsaw
with its ability to rapidly store and discharge energy when needed most by the
grid.
Energy Portfolio Management (EPM)
EPM key performance indicators
EPM March 23 March 22
EPM adjusted operating profit/(loss) - £m 80.4 (16.8)
EPM reported operating (loss)/profit - £m (2,626.0) 2,083.6
EPM overview
Energy Portfolio Management (EPM) trades commodities for SSE's market-based
Business Units, securing value on behalf of SSE's asset portfolios in
wholesale energy markets 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 risk and liquidity
characteristics, which impacts the quantum of hedging possible.
See also SSE's Hedging Position earlier in this document.
Operational Delivery
EPM navigated continued energy market volatility, with winter 2022/23 seeing a
reduction in volatility. EPM ensures the SSE portfolio was hedged in
accordance with the Group's approach to hedging and then optimised through
prompt periods. The value EPM secured for SSE's asset portfolio continues to
be reported against individual Business Units.
For financial performance commentary please refer to the Group Financial
Review.
Growth Opportunities
Transformation of the EPM Business Unit continues with further recruitment and
changes in systems and processes. Focus has been on core delivery in the
exceptional market environment, alongside developments in market modelling,
assurance, data governance and analytics, and wind balancing.
European trading continues in small volumes with the intention to increase
this through 23/24.
Energy Economics, SSE's long-term price forecasting and market analysis team,
moved into EPM at the end of the financial year providing significant
synergies and enhanced opportunities to share knowledge across the teams.
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 Plus 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
In the year the Group has refined its profit measures for the treatment of
fair value gains arising from an acquisition of a business or a joint venture
interest, which generates an exceptional opening gain on acquisition. The
rationale for including this adjustment to these APMs is set out in adjustment
number 6.
The following section explains the key APMs applied by the Group and referred
to in these Summary Financial 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 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
· 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)
· 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 SSE Airtricity operating
units, to optimise the value of the production from SSE Renewables and Thermal
generation assets or to conduct other trading subject to the value at risk
limits set out by the Energy Markets Risk Committee. 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 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. 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' in the income statement. Finally, the mark-to-market
valuation movements on the Group's contracts for difference contracts entered
into by SSE Renewables that are not designated as government grants and which
are measured as Level 3 fair value financial instruments are also included
within '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
The Group retains an obligation for 60% of the decommissioning liabilities of
its former Gas Production business which was disposed in October 2021. The
revaluation adjustments relating to these decommissioning liabilities are
accounted for through the Group's consolidated income statement and are
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 from 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 SSE's 'Net Debt to EBITDA' metric,
'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 (developer gains) from
divestments of stakes in SSE Renewables' offshore and international
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 may
recognise a fair value uplift on the remeasurement of its retained equity
investment. Those non-cash accounting uplifts will be treated as exceptional
gains in the year of the relevant transactions completing. Furthermore, SSE
may acquire businesses or joint venture interests which are determined to
generate an exceptional opening gain on acquisition and accordingly will
record an accounting fair value uplift to the opening assets acquired. These
uplifts create assets or adjustments to assets, which are 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 depreciation
and amortisation expense. The Group's adjusted operating profit, adjusted
profit before tax and adjusted earnings per share are adjusted to exclude any
additional depreciation, amortisation and impairment expense arising from the
fair value uplifts given these charges are 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 customer contributions against
depreciating assets. As the metric adds back depreciation, the income is also
deducted.
8. Interest on net pension assets/liabilities (IAS 19 "Employee
Benefits")
The Group's interest income relating to defined benefit pension schemes are
derived from the net assets of the schemes as valued under IAS 19. This will
mean that the credit or 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.
9. 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.
10. 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. The most significant of those is SSEN Transmission, a 25% stake in which
was divested on 30 November 2022 (see note 12 for more details of that
transaction). There is no impact to disclosures for prior years but in the
current year the Group has removed the share of profit attributable to holders
of non-controlling equity stakes in such businesses from the point when the
ownership structure changed (i.e. for SSEN Transmission, with effect from 1
December 2022) from all of its profit measures, to report all metrics based on
the share of profits items attributable to the ordinary equity holders of the
Group. The adjustment has been 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 2023
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 Share of profit attributable to non-controlling interests Adjusted
Operating (loss)/profit (146.3) 2,514.3 0.6 (50.5) 28.8 213.2 - - (30.9) 2,529.2
Net finance costs (59.3) (201.9) (0.2) - - (70.1) (16.2) - 2.1 (345.6)
(Loss)/profit before taxation (205.6) 2,312.4 0.4 (50.5) 28.8 143.1 (16.2) - (28.8) 2,183.6
Taxation 110.0 (460.5) 34.1 - - (143.1) - 99.6 1.1 (358.8)
(Loss)/profit after taxation (95.6) 1,851.9 34.5 (50.5) 28.8 - (16.2) 99.6 (27.7) 1,824.8
Attributable to other equity holders (62.4) - - - - - - (4.1) 27.7 (38.8)
(Loss)/profit attributable to ordinary shareholders (158.0) 1,851.9 34.5 (50.5) 28.8 - (16.2) 95.5 - 1,786.0
Number of shares for EPS 1,075.6 1,075.6
(Losses)/earnings per share (14.7) 166.0
EBITDA
March 2023
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 Share of depreciation, impairment and amortisation before exceptional items Adjusted EBITDA
attributable to non-controlling interests
£m £m £m £m £m
£m
£m
2,529.2 201.1 (13.9) (28.8) 704.2 (9.7) 3,382.1
March 2022 (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 3,749.5 (2,097.8) (301.8) 13.1 20.6 147.3 - - 1,530.9
Net finance costs (273.2) (21.0) (3.2) - - (67.8) (7.6) - (372.8)
Profit before taxation 3,476.3 (2,118.8) (305.0) 13.1 20.6 79.5 (7.6) - 1,158.1
Taxation (881.3) 408.0 323.7 - - (79.5) - 122.0 (107.1)
Profit after taxation 2,595.0 (1,710.8) 18.7 13.1 20.6 - (7.6) 122.0 1,051.0
Attributable to other equity holders (50.7) - - - - - - - (50.7)
Profit attributable to ordinary shareholders 2,544.3 (1,710.8) 18.7 13.1 20.6 - (7.6) 122.0 1,000.3
Number of shares for EPS 1,055.0 1,055.0
Earnings per share 241.2 94.8
EBITDA
March 2022 (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
1,530.9 146.6 (17.6) (20.6) 612.0 2,251.3
*The comparative Alternative Performance Measures have been restated. See note
3.1.
March 2021
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
EBITDA
March 2021
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
*The comparative Alternative Performance Measures have been restated.
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
11. Hybrid equity
The characteristics of certain hybrid capital securities mean that they
qualify for recognition as equity rather than debt under IFRS. Consequently,
their coupon payments are presented within equity 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.
12. Cash posted as collateral
Cash posted as collateral are SSE cash balances held by counterparties
including trading exchanges. Collateral balances mostly represent initial and
variation margin, required as part of the management of the Group's exposures
on commodity contracts, that will be received on maturity of the related
trades. 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.
13. Lease obligations
SSE's reported loans and borrowings include lease liabilities on contracts
within the scope of IFRS 16, which are not directly related to external
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.
14. 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. The most significant of those is SSEN Transmission, a 25% stake in which
was divested on 30 November 2022 (see note 12 for more details of that
transaction). Following completion of the transaction, the Group has removed
the share of external debt and cash in these subsidiaries proportionately
attributable to the non-controlling interest holders from its adjusted net
debt and hybrid capital metric. While legal entitlement to these items has not
changed, the Group makes this adjustment to present net debt attributable to
ordinary equity holders of the Group.
March 2023 March 2022 March 2021
£m £m £m
Unadjusted net debt (8,168.1) (8,015.4) (7,810.4)
Cash posted as collateral 316.3 74.7 (37.1)
Lease obligations 405.9 393.5 421.0
External net debt attributable to non-controlling interests 434.2 - -
Adjusted Net Debt (7,011.7) (7,547.2) (7,426.5)
Hybrid equity (1,882.4) (1,051.0) (1,472.4)
Adjusted Net Debt and Hybrid Capital (8,894.1) (8,598.2) (8,898.9)
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 Capital Measures
15. 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.
16. 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.
17. 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 the
acquisition of 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 or interest in an equity-accounted joint venture
requiring a fair value assessment in line with the principles of IFRS 3
'Business Combinations', the fair value of acquired 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, the fair valuation of consideration paid for the business or
investment is included in the Group's 'adjusted investment, capital and
acquisition expenditure' metric, see 23 below. Please refer to note 12 for
detail of the Group's acquisitions in the year.
18. Additions subsequently disposed or impaired
For consistency of presentation, any capital additions in the year that are
subsequently written-down or disposed are removed from the APM. In the prior
year there were capex additions of £13.9m related to the Gas Production
business, which was disposed on 14 October 2021. This adjustment also
includes any subsequently derecognised development expenditure.
19. 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 are not included in this adjustment.
20. 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. The most significant of those is SSEN Transmission, a 25% stake in which
was divested on 30 November 2022 (see note 12 for more details of that
transaction). In the current year, the Group has removed the share of capital
additions attributable proportionately to these equity holders from the point
when the ownership structure changed (i.e. for SSEN Transmission, with effect
from 1 December 2022) 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 prior year metrics.
21. 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 refinancing 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 17 above. There were no
refinancing proceeds in the year ended 31 March 2023. In the year ended 31
March 2022, Doggerbank windfarm reimbursed SSE for previous funding of
£136.7m. 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.
22. 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 13, above.
23. 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 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 Plus.
March 2023 March 2022 March 2021
(restated*)
£m £m £m
Capital additions to intangible assets 1,688.6 921.0 701.3
Capital additions to property, plant and equipment 1,500.1 1,392.9 1,102.5
Capital additions to intangible assets and property, plant and equipment 3,188.7 2,313.9 1,803.8
Customer funded additions (80.9) (91.3) (61.8)
Allowances and certificates (805.2) (544.5) (509.0)
Additions through business combinations (515.2) (197.8) -
Additions subsequently disposed/impaired - (13.9) (19.7)
Joint ventures and associates' additions 498.4 682.5 172.7
Non-controlled interests share of capital expenditure (46.7) - -
Refinancing (proceeds)/refunds - (136.7) (428.6)
Lease asset additions (78.5) (85.7) (45.4)
Adjusted Investment and Capital Expenditure 2,160.6 1,926.5 912.0
Acquisition cash consideration 642.7 141.3 -
Adjusted Investment, Capital and Acquisition Expenditure 2,803.3 2,067.8 912.0
*The comparative Alternative Performance Measures have been restated. See note
3.1.
Impact of discontinued operations on the Group's APMs
The following metrics have been adjusted in all years presented to exclude the
contribution of the Group's investment in Scotia Gas Networks Limited ("SGN")
which was disposed on 22 March 2022 (see note 12) 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 2023 March 2022 March 2021
(restated*)
£m £m £m
Adjusted EBITDA of SSE Group (including discontinued operations) 3,382.1 2,384.8 2,262.9
Less: Gas Production - (101.4) (33.0)
Less: SGN - (32.1) (234.6)
Adjusted EBITDA of continuing operations 3,382.1 2,251.3 1,995.3
Adjusted operating profit of SSE Group (including discontinued operations) 2,529.2 1,653.3 1,539.5
Less: Gas Production - (101.4) (33.0)
Less: SGN - (21.0) (173.0)
Adjusted operating profit of continuing operations 2,529.2 1,530.9 1,333.5
Adjusted net finance costs of SSE Group (including discontinued operations) 345.6 377.6 443.9
Less: Gas Production - (0.1) (2.3)
Less: SGN - (4.7) (57.0)
Adjusted net finance costs of continuing operations 345.6 372.8 384.6
Adjusted profit before tax of SSE Group (including discontinued operations) 2,183.6 1,275.7 1,095.6
Less: Gas Production - (101.3) (30.7)
Less: SGN - (16.3) (116.0)
Adjusted profit before tax of continuing operations 2,183.6 1,158.1 948.9
Adjusted current tax of SSE Group (including discontinued operations) 358.8 109.4 107.8
Less: SGN current tax charge - (2.3) (21.9)
Adjusted current tax of continuing operations 358.8 107.1 85.9
Adjusted earnings per share of SSE Group (including discontinued operations) 166.0 105.6 90.5
Less: Gas Production earnings per share - (9.6) (3.0)
Less: SGN earnings per share - (1.2) (9.1)
Adjusted earnings per share of continuing operations 166.0 94.8 78.4
*The comparative Alternative Performance Measures have been restated. See note
3.1.
