TIDMSSE
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 GBP2.8bn 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 GBP2.8bn in
2023/24, exceeding the record investment in 2022/23.
-- Contributed over GBP6bn to UK GDP, supporting nearly 40,000
UK jobs with further EUR429m 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 GBP18.0bn 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
GBP12-14bn 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
GBP40bn 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 Mar 2022 % mvmt
2023
=========================== ========= ========= ======= ======== ========= ========
Operating profit /
(loss) (GBPm) 2,529.2 1,530.9 +65% (146.3) 3,749.5 -104%
=========================== ========= ========= ======= ======== ========= ========
Profit / (loss) before
tax (GBPm) 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 (GBPm) 2,803.3 2,067.8 +36% 3,188.7 2,313.9 +38%
=========================== ========= ========= ======= ======== ========= ========
Net Debt and Hybrid
Capital (GBPbn) 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 GBP1,465m, 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
GBP2.3bn adverse fair value movement on derivatives, leaving a
GBP(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 GBP1.7bn 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 GBP2.8bn.
-- Adjusted net debt and hybrid capital at GBP8.9bn, 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 GBPm
========================================================= ========= ========= ========== =========
- 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) GBPm 2,529.2 1,530.9 (146.3) 3,749 .5
========================================================= ========= ========= ========== =========
EBITDA GBPm 3,382.1 2,251.3 557.9 4,361.5
========================================================= ========= ========= ========== =========
Profit / (loss) before tax GBPm 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 GBPm
========================================================= ========= ========= ========== =========
- 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 GBPm 642.7 141.3 642.7 141.3
========================================================= ========= ========= ========== =========
Investment, capital and acquisitions GBPm 2,803.3 2,067.8 3,831.4 2,441.3
========================================================= ========= ========= ========== =========
Net debt and hybrid capital GBPm 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 - GBPm(2) 4,836 4,155
================================================= ========= =========
SSEN Distribution RAV - GBPm 4,720 4,054
================================================= ========= =========
SSE Total Electricity Networks RAV - GBPm(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
(GBPbn/EURm)(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 (GBPm/EURm) 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 3 August 2023
via RNS
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 15 November 2023
2023
Contact Details
Institutional investors and + 44 (0)345 0760
analysts ir@sse.com 530
+ 44 (0)345 143
Shareholder services SSE@linkgroup.co.uk 4005
Media, Glenn Barber, Raymond + 44 (0)345 0760
Buchanan media@sse.com 530
MHP Communications, Oliver + 44 (0)7885 224
Hughes oliver.hughes@mhpc.com 532
MHP Communications, Simon + 44 (0)7709 496
Hockridge simon.hockridge@mhpc.com 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 either the homepage or investor pages; or directly
using:
https://edge.media-server.com/mmc/p/xkxchosm
This will also be available as a teleconference, for which
participants can register to receive a unique pin code and
conference call number using:
https://register.vevent.com/register/BI8b7d92935ba749a29f6cb9ca04732a67
Both facilities will be available to replay.
Online Information
News releases and announcements are made available on SSE's
website at www.sse.com/investors and you can register for
Regulatory News Service alerts using the following link:
sse.com/investors/regulatory-news/regulatory-news-alerts/ . You can
also follow the latest news from SSE at www.twitter.com/sse .
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 GBP2.8bn 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
GBP3.6bn 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 GBP8.9bn 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 GBP18bn out to 2026/27, or
around GBP10m a day, in the infrastructure needed for net zero and
energy security, compared to GBP7.5m 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 GBP25bn 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
GBP40bn 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
GBPm GBPm GBPm GBPm
================================================================= ========= ========= ========= =========
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 GBP8.9bn 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 EUR1bn of Hybrid Bonds, a GBP350m Private
Placement and a EUR650m 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
GBPm GBPm GBPm GBPm
============================================================ ========= ========= ========== =========
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: GBPnil;
2021/22: adjusted operating profit of GBP21.0m) and the Group's Gas
Production operations which were disposed on 14 October 2021
(2022/23: adjusted operating profit of GBPnil; FY2021/22: adjusted
operating profit of GBP101.4m).
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
GBP372.7m, which includes a GBP(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 GBP405.5m,
reflecting all of the adjustments above except for the GBP(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 GBP382.4m 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
GBP580.0m 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 GBP216m
additional benefit captured. This uplift more than offset a
GBP(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 GBP43m 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 GBP75/MWh
benchmark.
Reported operating profits have increased by 4% to GBP446.3m in
the year. In addition to the factors noted above, the reported
result also reflects a GBP18.6m reduction in exceptional charges
mainly as a GBP28.6m 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 GBP10.1m 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 GBP1,031.9m, compared to GBP300.4m 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, GBP220m adjusted
operating profit) and Keadby 2 (entered commercial operation on 15
March 2023, GBP37m 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 GBP33m higher compared to the
prior year.
This was partially offset by GBP97m 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 GBP1,089.5m in the
year. The acquisition in September 2022 of Triton Power has
resulted in a number of exceptional items being recognised: a
GBP140.7m fair value uplift on acquisition and a GBP172.0m fair
value remeasurement on operating derivatives (net of tax) were
mostly offset by a GBP(291.6)m impairment charge reflecting the
profitability delivered to date by that business. These movements,
combined with a GBP89.1m gain on disposal of Fiddlers Ferry land, a
GBP17.8m reversal of historic Great Island CCGT impairment and an
increase in the Joint Venture share of interest and tax charges of
GBP50.9m account for the majority of the difference. The prior year
result included GBP333.3m 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
GBP212.5m, compared to GBP30.7m 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 GBP46m 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 GBP249.2m in the
year. In addition to the movements above, the prior year included
an impairment reversal of GBP97.3m compared to a GBP45.7m further
reversal during 2022/23 as historic impairment charges against
these assets were partially reversed. In addition, the reported
results include a GBP(9.0)m revaluation loss on gas held in
storage, compared to a GBP(2.6)m loss in the prior year.
