TIDMSSE
RNS Number : 7349M
SSE PLC
25 May 2022
This announcement contains inside information under Article 7 of
the Market Abuse Regulation (EU) No 596/2014, as it forms part of
retained EU Law as defined in the European Union (Withdrawal) Act
2018 (" UK MAR").
SSE PLC
Preliminary Results for the year ended 31 March 2022
25 May 2022
strong PERFORMANCE, strategic progress and record investment IN
VOLATILE MACROECONOMIC CONDITIONS
-- Adjusted earnings per share of 95.4p , within pre-close
guidance, reflects the resilience of the Group's integrated and
balanced business model in volatile market conditions.
-- GBP12.5bn strategic capital investment plan to FY26 on track
with record investment of GBP2.1bn reported for the year.
-- Total Recordable Injury Rate of 0.17 , an increase from 0.14,
reflecting growing construction activity.
-- Progressing well on flagship SSE Renewables projects, with 2.4GW under construction.
-- Over 1GW pipeline additions through ScotWind wins and site
optimisation, with up to 4.9GW future additions through Southern
Europe acquisition expected to complete by September 2022.
-- Advancing major infrastructure projects in Transmission and
greater clarity on asset base growth with gross RAV now expected to
reach GBP6.5-7bn by FY26, and over GBP12bn by FY31.
-- Guiding to adjusted EPS of at least 120p for 2022/23 and
updating to an adjusted EPS CAGR of between 7-10% over the five
year period to 2025/26.
-- Net investment into vital UK and Ireland infrastructure could
exceed GBP25bn this decade , creating thousands of jobs and
directly addressing the energy crisis in the longer term.
-- Contributed over GBP5.8bn to UK GDP, supporting over 45,000
UK jobs, and EUR438 m contribution to Ireland GDP and over 1,800
Irish jobs supported.
Financial Summary Adjusted Reported
(continuing operations) Mar Mar % mvmt Mar 2022 Mar 2021 % mvmt
2022 2021
Operating profit (GBPm) 1,536.8 1,333.5 15% 3,755.4 2,654.9 41%
Profit before tax
(GBPm) 1,164.0 948.9 23% 3,482.2 2,418.0 44%
Earnings per share
(p) 95.4 78.4 22% 241.6 206.3 17%
Investment, capital
and acquisitions (GBPm)** 2,073.7 912.0 127% 2,319.8 1,803.8 29%
Net Debt and Hybrid
Capital (GBPbn) 8,598.2 8,898.9 (3%) 8,015.4 7,810.4 3%
* Comparative information has been re-presented to reflect the
classification of Scotia Gas Networks as a discontinued operation
and the changes to segmental disclosures made in the period (see
note 2.3 of the Summary Financial Statements). ** includes
discontinued operations and is net of refund proceeds from project
financing.
Alistair Phillips-Davies , Chief Executive, said:
"This was a year in which our resilient business mix and
balanced portfolio of assets helped us navigate volatile markets
and meet our financial objectives whilst making record investments
in the critical UK infrastructure needed to tackle climate change
and deliver more secure, independent energy supplies.
"We set out in November our Net Zero Acceleration Programme,
which acts as a floor, not a ceiling, to our ambitions and we are
delivering on that plan at pace. In the context of a global energy
crisis and intense pressure on the cost of living, we are helping
to drive the build-out of vital electricity infrastructure that
will reduce dependency on imported gas and help protect consumers
from future price spikes, and in doing so we are investing
significantly more than we are making in profits.
"We are delivering major projects, building pipelines, and have
made inroads in Southern Europe and Japan as we export our
renewables capabilities internationally to fulfil SSE's
considerable potential. Strategically, operationally and
financially, SSE is well-placed to continue to create value for all
of our stakeholders and wider society as we create the
infrastructure needed to deliver net zero, secure energy supplies
and ultimately drive consumer prices down."
Strategic Highlights
-- Execution of fully-funded Net Zero Acceleration Programme
continues, with investment accelerating across a number of
low-carbon opportunities, offering the optimal pathway for SSE to
grow.
-- Completed final disposal of Scotia Gas Networks for GBP1.3bn,
representing the final divestment in SSE's non-core asset disposal
programme with total headline consideration exceeding GBP2.8bn.
-- Increasingly supportive UK policy environment following
publication of Government's British Energy Security Strategy, with
increased commitment to accelerate delivery of offshore wind and
associated network infrastructure and flexible technologies for the
second half of the decade.
-- Published Net Zero Transition Plan setting out the actions to
meet SSE's net zero targets for emissions by 2050.
financial summary for the year to march 2022
-- Adjusted earnings per share up 22% to 95.4p, or up 9% against
the 87.5p Net Zero Acceleration Programme baseline, within the
expected 92p - 97p range.
-- Adjusted operating profit up 15% to GBP1.5bn / Reported operating profit up 41% to GBP3.8bn
-- Adjusted profit before tax up 23% to GBP1.2bn / Reported
profit before tax up 44% to GBP3.5bn
-- Reported earnings per share increased to 241.6p, including
c.GBP2.1bn fair value remeasurements
-- Adjusted investment, capital and acquisition expenditure of
GBP2.1bn, in line with pre-close guidance.
-- Adjusted net debt and hybrid capital at GBP8.6bn, better than
pre-close guidance of below GBP9bn.
* Comparative information has been re-presented to reflect the
classification of Scotia Gas Networks as a discontinued operation
and the changes to segmental disclosures made in the period (see
note 2.3 of the Summary Financial Statements).
Final dividend in line with dividend plan to 2026
-- Intention to recommend a final dividend of 60.2p for payment
on 22 September 2022, representing a weighted average annual RPI
rate of 5.8%, making a full-year dividend of 85.7p per share.
-- Continue to target RPI increase for FY23 followed by rebase
to 60p in FY24, with attractive annual growth of at least 5% to
FY26.
-- Scrip uptake capped at 25% on FY22 full-year dividend and thereafter as previously announced.
Financial outlook for 2022/23 and beyond
-- SSE's focus continues to be on long-term, sustainable
financial performance. With high levels of investment expected in
Transmission, a step up in earnings expected in Thermal generation
and an expected return to normal weather for Renewables, the Group
is confident about delivering strong earnings growth for this
financial year.
-- SSE currently expects to report full year adjusted earnings per share of at least 120p.
-- Capital expenditure and investment is expected to total in
excess of GBP2.5bn in 2022/23 (including acquisitions but net of
project finance development expenditure refunds) assuming the
recent Southern European acquisition successfully completes as
planned.
-- Over the five-year period to March 2026, SSE now expects to
deliver an adjusted EPS CAGR of between 7-10% on the 87.5 p Net
Zero Acceleration Programme baseline as a result of: confidence
derived from strong delivery in 2021/22; higher RPI forecasts;
higher and more volatile energy commodity prices; and evidence of
increased value creation potential from flexibility provided by
SSE's Thermal and Hydro generation, and gas storage assets as they
continue to perform a vital role for the system.
-- In line with the plan for disposal of a minority stake, SSE
has recently initiated a sales process for a 25% share of the SSEN
Transmission business which is expected to formally commence in
Summer 2022. Given the SSEN Distribution business is currently
progressing its ED2 price control negotiations, a decision on the
timing of a similar stake sale will be made later in the financial
year.
Key PERFORMANCE INDICATORS
Key Financial Indicators Adjusted Reported
(continuing operations) March 2022 March 2021 March 2022 March 2021
Operating profit by business GBPm
- SSEN Transmission 380.5 220.9 380.5 220.9
- SSEN Distribution 351.8 275.8 351.8 275.8
- SSE Renewables 568.1 731.8 427.8 856.0
- Other businesses 236.4 105.0 2,595.3 1,302.2
Operating profit GBPm 1,536.8 1,333.5 3,755.4 2,654.9
EBITDA GBPm 2,257.2 1,995.3 4,514.0 3,355.0
Profit before tax GBPm 1,164.0 948.9 3,482.2 2,418.0
Earnings per share (EPS) pence 95.4 78.4 241.6 206.3
Full year dividend per share (DPS) pence 85.7 81.0 85.7 81.0
Investment and capital expenditure GBPm
- SSEN Transmission 614.4 435.2 614.4 436.2
- SSEN Distribution 364.8 350.8 456.1 412.6
- SSE Renewables 811.0 294.3 458.4 223.9
- Other businesses 278.9 260.3 777.0 704.3
Project finance development expenditure refunds GBPm (136.7) (428.6) (136.7) (428.6)
Acquisition consideration GBPm 141.3 - 141.3 -
Investment, capital and acquisitions GBPm 2,073.7 912.0 2,310.5 1 ,348.4
Net debt and hybrid capital GBPm 8,598.2 8,898.9 8,015.4 7,810.4
* Comparative information has been re-presented to reflect the
classification of Scotia Gas Networks as a discontinued operation
and the changes to segmental disclosures made in the period (see
note 2.3 of the Summary Financial Statements). ** net of refund
proceeds from project financing.
Operational Key Performance Indicators March 2022 March 2021
Thermal generation - GWh 14,265 18,008
Renewable generation - GWh (inc. pumped storage
and constrained off) 9,423 10,171
Other generation - GWh(1) 104 108
Total generation output - all plant - GWh 23,792 28,287
SSEN Transmission RAV - GBPm 4,155 3,631
SSEN Distribution RAV - GBPm 4,054 3,792
SSE Total Electricity Networks RAV - GBPm 8,209 7,423
Business Energy Electricity Sold - GWh 12,645 13,070
Business Energy Gas Sold - mtherms 218 245
Airtricity Electricity Sold - GWh 5,219 7,595
Airtricity Gas Sold - mtherms 177 219
Notes:
(1) Other generation comprises SSE's small biomass capability
which is managed by SSE Distributed Energy and which generated
73GWh in 2021/22; and 71GWh 2020/21 in addition to 31GWh in 2021/22
and 37GWh 2020/21 generated by other SSE Distributed Energy
assets.
ESG Key Performance Indicators March 2022 Sept 2021 March 2021
Carbon emissions (scopes 1&2) MtCO(2)
e 6.24 - 7.64
Scope 1 GHG intensity gCO(2) e/kWh 259 - 256
Total water consumed (million cubic meters) 0.8 - 3.9
Total recordable injury rate per 100,000
hours worked(1) 0.17 0.16 0.14
Total economic contribution - UK/Ireland
(GBPbn/EURm)(2) 5.8/438 - 5.21/439
Jobs supported - UK/Ireland (headcount)(3) 45,290/1,840 - 41,400/2,160
Total taxes paid UK/Ireland (GBPm/EURm) 335.3/46.4 - 379/20.4
Employee retention/turnover rate (%)(4) 90.5/9.5 92.1/7.9
Employee engagement index (%)(5) 82 82 82
Average board tenure - years(6) 3.8 3.3 5.0
Female board members (%) 50 50 36
Independent board members (%)(7) 73 73 70
Total number of board members 12 12 11
Notes:
March 2021 figures relate to 12 months to 31 March 2021
(1) Comparators restated to exclude impact of Contracting and
Neos Networks
(2) Direct, indirect and induced Gross Value Added, from PwC
analysis
(3) Direct, indirect and induced jobs supported, PwC
analysis
(4) Includes voluntary and involuntary turnover, excludes end of
fixed term contracts and internal transfers.
(5) Results from SSE's annual employee engagement survey.
(6) Non-Executive directors including non-Executive Chair
(7) Excludes non-Executive Chair.
Further Information
Investor Timetable
Annual Report 2022 published on sse.com/reportsandresults 17 June 2022
Sustainability Report 2022 published on sse.com/reportsandresults 17 June 2022
Consolidated Segmental Statement 2022 sse.com/reportsandresults 17 June 2022
Q1 Trading Statement 21 July 2022
Annual General Meeting 21 July 2022
Ex-dividend date 28 July 2022
Record date 29 July 2022
Scrip reference pricing days 28 July - 3 Aug
2022
Scrip reference price confirmed and released 4 August 2022
via RNS
Final date for receipt of scrip elections 25 August 2022
Final dividend payment date 22 September 2022
Notification of Closed Period By 30 September
2022
Interim Results for the six months ended 30 September 16 November 2022
2022
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
+ 44 (0)345 0760
Media 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 2022 on Wednesday 25 May at 09:30am BST. You can join the
webcast by visiting www.sse.com and following the links on either
the homepage or investor pages; or directly using
https://edge.media-server.com/mmc/p/v8vdin73 . This will also be
available as a teleconference, details below. Both facilities will
be available to replay.
Confirmation Code:
5144499
Location Phone Type Phone Number
United Kingdom Toll free 0800 279 6619
United Kingdom, Local Local +44 (0) 2071 928338
United States, New
York Local +1 646 741 3167
United States/Canada Toll free +1 877 870 9135
Online Information
News releases and announcements are made available on SSE's
website at www.sse.com/investors and you can register for RNS news
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 .
Disclaimer
This financial report contains forward-looking statements about
financial and operational matters. These statements are based on
the current views, expectations, assumptions and information of the
management, and are based on information available to the
management as at the date of this financial report. Because they
relate to future events and are subject to future circumstances,
these forward-looking statements are subject to unknown risks,
uncertainties and other factors which may not been in contemplation
as at the date of the financial report. As a result, actual
financial results, operational performance and other future
developments could differ materially from those envisaged by the
forward-looking statements. Neither SSE plc nor its affiliates
assumes any obligations to update any forward-looking
statements.
SSE plc gives no express or implied warranty, representation,
assurance or undertaking as to the impartiality, accuracy,
completeness, reasonableness or correctness of the information,
opinions or statements expressed in the presentation or any other
information (whether written or oral) supplied as part of it.
Neither SSE plc, its affiliates nor its officers, employees or
agents will accept any responsibility or liability of any kind for
any damage or loss arising from any use of this presentation or its
contents. All and any such responsibility and liability is
expressly disclaimed. In particular, but without prejudice to the
generality of the foregoing, no representation, warranty, assurance
or undertaking is given as to the achievement or reasonableness of
any future projections, forward-looking statements about financial
and operational matters, or management estimates contained in the
financial report.
This financial report does not constitute an offer or invitation
to underwrite, subscribe for, or otherwise acquire or dispose of
any SSE plc shares or other securities, or of any of the businesses
or assets described in the financial report, and the information
contained herein cannot be relied upon as a guide to future
performance.
Definitions
The financial information set out in these consolidated
financial results for the year ended 31 March 2022 have been
prepared in conformity with the requirements of the Companies Act
2006 and in accordance with UK adopted International Financial
Reporting Standards ('UK IFRS').
In order to present the financial results and performance of the
Group in a consistent and meaningful way, SSE applies a number of
adjusted accounting measures throughout this financial report.
These adjusted measures are used for internal management reporting
purposes and are believed to present the underlying performance of
the Group in the most useful manner for ordinary shareholders and
other stakeholders.
The definitions SSE uses for adjusted measures are explained in
the Alternative Performance Measures section before the Summary
Financial Statements. SSE continues to prioritise the monitoring of
developing practice in the use of Alternative Performance Measures,
ensuring the financial information in its results statements is
clear, consistent, and relevant to the users of those
statements.
For the purpose of calculating the 'Net Debt to EBITDA' metric,
'adjusted EBITDA' is further adjusted to remove the proportion of
adjusted EBITDA from equity-accounted joint ventures relating to
project financed debt (see note 6.3 of the Summary Financial
Statements).
Important note: Discontinued Operations - Gas Production and
Scotia Gas Networks
On 14 October 2021 the Group completed the sale of its Gas
Production business and on 22 March 2022 the Group completed the
sale of its 33.3% investment in Scotia Gas Networks ('SGN') (see
note 12.2 of the Summary Financial Statements). Both businesses
have been classified as discontinued operations. The Group's
adjusted measures therefore exclude the contribution from both of
these businesses in all periods presented.
Important note: Other disposals
On 30 June 2021, the Group completed the sale of its Contracting
and Rail business and on 10 February 2022 the Group competed the
sale of a 10% stake in the Dogger Bank C offshore wind farm
development (see note 12.2 of the Summary Financial Statements).
Furthermore, in the prior year to 31 March 2021, the Group
completed the sale of a 50% stake in Slough Multifuel on 2 April
2020, a 51% stake in Seagreen Wind Farm on 3 June 2020, its
investment in Walney offshore wind farm on 2 September 2020 and its
investment in MapleCo smart-metering on 23 September 2020.
As these businesses do not individually constitute a separate
major line of business for SSE, they have not been classified as
discontinued operations, and their result continues to be included
within the Group's adjusted profit-based measures to the point of
disposal.
Important note: Presentation of Reporting Segments
Following the Group's sale of its Contracting and Rail business
during the year, the primary retained activities of the Enterprise
business is Distributed Energy which will develop and provide the
Group's solar and battery storage operations and focus on
distributed generation, heat and cooling networks, smart buildings
and EV charging. Accordingly, the result from the Group's out of
areas networks business and Neos Networks Limited joint venture
will now be reported within SSEN Distribution and Corporate
Unallocated respectively. Comparative information has been
re-presented to reflect the change to these segments (see note 2.3
of the Summary Financial Statements).
Impact of discontinued operations on the Group's Alternative
Performance Measures ('APM')
The following Alternative Performance Measures have been
adjusted in all periods presented to exclude the contribution of
the Group's Gas Production operations and Scotia Gas Networks
Limited which have been presented as discontinued operations as at
31 March 2022:
-- Adjusted EBITDA;
-- Adjusted operating profit;
-- Adjusted net finance costs;
-- Adjusted profit before tax;
-- Adjusted current tax charge; and
-- Adjusted earnings per share.
'Adjusted net debt and hybrid capital', 'adjusted investment and
capital expenditure' and the new metric 'adjusted investment,
capital and acquisition expenditure', have not been amended as the
Group continued to fund the discontinued operations until the date
of disposal.
Strategic overview
DELIVERING ON OUR PROMISE
In November 2021, SSE laid out a fully-funded strategic growth
plan to 2026 - the Net Zero Acceleration Programme - focused on
delivering new investment in the assets needed to underpin a net
zero energy system. In the months since, we have wasted no time in
delivering on that promise. Excellent progress has been made on
major electricity infrastructure and net zero-focused projects,
with record levels of capex. This has consolidated SSE's standing
as a national clean energy champion contributing to a more secure
energy system which will be less reliant on imported gas and
therefore better able to protect consumers from future price
spikes.
The fact that the strong financial and operational performance
of the past year has played out against the backdrop of volatile
macroeconomic and market conditions, as well as adverse weather
conditions, is testament to SSE's resilient operating model and the
people who make it work. It is thanks to the commitment and
capability of our 11,000-strong workforce that SSE is able to stay
true to its central purpose of providing energy needed today while
building a better world of energy for tomorrow.
I am extremely grateful to colleagues who have shown admirable
courage in maintaining critical national infrastructure and helping
customers through severe weather challenges and a cost-of-living
crisis that has had a direct impact on all energy users. Our
ongoing success is dependent on a highly-skilled, diverse and
expanding workforce and we anticipate our numbers will rise by
1,000 people per year over the five-years of our current strategic
growth plans.
RESILIENCE IN A VOLATILE WORLD
While SSE is not alone among energy companies going for growth
in the transition to net zero, our ability to manage output
variability through a diverse and well-balanced mix of businesses
has served us well through a period that saw energy markets
buffeted first by a spike in post-pandemic global demand, and more
recently by the war in Ukraine. Having operations across the clean
electricity value chain gives SSE a valuable natural hedge against
market volatility.
SSE is well positioned thanks to a prudent approach to hedging
and an integrated but wide-ranging asset portfolio. In still
conditions, reduced output from wind assets can be compensated
through the flexibility the Group has elsewhere in the generation
fleet. Indeed, flexible generation assets performed particularly
well in the balancing market in 2021/22, because the system needed
the capacity and flexibility that SSE's thermal and hydro assets
provide. Right across the portfolio, much of SSE's revenue is index
linked, be it through CfDs, ROCs or Capacity Market payments, while
networks income and Regulated Asset Values are backed by price
controls and increase in line with inflation. This optimal blend of
regulated and market-based income across a balanced range of
businesses means we can continue delivering for shareholders and
society in exceptionally volatile times, and means we are well
placed to capture emerging growth opportunities as they emerge
right across the clean energy value chain.
INVESTING IN CLEAN, SECURE ENERGY
While supporting efforts to maintain a 1.5C global warming
pathway, the Net Zero Acceleration Programme has been given added
impetus by the pressing need for clean, indigenous sources of
energy as a long-term solution to an over-reliance on imported gas.
SSE is well-placed to deliver on this and it welcomed the
supportive policy signals within the British Energy Security
Strategy. There are clear opportunities in the latest commitments,
including: increasing offshore wind capacity to 50GW by 2030,
including more floating wind; approving more strategic networks
expenditure more quickly; bringing forward a support mechanism for
long-duration storage projects like SSE's Coire Glas; and a
doubling of hydrogen production ambitions and continued commitment
to carbon capture and storage (CCS). Assuming a continued
supportive policy environment, our investment in the UK and Ireland
could total in excess of GBP25bn this decade contributing towards
tackling climate change whilst providing indigenous energy supplies
and creating high quality low-carbon jobs.
In Europe, meanwhile, the search for alternatives to Russian oil
and gas is driving demand for more renewables, more
renewables-enabling networks and more low-carbon flexibility.
Against this backdrop SSE is securing a foothold in Southern Europe
through the agreement to acquire Siemens Gamesa Renewable Energy's
development platform. Most of the 3.9GW of onshore wind in the
portfolio is in the early stages of development, but the
experienced local teams will be integral to SSE's growth strategy
in Europe and complement SSE's world-class renewables capability
with local expertise.
STRATEGY IN ACTION
Financial strength underpinned by investment-grade credit
ratings and a stable debt profile is enabling SSE to execute a
strategy of developing, building, operating and investing in the
electricity infrastructure needed in the transition to net zero,
and we are growing both at home and abroad as a result. We have
completed the sale of our remaining stake in SGN - a key step in
the strategic streamlining of the Group - and we invested a record
GBP2.1bn in 2021/22.
Among many strategic delivery highlights we have progressed our
major SSE Renewables projects at Dogger Bank, Seagreen and Viking;
made progress internationally through our acquisitions in Southern
Europe and Japan; and added 1GW to our domestic pipeline with a
significant win in the ScotWind auction with our partners CIP and
Marubeni.
The future looks bright for SSEN Transmission, too. Our flagship
Shetland HVDC link continues at pace, while National Grid's Network
Options Assessment made clear the extent of future network
development that will be needed and the UK Government threw its
weight behind a faster, more strategic networks build-out. In
Distribution, we worked through six exceptional weather events in
12 weeks, including back-to-back named storms, while progressing a
stakeholder-led plan for ED2 that we continue to engage on with
Ofgem and other key stakeholders.
In SSE Thermal, construction at Keadby 2 was highly successful
and it will be a useful provider of system flexibility. Elsewhere
in the Group we acquired our first new solar and battery sites and
signed Green PPAs with customers as we look for well-aligned growth
opportunities.
SUSTAINABILITY IN ACTION
SSE is proud of its ESG commitments and this year we announced
an update to our interim 2030 Goals, which are aligned to the UN's
Sustainable Development Goals. This revision is to keep pace with
the bolder ambitions set out in the Net Zero Acceleration
Programme. The goals will see us cut carbon intensity by 80%;
increase renewable energy output fivefold; enable low-carbon
generation and demand; and champion a fair and just energy
transition on the journey to net zero.
Shareholder support is critical to meeting the Group's net zero
ambitions and that is why they will be given a vote at the 2022
AGM, and subsequent AGMs, on the progress being made by the Company
towards decarbonising. The recently-published Net Zero Transition
Plan sets out targets for scope 1 and scope 2 emissions by 2040
(subject to security of supply requirements) and for the remaining
scope 3 emissions, by 2050 - alongside interim annual science-based
targets aligned to a 1.5degC pathway.
CREATING LASTING VALUE
SSE's conviction - that a deliberately integrated and
well-balanced group of market-based and economically regulated
businesses offers the optimal route to value creation for
shareholders - continues to be borne out. We are proposing payment
of a full-year dividend of 85.7p, in line with plan, and we remain
committed to our existing five-year dividend plan to 2023, which
targets dividend increases in line with RPI each year. Our
increased confidence in both our operational performance and the
growth opportunities ahead means we have today set out our
expectation that we will deliver adjusted earnings per share of at
least 120p in 22/23, and increased our five year CAGR target to
7-10%, from the same 2021 base of 87.5p.
Through the progress being made on delivery of the Net Zero
Acceleration Programme we are providing long-term, homegrown
solutions to both climate change and the current energy crisis and
we already see scope for contributing much more to efforts to
decarbonise the energy system.
Alistair Phillips-Davies
Chief Executive
SSE plc
Group financial review
year to 31 march 2022
This Group Financial Review sets out the financial performance
of the SSE Group for the year ended 31 March 2022. See also the
separate sections on Group Financial Outlook, 2022/23 and beyond
and Supplemental Financial Information.
The definitions SSE uses for adjusted measures are consistently
applied and are explained in the Alternative Performance Measures
section of this document, before the Summary Financial
Statements.
Key Financial Metrics Adjusted Reported
(continuing operations) March 2022 March 2021 March 2022 March 2021
GBPm GBPm GBPm GBPm
Operating profit from continuing operations 1,536.8 1,333.5 3,755.4 2,654.9
Net Finance costs (372.8) (384.6) 273.2 (236.9)
Profit before Tax 1,164.0 948.9 3,482.2 2,418.0
Current Tax charge (107.1) (85.9) (882.8) (224.3)
Effective current tax rate (%) 9.2 9.1 25.4 9.3
Profit after Tax on continuing operations 1,056.9 863.0 2,599.4 2,193.7
Less: hybrid equity coupon payments (50.7) (46.6) (50.7) (46.6)
Profit after Tax from continuing operations attributable to ordinary
shareholders 1,006.2 816.4 2,548.7 2,147.1
EPS from continuing operations (pence) 95.4 78.4 241.6 206.3
Number of shares for basic/reported and adjusted EPS (million) 1,055.0 1,040.9 1,055.0 1,040.9
Shares in issue at 31 March (million)** 1,067.6 1,043.0 1,067.7 1,043.0
* Comparative information has been re-presented to reflect the
classification of Scotia Gas Networks as a discontinued operation
and the changes to segmental disclosures made in the year (see note
2.3 of the Summary Financial Statements). ** Excludes treasury
shares.
Dividend per Share March 2022 March 2021
Interim Dividend (pence) 25.5 24.4
Final Dividend (pence) 60.2 5 6.6
Full Year Dividend (pence) 85.7 8 1.0
Impact from market volatility
The Group reduces direct exposure to short term commodity price
volatility through its business mix, the disciplined application of
its clearly defined approach to hedging and low VAR trading limits.
Nevertheless, the higher and more volatile gas and power market
prices, combined with increasing inflation rates have had some
impact upon SSE's businesses which can be summarised as
follows:
SSEN Transmission and SSEN Distribution operate under a
regulatory price control framework which is set by Ofgem. Returns
under this framework have no direct relationship to gas and power
market prices, however both allowed revenues and Regulated Asset
Values are index linked (Transmission to CPI(H). Distribution to
RPI (for ED1 price control) and CPI(H) (for ED2 price
control)).
Within SSE Renewables, in periods where wind volume output was
significantly lower than expected, excess forward sale contracts
had to be 'bought back' in the market at higher prices, further
reducing the trading result.
For SSE Thermal (as well as the Hydro plant within SSE
Renewables), value has come from the ability of the plant to
respond to market conditions and provide vital balancing services
to provide security of supply and flexibility in higher, more
volatile market conditions. The current market conditions are
therefore generally positive for these businesses, although this is
dependent upon plant availability at times of system stress.
Both EPM and Gas Storage, through their respective exposure to
unsettled commodity contracts and physical gas inventory, have
experienced significant positive unrealised mark-to-market
remeasurement gains in the year. However, EPM is not expected to
realise significant gains upon settlement of the contracts, as they
are largely offset by significant adversely marked-to-market 'own
use' operating derivatives which are excluded from disclosure as
remeasurements under IFRS 9. In addition, for EPM, market
volatility and retail energy supplier failure has resulted in a
significant increase in the collateral requirements necessary to
allow the businesses to continue to trade with counterparties and
on exchanges as required. To date these increased collateral
requirements have generally been managed by issuing new Letters of
Credit, Guarantees and Performance Bonds, however exchange cash
collateral requirements have been subject to volatility in recent
months. The Group closely monitors this and maintains more than
sufficient liquidity to manage these increased collateral
requirements.
SSE Business Energy and SSE Airtricity (aside from Northern
Ireland, where SSE Airtricity is subject to a regulatory pricing
mechanism) are not subject to a regulated price cap and therefore
variable tariffs are adjusted dynamically and fixed tariff rates
are reset for new customers as wholesale costs increase or
decrease. Although the businesses are insulated against gas price
rises insofar as they are fully hedged, there are external
circumstances that would result in hedge adjustments such as
weather, supplier failures and broader economic conditions. A
dynamic forecasting approach has been in place to quickly respond
to volume changes. In relation to Airtricity, vertical integration
of generation and customer businesses in the Irish market limits
commodity exposures with some benefit received through REFIT
receipts on legacy wind assets.
Finally, SSE Group is well funded with a strong investment grade
credit rating, a high proportion of the GBP8.6bn adjusted net debt
(c.96%) is fixed rate and the long average maturity of SSE's debt
is 6.8 years. The Group has been successful in challenging debt
markets, issuing a EUR1bn Hybrid and GBP350m Private Placement post
year-end. SSE's balance sheet strength allows the Group to meet
additional collateral increases on higher and volatile commodity
contracts, while the high proportion of fixed rate debt provides
robust financing in an inflationary environment.