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 2023
2023 2022 (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 12,490.7 - 12,490.7 8,697.2 - 8,697.2
Cost of sales (9,933.2) (2,717.2) (12,650.4) (6,405.5) 2,097.8 (4,307.7)
Gross profit/(loss) 2,557.5 (2,717.2) (159.7) 2,291.7 2,097.8 4,389.5
Operating costs (1,431.6) (230.4) (1,662.0) (1,117.6) 297.5 (820.1)
Debt impairment charges (91.0) - (91.0) (1.1) - (1.1)
Other operating income 1,015.0 89.1 1,104.1 67.1 4.3 71.4
Operating profit/(loss) before joint ventures and associates 2,049.9 (2,858.5) (808.6) 1,240.1 2,399.6 3,639.7
Joint ventures and associates:
Share of operating profit 531.9 140.7 672.6 257.1 - 257.1
Share of interest (70.1) - (70.1) (67.8) - (67.8)
Share of movement in derivatives - 202.9 202.9 - - -
Share of tax (104.0) (39.1) (143.1) (46.3) (33.2) (79.5)
Share of profit on joint ventures and associates 357.8 304.5 662.3 143.0 (33.2) 109.8
Operating profit/(loss) from continuing operations 6 2,407.7 (2,554.0) (146.3) 1,383.1 2,366.4 3,749.5
Finance income 8 135.3 202.1 337.4 79.0 24.2 103.2
Finance costs 8 (396.7) - (396.7) (376.4) - (376.4)
Profit/(loss) before taxation 2,146.3 (2,351.9) (205.6) 1,085.7 2,390.6 3,476.3
Taxation 9 (355.5) 465.5 110.0 (149.6) (731.7) (881.3)
Profit/(loss) for the year from continuing operations 1,790.8 (1,886.4) (95.6) 936.1 1,658.9 2,595.0
Discontinued operations
Profit from discontinued operation, net of tax - 35.0 35.0 116.3 366.4 482.7
Profit/(loss) for the year 1,790.8 (1,851.4) (60.6) 1,052.4 2,025.3 3,077.7
Attributable to:
Ordinary shareholders of the parent 1,728.4 (1,851.4) (123.0) 1,001.7 2,025.3 3,027.0
Non-controlling interests 23.6 - 23.6 - - -
Other equity holders 38.8 - 38.8 50.7 - 50.7
(Losses)/earnings per share
Basic (pence) 11 (11.4) 286.9
Diluted (pence) 11 (11.4) 286.4
(Losses)/earnings per share - continuing operations
Basic (pence) 11 (14.7) 241.2
Diluted (pence) 11 (14.7) 240.7
Dividends
Interim dividend paid per share (pence) 10 29.0 25.5
Proposed final dividend per share (pence) 10 67.7 60.2
96.7 85.7
*The comparative Consolidated Income Statement has been restated. See note
3.1.
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 2023
2022
2023 (restated*)
£m
£m
(Loss)/profit for the year
Continuing operations (95.6) 2,595.0
Discontinued operations 35.0 482.7
(60.6) 3,077.7
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss:
Net gains on cash flow hedges 43.3 22.9
Transferred to assets and liabilities on cash flow hedges (12.7) 11.2
Taxation on cashflow hedges (8.1) (4.4)
22.5 29.7
Share of other comprehensive gain of joint ventures and associates, net of 342.4 181.4
taxation
Exchange difference on translation of foreign operations 72.5 (3.2)
(Loss)/gain on net investment hedge (43.1) 9.4
394.3 217.3
Items that will not be reclassified to profit or loss:
Actuarial (loss)/gain on retirement benefit schemes, net of taxation (59.4) 124.7
Share of other comprehensive loss of joint ventures and associates, net of - (1.7)
taxation
Losses on revaluation of investments in equity instruments, net of taxation (0.4) -
(59.8) 123.0
Other comprehensive gain, net of taxation 334.5 340.3
Total comprehensive income for the year 273.9 3,418.0
Total comprehensive income for the year arises from:
Continuing operations 238.9 2,908.4
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
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)
Other comprehensive gain from discontinued operations - 26.9
Profit from discontinued operations 35.0 482.7
Total comprehensive income from discontinued operations 35.0 509.6
Total comprehensive income for the year 273.9 3,418.0
Attributable to:
Ordinary shareholders of the parent 206.4 3,367.3
Non-controlling interests 28.7 -
Other equity holders 38.8 50.7
273.9 3,418.0
*The comparative Consolidated Statement of Other Comprehensive Income has been
restated. See note 3.1
The accompanying notes are an integral part of the financial information in
this announcement.
Consolidated Balance Sheet
as at 31 March 2023
Note 2023 2022
(restated*)
£m £m
Assets
Property, plant and equipment 15,395.9 14,612.8
Goodwill and other intangible assets 1,960.3 1,127.8
Equity investments in associates and joint ventures 1,937.0 1,239.5
Loans to associates and joint ventures 1,115.4 736.9
Other investments 27.4 8.7
Other receivables 149.5 136.4
Derivative financial assets 246.0 371.7
Retirement benefit assets 15 541.1 584.9
Non-current assets 21,372.6 18,818.7
Intangible assets 454.9 459.3
Inventories 394.9 266.6
Trade and other receivables 3,245.1 2,211.0
Current tax asset 19.9 8.8
Cash and cash equivalents 891.8 1,049.3
Derivative financial assets 759.2 2,941.8
Current assets 5,765.8 6,936.8
Total assets 27,138.4 25,755.5
Liabilities
Loans and other borrowings 13 1,820.6 1,190.8
Trade and other payables 2,658.6 2,672.6
Current tax liabilities 9.1 -
Provisions 29.4 93.3
Derivative financial liabilities 243.3 701.5
Current liabilities 4,761.0 4,658.2
Loans and other borrowings 13 7,239.3 7,873.9
Deferred tax liabilities 1,299.1 1,644.1
Trade and other payables 959.9 842.4
Provisions 742.7 1,017.9
Derivative financial liabilities 1,021.0 549.6
Non-current liabilities 11,262.0 11,927.9
Total liabilities 16,023.0 16,586.1
Net assets 11,115.4 9,169.4
Equity
Share capital 14 547.0 536.5
Share premium 821.2 835.1
Capital redemption reserve 52.6 49.2
Hedge reserve 441.2 77.5
Translation reserve 32.1 6.6
Retained earnings 6,689.8 6,572.9
Equity attributable to ordinary shareholders of the parent 8,583.9 8,077.8
Hybrid equity 14 1,882.4 1,051.0
Attributable to non-controlling interests 649.1 40.6
Total equity 11,115.4 9,169.4
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 2023
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 2022 (restated*) 536.5 835.1 49.2 77.5 6.6 6,572.9 8,077.8 1,051.0 9,128.8 40.6 9,169.4
Profit for the year - - - - - (123.0) (123.0) 38.8 (84.2) 23.6 (60.6)
Other comprehensive income - - - 363.7 25.5 (59.8) 329.4 - 329.4 5.1 334.5
Total comprehensive income for the year - - - 363.7 25.5 (182.8) 206.4 38.8 245.2 28.7 273.9
Dividends to shareholders - - - - - (955.8) (955.8) - (955.8) - (955.8)
Scrip dividend related share issue 13.9 (13.9) - - - 481.5 481.5 - 481.5 - 481.5
Issue of treasury shares - - - - - 18.0 18.0 - 18.0 - 18.0
Distributions to Hybrid equity holders - - - - - - - (38.8) (38.8) - (38.8)
Issue of Hybrid equity - - - - - - - 831.4 831.4 - 831.4
Share buy back (3.4) - 3.4 - - (107.6) (107.6) - (107.6) - (107.6)
Partial disposal of interest in SSEN Transmission - - - - - 868.3 868.3 - 868.3 579.8 1,448.1
Credit in respect of employee share awards - - - - - 18.7 18.7 - 18.7 - 18.7
Investment in own shares - - - - - (23.4) (23.4) - (23.4) - (23.4)
At 31 March 2023 547.0 821.2 52.6 441.2 32.1 6,689.8 8,583.9 1,882.4 10,466.3 649.1 11,115.4
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 (restated*) - - - - - 3,027.0 3,027.0 50.7 3,077.7 - 3,077.7
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 3,150.0 3,367.3 50.7 3,418.0 - 3,418.0
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 (restated*) 536.5 835.1 49.2 77.5 6.6 6,572.9 8,077.8 1,051.0 9,128.8 40.6 9,169.4
*The comparative Statement of Changes in Equity has been restated. See note
3.1.
Consolidated Cash Flow Statement
for the year ended 31 March 2023
Note 2023 2022 (restated*)
£m £m
Operating (loss)/profit - continuing operations 6 (146.3) 3,749.5
Operating loss - discontinued operations - (100.5)
Operating profits - total operations (146.3) 3,649.0
Less share of profit of joint ventures and associates (662.3) (28.7)
Operating (loss)/profit before jointly controlled entities and associates (808.6) 3,620.3
Pension service charges less contributions paid (19.2) (23.0)
Movement on operating derivatives 2,691.6 (2,100.4)
Depreciation, amortisation, write downs and impairments 640.7 303.2
Impairment of joint venture investment 329.3 106.9
Charge in respect of employee share awards (before tax) 18.7 20.8
Profit on disposal of assets and businesses 12 (89.1) (48.2)
Release of provisions (114.9) (1.6)
Release of deferred income (13.9) (17.6)
Cash generated from operations before working capital movements 2,634.6 1,860.4
Increase in inventories (137.3) (24.4)
Increase in receivables (996.0) (625.6)
Increase in payables 166.7 544.2
(Decrease)/increase in provisions (15.3) 61.3
Cash generated from operations 1,652.7 1,815.9
Dividends received from investments 296.5 177.0
Interest paid (199.9) (273.5)
Taxes paid (255.3) (91.5)
Net cash from operating activities 1,494.0 1,627.9
Purchase of property, plant and equipment (1,479.7) (1,273.6)
Purchase of other intangible assets (336.4) (182.2)
Deferred income received 13.9 12.3
Proceeds from disposals 12 60.0 1,366.9
Purchase of businesses, joint ventures and subsidiaries (642.7) (145.3)
Joint venture development expenditure refunds - 136.7
Loans and equity provided to joint ventures and associates (621.8) (676.0)
Loans and equity repaid by joint ventures 61.4 10.9
Increase in other investments (19.1) 5.4
Net cash from investing activities (2,964.4) (744.9)
Proceeds from issue of share capital 14 18.0 6.3
Dividends paid to company's equity holders 10 (474.3) (506.6)
Share buy backs (107.6) -
Proceeds from divestments 1,448.1
Hybrid equity dividend payments 14 (38.8) (50.7)
Employee share awards share purchase 14 (23.4) (14.1)
Issue of hybrid instruments 14 831.4 -
Redemption of hybrid instruments 14 - (426.0)
New borrowings 1,914.7 506.1
Repayment of borrowings (2,242.5) (960.1)
Settlement of cashflow hedges (12.7) 11.2
Net cash from financing activities 1,312.9 (1,433.9)
Net decrease in cash and cash equivalents (157.5) (550.9)
Cash and cash equivalents at the start of year 1,049.3 1,600.2
Net decrease in cash and cash equivalents (157.5) (550.9)
Cash and cash equivalents at the end of year 891.8 1,049.3
*The comparative consolidated cash flow statement has been restated. See note
3.1
The accompanying notes are an integral part of these financial statements.
Notes to the Summary FInancial Statements
for the year ended 31 March 2023
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 2023 or
2022 but is derived from those accounts. Consolidated financial statements for
the year ended 31 March 2022 were delivered to the Registrar of Companies, and
those for the year ended 31 March 2023 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 23 May 2023.