SSE Business Energy: Adjusted and reported profitability
increased to GBP17.9m of profit in 2022/23 compared to a GBP(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 GBP34m 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 GBP(89.5)m from prior year reflecting the deterioration of aged
debt as consumers' finances are stretched.
SSE Airtricity: Adjusted profitability decreased to GBP5.6m from
GBP60.4m 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 EUR35 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 EUR35 rebate will be
reflected in Airtricity's financial results for 2023/24.
Reported profitability has decreased to GBP5.2m from GBP60.4m in
the prior year reflecting the movements above as well as a
GBP(0.4)m share of interest and tax in the current year from Joint
Ventures.
Energy Portfolio Management: Adjusted operating profit has
increased to GBP80.4m from a GBP(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 GBP(2,626.0)m was recognised in the
year, compared to a GBP2,083.6m 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 GBP(27.4)m was
recognised, compared to a loss of GBP(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 GBP(33.5)m has increased from a
prior year loss of GBP29.2m which reflects the above factors
partially offset by a smaller GBP(6.1)m charge mainly related to
the sale of the Contracting and Rail business in June 2021 compared
to the GBP18.3m 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 GBP(39.8)m compared to GBP(16.1)m in the prior year, and a
reported operating loss of GBP(56.0)m compared to a loss of
GBP(140.0)m in the prior year. This result reflects the losses
incurred to support future business growth, and includes a GBP37.7m
impairment of the Group's investment in that business of which
GBP31.8m has been treated as non-exceptional.
Corporate unallocated: Adjusted operating loss of GBP(87.0)m
compares against a loss of GBP(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 GBP(26.8)m compares against a loss of
GBP(113.5)m in the prior year which included a GBP(13.1)m adverse
revaluation adjustment relating to the legacy Gas Production
decommissioning provision. In the current year, a GBP50.5m 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
GBP750m 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 GBP2.8bn 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 to to
targets: 2025/26 2026/27
============================= ================ ================
GBP12.5bn GBP18.0bn
-
Capital
investment
(net)
============================= ================ ================
7 13
- - -
Adjusted 10% 16%
earnings From From
per 2020/21 2021/22
share 87.5p 94.8p
CAGR
============================= ================ ================
At Between
- least 5
Dividend 5% -
growth to 10%
beyond 2025/26 to
2023/24 2026/27
60p
rebase
============================= ================ ================
Below Between
- 4.5x 3.5
Net -
debt 4x
/
EBITDA
expectations
============================= ================ ================
Around More
- 8GW than
Net 9GW
installed
Renewable
capacity
============================= ================ ================
>GBP9bn GBP12
- -
Net 14bn
Networks
RAV
============================= ================ ================
Ten-year to to
ambition: 2030/31 2031/32
============================= ================ ================
- Net installed Renewable >13GW >16GW
capacity
============================= ================ ================
- Net installed low-carbon >3GW* >2GW
flexible capacity
============================= ================ ================
- Net Networks RAV >GBP14bn >GBP20bn
============================= ================ ================
* 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 GBP18.0bn capital investment plan
to 2026/27 - mainly driven by new growth (c.GBP2.2bn or c.20%) but
also updating for supply chain cost increases (c.GBP2.0bn or
c.15%), removal of the Distribution minority interest assumption
(c.GBP0.6bn or c.5%) and project phasing (c.GBP0.7bn 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 GBP5bn from over GBP3bn in the
previous plan, net of the 25% Minority Interest share, driving the
gross Regulatory Asset Value ('RAV') to between GBP8 - 9bn by the
end of 2026/27, and deliver expected adjusted operating profits of
at least GBP400m 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 GBP3.5bn of expected investment compared to around GBP2bn in
the previous plan. This increase reflects 100% ownership of the
business over the period, and is driven by the GBP3.6bn 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 GBP6 - 7bn by the end of 2026/27, and deliver
expected adjusted operating profits of at least GBP450m 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
GBP8.2bn at the start of the plan to between GBP14 - 16bn by the
end, of which SSE's share after Minority Interest is expected to be
between GBP12 - 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 GBP7bn of net investment is
expected across the five-year period - a GBP2bn 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.GBP85/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 GBP2.5bn 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 GBP500m 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 GBP20bn (net) in SSE's electricity
networks RAV, from GBP8.2bn (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 GBP1,465m 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
Mar 2023 Mar 2023 Mar 2022
Adjusted Investment and Capex Summary Share % GBPm GBPm
============================================================= ========= ========= =========
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 GBP2,803.3m,
representing an increase of 36% versus the prior year. Included
within the amount recorded are acquisitions totalling GBP642.7m of
which GBP519.5m is in respect of the Southern European onshore wind
development platform acquisition and GBP123.2m 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 GBP495.5m of capex (SSE share, excluding 25% from 1
December 2022 onwards), including GBP152m 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, GBP144m 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 GBP55m on the Argyll project.
In the final year of RIIO-ED1, SSEN Distribution invested
GBP178m 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
GBP10m to upgrade infrastructure at Aultbea-Ullapool and GBP5m 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 GBP243m 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 GBP339m 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 GBP202m 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 GBP88m 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
GBP20m 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 - GBPMWh GBP48 GBP54 GBP75 GBP115 GBP116
======= ======================================== ======== ======== ======== ======== ========
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 - GBP/MWh GBP50 GBP63 GBP86 GBP113 GBP113
================================================ ======== ======== ======== ======== ========
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 GBP5m.