Operating profit performaNce 2021/22
Business-by-business segmental Adjusted Reported
March 2022 March 2021 March 2022 March 2021
GBPm GBPm GBPm GBPm
Operating profit/(loss)
SSEN Transmission 380.5 220.9 380.5 220.9
SSEN Distribution 351.8 275.8 351.8 275.8
Electricity networks total 732.3 496.7 732.3 496.7
SSE Renewables 568.1 731.8 427.8 856.0
SSE Thermal 306.3 160.5 630.1 775.3
Gas Storage 30.7 (5.7) 125.4 2.8
Thermal Total 337.0 154.8 755.5 778.1
Business Energy (GB) (21.5) (24 . 0) (21.5) (3.9)
SSE Airtricity (NI and Ire) 60.4 44.0 60.4 50.0
Energy Customer Solutions Total 38.9 20.0 38.9 46.1
Energy Portfolio Management ( 16.8) 18.4 2,083.6 608.5
Distributed Energy (10.9) (27.0) (29.2) (76.1)
Neos (16.1) (2.8) (140.0) (14.1)
Corporate unallocated (95.7) (58.4) (113.5) (40.3)
Total operating profit from continuing operations 1,536.8 1,333.5 3,755.4 2,654.9
Net finance costs (372.8) (384.6) (273.2) (236.9)
Profit before tax from continuing operations 1,164.0 948.9 3,482.2 2,418.0
Discontinued operations:
Gas Production Assets 101.4 33.0 (19.4) 33.0
Scotia Gas Networks 21.0 173.0 495.4 88.6
Total operating profit / (loss) from discontinued operations 122.4 206.0 476.0 121.6
* Comparative information has been re-presented to reflect the
classification of Scotia Gas Networks as a discontinued operation
and the changes to segmental disclosures made in the year (see note
2.3 of the Summary Financial Statements).
In order to present the financial results and performance of the
Group in a consistent and meaningful way, SSE applies a number of
adjusted accounting measures throughout this financial report.
These adjusted measures are used for internal management reporting
purposes and are believed to present the underlying performance of
the Group in the most useful manner for ordinary shareholders and
other stakeholders.
The definitions SSE uses for adjusted measures are explained in
the Alternative Performance Measures section before the Summary
Financial Statements. A reconciliation of adjusted operating profit
by segment to reported operating profit by segment can be found in
Note 6.2 to the Summary Financial Statements.
Segmental EBITDA results are included in Note 6.3 to the Summary
Financial Statements.
Operating profit
Adjusted and reported operating profit/losses in SSE's business
segments for the year to 31 March 2022 are set out below;
comparisons are with the same period to 31 March 2021 unless
otherwise stated.
SSEN Transmission: Adjusted and reported operating profit
increased by 72% to GBP380.5m. This was mainly due to higher
allowed revenues in FY22 (the first year of the RIIO-T2 price
control) resulting from an increased proportion of higher totex
allowances received through the 'fast money' mechanism, and an
over-recovery of GBP9m, as timing impacts passed from the
Electricity System Operator to Transmission Operators. This higher
revenue was partially offset by increases in operating costs and
depreciation charges, as the business continues to expand its
operational capability and asset base.
SSEN Distribution: Adjusted and reported operating profit
increased by 28% to GBP351.8m compared to GBP275.8m which was lower
than expected due to a c.GBP40m impact of coronavirus in FY21 which
will be recovered in FY23. In FY22, higher allowed revenue and an
over-recovery of GBP17m were partially offset by a GBP51m increase
in operating costs, cGBP40m of which related to expenditure
incurred managing the impact of several severe weather events
during the year.
SSE Renewables: Adjusted operating profit decreased by 22% to
GBP568.1m, compared to GBP731.8m, mainly as developer profits of
GBP64m from a 10% stake disposal in Dogger Bank C on 10 February
2022 were lower than the GBP226m of developer profits in the prior
year. Excluding developer profits, operating profit was broadly
flat as exceptionally still and dry weather in the summer months
led to a decrease in output of 7% or 0.7TWh compared to the prior
year, offset by strong financial performance from hydro and pumped
storage in volatile markets. The financial impact of lower output -
equivalent to 13% or 1.4TWh below planned levels - included the
cost of buying back hedged volumes at high market prices.
In addition to the factors outlined above, reported operating
profit of GBP427.8m compared to GBP856.0m which included one-off
exceptional gains of GBP214.5m. In addition, reported operating
profit was also impacted by a GBP21.5m increase in joint venture
share of interest and tax charges and the impact of the UK
Corporation tax rate change on deferred tax balances in joint
ventures.
SSE Thermal: adjusted operating profit increased 91% to
GBP306.3m, compared to GBP160.5m. This increase was mainly due to
higher achieved spark spread, including buying back forward power
sales on high wind days, and strong performance in the balancing
market. This was partially offset by non-recurring developer
profits on the disposal of a 50% stake in Slough Multifuel in the
prior period, lower profit contribution following divestment of
Ferrybridge Multifuel and increased depreciation following the
part-reversal of historic impairment charges at the half year.
Reported operating profit decreased to GBP630.1m from GBP775.3m
in the prior year which had included one-off gains of GBP669.7m on
the sale of Multifuel Energy and GBP21.3m on Slough Multifuel
offset by a GBP58.1m exceptional impairment charge for Great Island
CCGT. In addition to the factors affecting operational performance
highlighted above, the reported result reflects the associated
impairment reversal of GBP331.6m to the carrying value of SSE's
CCGT assets following higher forward price curves, alongside other
minor tax and interest movements.
Gas Storage: Adjusted operating profit of GBP30.7m, compared
with a prior year loss of GBP(5.7)m. SSE continues to operate the
plant on a merchant basis, with the ability to capture positive gas
price spreads during periods of heightened market volatility. The
operating result for the period reflects continued volatile market
conditions, which allows Gas Storage to optimise the value from
storage of physical gas against changes in the spread between
summer and winter prices.
Reported operating profit of GBP125.4m included an impairment
reversal of GBP97.3m as a result of improved operating prospects
given projected gas price volatility, together with a GBP(2.6)m
revaluation loss on gas held in storage, compared to a revaluation
gain of GBP8.5m in the prior year.
SSE Business Energy: Adjusted operating loss of GBP(21.5)m has
slightly improved compared with an adjusted operating loss of
GBP(24.0)m last year. Both years have been impacted by significant
volatility; the prior year result included approximately GBP24m of
losses on early settlement of excess commodity hedges linked to
Covid, while the current year has borne non-recoverable BSUoS costs
of around GBP20m and GBP14m of additional mutualisation costs due
to a significantly higher number of supplier failures. These were
partially offset by an improvement in bad debt recovery of GBP14m
as the economy emerged from the impact of coronavirus. The
underlying business remains stable with a solid customer book.
Reported operating loss was also GBP(21.5)m, compared to
GBP(3.9)m loss in the prior year which included a GBP20.1m release
of excess bad debt provisioning originally expected to arise from
coronavirus impact.
SSE Airtricity: Adjusted operating profit increased to GBP60.4m
compared to GBP44.0m in the previous year, with the increased
profit due to GBP51m of higher generation receipts on wind assets
which are contracted through Airtricity. This was partially offset
by a GBP25m adjustment in relation to historic use of system
costs.
The business has grown customer numbers year on year but seen a
drop in customer margins as energy prices increased; commodity
costs increased significantly in the year and were managed through
our approach to hedging and where necessary through tariff
increases.
Reported operating profit was also GBP60.4m, compared to
GBP50.0m profit in the prior year which included a GBP6.0m release
of excess bad debt provisioning originally expected to arise from
coronavirus impact.
Energy Portfolio Management: Adjusted operating loss of
GBP(16.8)m, compared to an adjusted operating profit of GBP18.4m
which included a net GBP20.4m income from legacy Gas Production
hedges. The operating loss is primarily due to a legacy power
contract with Ovo which fully unwound during the year in a higher
commodity price environment. EPM continues to expect to earn a
small adjusted operating profit through service provision to those
SSE businesses requiring access to energy markets.
Reported operating profit of GBP2,083.6m reflects a material net
remeasurement gain in the year on unsettled fair value forward
commodity contracts, under IFRS 9. In line with reporting in
previous years, this result excludes an adverse remeasurement of
'own use' contracts of approximately GBP2.0bn which largely offsets
the IFRS 9 gain.
SSE Distributed Energy: An adjusted operating loss of GBP(10.9)m
was reported, compared with an adjusted operating loss of
GBP(27.0)m which included an impact from coronavirus. This
reporting segment includes the result from the Contracting and Rail
business, which remains reported within this segment up to the
point of disposal on 30 June 2021. The segment no longer includes
Out of Area Networks, which is now reported within the Distribution
segment, and Neos Networks JV, which has been separately presented
below.
Reported operating loss of GBP(29.2)m reflects the above factors
together with an exceptional loss on disposal of GBP18.3m upon
completion of the sale of Contracting and Rail.
Neos Networks JV: SSE's remaining 50% share in the Telecoms
business Neos Networks recorded an adjusted operating loss of
GBP(16.1)m compared with GBP(2.8)m in FY21. The reported loss of
GBP(140.0)m includes both an impairment of GBP(106.9)m and an
adjustment to original transaction consideration.
Corporate unallocated: Adjusted operating loss of GBP(95.7)m
compared with GBP(58.4)m, reflecting a natural reduction in
external revenues as enduring service agreements with recently
divested businesses roll-off, together with higher central costs
including increased Group IT costs as the Group accelerates its
investment in digitalisation.
Reported operating loss of GBP(113.5)m reflects the above
factors together with a GBP(13.1)m revaluation adjustment to the
legacy Gas Production decommissioning provision, part of Corporate
unallocated following the business disposal in the year, and other
minor tax and interest movements.
Adjusted Earnings per share
To monitor its financial performance over the medium term, SSE
reports on its adjusted earnings per share measure. This measure is
calculated by excluding the charge for deferred tax, interest costs
on net pension liabilities, exceptional items, valuation movements
on the retained Gas Production decommissioning liabilities,
depreciation on fair value adjustments and the impact of certain
remeasurements.
SSE's adjusted EPS measure provides an important and meaningful
measure of underlying financial performance. In adjusting for the
items mentioned, adjusted EPS reflects SSE's internal performance
management, avoids the volatility associated with mark-to-market
IFRS 9 remeasurements and means that items deemed to be exceptional
due to their nature and scale do not distort the presentation of
SSE's underlying results. For more detail on these and other
adjusted items please refer to the Adjusted Performance Measures
section of this statement.
In the year to 31 March 2022, SSE's adjusted earnings per share
on continuing operations was 95.4p. This compares to 78.4p for the
year to 31 March 2021 (restated for SGN disposal - 87.5p previously
reported) and reflects the movements in adjusted operating profit
outlined in the section above.
Group financial outlook
- 2022/23 and beyond
Key Points for 2022/23
The group has enjoyed a strong start to delivery of the targets
it set out in its Net Zero Acceleration Programme with thermal and
hydro plant performing particularly well in the second half of
2021/22.
SSE's focus continues to be on long-term, sustainable financial
performance. Through high levels of investment expected in
Transmission, a step up in profits expected in Thermal generation
and an expected return to normal weather for Renewables, SSE is
confident about delivery of strong earnings growth for this
financial year, specifically:
- For SSEN Transmission: SSE expects to report strong growth in
adjusted EBIT with a 20% increase in allowed revenues under the
RIIO-T2 price control, as the network continues to expand its
operational capability and asset base;
- For SSE Renewables: assuming normal weather and plant
availability, SSE expects to report generation output of 11.4TWh,
including 0.9TWh from Seagreen; and
- For SSE Thermal and Gas Storage: assuming normal plant
availability and excluding the benefit of Keadby 2, SSE expects to
report adjusted EBIT for 2022/23 of at least GBP337m, the same
level as 2021/22.
Taking the above into account SSE currently expects to report
full year adjusted earnings per share of at least 120p.
The Group remains committed to its five-year dividend plan to
March 2026 and is recommending a 2022/23 full-year dividend of 85.7
pence in line with that plan.
Capital expenditure and investment is expected to total in
excess of GBP2.5bn in 2022/23 (including acquisitions but net of
project finance development expenditure refunds) assuming the
recent Southern European acquisition successfully completes as
planned. This is consistent with maintaining SSE's target net debt
to EBITDA ratio of 4.5 times or below.
Update to Net Zero Acceleration Programme
In November 2021 SSE set out that it expected to deliver
adjusted EPS CAGR on the 87.5 pence reported for the year ended
March 2021 (before restatement) of between 5-7% in the period to 31
March 2026. This was underpinned by index-linked revenue streams
driving 60% of EBITDA and was after a modelling assumption of a 25%
minority interest disposal of Transmission and Distribution during
FY24.
SSE now expects to deliver an adjusted EPS CAGR of between
7-10%* over the same period as a result of: confidence derived from
strong delivery in 2021/22; higher RPI forecasts; higher and more
volatile energy commodity prices; and evidence of increased value
creation potential from flexibility provided by SSE's Thermal and
Hydro generation, and gas storage assets.
* Using the same baseline adjusted EPS of 87.5p (before
restatement for SGN disposal) and continuing to model a 25%
minority interest disposal of Transmission and Distribution during
FY24.
Disposal of Minority Stake in Networks
SSE continues to regard partnering as vital for the future and
an important means of unlocking future opportunities in its
businesses.
In line with the modelling assumption in its Net Zero
Acceleration Programme, announced in November 2021, the Group has
recently initiated a sales process with banking advisers for a 25%
share of the SSEN Transmission business which is expected to
formally commence in Summer 2022. Given the SSEN Distribution
business is currently progressing its ED2 price control
negotiations, a decision on the timing of a similar stake sale will
be made later in the financial year.
While these are high-quality, core businesses and SSE will
retain control, the scale of potential growth and the associated
investment required mean that bringing in non-controlling partners
will create greater long-term value by enabling SSE to harness this
significant growth whilst maintaining an attractive balance of
capital allocation across the Group.
Supplemental financial information
March 2022 March 2022 March 2021
Adjusted Investment and Capex Summary Share % GBPm GBPm
SSEN Transmission 30 614.4 435.2
SSEN Distribution 18 364.8 350.8
Regulated networks total 48 979.2 786.0
SSE Renewables 39 811.0 294.3
SSE Thermal 6 129.3 106 .5
Gas Storage - 2.1 1. 9
Thermal Total 6 131.4 108.4
Energy Customer Solutions 2 39.8 31 .2
E nergy Portfolio Management - 2.4 2.1
Gas Production* - - 26.8
Distributed Energy 1 26.6 17.6
Corporate unallocated 4 78.7 74.2
Adjusted investment and capital expenditure, before refunds 100 2,069.1 1,340.6
Project finance development expenditure refunds (136.7) (428.6)
Adjusted investment and capital expenditure 1,932.4 912.0
Acquisitions 141.3 -
Adjusted investment, capital and acquisitions expenditure 2,073.7 912.0
* Discontinued operation, the Gas Production business was
disposed on 14 October 2021.
PROGRESS IN SSE'S CAPITAL EXPITURE PROGRAMME
During the year to March 2022, SSE's adjusted investment,
capital and acquisition expenditure, which now includes equity
expenditure on acquisitions per above, totalled GBP2,073.7m, an
increase of 127% compared with the prior year and representing the
highest ever investment recorded by the Group. Almost GBP2bn of
this was invested within SSE's Renewables, Thermal and Networks
businesses, all which are fundamental to delivery of the UK's net
zero ambitions. In summary:
-- Excellent progress was made in SSEN Transmission's investment
programme, with a total of GBP614.4m invested in building out and
reinforcing the network in the North of Scotland. Work was
completed on Tealing Substation Extension, required to facilitate
the connection of Seagreen to the grid. In addition, construction
is well under way on the link between Shetland and mainland
Scotland, which will see a submarine cable laid in order to
transmit power beneath the seabed between converter stations at
Weisdale Voe on Shetland and Noss Head in Caithness.
-- SSEN Distribution continued its capital investment programme
across both the north and south networks, with a total spend of
GBP364.8m, mainly on strategic investment and construction in both
the north and south regions, as well as progressing the replacement
of the submarine cable between Skye and Harris. All of which is
designed to deliver improvements for customers.
-- Significant further capex was deployed on SSE Renewables'
flagship projects, including nearly GBP500m investment on Seagreen,
Scotland's largest offshore wind farm, and around GBP100m on Viking
onshore wind farm, which will be one of Europe's most productive
onshore wind farms, once complete. In addition, progress was made
at the 30MW Lenalea onshore wind farm in County Donegal and the
38MW Gordonbush Extension onshore wind farm in Sutherland was
commissioned during the year.
-- Investment in SSE Thermal was focused on the final stages of
the 893MW Keadby 2 CCGT, with commissioning started in October 2021
and full commercial operation expected 1 October 2022.
In April 2022, an incident occurred on a sub-contractor S7000
installation vessel which is contracted to the Seagreen offshore
wind farm construction project. The project team are working
closely with contractors to manage and mitigate project impacts and
the project is currently expected to achieve first power in July
2022 and full commercial operation in April 2023.
SSE's Hedging Position at 18 May 2022
SSE has an established approach to hedging through which it
generally seeks to reduce its broad exposure to commodity price
variation at least 12 months in advance of delivery. As market
conditions change, SSE may decide to alter its hedging approach in
response to any changes in its exposure profile. SSE will continue
to provide a summary of its current hedging approach, including
details of any changes in the period, within its Interim and
Full-year Results statements.
A summary of the hedging position for each of SSE's market-based
businesses is set out below.
SSE Renewables - GB wind and hydro:
Forward power prices and volatility have been increasing, driven
by supply-demand tensions, the acceleration in carbon pricing,
nuclear outages and closures and the reconfiguration of the merit
order in both GB and Ireland. These trends have been amplified by
scarcity concerns across Europe. In response to this, SSE
Renewables has increased its hedge position against its target
volume for financial years 2023/24 and 2024/25.
In order to show this hedge acceleration, the table below has
been updated to show the position at 18 May 2022 for those
periods.
As at 31 March As at 18 May 2022
2022
2021/22 2022/23 2023/24 2024/25 2025/26
Expected volume
Wind - TWh 4.2 5.3 6.8 8.4 8.7
Volume hedged -
% 85% 91% 78% 37% 1%
Hedge price - GBPMWh GBP48 GBP54 GBP69 GBP105 GBP108
Expected volume
Hydro - TWh 3.6 3.5 3.7 3.8 3.8
Volume hedged -
% 83% 85% 70% 38% 1%
Hedge price - GBP/MWh GBP50 GBP63 GBP74 GBP110 GBP108
Volumes are based on average expected output, and the contracted
hedge price is either at 31 March or 18 May as noted in the table
above.
The expected volumes include anticipated volumes from SSE's wind
farms in construction, Seagreen (pre CFD) and Viking. No volumes
have been included for Dogger Bank wind farm. Seagreen accounts for
approximately 0.9TWh in 22/23 and 2.5TWh in each of 23/24, 24/25
and 25/26 with Viking accounting for 1.6TWh in 24/25 and 1.9TWh in
25/26. These volumes represent SSE's most up to date view of the
output from Seagreen taking account of recent issues encountered by
the S7000 installation vessel. In the event that further
construction delays result in a shortfall against wind hedged
volumes, it is expected that the exposure will continue to be
managed within the wider SSE generation portfolio.
The table excludes additional volumes and income for BM
activity, ROCs, ancillary services, pre-commissioning, capacity
mechanism and shape variations. It also excludes volumes and income
relating to Irish wind output, pumped storage and CfDs.
Energy output hedges for both wind and hydro are progressively
established over the 36 months prior to delivery (although the
extent of hedging activity for future periods depends on the level
of available market depth and liquidity). Target hedge levels
continue to be achieved through the forward sale of either
electricity, or gas and carbon equivalents (assuming a constant
1MWh : 69.444 th and 1MWh : 0.3815 te/MWh conversion ratio between
commodities), with the balance determined by the optimal hedge
price across those markets. This approach aims to reduce the
exposure of renewables assets to volatile spot power market
outcomes whilst still providing an underlying commodity price
hedge.
For wind energy output, SSE's established approach to hedging
seeks to account for the effect of the 'wind capture price' by
targeting a hedge of less than 100% of its anticipated wind energy
output for the coming 12 months. The targeted hedge percentage is
reviewed and adjusted as necessary to reflect any changes in future
market and wind capture insights. The last such revision occurred
in May 2021, with at least 90% of the anticipated energy output
from wind for the coming twelve months being hedged from that
date.
The approach to hedging hydro energy output remains unchanged at
approximately 85% of its forecast energy output for the coming 12
months.
UK Business Energy: The business supplies electricity and gas to
business and public sector customers. Sales to contract customers
are 100% hedged: at point of sale for fixed contract customers;
upon instruction for flexi contract customers; and on a rolling
hedge basis for tariff customers.
Given the pricing and macro-economic context Business Energy is
dynamically monitoring nearer term consumption actuals for any
early signs of demand variability, and adjusting future volumes
hedged accordingly.
GB Thermal: In the six months prior to delivery, SSE aims to
hedge all of the expected output of its CCGT assets, having
progressively established this hedge over the preceding eighteen
months. Hedging activity depends on the availability of sufficient
market depth and liquidity, which can be limited, particularly for
periods further into the future.
SSE continues to monitor market developments, in particular the
recent energy and carbon price volatility, and will adjust its
hedging approach to take account of any resultant change in
exposures.
Gas Storage: The annual auction to offer gas storage capacity
contracts from Atwick, held in April 2022, resulted in no
third-party contracts being secured. As such the assets are being
commercially operated to optimise value arising from changes in the
spread between summer and winter prices, market volatility and
plant availability.
Energy Portfolio Management (EPM): EPM provides the route to
market and manages the execution for all of SSE's commodity trading
outlined above (spark spread, power, gas, oil and carbon). This
includes monitoring market conditions and liquidity and reporting
net Group exposures. The business operates under strict position
limits and VAR controls. There is some scope for small
position-taking to permit EPM to manage around shape and liquidity
whilst taking small optimisation opportunities. This is contained
within a VAR limit of GBP2m (GBP1m for the curve period and GBP1m
for the prompt).
Ireland: Vertical integration of the generation and customer
businesses in Ireland limits the Group's commodity exposure in that
market.
Summarising movements on exceptional items
and certain remeasurements
Exceptional items
In the year to 31 March 2022, SSE recognised a net exceptional
gain within continuing operations of GBP305.0m before tax. The
following table provides a summary of the key components making up
the net gain position:
Exceptional Credits / (Charges) within continuing operations Total
GBPm
Disposals of non-core assets:
Contracting & Rail business - loss on disposal (18.9)
Impairments and other exceptional items
Thermal Electricity Generation historic impairment reversal 331.6
Gas Storage historic impairment reversal 97.3
Neos Networks investment impairment and adjustment to
consideration (113.1)
Other historic true-up credits 8.1
323.9
Total exceptional items 305.0
Notes:
- The definition of exceptional items can be found in Note 4.2
of the Summary Financial Statements.
- Non-core assets are defined as being assets in which SSE is
not the principal operator or are less aligned with the transition
to net-zero emissions.
In addition to the above exceptional items from continuing
operations, a net exceptional gain within discontinued operations
of GBP455.7m before tax was recognised. This net exceptional profit
consisted of:
-- a GBP576.5m gain recognised on completion of the disposal of
the Group's 33.3% investment in SGN on 22 March 2022; offset by
-- a GBP120.8m loss relating to the disposal of the Gas
Production assets and liabilities on 14 October 2021.
For a full description of exceptional items, see Note 7 of the
Summary Financial Statements.
Certain remeasurements
In the year to 31 March 2022, SSE recognised a net remeasurement
gain within continuing operations of GBP2,118.8m before tax. The
following table provides a summary of the key components making up
the net gain position:
Certain remeasurements within continuing operations Total
GBPm
Operating derivatives 2,100.4
Commodity stocks held at fair value (2.6)
Financing derivatives 21.0
Total 2,118.8
Operating derivatives
SSE enters into forward purchase contracts (for power, gas and
other commodities) to meet the future demands of its energy supply
businesses and to optimise the value of its generation assets. Some
of these contracts are determined to be derivative financial
instruments under IFRS 9 and as such are required to be recorded at
their fair value as at the date of the financial statements.
SSE shows the change in the fair value of these forward
contracts separately as this mark-to-market movement does not
reflect the realised operating performance of the businesses. The
underlying value of these contracts is recognised as the relevant
commodity is delivered, which for the large majority of the
position at 31 March 2022 is expected to be within the next 12-18
months.
The change in the operating derivative mark-to-market valuation
was a GBP2,100.4m increase from a small "in-the-money" position at
31 March 2021 into a significantly "in-the-money" position at 31
March 2022. This movement consisted of:
-- Settlement during the year of GBP(1,426.8)m of previously
"in-the-money" contracts in line with the contracted delivery
periods; and
-- Mark-to-market gains of GBP3,527.2m on unsettled contracts
entered into during the course of 2020/21 and 2021/22 in line with
the Group's stated approach to hedging. These mark-to-market gains
reflect the significant volatility in commodity markets during the
period.
As in prior years, the reported result does not include
remeasurement of 'own use' adverse hedging agreements which would
have settled at a mark-to-market loss in the year of c.GBP1.95bn
and which would be valued at c.GBP(2.1)bn at 31 March 2022; these
contracts are excluded from recognition under IFRS 9 and largely
offset the IFRS 9 remeasurement noted above.
Commodity stocks held at fair value
Gas inventory purchased by the Gas Storage business for
secondary trading opportunities is held at fair value with
reference to the forward month market price. The GBP(2.6)m negative
movement in the year mainly resulted from a decrease in the
underlying volumes of gas held at year end, as gas was sold in the
second half of the financial year realising the significant
increase in the fair value of that gas during the year.
Financing derivatives
In addition to the positive movements above, a positive movement
of GBP21.0m was recognised on financing derivatives in the year to
31 March 2022, including SSE's share of joint venture financing
derivative remeasurements, and related to mark-to-market movements
on cross-currency swaps and floating rate swaps that are classed as
hedges under IAS 39. These hedges ensure that any movement in the
value of net debt is predominately offset by a movement in the
derivative position. The adjustment was primarily driven by weaker
Sterling against the Dollar partially offset by stronger Sterling
against the Euro.
These remeasurements are presented separately as they do not
represent underlying business performance in the period. The result
on financing derivatives will be recognised in adjusted profit
before tax when the derivatives are settled.
Reported profit before tax and earnings per share
Taking all of the above into account, reported results for the
year to 31 March 2022 are significantly higher than the previous
year. In addition to the GBP2,118.8m cumulative net gain on forward
commodity, gas inventory and financing derivative fair value
remeasurements noted above, reported results also reflect the
reversal of historic SSE Thermal and Gas Storage impairment charges
of GBP428.9m as well as other pre-tax exceptional items totalling
GBP(123.9)m as detailed within Note 7 of the Summary Financial
Statements.
Reported results in the prior year reflected pre-tax exceptional
and certain re-measurement gains of GBP1,503.7m recognised which
were driven by a combination of progression with the Group's GBP2bn
plus non-core asset disposal programme and IFRS 9 remeasurements on
operating derivatives.
Financial management and balance sheet
Debt metrics March 2022 Sept 2021 March 2021
GBPm GBPm GBPm
Net Debt / EBITDA* 4.0 N/A 4.7
Adjusted net debt and hybrid capital (GBPm) (8,598.2) (9,611.4) (8,898.9)
Average debt maturity (years) 6.8 7.2 7.4
Adjusted interest cover (times) 4.0 1.6 3.5
Average interest rate for the period (excluding JV/assoc. interest and all hybrid
coupon payments) 3.29% 3.35% 3.12%
Average cost of debt at period end (including all hybrid coupon payments) 3.81% 3.89% 3 .75%
* Note: Net debt represents the group adjusted net debt and
hybrid capital. EBITDA represents the full year group adjusted
EBITDA, less GBP125.4m (at March 2022) for the proportion of
adjusted EBITDA from equity-accounted Joint Ventures relating to
project financed debt.
Net finance costs reconciliation March 2022 March 2021
GBPm GBPm
Adjusted net finance costs 372.8 384.6
Add/(less):
Lease interest charges (30.4) (35.3)
Notional interest arising on discounted provisions (5.7) (3.8)
Hybrid equity coupon payment 50.7 46.6
Adjusted finance costs for interest cover calculation 387.4 392.1
SSE Principal Sources of debt funding March 2022 Sept 2021 March 2021
Bonds 55% 58% 58%
Hybrid debt and equity securities 21% 22% 24%
European investment bank loans 7% 7% 8%
US private placement 9% 9% 8%
Short-term funding 5% 1% 0%
Index -linked debt 3% 3% 2%
% Of which has been secured at a fixed rate 96% 100% 98%
Rating Agency Rating Criteria Date of Issue
Moody's Baa1 'negative outlook' 'Low teens' Retained Cash Flow/Net Debt November 2021
Standard and Poor's BBB+ 'outlook stable' About 18% Funds From Operations/Net Debt November 2021
Maintaining a strong balance sheet
While there may be short-term fluctuations, a key objective of
SSE's approach to managing cash outflow and securing value and
proceeds from disposals is its target of a net debt/EBITDA ratio of
4.5x or lower across the five years to 31 March 2026.
As well as promoting the long-term success of the Company, this
approach is also designed to ensure that SSE maintains credit
rating ratios (Retained Cash Flow (RCF)/Net Debt and Funds From
Operations (FFO)/Net Debt) that are comparable with private sector
utilities across Europe and comfortably above those required for an
investment grade credit rating.