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
2023. 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
2023 unless expressly stated otherwise.
The Directors consider that the Group has adequate resources to continue in
operational existence for the period to 31 December 2024. The consolidated
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 Summary Financial Statements are presented in Pounds Sterling.
2.2 Basis of presentation
The Group applies the use of adjusted accounting measures or alternative
performance measures ("APMs") 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 earnings per share', 'adjusted investment and capital
expenditure', 'adjusted EBITDA', 'adjusted investment, capital and acquisition
expenditure' and 'adjusted net debt and hybrid capital' are not defined under
IFRS and are explained in more detail in note 4.
2.3 Changes to presentation
There have been no material changes to presentation of the statements in the
current or prior year. The prior year comparatives at 31 March 2022 have been
restated following the adoption of the amendment to IAS 16 Proceeds Before
Intended Use, as disclosed in the section below 3.1.
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 Summary 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
The Group has retrospectively adopted the amendments to 'IAS 16 Property,
Plant and Equipment - Proceeds Before Intended Use' from the earliest period
presented in these Summary Financial Statements, in line with the requirements
of the standard. The Group had pre-commissioning activity in the year ended 31
March 2022 and therefore has restated the comparative information presented.
The Group's Keadby 2 asset achieved its first fire in October 2021, commenced
test operations in February 2022 and entered commercial operations on 15 March
2023. During the period from October 2021 to 15 March 2023 the Group received
pre-commissioning revenue within the scope of the amendment to the standard
which previously would have been recognised as a cost of the constructed
asset. The impact of adoption of the amendment in the prior year was to
increase revenue by £89.0m, increase cost of sales by £94.7m, increase
operating costs by £0.2m therefore decreasing profit before tax by £5.9m,
and decreasing profit after tax by £4.4m. Additionally in the balance sheet,
the Group's property, plant and equipment balance has been decreased by £5.9m
and deferred tax liability decreased by £1.5m.
3. NEW ACCOUNTING POLICIES AND REPORTING CHANGES (continued)
In the current year ended 31 March 2023, the Group has recognised
pre-commissioning revenue of £245.4m and pre-commissioning costs of £226.8m
related to Keadby 2. In addition, the Group holds an equity investment in
Seagreen Wind Energy Limited ('Seagreen') which has been undertaking
pre-commissioning testing activity during the construction of its offshore
windfarm in the current financial year. The Group's share of profit recognised
from joint ventures and associates in the current year includes £28.9m of
pre-commissioning operating costs from Seagreen.
The Group has adopted the amendment to 'IAS 37 Onerous Contracts - Cost of
Fulfilling a Contract' in the current year. Adoption of the amendment was
reflected in the calculation of the onerous provision of £21.7m recognised by
the Group's Business Energy segment at 30 September 2022. This provision has
been released in the second half of the financial year following decreases in
wholesale energy prices and therefore has no impact on amounts presented at 31
March 2023.
There were no other standards, amendments to standards or interpretations
relevant to the Group's operations which were adopted during the period.
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.
IFRS 17 'Insurance contracts' is effective from 1 January 2023 (1 April 2023
for the Group) following UK endorsement on 16 May 2022. Adoption of the
standard is not anticipated to have a material impact on the consolidated
financial statements of the Group, however the Parent Company, SSE Plc, enters
into financial guarantee contracts to guarantee indebtedness of the other
companies within the Group and continues to provide guarantees in respect of
the disposed Contracting and Rail and Gas Production businesses. The Group is
continuing to assess the impact of adoption of the standard for the Parent
Company.
Amendments to IAS 12 'Deferred Tax related to Assets and Liabilities arising
from a Single Transaction' is effective from 1 January 2023 (1 April 2023 for
the Group) following UK endorsement on 15 December 2022. Adoption of the
amendment is expected to result in a gross up of deferred tax assets and
liabilities, but is not anticipated to have a material impact on the net
deferred tax balances within the consolidated financial statements of the
Group.
There are a number of other interpretations and amendments issued but not yet
effective at 31 March 2023. 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
capital' that are not defined under IFRS and are explained in more detail
below. In addition, the section 'Alternative Performance Measures' 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 to be the most 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 (see note 4.2 below),
depreciation and amortisation expense 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 (see note 4.2
below), depreciation and amortisation expense on fair value uplifts, the share
of profit before tax attributable to non-controlling interests, 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.
4. ADJUSTED ACCOUNTING MEASURES (CONTINUED)
4.1 Adjusted measures (continued)
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 (see note
4.2 below), the depreciation charged on fair value uplifts, the share of
EBITDA attributable to non-controlling interests, adjustments to the retained
Gas Production decommissioning provision, 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 SSE's 'Net Debt to EBITDA' metric, '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 (see note 4.2 below), depreciation and amortisation on
fair value uplifts, adjustments to the retained Gas Production decommissioning
provision, the net interest costs/income 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 Summary Financial Statements also include an 'adjusted net debt and hybrid
capital' 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 posted as collateral on commodity
trading exchanges, 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 are 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 and to highlight, where the Group is providing 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
in controlled but not wholly owned subsidiaries, disposed or impaired
additions and refinancing proceeds and refunds. 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 Plus. As with 'adjusted
earnings per share', these measures are considered to be of relevance to
management and to the ordinary shareholders of the Group as well as to 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 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 or on acquisition of an investment, and provisions in relation to
significant disputes and claims.
4. adjusted accounting measures (CONTINUED)
4.2 Exceptional items and certain re-measurements (continued)
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 qualifying item greater
than £40.0m 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 £40.0m threshold was increased during the year from
the previously applied limit of £30.0m reflecting the increased profitability
of the Group and the growth in the scale of its operations. The only exception
to this threshold is for gains or losses on disposal, or divestment of
early-stage SSE Renewables international or offshore wind farm development
projects within SSE Renewables, which are considered non-exceptional in line
with the Group's strategy to generate recurring gains from developer
divestments. Where a gain arises on a non-cash transaction, the gain is
treated as exceptional.
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 or movements in fair valuation of contracts for difference
not designated as government grants.
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 is
necessarily required to make judgements and estimates that will 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.
The Group has made no changes to its significant financial judgement areas
since the financial year ended 31 March 2022, however the level of judgement
applied in the revenue recognition judgement (see 5.1 (iii) below) has
increased as a result of the introduction of customer support schemes during
the year.
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, some of which are
also areas of estimation uncertainty as noted below.
(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 impairments or reversal of impairments to 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. As well as its goodwill
balances, the specific assets under review in the year ended 31 March 2023 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 equity
investments in Neos Networks Limited and Triton Power Holdings 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 the Electricity Generator Levy and 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.
(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.
5. Accounting judgements and estimation uncertainty (continued)
5.1 Significant financial judgements and estimation
uncertainties (continued)
(iii) Revenue recognition - Customers unbilled supply of energy -
financial judgement and estimation uncertainty
Revenue from energy supply activities undertaken by the GB 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, tariff changes, changes to the proportion of
customers on different contract types, levels of unread meters, weather trends
and externally notified aggregated volumes supplied to customers from national
settlements bodies. During the year both of the Group's Supply businesses have
administered government backed customer support schemes, where the Group
provides discounts to customers based on estimated usage and recovers amounts
from government based on actual customer usage. The administration of these
support schemes has increased the complexity and level of estimation
uncertainty of the Group's unbilled calculations. The most material support
scheme administered by the Group in the year was the Energy Bills Relief
Scheme ("EBRS") within the GB Business Energy business. The accounting policy
for customer support schemes and the balances claimed from government is
explained at A1.2 within the consolidated financial statements.
This unbilled estimation is subject to an internal corroboration process which
compares 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. The
estimation of the government receivable included within the Group's unbilled
revenue accrual is based on claimed and unclaimed values based on the same
customer consumption detail and derived from consideration of tariffs applied
to customers, metered and estimated volumes and other factors. The EBRS claims
submitted by SSE will be audited by the UK government and are subject to
volumetric risk as estimated consumption data is replaced by actual metered
data over the 14 month electricity industry reconciliation period. The value
of outstanding EBRS claims recognised at 31 March 2023 was £326.6m, which
includes a risk provision of £15.1m related to amounts where the Group has
provided the discount to the customer but has assessed that it will be unable
to recover the amount from the government during the open claim window.
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. A change in the assumptions underpinning
the unbilled calculation would have an impact on the amount of revenue
recognised in any given period.
(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 is repayable in
full by 31 December 2029, carries interest at 13.25% and is presented
cumulative of accrued interest payments, discounted at 13.25%. At 31 March
2023, the carrying value (net of expected credit loss provision of £1.5m
(2022: £1.8m)) is £149.5m (2022: £131.0m).
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 previous energy supplier failures and recent
market volatility, the Group's assessment of the recoverability of the loan
note is considered a significant financial judgement. The Group has taken
appropriate steps to assess all available information in respect of the
recoverability of the loan note. Procedures included reviewing recent
financial information of Ovo Energy Limited, including the 31 December 2021
statutory financial statements; considering available Government support
schemes; and discussions with Ovo management. While the carrying value is
considered to be appropriate, changes in economic conditions could lead to a
change in the expected credit loss incurred by the Group in future periods.
(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 Summary Financial Statements. Where relevant assumptions
have been applied that are consistent to a Paris-aligned 1.5OC 2050 net zero
pathway. 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. These plans are supported by
the Group's Green Bond framework under which the fifth green bond was issued
in July 2022. The proceeds of the fifth green bond were allocated to fund
Renewables' wind projects.
5. ACCOUNTING JUDGEMENTS AND ESTIMATION UNCERTAINTY (CONTINUED)
5.1 Significant financial judgements and estimation uncertainties
(continued)
(v) Impact of climate change and the transition to net zero -
financial judgement and estimation uncertainty (continued)
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 Summary Financial Statements, the following climate change
related risks have 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 most of those power stations. Of the
net book value held at 31 March 2023, only four assets are forecast to
continue to operate beyond 2030 being: Great Island; Keadby 2; Marchwood
(which is operated by SSE under a lease); and Saltend Power Station within the
Triton joint venture. 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 commenced commercial operation on 15 March 2023 and has an efficiency
of around 63% making it the most efficient plant of its type in the UK and
Europe. Work is also underway to explore how to decarbonise Keadby 2 further
with the potential to blend hydrogen into the plant. Marchwood is a 50% equity
accounted joint venture and is considered one of the most efficient CCGTs in
the UK. Saltend was acquired as part of Triton Power 50% equity accounted
joint venture and supports the long-term decarbonisation of the UK's power
system, and also contributes to security of supply and grid stability. Initial
steps are underway at Saltend, targeting abatement by 2027 through blending up
to 30% of low-carbon hydrogen. Therefore, the Group considers that other
assets operating in the market would be more likely to close before Keadby 2,
Marchwood and Saltend and the plants will continue to be required to balance
the UK electricity market beyond 2030. As a result, the useful economic life
of the four assets have not been shortened when preparing the 31 March 2023
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 activity provided by the Group's Great Island CCGT
asset has increased, resulting in the reversal of historic impairments at 31
March 2023.
A significant increase in renewable generation capacity in the Group's core
markets in the UK and Ireland 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 2023 as the Group's baseline investment
case models assume a centrally approved volume of new build in these markets
over the life of the existing assets. The Group's policy is to test the
goodwill balances associated with its wind generation portfolio for impairment
on an annual basis in line with the requirements of IAS 36. Through this
impairment assessment (see note 15.1), 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.
Changes to weather patterns resulting from global warming have also been
considered as a potential risk to future returns from the Group's wind and
hydro assets. Changes to weather patterns 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 for operating assets in the UK and Ireland at 31
March 2023, as there is no currently observable evidence to support that
scenario directly. The Group has performed a sensitivity to its impairment
modelling and has assessed that an 8% reduction in achievable volume would
result in significant headroom on the carrying value of the UK and Ireland
assets at 31 March 2023. The TCFD physical risk scenarios modelled a 4% to 8%
change in average mean wind speeds in the longer term across the wind
portfolio, consistent with the impairment sensitivity performed.
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
2023 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 wind farm portfolio.