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 GBP(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 GBPm
==================================================== ========
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 GBP35.0m 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 GBP(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 GBPm
============================================================== ==========
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 GBP(2,544.4)m adverse movement from the start of the year,
reflecting a GBP(2,708.2)m adverse movement on fully consolidated
operating derivatives offset by a GBP163.8m 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 GBP(2,708.2)m on fully consolidated
operating derivatives includes:
-- Settlement during the year of GBP272.0m of previously net
"out-of-the-money" contracts in line with the contracted delivery
periods; and
-- An adverse net mark-to-market remeasurement of GBP(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
GBP3,527.2m 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 GBP(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
GBP201.9m 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 GBP(2,351.5)m net pre-tax loss on forward
commodity, gas inventory and financing derivative fair value
remeasurements and the GBP(0.4)m net pre-tax exceptional charge
noted above - reported results also include GBP16.2m of interest
income on the net pension asset.
Reported results in the prior year reflected pre-tax certain
re-measurement gains of GBP2,118.8m mainly driven by the
significant volatility in commodity markets in the prior year, as
well as pre-tax exceptional items of GBP305.0m mainly driven by the
reversal of historic SSE Thermal and Gas Storage impairment
charges, and GBP7.6m of interest income on the net pension
asset.
Financial management and balance sheet
Debt metrics Mar 2023 Sept 2022 Mar 2022
GBPm GBPm GBPm
================================================================================== ========== ========== ==========
Net Debt / EBITDA* 2.7x N/A 4.0x
================================================================================== ========== ========== ==========
Adjusted net debt and hybrid capital (GBPm) (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 hybrid
coupon payments) 3.35% 3.25% 3.29%
================================================================================== ========== ========== ==========
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 GBP147m (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
GBPm GBPm
======================================================= ========= =========
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 GBP8.9bn at 31
March 2023, up from GBP8.6bn 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 EUR580m (GBP519.5m); 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 GBP123.2m.
-- In December 2022, a 25% Minority Interest stake in SSEN
Transmission was disposed of, with GBP1.46bn of proceeds received
from Ontario Teachers Pension Plan.
Debt summary as at 31 March 2023
The SSE Group issued GBP1.7bn 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 GBP350m dual tranche private
placement, being a GBP175m 10-year tranche at 3.13% and GBP175m
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 EUR1bn 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
EUR1bn 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 (EUR575m) 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 EUR650m 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 GBP0.4bn, which takes the total outstanding
Commercial Paper at 31 March 2023 to EUR1,376m (GBP1,048m).
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 GBP613m of medium-to-long-term
debt has matured in the year comprising GBP163m (US Private
Placement) which matured in April 2022, GBP300m (Eurobond) which
matured in September 2022 and GBP150m European Investment Bank
fixed rate loan which matured in October 2022. In the next twelve
months, there is a further GBP719m of medium-to-long-term debt
maturing being GBP50m (European Investment Bank) maturing in August
2023, GBP35m maturing in April 2023 and GBP120m maturing in
September 2023 (both US Private Placements) and a EUR700m 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
EUR1,048m (GBP929m) 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 GBP600m 3.74% Apr 2026 Equity accounted
=========== ===================== =============== ================ =====================
July 2020 EUR500m (GBP453m) 3.68% July 2027 Equity accounted
=========== ===================== =============== ================ =====================
April 2022 EUR1bn (GBP831m) 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 GBP74m GBP74m GBP39m GBP39m
================================ ======= ======= ======= =======
Total debt (accrual) accounted - - GBP21m GBP21m
================================ ======= ======= ======= =======
Total hybrid coupon GBP74m GBP74m GBP60m GBP60m
================================ ======= ======= ======= =======
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 GBP345.6m in the year ended 31 March 2023, compared to
GBP372.8m 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 (GBP1,225m) and a 25% minority interest
stake in SSEN Transmission on 30 November 2022 (GBP1,465m).
Reported net finance income was GBP59.3m compared to a reported
net finance cost of GBP273.2m in the previous year, reflecting the
movements above as well as the GBP201.9m 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 GBP0.9bn, down from GBP1.0bn at March 2022.
The cash collateral position has increased from GBP74.7m of cash
provided as collateral at 31 March 2022 to GBP316.3m 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 GBP3.5bn 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 GBP1.3bn
======= ======================= ================================================================ ===== =========
Oct 19 SSE plc Revolving Credit Facility with Bank of China 2026 GBP200m
======= ======================= ================================================================ ===== =========
Nov 22 SHET plc Syndicated Revolving Credit Facility with 11 Relationship Banks 2025 GBP750m
======= ======================= ================================================================ ===== =========
Nov 22 SHEPD plc and SEPD plc Syndicated Revolving Credit Facility with 11 Relationship Banks 2025 GBP250m
======= ======================= ================================================================ ===== =========
Feb 23 SSE plc Syndicated Revolving Credit Facility with 10 Relationship Banks 2024 GBP1.0bn
======= ======================= ================================================================ ===== =========
Ahead of the 25% minority interest stake disposal, SSEN
Transmission entered a three-year GBP750m facility and SSE
Distribution entered a similar 3 year GBP250m 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 GBP1bn 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, GBP100m was drawn on the new GBP750m
Scottish Hydro Electric Transmission plc facility.
The two SSE plc facilities totalling GBP1.5bn 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 GBP750m 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 GBP50m of uncommitted bank lines and a GBP15m 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
GBP9.5bn 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 GBP1.7bn 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 GBP1.7bn 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 GBP3.6bn 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 GBP3.5bn of undrawn
committed borrowing facilities which has been increased by GBP2.0bn
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 GBP3bn as at 31 March
2023.
SSE principal JVs and Asset type SSE holding SSE share of external SSE Shareholder loans
associates(1) debt as at 31 Mar 2023
as at 31 Mar 2023
========================= ========================= ============ ========================== ======================
Marchwood Power Ltd 920MW CCGT 50% No external debt GBP26m
========================= ========================= ============ ========================== ======================
Seabank Power Ltd 1,234MW CCGT 50% No external debt No loans outstanding
========================= ========================= ============ ========================== ======================
SSE Slough Multifuel Ltd 50MW energy-from-waste 50% No external debt GBP128m
facility
========================= ========================= ============ ========================== ======================
Triton Power Holdings 1,200MW CCGT & 140MW 50% No external debt No loans outstanding
Ltd OCGT
========================= ========================= ============ ========================== ======================
Beatrice Offshore 588MW offshore wind farm 40% GBP681m Project financed
Windfarm Ltd
========================= ========================= ============ ========================== ======================
Dogger Bank A Wind Farm Up to 1,200MW offshore 40% GBP745m Project financed
wind farm.