SSE's S&P credit rating remains at BBB+ 'stable outlook' and
its Moody's rating also remains at Baa1, but updated to 'stable
outlook' following the strategic review update in November
2021.
Adjusted net debt and hybrid capital
SSE's adjusted net debt and hybrid capital was GBP8.6bn at 31
March 2022, down from GBP8.9bn at 31 March 2021. This movement
reflects the completion of the non-core asset disposal programme
announced in 2020, which included completion of the sale of the
33.3% investment in SGN in March 2022, partially offset by the
ongoing investment programme, including the acquisition of an 80%
stake in a Japanese development platform from Pacifico Energy in
September 2021, as well as various working capital movements.
Following the significant debt issued in the 20/21 financial
year, where the SSE Group accessed the debt and hybrid capital
markets three times issuing c.GBP2.5bn of debt over six tranches,
no new medium- long-term debt was issued in the 2021/22 financial
year. The SSE Group did however re-enter the short-term Commercial
Paper market during the year and at 31 March 2022 had GBP507m of
Commercial Paper outstanding.
Debt summary as at 31 March 2022
As stated above no new medium- long-term debt was issued and
received in 2021/22 however the following two debt issues were
committed to or completed either side of the financial year
end:
-- In March 2022, the SSE Group through its SSEN Transmission
entity priced and committed to a 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 pricing was committed to in March 2022 and the proceeds will be
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
will now be 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 will be used to cover the portion of the
maturing hybrid that was swapped to Euros (EUR575m) and to finance
a portion of the Southern European onshore wind development
platform acquisition cost which is expected to complete by
September 2022.
In addition to the hybrid bonds called in June 2022 a further
GBP613m of medium- long-term debt matures in 2021/22 being GBP163m
(USPP) which matured in April 2022, GBP300m (Eurobond) maturing in
September 2022 and GBP150m (EIB) maturing in October 2022. A
further GBP507m of short-term debt in the form of Commercial Paper
is also due to mature in the first half of 2021/22, however the
current intention is to roll this maturing short-term debt forward
where possible.
Hybrid bonds summary as at 31 March 2022
Hybrid bonds are a valuable part of SSE's capital structure,
helping to diversify SSE's investor base and most importantly to
support credit rating ratios, with their 50% equity treatment by
the rating agencies being positive for SSE's credit metrics.
A summary of SSE's hybrid bonds as at 31 March 2022 can be found
below:
Issued Hybrid Bond Value* All in rate First Call Date Accounting Treatment
March 2017 GBP300m 3.73% September 2022 Debt accounted
March 2017 $900m (GBP749m) 2.72% September 2022 Debt accounted
July 2020 GBP600m 3.74% Apr 2026 Equity accounted
July 2020 EUR500m (GBP454m) 3.68% July 2027 Equity accounted
In accordance with the first call date, the EUR600m (GBP440m)
March 2015 Hybrid Bond was called and redeemed in April 2021 and
therefore not included in the table above. The March 2017 hybrids
have a 3-month par call option that SSE has invoked meaning these
two hybrids will now be called and settled on 16 June 2022.
Further details on each hybrid bond can be found in Notes 13 and
14 to the Summary Financial Statements and a table noting the
amounts, timing and accounting treatment of coupon payments is
shown below:
Hybrid coupon payments 2022/23 2021/22
HYe FYe HYe FYe
Total equity (cash) accounted GBP39m GBP39m GBP51m GBP51m
Total debt (accrual) accounted GBP21m GBP21m GBP15m GBP31m
Total hybrid coupon GBP60m GBP60m GBP66m GBP82m
SSE's March 2015 and July 2020 hybrid bonds are perpetual
instruments and are therefore accounted for as part of equity
within the Summary Financial Statements but, as in previous years,
have been included within SSE's 'Adjusted net debt and hybrid
capital' to aid comparability. The March 2017 hybrid bonds which
have been called and will be settled in 2022/23 had a fixed
redemption date and have therefore been debt accounted and included
within Loans and Other Borrowings; as such they were already part
of SSE's adjusted net debt and hybrid capital.
The coupon payments relating to the equity accounted hybrid
bonds are presented as distributions to other equity holders and
are reflected within adjusted earnings per share when paid. The
coupon payments on the debt accounted hybrid bonds are treated as
finance costs under IFRS 9.
Managing net finance costs
SSE's adjusted net finance costs - including interest on debt
accounted hybrid bonds but not equity accounted hybrid bonds - were
GBP372.8m in the year to 31 March 2022, compared to GBP384.6m in
the previous year after restatement for SGN related finance costs.
The relatively stable level of finance costs from year to year,
despite periods of high inflation, reflects the high proportion of
fixed rate debt held by the Group.
Reported net finance costs were GBP273.2m compared to GBP236.9m,
after restatement for SGN related finance costs, reflecting a
GBP34.6m year-on-year change in the mark-to-market revaluation of
financing derivatives held at fair value.
Summarising cash and cash equivalents
At 31 March 2022, SSE's adjusted net debt included cash and cash
equivalents of GBP1.0bn, down from GBP1.6bn at March 2021 which
reflects the continued strong cash generation from operating
activities, offset by a significant increase in capital investment,
a reduction in year-on-year disposal proceeds as the June 2020
non-core asset disposal programme came to an end and a net
repayment of borrowings. This continued strong cash position will
allow SSE to meet its near-term debt repayment and capital
investment needs as set out above.
As the fair value of forward commodity contracts has moved from
an 'in the money' position in the prior year to an 'out the money'
position in the current year, the related collateral required has
similarly unwound. At 31 March 2022, GBP74.7m of cash was provided
as collateral to third parties compared to GBP37.1m held as
collateral from third parties on these 'in the money' contracts in
the prior year.
Revolving Credit Facility / SHORT TERM FUNDING
SSE has GBP1.5bn 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
The facilities can also be utilised to cover short-term funding
requirements; however, they remain undrawn for most of the time and
at 31 March 2022 they were both undrawn.
Both facilities are classified as sustainable facilities with
interest rate and fees paid dependant on SSE's performance in
environmental, social and governance matters, as assessed
independently by Vigeo Eiris.
In addition to these committed bank facilities, the Group has
access to GBP100m 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. In 2021/22 growth was also financed
by disposal proceeds.
As a matter of policy, a minimum of 50% of SSE's debt is subject
to fixed rates of interest. Within this policy framework, SSE
borrows as required on different interest bases, with financial
instruments being used to achieve the desired out-turn interest
rate profile. At 31 March 2022, 96% of SSE's borrowings were at
fixed rates.
Borrowings are mainly in Sterling and Euros to reflect the
underlying currency denomination of assets and cash flows within
SSE. All other foreign currency borrowings are swapped back into
either Sterling or Euros.
Transactional foreign exchange risk arises in respect of
procurement contracts, fuel and carbon purchasing, commodity
hedging and energy portfolio management operations, and long-term
service agreements for plant.
SSE's policy is to hedge any material transactional foreign
exchange risks through the use of forward currency purchases and/or
financial instruments. Translational foreign exchange risk arises
in respect of overseas investments; hedging in respect of such
exposures is determined as appropriate to the circumstances on a
case-by-case basis.
Ensuring a strong debt structure through
medium- and long-term borrowings
The ability to raise funds at competitive rates is fundamental
to investment. SSE's fundraising over the past five years,
including senior bonds, hybrid capital and term loans, now totals
GBP7.7bn and SSE's objective is to maintain a reasonable range of
debt maturities. Its average debt maturity, excluding hybrid
securities, at 31 March 2022 was 6.8 years, down from 7.4 years at
31 March 2021. This movement reflects the GBP2.1bn of debt maturing
in the next 12 months and is forecast to return to 7.5 years during
2022/23. SSE's average cost of debt is now 3.81%, compared to 3.75%
at 31 March 2021.
Going Concern
The Directors regularly review the Group's funding structure and
have assessed that the Summary Financial Statements should be
prepared on a going concern basis.
In making their assessment the Directors have considered
sensitivities on the forecast future cashflows of the Group for the
period to 31 December 2023 resulting from the current volatile
market conditions; the Group's credit rating; the success of the
Group's disposal programme through 2020/21 and 2021/22; and the
successful issuance of GBP1.2bn of hybrid equity and private
placement debt issued since the March 2022 financial year end. The
Directors have also considered the Group's obligations under its
debt covenants, with projections to 31 December 2023 supporting the
expectation that there will be no breaches.
The Directors have also assessed that the Group remains able to
access Capital Markets, as demonstrated by the GBP3.7bn of debt
issued over the last 24 months. There is also an expectation of
continued availability of the Commercial Paper market along with
future available liquidity in the private placement market in
addition to the Group's existing liquidity with GBP1.5bn of undrawn
committed borrowing facilities.
SSE's principal joint ventures and associates
SSE's financial results include contributions from equity
interests in joint ventures ("JVs") and associates, all of which
are equity accounted. The details of the most significant of these
are included in the table below. This table also highlights SSE's
share of off-balance sheet debt associated with its equity
interests in JVs which totals less than GBP2.5bn as at 31 March
2022.
SSE principal JVs and Asset type SSE holding SSE share of external SSE Shareholder loans as
associates (1) debt as at 31 March 2022 at 31 March 2022
Seabank Power Ltd 1,234MW CCGT 50% No external debt No loans outstanding
Marchwood Power Ltd 920MW CCGT 50% No external debt GBP39m
Clyde Windfarm (Scotland) 522MW onshore wind farm 50.1% No external debt GBP127m
Ltd
Dogger Bank A Wind Farm Up to 1,200MW offshore 40% GBP532m Project financed
wind farm.
Dogger Bank B Wind Farm Up to 1,200MW offshore 40% GBP364m Project financed
wind farm.
Dogger Bank C Wind Farm Up to 1,200MW offshore 40% GBP185m Project Financed
wind farm.
Seagreen Windfarm Ltd 1,075MW offshore wind 49% GBP570m GBP477m (2)
farm
Seagreen 1a Ltd Offshore wind farm 50% No external debt GBP9m
extension
Lenalea Wind Energy Ltd 30MW of onshore windfarm 50% No external debt GBP3m
Beatrice Offshore 588MW offshore wind farm 40% GBP736m Project financed
Windfarm Ltd
Cloosh Valley Wind Farm 105MW onshore windfarm 25% GBP25m Project financed
(part of Galway Wind
Park)
Neos Networks Ltd Private telecoms network 50% No external debt GBP91m
Slough Multifuel Ltd 50MW energy-from-waste 50% No external debt GBP63m
facility
Stronelairg Windfarm Ltd 228MW onshore wind farm 50.1% No external debt GBP88m
Dunmaglass Windfarm Ltd 94MW onshore windfarm 50.1% No external debt GBP47m
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, GBP205m of the GBP477m of SSE
Shareholder loans advanced to Seagreen Windfarm Limited as at 31
March 2022 have been classified as equity.
Taxation
SSE is one of the UK's biggest taxpayers, and in the PwC survey
published in November 2021 was ranked 16th out of the 100 Group of
Companies in 2021 in terms of taxes borne (those which represent a
cost to the company, and which are reflected in its financial
results).
SSE considers being a responsible taxpayer a core element of its
social contract with the societies in which it operates. SSE seeks
to pay the right amount of tax on its profits, in the right place,
at the right time, and was the first FTSE 100 company to be awarded
the Fair Tax Mark. While SSE has an obligation to its shareholders,
customers and other stakeholders to efficiently manage its total
tax liability, it does not seek to use the tax system in a way it
does not consider it was meant to operate, or use tax havens to
reduce its tax liabilities.
Under its social contract SSE has an obligation to the society
in which it operates, and from which it benefits - for example, tax
receipts are vital for the public services SSE relies upon.
Therefore, SSE's tax policy is to operate within both the letter
and spirit of the law at all times.
In December 2021, SSE published 'Talking Tax 2021: Tax as a
driver for change' report. It did this because it believes building
trust with stakeholders on issues relating to tax is important to
the long-term sustainability of the business.
In the year to 31 March 2022, SSE paid GBP335.3m of taxes on
profits, property taxes, environmental taxes, and employment taxes
in the UK, compared with GBP379.0m in the previous year. The
reduction in total taxes paid in 2021/22 compared with the previous
year was primarily due to:
- The sale of SSE's Contracting business in June 2021. Only
three months of profit taxes, property taxes and employment taxes
are included in relation to that business in 2021/22 compared with
a full year in 2020/21;
- Lower Climate Change Levy being paid as a result of outages at SSE's gas-fired power stations .
In 2021/22 SSE also paid EUR46.4m of taxes in Ireland, compared
to EUR20.4m the previous year, due to increased profits in SSE's
Irish businesses. Ireland is the only country outside the UK in
which it currently has significant trading operations. SSE's
operations elsewhere are still at an early stage and are not yet
paying material amounts of tax.
As with other key financial indicators, SSE's focus is on
adjusted profit before tax and, in line with that, SSE believes
that the adjusted current tax charge on that profit is the tax
measure that best reflects underlying performance. SSE's adjusted
current tax rate, based on adjusted profit before tax, was 9.2%,
compared with 9.1% in 2020/21 on the same basis. Total deferred tax
for the period increased to GBP797.4m from GBP145.4m and was
principally driven by the tax effect on the significant
mark-to-market valuation movement on derivative contracts, in
addition to a GBP244.7m adjustment relating to the tax rate change
to 25% which was substantively enacted on 24 May 2021.
pensions
Contributing to employees' pension schemes - IAS 19 March 22 Sept 21 March 21
Pension scheme asset recognised in the balance sheet before deferred tax GBPm 584.9 501.7 543.1
Pension scheme liability recognised in the balance sheet before deferred tax GBPm - (63.7) (186.1)
Net pension scheme asset recognised in the balance sheet before deferred tax GBPm 584.9 438.0 357.0
Employer cash contributions Scottish Hydro Electric scheme GBPm 1.0 0.5 1.1
Employer cash contributions Southern Electric scheme GBPm 58.0 30.7 55.2
Deficit repair contribution included above GBPm 40.9 20.4 37.9
In the year to 31 March 2022, the net surplus across SSE's two
pension schemes increased by GBP227.9m, from GBP357.0m to
GBP584.9m, primarily due to actuarial gains of GBP197.3m and
contributions made to the schemes offset by current service
costs.
The valuation of the Southern Electric Pension Scheme ('SEPS')
increased by GBP253.5m in 2021/22 primarily due to actuarial gains
of GBP221.9m, in particular the impact of higher discount rates,
and deficit repair contributions exceeding service costs.
The Scottish Hydro Electric Pension Scheme ('SHEPS') has insured
against volatility in its deferred and pensioner members through
the purchase of 'buy-in' contracts meaning that the Group only
retains exposure to volatility in active employees. During the year
the SHEPS surplus decreased by GBP25.6m.
Additional information on employee pension schemes can be found
in Note 15 to the Summary Financial Statements.
business operating review
SSE's strategy of developing, building, operating and investing
in the electricity infrastructure and businesses needed in the
transition to net zero is delivered through a focused mix of
market-based and economically-regulated energy businesses.
SSE's businesses are key to enabling a net zero economy, have
significant growth potential and, importantly, fit together. With
common skills and capabilities in the development, building and
operation of world-class, highly technical electricity assets,
there are strong synergies between them. SSE's business mix is very
deliberate, highly effective, fully focused and well set to prosper
on the journey to net zero and beyond.
The review of the Business Units that follows provides
visibility of performance and future priorities.
Economically-regulated networks
SSE owns and operates an electricity transmission network in the
North of Scotland and two electricity distribution networks, one in
the North of Scotland and the other in central southern England.
SSE completed the sale of its entire 33.3% financial stake in
Scotia Gas Networks on 22 March 2022 to a consortium comprising
existing SGN shareholder Ontario Teachers' Pension Plan Board
(Ontario Teachers') and Brookfield Super-Core Infrastructure
Partners (Brookfield).
Owners of energy networks in Great Britain are remunerated
according to the RIIO (Revenue = Incentives + Innovation + Outputs)
framework set by Ofgem, under which the regulator determines an
annual allowed level of required capital expenditure and operating
costs, in order to meet required network outputs. These are added
together to form total expenditure or 'totex', which is split by
defined capitalisation rates which differ between networks.
Regulatory operational expenditure ('fast money') flows into
licensee revenue, whereas regulatory capex ('slow money') is added
to the regulatory asset value ('RAV') for each network. Licensees
earn a return on regulatory equity and receive an allowance for the
cost of debt, both of which are calculated based on a notional
split of their RAV. Revenues and RAV are index-linked under the
regulatory mechanism, providing a valuable hedge against rising
inflation. SSEN Distribution's income and asset base is linked to
RPI until the end of its current price control in March 2023; while
SSEN Transmission is linked to CPIH under its RIIO-T2 price control
until March 2026.
Each licensee has the opportunity to earn above its base return
on equity through delivering efficiency savings on totex.
Additionally, if service levels improve against targets, there is
an opportunity to earn additional income through incentives. In the
event that service levels fall below targets set out in the price
control, a penalty will be incurred which reduces network revenue
and therefore customer bills. This ensures that customers only
compensate networks for improving service levels. Further,
customers benefit from reduced bills when network providers achieve
efficiency savings on totex expenditure.
In Distribution, charges per MWh ('tariffs') are set by
licensees 15 months in advance of the regulatory year and are based
on forecasts of: (a) revenue which licensees are entitled to
collect in respect of the regulatory year ('allowed revenue'); (b)
the incentives and totex outperformance for the last three months
of the year in which the tariffs are set; and (c) the level of
volumes which will be distributed within the regulatory year.
Differences in collected versus allowed revenue (referred to as
'over- or under-recovery') are accommodated in allowed revenue two
years after the year in which they occur.
In Transmission, licensees are paid by the System Operator based
on a forecast of allowed revenue amount set three months in advance
of the regulatory year. While under RIIO-T1 the System Operator
assumed the risk of forecast volumes being different to outturn
(paying Transmission Operators a fixed allowed revenue irrespective
of volumes transported), under the RIIO-T2 price control settlement
this risk has been transferred to the Transmission Operators and
collected revenue for Transmission Operators can vary depending on
actual versus forecast volumes transported. For 2021/22, volumes
transported are higher than forecast and therefore SSEN
Transmission recovered around GBP9m in excess of its allowed
revenue. Over- or under-recovered volumes are accommodated in
allowed revenue in the following regulatory year, based on a
forecast set in November prior to that year, with a true-up in the
subsequent year for any variance to forecast.
SSEN Transmission
SSEN Transmission Marc h Marc h 21
22
Transmission adjusted and reported operating
profit - GBPm 380.5 220.9
Regulated Asset Value (RAV) - GBPm 4,155 3,631
Renewable Capacity connected to SSEN Transmission
Network - MW 7,790 6,750
Transmission adjusted investment and capital
expenditure - GBPm 614.5 435.2
SSEN Transmission overview
SSEN Transmission owns, operates and develops the high voltage
electricity transmission system in the North of Scotland and its
islands. Over the duration of the five-year RIIO-T2 price control,
which began in April 2021, total expenditure by SSEN Transmission
is expected to reach at least GBP2.8bn (the Certain View) which
would take Transmission RAV to in excess of GBP5bn by the end of
RIIO-T2.
In addition to the Certain View expenditure, under Ofgem's
Uncertainty Mechanisms changes to the allowed revenue are permitted
during the price control period to reflect additional investment
requirements, when their need or expected timeframe are not known
at the outset. These Uncertainty Mechanisms are used to fund
further upgrades to the network during the price control period,
when there is more certainty around the scope of work required.
This investment plays a pivotal role in providing critical national
infrastructure and to maintain network reliability for the
communities SSEN Transmission serves as it delivers a network for
net zero.
Operational delivery
SSEN Transmission has made a strong start in delivering against
its regulatory settlement during the first year of the new
five-year RIIO-T2 price control period. Building on its strong
track record of consistently delivering over 99.99% network
reliability - and in line with its RIIO-T2 goal to aim for 100%
transmission network reliability for homes and businesses - in
2021/22, SSEN Transmission achieved the full reward of GBP0.7m
through the Energy Not Supplied Incentive. This is the second
consecutive year SSEN Transmission has achieved the full Energy Not
Supplied Incentive available and the 2021/22 reward will be
reflected in revenue in 2023/24.
In addition to exceptional operational performance in the year,
SSEN Transmission continues to deliver against its strategic
objective to enable the transition to a low-carbon economy as it
builds a network for net zero in the North of Scotland. The RIIO-T2
period is expected to deliver significant growth in the capacity of
renewables connected to SSEN Transmission's network, from under 7GW
at the start of RIIO-T2 to around 14GW by March 2026. This includes
growth of around 1GW in 2021/22, which brings the total installed
capacity connected to the North of Scotland transmission network to
around 9GW, of which just under 8GW is from renewable sources. SSEN
Transmission is well on its way to delivering its RIIO-T2 goal to
transport the renewable electricity that powers 10m homes, which
will be met once the installed capacity of renewables reaches
10GW.
This forecast growth in renewables will be enabled by a series
of strategic investments in new and upgraded infrastructure.
Excellent progress continues to be made on the Shetland HVDC
transmission link, which has now been in construction for over 18
months and will see Shetland connected to the GB transmission
system for the first time, enabling the connection of renewables
and supporting Shetland's future security of supply. The substation
and convertor station sites at Kergord (Shetland) and switching
station at Noss Head (Caithness) are taking shape, with all main
building structures now complete. Cable installation preparatory
works have also progressed well, with all land cable ducting now in
place and the first phase of subsea boulder clearing successfully
completed. Subsea cable installation works will follow from
2022/23, alongside the fit out of substation and convertor station
buildings, with the project on track for completion and
energisation in 2024.
The second phase of the Inveraray to Crossaig overhead line
replacement project in Argyll, from Port Ann to Crossaig, is also
progressing well, with the replacement line remaining on track for
completion by summer 2023.
Excellent progress continues on works to increase incrementally
the capacity of the north east and east coast transmission network
to 275kV then to 400kV, with new substations at New Deer and
Rothienorman now energised at 275kV, to be subsequently upgraded to
400kV in 2023. The 400kV overhead line (OHL) upgrade works between
Peterhead, Rothienorman and Blackhillock are also well under way
and are due for completion in 2023, with the overall upgrade of the
east coast network to 400kV remaining on track for completion in
2026.
At both Alyth and Kinardochy, construction of new substations,
including specialist voltage control devices, have commenced with
good progress also being made at Peterhead substation and an
upgrade to Tealing substation.
To support SSEN Transmission's 1.5 degC science-based targets
for emissions reductions, including its RIIO-T2 goal to deliver a
one third reduction in greenhouse gas emissions, the business
remains at the forefront of industry efforts to remove harmful
SF(6) gases from its infrastructure, working with its supply chain
to develop and deliver innovative alternatives. This includes the
world's largest installation of GE's g3 gas-insulated substation at
New Deer substation and the world's first g3 400kV substation at
Kintore.
For financial performance commentary please refer to the Group
Financial Review.
growth opportunities in RIIO-T2
During 2021/22, SSEN Transmission has made excellent progress
progressing plans for a number of investments over and above its
GBP2.8bn Certain View. These additional investments, which are
being taken forward through Ofgem's Uncertainty Mechanisms, will be
key to delivering a pathway for net zero.
In March 2022, Ofgem provisionally approved the Final Needs Case
(FNC) for the first of two planned HVDC links connecting Peterhead
to demand centres in England. Work on the initial 2GW Peterhead to
Drax link, with a combined investment of around GBP2.1bn, will be
progressed jointly by SSEN Transmission and National Grid
Electricity Transmission (NGET). Development and early construction
activity and expenditure will continue during RIIO-T2, with
delivery and energisation in 2029 (RIIO-T3).
Also in March 2022, SSEN Transmission submitted its Initial
Needs Case (INC) to Ofgem for the Argyll and Kintyre 275kV
Strategy. At an estimated total investment of around GBP400m, this
is required to upgrade the main Argyll transmission network from
132kV, supporting the forecast growth in renewables in the
region.
In April 2022, Ofgem published its response to SSEN
Transmission's INC for the replacement and upgrade of the Fort
Augustus to Skye transmission line, recognising the clear need for
the project, paving the way to progress to the FNC stage of the
regulatory approvals process. At an estimated total investment of
around GBP400m, the replacement line is required to maintain
security of supply and to enable the connection of renewable
electricity generation along its route.
Further expenditure to connect new renewable generation, rail
electrification and system security is also expected throughout the
RIIO-T2 period and beyond when the need for this investment becomes
certain. These investments could see the total installed generation
capacity increase to around 14GW by the end of RIIO-T2, with up to
13GW of this expected from renewable sources. Subject to regulatory
approval, combined, these investments, alongside the Certain View,
could bring the total expenditure across the RIIO-T2 period to over
GBP4bn, with SSEN Transmission RAV increasing to between GBP6.5bn
to GBP7bn by the end of RIIO-T2.
growth Opportunities beyond riio-t2
In January 2022, Crown Estate Scotland published the outcome of
the ScotWind leasing round, awarding leases with a potential
capacity of around 25GW, vastly exceeding the anticipated 10GW of
potential capacity expected to be leased. In April 2022, the UK
Government published its British Energy Security Strategy (BESS),
which included an increased offshore wind ambition from 40GW to
50GW by 2030 and a clear direction for Ofgem to support
anticipatory investment in strategic network projects ahead of
demand, which will be formalised in a Strategic Policy Statement
from BEIS to Ofgem later this year. Enabling ScotWind's ambition
and the UK Government's 50GW target will require significant
transmission upgrades in both onshore and offshore transmission
infrastructure.
In January 2022, National Grid Electricity Transmission (NGESO)
published its 2022 Networks Options Assessment (NOA). This provided
strong 'proceed' signals recommending several major reinforcements
in the North of Scotland to meet forecast future energy scenarios,
although these will still require Ofgem approval. The NOA
recommended the following investments in SSEN Transmission's
network region:
-- Two subsea high-voltage direct current (HVDC) links from Peterhead to England;
-- A second HVDC link from Spittal in Caithness, connecting to Peterhead; and
-- Strategic onshore reinforcements north of Inverness and between Inverness and Peterhead.
In addition to the opportunities outlined above, SSEN
Transmission continues to work with stakeholders in Orkney and the
Western Isles to develop and take forward proposals to enable
mainland transmission connections. Changes to the structure of the
forthcoming Contracts for Difference (CfD) auction, with offshore
wind now in a separate pot to remote island wind, may increase the
competitiveness of remote island wind which, in turn, could support
the investment case for the proposed transmission links. The
outcome of the next CfD auction is expected in the summer of
2022.
Ssen distribution
SSEN Distribution Marc h 22 Marc h 21
Distribution adjusted and reported
operating profit - GBPm 351.8 275.8
Regulated Asset Value (RAV) - GBPm 4,054 3,792
Distribution adjusted investment and
capital expenditure - GBPm 364.8 350.8
Electricity Distributed - TWh 37.6 36.1
Customer minutes lost (SHEPD) average
per customer 57 57
Customer minutes lost (SEPD) average
per customer 42 44
Customer interruptions (SHEPD) per
100 customers 56 64
Customer interruptions (SEPD) per 100
customers 42 48
SSEN Distribution overview
SSEN Distribution, operating under licence as Scottish Hydro
Electric Power Distribution plc (SHEPD) and Southern Electric Power
Distribution plc (SEPD), is responsible for safely and reliably
maintaining the electricity distribution networks supplying over
3.8m homes and businesses across central southern England and the
North of Scotland. SSEN Distribution's networks cover the greatest
land mass of any of the UK's Distribution Network Operators over
75,000km(2) of extremely diverse terrain.
In December 2021, SSEN Distribution published its RIIO-ED2 Final
Business Plan for 2023 to 2028. Titled 'Powering Communities to Net
Zero' it sets out the GBP3.99bn of flexibility and network
investment required to accelerate net zero in a way that is
efficient and affordable.
Operational delivery
SSEN Distribution continues to undertake a major capital
investment programme across both its networks, delivering
significant improvements for customers and increasing its Regulated
Asset Value. In the 12 months to 31 March 2022, the business
invested GBP364.8m, bringing the total invested since the beginning
of the RIIO-ED1 price control to around GBP2.3bn. This is part of a
forecast GBP2.7bn investment throughout the RIIO-ED1 period,
supporting future earnings through RAV growth. This includes
progressing GBP41m of strategic investment approved through the
Green Recovery programme in 2021.
2021/22 investment has included a multi-million pound upgrade to
an essential section of Hampshire's infrastructure in Fareham,
completed in January 2022; and a substantial programme of works to
boost power supplies to homes and businesses on the Isle of Wight
comprising the complete refurbishment of two 132kV transformers
along with the replacement of two 33kV circuit breakers. In the
North of Scotland, work commenced on a GBP9.5m project to boost the
resilience and reliability of the network around Aultbea and
Ullapool, and a GBP7m investment programme to enhance security of
supply across Tayside.
Incentive performance remains a revenue driver and SSEN
prioritises improving reliability of network performance and
supporting a positive customer experience. Under the RIIO
regulatory regime, and the Interruptions Incentive Scheme (IIS),
SSEN Distribution is incentivised on its performance against the
loss of electricity supply through the recording of Customer
Interruptions (CI) and Customer Minutes Lost (CML) which includes
both planned and unplanned supply interruptions. These incentives
will typically be collected two years after they are earned.
The winter of 2021/22 saw six exceptional weather incidents
which had a major impact on SSEN Distribution's network, causing in
excess of 2,600 points of damage. In total, 10 Met Office Weather
Warnings were in place last winter for both licence areas.