The discounted share of the Gas Production provision is £201.4m (2022:
£249.4m). At 31 March 2023, the impact of discounting of this retained
provision is £64.5m (2022: £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.
Defined Benefit scheme assets
The Group holds defined benefit pension scheme assets at the 31 March 2023
which could be impacted by climate-related risks. The Trustees of the schemes
have a long term investment strategy that seeks to reduce investment risk as
and when appropriate and takes into consideration the impact of
climate-related risk.
Going concern and viability statement
The implications of near term climate-related risks have been considered in
the Group's going concern assessment and viability statement assessment.
5. Accounting judgements and estimation uncertainty (continued)
5.2 Other accounting judgements - changes from prior year
The Group has made no changes to accounting judgements and estimation
uncertainties from those presented in the Group's 2022 Annual Report.
5.3 Other areas of estimation uncertainty
(i) Tax provisioning
The Group has open tax disputes 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.
In the financial statements to 31 March 2023, the Group has no provision for
uncertain tax positions included in current tax liabilities (2022: £27.9m).
The provision held by the Group at 31 March 2022 related to the Group's case
concerning the availability of capital allowances on Glendoe Hydro Electric
Station. This case was heard at the Supreme Court on 23 March 2023 and a final
decision on the case was released on 17 May 2023. This decision upheld SSE's
position in relation to the dispute and accordingly the provision held has
been released as an adjusting post balance sheet event and a related deferred
tax liability of £23.4m in relation to the associated capital allowances has
been recognised. The Group has no other open tax positions against which a
provision has required to be recognised.
(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 the majority of the Group's Renewable and Thermal generation assets was
performed in the year to 31 March 2022. A formal assessment for Gas Storage
assets was performed in the year to 31 March 2023. 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.
During the year, the carrying value of the Group's decommissioning provisions
have decreased by £228m due to provision reassessments, increases in discount
rate and decreases in inflation assumptions since 31 March 2022. With the
exception of the decrease of £48.1m to the provision relating to Gas
Production activities, movements on which are recorded in the income
statement, all revaluation movements have been matched by an offsetting
adjustment to an associated decommissioning asset.
Further detail on the assumptions applied, including expected decommissioning
dates, and movement in decommissioning costs during the year are disclosed at
note 20 Group's consolidated financial statements.
6. Segmental information
There have been no changes to the Group's core operating segments during the
year. These segments are used internally by the Board to run the business
and make strategic decisions. The Group's "Corporate unallocated" segment is
the Group's residual corporate central costs which cannot be allocated to
individual segments, and also includes the Group's joint venture investment in
Neos Networks Limited.
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. On 25 November 2022
the Group sold a 25.0% non-controlling interest in this business to the
Ontario Teachers' Pension Plan.
Distribution SSEN Distribution The economically regulated lower voltage distribution of electricity to
customer premises in the North of Scotland and the South of England. 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, the development of similar wind assets in Japan and Southern
Europe and the development of wind, solar and battery opportunities. Revenue
from physical generation of electricity in Great Britain is sold to SSE EPM
and in Ireland is sold to Airtricity and 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 in Great Britain or REFIT in Ireland) may either be recognised in line
with electricity being physically generated or over the contractual period,
depending on the underlying performance obligation.
With effect from 18 April 2023, Renewables has taken responsibility for the
development, delivery and operation for battery storage and solar assets in
Great Britain from Distributed Energy, aligning that activity with its
international operations. The impact of applying this change is not considered
material. This realignment of segmental reporting will be applied in the
interim financial statements for the period to 30 September 2023.
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 in Great Britain and Ireland is sold to SSE EPM and 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 Great Britain, 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 and 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.
6. Segmental information (continued)
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. As noted above, with effect from 18 April
2023, the battery storage and solar assets activity in Great Britain has been
transferred to SSE Renewables.
EPM & I Energy Portfolio Management (EPM) The provision of a route to market for the Group's Renewable and Thermal
generation businesses 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
was recognised based on the production that had been delivered to the customer
at the specified delivery point, at the applicable contractual market price.
This business was disposed of in the financial year to 31 March 2022. SSE has
retained an obligation for 60% of the decommissioning liabilities of the
disposed business as part of the transaction.
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 was recognised based on
the volume of gas distributed to those customers and the set customer tariff.
This investment was disposed of in the financial year to 31 March 2022 and
accordingly is noted here in relation to the comparative information for that
year.
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,
share of profits attributable to non-controlling interests, the net interest
costs/income 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. Segmental information (continued)
6.1 Revenue by segment
Reported revenue Inter-segment revenue (i) Segment revenue Reported revenue Inter- Segment revenue
segment revenue (i)
2023 2023 2023 2022 (restated*) 2022 2022 (restated*)
£m £m £m £m £m £m
Continuing operations
SSEN Transmission 656.1 - 656.1 589.7 - 589.7
SSEN Distribution 1,102.7 81.0 1,183.7 954.6 78.6 1,033.2
SSE Renewables 334.8 602.7 937.5 357.4 418.8 776.2
SSE Thermal 740.4 3,863.8 4,604.2 933.2 285.0 1,218.2
Gas storage 12.2 5,147.5 5,159.7 8.7 2,471.1 2,479.8
Energy Customer Solutions
Business Energy 3,313.5 59.4 3,372.9 2,289.0 34.5 2,323.5
SSE Airtricity 1,776.9 233.1 2,010.0 1,177.3 451.3 1,628.6
Distributed Energy 139.1 20.1 159.2 176.9 25.4 202.3
EPM:
Gross trading 24,700.6 11,972.4 36,673.0 12,808.3 7,160.2 19,968.5
Optimisation trades (20,351.8) (937.3) (21,289.1) (10,667.6) (2,914.0) (13,581.6)
EPM 4,348.8 11,035.1 15,383.9 2,140.7 4,246.2 6,386.9
Corporate unallocated 66.2 232.1 298.3 69.7 147.7 217.4
Total 12,490.7 21,274.8 33,765.5 8,697.2 8,158.6 16,855.8
Discontinued operations
Gas Production - - - 8.1 133.9 142.0
Total discontinued operations - - - 8.1 133.9 142.0
Total SSE Group 12,490.7 21,274.8 33,765.5 8,705.3 8,292.5 16,997.8
*The comparative segment revenue has been restated. See note 3.1.
(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) sold 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.
External revenue by geographical location on continuing operations is as
follows:
2023 2022
(restated*)
£m £m
UK 10,899.8 7,381.1
Ireland 1,590.9 1,316.1
12,490.7 8,697.2
6. Segmental information (continued)
6.2 Operating profit/(loss) by segment
2023
Adjusted operating profit reported to the Board Depreciation on fair value uplifts JV/ Associate share of interest and tax Adjustments to Gas Production decommissioning provision Non-controlling interests 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 372.7 - - - 32.8 405.5 - 405.5
SSEN Distribution 382.4 - - - - 382.4 - 382.4
SSE Renewables 580.0 (18.8) (103.0) - (1.9) 456.3 (10.0) 446.3
SSE Thermal 1,031.9 (10.0) (60.4) - - 961.5 128.0 1,089.5
Gas Storage 212.5 - - - - 212.5 36.7 249.2
Energy Customer Solutions
Business Energy 17.9 - - - - 17.9 - 17.9
SSE Airtricity 5.6 - (0.4) - - 5.2 - 5.2
Distributed Energy (27.4) - - - - (27.4) (6.1) (33.5)
EPM 80.4 - - - - 80.4 (2,706.4) (2,626.0)
Corporate
Corporate unallocated (87.0) - - 50.5 - (36.5) 9.7 (26.8)
Neos (39.8) - (10.3) - - (50.1) (5.9) (56.0)
Total SSE Group 2,529.2 (28.8) (174.1) 50.5 30.9 2,407.7 (2,554.0) (146.3)
6. Segmental information (continued)
6.2 Operating profit/(loss) by segment (continued)
2022 (restated*)
Adjusted operating profit reported to the Board Depreciation on fair value uplifts JV/ Associate share of interest and tax 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 300.4 - (9.5) - 290.9 333.3 624.2
Gas Storage 30.7 - - - 30.7 94.7 125.4
Energy Customer Solutions
Business Energy (21.5) - - - (21.5) - (21.5)
SSE Airtricity 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 1,530.9 (20.6) (114.1) (13.1) 1,383.1 2,366.4 3,749.5
Discontinued operations
Gas Production 101.4 - - - 101.4 (120.8) (19.4)
SGN (i) 21.0 - (12.8) - 8.2 (89.3) (81.1)
Total discontinued operations 122.4 - (12.8) - 109.6 (210.1) (100.5)
Total SSE Group 1,653.3 (20.6) (126.9) (13.1) 1,492.7 2,156.3 3,649.0
(i) In the table above total operating profit from SGN has been restated to
remove the £576.5m gain recognised on disposal of SGN. There has been no
change to the presentation of this gain in the income statement.
*The comparative operating profit by segment information has been restated.
See note 3.1.
6. Segmental information (continued)
6.3 Earnings before interest, taxation, depreciation and
amortisation ('EBITDA')
2023
Adjusted operating profit reported to the Board Depreciation/ impairment/ JV/ Associate share of depreciation and amortisation Release of deferred income Share of non-controlling interest depreciation and amortisation Adjusted EBITDA
amortisation before exceptional charges
(note 6.2) Depreciation on fair value uplifts
£m £m £m £m £m £m £m
Continuing operations
SSEN Transmission 372.7 - 114.1 - (2.1) (9.7) 475.0
SSEN Distribution 382.4 - 182.2 - (10.6) - 554.0
SSE Renewables 580.0 (18.8) 179.8 92.8 (0.1) - 833.7
SSE Thermal 1,031.9 (10.0) 114.5 60.8 - - 1,197.2
Gas Storage 212.5 - 16.5 - - - 229.0
Energy Customer Solutions
Business Energy 17.9 - 4.7 - - - 22.6
SSE Airtricity 5.6 - 6.9 - - - 12.5
Distributed Energy (27.4) - 6.8 - (0.2) - (20.8)
EPM 80.4 - 6.0 - - - 86.4
Corporate
Corporate unallocated (87.0) - 72.7 - (0.9) - (15.2)
Neos (39.8) - - 47.5 - - 7.7
Total SSE Group 2,529.2 (28.8) 704.2 201.1 (13.9) (9.7) 3,382.1
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
Seagreen. This adjustment is £146.9m (2022: £125.4m) resulting in EBITDA on
continuing operations for inclusion in the Debt to EBITDA metric of £3,235.2m
(2022: £2,125.3m restated).
6. Segmental information (continued)
6.3 Earnings before interest, taxation, depreciation and amortisation
('EBITDA') (continued)
2022 (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 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 300.4 - 70.2 19.0 - 389.6
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 1,530.9 (20.6) 612.0 146.6 (17.6) 2,251.3
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 1,653.3 (20.6) 612.0 157.7 (17.6) 2,384.8
*The comparative EBITDA by segment information has been restated. See note
3.1.