========================= ========================= ============ ========================== ======================
Dogger Bank B Wind Farm Up to 1,200MW offshore 40% GBP616m Project financed
wind farm.
========================= ========================= ============ ========================== ======================
Dogger Bank C Wind Farm Up to 1,200MW offshore 40% GBP344m Project financed
wind farm.
========================= ========================= ============ ========================== ======================
North Falls Offshore Offshore wind farm 50% No external debt No loans outstanding
Wind Farm Ltd extension
========================= ========================= ============ ========================== ======================
Ossian Offshore Windfarm ScotWind seabed 40% No external debt No loans outstanding
Ltd
========================= ========================= ============ ========================== ======================
Seagreen Offshore 1,075MW offshore wind 49% GBP628m GBP816m(2)
Windfarm Ltd farm
========================= ========================= ============ ========================== ======================
Seagreen 1a Ltd Offshore wind farm 49% No external debt GBP16m
extension
========================= ========================= ============ ========================== ======================
Cloosh Valley Wind Farm 105MW onshore windfarm 25% No external debt GBP26m
(part of Galway Wind
Park)
========================= ========================= ============ ========================== ======================
Clyde Windfarm 522MW onshore wind farm 50.1% No external debt GBP127m
(Scotland) Ltd
========================= ========================= ============ ========================== ======================
Dunmaglass Windfarm Ltd 94MW onshore windfarm 50.1% No external debt GBP46m
========================= ========================= ============ ========================== ======================
Lenalea Wind Energy DAC 30MW of onshore windfarm 50% No external debt GBP8m
========================= ========================= ============ ========================== ======================
Stronelairg Windfarm Ltd 228MW onshore wind farm 50.1% No external debt GBP88m
========================= ========================= ============ ========================== ======================
Neos Networks Ltd Private telecoms network 50% No external debt GBP56m
========================= ========================= ============ ========================== ======================
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, GBP223m of the GBP816m 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 GBP75/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 GBP43.4m 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 GBP501.7m of profit
taxes, property taxes, environmental taxes, and employment taxes in
the UK, compared with GBP335.3m 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 EUR53.8m of taxes in Ireland, compared
to EUR46.4m 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 GBP27.9m 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
GBPm GBPm
=================================================================================== ========= =========
Pension scheme asset recognised in the balance sheet before deferred tax GBPm 541.1 584.9
=================================================================================== ========= =========
Pension scheme liability recognised in the balance sheet before deferred tax GBPm - -
=================================================================================== ========= =========
Net pension scheme asset recognised in the balance sheet before deferred tax GBPm 541.1 584.9
=================================================================================== ========= =========
Employer cash contributions Scottish Hydro Electric scheme GBPm 1.0 1.0
=================================================================================== ========= =========
Employer cash contributions SSE Southern scheme GBPm 52.1 58.0
=================================================================================== ========= =========
Deficit repair contribution included above GBPm 38.0 40.9
=================================================================================== ========= =========
In the year to 31 March 2023, the surplus across SSE's two
pension schemes decreased by GBP43.8m, from GBP584.9m to GBP541.1m,
primarily due to actuarial losses of GBP79.2m and contributions
made to the schemes.
The valuation of the SSE Southern Pension Scheme increased by
GBP107.1m in 2022/23 primarily due to actuarial gains of GBP72.8m,
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
GBP150.9m 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)
- GBPm 372.7 380.5
=================================================== ======= =======
Transmission reported operating profit
- GBPm 405.5 380.5
=================================================== ======= =======
Gross Regulated Asset Value (RAV) - GBPm 4,836 4,155
=================================================== ======= =======
SSE Share Regulated Asset Value (RAV)
(1) - GBPm 3,627 4,155
=================================================== ======= =======
Renewable Capacity connected to SSEN Transmission
Network(2) - MW 9,208 7,790
=================================================== ======= =======
Transmission adjusted investment and capital
expenditure(1) - GBPm 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 GBP0.8m 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 GBP8bn to GBP9bn 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 GBP15bn
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 - GBPm 382.4 351.8
======================================= ========= =========
Regulated Asset Value (RAV) - GBPm 4,720 4,054
======================================= ========= =========
Distribution adjusted investment and
capital expenditure - GBPm 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 75,000km(2) 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 GBP421m, bringing the total investment
since the beginning of the price control to GBP2.7bn.
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 GBP4.4m 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 GBP1.5m. 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 GBP3.6bn, an uplift of over
22% on the equivalent period in RIIO-ED1, including potential
additional investment opportunities of up to GBP0.7bn 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 GBP70m in DSO capabilities in the five-year
period, enabling greater consumer take-up of low-carbon
technologies while delivering an estimated GBP460m 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 Mar 22
23
=================================================== ======= =======
Renewables adjusted operating profit - GBPm 580.0 568.1
=================================================== ======= =======
Renewables reported operating (loss) - GBPm 446.3 427.8
=================================================== ======= =======
Renewables adjusted investment and capital
expenditure before acquisitions - GBPm 837.5 811.0
=================================================== ======= =======
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 GBP100m 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 - GBPm 1,031.9 300.4
====================================================== ========= =========
Thermal reported operating profit - GBPm 1,089.5 624.2
====================================================== ========= =========
Thermal adjusted investment and capital expenditure,
before acquisitions - GBPm 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 GBP341m 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 (EUR129,000/MW)
- 140MW de-rated electricity generation at Platin (EUR177,000/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
- GBPm 212.5 30.7
======================================= ========= =========
Gas Storage reported operating profit
- GBPm 249.2 125.4
======================================= ========= =========
Gas storage adjusted investment and
capital expenditure - GBPm 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) - GBPm 17.9 (21.5)
======================================= ========= =========
Electricity Sold - GWh 12,108 12,645
======================================= ========= =========
Gas Sold - mtherms 200 218
======================================= ========= =========
Aged Debt (60 days past due) - GBPm 167 79.3
======================================= ========= =========
Bad debt expense - GBPm 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 GBP2m 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 GBP721m 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 GBP5m)
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 GBP12m 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
- GBPm 5.6 60.4
====================================== ========= =========
Airtricity reported operating profit
- GBPm 5.2 60.4
====================================== ========= =========
Aged Debt (60 days past due) - GBPm 11.0 7.3
====================================== ========= =========
Bad debt expense - GBPm 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 EUR25m.