Whilst SSEN Overall Customer Satisfaction (CSAT) is broadly in
line with last year at 87%, the incentive reward has been impacted
due to the unprecedented storm season. The volume of calls
presented during the winter period (October to February) was
equivalent to a normal year's worth of calls, resulting in reduced
customer satisfaction metrics. As a result, the overall incentive
reward under the Broad Measure of Customer Satisfaction reduced in
2021/22 to GBP2.7m from GBP4.9m the previous year. It is expected
that a best ever score from the Stakeholder Engagement and Customer
Vulnerability (SECV) incentive will be achieved in 2021/22, which
would result in an increased incentive revenue from GBP1.6m to
GBP1.9m.
For financial performance commentary please refer to the Group
Financial Review.
Growth opportunities In RIIO-ED2
As a provider of critical national infrastructure, SSEN
Distribution is playing a vital role in accelerating the transition
to net zero. The business is on track to deliver its key ED1
outputs and, in October 2021, became the first DNO to set a
1.5degC-aligned target accredited by the Science Based Target
initiative.
In April 2022, the UK Government's British Energy Security
Strategy recognised the importance of strategic network investment
which is essential to meeting the expected demand growth in
RIIO-ED2 and future price control periods. DNOs will unlock
billions of pounds in investment in wider economic benefits for a
net zero future.
SSEN Distribution now awaits Ofgem's draft determination on its
ambitious, stakeholder-led business plan for the RIIO-ED2 period.
This will be an acid test of the regulator's alignment with the
British Energy Security Strategy and fundamentally its approach to
delivering the necessary strategic investment for networks to be an
enabler, rather than a blocker, of net zero. SSEN Distribution
continues to engage proactively with Ofgem and government on
achieving a fair ED2 outcome that protects current and future
consumers, and delivers the outcomes customers want at a pace
consistent with a rapid growth environment.
The proposals within SSEN Distribution's Final Business Plan for
ED2 are a key part of SSE's Net Zero Acceleration Programme. The
plan was co-created with stakeholders and this engagement will
continue to ensure that their ambitions are reflected in the
process. The Final Business Plan proposes a total base expenditure
of GBP3.99bn representing a 32% increase over an equivalent
timeframe in RIIO-ED1, and reflecting additional requirements for
customers over the five years to 2028. The proposed baseline spend
provides a low-regret foundation enabling all scenarios and
optionality, without which DNOs risk becoming a blocker to customer
demands for EV and heat pump connections through ED2 and beyond and
increasing costs for future generations.
Late 2021 saw much-awaited publications and strategies related
to heat decarbonisation. The UK Government confirmed its ambition
to upscale the installation of heat pumps to at least 600,000 a
year by 2028 and to make its Boiler Upgrade Scheme available for
early adopters, while the Scottish Government has set a 2030 target
for at least 1m homes to have switched to zero emissions heat. It
is anticipated that there will be over 800,000 heat pumps across
SSEN Distribution's networks by the end of RIIO-ED2. The Final
Business Plan sets out the required investment to ready the network
for net zero, consistent with this projection.
The Scottish Government's January 2022 publication, A Network
Fit For The Future: Draft Vision for Scotland's Public Electric
Vehicle Charging Network, confirmed its desire to enable new models
of public electric vehicle chargepoint financing and delivery,
focused on public and private partnerships, to support and
coordinate investment. In March 2022, the UK Government's EV
Infrastructure Strategy set out ambitions for EV chargepoints to be
seamlessly integrated into a smart energy system with at least
300,000 public chargepoints installed by 2030. By this date, the
2021 DFES projects that SSEN Distribution's licence areas could
support up to 10.8GW of electric vehicle charging capacity. SSEN
Distribution has set out investment plans to help provide the
increased capacity needed to enable these projections and to ready
its network to facilitate 1.3m electric vehicles by 2028.
SSE Renewables
SSE Renewables key performance indicators
SSE Renewables Marc h 22
Marc
h
21
Renewables adjusted operating profit
- GBPm 568.1 731.8
Renewables reported operating profit
- GBPm 427.8 856.0
Renewables adjusted investment and capital
expenditure before refunds - GBPm 811.0 294.3
Generation capacity - MW
Onshore wind capacity (GB) - MW 1,285 1,247
Onshore wind capacity (NI) - MW 122 122
Onshore wind capacity (ROI) - MW 567 567
Total onshore wind capacity - MW 1,974 1,936
Offshore wind capacity (GB) - MW 487 487
Conventional hydro capacity (GB) - MW 1,159 1,159
Pumped storage capacity (GB) - MW 300 300
Total renewable generation capacity
(inc. pumped storage) -
MW 3,920 3,882
Contracted capacity 2,792 2,792
Generation output - GWh
Onshore wind output (GB) - GWh 2,502 2,377
Onshore wind output (NI) - GWh 264 282
Onshore wind output (ROI) - GWh 1,196 1,354
Total onshore wind output - GWh 3,962 4,013
Offshore wind output (GB) - GWh 1,430 1,845
Conventional hydro output (GB) - GWh 3,107 3,476
Pumped storage output (GB) - GWh 227 244
Total renewable generation (inc. pumped
storage) - GWh 8,726 9,578
Total renewable generation (also inc.
constrained off) - GWh 9,423 10,171
Note 1: Capacity and output based on 100% of wholly owned sites
and share of joint ventures
Note 2: Contracted capacity includes sites with a CfD, eligible
for ROCs, or contracted under REFIT
Note 3: Onshore wind output excludes 469GWh of constrained off
generation in 2021/22 and 592GWh in 2020/21; Offshore wind output
excludes 228GWh constrained off generation in 2021/22 and 1GWh in
2020/21
Note 4: Onshore wind capacity in GB reflects the commissioning
of Gordonbush Extension in August 2021
Note 5: Biomass capacity of 15MW and output of 73GWh in 2021/22
and 71GWh 2020/21 is excluded, with the associated operating profit
or loss reported within Distributed Energy
SSE Renewables overview
SSE Renewables comprises the Group's existing operational assets
and those under development in onshore wind, offshore wind,
flexible hydro electricity, run-of-river hydro electricity and
pumped storage. Its operational offshore wind installed capacity is
487MW with its onshore wind and hydro electric installed capacity
at 1,936MW and 1,459MW respectively.
Operational delivery
SSE Renewables' hydro assets continue to play an important role
in providing cost-effective, low-carbon flexibility to the system,
which is providing additional diversified revenue streams. Hydro
assets performed very strongly across the year, with availability
at an all-time high between December and March and providing much
needed flexible peak capacity to the market. In addition, Foyers
pumped hydro station was fully available through periods of very
high demand.
Despite natural wind resources being below normal yearly
averages, a steady second half of the year - coupled with high
plant performance to maximise production - led to a year-end
position of onshore wind volumes at 88% of planned volume.
Offshore, Beatrice saw excellent availability in the second half
and Greater Gabbard saw improved turbine availability over the 12
months. Offshore wind speeds returned to average after low wind
speeds in the first half of the year, resulting in improved
volumes.
As part of SSE Renewables' continued investment into its asset
management capabilities, it has just been awarded certification in
the ISO55001 standard for asset management for its operational
organisation.
For financial performance commentary please refer to the Group
Financial Review.
Construction programme
All three phases of the world's largest offshore wind farm at
Dogger Bank (each 1,200MW, SSE share 40%) remain on track. Onshore
works are continuing, and offshore construction is now under way
with installation of the HVDC export cables for Dogger Bank A.
Dogger Bank C reached financial close in December 2021, and in
February 2022, SSE Renewables and Equinor each sold a 10% share in
this third phase to Eni.
On Seagreen 1 (1,075MW, SSE share 49%) there are currently 21
jackets and turbines installed on what will be the world's deepest,
fixed-bottom offshore wind farm once operational. The offshore
substation platform is successfully installed and commencing
commissioning works. All onshore cabling works and export cable
installation is progressing as planned. SSE currently expects first
power in July with commercial operations by mid-April 2023. In
April 2022, an incident occurred on a sub-contractor S7000
installation vessel which is contracted to the Seagreen project.
The project team is working closely with contractors to manage and
mitigate project impacts. Seagreen 1 is eligible to participate in
the UK CfD Allocation Round 4 (AR4). Bids are due to be submitted
by 15 June 2022 with the results of the auction expected by 8 July
2022.
Construction is progressing well on Viking (443MW) with almost
all of the access tracks completed and 83 of 103 bases excavated.
Work on the DC substation is continuing with the first two
transformers due to be delivered by June 2022. Turbines will be
installed in early 2023 and completion is planned for July 2024.
Viking is expected to be amongst the highest-yielding onshore wind
farms in Europe, producing almost 2TWh annually. It is also
eligible to enter AR4.
At Lenalea wind farm (30MW, SSE share 50%) in Ireland,
construction is progressing and is to be commissioned in late
2022/early 2023.
In July 2021, Beatrice Offshore Wind Farm Limited, a joint
venture owned 40% by SSE Renewables, agreed divestment of its
Offshore Transmission Owner assets at an asset value of GBP437.9m
and full asset transfer took place on 5 August 2021.
Gordonbush Extension (38MW), SSE's first merchant onshore wind
project, was fully commissioned and handed over to operations
following its official opening in August 2021.
In Hydro, investment in works to modify three key stations,
Sloy, Glendoe and Errochty, has started and will increase the
capability of these stations in providing essential services to the
grid. And in April 2022, a GBP50m investment to upgrade Tummel
Bridge power station commenced which will increase the station's
potential power output from 34MW to 40MW, with a return to service
expected in Autumn 2023.
Growth opportunities - domestic
SSE Renewables' core markets of the UK and Ireland still offer
considerable opportunities for growth over the near, medium and
long term.
Near term, onshore wind growth can be delivered through SSE
Renewables' consented sites at Strathy South (208MW) and Tangy
repower (57MW) in Scotland. Yellow River (104MW) in Ireland was
provisionally successful in the May 2022 RESS-2 auction in Ireland
and will now progress towards a final investment decision. Consent
applications have been submitted to the Scottish Government for
Bhlaraidh Extension (in excess of 100MW), and Achany Extension (in
excess of 80MW).
Offshore, near-term growth is expected to come from the
consented Seagreen 1A (500MW, SSE Renewables share 49%), which is
an extension to the Seagreen 1 offshore wind site. Seagreen 1A is
eligible to participate in AR4. Should a Financial Investment
Decision (FID) be reached, it could be operational by 2025/26.
In the medium term, out to the end of the decade, there is a
wealth of opportunities. In addition to the UK's increased offshore
target of 50GW by 2030, from 40GW noted above, the British Energy
Security Strategy set out a raft of measures which will see
permitting of offshore wind projects accelerated. SSE Renewables'
unrivalled offshore wind pipeline will play a key role in meeting
this new target.
SSE Renewables is working towards a consent application
submission in Q3 2022 for the up to 4.1GW Berwick Bank wind farm
with the aim of securing consent in 2024 and being operational
around the end of the decade.
North Falls wind farm (up to 504MW, SSE Renewables share 50%),
which is an extension to the Greater Gabbard wind farm off the east
coast of England, continues to progress with local consultation
under way for a potential grid connection in North Essex. North
Falls could also be operational by 2030.
SSE Renewables has added its first floating offshore wind
project to its domestic pipeline with the success in Crown Estate
Scotland's ScotWind offshore wind seabed leasing process as part of
a consortium with Marubeni Corporation and CIP (Copenhagen
Infrastructure Partners). The up to 2.6GW site (SSE Renewables
share 40%) in the E1 Zone in the Firth of Forth will be one of the
largest floating wind projects in the world and aims to start
generating by 2030. This will play an important part in meeting the
UK Government's increased floating wind target of 5GW by 2035.
SSE Renewables also aims to contribute additional capacity
needed to meet Ireland's offshore wind target of 5GW by 2030.
Following the introduction by the Irish Government of the Maritime
Area Planning (MAP) Act in December 2021, SSE Renewables will now
progress Arklow Bank Wind Park 2 via this new consenting regime.
The revised project will proceed with an increased capacity of
800MW. Subject to securing the necessary consents and if successful
in the first Offshore Renewable Energy Support Scheme (ORESS)
auction, expected at the end of 2022, Arklow Bank Wind Park 2 could
be operational by 2028.
A foreshore licence has been secured for site investigations for
the 1,000MW Braymore Wind Park project off the north-east coast and
an application has been submitted for the 1,200MW Celtic Sea Array
off the south-east coast. Celtic Sea Array and Braymore Wind Park
will both apply for a Marine Area Consent (akin to a seabed lease)
in the Irish Government's next phase, expected in 2023.
Onshore, there continues to be positive progress on SSE
Renewables' consented Coire Glas pumped hydro storage project (up
to 1,500MW). Coire Glas would double the current amount of
electricity storage capacity in Great Britain and create energy
storage capacity of 30GWh, equivalent to powering around 3m homes
for up to 24 hours. The British Energy Security Strategy identified
the importance of long duration storage, and a policy decision in
response to the BEIS call for evidence on possible policy
interventions, such as cap and floor mechanism to support long
duration storage, is expected imminently. Subject to the outcome of
these policy decisions, Coire Glas could progress to an FID
decision by 2023/24 with the objective of being completed before
the end of the decade.
SSE has ambitions to develop, build and operate >1 GW of
'green' hydrogen in industrial clusters and co-located with wind by
2031. As part of this, SSE Renewables has kickstarted its first
electrolysis projects. Currently in the early stages of
development, the Gordonbush H2 project will use a portion of the
renewable energy from the 100MW-plus Gordonbush onshore wind farm
to produce up to 2,000 tonnes of green hydrogen each year,
contributing to the new UK 5GW electrolytic hydrogen target. SSE
Renewables is also part of Galway Hydrogen Hub (GH2), a consortium
proposing to develop an initial flagship demonstrator project at
Galway Harbour, for the indigenous production and supply of green
hydrogen fuel for public and private vehicles.
Sse renewables project pipeline
Project Location Technology Capacity (MW) SSE Share (MW)
Due FID or in Construction
Dogger Bank A GB Offshore wind 1,200 480
Dogger Bank B GB Offshore wind 1,200 480
Dogger Bank C GB Offshore wind 1,200 480
Seagreen 1 GB Offshore wind 1,075 527
Viking GB Onshore wind 443 443
Lenalea ROI Onshore wind 30 15
Consented
Seagreen 1A(1) GB Offshore wind 500 245
Yellow River ROI Onshore wind 104 104
Tangy GB Onshore wind 57 57
Strathy South GB Onshore wind 208 208
Coire Glas GB Pumped storage Up to 1,500 Up to 1,500
Requiring consent
Berwick Bank(2) GB Offshore wind Up to 4,100 Up to 4,100
ScotWind E1 Lease GB Offshore wind 2,600 1,040
Arklow Bank 2(3) ROI Offshore wind 800 800
North Falls GB Offshore wind 504 252
Cloiche GB Onshore wind 155 155
Other - Onshore wind c200 c200
Future prospects(4)
Braymore Point ROI Offshore wind 1,000 1,000
Celtic Sea Array ROI Offshore wind 1,200 1,200
Japanese development projects Japan Offshore wind 10,000 8,000
Other GB GB Onshore wind c250 c250
Other NI NI Onshore wind c50 c50
Other ROI ROI Onshore wind c250 c250
Other GB GB Hydro 75 75
Note 1: Seeking variation to existing consent
Note 2: Berwick Bank and Marr Bank offshore wind farms were
combined into one wind farm in September 2021, known as Berwick
Bank Wind Farm
Note 3: Entering new Irish Marine Area Planning process with
revised capacity proposed
Note 4: Reflects named development areas where some form of
development activity is underway and therefore excludes any future
or in-flight auction processes
Note 5: SSE agreed to acquire 4.9GW Siemens Gamesa Renewable
Energy onshore wind and solar platform in April 2022 with projects
excluded above ahead of the acquisition completing. Completion is
expected by end September 2022
Growth opportunities - international
SSE Renewables made important progress in its international
expansion plans in April 2022 when it entered into an agreement
with Siemens Gamesa Renewable Energy for the acquisition of an
onshore wind development platform totalling c.3.9GW across Spain,
France, Italy and Greece for a consideration of EUR580m. The
portfolio includes scope for up to 1GW of additional co-located
solar development opportunities. The move marks SSE Renewables'
entry into Southern Europe and creates a wider opportunity to
pursue a balanced range of technologies, e.g. wind, solar,
hydrogen, and storage. As part of the transaction, SSE Renewables
will take on a team of around 40 employees with vast local
experience in the sector. The transaction is likely to complete by
the end of September 2022, subject to receipt of relevant foreign
direct investment and regulatory approvals.
In September 2021, SSE Renewables progressed into Japan with the
creation of a new joint ownership company, SSE Pacifico (80%
stake), which includes the acquisition of an interest in an
offshore development platform for US$208m. The new company will
develop the acquired 10GW gross portfolio, comprising a number of
early development stage offshore wind projects in Japan. It
includes a mix of fixed bottom and floating sites with the most
advanced projects expected to be constructed by the end of this
decade.
SSE Renewables has submitted an application to the Polish
government for an Offshore Location License (OLL) for the
allocation of development rights for an offshore wind farm in the
Baltic Sea, which would be developed in partnership with Acciona
Energia. The process is expected to run until Q3 2022.
SSE Renewables also continues to work with Acciona Energia on
offshore wind opportunities in Spain. The Spanish Government
published its draft offshore wind roadmap in August which set out
an ambition to target up to 3GW by 2030.
In the Netherlands, SSE Renewables has submitted bids in the
1.4GW Hollandse Kust (west) offshore wind tender for two separate
sites of 750MW each. Ecological innovation and energy systems
integration are key assessment criteria. SSE Renewables has formed
a 50/50 strategic partnership with Brookfield for the bid, who have
strong offtaker relationships in the Netherlands. SSE Renewables
has also recently opened an office in Rotterdam.
SSE Renewables is also assessing other growth options across
selected markets in Northern Europe and the United States. Towards
the end of the financial year, it opened an office in Boston and is
assessing participation in upcoming offshore leasing rounds, for
example, in California, which is expected to take place in Autumn
2022.
SSE Thermal
SSE Thermal key performance indicators
SSE Thermal Marc h 22 Marc h 21
Thermal adjusted operating profit -
GBPm 306.3 160.5
Thermal reported operating profit -
GBPm 630.1 775.3
Thermal adjusted investment and capital
expenditure - GBPm 129.3 106.5
Generation capacity - MW
Gas- and oil-fired generation capacity
(GB) - MW 3,975 3,992
Gas- and oil-fired generation capacity
(ROI) - MW 1,292 1,292
Total thermal generation capacity
- MW 5,267 5,284
Generation output - GWh
Gas- and oil-fired output (GB) - GWh 11,303 15,324
Gas- and oil-fired output (ROI) - GWh 2,962 2,433
Multifuel output - GWh - 251
Total thermal generation - GWh 14,265 18,008
Note 1: Capacity is wholly owned and share of joint ventures
Note 2: Output is based on SSE 100% share of wholly owned sites
and 100% share of Marchwood PPAs due to the contractual
arrangement. In September 2021 SSE's offtake agreement for 100% of
output from its Seabank CCGT JV expired, with output following that
date only recognised to the extent of its 50% equity share.
Note 3 : SSE announced the sale of its stake in Ferrybridge and
Skelton Grange multifuel assets on 13 October 2020
Note 4: Decreased gas- and oil-fired capacity relates to closure
of 17MW small diesel plant
SSE Thermal overview
SSE Thermal owns and operates conventional thermal generation in
the UK and Ireland. These assets play a key transitional role in
the SSE Group and wider energy system, supporting the Balancing
Mechanism on the journey to net zero. While providing much-needed
system flexibility to ensure stability and security of supply in
the short term, SSE Thermal is actively developing options to
progressively decarbonise its fleet.
Operational delivery
SSE Thermal's combined cycle gas turbine (CCGT) fleet has played
an important role in the UK, providing flexibility at scale to
support a tight and volatile energy market, demonstrating the value
it delivers within the SSE Group portfolio, providing balance when
wind resource is scarce, and the importance of flexible assets in
securing a resilient transition to net zero.
In the GB market, significant periods of scarcity in the year
have led to increased forward spark spreads allowing value to be
secured by the fleet ahead of delivery. This has been complemented
by the fleet's ability to respond to on-the-day market requirements
to balance the system, through the Balancing Mechanism. In the
Irish market, the system has been tighter than normal, with lower
generation capacity available. As a result, SSE Thermal's assets in
Ireland have played an important role in keeping the lights on.
With the value of the SSE Thermal portfolio coming from its
ability to respond to market conditions, plant availability has
been managed responsibly to respond to system balancing needs; an
approach that is likely to become more important as the volume of
renewable capacity on the system increases. In providing these
vital balancing services, strong operational performance is
therefore less dependent upon the volume of its output and more on
the availability of the plant at times of system stress. Reduced
plant availability in the year was predominantly concentrated in
the first six months and was driven by a number of factors
including unplanned outages to respond to faults and maintenance
requirements, slight overrun of planned outages and the phasing of
outages towards the first half of the year to respond to system
needs.
SSE's UK-based CCGT fleet has secured valuable Capacity Market
agreements for winter 2022/23 and for future years out to September
2026, demonstrating the role thermal plant plays in ensuring
security of supply. Agreements have also been secured for all of
SSE Thermal's fleet in Ireland.
For financial performance commentary please refer to the Group
Financial Review.
The following agreements have been awarded through competitive
auctions:
SSE Thermal Capacity Contract Awards
Station Asset type Station Capacity SSE share of contract Capacity obligation
Medway (GB) CCGT 735MW 100% To September 2023
Keadby 1 (GB) CCGT 755MW 100% To September 2026
Keadby 2 (GB) CCGT 893MW 100% 16-years commencing October 2022
Peterhead (GB) CCGT 1,180MW 100% To September 2026
Seabank (GB) CCGT 1,234MW 50% To September 2026
Marchwood (GB) CCGT 920MW 100% To September 2026
Slough Multifuel Energy from Waste 50MW 50% 15-years commencing October 2024
Great Island (Ire) CCGT 464MW 100% To September 2026
Rhode (Ire) Gas/oil peaker 104MW 100% To September 2026
Tawnaghmore (Ire) Gas/oil peaker 104MW 100% To September 2026
Tarbert (Ire) Oil 620MW 100% To September 2023
Capacity contracts are based on de-rating factors issued by the
delivery body for each contract year, therefore will not directly
match SSE's published station capacity.
Capacities stated reflect Transmission Entry Capacity
Keadby 1 has capacity obligation in 2022/23 and 2025/26 but none
in 2023/24 or 2024/25 contract years
Keadby 2 16 year obligation comprised of a T-1 and a 15 year
contract
Marchwood (SSE equity share 50%) tolling arrangement means SSE
receives 100% of economic benefit from capacity contract
Growth opportunities
Delivering lower-carbon flexibility is a key pillar of SSE's Net
Zero Acceleration Programme. Developing more efficient alternatives
to the existing CCGT fleet will be vital to deliver SSE's goal to
cut carbon intensity by 80% by 2030 and achieve its science-based
carbon reduction targets, aligned with a 1.5 degC global warming
scenario. SSE Thermal is developing projects using carbon capture
and storage (CCS) and hydrogen; technologies which will be critical
to society in the transition to net zero, enabling enhanced
renewables deployment by balancing the system.
In 2021/22 SSE Thermal progressed its carbon capture power
stations, which it is co-developing with Equinor, through the
planning process. In June 2021, SSE Thermal submitted a planning
application for Keadby Carbon Capture Power Station to the UK's
Planning Inspectorate. In March 2022 SSE Thermal submitted a
planning application for Peterhead Carbon Capture Power Station to
Scotland's Energy Consents Unit.
In October 2021 the UK Government announced that the East Coast
Cluster - comprising the Humber and Teesside regions - and the
HyNet Cluster in north-west England would be Track 1 clusters, or
the first clusters supported to deploy shared CCS infrastructure by
the middle of this decade. The Scottish cluster was identified as a
'reserve' Track 1 cluster and remains in line to progress to
deployment as a Track 2 cluster by the end of the decade. The UK
Government's commitment to supporting four clusters by 2030,
including two by the middle of this decade, was galvanised in its
CCUS Investor Roadmap which emphasised that the technology is a
necessity not an option to deliver net zero emissions by 2050.
Published in April 2022, it also confirmed its intention to engage
with industry on the 'Track 2' process this calendar year.
In November 2021, the UK Government launched the second phase of
the Cluster Sequencing Competition to identify which projects would
be supported to connect to Track 1 clusters; this process was also
open to projects seeking a connection into the 'reserve' Scottish
Cluster. SSE Thermal submitted applications for Keadby Carbon
Capture Power Station, seeking to connect into the East Coast
Cluster, and Peterhead Carbon Capture Power Station, seeking to
connect into the Scottish Cluster. Successful projects will secure
a Dispatchable Power Agreement; a revenue support scheme designed
by the UK Government. A decision on which projects will progress
into negotiations is expected from July 2022.
Low-carbon hydrogen will be an important facet of a net zero
economy. The UK Government's inaugural hydrogen strategy, published
in August 2021, highlighted the role it will play in providing
flexible energy for power, heat and transport and the need for
large hydrogen storage facilities. SSE Thermal is continuing to
develop low-carbon hydrogen projects, alongside Equinor, including
Keadby Hydrogen Power Station and Aldbrough Hydrogen Storage and
sees significant further growth opportunities in this space, in
line with the UK's target to deliver 10GW of low-carbon hydrogen
production by 2030. SSE Thermal is also involved in Project
Cavendish, an initiative to promote the Isle of Grain as a location
for a low-carbon hydrogen economy. This could provide the
opportunity to bring low-carbon hydrogen to SSE's Medway site.
Commissioning of Keadby 2, SSE Thermal's 893MW CCGT, started in
October 2021 and full commercial operation is targeted for 1
October 2022. Keadby 2 brings Siemens' cutting-edge turbine
technology to the UK; this first-of-a-kind turbine will be Europe's
most efficient CCGT and will displace older, more carbon intensive
plant on the system. It is capable of being upgraded to decarbonise
the system further, through hydrogen blending or carbon capture and
storage.
Keadby 2 also provides a testing ground for SSE Thermal's new
digital strategy to deliver intelligent asset management, building
on the digital capabilities already used to manage the SSE Thermal
fleet. Using data and technology, the digital strategy aims to
enhance asset management and maintenance capabilities.
Gas Storage
Gas Storage key performance indicators
Gas Storage Marc h 22 Marc h 21
Gas Storage adjusted operating (loss)/profit
- GBPm 30.7 (5.7)
Gas Storage reported operating profit/(loss)
- GBPm 125.4 2.8
Gas storage adjusted investment and
capital expenditure - GBPm 2.1 1.9
Gas Storage overview
SSE Thermal holds around 40% of the UK's conventional
underground gas storage capacity. These assets can play an
important role in the transition to net zero, supporting stability
and security of gas supply in the short term as well as potential
conversion to hydrogen storage for a net zero future.
In 2021/22 SSE's Gas Storage business has navigated highly
volatile gas markets and optimised assets to help ensure security
of gas supply for the UK and provide important liquidity to the
market. The assets also offer a significant risk management value
to the portfolio by offering spot, short-notice flexibility. This
helps defend the portfolio from exposures emanating from wind speed
or consumer demand variability. Given the increasing focus around
gas supply response across Europe, and the need for additional
reserve to protect markets against significant geopolitical
exposures, SSE anticipates this trend will continue. On that basis
Gas Storage assets are likely to make a substantial contribution to
the Group in the next financial year.
SSE Thermal remains committed to working with UK Government
departments and Ofgem to ensure the critical role of UK storage in
relation to security of supply and stability of gas price is
properly valued. It is also looking to play a future role as a
source of low-carbon hydrogen storage which will be needed to
balance supply and demand in a hydrogen economy.
Plans to develop a potentially world-leading hydrogen storage
project at Aldbrough, announced in July 2021 with Equinor, are
progressing. Since this announcement, the UK Government has
committed to develop business models for hydrogen storage as part
of the British Energy Security Strategy and SSE is particularly
close to this policy discussion.
For financial performance commentary please refer to the Group
Financial Review.
Energy Customer Solutions
overview
SSE Business Energy in GB (non-domestic) and SSE Airtricity in
Ireland (domestic and non-domestic) provide a shopfront and route
to market for SSE's low-carbon energy solutions and renewable green
products.
SSE's customer businesses are committed to high service
standards covering all aspects of operations, within contact
centres and among colleagues visiting and working in customers'
homes and premises. Throughout the coronavirus pandemic and more
recent energy wholesale price volatility the businesses have worked
with customers across GB and Ireland to provide support through a
variety of payment options, and additional support funds have been
established for financially vulnerable domestic customers in
Ireland. In addition, it was announced on 12 May 2022 that existing
financially vulnerable domestic customers in the Republic of
Ireland would be insulated from any further price rises for the
remainder of the 2022 calendar year.
Considerable focus has been placed on training teams to provide
market-leading energy advice across a range of energy solutions to
provide a highly skilled level of partnership with customers.
Across the customer businesses SSE has extended the range of energy
products and digital service capabilities and continues to invest
in digital and energy solutions to adapt and evolve the offerings
in GB and Ireland.
Throughout all periods, but especially during the pandemic, the
safety and wellbeing of employees has been prioritised. Regular
employee surveys are acted upon to further improve the working
environment. This includes a range of topics from SSE's "Belonging
Groups" (e.g. supporting gender and ethnic diversity) to "Flexible
First" working practices.