7. Exceptional items and certain re-measurements
2023 2022
£m £m
Continuing operations
Exceptional items
Asset impairments and related (charges) and credits (233.6) 322.6
Net gains/(losses) on acquisitions/disposals of businesses and other assets 233.2 (17.6)
Total exceptional items (0.4) 305.0
Certain re-measurements
Movement on operating derivatives (note 16) (2,708.2) 2,100.4
Movement in fair value of commodity stocks (9.0) (2.6)
Movement on financing derivatives (note 16) 201.9 21.0
Share of movement on derivatives in jointly controlled entities (net of tax) 163.8 -
Total certain re-measurements (2,351.5) 2,118.8
Exceptional items and certain re-measurements on continuing operations before (2,351.9) 2,423.8
taxation
Taxation
Taxation on other exceptional items (34.1) (79.0)
Taxation on certain re-measurements 499.6 (408.0)
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 465.5 (764.9)
Total exceptional items and certain re-measurements on continuing operations (1,886.4) 1,658.9
after taxation
Discontinued operations
Exceptional items
Gas production asset impairments and related credits/(charges) 35.0 (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)
Effect of deferred tax rate change in jointly controlled entities - (85.5)
Exceptional items and certain re-measurements on discontinued operations after 35.0 366.4
taxation
Exceptional items and certain remeasurements are disclosed across the
following categories within the income statement:
2023 2022
£m £m
Continuing operations
Cost of sales:
Movement on operating derivatives (note 16) (2,708.2) 2,100.4
Movement in fair value of commodity stocks (9.0) (2.6)
(2,717.2) 2,097.8
Operating costs:
Asset impairments and reversals (233.6) 322.6
Other exceptional provisions and charges 3.2 (25.1)
(230.4) 297.5
Operating income:
Net gains on disposals of businesses and other assets 89.1 4.3
89.1 4.3
Joint ventures and associates:
Net gains on acquisition of a joint venture 140.7 -
Share of movement on derivatives in jointly controlled entities (net of tax) 163.8 -
Effect of deferred tax rate change in jointly controlled entities - (33.2)
304.5 (33.2)
Operating profit (2,554.0) 2,366.4
Finance income
Movement on financing derivatives (note 16) 201.9 21.0
Interest income on deferred consideration receipt 0.2 3.2
202.1 24.2
Profit before tax on continuing operations (2,351.9) 2,390.6
Discontinued operations
Gas Production asset impairments and related credits/(charges) 35.0 (120.8)
Joint ventures and associates:
Net gain on disposal of jointly controlled entities - 576.5
Share of movement on derivatives in jointly controlled entities (net of tax) - (3.8)
Profit before tax on discontinued operations 35.0 451.9
7. Exceptional items and certain re-measurements (continued)
7.1 Exceptional items
7.1.1 Exceptional items in the year ended 31 March 2023
In the year to 31 March 2023, the Group recognised a net exceptional charge of
£0.4m arising from its continuing operations. The net exceptional charge is
primarily due to a net impairment of £150.9m in relation to the Group's 50%
investment in Triton Power Holdings Limited (see 7.1.1.iv below for further
analysis of amounts recognised in relation to Triton), offset by an
exceptional gain of £89.1m from the sale of land at Fiddler's Ferry, an
impairment reversal of £45.7m related to the Group's Gas Storage operations
at Aldbrough and an impairment reversal of £17.8m in relation to the Group's
Great Island combine cycle gas turbine ('CCGT') plant in Ireland.
In discontinued operations, the Group recognised an exceptional gain of
£35.0m relating to a provision release 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 Provisions and other charges Investments in joint ventures Cash and cash equivalents Other receivables Total charges/ (credits)
£m £m £m £m £m £m
Thermal Electricity Generation (i) (17.8) - - - - (17.8)
Gas storage (ii) (45.7) - - - - (45.7)
Fiddler's Ferry land sale (iii) 24.1 (53.2) - (60.0) - (89.1)
Triton Power 50% joint venture (iv) - - 150.9 - - 150.9
Neos Networks (v) - - 5.9 - - 5.9
Other credits (vi) - (1.5) - (2.1) (0.2) (3.8)
Total exceptional items continuing operations (39.4) (54.7) 156.8 (62.1) (0.2) 0.4
Gas Production (vii) - (35.0) - - - (35.0)
Total exceptional items discontinued operations - (35.0) - - - (35.0)
Total exceptional items (39.4) (89.7) 156.8 (62.1) (0.2) (34.6)
(i) Thermal Electricity Generation - impairment reversal
At 31 March 2023, the Group has carried out a formal impairment review in
order to assess the carrying value of its GB CCGT power stations and the
Group's Great Island CCGT plant in Ireland. As a result of the review, the
Group has recognised an exceptional impairment reversal of £17.8m to the
carrying value of the Group's Great Island CCGT plant.
(ii) Gas Storage - impairment reversal
At 30 September 2022, the Group recognised an impairment reversal of £201.1m
reflecting future market price assumptions at that time. The Group performed a
formal impairment review at 31 March 2023 to reassess 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 of £155.4m to
the carrying value of the assets at Aldbrough, resulting in a net impairment
reversal of £45.7m. The impairment previously recognised in relation to
Atwick was fully reversed in the year ended 31 March 2022, and no impairment
is required for the current financial year.
(iii) Fiddler's Ferry - land sale
On 30 June 2022, the Fiddlers Ferry site was sold to Peel NRE Developments
Limited for cash consideration of £60.0m. The Group carried a decommissioning
provision for the site of £53.2m and a residual asset of £24.1m, both of
which were disposed of as part of the sale. As a result, the Group has
recognised an exceptional gain of £89.1m on disposal.
(iv) Triton Power 50% joint venture - acquisition and impairment
On 1 September 2022, the Group acquired 50% of the share capital of Triton
Power Holdings Limited from Energy Capital Partners for total consideration of
£341.0m (see note 12). The purchase price of £341.0m was agreed based on
prices prevalent in the market during the summer, prior to completion of the
transaction on 1 September 2022. The Group assessed that, due to movements in
near term market observable power prices between the transaction agreement
date and the completion date, the fair value of the acquisition was £140.7m
greater than the acquisition price. This bargain purchase was recognised as an
exceptional gain in the Group's half year results to 30 September 2022. During
the second half of the year, the Group realised a significant proportion of
the acquired fair value of the business through trading operations of the
joint venture. As a result, the future recoverable value of the business is
lower at 31 March 2023, than at 1 September 2022 and the Group has therefore
recognised an impairment charge at 31 March 2023 of £291.6m.
7. Exceptional items and certain re-measurements (continued)
7.1 Exceptional items (continued)
7.1.1 Exceptional items in the year ended 31 March 2023 (continued)
A summary of exceptional items recognised in relation to Triton since the 50%
acquisition on 1 September 2022 is set out below:
Financial statement line item charge/(credit) is included within Exceptional items and certain re-measurements
£m
Recognition of bargain purchase Joint venture and associates share of profit (140.7)
Impairment of investment Operating costs 291.6
Total exceptional items 150.9
Mark-to-market movement on operating derivatives Joint venture and associates share of movement on derivatives (213.9)
Share of tax on mark-to-market movement on operating derivatives Joint venture and associates share of tax 41.9
Total certain re-measurements (172.0)
Total exceptional items and certain re-measurements (21.1)
(v) Neos Networks - investment impairment and adjustments to
consideration
At 31 March 2023, the Group has assessed that the recoverable amount of its
investment in Neos Networks has been impaired by £37.7m, of which £5.9m has
been treated as exceptional. Under the Group's policy, an impairment charge of
less than £40m is not considered to be an exceptional item. However, £5.9m
of the impairment relates to the fair value gain previously recognised on
acquisition of the joint venture investment in March 2019, which had been
previously treated as an exceptional item. Therefore, for consistent
presentation, this reversal has been recognised separately. The balance of the
impairment charge, being £31.8m, has been recognised as part of adjusted
operating profit.
(vi) Other credits
At 31 March 2023, the Group recognised further exceptional credits of £3.8m
relating to reversal of previously recognised exceptional charges or
judgements. These included i) reassessment of separation cost provisions
associated primarily with the disposals of SSE Energy Services and SGN (credit
of £9.7m), ii) credit of £0.2m in relation to the unwind of discounting on
deferred consideration recognised on the part disposal of SSSE Slough
Multifuel Limited in the year ending 31 March 2021, iii) reassessment of
impairments associated with Heat Networks assets credit of £0.4m, partially
offset by iv) £6.5m charge recognised in relation to provisions in connection
with the sale of the Contracting and Rail business in June 2021.
Exceptional items within discontinued operations in the year ended 31 March
2023
(vii) Gas Production - gain on disposal
On 4 November 2022, RockRose Energy Limited received HMRC clearance in respect
of tax treatment in relation to the Group's disposal of its Gas Production
business to Viaro Energy (through its subsidiary RockRose Energy Limited),
which completed on 14 October 2021. The Group had indemnified RockRose Energy
Limited in relation to certain tax liabilities that it might suffer as a
result of the transaction, and this formed part of the provision which was
recognised on the disposal of the Gas Production business. The HMRC clearance
indicated that no such tax liabilities arise for RockRose Energy Limited and
as a result the Group has released £35.0m of provision relating to the
indemnity as an adjustment to the loss on disposal recognised. The adjustment
is recognised in discontinued operations in the year ended 31 March 2023.
7.1.2 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
was primarily due to impairment reversals of £331.5m in relation to the
Group's GB 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 were offset by an impairment
loss of £106.9m recognised in relation to the Group's investment in Neos
Networks, a further £18.9m loss was 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.
7. Exceptional items and certain re-measurements (continued)
7.1 Exceptional items (continued)
7.1.2 Exceptional items in the year ended 31 March 2022 (continued)
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 reversed £331.6m of historic impairments related
to the Group's GB CCGT power stations and the Group's Great Island CCGT plant
in Ireland. This represented a full impairment reversal for the CCGT plants at
Peterhead, Marchwood, Keadby and Medway and a partial reversal for Great
Island.
(ii) Gas Storage - impairment reversals
At 31 March 2022, the Group reversed historic impairments of £97.3m related
to its Gas Storage operations at Atwick and Aldbrough.
(iii) SSE Contracting - loss on disposal
On 30 June 2021, the Group recorded a further impairment charge of £18.9m
following the completion of the sale of its Contracting and Rail business to
the Aurelius Group. This impairment was recognised 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 assessed that the value of its investment in
Neos Networks was impaired by £106.9m. In the year ended 31 March 2022, the
Group also reassessed its position relating to the original disposal of a 50%
stake in the business on 31 March 2019 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 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 12.2.2).
(vii) Gas Production - impairment loss
The Group recorded an exceptional impairment of £120.8m prior to the sale of
its Gas Production assets and liabilities to RockRose Energy Limited on 14
October 2021. The impairment was recognised to reduce the carrying value of
the assets and liabilities to their fair value less costs to sell.
7. Exceptional items and certain re-measurements (continued)
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. 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 with changes in value recognised
within 'certain re-measurements'. In addition, the mark-to-market valuation
movements on the Group's contracts for difference contracts entered into by
SSE Renewables that are not designated as government grants and which are
measured as Level 3 fair value financial instruments are also included within
'certain re-measurements'.
Changes in the fair value 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 2023, volatility in global commodity markets and changes in SSE's
contractual positions have resulted in a significantly adverse mark-to-market
remeasurement on commodity contracts (predominately power purchases)
designated as financial instruments and trading inventory of £2,717.2m (2022:
£2,097.8m gain). It should be noted that the net IFRS 9 position on operating
derivatives at 31 March 2023 is a liability of £386.9m (2022: £2,301.8m
asset).
In addition, the Group has executory 'own use' designated commodity contracts
which, if classified as financial instruments and remeasured at fair value in
accordance with IFRS 9, would significantly increase the total fair value
remeasurement and closing liability value. These predominately relate to
financial hedges entered into on behalf of the SSE Renewables and SSE Thermal
businesses for future sales which were entered into before the subsequent
increase in market prices. A significant proportion of 'in the money'
mark-to-market contracts recorded at 31 March 2023 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 loss in the year has resulted in a deferred tax credit of
£499.6m (2022: £408.0m), which has also been classified as exceptional. In
addition, the Group has recognised gains of £201.9m (2022: £21.0m) on the
remeasurement of the certain interest rate and foreign exchange contracts
through the income statement, gains on the remeasurement of cash flow hedge
accounted contracts of £43.3m (2022: £22.9m) in other comprehensive income
and gains on the equity share of the remeasurement of cash flow hedge
accounted contracts in joint ventures of £342.4m (2022: £181.4m).
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.
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 were re-measured at 31 March 2022. The rate change
resulted in an income statement charge for continuing operations of £244.7m
at 31 March 2022 and an increase to the Group's deferred tax liabilities
(including the effect of equity accounted items) of £279.5m at 31 March
2022. The impact of the rate change on the Group's share of profits of its
equity accounted investments was a charge of £33.2m at 31 March 2022 for
continuing operations and a charge of £85.5m for discontinued operations at
31 March 2022.
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 and prior year. Finance Bill 2023 introduced draft
legislation, effective from 1 April 2023 to 31 March 2026, to allow 'Full
Expensing' of 100% General Pool plant and machinery, alongside 50% for Special
Rate Pool plant and machinery. The Group expects these changes to
significantly increase the deductions for Capital Allowances in the financial
years ending 31 March 2024 to 31 March 2026.