Measures included a EUR2.5m 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 GBP116m 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 EUR8.6m 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) - GBPm (27.4) (10.9)
============================================== ========= =========
SSE Distributed Energy reported operating
(loss) - GBPm (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 GBP25m 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)
- GBPm 80.4 (16.8)
====================================== ========== =========
EPM reported operating (loss)/profit
- GBPm (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 t o 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
Closest Equivalent
Group APM Purpose IFRS measure Adjustments to reconcile to primary financial statements
Adjusted EBITDA Profit measure Operating profit
(earnings before * Movement on operating and financing derivatives
interest, tax, ('certain re-measurements')
depreciation and
amortisation)
* 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 measure Operating profit
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 Profit measure Profit before tax
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 Profit measure Net finance costs
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 Profit measure Tax charge
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 Profit measure Earnings per share
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
Adjustments to Joint Interest Share of profit
Gas Production Depreciation venture on net attributable to
Movement on Exceptional decommissioning on FV interest pension Deferred non-controlling
Continuing operations (GBPm) Reported derivatives items provision uplifts and tax asset tax 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
Share of depreciation,
impairment and amortisation
Share of joint venture and before exceptional items
Adjusted operating profit from associates' depreciation and Release of deferred Depreciation on FV Depreciation, impairment and amortisation before attributable to
continuing operations amortisation income uplifts exceptional charges non-controlling interests Adjusted EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2,529.2 201.1 (13.9) (28.8) 704.2 (9.7) 3,382.1
-------------------------------- -------------------------------- ----------------------- ------------------- -------------------------------------------------------- ------------------------------- --------------------
March 2022 (restated*)
Interest
Adjustments to Gas on net
Exceptional Production Joint venture interest pension
Continuing operations (GBPm) Reported Movement on derivatives items decommissioning provision Depreciation on FV uplifts and tax 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*)
Depreciation,
Share of joint impairment and
Adjusted venture and amortisation
operating profit associates' before
from continuing depreciation and Release of Depreciation on FV exceptional
operations amortisation deferred income uplifts charges Adjusted EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm
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
Adjustments to Joint Interest
Gas Production Depreciation venture on net
Continuing operations Movement on Exceptional decommissioning on FV interest pension Deferred
(GBPm) Reported derivatives items provision uplifts and tax asset 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
Share of
joint
venture and
associates' Release
depreciation of Depreciation Depreciation, impairment and
Adjusted operating profit and deferred on FV amortisation before exceptional Adjusted
from continuing operations amortisation income uplifts charges EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm
1,333.5 143.9 (17.7) (20.6) 556.2 1,995.3
---------------------------- ------------- --------- ------------- ------------------------------------- -----------
*The comparative Alternative Performance Measures have been restated.
Debt Measure
Closest Equivalent IFRS Adjustments to reconcile to primary financial
Group APM Purpose measure statements
Adjusted Net Debt and Debt measure Unadjusted net debt
Hybrid Capital * 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
GBPm GBPm GBPm
------------------------------------------------------------- ----------- ----------- -----------
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
Closest Equivalent Adjustments to reconcile to primary financial
Group APM Purpose IFRS measure statements
Adjusted Investment Capital measure Capital additions
and Capital to intangible * Customer funded additions
Expenditure assets and
property, plant and
equipment * 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 measure Capital additions
Capital and to intangible * Customer funded additions
Acquisition assets and
Expenditure property, plant and
equipment * 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
GBP13.9m 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 GBP136.7m. In the year ended 31 March 2021,
the Group received reimbursed capex of GBP246.1m in relation to
Seagreen windfarm and GBP182.5m 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 2022
March 2023 (restated*) March 2021
GBPm GBPm GBPm
-------------------------------------------------------------------------- ----------- ------------- -----------
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
2022
March March
2023 (restated*) 2021
GBPm GBPm GBPm
------------------------------------------------------ -------- --------------- --------
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 Exceptional Before Exceptional
items and items and exceptional items and
certain certain items and certain
re-measure re-measure-ments certain re-measure-ments
ments (note 7) Total re-measure-ments (note 7) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ---- ------------- ---------------- ---------- ---------------- ---------------- ---------
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
2023 2022
(restated*)
GBPm GBPm
------------------------------------------------------------------------------------ ------ ------------
(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 taxation 342.4 181.4
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 taxation - (1.7)
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 taxation - 28.6
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
2023 2022
(restated*)
Note GBPm GBPm
----------------------------------------------------------- ---- -------- ------------
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
Total Total equity
Capital attributable before
Share Share redemption Hedge Translation Retained to ordinary Hybrid non-controlling Non-controlling Total
capital premium reserve reserve reserve earnings shareholders equity interest interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ---------- ------- ----------- -------- ------------ ------- --------------- --------------- --------
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
Total Total equity
Capital attributable before
Share Share redemption Hedge Translation Retained to ordinary Hybrid non-controlling Non-controlling Total
capital premium reserve reserve reserve earnings shareholders equity interest interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ---------- ------- ----------- -------- ------------ ------- --------------- --------------- -------
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
2023 2022 (restated*)
Note GBPm GBPm
-------------------------------------------------------------------------- ---- --------- ----------------
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 GBP89.0m, increase cost of sales by
GBP94.7m, increase operating costs by GBP0.2m therefore decreasing
profit before tax by GBP5.9m, and decreasing profit after tax by
GBP4.4m. Additionally in the balance sheet, the Group's property,
plant and equipment balance has been decreased by GBP5.9m and
deferred tax liability decreased by GBP1.5m.