SSE Business Energy
SSE Business Energy key performance indicators
SSE Business Energy Marc h 22 Marc h 21
Business Energy adjusted operating
(loss)/profit - GBPm (21.5) (24.0)
Business Energy reported operating
profit/(loss) - GBPm (21.5) (3.9)
Electricity Sold - GWh 12,645 13,070
Gas Sold - mtherms 218 245
Aged Debt (60 days past due) - GBPm 79.3 73.8
Bad debt expense - GBPm 18.5 37.8
Exceptional bad debt (credit) / expense
- GBPm - (20.1)
Energy customers' accounts - m 0.47 0.48
SSE Business Energy overview
Business Energy GB retains a solid book and customer base and
amongst non-domestic suppliers is ranked for power 4th by meters
(market share 11.6%) and 4th by volume (market share 7%); and for
gas is ranked 7th by meters (market share 6.5%) and 9th by volume
(market share 2.3%). The business markets its products under the
SSE Energy Solutions brand alongside SSE Distributed Energy,
selling power to over 469,000 non-domestic customers across GB.
Operational delivery
During 2021, Business Energy increased its green customer
propositions including the launch of a new and simplified Corporate
Power Purchase Agreement product, to make them increasingly
accessible to a wider range of businesses. This was followed in
July by a commitment to businesses on fixed power contracts that
they will receive their electricity from renewable sources. Green
credentials associated with this electricity supply are
independently verified by EcoAct, an Atos company, and customers
are provided with Renewable Energy Guarantees of Origin (REGOs)
certification. Business Energy's 'Green Gas plus' tariff, a
renewable gas tariff which is also independently certified by
EcoAct, performed well through the year since its launch.
Smart meters are a key factor in supporting customers on their
net zero journey and 2021/22 saw strong performance for the rollout
of smart meter installations. Business Energy continues to work
towards its first year of challenging smart regulatory installation
targets in calendar year 2022.
For detailed financial performance commentary please refer to
the Group Financial Review.
Growth opportunities
The platform SSE Business Energy growth is via the SSE Energy
Solutions business-to-business brand, launched in July 2021 in
partnership with SSE Distributed Energy. The platform provides a
single shopfront for a range of SSE customer product offerings to
support all business segments on their net zero journey; from
renewable power and flexible Corporate Power Purchase Agreement
offerings, to customer workplace EV charging solutions and larger
scale distributed energy systems. As SSE's electricity generation
businesses continue to expand and deliver new technologies, so will
SSE Energy Solutions as an important route to market for the
Group.
Sse Airtricity
SSE Airtricity key performance indicators
SSE Airtricity Marc h 22 Marc h 21
Airtricity adjusted operating profit
- GBPm 60.4 44.0
Airtricity reported operating profit
- GBPm 60.4 50.0
Aged Debt (60 days past due) - GBPm 7.3 7.9
Bad debt expense - GBPm 4.6 6.9
Exceptional bad debt (credit) / expense
- GBPm - (6.0)
Airtricity Electricity Sold - GWh 5,219 7,595
Airtricity Gas Sold - mtherms 177 219
All Ireland energy market customers
(Ire) - m 0.70 0.68
SSE Airtricity overview
SSE Airtricity provides a valuable route to market for SSE's
low-carbon energy solutions and green products to customers across
the island of Ireland. Airtricity retains a strong market position
as Ireland's largest supplier of 100% green energy, supplying
approximately 701,000 customers and holding 21.2% market share by
load.
Operational delivery
As a responsible business, SSE Airtricity has recognised that
current market volatility has created challenges for many
households and has taken various measures to support financially
vulnerable customers. An all-island customer support fund (EUR1m)
has been established, EUR1m was donated to a trusted all-island
charity partner, and a home energy efficiency upgrade programme has
been rolled our for up to 600 homes in fuel poverty. In addition
Airtricity's financially vulnerable domestic customers in the
Republic of Ireland will be insulated from any further price rises
for the remainder of the 2022 calendar year.
For financial performance commentary please refer to the Group
Financial Review.
Growth opportunities
A positive public policy environment aimed at improving the
thermal efficiency of 0.5m buildings provides the backdrop for the
Generation Green Home Upgrade product. This is enabling the rapid
rollout of a first of its kind one-stop-shop business model, in
partnership with An Post, in the Republic of Ireland market. The
growth of this business segment remains a key priority for
2022.
Further areas of strategic focus include building on the success
of partnerships with brands such as Volkswagen and ePower
delivering electric vehicle charging infrastructure and green
end-to-end solutions for customers; and continued innovation and
delivery of extended customer offerings to help support
decarbonisation.
SSE DISTRIBUTED ENERGY
SSE Distributed Energy key performance indicators
SSE DISTRIBUTED ENERGY Marc h 22 Marc h 21
SSE Distributed Energy adjusted operating
(loss)/profit - GBPm (10.9) (27.0)
SSE Distributed Energy reported operating
profit/(loss) - GBPm (29.2) (76.1)
SSE Heat Network Customer Accounts 11,291 10,482
Biomass, heat network and other capacity
- MW 33 34
Biomass, heat network and other output
- GWh 104 108
SSE Distributed Energy overview
SSE's reporting of its Enterprise segment has been updated
following the sale of its Contracting and Rail businesses. The
primary retained activity of the former SSE Enterprise businesses
is now distributed energy. The business provides solar and battery
storage asset development and operation and focuses on distributed
generation, EV infrastructure, heat and cooling networks, and smart
buildings and places.
The financial results from the Group's out of areas networks
business and Neos Networks Limited (formerly SSE Telecoms) joint
venture are now reported within SSEN Distribution and Corporate
Unallocated respectively. Comparative information has been
re-stated to reflect these changes.
Operational delivery
Over the past 12 months SSE has announced significant milestones
in its nascent solar and battery storage business including a
secured 380MW solar and battery pipeline, with over 1GW more of
other sites currently under assessment. The secured pipeline
includes a 50MW battery storage asset on a consented site in
Wiltshire, where construction gets under way this summer, with full
energisation expected in summer 2023. SSE has also acquired a 30MW
solar farm at Littleton Pastures in Worcestershire and, once
complete in late 2023, this 77-acre site will be capable of
powering some 9,400 homes.
Growth opportunities
A key focus will be on battery storage and solar technology.
Existing grid connections at legacy coal-fired sites, such as
Ferrybridge and Fiddlers Ferry, also puts SSE in a strong position
to deploy battery storage at scale and pace.
SSE's Distributed Energy team is helping people and places reach
their net zero targets by adopting a 'whole system' approach to
connect localised and flexible energy assets. These include energy
optimisation, heat and cooling networks, electrical networks, smart
buildings, and EV charging. Distributed Energy therefore seeks to
help provide the platform for a data-driven and sustainable
world.
Distributed Energy has ambitions to build a network of EV
charging hubs across the UK - with the first of potentially 300
hubs being built in summer 2022 in Glasgow. Innovation also remains
a key tool to unlocking net zero; its heat sector division for
example, has an exciting partnership under way with National Grid
to utilise heat from electricity transformers that would otherwise
go to waste.
ENERGY PORTFOLIO MANAGEMENT (EPM)
EPM key performance indicators
EPM Marc h 22 Marc h 21
EPM adjusted operating profit/(loss)
- GBPm (16.8) 18.4
EPM reported operating profit/(loss)
- GBPm 2,083.6 608.5
EPM overview
Energy Portfolio Management (EPM) is the energy markets heart of
the SSE Group, securing value and managing volatility through
risk-managed trading of energy-related commodities for SSE's
market-based Business Units.
SSE trades the principal commodities to which its asset
portfolios are exposed, as well as the spreads between two or more
commodity prices (e.g. spark spreads): power (baseload and other
products); gas; and carbon (emissions allowances). Each commodity
has different liquidity characteristics, which impacts the quantum
of hedging possible. See also SSE's Hedging Position.
Operational Delivery
In 2021/22 EPM navigated unprecedented energy market volatility,
ensuring the SSE portfolio was hedged in accordance with the
Group's approach to hedging and optimised through prompt periods.
The value EPM secures for SSE's asset portfolio continues to be
reported against individual Business Units. 2021/22 also saw
successful delivery of the first year of operation under the UK
Emissions Trading Scheme.
For detailed financial performance commentary please refer to
the Group Financial Review.
Growth Opportunities
Transformation of the EPM Business Unit continues with key
external recruits into risk, prompt trading and analytics. Trading
has started in France, Belgium and the Netherlands as the business
looks to expand into Europe.
Investment in SGN
(Scotia Gas Networks - discontinued operation)
SGN key performance indicators
SGN (Discontinued Operation) Marc h 22 Marc h 21
SSE's 33.3% share - Disposed on 22
March 2022
SGN adjusted operating profit/(loss)
- GBPm 21.0 173.0
SGN reported operating profit/(loss)
- GBPm 495.4 88.6
SGN overview
As part of its strategic refocusing of the Group, SSE's entire
33.3% financial investment stake in gas distribution operator SGN
(Scotia Gas Networks Limited) was sold to a consortium comprising
existing SGN shareholder Ontario Teachers' Pension Plan Board and
Brookfield Super-Core Infrastructure Partners on 22 March 2022.
Whilst the business had been a good long-term financial
investment for SSE since 2005, SSE's focus is now on low-carbon
electricity businesses and the role they have in transition to net
zero. This disposal marked the completion of SSE's GBP2bn plus
disposals programme announced in June 2020, with a headline
consideration amounting to over GBP2.8bn exceeding that original
target.
The adjusted operating profit for the business of GBP21.0m is
retained by the Group for the period to 11 June 2021 when the
investment was designated as 'held for sale' and equity accounting
ceased. On disposal, the Group recorded an exceptional gain on
disposal of GBP576.5m.
Alternative Performance Measures
When assessing, discussing and measuring the Group's financial
performance, management refer to measures used for internal
performance management. These measures are not defined or specified
under International Financial Reporting Standards (IFRS) and as
such are considered to be Alternative Performance Measures
("APMs").
By their nature, APMs are not uniformly applied by all preparers
including other participants in the Group's industry. Accordingly,
APMs used by the Group may not be comparable to other companies
within the Group's industry.
Purpose
APMs are used by management to aid comparison and assess
historical performance against internal performance benchmarks and
across reporting periods. These measures provide an ongoing and
consistent basis to assess performance by excluding items that are
materially non-recurring, uncontrollable or exceptional. These
measures can be classified in terms of their key financial
characteristics:
-- Profit measures allow management to assess and benchmark
underlying business performance during the year. They are primarily
used by operational management to measure operating profit
contribution and are also used by the Board to assess performance
against business plan. The Group has six profit measures, of which
adjusted operating profit and adjusted profit before tax are the
main focus of management through the financial year and adjusted
earnings per share is the main focus of management on an annual
basis. In order to derive adjusted earnings per share, the Group
has defined adjusted operating profit, adjusted net finance costs,
and adjusted current tax charge as components of the adjusted
earnings per share calculation. Adjusted EBITDA is used by
management as a proxy for cash derived from ordinary operations of
the Group.
-- Capital measures allow management to track and assess the
progress of the Group's significant ongoing investment in capital
assets and projects against their investment cases, including the
expected timing of their operational deployment and also to provide
a measure of progress against the Group's strategic Net Zero
Acceleration Programme objectives.
-- Debt measures allow management to record and monitor both
operating cash generation and the Group's ongoing financing and
liquidity position.
Changes t o APMs in the Year
The Group has defined a new capital APM in the year of 'Adjusted
investment, capital and acquisition expenditure'. The APM is
comprised of the existing 'Adjusted investment and capital
expenditure' metric, but also includes cash consideration paid for
business combination acquisitions. During the year the Group
completed the acquisition of a controlling 80% stake in its
Japanese offshore renewable development platform, SSE Pacifico (see
note 12) and announced the expected acquisition, in financial year
ended 31 March 2023, of a European onshore renewable energy
development platform from Siemens Gamesa Renewable Energy ("SGRE").
As the Group expands internationally it is expected that there will
be further acquisitions to enhance the Group's development
portfolio. These acquisition costs are included in this new APM to
better represent the Group's overall investments associated with
its Net Zero Acceleration Programme.
As referred above, during the year the Group acquired a
controlling 80% stake in SSE Pacifico (see note 12). As a result,
the Group has now updated its APMs to clarify how non-controlling
interests will be presented in future periods where there are
expected to be material non-controlling interests. The Group
believes that removing the non-controlling interest share from all
of its profit, capital and debt measures on a consistent basis is
the most simple, understandable and reflective presentation of the
Group's interest in these businesses. There is no significant
impact on adjusted metrics in the year ending 31 March 2022.
On 14 October 2021, the Group disposed of its Gas Production
business (see note 12), but retained 60% of the decommissioning
provision of the business. The Group has amended its adjusted
profit measures to remove the effect of prospective revaluation
adjustments to the decommissioning provision as it is not
considered to be part of the Group's core continuing
operations.
The following section explains the key APMs applied by the Group
and referred to in these statements:
Profit Measures
Adjustments to reconcile to
Group APM Purpose Closest Equivalent IFRS measure primary financial statements
Adjusted EBITDA (Earnings before Profit measure Operating profit -- Movement on operating and
interest, tax, depreciation and financing derivatives ('certain
amortisation) re-measurements')
-- Exceptional items
-- Adjustments to retained Gas
Production decommissioning
provision
-- Share of joint ventures and
associates' interest and tax
-- Depreciation and amortisation
before exceptional charges
(including depreciation and
amortisation
expense on fair value uplifts)
-- Share of joint ventures and
associates' depreciation and
amortisation
-- Non-controlling share of
operating profit
-- Non-controlling share of
depreciation and amortisation
-- Release of deferred income
Adjusted Operating Profit Profit measure Operating profit -- Movement on operating and
financing derivatives ('certain
re-measurements')
-- Exceptional items
-- Adjustments to retained Gas
Production decommissioning
provision
-- Depreciation and amortisation
expense on fair value uplifts
-- Share of joint ventures and
associates' interest and tax
-- Non-controlling share of
operating profit
Adjusted Profit Before Tax Profit measure Profit before tax -- Movement on operating and
financing derivatives ('certain
re-measurements')
-- Exceptional items
-- Adjustments to retained Gas
Production decommissioning
provision
-- Non-controlling share of
profit before tax
-- Depreciation and amortisation
expense on fair value uplifts
-- Interest on net pension
assets/liabilities (IAS 19)
-- Share of non-recurring joint
venture refinancing costs
-- Share of joint ventures and
associates' tax
Adjusted Net Finance Costs Profit measure Net finance costs -- Exceptional items
-- Movement on financing
derivatives
-- Share of joint ventures and
associates' interest
-- Share of non-recurring joint
venture refinancing costs
-- Non-controlling share of
finance costs
-- Interest on net pension
assets/liabilities (IAS 19)
Adjusted Current Tax Charge Profit measure Tax charge -- Share of joint ventures and
associates' tax
-- Non-controlling share of
current tax
-- Deferred tax including share
of joint ventures, associates and
non-controlling interests
-- Tax on exceptional items and
certain re-measurement
-- Reclassification of tax
liabilities
Adjusted Earnings Per Share Profit measure Earnings per share -- Exceptional items
-- Adjustments to retained Gas
Production decommissioning
provision
-- Movements on operating and
financing derivatives ('certain
re-measurements')
-- Depreciation and amortisation
expense on fair value uplifts
-- Interest on net pension
assets/liabilities (IAS 19)
-- Share of non-recurring joint
venture refinancing costs
-- Deferred tax including share
of joint ventures, associates and
non-controlling interests
Rationale for Adjustments to Profit Measure
1. Movement on operating and financing derivatives ('certain re-measurements')
This adjustment can be designated between operating and
financing derivatives.
Operating derivatives are contracts where the Group's Energy
Portfolio Management ('EPM') function enters into forward
commitments or options to buy or sell electricity, gas and other
commodities to meet the future demand requirements of the Group's
Business Energy and Airtricity operating units, or to optimise the
value of the production from SSE Renewables and Thermal generation
assets. Certain of these contracts (predominately purchase
contracts) are determined to be derivative financial instruments
under IFRS 9 and as such are required to be recorded at their fair
value. Changes in the fair value of those commodity contracts
designated as IFRS 9 financial instruments are reflected in the
income statement (as part of 'certain re-measurements'). The Group
shows the change in the fair value of these forward contracts
separately as this mark-to-market movement is not relevant to the
underlying performance of its operating segments due to the
volatility that can arise on revaluation. The Group will recognise
the underlying value of these contracts as the relevant commodity
is delivered, which will predominantly be within the subsequent 12
to 24 months. Conversely, commodity contracts that are not recorded
as financial instruments under IFRS 9 (predominately sales
contracts) are accounted for as 'own use' contracts and are
consequently not recorded until the commodity is delivered and the
contract is settled. In addition, gas inventory purchased by the
Group's Gas Storage business for secondary trading opportunities is
also held at fair value with gains and losses on re-measurement
recognised as part of 'certain re-measurements'.
Financing derivatives include all fair value and cash flow
interest rate hedges, non-hedge accounted (mark-to-market) interest
rate derivatives, cash flow foreign exchange hedges and non-hedge
accounted foreign exchange contracts entered into by the Group to
manage its banking and liquidity requirements as well as risk
management relating to interest rate and foreign exchange
exposures. Changes in the fair value of those financing derivatives
are reflected in the income statement (as part of 'certain
re-measurements'). The Group shows the change in the fair value of
these forward contracts separately as this mark-to-market movement
is not relevant to the underlying performance of its operating
segments.
The re-measurements arising from operating and financing
derivatives, and the tax effects thereof, are disclosed separately
to aid understanding of the underlying performance of the
Group.
2. Exceptional Items
Exceptional charges or credits, and the tax effects thereof, are
considered unusual by nature or scale and of such significance that
separate disclosure is required for the underlying performance of
the Group to be properly understood. Further explanation for the
classification of an item as exceptional is included in note
4.2.
3. Adjustments to retained Gas Production decommissioning provision
On 14 October 2021, the Group disposed of its Gas Production
business but retained a 60% share of the decommissioning obligation
of the business. Gas Production was presented as a discontinued
operation prior to disposal as the transaction constituted the exit
of all activity in that industry. Future adjustments to the
decommissioning obligation will be accounted for through the
Group's consolidated income statement. The adjustment is removed
from the Group's adjusted profit measures as the revaluation of the
provision is not considered to be part of the Group's core
continuing operations.
4. Share of joint ventures and associates' interest and tax
This adjustment can be split between the Group's share of
interest and the Group's share of tax arising from its investments
in equity accounted joint ventures and associates.
The Group is required to report profit before interest and tax
('operating profit') including its share of the profit after tax of
its equity accounted joint ventures and associates. However, for
internal performance management purposes and for consistency of
treatment, SSE reports its adjusted operating profit measures
before its share of the interest and/or tax on joint ventures and
associates.
5. Share of joint ventures and associates' depreciation and amortisation
For management purposes, the Group considers EBITDA (earnings
before interest, tax, depreciation and amortisation) based on a
sum-of-the-parts derived metric which includes a share of the
EBITDA from equity accounted investments. While this is not equal
to adjusted cash generated from operating activities, it is
considered useful by management in assessing a proxy for such a
measure, given the complexity of the Group structure and the range
of investment structures utilised. For the purpose of calculating
the 'Net Debt to EBITDA' metric referred at page 77, 'adjusted
EBITDA' is further refined to remove the proportion of adjusted
EBITDA from equity-accounted joint ventures relating to off-balance
sheet debt (see note 6.3).
6. Depreciation and amortisation expense on fair value uplifts
The Group's strategy includes the realisation of value and
recycling of proceeds from divestments of stakes in its early stage
offshore and international SSE Renewables developments. In
addition, for strategic purposes the Group may also decide to bring
in equity partners to other businesses and assets. Where SSE's
interest in such vehicles changes from full to joint control, and
the subsequent arrangement is classified as an equity accounted
joint venture, SSE will recognise a fair value uplift on the
remeasurement of its retained equity investment. Those uplifts will
be treated as exceptional (and non-cash) gains in the year of the
relevant transactions completing. These uplifts create assets which
are subsequently depreciated or amortised over the remaining life
of the underlying assets or contracts in those businesses with the
charge being included in the Group's adjusted depreciation and
amortisation expense. The Group's adjusted operating profit,
adjusted profit before tax and adjusted earnings per share have
therefore been adjusted to exclude this additional depreciation and
amortisation expense from the fair value uplift given the charges
derived from significant one-off gains which are treated as
exceptional when initially recognised.
7. Release of deferred income
The Group deducts the release of deferred income in the year
from its adjusted EBITDA metric as it principally relates to grants
or customer contributions towards the build of depreciating assets.
As the metric adds back depreciation, the amortisation credit is
also deducted.
8. Non-recurring joint venture refinancing costs
The Group's joint venture investment, Beatrice Offshore Winds
Limited ('BOWL'), completed a refinancing of its debt in the year
ended 31 March 2020, which resulted in transaction costs from the
original debt of GBP27.2m being expensed to the income statement of
the joint venture. In addition, GBP3.5m of costs related to the
repayment of the original instrument were incurred. The Group's 40%
share of the GBP30.7m expense was GBP12.3m, which was adjusted from
the Group's adjusted profit before tax and the Group's adjusted
finance costs in the year ended 31 March 2020 as refinancing of
this scale is non-recurring, considered to be specific to this
instance and therefore not representative of normal operations.
9. Interest on net pension assets/liabilities (IAS 19 "Employee Benefits")
The Group's interest charges relating to defined benefit pension
schemes are derived from the net assets/liabilities of the schemes
as valued under IAS 19. This will mean that the charge recognised
in any given year will be dependent on the impact of actuarial
assumptions such as inflation and discount rates. The Group
excludes these from its adjusted profit measures due to the
non-cash nature of these charges or credits.
10. Deferred tax
The Group adjusts for deferred tax when arriving at adjusted
profit after tax, adjusted earnings per share and its adjusted
effective rate of tax. Deferred tax arises as a result of
differences in accounting and tax bases that give rise to potential
future accounting credits or charges. As the Group remains
committed to its ongoing capital programme, the liabilities
associated are not expected to reverse and accordingly the Group
excludes these from its adjusted profit measures.
11. Results attributable to non-controlling interest holders
The Group's structure includes non-wholly owned but controlled
subsidiaries which are consolidated within the financial statements
of the Group under IFRS. There is no impact to current or future
years but in future the Group will remove the share of profit
attributable to holders of non-controlling equity stakes in these
businesses from all of its profit measures, to report to all
metrics based on the share of profits items attributable to the
ordinary equity holders of the Group. The adjustment will be
applied consistently to all of the Group's adjusted profit
measures, including removing proportionate non-controlling share of
operating profit and depreciation and amortisation from the Group's
adjusted EBITDA metric; removing the non-controlling share of
operating profit from the Group's adjusted operating profit metric;
removing the non-controlling share of net finance costs from the
Group's adjusted net finance costs metric; and removing the
non-controlling interest share of current tax from the Group's
adjusted current tax metric.
March 2022
Adjustments to Joint Interest
Continuing Gas Production Depreciation venture on net
operations Movement on Exceptional decommissioning on FV interest pension Deferred
(GBPm) Reported derivatives items provision uplifts and tax asset tax Adjusted
Operating
profit 3,755.4 (2,097.8) (301.8) 13.1 20.6 147.3 - - 1,536.8
Net finance
costs (273.2) (21.0) (3.2) - - (67.8) (7.6) - (372.8)
Profit before
taxation 3,482.2 (2,118.8) (305.0) 13.1 20.6 79.5 (7.6) - 1,164.0
Taxation (882.8) 408.0 323.7 - - (79.5) - 123.5 (107.1)
Profit after
taxation 2,599.4 (1,710.8) 18.7 13.1 20.6 - (7.6) 123.5 1,056.9
Attributable
to other
equity
holders (50.7) - - - - - - - (50.7)
Profit
attributable
to ordinary
shareholders 2,548.7 (1,710.8) 18.7 13.1 20.6 - (7.6) 123.5 1,006.2
Number of
shares for
EPS 1,055.0 1,055.0
Earnings per
share 241.6 95.4
EBITDA
March 2022
Share of joint Depreciation,
Adjusted operating venture and impairment and
profit from associates' amortisation
continuing depreciation and Release of deferred Depreciation on FV before exceptional
operations amortisation income uplifts charges Adjusted EBITDA
GBPm GBPm GBPm GBPm GBPm GBPm
1,536.8 146.6 (17.6) (20.6) 612.0 2,257.2
March 2021 (restated*)
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
*The comparative Alternative Performance Measures have been
restated. See note 2.3.
EBITDA
March 2021 (restated*)
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
March 2020 (restated*)
Share of
Joint Interest non-recurring
Depreciation venture on net joint venture
Continuing operations Movement on Exceptional on FV interest pension financing Deferred
(GBPm) Reported derivatives items uplifts and tax asset costs tax Adjusted
Operating profit 882.6 40.0 212.1 20.6 130.8 - - - 1,286.1
Net finance costs (385.2) 83.0 (2.4) - (98.9) (6.6) 12.3 - (397.8)
Profit before taxation 497.4 123.0 209.7 20.6 31.9 (6.6) 12.3 - 888.3
Taxation (121.5) - (2.3) - (31.9) - - 67.4 (88.3)
Profit after taxation 375.9 123.0 207.4 20.6 - (6.6) 12.3 67.4 800.0
Attributable to other
equity holders (46.5) - - - - - - (46.5)
Profit attributable to
ordinary shareholders 329.4 123.0 207.4 20.6 - (6.6) 12.3 67.4 753.5
Number of shares for EPS 1,032.5 1,032.5
Earnings per share 31.9 73.0
EBITDA
March 2020 (restated*)
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
1,286.1 151.4 (14.7) (20.6) 530.1 1,932.3
*The comparative Alternative Performance Measures have been restated. See note 2.3.
Debt Measure
Adjustments to reconcile to
Group APM Purpose Closest Equivalent IFRS measure primary financial statements
Adjusted Net Debt and Hybrid Debt measure Unadjusted net debt -- Hybrid equity
Capital -- Outstanding liquid funds
-- Lease obligations
-- Non-controlling share of
borrowings and cash
rationale for Adjustments to Debt measure
12. Hybrid equity
The characteristics of certain hybrid capital securities mean
they qualify for recognition as equity rather than debt under IFRS.
Consequently, their coupon payments are presented within dividends
rather than within finance costs. As a result, the coupon payments
are not included in SSE's adjusted profit before tax measure. In
order to present total funding provided from sources other than
ordinary shareholders, SSE presents its adjusted net debt measure
inclusive of hybrid capital to better reflect the Group's funding
position.
13. Outstanding liquid funds
Outstanding liquid funds are SSE cash balances held by
counterparties as collateral at the year end. SSE includes these as
cash until they are utilised for the purposes of calculating
adjusted net debt. Loans with a maturity of less than three months
are also included in this adjustment. The Group includes this
adjustment in order to better reflect the immediate cash resources
to which it has access, which in turn better reflects the Group's
funding position.
14. Lease obligations
SSE's reported loans and borrowings include lease liabilities on
contracts under the scope of IFRS 16, which are not directly
related to the Treasury managed external debt financing of the
Group. The Group excludes these liabilities from its adjusted net
debt and hybrid capital measure to better reflect the Group's
underlying funding position with its primary sources of
capital.
15. Debt and cash attributable to non-controlling equity
holders
The Group's structure includes non-wholly owned but controlled
subsidiaries which are consolidated within the financial statements
of the Group under IFRS. There is no impact to current or prior
years but in future the Group will remove the share of debt and
cash in these subsidiaries proportionately attributable to the
non-controlling interest holders from its adjusted net debt and
hybrid capital metric to present net debt attributable to ordinary
equity holders of the Group.
March 2022 March 2021 March 2020
GBPm GBPm GBPm
Unadjusted net debt (8,015.4) (7,810.4) (10,007.8)
Outstanding liquid funds 74.7 (37.1) 256.4
Lease obligations 393.5 421.0 455.2
Adjusted Net Debt (7,547.2) (7,426.5) (9,296.2)
Hybrid equity (1,051.0) (1,472.4) (1,169.7)
Adjusted Net Debt and Hybrid Capital (8,598.2) (8,898.9) (10,465.9)
Capital Measures
Adjustments to reconcile to
Group APM Purpose Closest Equivalent IFRS measure primary financial statements
Adjusted Investment and Capital Capital measure Capital additions to intangible -- Customer funded additions
Expenditure assets and property, plant and -- Allowances and certificates
equipment -- Additions acquired through
business combinations
-- Disposed or impaired additions
-- Joint venture and associates'
additions funding
-- Non-controlling share of
capital expenditure
-- Refinancing proceeds
Adjusted Investment, Capital and Capital measure Capital additions to intangible -- Customer funded additions
Acquisition Expenditure assets and property, plant and -- Allowances and certificates
equipment -- Additions acquired through
business combinations
-- Disposed or impaired additions
-- Joint venture and associates'
additions funding
-- Non-controlling share of
capital expenditure
-- Refinancing proceeds/refunds
-- Acquisition cash consideration
rationale for Adjustments to Capex Measure
16. Customer funded additions
Customer funded additions represents additions to electricity
and other networks funded by customer contributions. Given these
are directly funded by customers, these have been excluded to
better reflect the Group's underlying investment position.
17. Allowances and certificates
Allowances and certificates consist of purchased carbon
emissions allowances and generated or purchased renewable
obligations certificates (ROCs) and are not included in the Group's
'capital expenditure and investment' APM to better reflect the
Group's investment in enduring operational assets.
18. Additions through business combinations
Where the Group acquires an early stage development company,
which is classified as the acquisition of an asset, or group of
assets and not a business, the acquisition is treated as an
addition to intangible assets or property, plant and equipment and
is included within 'adjusted investment and capital expenditure'.