Finance Bill 2023 also introduced draft legislation in respect of
Multinational Top-up Tax in line with OECD BEPS pillar 2 principles. The
legislation is expected to be in force for the year ended 31 March 2025.
Similar draft legislation has been introduced in the Republic of Ireland and
other EU jurisdictions. The Group is assessing the impact of the changes but
does not expect a material impact to arise.
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
2023 2022
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 17.5 - 17.5 0.8 - 0.8
Interest on pension scheme assets ((i)) 16.2 - 16.2 7.6 - 7.6
Other interest receivable:
Joint ventures and associates 67.6 - 67.6 46.8 - 46.8
Other receivable 34.0 0.2 34.2 23.8 3.2 27.0
101.6 0.2 101.8 70.6 3.2 73.8
Total finance income 135.3 0.2 135.5 79.0 3.2 82.2
Finance costs:
Bank loans and overdrafts (50.1) - (50.1) (16.2) - (16.2)
Other loans and charges (339.1) - (339.1) (340.2) - (340.2)
Foreign exchange translation of monetary assets and liabilities - - - (14.6) - (14.6)
Notional interest arising on discounted provisions (22.1) - (22.1) (5.7) - (5.7)
Lease charges (29.4) - (29.4) (30.4) - (30.4)
Less: interest capitalised ((ii)) 44.0 - 44.0 30.7 30.7
Total finance costs (396.7) - (396.7) (376.4) - (376.4)
Changes in fair value of financing derivatives at fair value through profit or - 201.9 201.9 - 21.0 21.0
loss
Net finance costs (261.4) 202.1 (59.3) (297.4) 24.2 (273.2)
Presented as:
Finance income 135.3 202.1 337.4 79.0 24.2 103.2
Finance costs (396.7) - (396.7) (376.4) - (376.4)
Net finance costs (261.4) 202.1 (59.3) (297.4) 24.2 (273.2)
i) The interest income on net pension assets for the year ended 31
March 2023 of £16.2m (2022: £7.6m) represents the interest earned under IAS
19.
ii) The capitalisation rate applied in determining the amount of
borrowing costs to capitalise in the year was 4.11% (2022: 3.86%).
Adjusted net finance costs are arrived at after the following adjustments:
2023 2022
£m £m
Net finance costs (59.3) (273.2)
(add)/less:
Share of interest from joint ventures and associates (70.1) (67.8)
Interest on pension scheme liabilities (16.2) (7.6)
Movement on financing derivatives (note 16) (201.9) (21.0)
Exceptional item (0.2) (3.2)
Share of net finance cost attributable to non-controlling interests 2.1 -
Adjusted net finance costs (345.6) (372.8)
Notional interest arising on discounted provisions 22.1 5.7
Lease charges 29.4 30.4
Hybrid coupon payment (note 14) (38.8) (50.7)
Adjusted net finance costs for interest cover calculations (332.9) (387.4)
9. Taxation
9.1 Analysis of charge recognised in the income statement
2023 2022 (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 292.3 (20.9) 271.4 82.5 8.8 91.3
Adjustments in respect of previous years (22.0) 5.3 (16.7) (5.9) - (5.9)
Total current tax 270.3 (15.6) 254.7 76.6 8.8 85.4
Deferred tax
Current year 72.9 (444.6) (371.7) 75.2 478.2 553.4
Effect of change in tax rate - - - - 244.7 244.7
Adjustments in respect of previous years 12.3 (5.3) 7.0 (2.2) - (2.2)
Total deferred tax 85.2 (449.9) (364.7) 73.0 722.9 795.9
Total taxation charge/(credit) 355.5 (465.5) (110.0) 149.6 731.7 881.3
*The comparatives have been restated. See note 3.1
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.
'Adjustments in respect of previous years' primarily relate to the post
balance sheet event in respect of Glendoe, referred to in note 19, and
adjustments relating to the submission of tax returns.
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:
2023 2023 2022 (restated*) 2022 (restated*)
£m % £m %
Group tax (credit)/charge and effective rate (110.0) 12.7 881.3 25.4
Less: reported deferred tax credit and effective rate 364.7 (42.0) (795.9) (22.9)
Reported current tax charge and effective rate 254.7 (29.3) 85.4 2.5
Effect of adjusting items 41.0 4.8
Reported current tax charge and effective rate on adjusted basis 254.7 11.7 85.4 7.3
add:
Share of current tax from joint ventures and associates 89.6 4.1 30.6 2.6
Less:
Current tax credit on exceptional items 15.6 0.7 (8.9) (0.7)
Share of current tax attributable to non-controlling interests (1.1) (0.1) - -
Adjusted current tax charge and effective rate 358.8 16.4 107.1 9.2
*The comparatives have been restated. See note 3.1
10. Dividends
10.1 Ordinary dividends
Year ended 31 March 2023 Year ended 31 March 2022
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 2023 313.2 159.0 29.0 - - -
Final - year ended 31 March 2022 642.6 322.5 60.2 - - -
Interim - year ended 31 March 2022 - - - 271.8 28.2 25.5
Final - year ended 31 March 2021 - - - 590.5 327.5 56.6
955.8 481.5 862.3 355.7
The final dividend of 60.2p per ordinary share declared in respect of the
financial year ended 31 March 2022 (2021: 56.6p) was approved at the Annual
General Meeting on 21 July 2022 and was paid to shareholders on 22 September
2022. 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.
10 Dividends (continued)
10.1 Ordinary dividends (continued)
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. The overall scrip
dividend take-up for the financial year ended 31 March 2022 was 38.3%. Under
the share buyback programme 6.9m of shares were repurchased and cancelled
during the year ended 31 March 2023 for total consideration of £107.6m
(including stamp duty and commission).
An interim dividend of 29.0p per ordinary share (2022: 25.5p) was declared and
paid on 9 March 2023 to those shareholders on the SSE plc share register on 13
January 2023. 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 67.7p per ordinary share based on the number of
issued ordinary shares at 31 March 2023 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 2023, this
would equate to a final dividend of £740.6m.
11. Earnings per Share
11.1 Basic earnings per share
The calculation of basic earnings per ordinary share at 31 March 2023 is based
on the net profit/(loss) attributable to ordinary shareholders and a weighted
average number of ordinary shares outstanding during the year ended 31 March
2023.
11.2 Adjusted earnings per share
Adjusted earnings/(losses) 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 share of profit attributable to non-controlling
interests and the impact of exceptional items and certain re-measurements
(note 7).
Year ended 31 March 2023 Year ended 31 March 2023 Year ended 31 March 2022 (restated*) Year ended 31 March 2022 (restated*)
Continuing operations (Losses)/earnings (Losses)/earnings per share Earnings Earnings per share
£m pence £m pence
Basic (losses)/earnings on continuing operations used to calculate adjusted (158.0) (14.7) 2,544.3 241.2
EPS
Exceptional items and certain re-measurements (note 7) 1,886.4 175.4 (1,658.9) (157.2)
Basic excluding exceptional items and certain re-measurements 1,728.4 160.7 885.4 84.0
Adjusted for:
Decommissioning Gas Production (50.5) (4.7) 13.1 1.2
Depreciation charge on fair value uplifts 28.8 2.7 20.6 2.0
Interest on net pension scheme assets/(liabilities) (16.2) (1.5) (7.6) (0.7)
Deferred tax (note 9) 85.2 7.9 73.0 6.8
Deferred tax from share of joint ventures and associates 14.4 1.3 15.8 1.5
Deferred tax on non-controlling interest (4.1) (0.4) - -
Adjusted 1,786.0 166.0 1,000.3 94.8
Basic (158.0) (14.7) 2,544.3 241.2
Dilutive effect of outstanding share options - - - (0.5)
Diluted (158.0) (14.7) 2,544.3 240.7
*The comparatives have been restated. See note 3.1
Reported (losses)/earnings per share
2023 2023 2022 (restated*) 2022 (restated*)
(Losses)/earnings (Losses)/earnings per share Earnings Earnings
per share
£m pence £m
pence
Basic
(Losses)/earnings per share on continuing operations (158.0) (14.7) 2,544.3 241.2
Earnings per share on discontinued operations 35.0 3.3 482.7 45.7
(Losses)/earnings per share attributable to ordinary shareholders (123.0) (11.4) 3,027.0 286.9
Dilutive effect of outstanding share options - - - (0.5)
Diluted (losses)/earnings per share attributable to ordinary shareholders (123.0) (11.4) 3,027.0 286.4
*The comparatives have been restated. See note 3.1.
11. EARNINGS PER SHARE (CONTINUED)
11.2 Adjusted earnings per share (continued)
The weighted average number of shares used in each calculation is as follows:
31 March 2023 31 March 2022
Number of shares Number of shares
(millions) (millions)
For basic and adjusted earnings per share 1,075.6 1,055.0
Effect of exercise of share options 1.7 2.0
For diluted earnings per share 1,077.3 1,057.0
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.
2023 2023 2023 2022 (restated*) 2022 2022 (restated*)
(Losses)/earnings per share Dividend per share Dividend Cover Earnings per share Dividend per share Dividend cover
(pence) (pence) (times) (pence) (pence) (times)
Reported (losses)/earnings per share (continuing operations) (14.7) 96.7 (0.15) 241.2 85.7 2.81
Adjusted earnings per share (continuing operations) 166.0 96.7 1.72 94.8 85.7 1.11
*The comparatives have been restated. See note 3.1.
12. Acquisitions AND disposals
12.1 Acquisitions
12.1.1 Current year acquisitions
European onshore renewables development platform
On 1 September 2022 the Group completed the 100% acquisition of a European
onshore renewable energy development platform from Siemens Gamesa Renewable
Energy ("SGRE") for final cash consideration of £519.5m. The SGRE portfolio
is mainly located in Spain with the remainder across France, Italy and Greece.
This acquisition is aligned to the Group's published strategy to pursue
overseas renewable opportunities.
Acquisition costs of £6.0m were expensed to operating costs in the year. The
acquired business contributed £nil to revenue and £0.5m of costs to
operating profit of the Group for the year. Had the acquisition occurred on 1
April 2022, the acquired business would have contributed nil to revenue and
contributed an immaterial loss to operating profit. The intangible development
assets acquired are late-stage windfarm development costs. The goodwill
recognised represents early stage intangible development costs that do not
qualify for separate recognition as set out in the table below.
Fair value at 1 September
2022
£m
Assets acquired and liabilities assumed:
Intangible development assets 104.4
Inventories 3.0
Trade and other receivables 20.3
Cash 11.5
Trade and other payables (3.5)
Deferred tax liability (27.0)
Total net assets acquired 108.7
Goodwill 410.8
Cash consideration 519.5
12. ACQUISITIONS AND DISPOSALS (continued)
12.1 Acquisitions (continued)
12.1.1 Current year acquisitions (continued)
Triton Power - 50% joint venture acquisition
On 1 September 2022, the Group announced that SSE Thermal and Equinor had
completed the acquisition of Triton Power Holdings Limited from Energy Capital
Partners for headline consideration of £341m shared equally. The headline
consideration included £96m of loans which were settled on completion of the
transaction and replaced with shareholder loans of £48.0m each from SSE and
Equinor. The Group's share of the cash consideration paid for the equity
investment was therefore £123.2m after completion adjustments. Triton Power
operates the 1.2GW Saltend Power Station in the Humber along with two smaller
plants, Indian Queens Power Station, a 140MW OCGT in Cornwall, and Deeside
Power Station, a decommissioned CCGT in north Wales. The acquisition will
strengthen SSE's existing collaboration with Equinor and will support the
long-term decarbonisation of the UK's power system and contribute to security
of supply and grid stability. An exceptional gain on acquisition of £140.7m
was recognised at 30 September 2022 based on movements in the underlying fair
value of assets acquired between agreeing and completing the transaction.
During the second half of the financial year the fair value exercise a fair
value exercise and impairment review have been completed which resulted in an
impairment loss of £291.6m and a £172.0m gain on financial instruments (net
of tax) being recognised.
The joint venture contributed £210.2m to operating profit before exceptional
items in the year to 31 March 2023 on an equity accounted basis.