3. NEW ACCOUNTING POLICIES AND REPORTING CHANGES (continued)
In the current year ended 31 March 2023, the Group has
recognised pre-commissioning revenue of GBP245.4m and
pre-commissioning costs of GBP226.8m 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 GBP28.9m 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 GBP21.7m 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
GBP40.0m 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 GBP40.0m
threshold was increased during the year from the previously applied
limit of GBP30.0m 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 GBP326.6m, which includes a risk provision of GBP15.1m
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 GBP100m 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 GBP1.5m (2022: GBP1.8m)) is
GBP149.5m (2022: GBP131.0m).
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
GBP201.4m (2022: GBP249.4m). At 31 March 2023, the impact of
discounting of this retained provision is GBP64.5m (2022:
GBP33.8m), 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: GBP27.9m). 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 GBP23.4m 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 GBP228m due to
provision reassessments, increases in discount rate and decreases
in inflation assumptions since 31 March 2022. With the exception of
the decrease of GBP48.1m 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
Inter-
Reported Inter-segment Segment Reported segment Segment
revenue revenue (i) revenue revenue revenue (i) revenue
2022 2022
2023 2023 2023 (restated*) 2022 (restated*)
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
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*)
GBPm GBPm
--------- --- --------- -------------
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 JV/ Before
profit Depreciation Associate Adjustments to exceptional Exceptional
reported on fair share of Gas Production items and items and
to the value interest decommissioning Non-controlling certain certain
Board uplifts and tax provision interests re-measurements re-measurements Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- --------- ------------ --------- ---------------- ---------------- --------------- --------------- ----------
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 JV/ Before
operating Depreciation Associate Adjustments to exceptional Exceptional
profit on fair share of Gas Production items and items and
reported to value interest decommissioning certain certain
the Board uplifts and tax provision re-measurements re-measurements Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ------------ ----------- ---------------- --------------- --------------- --------
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 GBP576.5m 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 Depreciation/ Share of
reported Depreciation impairment/ JV/ Associate non-controlling
to the on fair amortisation share of Release of interest
Board value before exceptional depreciation and deferred depreciation and Adjusted
(note 6.2) uplifts charges amortisation income amortisation EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------- ------------- ------------------ ----------------- ------------- -------------------- --------
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
GBP146.9m (2022: GBP125.4m) resulting in EBITDA on continuing
operations for inclusion in the Debt to EBITDA metric of
GBP3,235.2m (2022: GBP2,125.3m restated).
6. Segmental information (continued)
6.3 Earnings before interest, taxation, depreciation and
amortisation ('EBITDA') (continued)
2022 (restated*)
Adjusted
operating Depreciation/
profit impairment/
reported Depreciation amortisation
to the on fair before JV/ Associate share of
Board value exceptional depreciation and Release of Adjusted
(note 6.2) uplifts charges amortisation deferred income EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------- ------------- ------------- ---------------------- --------------- -----------
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
GBPm GBPm
--------------------------------------------------------------------------------------------- ---------- --------
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 taxation (2,351.9) 2,423.8
---------- --------
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 after taxation (1,886.4) 1,658.9
---------- --------
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 taxation 35.0 366.4
---------- --------
Exceptional items and certain remeasurements are disclosed
across the following categories within the income statement:
2023 2022
GBPm GBPm
------------------------------------------------------------------------------ ---------- --------
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 GBP0.4m arising from its continuing
operations. The net exceptional charge is primarily due to a net
impairment of GBP150.9m 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 GBP89.1m from the sale of land at Fiddler's
Ferry, an impairment reversal of GBP45.7m related to the Group's
Gas Storage operations at Aldbrough and an impairment reversal of
GBP17.8m 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 GBP35.0m 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, Provisions Investments Total
plant and and other in joint Cash and Other charges/
equipment charges ventures cash equivalents receivables (credits)
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ----------- ----------- ------------ ------------------ ------------- -----------
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 GBP17.8m 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 GBP201.1m 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 GBP155.4m to
the carrying value of the assets at Aldbrough, resulting in a net
impairment reversal of GBP45.7m. 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 GBP60.0m. The Group
carried a decommissioning provision for the site of GBP53.2m and a
residual asset of GBP24.1m, both of which were disposed of as part
of the sale. As a result, the Group has recognised an exceptional
gain of GBP89.1m 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 GBP341.0m (see note 12). The purchase price
of GBP341.0m 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 GBP140.7m 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 GBP291.6m.
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:
Exceptional items and certain
Financial statement line item re-measurements
charge/(credit) is included within GBPm
Joint venture and associates share of
Recognition of bargain purchase profit (140.7)
Impairment of investment Operating costs 291.6
-------------------------------------
Total exceptional items 150.9
Mark-to-market movement on operating Joint venture and associates share of
derivatives movement on derivatives (213.9)
Share of tax on mark-to-market Joint venture and associates share of
movement on operating derivatives 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
GBP37.7m, of which GBP5.9m has been treated as exceptional. Under
the Group's policy, an impairment charge of less than GBP40m is not
considered to be an exceptional item. However, GBP5.9m 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 GBP31.8m,
has been recognised as part of adjusted operating profit.