Where the Group acquires an established business requiring a fair
value assessment in line with the principles of IFRS 3 'Business
Combinations', the fair value of consolidated tangible or
intangible assets are excluded from the Group's 'adjusted
investment and capital expenditure', as they are not direct capital
expenditure by the Group. However, these are included in the
Group's new 'adjusted investment, capital and acquisition
expenditure' metric, see 24 below.
19. Additions subsequently disposed/impaired
In the current year there were capex additions of GBP13.9m
related to the Gas Production business, which was disposed on 14
October 2021. In the prior year the Group funded GBP19.7m of capex
additions in relation to the Seagreen windfarm prior to part
disposal. On 3 June 2020, the Group disposed of a 51% stake in
Seagreen 1, therefore the capex incurred prior to that date has
been excluded from the Group's net adjusted investment and capital
expenditure metric. In the year ended 31 March 2020, there were
additions of GBP44.6m in the Group's Gas Production segment which
were subsequently impaired following the annual impairment
assessment. This adjustment also includes any subsequently
derecognised development expenditure.
20. Joint venture and associates' additions funding
Joint ventures and associates' additions included in the Group's
capital measures represent the direct loan or equity funding
provided by the Group to joint venture and associate arrangements
in relation to capital expenditure projects. This has been included
to better reflect the Group's use of directly funded equity
accounted vehicles to grow the Group's asset base. Asset additions
funded by project finance raised within the Group's joint ventures
and associates is not included in this adjustment.
21. Non-controlling share of capital expenditure
The Group's structure includes non-wholly owned but controlled
subsidiaries which are consolidated within the financial statements
of the Group under IFRS. In future, the Group will remove the share
of capital additions attributable proportionately to these equity
holders from its "adjusted investment and capital expenditure" and
"adjusted investment, capital and acquisition expenditure" metrics.
This is consistent with the adjustments noted elsewhere related to
these non-controlling interests. This has no impact on the current
or prior year metrics.
22. Refinancing proceeds/refunds
The Group's model for developing large scale capital projects
within joint ventures and associates involves project finance being
raised within those entities. Where the Group funds early stage
capex which is then subsequently reimbursed to SSE following the
receipt of project finance within the vehicle, the refinance
proceeds are included in the Group's net adjusted investment and
capital expenditure metric. This is consistent with the inclusion
of the initial investment in the metric as explained at 18, above.
In the year ended 31 March 2021, the Group received reimbursed
capex of 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.
23. Lease additions
Additions of right of use assets under the Group's IFRS 16
compliant policies for lease contracts are excluded from the
Group's adjusted capital measures as they do not represent directly
funded capital investment. This is consistent with the treatment of
lease obligations explained at 14, above.
24. Acquisition cash consideration in relation to business
combinations
The Group has outlined a significant investment programme which
will partly be achieved through the acquisition of businesses with
development opportunities for the Group. The cash consideration
paid for these entities is included within the Group's new adjusted
investment, capital and acquisition expenditure metric as it
provides stakeholders an accurate basis of cash investment into the
Group's total development pipeline and is consistent with the
reporting of the Group's Net Zero Acceleration Programme.
March 2022 March 2021 March 2020
GBPm GBPm GBPm
Capital additions to intangible assets 921.0 701.3 973.6
Capital additions to property, plant and equipment 1,398.8 1,102.5 1,097.6
Capital additions to intangible assets and property, plant and equipment 2,319.8 1,803.8 2,071.2
Customer funded additions (91.3) (61.8) (110.7)
Allowances and certificates (544.5) (509.0) (652.7)
Additions through business combinations (197.8) - (26.4)
Additions subsequently disposed/impaired (13.9) (19.7) (44.6)
Joint ventures and associates' additions 682.5 172.7 167.1
Refinancing proceeds/refunds (136.7) (428.6) -
Lease asset additions (85.7) (45.4) (46.5)
Adjusted Investment and Capital Expenditure 1,932.4 912.0 1,357.4
Acquisition cash consideration 141.3 - -
Adjusted Investment, Capital and Acquisition Expenditure 2,073.7 912.0 1,357.4
Impact of discontinued operations on the Group's APMs
The following metrics have been adjusted in all periods
presented to exclude the contribution of the Group's investment in
Scotia Gas Networks Limited ("SGN") which was disposed on 22 March
2022 and Group's Gas Production operations which were disposed on
14 October 2021 (see note 12):
-- Adjusted EBITDA;
-- Adjusted operating profit;
-- Adjusted net finance costs;
-- Adjusted profit before tax;
-- Adjusted current tax charge; and
-- Adjusted earnings per share.
' Adjusted net debt and hybrid capital'; 'adjusted investment
and capital expenditure'; and 'adjusted investment, capital and
acquisition expenditure' have not been adjusted as the Group
continues to fund the discontinued operations until the date of
disposal.
The following table summarises the impact of excluding
discontinued operations from the continuing activities of the Group
in current and prior years:
March March March
2022 2021 2020
GBPm GBPm GBPm
Adjusted EBITDA of SSE Group (including discontinued
operations) 2,390.7 2,262.9 2,281.0
Less: SSE Energy Services - - (32.7)
Less: Gas Production (101.4) (33.0) (56.9)
Less: SGN (32.1) (234.6) (259.1)
Adjusted EBITDA of continuing operations 2,257.2 1,995.3 1,932.3
Adjusted operating profit of SSE Group (including
discontinued operations) 1,659.2 1,539.5 1,546.9
Less: SSE Energy Services - - (32.7)
Less: Gas Production (101.4) (33.0) (25.8)
Less: SGN (21.0) (173.0) (202.3)
Adjusted operating profit of continuing operations 1,536.8 1,333.5 1,286.1
Adjusted net finance costs of SSE Group (including
discontinued operations) 377.6 443.9 471.6
Less: Gas Production (0.1) (2.3) (6.6)
Less: SGN (4.7) (57.0) (67.2)
Adjusted net finance costs of continuing
operations 372.8 384.6 397.8
Adjusted profit before tax of SSE Group (including
discontinued operations) 1,281.6 1,095.6 1,075.3
Less: SSE Energy Services - - (32.7)
Less: Gas Production (101.3) (30.7) (19.2)
Less: SGN (16.3) (116.0) (135.1)
Adjusted profit before tax of continuing
operations 1,164.0 948.9 888.3
Adjusted current tax of SSE Group (including
discontinued operations) 109.4 107.8 110.3
Less: SSE Energy Services current tax credit - - 3.9
Less: SGN current tax charge (2.3) (21.9) (25.9)
Adjusted current tax of continuing operations 107.1 85.9 88.3
Adjusted earnings per share of SSE Group
(including discontinued operations) 106.2 90.5 89.0
Less: SSE Energy Services earnings per share - - (3.6)
Less: Gas Production earnings per share (9.6) (3.0) (1.8)
Less: SGN earnings per share (1.2) (9.1) (10.6)
Adjusted earnings per share of continuing
operations 95.4 78.4 73.0
*The comparative Alternative Performance Measures have been
restated. See note 2.3.
The remaining APMs presented by the Group are unchanged in all
periods presented by the discontinued operations.
summary Financial Statements
Consolidated Income Statement
for the year ended 31 March 2022
2022 2021 (restated*)
Before
exceptional 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 8,608.2 - 8,608.2 6,826.4 - 6,826.4
Cost of sales (6,310.8) 2,097.8 (4,213.0) (4,732.7) 598.6 (4,134.1)
Gross profit 2,297.4 2,097.8 4,395.2 2,093.7 598.6 2,692.3
Operating costs (1,118.5) 297.5 (821.0) (1,198.4) (127.1) (1,325.5)
Other operating
income 67.1 4.3 71.4 268.7 976.0 1,244.7
Operating profit
before joint
ventures and
associates 1,246.0 2,399.6 3,645.6 1,164.0 1,447.5 2,611.5
Joint ventures and
associates:
Share of operating
profit 257.1 - 257.1 149.0 - 149.0
Share of interest (67.8) - (67.8) (82.4) - (82.4)
Share of movement on
derivatives - - - - (0.8) (0.8)
Share of tax (46.3) (33.2) (79.5) (22.4) - (22.4)
Share of profit on
joint ventures and
associates 143.0 (33.2) 109.8 44.2 (0.8) 43.4
Operating profit from
continuing
operations 6 1,389.0 2,366.4 3,755.4 1,208.2 1,446.7 2,654.9
Finance income 8 79.0 24.2 103.2 78.2 57.0 135.2
Finance costs 8 (376.4) - (376.4) (372.1) - (372.1)
Profit before
taxation 1,091.6 2,390.6 3,482.2 914.3 1,503.7 2,418.0
Taxation 9 (151.1) (731.7) (882.8) (101.5) (122.8) (224.3)
Profit for the year
from continuing
operations 940.5 1,658.9 2,599.4 812.8 1,380.9 2,193.7
Discontinued
operations
Profit from
discontinued
operation, net of
tax 116.3 366.4 482.7 127.5 1.6 129.1
Profit for the year 1,056.8 2,025.3 3,082.1 940.3 1,382.5 2,322.8
Attributable to:
Ordinary shareholders
of the parent 1,006.1 2,025.3 3,031.4 893.7 1,382.5 2,276.2
Other equity holders 50.7 - 50.7 46.6 - 46.6
Earnings/(loss) per
share
Basic earnings per
share (pence) 11 287.3 218.7
Diluted earnings per
share (pence) 11 286.8 218.3
Earnings per share -
continuing operations
Basic earnings per
share (pence) 11 241.6 206.3
Diluted earnings per
share (pence) 11 241.1 206.0
Dividends
Interim dividend paid
per share (pence) 10 25.5 24.4
Proposed final
dividend per share
(pence) 10 60.2 56.6
85.7 81.0
*The comparative Consolidated Income Statement has been
restated. See note 2.3.
The accompanying notes are an integral part of the financial
information in this announcement.
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2022
2022 2021 (restated*)
GBPm GBPm
Profit for the year
Continuing operations 2,599.4 2,193.7
Discontinued operations 482.7 129.1
3,082.1 2,322.8
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss:
Net gains/(losses) on cash flow hedges 22.9 (44.7)
Transferred to assets and liabilities on cash flow hedges 11.2 (5.1)
Taxation on cashflow hedges (4.4) 8.5
29.7 (41.3)
Share of other comprehensive gain of joint ventures and associates, net of taxation 181.4 25.0
Exchange difference on translation of foreign operations (3.2) (43.3)
Gain on net investment hedge 9.4 37.3
217.3 (22.3)
Items that will not be reclassified to profit or loss:
Actuarial gain/(loss) on retirement benefit schemes, net of taxation 124.7 (12.8)
Share of other comprehensive (loss)/income of joint ventures and associates, net of
taxation (1.7) (23.3)
Gains on revaluation of investments in equity instruments, net of taxation - 1.1
123.0 (35.0)
Other comprehensive gain/(loss), net of taxation 340.3 (57.3)
Total comprehensive income for the year 3,422.4 2,265.5
Total comprehensive income for the year arises from:
Continuing operations 2,912.8 2,155.0
Discontinued operations
Items that will be reclassified subsequently to profit or loss:
Share of other comprehensive gain of joint venture and associates, net of taxation 28.6 4.7
Items that will not be reclassified to the profit or loss:
Share of other comprehensive loss of joint ventures, net of taxation (1.7) (23.3)
Other comprehensive gain/(loss) from discontinued operations 26.9 (18.6)
Profit from discontinued operations 482.7 129.1
Total comprehensive income from discontinued operations 509.6 110.5
Total comprehensive income for the year 3,422.4 2,265.5
Attributable to:
Ordinary shareholders of the parent 3,371.7 2,218.9
Other equity holders 50.7 46.6
3,422.4 2,265.5
*The comparative Consolidated Statement of Other Comprehensive
Income has been restated. See note 2.3
The accompanying notes are an integral part of the financial
information in this announcement.
Consolidated Balance Sheet
as at 31 March
2022 2021
Note GBPm GBPm
Assets
Property, plant and equipment 14,618.7 13,254.3
Goodwill and other intangible assets 1,127.8 841.3
Equity investments in associates and joint ventures 1,239.5 1,643.5
Loans to associates and joint ventures 736.9 554.3
Other investments 8.7 3.6
Other receivables 136.4 115.9
Derivative financial assets 371.7 114.7
Retirement benefit assets 15 584.9 543.1
Non-current assets 18,824.6 17,070.7
Intangible assets 459.3 374.9
Inventories 266.6 234.9
Trade and other receivables 2,211.0 1,488.2
Current tax asset 8.8 12.7
Cash and cash equivalents 1,049.3 1,600.2
Derivative financial assets 2,941.8 470.9
Assets held for sale 12 - 339.1
Current assets 6,936.8 4,520.9
Total assets 25,761.4 21,591.6
Liabilities
Loans and other borrowings 13 1,190.8 937.6
Trade and other payables 2,672.6 1,987.3
Current tax liabilities - 12.8
Provisions 93.3 79.3
Derivative financial liabilities 701.5 238.7
Liabilities held for sale 12 - 253.5
Current liabilities 4,658.2 3,509.2
Loans and other borrowings 13 7,873.9 8,473.0
Deferred tax liabilities 1,645.6 774.3
Trade and other payables 842.4 722.5
Provisions 1,017.9 793.3
Retirement benefit obligations 15 - 186.1
Derivative financial liabilities 549.6 452.1
Non-current liabilities 11,929.4 11,401.3
Total liabilities 16,587.6 14,910.5
Net assets 9,173.8 6,681.1
Equity
Share capital 14 536.5 524.5
Share premium 835.1 847.1
Capital redemption reserve 49.2 49.2
Hedge reserve 77.5 (133.6)
Translation reserve 6.6 0.4
Retained earnings 6,577.3 3,921.1
Equity attributable to ordinary shareholders of the parent 8,082.2 5,208.7
Hybrid equity 14 1,051.0 1,472.4
Attributable to non-controlling interests 40.6 -
Total equity 9,173.8 6,681.1
The accompanying notes are an integral part of the financial
information in this announcement
Consolidated Statement of Changes in Equity
for the year ended 31 March 2022
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 - - - - - 3,031.4 3,031.4 50.7 3,082.1 - 3,082.1
Other
comprehensive
income - - - 211.1 6.2 123.0 340.3 - 340.3 - 340.3
Total
comprehensive
income for
the year - - - 211.1 6.2 3,154.4 3,371.7 50.7 3,422.4 - 3,422.4
Dividends to
shareholders - - - - - (862.3) (862.3) - (862.3) - (862.3)
Scrip dividend
related share
issue 12.0 (12.0) - - - 355.7 355.7 - 355.7 - 355.7
Issue of
shares - - - - - 6.3 6.3 - 6.3 - 6.3
Distributions
to Hybrid
equity
holders - - - - - - - (50.7) (50.7) - (50.7)
Redemption of
hybrid equity - - - - - (4.6) (4.6) (421.4) (426.0) - (426.0)
Credit in
respect of
employee
share awards - - - - - 20.8 20.8 - 20.8 - 20.8
Investment in
own shares - - - - - (14.1) (14.1) - (14.1) - (14.1)
Acquisition of
subsidiary - - - - - - - - - 40.6 40.6
At 31 March
2022 536.5 835.1 49.2 77.5 6.6 6,577.3 8,082.2 1,051.0 9,133.2 40.6 9,173.8
Total
Capital attributable
Share Share redemption Hedge Translation Retained to ordinary Hybrid Total
capital premium reserve reserve reserve earnings shareholders equity equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2020 523.1 875.6 49.2 (111.1) 6.4 2,407.2 3,750.4 1,169.7 4,920.1
Profit for the
year - - - - - 2,276.2 2,276.2 46.6 2,322.8
Other
comprehensive
loss - - - (16.3) (6.0) (35.0) (57.3) - (57.3)
Total
comprehensive
income for
the year - - - (16.3) (6.0) 2,241.2 2,218.9 46.6 2,265.5
Dividends to
shareholders - - - - - (836.4) (836.4) - (836.4)
Scrip dividend
related share
issue 1.4 (1.4) - - - 39.0 39.0 - 39.0
Distributions
to Hybrid
equity
holders - - - - - - - (46.6) (46.6)
Issue of
hybrid equity - - - - - - - 1,051.0 1,051.0
Redemption of
hybrid equity - - - - - (1.7) (1.7) (748.3) (750.0)
Credit in
respect of
employee
share awards - - - - - 19.7 19.7 - 19.7
Investment in
own shares - (27.1) - - - 24.6 (2.5) - (2.5)
Adjustment in
relation to
historic
remeasurement
of financial
instruments,
net of tax - - - (6.2) - 27.5 21.3 - 21.3
At 31 March
2021 524.5 847.1 49.2 (133.6) 0.4 3,921.1 5,208.7 1,472.4 6,681.1
Consolidated Cash Flow Statement
for the year ended 31 March 2022
2022 2021 (restated*)
Note GBPm GBPm
Operating profit - continuing operations 6 3,755.4 2,654.9
Operating (loss) - discontinued operations (100.5) 121.6
Operating profits - total operations 3,654.9 2,776.5
Less share of loss/(profit) of joint ventures and associates (28.7) (132.0)
Operating profit before jointly controlled entities and associates 3,626.2 2,644.5
Pension service charges less contributions paid (23.0) (22.8)
Movement on operating derivatives (2,100.4) (590.1)
Depreciation, amortisation, write downs and impairments 303.2 637.9
Impairment of joint venture investment 106.9 -
Charge in respect of employee share awards (before tax) 20.8 18.1
Profit on disposal of assets and businesses 12 (48.2) (1,227.9)
Release of provisions (1.6) (4.1)
Release of deferred income (17.6) (17.7)
Cash generated from operations before working capital movements 1,866.3 1,437.9
Increase in inventories (24.4) (71.7)
(Increase)/decrease in receivables (625.6) 155.3
Increase in payables 538.3 420.0
Increase in provisions 61.3 36.1
Cash generated from operations 1,815.9 1,977.6
Dividends received from investments 177.0 191.1
Interest paid (273.5) (288.7)
Taxes paid (91.5) (62.8)
Net cash from operating activities 1,627.9 1,817.2
Purchase of property, plant and equipment (1,273.6) (985.0)
Purchase of other intangible assets (182.2) (192.3)
Deferred income received 12.3 11.2
Proceeds from disposals 12 1,366.9 1,734.8
Cash disposed from disposals - (172.8)
Purchase of businesses and subsidiaries (145.3) -
Joint venture development expenditure refunds 136.7 182.5
Loans and equity provided to joint ventures and associates (676.0) (188.9)
Loans and equity repaid by joint ventures 10.9 54.2
Increase in other investments 5.4 -
Net cash from investing activities (744.9) 443.7
Proceeds from issue of share capital 14 6.3 10.4
Dividends paid to company's equity holders 10 (506.6) (797.4)
Hybrid equity dividend payments 14 (50.7) (46.6)
Employee share awards share purchase 14 (14.1) (12.9)
Issue of hybrid instruments 14 - 1,051.0
Redemption of hybrid instruments 14 (426.0) (750.0)
New borrowings 506.1 1,668.5
Seagreen development expenditure refinancing proceeds - 246.1
Repayment of borrowings (960.1) (2,189.3)
Settlement of cashflow hedges 11.2 (5.1)
Net cash from financing activities (1,433.9) (825.3)
Net increase/(decrease) in cash and cash equivalents (550.9) 1,435.6
Cash and cash equivalents at the start of year 1,600.2 164.6
Net (decrease)/increase in cash and cash equivalents (550.9) 1,435.6
Cash and cash equivalents at the end of year 1,049.3 1,600.2
*The comparative consolidated cash flow statement has been
restated. See note 2.3
The accompanying notes are an integral part of these financial
statements.
Notes to the Summary FInancial Statements
for the year ended 31 March 2022
1. Financial Information
The financial information set out in this announcement does not
constitute the Group's consolidated financial statement for the
years ended 31 March 2022 or 2021 but is derived from those
accounts. Consolidated financial statements for the year ended 31
March 2021 were delivered to the Registrar of Companies, and those
for the year ended 31 March 2022 will be delivered in due course.
The auditors have reported on those accounts and their reports were
(i) unqualified; (ii) did not include a reference to any matters to
which the auditors drew attention by way of emphasis without
qualifying their report; and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006. This
preliminary announcement was authorised by the Board on 24 May
2022.
2. Basis of preparation and presentation
2.1 Basis of preparation
The financial information set out in this announcement has been
extracted from the consolidated financial statements of SSE plc for
the year ended 31 March 2022. These consolidated financial
statements were prepared under the historical cost convention,
excepting certain assets and liabilities stated at fair value and
the liabilities of the Group's pension schemes which are measured
using the projected unit credit method, in conformity with the
requirements of the Companies Act 2006 and in accordance with UK
adopted International Accounting Standards. This consolidated
financial information has been prepared on the basis of accounting
policies consistent with those applied in the consolidated
financial statements for the year ended 31 March 2022 unless
expressly stated otherwise.
The Directors consider that the Group has adequate resources to
continue in operational existence for the period to 31 December
2023. The financial statements are therefore prepared on a going
concern basis with the basis for that conclusion explained in the
consolidated financial statements at note A6.3.
The financial statements are presented in Pounds Sterling.
2.2 Basis of presentation
The Group applies the use of adjusted accounting measures
throughout these statements. These measures enable the Directors to
present the underlying performance of the Group and its segments to
the users of the statements in a consistent and meaningful manner.
The adjustments applied and certain terms such as 'adjusted
operating profit', 'adjusted EPS', 'investment and capital
expenditure', 'adjusted EBITDA', 'adjusted investment, capital and
acquisition expenditure' and 'adjusted net debt and hybrid equity'
are not defined under IFRS and are explained in more detail in note
4.
2.3 Changes to presentation
2.3.1 Discontinued operations
On 2 August 2021, the Group announced it had agreed to sell its
33.3% stake in gas distribution operator SGN to a consortium
comprising existing SGN shareholders Ontario Teachers' Pension Plan
Board and Brookfield Super-Core Infrastructure Partners for cash
consideration of GBP1,225m. The transaction completed on 22 March
2022, with the Group recognising an exceptional gain on disposal of
GBP576.5m within discontinued activities. The Group assessed that
the investment met the criteria to be classified as held for sale
on 11 June 2021 when an Exclusivity Agreement was signed by the
consortium. Accordingly, from 11 June 2021 the Group ceased to
equity account for its investment in SGN on designation as held for
sale. As the investment in SGN comprised a separate single major
line of business, the investment was also classified as a
discontinued operation. Therefore, comparative information for the
year ended 31 March 2021 has been restated. The impact of
reclassification of the SGN investment to discontinued operations
has been to reduce adjusted operating profit for continuing
operations for March 2021 by GBP173.0m; reduce adjusted profit
before tax for continuing operations for March 2021 by GBP116.0m;
and reduce adjusted earnings per share for continuing operations
for March 2021 by 9.1p. Total results of the Group in the prior
year are unchanged.
2.3.2 Segments
In accordance with the requirements of IFRS 8 'Operating
Segments' the Group has aligned its segmental disclosures with its
revised internal reporting following changes to the Group's
structure and operations. These segments are used internally by the
Group Executive Committee to in order to assess operating
performance and to make decisions on how to allocate capital.
Consequently, the segmental results reported in the Group's
operating segments have been restated with effect from 1 April
2021. Following the Group's sale of its Contacting and Rail
business to Aurelius Group, the primary retained activities of the
Enterprise business is Distributed Energy which will develop and
provide the Group's solar and battery storage operations and focus
on distributed generation, heat and cooling networks, smart
buildings and EV charging. Accordingly, the result from the Group's
out of areas networks business and Neos Networks Limited joint
venture will now be reported within SSEN Distribution and Corporate
Unallocated respectively. Comparative segmental information in note
6 has been represented to reflect the change to these segments. The
impact of the restatements are an increase to reported revenue of
SSEN Distribution (March 2021: GBP25.0m) and a decrease to the
reported revenue of Distributed Energy (March 2021: GBP25.0m), and
an increase to the adjusted operating profit of SSEN Distribution
(March 2021: GBP8.5m), an increase to the adjusted operating loss
of Distributed Energy (March 2021: GBP5.7m) and an increase to the
adjusted operating loss of Corporate Unallocated (March 2021:
GBP2.8m).
2.4 Changes to estimates
There have been no changes to the basis of accounting estimates
during the current and prior year.
3. New accounting policies and reporting changes
The basis of consolidation and principal accounting policies
applied in the preparation of these financial statements are set
out below and will be included within A1 Accompanying Information
to the Group's consolidated Financial Statements.
3.1 New standards, amendments and interpretations effective or adopted by the Group
Phase 2 of the Interest Rate Benchmark Reform became effective
for the Group from 1 April 2021. Under Phase 2, provided that the
new basis for calculating cash flows is economically equivalent to
the previous basis, reliefs permit hedge accounting relationships
to continue unaffected. The Group has applied these reliefs to
continue hedge accounting on affected instruments and therefore
adoption of the amendment had no impact on the financial
statements.
The amendment to IFRS 16 'Covid-19 Related Rent Concessions
beyond 30 June 2021' had no impact on the financial statements.
3.2 New standards, amendments and interpretations issued, but not yet adopted by the Group
A number of standards, amendments and interpretations have been
issued but not yet adopted by the Group within these financial
statements, because application is not yet mandatory or because UK
adoption remains outstanding at the date the financial statements
were authorised for issue.
Amendments to IAS 16 'Property, Plant and Equipment: Proceeds
Before Intended Use' is effective from 1 January 2022 and was
endorsed by the UK Endorsement Board in April 2022, subsequent to
the balance sheet date. The standard will be applied from 1 April
2022, with retrospective application in periods presented. During
the year ended 31 March 2022, the Group earned pre-commissioning
revenue during the testing and commissioning phases of its Keadby 2
CCGT and Gordonbush windfarm extension project. Restatement of
prior year comparatives will not have a material impact on reported
results in those periods.
IFRS 17 'Insurance contracts' is expected to be effective from 1
January 2023 (1 April 2023 for the Group) but remains subject to UK
endorsement. The Group's initial expectation is that adoption of
this standard will not have a material impact on the Group's
consolidated financial statements.
There are a number of other interpretations and amendments
issued but not yet effective at 31 March 2022. These are not
anticipated to have a material impact on the Group's consolidated
financial statements.
4. Adjusted accounting measures
The Group applies the use of adjusted accounting measures or
alternative performance measures ('APMs') throughout the Annual
Report and Financial Statements. These measures enable the
Directors to present the underlying performance of the Group and
its segments to the users of the statements in a consistent and
meaningful manner. The adjustments applied and certain terms such
as 'adjusted operating profit', 'adjusted earnings per share',
'adjusted EBITDA', 'adjusted investment and capital expenditure',
'adjusted investment, capital and acquisition expenditure' and
'adjusted net debt and hybrid equity' that are not defined under
IFRS and are explained in more detail below. In addition, the
section 'Alternative Performance Measures' at page 2 provides
further context and explanation of these terms.
4.1 Adjusted measures
The Directors assess the performance of the Group and its
reportable segments based on 'adjusted measures'. These measures
are used for internal performance management and are believed to be
appropriate for explaining underlying performance to users of the
accounts. These measures are also deemed useful for ordinary
shareholders of the Company and for other stakeholders.
The performance of the reportable segments is reported based on
adjusted profit before interest and tax ('adjusted operating
profit'). This is reconciled to reported profit before interest and
tax by adding back exceptional items and certain re-measurements,
depreciation on fair value uplifts, the share of operating profit
attributable to non-controlling interests, adjustments to the
retained Gas Production decommissioning provision and after the
removal of interest and taxation on profits from equity-accounted
joint ventures and associates.
The performance of the Group is reported based on adjusted
profit before tax which excludes exceptional items and certain
re-measurements, depreciation on fair value uplifts, the share of
profit before tax attributable to non-controlling interests,
non-recurring financing costs in joint ventures, the net interest
costs associated with defined benefit schemes, adjustments to the
retained Gas Production decommissioning provision and taxation on
profits from equity-accounted joint ventures and associates. The
interest charges or credits on defined benefit schemes removed are
non-cash and are subject to variation based on actuarial valuations
of scheme liabilities.
The Group also uses adjusted earnings before interest, taxation,
depreciation and amortisation ('adjusted EBITDA') as an alternative
operating performance measure which acts as a management proxy for
cash generated from operating activities. This does not take into
account the rights and obligations that SSE has in relation to its
equity-accounted joint ventures and associates. This measure
excludes exceptional items and certain re-measurements, the
depreciation charged on fair value uplifts, the share of EBITDA
attributable to non-controlling interests, adjustments to the
retained Gas Production decommissioning provision, non-recurring
financing costs in joint ventures, the net interest costs
associated with defined benefit schemes, depreciation and
amortisation from equity-accounted joint ventures and associates
and interest and taxation on profits from equity-accounted joint
ventures and associates. For the purpose of calculating the 'Net
Debt to EBITDA' metric referred at page 77, 'adjusted EBITDA' is
further adjusted to remove the proportion of adjusted EBITDA from
equity-accounted joint ventures relating to off-balance sheet debt
(see note 6.3.)
The Group's key performance measure is adjusted earnings per
share (EPS), which is based on basic earnings per share before
exceptional items and certain re-measurements, depreciation on fair
value uplifts, adjustments to the retained Gas Production
decommissioning provision, non-recurring financing costs in joint
ventures, the net interest costs associated with defined benefit
schemes and after the removal of deferred taxation and other
taxation items. Deferred taxation is excluded from the Group's
adjusted EPS because of the Group's significant ongoing capital
investment programme, which means that the deferred tax is unlikely
to reverse. Adjusted profit after tax is presented on a basis
consistent with adjusted EPS except for the non-inclusion of
payments to holders of hybrid equity.