Other asset acquisitions
During the year ended 31 March 2023, the Group made other smaller asset
acquisitions (of special purpose vehicles as opposed to businesses) for
deferred consideration of £19.8m and deferred consideration of £34.9m (2022:
£4.0m cash consideration). The total cash consideration for business
combinations of £642.7m (2022: £141.3m) is included in the Group's Adjusted
investment, capital and acquisition metric.
12.1.2 Prior year acquisitions
Acquisition of 80% equity interest in Japanese offshore wind development
platform
On 29 October 2021 the Group completed the acquisition of an 80% equity
interest in an offshore wind development platform based in Japan 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.
Acquisition costs of £7.2m were expensed to operating costs in the prior
year. The subsidiaries acquired had nil revenue and contributed a loss of
£0.1m to the consolidated result of the Group for the year ended 31 March
2022. 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 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.
Fair value at 29 October 2021
£m
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
12.2 Disposals
12.2.1 Current year disposals
During the year the Group recognised a gain of £868.3m within equity from the
sale of a25% non-controlling equity stake in its SSEN Transmission business
(being the company Scottish Hydro Electric Transmission plc) and an
exceptional income statement gain of £89.1m from the disposal of the Fiddlers
Ferry site.
25% non-controlling equity stake in Scottish Hydro Electric Transmission plc:
On 25 November 2022, the Group announced it had agreed to sell a 25%
non-controlling equity stake in Scottish Hydro Electric Transmission plc
('SHET') to Ontario Teachers Pension Plan ('OTPP') for cash consideration of
£1,465.0m, less transactions costs of £16.9m. The transaction completed on
30 November 2022, at which time the consolidated carrying value of SHET's net
assets was £2,319.3m. Since the transaction did not result in a loss of
control, the Group recognised a gain of £868.3m within equity attributable to
owners of the parent company. The Group considered the rights and obligations
and operating protocols arising from the disposal and has determined that the
non-controlling interest in SHET has the characteristics of equity and has
classified the non-controlling interest as such.
12. ACQUISITIONS AND DISPOSALS (CONTINUED)
12.2 Disposals (continued)
12.2.1 Current year disposals (continued)
30 November 2022
£m
Carrying value of non-controlling interests disposed (579.8)
Cash consideration paid by non-controlling interest holder 1,465.0
Transaction costs (16.9)
Excess of consideration received recognised in equity 868.3
Fiddler's Ferry land sale: On 30 June 2022, the Fiddlers Ferry site was sold
to Peel NRE Developments Limited for cash proceeds of £60m. The Group
released decommissioning provision related to the site, which resulted in an
exceptional gain on disposal of £89.1m.
12.2.2 Prior year disposals
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 exceptional loss on disposal of
£18.9m in the year of completion, in addition to the exceptional impairment
loss of £51.2m recognised during the year ended 31 March 2021. A further
impairment of £6.5m has been recognised in the year ended 31 March 2023 in
relation of receivables previously recognised on disposal.
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 was recognised within the adjusted profit of
the Group in line with the Group's stated policy in relation to developer
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 was 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 an exceptional gain of £576.5m recognised.
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 an impairment of £120.8m to reduce the carrying
value of the assets and liabilities to the fair value less costs to sell prior
to completion of the disposal. The impairment charge of £120.8m included a
provision for indemnified tax liabilities of £35.0m, which was released in
the year to 31 March 2023.
12. ACQUISITIONS AND DISPOSALS (CONTINUED)
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.
2023 2022
Total Total
£m £m
Net assets disposed:
Property, plant and equipment 24.1 105.1
Intangible and biological assets - 28.4
Investments and loans - joint ventures - 662.5
Other investments - 2.0
Deferred tax asset - 14.8
Inventories - 6.9
Trade and other receivables - 28.5
Trade and other payables - (33.2)
Provisions (88.2) (159.8)
Loans and borrowings - (0.8)
Net assets (64.1) 654.4
Proceeds of disposal:
Consideration 60.0 1,372.1
Provision recognised on disposal - (35.0)
Costs of disposal - (29.8)
Net proceeds 60.0 1,307.3
Recycle of amounts recognised in hedge reserve - (28.2)
Gain on disposal 124.1 624.7
Presentation:
Continuing operations
Income statement exceptional (loss)/gain 89.1 (18.9)
Income statement non-exceptional credit - 67.1
89.1 48.2
Discontinued operations
Income statement exceptional credit 35.0 576.5
SSE Group 124.1 624.7
Net proceeds of disposal 60.0 1,279.1
Recycle of amounts recognised in hedge reserve - 28.2
Provision recognised on disposal - 35.0
Costs of disposal - 29.8
Deferred consideration - (5.2)
Net cash proceeds 60.0 1,366.9
Plus net cash proceeds from sale of non-controlling interest in SHET 1,448.1 -
Net cash proceeds 1,508.1 1,366.9
12. ACQUISITIONS AND DISPOSALS (CONTINUED)
12.3 Discontinued operations
The discontinued operations represented 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. The profit/(loss) of the
discontinued operation is as follows:
2023 2022
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
Cost of sales - - - (38.9) - (38.9)
Gross profit - - - 103.1 - 103.1
Operating costs - - - (1.7) (120.8) (122.5)
Operating profit/(loss) before joint ventures - - - 101.4 (120.8) (19.4)
Joint ventures:
Share of operating profit - - - 21.0 - 21.0
Share of interest - - - (11.1) - (11.1)
Share of movement on derivatives - - - - (4.6) (4.6)
Share of tax - - - (1.7) (84.7) (86.4)
Share of profit/(loss) on joint ventures - - - 8.2 (89.3) (81.1)
Operating profit/(loss) - - - 109.6 (210.1) (100.5)
Finance income - - - 6.8 - 6.8
Finance costs - - - (0.1) - (0.1)
Profit/(loss) for the year - - - 116.3 (210.1) (93.8)
Profit on disposal of discontinued operations, after tax - 35.0 35.0 - 576.5 576.5
Profit/(loss) form discontinued operations, net of tax - 35.0 35.0 116.3 366.4 482.7
Other comprehensive income from discontinued operations
2023 2022
£m £m
Items that will subsequently be reclassified to profit or loss:
Share of other comprehensive gain of joint ventures and associates, net of - 0.5
taxation
Items that will not be reclassified to profit or loss:
Share of other comprehensive loss of joint ventures, net of taxation - (1.7)
Other comprehensive loss from discontinued operations - (1.2)
Cashflows from discontinued operations
2023 2022
£m £m
Cashflows from operating activities - 11.6
Cashflows from investing activities - (11.6)
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 2023, 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
August 2022 SSE plc issued a 7 year €650m Eurobond at a coupon of 2.875%
under the Group's Green Bond Framework and additionally, SSE Group (through
Scottish Hydro Electric Transmission plc) also received £350m of proceeds, on
30 June 2022, from the private placement that was priced and committed to in
March 2022. In April 2022 SSE plc issued a €1bn NC6 equity accounted Hybrid
bond at 4% to re-finance the dual tranche debt accounted Hybrid bonds whose
first call date occurred on 16 September 2022 with SSE taking advantage of the
3 month par call option on these Hybrid bonds meaning the bonds were repaid on
16 June 2022. Senior debt redeemed in the financial year included the $255m
(£162.7m) US Private Placement in April 2022, a £300m Eurobond in September
2022 and a £150m loan from the European Investment Bank to Scottish Hydro
Electric Transmission plc in October 2022.
SSE's adjusted net debt and hybrid capital was £8.9bn at 31 March 2023,
compared with £8.6bn at 31 March 2022.
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 2023 there was £919m commercial paper outstanding (2022: £507m). The
Group also has £3.5bn of revolving credit facilities which includes £750m
relating to Scottish Hydro Electric Transmission plc (2022: £1.5bn) (see
13.2.1). As at 31 March 2023 there was £100m of drawings against these
committed facilities being less than 3% utilisation (2022: undrawn).
The Group capital comprises:
2023 2022
£m £m
Total borrowings (excluding lease obligations) 8,654.0 8,671.2
Less: Cash and cash equivalents (891.8) (1,049.3)
Net debt (excluding hybrid equity) 7,762.2 7,621.9
Hybrid equity 1,882.4 1,051.0
External debt attributable to non-controlling interests (434.2) -
Cash posted as collateral and other short term loans (316.3) (74.7)
Adjusted net debt and hybrid capital 8,894.1 8,598.2
Equity attributable to shareholders of the parent 8,583.9 8,077.8
Total capital excluding lease obligations 17,478.0 16,676.0
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. SOURCES OF FINANCE (CONTINUED)
13.2 Loans and other borrowings
2023 2022
£m £m
Current
Short-term loans 1,738.5 1,118.7
Lease obligations 82.1 72.1
1,820.6 1,190.8
Non-current
Loans 6,915.5 7,552.5
Lease obligations 323.8 321.4
7,239.3 7,873.9
Total loans and borrowings 9,059.9 9,064.7
Cash and cash equivalents (891.8) (1,049.3)
Unadjusted net debt 8,168.1 8,015.4
Add/(less):
Hybrid equity (note 14) 1,882.4 1,051.0
External debt attributable to non-controlling interests (434.2) -
Lease obligations (405.9) (393.5)
Cash posted as collateral and other short term loans (316.3) (74.7)
Adjusted net debt and hybrid capital 8,894.1 8,598.2
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 three months or less. The cash and cash
equivalents are lower year on year due to a lower surplus cash position at
March 2023, with no large divestment proceeds receive in March 2023 compared
to March 2022.
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 2023 there was £919m commercial paper outstanding (2022: £507m).
The Group also has £3.5bn of revolving credit facilities (2022: £1.5bn). As
at 31 March 2023 there was £100m of drawings against these committed
facilities being less than 3% utilisation (2022: undrawn). The details of the
five committed facilities as at 31 March 2023 are:
· a £1.3bn revolving credit facility for SSE plc maturing March
2026 (2022: £1.3bn);
· a £0.2bn bilateral facility for SSE plc maturing October 2026
(2022: £0.2bn);
· a new £0.75bn facility for Scottish Hydro Electric Transmission
plc maturing November 2025 (2022: £nil);
· a new £0.25bn facility for Scottish Hydro Electric Distribution
plc and Southern Electric Power Distribution plc maturing November 2025 (2022:
£nil); and
· a new £1.0bn committed facility for SSE plc maturing February
2024 (2022: £nil).
The £1.3bn revolving credit facility and £0.2bn bilateral facility are both
in place to provide back-up to the commercial paper programme and support the
Group's capital expenditure plans. The Transmission and Distribution related
facilities, both of which have 1 year extension options at the borrower's
discretion, were entered into to help cover the capital expenditure and
working capital of those businesses as they look to become financially
independent of the Group as part of the 25% divestment process. The new £1bn
committed facility at SSE plc has a 1 year extension option at the lender's
discretion and was entered into to provide cover for potential cash collateral
requirements, if periods of extreme volatility return to the commodity
markets. The only facility that was drawn at 31 March 2023 was the £750m
Transmission facility, with £100m drawn to cover capital expenditure
requirements.
During the year to 31 March 2023 SSE plc issued a 7 year €650m Eurobond at a
coupon of 2.875% with an all-in cost of funding rate of just below 3% once
fees and cost of pre hedging have been included. The bond will be left in
Euros as part of the Group's net investment hedge of Euro denominated
businesses. SSE Group (through Scottish Hydro Electric Transmission plc) also
received the proceeds from the private placement that was priced and committed
to in March 2022. This comprised of a £350m dual tranche US Private Placement
with Pricora Capital being a £175m 10-year tranche at 3.13% and a £175m
15-year tranche at 3.24% giving an all-in average rate of 3.185% across both
tranches.
In April 2022 SSE plc issued a €1bn NC6 equity accounted Hybrid bond at 4%
to re-finance the dual tranche debt accounted Hybrid bonds whose first call
date occurred on 16 September 2022, with SSE taking advantage of the 3 month
par call option on these Hybrid bonds meaning the bonds were 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
Southern European onshore renewables development platform from Siemens Gamesa
Renewables Energy.