(vi) Other credits
At 31 March 2023, the Group recognised further exceptional
credits of GBP3.8m 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 GBP9.7m), ii)
credit of GBP0.2m 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 GBP0.4m, partially offset by iv) GBP6.5m 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 GBP35.0m 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 GBP305.0m arising from its continuing
operations. The net exceptional credit was primarily due to
impairment reversals of GBP331.5m in relation to the Group's GB
CCGT power stations and the Group's Great Island CCGT plant in
Ireland and impairment reversals of GBP97.3m related to the Group's
Gas Storage operations at Atwick and Aldbrough. These credits were
offset by an impairment loss of GBP106.9m recognised in relation to
the Group's investment in Neos Networks, a further GBP18.9m loss
was recognised on completion of the disposal of SSE Contracting on
30 June 2021 and GBP6.2m 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
GBP576.5m, offset by an exceptional charge of GBP120.8m 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, Assets Provisions Investments Total
plant and held and other in joint Other charges/
equipment for sale charges ventures receivables (credits)
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ----------- ---------- ----------- ------------ ------------- -----------
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 GBP331.6m 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
GBP97.3m 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 GBP18.9m 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
GBP51.2m 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 GBP106.9m. 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 GBP6.2m.
(v) Other credits
At 31 March 2022, the Group recognised further exceptional
credits of GBP8.1m relating to reversal of previously recognised
exceptional charges or judgements. These included i) reassessment
of impairments associated with Heat Networks assets credit of
GBP0.6m, ii) credit of GBP3.2m 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 GBP4.3m 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
GBP1,225m. The transaction completed on 22 March 2022, with the
Group recognising an exceptional gain on disposal of GBP576.5m (see
note 12.2.2).
(vii) Gas Production - impairment loss
The Group recorded an exceptional impairment of GBP120.8m 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 GBP2,717.2m (2022: GBP2,097.8m
gain). It should be noted that the net IFRS 9 position on operating
derivatives at 31 March 2023 is a liability of GBP386.9m (2022:
GBP2,301.8m 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 GBP499.6m (2022: GBP408.0m), which has also been
classified as exceptional. In addition, the Group has recognised
gains of GBP201.9m (2022: GBP21.0m) 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 GBP43.3m (2022: GBP22.9m) in other
comprehensive income and gains on the equity share of the
remeasurement of cash flow hedge accounted contracts in joint
ventures of GBP342.4m (2022: GBP181.4m).
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
GBP244.7m at 31 March 2022 and an increase to the Group's deferred
tax liabilities (including the effect of equity accounted items) of
GBP279.5m 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 GBP33.2m at 31 March 2022 for continuing operations and a
charge of GBP85.5m 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 Exceptional items Before exceptional Exceptional items
items and certain and certain items and certain and certain
re-measurements re-measurements Total re-measurements re-measurements Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------------------ ------------------ ------- ------------------ ------------------- -------
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 loss - 201.9 201.9 - 21.0 21.0
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 GBP16.2m (2022: GBP7.6m) 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
GBPm GBPm
--------------------------------------------------------------------- -------- --------
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 Before
exceptional items Exceptional items exceptional items Exceptional items
and certain and certain and certain and certain
re-measure-ments re-measure-ments Total re-measure-ments re-measure-ments Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------------------ ------------------ -------- ------------------ ------------------ ------
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*)
GBPm % GBPm %
------------------------------------------------------------- -------- ------- ----------------- -----------------
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 Total Settled via scrip Pence per ordinary
GBPm GBPm share GBPm GBPm share
-------------------- ----- ----------------- ------------------- --------- ----------------- -------------------
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
GBP107.6m (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 GBP740.6m.
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 Year ended 31 March Year ended 31 March Year ended 31 March
2023 2023 2022 (restated*) 2022 (restated*)
(Losses)/earnings per
(Losses)/earnings share Earnings Earnings per share
Continuing operations GBPm pence GBPm pence
Basic
(losses)/earnings on
continuing operations
used to calculate
adjusted EPS (158.0) (14.7) 2,544.3 241.2
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*)
Earnings
(Losses)/earnings (Losses)/earnings per share Earnings per share
GBPm pence GBPm 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.
2022 2022
2023 2023 2023 (restated*) 2022 (restated*)
(Losses)/earnings Dividend per Dividend Earnings per Dividend per Dividend
per share share Cover share share 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 GBP519.5m. 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 GBP6.0m were expensed to operating costs in
the year. The acquired business contributed GBPnil to revenue and
GBP0.5m 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
GBPm
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
GBP341m shared equally. The headline consideration included GBP96m
of loans which were settled on completion of the transaction and
replaced with shareholder loans of GBP48.0m each from SSE and
Equinor. The Group's share of the cash consideration paid for the
equity investment was therefore GBP123.2m 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 GBP140.7m 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 GBP291.6m and a GBP172.0m gain on
financial instruments (net of tax) being recognised.
The joint venture contributed GBP210.2m 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 GBP19.8m and deferred
consideration of GBP34.9m (2022: GBP4.0m cash consideration). The
total cash consideration for business combinations of GBP642.7m
(2022: GBP141.3m) 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 GBP7.2m were expensed to operating costs in
the prior year. The subsidiaries acquired had nil revenue and
contributed a loss of GBP0.1m 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
GBPm
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 GBP868.3m 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 GBP89.1m 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 GBP1,465.0m, less transactions
costs of GBP16.9m. The transaction completed on 30 November 2022,
at which time the consolidated carrying value of SHET's net assets
was GBP2,319.3m. Since the transaction did not result in a loss of
control, the Group recognised a gain of GBP868.3m 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
GBPm
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
GBP60m. The Group released decommissioning provision related to the
site, which resulted in an exceptional gain on disposal of
GBP89.1m.
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 GBP22.5m and GBP5m
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 GBP0.2m. The Group recorded an exceptional loss on
disposal of GBP18.9m in the year of completion, in addition to the
exceptional impairment loss of GBP51.2m recognised during the year
ended 31 March 2021. A further impairment of GBP6.5m 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 GBP70.0m and contingent consideration of up to
GBP40m, resulting in a non-exceptional gain on disposal of
GBP64.3m. 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 GBP4.8m following the sale of Smarter Grid Solutions by the
Environmental Energies Fund Limited, resulting in a non-exceptional
gain on sale of GBP2.8m.