The financial statements also include an 'adjusted net debt and
hybrid equity' measure. This presents financing information on the
basis used for internal liquidity risk management. This measure
excludes obligations due under lease arrangements and the share of
net debt attributable to non-controlling interests, and includes
cash held as collateral on commodity trading exchanges, cash
presented as held for disposal and other short term loans. The
measure represents the capital owed to investors, lenders and
equity holders other than the ordinary shareholders. As with
'adjusted earnings per share', this measure is considered to be of
relevance to the ordinary shareholders of the Group as well as
other stakeholders and interested parties.
Finally, the financial statements include an 'adjusted
investment and capital expenditure' and an 'adjusted investment,
capital and acquisition expenditure' measure. These metrics
represent the capital invested by the Group in projects that are
anticipated to provide a return on investment over future years or
which otherwise support Group operations and is consistent with
internally applied metrics. They therefore include capital
additions to property, plant and equipment and intangible assets
and also the Group's direct funding of joint venture and associates
capital projects. The Group has considered it appropriate to report
these values both internally and externally in this manner due to
its use of equity-accounted investment vehicles to grow the Group's
asset base, where the Group is providing a source of funding to the
vehicle through either loans or equity. The Group does not include
project funded capital additions in these metrics, nor does it
include other capital invested in joint ventures and associates.
Where initial capital funding of an equity accounted joint venture
is refunded, these refunds are deducted from the metrics in the
year the refund is received. In addition, the Group excludes from
this metric additions to its property, plant and equipment funded
by Customer Contributions and additions to intangible assets
associated with Allowances and Certificates. The Group also
excludes the share of investment and capital expenditure
attributable to non-controlling interests. The 'adjusted
investment, capital and acquisition expenditure' measure also
includes cash consideration paid by the Group in business
combinations which contribute to growth of the Group's capital
asset base and is considered to be relevant metric in context of
the Group's Net Zero Acceleration Programme. As with 'adjusted
earnings per share', these measures are considered to be of
relevance to the ordinary shareholders of the Group as well as
other stakeholders and interested parties.
Reconciliations from reported measures to adjusted measures
along with further description of the rationale for those
adjustments are included in the "Adjusted Performance Measures"
section at pages 52 to 60 before the summary Financial
Statements.
4.2 Exceptional items and certain re-measurements
Exceptional items are those charges or credits that are
considered unusual by nature and/or scale and of such significance
that separate disclosure is required for the financial statements
to be properly understood. The trigger points for recognition of
items as exceptional items will tend to be non-recurring although
exceptional charges (or credits) may impact the same asset class or
segment over time.
Market conditions that have deteriorated or improved
significantly over time will only be captured to the extent
observable at the balance sheet date. Examples of items that may be
considered exceptional include material asset or business
impairment charges, reversals of historic impairments, business
restructuring costs and reorganisation costs, significant realised
gains or losses on disposal, unrealised fair value adjustments on
part disposal of a subsidiary and provisions in relation to
contractual settlements associated with significant or material
disputes and claims.
The Group operates a policy framework for estimating whether
items are considered to be exceptional. This framework, which is
reviewed annually, estimates the materiality of each broad set of
potentially exceptional circumstances, after consideration of
strategic impact and likelihood of recurrence, by reference to the
Group's key performance measure of adjusted earnings per share.
This framework estimates that any relevant item greater than
GBP30.0m will be considered exceptional, with lower thresholds
applied to circumstances that are considered to have a greater
strategic impact and are less likely to recur. The only exception
to this threshold is for gains or losses on disposal or divestment
of early stage international or offshore wind farm development
projects which are considered non-exceptional in line with the
Group's strategy to generate recurring gains from developer
divestments.
Certain re-measurements are re-measurements arising on certain
commodity, interest rate and currency contracts which are accounted
for as held for trading or as fair value hedges in accordance with
the Group's policy for such financial instruments, or
remeasurements on stocks of commodities held at the balance sheet
date.
This excludes commodity contracts not treated as financial
instruments under IFRS 9 where held for the Group's own use
requirements which are not recorded until the underlying commodity
is delivered.
The impact of changes in Corporation Tax rates on deferred tax
balances are also included within certain remeasurements.
4.3 Other additional disclosures
As permitted by IAS 1 'Presentation of financial statements',
the Group's income statement discloses additional information in
respect of joint ventures and associates, exceptional items and
certain re-measurements to aid understanding of the Group's
financial performance and to present results clearly and
consistently.
5. Accounting judgements and estimation uncertainty
In the process of applying the Group's accounting policies,
management are required to make judgements and estimates that have
a significant effect on the amounts recognised in the financial
statements. Changes in the assumptions underlying the estimates
could result in a significant impact to the financial statements.
The Group's key accounting judgement and estimation areas are noted
below, with the most significant financial judgement areas as
specifically considered by the Audit Committee being highlighted
separately.
5.1 Significant financial judgements and estimation uncertainties
The preparation of the Group's Summary Financial Statements has
specifically considered the following significant financial
judgements all of which are areas of estimation uncertainty.
(i) Impairment testing and valuation of certain non-current
assets - financial judgement and estimation uncertainty
The Group reviews the carrying amounts of its goodwill, other
intangible assets, specific property, plant and equipment and
investment assets to determine whether any impairment of the
carrying value of those assets requires to be recorded. Where an
indicator of impairment or impairment reversal exists, the
recoverable amount of those assets is determined by reference to
value in use calculations or fair value less cost to sell
assessments, if more appropriate. The specific assets under review
in the year ended 31 March 2022 are intangible development assets
and specific property, plant and equipment assets related to gas
storage and thermal power generation. In addition, the Group
performed an impairment review over the carrying value of its
investment in Neos Networks Limited.
In conducting its reviews, the Group makes judgements and
estimates in considering both the level of cash generating unit
(CGU) at which common assets such as goodwill are assessed against,
as well as the estimates and assumptions behind the calculation of
recoverable amount of the respective assets or CGUs.
Changes to the estimates and assumptions on factors such as
regulation and legislation changes (including climate change
related regulation), power, gas, carbon and other commodity prices,
volatility of gas prices, plant running regimes and load factors,
discount rates and other inputs could impact the assessed
recoverable value of assets and CGUs and consequently impact the
Group's income statement and balance sheet. Detail of the Group's
impairment testing is included in note 15 to the consolidated
financial statements.
(ii) Retirement benefit obligations - estimation uncertainty
The assumptions in relation to the cost of providing
post-retirement benefits during the year are based on the Group's
best estimates and are set after consultation with qualified
actuaries. While these assumptions are believed to be appropriate,
a change in these assumptions would impact the level of the
retirement benefit obligation recorded and the cost to the Group of
administering the schemes.
Further detail of the calculation basis and key assumptions
used, the resulting movements in obligations, and the sensitivity
of key assumptions to the obligation is disclosed at note 15.
(iii) Revenue recognition - Customers unbilled supply of energy - estimation uncertainty
Revenue from energy supply activities undertaken by the Business
Energy and Airtricity businesses includes an estimate of the value
of electricity or gas supplied to customers between the date of the
last meter reading and the year end. This estimation comprises both
billed revenue and unbilled revenue and is calculated based on
applying the tariffs and contract rates applicable to customers
against estimated customer consumption, taking account of various
factors including usage patterns, weather trends and externally
notified aggregated volumes supplied to customers from national
settlements bodies. A change in the assumptions underpinning the
calculation would have an impact on the amount of revenue
recognised in any given period. The sensitivity associated with
this judgement factor is disclosed at note 18 of the Group's
consolidated financial statements.
Given the non-routine process, the number and the extent of
differing inputs and the requirement of management to apply
judgement noted above, the estimated revenue is considered a
significant estimate made by management in preparing the financial
statements.
This estimation is subject to an internal corroboration process
which compares of calculated unbilled volumes to a theoretical
'perfect billing' benchmark measure of unbilled volumes (in GWh and
millions of therms) derived from historical weather-adjusted
consumption patterns and aggregated metering data used in industry
reconciliation processes. Furthermore, actual meter
readings and billings continue to be compared to unbilled
estimates between the balance sheet date and the finalisation of
the financial statements.
Given the non-routine process, the number and the extend of
differing inputs and the requirement of management to apply
judgement noted above, the estimated revenue is considered a
significant estimate made by management in preparing the financial
statements.
(iv) Valuation of other receivables - financial judgement and estimation uncertainty
The Group holds a GBP100m loan note due from Ovo Energy Limited
following the disposal of SSE Energy Services on 15 January 2020.
The loan carries interest at 13.25% and is presented cumulative of
accrued interest payments, discounted at 13.25%. At 31 March 2022,
the carrying value (net of expected credit loss provision of
GBP1.8m) is GBP131.0m).
Consistent with the prior year, the Group has assessed
recoverability of the loan note receivable and has recognised a
provision for expected credit loss in accordance with the
requirements of IFRS 9. Due to recent market volatility, the
Group's assessment of the value of the loan note is now considered
a more significant financial judgement. While the carrying value is
considered to be appropriate, changes in economic conditions could
lead to a change in the level of expected credit loss incurred by
the Group.
(v) Impact of climate change and the transition to net zero -
financial judgement and estimation uncertainty
Climate change and the transition to net zero have been
considered in the preparation of these financial statements. The
Group has a clearly articulated Net Zero Acceleration Programme
('NZAP') to lead in the UK's transition to net zero and aligns its
investment plans and business activities to that strategy. The
impact of future climate change regulation could have a material
impact on the currently reported amounts of the Group's assets and
liabilities.
In preparing these financial statements, the following has been
considered:
Valuation of property, plant and equipment, and impairment
assessment of goodwill
In the medium term, the transition to net zero may result in
regulation restricting electricity generation from unabated gas
fired power stations. The Group's view is that flexible generation
capacity, such as the Group's fleet of CCGT power stations, will be
an essential part of the net zero transition in order to provide
security of supply to a market which is increasingly dependent upon
renewable sources, which are inherently intermittent. The majority
of the Group's GB CCGT fleet is nearing the end of its economic
life and it is not currently expected that regulation to require
abatement would be introduced before the planned closure of those
power stations. Of the value capitalised at 31 March 2022, only two
assets are forecast to continue to operate beyond 2030, being Great
Island and Keadby 2. The Group's view is that Great Island will
continue to be essential to providing security of supply in the
Irish electricity market. Keadby 2 is nearing completion and has
achieved market leading efficiency throughout test operations.
Therefore, the Group considers that other assets operating in the
market would be more likely to close before Keadby 2 and the plant
will continue to be required to balance the UK electricity market
beyond 2030. As a result, the useful economic life of both assets
has not been shortened when preparing the 31 March 2022 financial
statements. The Group assesses the useful economic life of its
Property, Plant and Equipment assets annually. In the short term,
the economic return from the balancing activity provided by the
Group's GB CCGT assets has increased due to scarcity of supply in
the UK electricity market, resulting in the reversal of historic
impairments at 31 March 2022.
A significant increase in renewable generation capacity in the
Group's core markets could potentially result in an oversupply of
renewable electricity at a point in the future, which would lead to
a consequential decrease in the power price achievable for the
Group's wind generation assets. The Group has not assessed that
this constitutes an indicator of impairment at 31 March 2022 as the
Group's baseline investment case models assume a centrally approved
volume of new build in these markets. The Group's policy is to test
the goodwill balances associated with wind generation portfolio for
impairment on an annual basis. Through this impairment assessment,
a sensitivity to power price, which may arise in a market with
significant new build, was modelled. This scenario indicated that,
despite a modelled 10% reduction in power price, there remained
significant headroom on the carrying value in the Group's wind
generation assets.
Another climate related risk to SSE's valuation bases could be
changes to weather patterns resulting from global warming. This in
turn could result in calmer, drier weather patterns, which would
reduce volumes achievable for the Group's wind and hydro generation
assets (although noting that this would likely lead to capacity
constraints and hence higher prices). This has not been assessed as
an indicator of impairment at 31 March 2022, as there is no
currently observable evidence to support that scenario directly.
However, the Group has performed a sensitivity to its impairment
modelling and has assessed that a 15% reduction in achievable
volume would result in significant headroom on the carrying value
of the assets at 31 March 2022.
Valuations of decommissioning provisions
The Group holds decommissioning provisions for its Renewable and
Thermal generation assets and has retained a 60% share for the
decommissioning of its disposed Gas Production business. As noted
above, the Group's view at 31 March 2022 is that climate change
regulation will not bring forward the closure dates of its CCGT
fleet, many of which are expected to close before 2030. Similarly,
it is expected that fundamental changes to weather patterns, or the
impact of new wind generation capacity will not bring forward the
decommissioning of the Group's current wind farm portfolio.
The discounted share of the Gas Production provision is
GBP249.4m. At 31 March 2022, the impact of discounting of this
retained provision is 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.
5.2 Other accounting judgements - changes from prior year
(i) Accounting for the impacts of coronavirus - accounting
judgement and estimation uncertainty
For the years ended 31 March 2020 and 31 March 2021, the Group
included a specific accounting judgement and estimation uncertainty
in relation to the impact of coronavirus on its operations and
going concern assessments. During the current year, the UK economy
has continued to recover from the effects of the pandemic, and
therefore the specific accounting judgement and estimation
uncertainty in relation to the impact of coronavirus is no longer
required.
5.3 Other areas of estimation uncertainty
(i) Tax provisioning
The Group has open tax issues with the tax authorities in the
UK. Where management makes a judgement that an outflow of funds is
probable, and a reliable estimate of the dispute can be made,
provision is made for the best estimate of the most likely
liability.
In estimating any such liability, the Group applies a risk-based
approach, taking into account the specific circumstances of each
dispute based on management's interpretation of tax law and
supported, where appropriate, by discussion and analysis by
external tax advisors. These estimates are inherently judgemental
and could change substantially over time as disputes progress and
new facts emerge. Provisions are reviewed on an ongoing basis,
however the resolution of tax issues can take a considerable period
of time to conclude and it is possible that amounts ultimately paid
will be different from the amounts provided. Provisions for
uncertain tax positions are included in current tax liabilities,
and total GBP27.9m at 31 March 2022 (2021: GBP37.6m). The Group
estimates that a reasonably possible range of settlement outcomes
for the uncertain tax provisions given their binary nature is
between nil and the full value of the provision.
(ii) Decommissioning costs
The calculation of the Group's decommissioning provisions
involves the estimation of quantum and timing of cash flows to
settle the obligation. The Group engages independent valuation
experts to estimate the cost of decommissioning its Renewable,
Thermal and Gas Storage assets every three years based on current
technology and prices. The last independent assessment for
Renewable and Thermal generation assets was performed in the year
to 31 March 2022. The last formal assessment for Gas Storage assets
was performed in the year to 31 March 2020. Retained
decommissioning costs in relation to the disposed Gas Production
business are periodically agreed with the field operators and
reflect the latest expected economic production lives of the
fields.
The dates for settlement of future decommissioning costs are
uncertain, particularly for the disposed gas exploration and
production business where reassessment of gas and liquids reserves
and fluctuations in commodity prices can lengthen or shorten the
field life.
Further detail on the assumptions applied, including expected
decommissioning dates, and movement in decommissioning costs during
the year are disclosed at note 20 of the Group's consolidated
financial statements.
6. Segmental information
The changes to the Group's segments in the year are explained at
note 2.3 and includes the realignment of the activities of the
Distributed Energy business (from the Enterprise segment) and the
impact of the Group's investment in SGN being classified as a
discontinued operation prior to disposal on 22 March 2022.
Comparative information has been represented to reflect the change
to these segments. The Group's Gas Production business was disposed
on 14 October 2021 and is presented separately as a discontinued
operation. The Group's 'Corporate unallocated' segment is the
Group's residual corporate central costs which cannot be allocated
to individual segments and which now includes the contribution from
the Group's Neos Networks joint venture.
The types of products and services from which each reportable
segment derives its revenues are:
Continuing operations
Business Area Reported Segments Description
Transmission SSEN Transmission The economically regulated high voltage transmission of electricity from
generating plant
to the distribution network in the North of Scotland. Revenue earned
from constructing, maintaining
and renovating our transmission network is determined in accordance with
the regulatory licence,
based on an Ofgem approved revenue model and is recognised as charged to
National Grid. The
revenue earned from other transmission services such as generator plant
connections is recognised
in line with delivery of that service over the expected contractual
period and at the contracted
rate.
Distribution SSEN Distribution The economically regulated lower voltage distribution of electricity to
customer premises
in the North of Scotland and the South of England. This now includes the
result from the Group's
out of area networks business. Revenue earned from delivery of
electricity supply to customers
is recognised based on the volume of electricity distributed to those
customers and the set
customer tariff. The revenue earned from other distribution services
such as domestic customer
connections is recognised in line with delivery of that service over the
expected contractual
period and at the contracted rate.
Renewables SSE Renewables The generation of electricity from renewable sources, such as onshore
and offshore windfarms
and run of river and pumped storage hydro assets in the UK and Ireland.
Revenue from physical
generation of electricity sold to SSE EPM is recognised as generated,
based on the contracted
or spot price at the time of delivery. Revenue from national support
schemes (such as Renewable
Obligation Certificates or the Capacity Market) may either be recognised
in line with electricity
being physically generated or over the contractual period, depending on
the underlying performance
obligation.
Thermal SSE Thermal The generation of electricity from thermal plant and the Group's
interests in multifuel assets
in the UK and Ireland. Revenue from physical generation of electricity
sold to SSE EPM is
recognised as generated, based on the contract or spot price at the time
of delivery. Revenue
from national support schemes (such as the Capacity Market) and
ancillary generation services
may either be recognised in line with electricity being physically
generated or over the contractual
period, depending on the underlying performance obligation.
Gas Storage The operation of gas storage facilities in the UK, utilising capacity to
optimise trading
opportunity associated with the assets. Contribution arising from
trading activities is recognised
as realised based on the executed trades or withdrawal of gas from
caverns.
Energy Customer Solutions Business Energy The supply of electricity gas to business customers in Great Britain.
Revenue earned from
the supply of energy is recognised in line with the volume delivered to
the customer, based
on actual and estimated volumes, and reflecting the applicable customer
tariff after deductions
or discounts.
Airtricity The supply of electricity, gas and energy related services to
residential and business customers
in the Republic of Ireland and Northern Ireland. Revenue earned from the
supply of energy
is recognised in line with the volume delivered to the customer, based
on actual and estimated
volumes, and reflecting the applicable customer tariff after deductions
or discounts. Revenue
earned from energy related services may either be recognised over the
expected contractual
period or following performance of the service, depending on the
underlying performance obligation.
Business Area Reported Segments Description
Distributed Energy Distributed Energy The provision of services to enable customers to optimise and
manage low carbon energy use;
development and management of battery storage and solar assets;
distributed generation, independent
distribution, heat and cooling networks, smart buildings and EV
charging activities. The results
of the Group's Contracting and Rail business was included
within this segment until it was
disposed on 30 June 2021.
EPM & I Energy Portfolio Management (EPM) The provision of a route to market for the Group's Renewable,
Thermal and commodity procurement
for the Group's energy supply businesses in line with the
Group's stated hedging policies.
Revenue from physical sales of electricity, gas and other
commodities produced by SSE is recognised
as supplied to either the national settlements body or the
customer, based on either the spot
price at the time of delivery or trade price where that trade
is eligible for "own use" designation.
The sale of commodity optimisation trades is presented net in
cost of sales alongside purchase
commodity optimisation trades.
Discontinued operations
Business Area Reported Segments Description
EPM & I Gas Production The production and processing of gas and oil from North Sea fields. Revenue is
recognised
based on the production that has been delivered to the customer at the specified
delivery
point, at the applicable contractual market price.
Gas Distribution SGN SSE's share of Scotia Gas Networks, which operates two economically regulated gas
distribution
networks in Scotland and the South of England. The revenue earned from
transportation of natural
gas to customers is recognised based on the volume of gas distributed to those
customers and
the set customer tariff.
The internal measure of profit used by the Board is 'adjusted
profit before interest and tax' or 'adjusted operating profit'
which is arrived at before exceptional items, the impact of
financial instruments measured under IFRS 9, the net interest costs
associated with defined benefit pension schemes, adjustments to the
retained Gas Production decommissioning and after the removal of
taxation and interest on profits from joint ventures and
associates.
Analysis of revenue, operating profit, assets and earnings
before interest, taxation, depreciation and amortisation ('EBITDA')
by segment is provided on the following pages. All revenue and
profit before taxation arise from operations within the UK and
Ireland.
6.1 Revenue by segment
Intra-
Reported Intra-segment Reported segment revenue
revenue revenue (i) Segment revenue revenue (i) Segment revenue
2021 2021
2022 2022 2022 (restated*) 2021 (restated*)
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
SSEN
Transmission 589.7 - 589.7 404.9 - 404.9
SSEN
Distribution 954.6 78.6 1,033.2 834.5 69.1 903.6
SSE Renewables 357.4 418.8 776.2 281.9 544.2 826.1
SSE Thermal 844.2 285.0 1,129.2 504.0 699.0 1,203.0
Gas storage 8.7 2,471.1 2,479.8 7.1 766.0 773.1
Energy Customer
Solutions
Business Energy 2,289.0 34.5 2,323.5 1,934.5 30.5 1,965.0
SSE Airtricity 1,177.3 451.3 1,628.6 1,072.7 61.5 1,134.2
Distributed
Energy 176.9 25.4 202.3 334.5 33.6 368.1
EPM:
Gross trading 12,808.3 7,160.2 19,968.5 8,811.9 2,699.3 11,511.2
Optimisation
trades (10,667.6) (2,914.0) (13,581.6) (7,449.2) (155.8) (7,605.0)
EPM 2,140.7 4,246.2 6,386.9 1,362.7 2,543.5 3,906.2
Corporate
unallocated 69.7 147.7 217.4 89.6 189.4 279.0
Total 8,608.2 8,158.6 16,766.8 6,826.4 4,936.8 11,763.2
Discontinued
operations
Gas Production 8.1 133.9 142.0 14.2 90.8 105.0
Total SSE Group 8,616.3 8,292.5 16,908.8 6,840.6 5,027.6 11,868.2
*The comparative segment revenue has been restated. See note
2.3.
(i) Significant inter-segment revenue is derived from the sale
of power and stored gas from SSE Renewables, SSE Thermal, Gas
Storage and Distributed Energy to EPM; use of system income
received by SSEN Distribution from Business Energy; Business Energy
provides internal heat and light power supplies to other Group
companies; EPM provides power, gas and other commodities to
Business Energy and SSE Airtricity; Gas Production (discontinued)
sells gas from producing upstream fields to EPM; and Corporate
unallocated provides corporate and infrastructure services to all
segments as well as third parties. All are provided at arm's
length.
Revenue from the Group's joint venture investment in Scotia Gas
Networks Limited, SSE's share being GBP60.4m (2021: GBP411.8m) for
the period to 11 June 2021, is not recorded in the revenue line in
the income statement.
External revenue by geographical location on continuing
operations is as follows:
2022 2021
GBPm GBPm
UK 7,292.1 5,834.4
Ireland 1,316.1 992.0
8,608.2 6,826.4
6.2 Operating profit/(loss) by segment
2022
Adjusted JV/ Before
operating Depreciation Associate Adjustments to exceptional Exceptional
profit on fair share of Gas Production items and items and
reported to value interest and decommissioning certain certain
the Board uplifts tax (i) 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 306.3 - (9.5) - 296.8 333.3 630.1
Gas Storage 30.7 - - - 30.7 94.7 125.4
Energy
Customer
Solutions
Business
Energy (21.5) - - - (21.5) - (21.5)
SSE Airtricity
(i) 60.4 - - - 60.4 - 60.4
Distributed
Energy (10.9) - - - (10.9) (18.3) (29.2)
EPM (16.8) - - - (16.8) 2,100.4 2,083.6
Corporate
Corporate
unallocated (95.7) - (4.7) (13.1) (113.5) - (113.5)
Neos (16.1) (1.8) (7.0) - (24.9) (115.1) (140.0)
Total
continuing
operations 1,536.8 (20.6) (114.1) (13.1) 1,389.0 2,366.4 3,755.4
Discontinued
operations
Gas Production 101.4 - - - 101.4 (120.8) (19.4)
SGN 21.0 - (12.8) - 8.2 487.2 495.4
Total
discontinued
operations 122.4 - (12.8) - 109.6 366.4 476.0
Total SSE
Group 1,659.2 (20.6) (126.9) (13.1) 1,498.6 2,732.8 4,231.4
(i)The adjusted operating profit reported to the Board for SSE
Airtricity includes a correction in respect of historic use of
systems costs of GBP25.0m. It has been assessed that adjustment in
the current year does not materially impact prior year financial
statements.
2021 (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 and decommissioning certain certain
the Board uplifts tax (i) provision re-measurements re-measurements Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing
operations
SSEN
Transmission 220.9 - - - 220.9 - 220.9
SSEN
Distribution 275.8 - - - 275.8 - 275.8
SSE Renewables 731.8 (18.8) (71.4) - 641.6 214.4 856.0
SSE Thermal 160.5 - (19.6) - 140.9 634.4 775.3
Gas Storage (5.7) - - - (5.7) 8.5 2.8
Energy
Customer
Solutions
Business
Energy (24.0) - - - (24.0) 20.1 (3.9)
SSE Airtricity 44.0 - - - 44.0 6.0 50.0
Distributed
Energy (27.0) - - - (27.0) (49.1) (76.1)
EPM 18.4 - - - 18.4 590.1 608.5
Corporate
Corporate
unallocated (58.4) (1.8) (2.4) - (62.6) 22.3 (40.3)
Neos (2.8) - (11.3) - (14.1) - (14.1)
Total
continuing
operations 1,333.5 (20.6) (104.7) - 1,208.2 1,446.7 2,654.9
Discontinued
operations
Gas Production 33.0 - - - 33.0 - 33.0
SGN 173.0 - (86.0) - 87.0 1.6 88.6
Total
discontinued
operations 206.0 - (86.0) - 120.0 1.6 121.6
Total SSE
Group 1,539.5 (20.6) (190.7) - 1,328.2 1,448.3 2,776.5
*The comparative operating profit by segment information has
been restated. See note 2.3.
6.3 Earnings before interest, taxation, depreciation and amortisation ('EBITDA')
2022
Adjusted
operating 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 306.3 - 70.2 19.0 - 395.5
Gas Storage 30.7 - 0.8 - - 31.5
Energy Customer
Solutions
Business Energy (21.5) - 11.3 - - (10.2)
SSE Airtricity 60.4 - 1.7 - - 62.1
Distributed
Energy (10.9) - 7.4 - (1.3) (4.8)
EPM (16.8) - 4.5 - - (12.3)
Corporate
Corporate
unallocated (95.7) - 56.1 - (0.9) (40.5)
Neos (16.1) (1.8) - 42.2 - 24.3
Total continuing
operations 1,536.8 (20.6) 612.0 146.6 (17.6) 2,257.2
Discontinued
operations
Gas Production 101.4 - - - - 101.4
SGN 21.0 - - 11.1 - 32.1
Total
discontinued
operations 122.4 - - 11.1 - 133.5
Total SSE Group 1,659.2 (20.6) 612.0 157.7 (17.6) 2,390.7
Note that the Group's 'Net Debt to EBITDA' metric is derived
after removing the proportionate EBITDA from the following
debt-financed JVs: Beatrice and Cloosh. This adjustment is
GBP125.4m (2021: GBP110.5m) (restated) resulting in EBITDA on
continuing operations for inclusion in the Debt to EBITDA metric of
GBP2,131.2m (2021: GBP1,884.8m restated).
6.3 Earnings before interest, taxation, depreciation and
amortisation ('EBITDA') (continued)
2021 (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 220.9 - 87.1 - (2.6) 305.4
SSEN
Distribution 275.8 - 168.8 - (11.3) 433.3
SSE Renewables 731.8 (18.8) 158.0 90.1 - 961.1
SSE Thermal 160.5 - 54.3 15.8 (1.0) 229.6
Gas Storage (5.7) - 0.8 - - (4.9)
Energy Customer
Solutions
Business Energy (24.0) - 4.6 - - (19.4)
SSE Airtricity 44.0 - 7.5 - - 51.5
Distributed
Energy (27.0) - 8.2 - (1.7) (20.5)
EPM 18.4 - 5.3 - - 23.7
Corporate
Corporate
unallocated (58.4) (1.8) 61.6 2.7 (1.1) 3.0
Neos (2.8) - - 35.3 - 32.5
Total continuing
operations 1,333.5 (20.6) 556.2 143.9 (17.7) 1,995.3
Discontinued
operations
Gas Production 33.0 - - - - 33.0
SGN 173.0 - - 61.6 - 234.6
Total
discontinued
operations 206.0 - - 61.6 - 267.6
Total SSE Group 1,539.5 (20.6) 556.2 205.5 (17.7) 2,262.9
*The comparative EBITDA by segment information has been
restated. See note 2.3.