13. SOURCES OF FINANCE (CONTINUED)
13.2 Loans and borrowings (continued)
13.2.1 Borrowing facilities (continued)
The weighted average incremental borrowing rate applied to lease liabilities
during the year was 5.02% (2022: 4.92%). Incremental borrowing rates applied
to individual lease additions in the year ranged between 4.03% to 5.06% (2022:
4.81% to 5.06%).
13.3 Reconciliation of net increase in cash and cash equivalents to
movement in adjusted net debt and hybrid capital
2023 2022
£m £m
Decrease in cash and cash equivalents (157.5) (550.9)
Add/(less):
New borrowing proceeds (1,914.7) (506.1)
New hybrid equity proceeds (831.4) -
Repayment of borrowings 2,148.1 865.0
Repayment of hybrid equity - 421.4
Non-cash movement on borrowings (216.2) (40.5)
Movement in external debt attributable to non-controlling interests 434.2 -
Increase in cash posted as collateral and other short-term loans 241.6 111.8
Movement in adjusted net debt and hybrid capital (295.9) 300.7
14. Equity
14.1 Share capital
Number
(millions) £m
Allotted, called up and fully paid:
At 31 March 2022 1,073.1 536.5
Issue of shares (i) 27.7 13.9
Shares repurchased (ii) (6.9) (3.4)
At 31 March 2023 1,093.9 547.0
i. Shareholders were able to elect to receive ordinary shares in
place of the final dividend of 60.2p per ordinary share (in relation to year
ended 31 March 2022) and the interim dividend of 29.0p (in relation to the
current year) under the terms of the Company's scrip dividend scheme. This
resulted in the issue of 18,241,941 and 9,413,103 new fully paid ordinary
shares respectively (2022: 22,201,443 and 1,782,473). In addition, the Company
issued 1.9m (2022: 0.6m) 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 £18.0m (2022: £6.3m).
ii. Under the share buyback programme announced on 28 September 2022
6.9m of shares were repurchased and cancelled in the year to 31 March 2023 for
a total consideration of £107.6m (including stamp duty and commission). The
nominal value of share capital repurchased and cancelled is transferred out of
share capital and into the capital redemption reserve.
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 1,093.9m shares in issue, 3.6m 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
1.4m shares for a total consideration of £23.4m (2022: 0.9m shares,
consideration of £14.1m) to be held in trust for the benefit of employee
share schemes. At 31 March 2023, the trust held 6.5m shares (2022: 6.3m) which
had a market value of £118.0m (2022: £110.0m).
14.2 Hybrid Equity
2023 2022
£m £m
GBP 600m 3.74% perpetual subordinated capital securities (i) 598.0 598.0
EUR 500m 3.125% perpetual subordinated capital securities (i) 453.0 453.0
EUR 1,000m 4.00% perpetual subordinated capital securities (ii) 831.4 -
1,882.4 1,051.0
(i) 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 discretionary coupon payments are
made annually on 14 April and for the €500m Hybrid the coupon payments are
made annually on 14 July.
14. EQUITY (CONTINUED)
14.2 Hybrid Equity (continued)
(ii) 12 April 2022 €1,000m Hybrid Capital Bonds
The hybrid capital bond issued in April 2022 has 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 is 21 April 2028 and then every 5 years thereafter.
The discretionary Hybrid coupon payments are made annually on 21 April.
(iii) Coupon Payments
In relation to the £600m hybrid equity bond a discretionary coupon payment of
£22.4m (2022: £16.8m) was made on 14 April 2022 and for the €500m hybrid
equity bond a discretionary coupon payment of £16.4m (2022: £16.4m) was made
on 14 July 2022. Additionally, in relation to the €600m hybrid equity bond
(redeemed on 1 April 2021), the final discretionary coupon payment of £17.5m
was made on 1 April 2021. The first discretionary coupon payment on the new
€1bn hybrid equity bond will occur on 21 April 2023.
The coupon payments in the year to 31 March 2023 consequently totalled £38.8m
(2022: £50.7m).
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 but controlled subsidiaries which are
consolidated within the financial statements of the Group under IFRS. At 31
March 2023 the amount attributable to non-controlling interests is £649.1m
(2022: £40.6m), which relates to SHET of £606.5m (2022: £nil) and SSE
Pacifico £42.6m (2022: £40.6m). The profit and loss attributable to
non-controlling interests for the year ended 31 March 2023 is £23.6m gain
(2022: £nil), which relates to SHET £25.5m gain (2022: £nil) and SSE
Pacifico £1.9m loss (2022: £nil).
15. Retirement Benefit Obligations
15.1 Valuation of combined pension schemes
Quoted Unquoted Value Quoted Unquoted Value
at 31 March 2023 at 31 March 2022
£m £m £m £m £m £m
Equities 94.3 - 94.3 511.5 - 511.5
Government bonds 1,381.6 - 1,381.6 1,332.7 - 1,332.7
Corporate bonds 122.8 - 122.8 167.6 - 167.6
Insurance contracts - 532.4 532.4 - 713.5 713.5
Other investments 1,057.5 - 1,057.5 1,585.9 - 1,585.9
Total fair value of plan assets 3,188.6 4,311.2
Present value of defined benefit obligation (2,647.5) (3,726.3)
Surplus in the schemes 541.1 584.9
Deferred tax thereon (i) (135.3) (146.2)
Net pension asset 405.8 438.7
(i) Deferred tax rate of 25% applied to pension surplus and deficit
positions (2022: 25%).
Balance sheet presentation Balance sheet presentation
2022
2023
£m £m
Retirement benefit asset 541.1 584.9
Net pension asset 541.1 584.9
15 RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)
15.1 Valuation of combined pension schemes (continued)
Movements in the defined benefit assets and obligations during the year:
2023 2022
Assets Obligations Total Assets Obligations Total
£m £m £m £m £m £m
At 1 April 4,311.2 (3,726.3) 584.9 4,312.1 (3,955.1) 357.0
Included in Income Statement
Current service cost - (28.2) (28.2) - (31.0) (31.0)
Past service cost - (5.7) (5.7) - (5.1) (5.1)
Settlements and curtailments - - - (2.5) 2.6 0.1
Interest income/(cost) 114.8 (98.6) 16.2 85.2 (77.6) 7.6
114.8 (132.5) (17.7) 82.7 (111.1) (28.4)
Included in Other Comprehensive Income
Actuarial gain/(loss) arising from:
Demographic assumptions - 71.7 71.7 - 16.8 16.8
Financial assumptions - 1,099.8 1,099.8 - 195.6 195.6
Experience assumptions - (135.1) (135.1) - (41.5) (41.5)
Return on plan assets excluding interest income (1,115.6) - (1,115.6) 26.4 - 26.4
(1,115.6) 1,036.4 (79.2) 26.4 170.9 197.3
Other
Contributions paid by the employer 53.1 - 53.1 59.0 - 59.0
Scheme participant's contributions 0.1 (0.1) - 0.1 (0.1) -
Benefits paid (175.0) 175.0 - (169.1) 169.1 -
(121.8) 174.9 53.1 (110.0) 169.0 59.0
Balance at 31 March 3,188.6 (2,647.5) 541.1 4,311.2 (3,726.3) 584.9
Charges/(credits) recognised:
2023 2022
£m £m
Service costs (charged to operating profit) 33.9 36.1
Settlements and curtailment gains - (0.1)
33.9 36.0
(Credited)/charged to finance costs:
Interest on pension scheme assets (114.8) (85.2)
Interest on pension scheme liabilities 98.6 77.6
(16.2) (7.6)
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 (the "Group Energy Markets Exposures Risk Committee") and the
Board Sub-committee chaired by Non-Executive Director Tony Cocker (the "Energy
Markets Risk Committee (EMRC)"). These Committees oversee the Group's
management of its energy market exposures, including its approach to hedging.
During the year ended 31 March 2023, the Group was exposed to exceptional
volatility in energy markets impacting the primary commodities to which it is
exposed (Gas, Carbon and Power) due to the ongoing impacts from the war in
Ukraine and other global factors. 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. Market access
to energy markets to enable hedging and prompt optimisation has been
maintained by a combination of three key actions. Firstly, bilateral
counterparty limits have been increased (subject to Executive Director
authorisation) and SSE has continued to utilise market access provided by
exchange platforms and auctions. Secondly, the SSE Group Parent Company
Guarantee has been increased appropriately to reflect the impact of market
volatility on counterparty exposures. Finally, since March 2022, SSE Treasury
facilities have been increased by circa £730m with relationship banks and
insurance companies in order to facilitate letters of credit to be posted as
collateral instead of cash to support the route to market of the Group.
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:
2023 2022
£m £m
Operating derivatives
Total result on operating derivatives (i) (2,980.2) 3,527.2
Less: amounts settled (ii) 272.0 (1,426.8)
Movement in unrealised derivatives (2,708.2) 2,100.4
Financing derivatives (and hedged items)
Total result on financing derivatives (i) 81.3 (43.3)
Less: amounts settled (ii) 120.6 64.3
Movement in unrealised derivatives 201.9 21.0
Net income statement impact (2,506.3) 2,121.4
(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. Financial risk management (continued)
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.
2023
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial Assets
Energy derivatives - 743.9 22.0 765.9
Interest rate derivatives - 227.8 - 227.8
Foreign exchange derivatives - 11.5 - 11.5
Unquoted equity investments - - 27.4 27.4
- 983.2 49.4 1,032.6
Financial Liabilities
Energy derivatives (189.6) (939.4) (23.8) (1,152.8)
Interest rate derivatives - (92.6) - (92.6)
Foreign exchange derivatives - (18.9) - (18.9)
Loans and borrowings - (154.6) - (154.6)
(189.6) (1,205.5) (23.8) (1,418.9)
There were no significant transfers out of level 1 into level 2 and out of
level 2 into level 1 during the year ended 31 March 2023. There were no
significant transfers out of Level 2 into Level 3 and out of Level 3 into
Level 2 during the year ended 31 March 2023.
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
Unquoted equity investments - - 8.7 8.7
884.1 2,429.3 8.7 3,322.1
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.
17. Capital commitments
2023 2022
£m £m
Capital expenditure:
Contracted for but not provided 1,035.6 985.9
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.
2023 2022
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 Limited - - - - 51.9 (49.1) - -
Marchwood Power Limited 122.4 (228.5) - (16.8) 104.3 (229.3) - (7.6)
Scotia Gas Networks Limited - - - - 42.9 (10.1) - -
Clyde Windfarm (Scotland) Limited 4.8 (280.5) 0.1 (49.5) 4.6 (259.3) 0.1 (74.2)
Beatrice Offshore Windfarm Limited 4.7 (176.5) 1.0 (8.7) 5.0 (163.7) 0.9 (20.6)
Stronelairg Windfarm Limited 2.4 (146.2) - (21.7) 2.1 (138.5) - (36.7)
Dunmaglass Windfarm Limited 1.1 (66.4) - (9.1) 1.0 (57.9) - (13.7)
Neos Networks Limited 3.8 (23.8) 46.2 (5.8) 31.2 (27.1) 52.2 (13.8)
Seagreen Wind Energy Limited 35.2 (44.4) 22.9 (7.5) 24.9 (0.4) 6.0 (0.3)
Doggerbank A, B and C 25.4 - 7.6 - 21.2 - 8.5 -
Triton Power Holdings Limited - - - - - - - -
Other Joint Ventures 14.0 (219.2) 1.1 (50.8) 8.2 (195.9) 1.3 (23.6)
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.
On 22 March 2022 the Group completed its disposal of its interest in Scotia
Gas Networks Limited ('SGN'). In the prior year, the table above included the
Group's gas supply activity which included gas distribution charges and
services the Group provided to SGN in the form of a management services
agreement for corporate and shared services.
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 Glendoe Hydro Electric Station announcement
On 23 March 2023, the Group's case concerning the availability of capital
allowances on Glendoe Hydro Electric Station was heard at the Supreme Court.
On 17 May 2023, the Supreme Court released its decision, which rejected HMRC's
appeal in full. The matter is now concluded and is not subject to further
appeal. Accordingly, the release of the Group's provision on its uncertain tax
position of £27.9m and the associated recognition of £23.4m deferred tax
liabilities in relation to Glendoe's capital allowances is an adjusting post
balance sheet event.
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