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 GBP1,225m. The agreement was conditional on
certain regulatory approvals and completed on 22 March 2022, with
an exceptional gain of GBP576.5m 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
GBP101.4m. The Group recorded an impairment of GBP120.8m 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 GBP120.8m included a provision for indemnified
tax liabilities of GBP35.0m, 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
GBPm GBPm
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 Exceptional Before exceptional Exceptional
items and items and items and items and
certain certain certain certain
re-measurements re-measurements Total re-measurements re-measurements Total
GBPm GBPm GBPm GBPm GBPm GBPm
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
GBPm GBPm
Items that will subsequently be reclassified to profit or loss:
Share of other comprehensive gain of joint ventures and associates, net of taxation - 0.5
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
GBPm GBPm
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
EUR650m 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 GBP350m 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 EUR1bn 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 (GBP162.7m) US Private Placement in April 2022, a GBP300m
Eurobond in September 2022 and a GBP150m loan from the European
Investment Bank to Scottish Hydro Electric Transmission plc in
October 2022.
SSE's adjusted net debt and hybrid capital was GBP8.9bn at 31
March 2023, compared with GBP8.6bn at 31 March 2022.
The Group has an established EUR1.5bn 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 GBP919m commercial
paper outstanding (2022: GBP507m). The Group also has GBP3.5bn of
revolving credit facilities which includes GBP750m relating to
Scottish Hydro Electric Transmission plc (2022: GBP1.5bn) (see
13.2.1). As at 31 March 2023 there was GBP100m of drawings against
these committed facilities being less than 3% utilisation (2022:
undrawn).
The Group capital comprises:
2023 2022
GBPm GBPm
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
GBPm GBPm
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 EUR1.5bn 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 GBP919m commercial
paper outstanding (2022: GBP507m).
The Group also has GBP3.5bn of revolving credit facilities
(2022: GBP1.5bn). As at 31 March 2023 there was GBP100m 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 GBP1.3bn revolving credit facility for SSE plc maturing March 2026 (2022: GBP1.3bn);
-- a GBP0.2bn bilateral facility for SSE plc maturing October 2026 (2022: GBP0.2bn);
-- a new GBP0.75bn facility for Scottish Hydro Electric
Transmission plc maturing November 2025 (2022: GBPnil);
-- a new GBP0.25bn facility for Scottish Hydro Electric
Distribution plc and Southern Electric Power Distribution plc
maturing November 2025 (2022: GBPnil); and
-- a new GBP1.0bn committed facility for SSE plc maturing February 2024 (2022: GBPnil).
The GBP1.3bn revolving credit facility and GBP0.2bn 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 GBP1bn 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 GBP750m
Transmission facility, with GBP100m drawn to cover capital
expenditure requirements.
During the year to 31 March 2023 SSE plc issued a 7 year EUR650m
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 GBP350m dual tranche US
Private Placement with Pricora Capital being a GBP175m 10-year
tranche at 3.13% and a GBP175m 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 EUR1bn 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
EUR1bn 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
GBPm GBPm
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) GBPm
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 GBP18.0m (2022:
GBP6.3m).
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 GBP107.6m (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 GBP23.4m
(2022: 0.9m shares, consideration of GBP14.1m) 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
GBP118.0m (2022: GBP110.0m).
14.2 Hybrid Equity
2023 2022
GBPm GBPm
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 GBP600m and EUR500m 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 GBP600m hybrid bond is 14 April 2026 and then
every 5 years thereafter. The date for the first potential
discretionary redemption of the EUR500m hybrid capital bond is 14
July 2027 and then every 5 years thereafter. For the GBP600m Hybrid
the discretionary coupon payments are made annually on 14 April and
for the EUR500m Hybrid the coupon payments are made annually on 14
July.
14. EQUITY (CONTINUED)
14.2 Hybrid Equity (continued)
(ii) 12 April 2022 EUR1,000m 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 GBP600m hybrid equity bond a discretionary
coupon payment of GBP22.4m (2022: GBP16.8m) was made on 14 April
2022 and for the EUR500m hybrid equity bond a discretionary coupon
payment of GBP16.4m (2022: GBP16.4m) was made on 14 July 2022.
Additionally, in relation to the EUR600m hybrid equity bond
(redeemed on 1 April 2021), the final discretionary coupon payment
of GBP17.5m was made on 1 April 2021. The first discretionary
coupon payment on the new EUR1bn hybrid equity bond will occur on
21 April 2023.
The coupon payments in the year to 31 March 2023 consequently
totalled GBP38.8m (2022: GBP50.7m).
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 GBP649.1m (2022: GBP40.6m), which
relates to SHET of GBP606.5m (2022: GBPnil) and SSE Pacifico
GBP42.6m (2022: GBP40.6m). The profit and loss attributable to
non-controlling interests for the year ended 31 March 2023 is
GBP23.6m gain (2022: GBPnil), which relates to SHET GBP25.5m gain
(2022: GBPnil) and SSE Pacifico GBP1.9m loss (2022: GBPnil).
15. Retirement Benefit Obligations
15.1 Valuation of combined pension schemes
Value Value
Quoted Unquoted at 31 March 2023 Quoted Unquoted at 31 March 2022
GBPm GBPm GBPm GBPm GBPm GBPm
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
2023 2022
GBPm GBPm
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
GBPm GBPm GBPm GBPm GBPm GBPm
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
GBPm GBPm
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 GBP730m 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
GBPm GBPm
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
GBPm GBPm GBPm GBPm
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
GBPm GBPm GBPm GBPm
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
GBPm GBPm
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 Purchase of Sale of Purchase of
goods and goods and Amounts Amounts owed goods and goods and Amounts Amounts owed
services services owed from to services services owed from to
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
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 GBP27.9m and the associated recognition of GBP23.4m deferred tax
liabilities in relation to Glendoe's capital allowances is an
adjusting post balance sheet event.
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