7. Exceptional items and certain re-measurements
2022 2021 (restated*)
GBPm GBPm
Continuing operations
Exceptional items
Asset impairments and related (charges) and credits 322.6 (50.4)
Provisions for restructuring and other liabilities - (75.3)
322.6 (125.7)
Net (losses)/gains on disposals of businesses and other assets (17.6) 976.0
Total exceptional items 305.0 850.3
Certain re-measurements
Movement on operating derivatives (note 16) 2,100.4 590.1
Movement in fair value of commodity stocks (2.6) 8.5
Movement on financing derivatives (note 16) 21.0 55.6
Share of movement on derivatives in jointly controlled entities (net of tax) - (0.8)
Total certain re-measurements 2,118.8 653.4
Exceptional items and certain re-measurements on continuing operations before taxation 2,423.8 1,503.7
Taxation
Taxation on other exceptional items (79.0) 3.1
Taxation on certain re-measurements (408.0) (125.9)
Effect of deferred tax rate change in wholly owned entities (244.7) -
Effect of deferred tax rate change in jointly controlled entities (33.2) -
Taxation (764.9) (122.8)
Total exceptional items and certain re-measurements on continuing operations after taxation 1,658.9 1,380.9
Discontinued operations
Exceptional items
Gas production disposal and related charges (120.8) -
Net gain on disposal of jointly controlled entities 576.5 -
Share of movement on derivatives in jointly controlled entities (net of tax) (3.8) 1.6
Effect of deferred tax rate change in jointly controlled entities (85.5) -
Exceptional items and certain re-measurements on discontinued operations after taxation 366.4 1.6
Exceptional items and certain remeasurements are disclosed
across the following categories within the income statement:
2022 2021(restated*)
GBPm GBPm
Continuing operations
Cost of sales:
Movement on operating derivatives (note 16) 2,100.4 590.1
Movement in fair value of commodity stocks (2.6) 8.5
2,097.8 598.6
Operating costs:
Asset impairments and reversals 322.6 (30.1)
SSE Energy Services related restructuring costs and asset impairments - (24.2)
Other exceptional provisions and charges (25.1) (72.8)
297.5 (127.1)
Operating income:
Net gains on disposals of businesses and other assets 4.3 976.0
Joint ventures and associates:
Share of movement on derivatives in jointly controlled entities (net of tax) - (0.8)
Effect of deferred tax rate change in jointly controlled entities (33.2) -
(33.2) (0.8)
Operating profit 2,366.4 1,446.7
Finance income
Movement on financing derivatives (note 16) 21.0 55.6
Interest income on deferred consideration receipt 3.2 1.4
24.2 57.0
Profit before taxation on continuing operations 2,390.6 1,503.7
Discontinued operations
Gas Production asset impairments and related charges (120.8) -
Joint ventures and associates:
Net gain on disposal of jointly controlled entities 576.5 -
Share of movement on derivates in jointly controlled entities (net of tax) (3.8) 1.6
Profit before tax on discontinued operations 451.9 1.6
*The comparatives have been restated. See note 2.3.
7.1 Exceptional items
7.1.1 Exceptional items in the year ended 31 March 2022
In the year to 31 March 2022, the Group recognised a net
exceptional credit of GBP305.0m arising from its continuing
operations. The net exceptional credit is primarily due to
impairment reversals of GBP331.5m in relation to the Group's GB
combined cycle gas turbine ('CCGT') power stations and the Group's
Great Island CCGT plant in Ireland and impairment reversals of
GBP97.3m related to the Group's Gas Storage operations at Atwick
and Aldbrough. These credits have been offset by an impairment loss
of GBP106.9m recognised in relation to the Group's investment in
Neos Networks, a further GBP18.9m loss 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.
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 has carried out a formal impairment
review in order to assess the carrying value of its GB combined
cycle gas turbine ('CCGT') power stations and the Group's Great
Island CCGT plant in Ireland. As a result of the assessment, the
Group has recognised an exceptional impairment reversal of
GBP331.6m to the carrying value of the assets.
(ii) Gas Storage - impairment reversals
At 31 March 2022, the Group has carried out a formal impairment
review in order to assess the carrying value of its Gas Storage
operations at Atwick and Aldbrough. As a result of the assessment,
the Group has recognised an exceptional impairment reversal of
GBP97.3m to the carrying value of the assets.
(iii) SSE Contracting - loss on disposal
On 30 June 2021, the Group completed the sale of its Contracting
and Rail business to the Aurelius Group for headline consideration
of GBP22.5m and GBP5m of contingent consideration, based on earning
targets within the business. Due to working capital adjustments,
cash consideration received was GBP0.2m. The Group recorded a
further exceptional loss on disposal of GBP18.9m on completion, 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 has assessed that the value of its
investment in Neos Networks has been impaired by GBP106.9m.
In the year ended 31 March 2019, the Group disposed of 50% of
its stake in Neos Networks Limited (formerly SSE Telecommunications
Limited) to Infracapital Partners III, 'Infracap', for initial
consideration of GBP215.0m and the potential for a further GBP165m
of contingent consideration dependent on achievement of certain
targets. In the year ended 31 March 2022, the Group reassessed its
position relating to the retained contingent elements and its
contractual position with Infracap, with the net impact being the
recognition of an exceptional charge of 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 (2021: GBP1.4m) in relation the
unwind of discounting on deferred consideration recognised on the
part disposal of SSE Slough Multifuel Limited in the year ending 31
March 2021, iii) credit of 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 for further information.
(vii) Gas Production - loss on disposal
The Group recorded an exceptional disposal loss of GBP120.8m
related to sale of its Gas Production assets and liabilities to
Viaro Energy through its subsidiary RockRose Energy Limited which
completed on 14 October 2021. At 30 September 2021 an impairment
charge of GBP93.9m was recognised in relation to the loss on sale
incurred to 30 September 2021 under the transaction's lock box
mechanism. The further GBP26.9m recognised in the second half of
the financial year represents the profit for the business due to
the buyer between 1 October 2021 and the disposal date on 14
October 2021.
7.1.2 Exceptional items in the year ended 31 March 2021
In the year to 31 March 2021, the Group recognised a net
exceptional credit of GBP850.3m in its continuing operations. The
net exceptional credit was primarily due to gains on disposal of
the Group's stakes in Ferrybridge Multifuel (GBP669.9m), Walney
offshore windfarm (GBP188.7m) and Maple SmartMeterCo (GBP70.4m). In
addition, the Group reversed GBP26.1m of prior year exceptional
provisions for bad debt arising from coronavirus and recorded
exceptional gains following the fair value uplift of its retained
stakes in SSE Slough Multifuel Limited (GBP21.3m) and Seagreen
Holdco 1 Limited (GBP25.7m). These exceptional credits were offset
by an impairment to the Group's Great Island Thermal CCGT plant of
GBP58.1m and a write down to fair value less costs to sell SSE
Contracting, which was held for sale at 31 March 2021, of GBP51.2m.
Finally, the Group incurred GBP24.2m of further charges related to
the disposal of SSE Energy Services which was completed in 2020 and
reduced the overall gain on disposal, completed in the year ended
31 March 2019, of Neos Networks Limited by GBP21.8m.
The net exceptional charges/(credits) recognised can be
summarised as follows:
Property, Provisions Total
plant Intangible and other Trade Other charges/
and equipment assets charges receivables receivables (credits)
GBPm GBPm GBPm GBPm GBPm GBPm
Thermal Electricity
Generation (i) 58.1 - - - - 58.1
Customer bad debt provisioning
(ii) - - - (26.1) - (26.1)
SSE Contracting (iii) - - 51.2 - - 51.2
SSE Energy Services
disposal costs (iv) 15.1 5.2 3.9 - - 24.2
Neos Networks (v) - - 20.2 - 1.6 21.8
Other charges (vi) (1.9) - - - (1.6) (3.5)
Disposal gains (vii) - - - - (976.0) (976.0)
Total exceptional items 71.3 5.2 75.3 (26.1) (976.0) (850.3)
(i) Thermal Electricity Generation
At 31 March 2021, the Group carried out a formal impairment
review in order to assess the carrying value of its CCGT plant at
Great Island. As a result of the assessment, the Group recognised
an exceptional impairment of GBP58.1m to the carrying value of the
asset, which arose following reductions in forward price curves and
forecast electricity demand in Ireland.
(ii) Customer bad debt provisioning
In the year ending 31 March 2020, the Group recognised an
exceptional provision for exposure to bad debts of GBP33.7m
specifically related to the coronavirus pandemic within its
Business Energy (GBP27.7m) and Airtricity (GBP6.0m) businesses. The
initial outbreak of the pandemic happened late in 2019 and the UK
remained in lockdown at the date of approval of the Annual Report
on 16 June 2020, which meant that there was significant uncertainty
surrounded the judgement at that date. The provision reflected the
Group's best estimate at that date and was treated as an adjusting
post balance sheet event. During the year to 31 March 2021, the
Group achieved higher cash collections in recovery of its debt than
was expected, largely due to government support schemes and other
factors. As a result, an exceptional reversal of the provision of
GBP20.1m in its Business Energy and GBP6.0m in its Airtricity
businesses was recognised.
7.1.2 Exceptional items in the year ended 31 March 2021
(continued)
(iii) SSE Contracting - impairment charges
On 1 April 2021, subsequent to the balance sheet date, the Group
announced the sale of its Contracting & Rail business to
Aurelius Group. The transaction was for initial consideration of
GBP17.5m, plus a loan note receivable of GBP5m, and a further GBP5m
of contingent consideration based upon future financial performance
of the business. At 31 March 2021, the Group classified its
interest in the business as held for sale and impaired the carrying
amount of the held for sale asset to its net realisable value,
resulting in an impairment of GBP51.2m. The transaction completed
on 30 June 2021.
(iv) SSE Energy Services - disposal costs
In 2020, the Group disposed of its SSE Energy Services business
to Ovo Energy Limited, incurring an exceptional loss of GBP237.7m.
The calculation of the loss included estimates for costs of
disposal and separation which were subsequently re-estimated in the
year to 31 March 2021. These additional costs of disposal, which
total GBP24.2m, included increased estimates of the cost of IT
separation and decommissioning and the impairment of SSE properties
which were wholly (or substantially) leased to the disposal
group.
(v) Neos Networks adjustment to consideration
In the financial year to 31 March 2019, the Group disposed of
50% of its stake in Neos Networks Limited (formerly SSE
Telecommunications Limited) to Infracapital Partners III,
'Infracap', for initial consideration of GBP215.0m and the
potential for a further GBP165m of contingent consideration
dependent on achievement of certain targets. In the year ended 31
March 2021, the Group received further cash proceeds of GBP44m
relating to previously accrued deferred consideration but also
reassessed its position relating to the retained contingent
elements and its contractual position with Infracap, with the net
impact being the recognition of an exceptional charge of
GBP20.2m.
(vi) Other charges
At 31 March 2021, the Group recognised further exceptional
credits of GBP3.4m relating to reversal of previously recognised
exceptional charges or judgements. These included i) reassessment
of impairments associated with Heat Networks assets (credit of
GBP2.1m), ii) credit of GBP1.3m in relation to a gain on disposal
of the historically impaired Barkip anaerobic digestion plant.
(vii) Disposal gains
During the year ended 31 March 2021 the Group progressed with
its disposal plan for non-core assets announced in June 2020, which
resulted in exceptional gains on disposal. The exceptional gains on
disposal totalling GBP976.0m are summarised below. Further detail
on the disposals in the year is provided in note 12.
On 13 October 2020, the Group announced it had reached an
agreement to dispose of its 50% investment in Multifuel Energy
Limited and Multifuel Energy 2 Limited (together 'MEL') to European
Diversified Infrastructure Fund III for headline consideration of
GBP995m. The transaction completed on 7 January 2021. The Group
recorded an exceptional gain on disposal of GBP669.9m.
On 2 September 2020, the Group agreed to sell its subsidiary,
SSE Renewables Walney Limited, to Greencoat UK Wind Plc for
consideration of GBP350m, resulting in an exceptional gain on sale
of GBP188.7m. SSE Renewables Walney Limited was the holding company
of the Group's non-operated 25.1% stake in Walney Offshore Wind
Farm. The disposal was not considered to be aligned to the Group's
strategic objective of gaining value from divestment of stakes in
offshore or international wind developments, therefore the gain on
disposal was recognised as exceptional.
On 23 September 2020, the Group disposed of its 33% investment
in Maple Topco Limited, the smart meter services provider, for
proceeds of GBP95.3m, and recognised an exceptional gain on
disposal of GBP70.4m.
On 3 June 2020, the Group disposed of a 51% stake in its wholly
owned subsidiary, Seagreen Holdco 1 Ltd ('Seagreen 1'), to Total.
The transaction was for initial cash proceeds of GBP70m, plus
contingent consideration of up to GBP60m dependent upon future
criteria being met. The Group assessed that control of the company
was lost on that date, and that the investment in Seagreen 1 should
be accounted for as an equity accounted joint venture under the
principles of IFRS 11 "Joint Arrangements". The Group acquired the
joint venture investment at fair value under the principles of IFRS
10 "Consolidated Financial Statements", resulting in a total gain
of GBP49.0m. Of that gain, GBP25.7m was recognised as exceptional,
as it represented the fair value gain on acquisition of the joint
venture investment retained by the Group. The remaining GBP23.3m of
the gain was included in underlying operations, in line with the
Group's stated exceptional policy (see note 4.2).
On 2 April 2020, the Group disposed of a 50% stake in its wholly
owned subsidiary, SSE Slough Multifuel Ltd, to Copenhagen
Infrastructure Partners. The transaction was for initial cash
proceeds of GBP10m, plus contingent consideration of up to GBP59.1m
dependent upon future criteria being met. The Group assessed that
control of the company was lost on that date, and that the
investment in Slough Multifuel should be accounted for as an equity
accounted joint venture under the principles of IFRS 11. The Group
acquired the joint venture investment at fair value under the
principles of IFRS 10, resulting in a total gain of GBP41.7m. Of
that gain, GBP21.3m was recognised as exceptional, as it
represented the fair value gain on acquisition of the joint venture
investment retained by the Group. The remaining GBP20.4m of the
gain was included in underlying operations, in line with the
Group's stated exceptional policy (see note 4.2).
7.1.3 Exceptional items in the year ended 31 March 2020
In the year to 31 March 2020, the Group recognised a net
exceptional charge of GBP209.7m in its continuing operations and a
charge of GBP529.0m in its discontinued operations. The net
exceptional charge in continuing operations was primarily due to
the closure of Fiddler's Ferry coal fired power station
(GBP112.3m), provisions for bad debts as a result of coronavirus of
GBP33.7m, impairments to SSE assets as a result of the disposal of
SSE Energy Services (GBP48.8m) and other asset impairments and
restructuring costs of GBP45.6m. These exceptional charges were
offset by gains on disposal of GBP30.6m in total related to
recognition of additional contingent consideration, offset by
related costs and including GBP2.4m of discount unwind, in relation
to the 31 March 2019 disposal of SSE Telecommunications and a
completion accounts adjustment to the gain on sale of Stronelairg
and Dunmaglass windfarms, also from 31 March 2019 financial
year.
In the discontinued operations, the Group incurred an
exceptional impairment on its Gas Production assets of GBP291.3m to
adjust the carrying value of the assets to their expected fair
value on disposal, a loss on disposal of SSE Energy Services of
GBP226.9m and restructuring costs of GBP10.8m within SSE Energy
Services.
The net exceptional items recognised can be summarised as
follows:
Property, Provisions Total
plant Intangible and other Trade Other charges/
and equipment assets Inventories charges receivables receivables (credits)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Thermal Electricity
Generation (i) - - 75.6 35.0 - 1.7 112.3
Other charges (ii) - 83.0 - 11.3 33.7 - 128.0
Other income (iii) - 1.9 - 5.3 - (37.8) (30.6)
Total continuing
operations - 84.9 75.6 51.6 33.7 (36.1) 209.7
SSE Energy Services
(iv) - - - 237.7 - - 237.7
Gas Production (v) 231.1 60.2 - - - - 291.3
Total SSE Group 231.1 145.1 75.6 289.3 33.7 (36.1) 738.7
7.2 Certain re-measurements
The Group, through its EPM business, enters into forward
commodity purchase (and sales) contracts to meet the future demand
requirements of its Business Energy and SSE Airtricity supply
businesses and to optimise the value of its SSE Renewables and SSE
Thermal. Certain of these contracts (predominately electricity, gas
and other commodity purchase contracts) are determined to be
derivative financial instruments under IFRS 9 "Financial
Instruments" and as such are required to be recorded at their fair
value. Conversely, commodity contracts that are not financial
instruments under IFRS 9 (predominately electricity sales
contracts) are accounted for as 'own use' contracts and are not
recorded at their fair value. In addition, inventory purchased to
utilise excess capacity ahead of an optimised sale in the market by
the Gas Storage business is held as trading inventory at fair
value.
Changes in the fair value through the profit and loss statement
of those commodity contracts designated as financial instruments
and trading inventory are therefore reflected in the income
statement. The Group shows the change in the fair value of these
forward contracts and trading inventory separately as "certain
re-measurements", as the Group does not believe this mark-to-market
movement is relevant to the underlying performance of its operating
segments.
At 31 March 2022, volatility in global commodity markets has
resulted in an 'in the money' mark-to-market remeasurement on
commodity contracts (predominately gas purchases) designated as
financial instruments and trading inventory of GBP2,100.4m (2021:
GBP590.1m). However, the Group has executory 'own use' designated
commodity contracts (predominately electricity sales) which, if
classified as financial instruments and remeasured at fair value in
accordance with IFRS 9, would significantly reduce the total fair
value remeasurement and closing asset value. A significant
proportion of 'in the money' mark-to-market remeasurement recorded
at 31 March 2022 and unvalued 'own use' designated commodity
contracts are expected to reverse in the next financial year as the
relevant commodity is delivered. The remaining settlement of these
contracts will predominately be within the subsequent 12 to 24
months. The mark-to-market gain in the year has resulted in a
deferred tax charge of GBP408.0m, which has also been classified as
exceptional.
The re-measurements arising from IFRS 9 and the associated
deferred tax are disclosed separately to aid understanding of the
underlying performance of the Group.
This category also includes the income statement movement on
financing derivatives (and hedged items) as described in note
16.
7.3 Change in UK corporation tax rates
The Government announced in the Budget on 3 March 2021 that the
main rate of corporation tax will increase to 25% for the financial
year beginning 1 April 2023. Prior to this date, the rate of
corporation tax will remain at 19%. The increase to 25% was
substantively enacted at 24 May 2021 and therefore the deferred tax
balances have been re-measured at 31 March 2022. The rate change
resulted in an income statement charge for continuing operations of
GBP244.7m and an increase to the Group's deferred tax liabilities
(including the effect of equity accounted items) of GBP279.5m. The
impact of the rate change on the Group's share of profits of its
equity accounted investments was a charge of GBP55.2m for
continuing operations and a charge of GBP5.6m for discontinued
operations.
Finance Bill 2021 also included draft legislation in respect of
Capital Allowance 'Super-deductions' of 130% in respect of General
Pool plant and machinery, alongside First Year Allowances of 50%
for Special Rate Pool plant and machinery for the two years
commencing 1 April 2021. The Group expects these changes, which
were substantively enacted on 24 May 2021, to significantly
increase the deduction for Capital Allowances in the financial
years ending 31 March 2022 and 31 March 2023. An estimate of the
super-deduction has been taken into account when calculating the
effective tax for the current year.
7.3.1 Taxation
The Group has separately recognised the tax effect of the
exceptional items and certain re-measurements summarised above.
8. Finance income and costs
2022 2021 (restated*)
Before exceptional 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 0.8 - 0.8 1.9 - 1.9
Interest on pension
scheme assets (i) 7.6 - 7.6 8.3 - 8.3
Foreign exchange
translation of
monetary assets
and liabilities - - - 1.3 - 1.3
Other interest
receivable:
Joint ventures and
associates 46.8 - 46.8 43.9 - 43.9
Other receivable 23.8 3.2 27.0 22.8 1.4 24.2
70.6 3.2 73.8 66.7 1.4 68.1
Total finance
income 79.0 3.2 82.2 78.2 1.4 79.6
Finance costs:
Bank loans and
overdrafts (16.2) - (16.2) (24.0) - (24.0)
Other loans and
charges (340.2) - (340.2) (323.2) - (323.2)
Foreign exchange
translation of
monetary assets
and liabilities (14.6) - (14.6) - - -
Notional interest
arising on
discounted
provisions (5.7) - (5.7) (3.8) - (3.8)
Lease charges (30.4) - (30.4) (35.3) - (35.3)
Less: interest
capitalised (ii) 30.7 30.7 14.2 - 14.2
Total finance costs (376.4) - (376.4) (372.1) - (372.1)
Changes in fair
value of financing
derivatives at
fair value through
profit or loss - 21.0 21.0 - 55.6 55.6
Net finance costs (297.4) 24.2 (273.2) (293.9) 57.0 (236.9)
Presented as:
Finance income 79.0 24.2 103.2 78.2 57.0 135.2
Finance costs (376.4) - (376.4) (372.1) - (372.1)
Net finance costs (297.4) 24.2 (273.2) (293.9) 57.0 (236.9)
*The comparatives have been restated. See note 2.3.
i) The interest income on net pension assets for the year ended
31 March 2022 of GBP7.6m (2021: GBP8.3m) represents the interest
earned under IAS 19.
ii) The capitalisation rate applied in determining the amount of
borrowing costs to capitalise in the period was 3.86% (2021:
3.61%).
Adjusted net finance costs are arrived at after the following
adjustments:
2022 2021 (restated*)
GBPm GBPm
Net finance costs (273.2) (236.9)
(add)/less:
Share of interest from joint ventures and associates (67.8) (82.4)
Interest on pension scheme liabilities (7.6) (8.3)
Movement on financing derivatives (note 16) (21.0) (55.6)
Exceptional item (3.2) (1.4)
Adjusted net finance costs (372.8) (384.6)
Notional interest arising on discounted provisions 5.7 3.8
Lease charges 30.4 35.3
Hybrid coupon payment (note 14) (50.7) (46.6)
Adjusted net finance costs for interest cover calculations (387.4) (392.1)
*The comparatives have been restated. See note 2.3.
9. Taxation
9.1 Analysis of charge recognised in the income statement
2022 2021 (restated*)
Before exceptional Exceptional items Before exceptional Exceptional items
items and certain and certain items 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 82.5 8.8 91.3 84.1 6.2 90.3
Adjustments in
respect of previous
years (5.9) - (5.9) (11.4) - (11.4)
Total current tax 76.6 8.8 85.4 72.7 6.2 78.9
Deferred tax
Current year 76.7 478.2 554.9 34.0 113.3 147.3
Effect of change in
tax rate - 244.7 244.7 - - -
Adjustments in
respect of previous
years (2.2) - (2.2) (5.2) 3.3 (1.9)
Total deferred tax 74.5 722.9 797.4 28.8 116.6 145.4
Total taxation
charge 151.1 731.7 882.8 101.5 122.8 224.3
*The comparatives have been restated. See note 2.3
The Group has separately recognised the tax effect of the
exceptional items and certain re-measurements summarised above. The
rate change to 25% in respect of periods commencing after 1 April
2023 included in Finance Bill 2021 has been recognised during the
year ended 31 March 2022, as it was substantively enacted on 24 May
2021.
9.2 Adjusted current tax charge
The 'adjusted current tax charge' and the 'adjusted effective
rate of tax', which are presented in order to best represent
underlying performance by making similar adjustments to the
'adjusted profit before tax' measure, are arrived at after the
following adjustments:
2022 2022 2021 (restated*) 2021 (restated*)
GBPm % GBPm %
Group tax charge and effective rate 882.8 25.4 224.3 9.3
Less: reported deferred tax credit and effective rate (797.4) (22.9) (145.4) (6.1)
Reported current tax charge and effective rate 85.4 2.5 78.9 3.2
Effect of adjusting items 4.8 5.1
Reported current tax charge and effective rate on adjusted basis 85.4 7.3 78.9 8.3
add:
Share of current tax from joint ventures and associates 30.6 2.6 13.2 1.4
Less:
Current tax credit on exceptional items (8.9) (0.7) (6.2) (0.6)
Adjusted current tax charge and effective rate 107.1 9.2 85.9 9.1
*The comparatives have been restated. See note 2.3
10. Dividends
10.1 Ordinary dividends
Year ended 31 March 2022 Year ended 31 March 2021
Total Settled via scrip Pence per ordinary Total Settled via scrip Pence per ordinary
GBPm GBPm share GBPm GBPm share
Interim - year ended
31 March 2022 271.8 28.2 25.5 - - -
Final - year ended 31
March 2021 590.5 327.5 56.6 - - -
Interim - year ended
31 March 2021 - - - 254.3 13.5 24.4
Final - year ended 31
March 2020 - - - 582.1 25.5 56.0
862.3 355.7 836.4 39.0
The final dividend of 56.6p per ordinary share declared in
respect of the financial year ended 31 March 2021 (2020: 56.0p) was
approved at the Annual General Meeting on 22 July 2021 and was paid
to shareholders on 23 September 2021. Shareholders were able to
elect to receive ordinary shares credited as fully paid instead of
the cash dividend under the terms of the Company's scrip dividend
scheme. For dividends paid in relation to the financial year ended
31 March 2022 and in relation to the subsequent years to 31 March
2026, the Group will repurchase shares to reduce the scrip's
dilutive effects, if the scrip take-up exceeds 25% of the full year
dividend in any given year.
An interim dividend of 25.5p per ordinary share (2021: 24.4p)
was declared and paid on 10 March 2022 to those shareholders on the
SSE plc share register on 14 January 2022. Shareholders were able
to elect to receive ordinary shares credited as fully paid instead
of the interim cash dividend under the terms of the Company's scrip
dividend scheme.
The proposed final dividend of 60.2p per ordinary share based on
the number of issued ordinary shares at 31 March 2022 is subject to
approval by shareholders at the Annual General Meeting and has not
been included as a liability in these financial statements. Based
on shares in issue at 31 March 2022, this would equate to a final
dividend of GBP646.0m.
11. Earnings per Share
11.1 Basic earnings per share
The calculation of basic earnings per ordinary share at 31 March
2022 is based on the net profit attributable to ordinary
shareholders and a weighted average number of ordinary shares
outstanding during the year ended 31 March 2022.
11.2 Adjusted earnings per share
Adjusted earnings per share has been calculated by excluding the
charge for deferred tax, interest on net pension liabilities under
IAS 19, retained Gas Production decommissioning costs, the
depreciation charged on fair value uplifts, the Group's share of
non-recurring joint venture refinancing costs and the impact of
exceptional items and certain re-measurements (note 7).
Year ended 31 March Year ended 31 March Year ended 31 March Year ended 31 March
2022 2022 2021 (restated*) 2021 (restated*)
Earnings Earnings per share Earnings Earnings per share
Continuing operations GBPm pence GBPm pence
Basic earnings on
continuing operations
used to calculate
adjusted EPS 2,548.7 241.6 2,147.1 206.3
Exceptional items and
certain
re-measurements (note
7) (1,658.9) (157.3) (1,380.9) (132.8)
Basic excluding
exceptional items and
certain
re-measurements 889.8 84.3 766.2 73.5
Adjusted for:
Decommissioning Gas
Production 13.1 1.2 - -
Depreciation charge on
fair value uplifts 20.6 2.0 20.6 2.0
Interest on net
pension scheme
assets/(liabilities) (7.6) (0.7) (8.3) (0.8)
Deferred tax (note 9) 74.5 7.1 28.8 2.8
Deferred tax from
share of joint
ventures and
associates 15.8 1.5 9.1 0.9
Adjusted 1,006.2 95.4 816.4 78.4
Basic 2,548.7 241.6 2,147.1 206.3
Dilutive effect of outstanding share options - (0.5) - (0.3)
Diluted 2,548.7 241.1 2,147.1 206.0
*The comparatives have been restated. See note 2.3
Reported earnings per share
2022 2022 2021 (restated*) 2021 (restated*)
Earnings
Earnings Earnings per share Earnings per share
GBPm pence GBPm pence
Basic
Earnings per share on continuing operations 2,548.7 241.6 2,147.1 206.3
Earnings per share on discontinued operations 482.7 45.7 129.1 12.4
Earnings per share attributable to ordinary
shareholders 3,031.4 287.3 2,276.2 218.7
Dilutive effect of outstanding share options - (0.5) - (0.4)
Diluted earnings per share attributable to ordinary
shareholders 3,031.4 286.8 2,276.2 218.3
*The comparatives have been restated. See note 2.3.
The weighted average number of shares used in each calculation
is as follows:
31 March 2022 31 March 2021
Number of shares Number of shares
(millions) (millions)
For basic and adjusted earnings per share 1,055.0 1,040.9
Effect of exercise of share options 2.0 1.6
For diluted earnings per share 1,057.0 1,042.5
11.3 Dividend cover
The Group's adjusted dividend cover metric is calculated by
comparing adjusted earnings per share to the projected dividend per
share payable to ordinary shareholders.
2021 2021
2022 2022 2022 (restated*) 2021 (restated*)
Earnings per Dividend per Earnings per Dividend per
share share Dividend Cover share share Dividend cover
(pence) (pence) (times) (pence) (pence) (times)
Reported earnings per
share (continuing
operations) 241.6 85.7 2.82 206.3 81.0 2.55
Adjusted earnings per
share (continuing
operations) 95.4 85.7 1.11 78.4 81.0 0.97
*The comparatives have been restated. See note 2.3.
12. Acquisitions, disposals and held-for-sale assets
12.1 Acquisitions
12.1.1 Acquisition of 80% equity interest in Japanese offshore
wind development platform
On 29 October 2021 the Group, through its wholly owned
subsidiary SSE Renewables International Holdings Limited, completed
the acquisition of an 80% equity interest in an offshore wind
development platform from Pacifico Energy and its affiliates for
$193m USD upfront cash consideration and a further $30m USD
deferred consideration subject to a number of conditions. This
acquisition is aligned to the Group's published strategy to pursue
overseas renewable opportunities.
An 80% equity stake was acquired in the following entities and
vehicles: SSE Pacifico K.K., Aichi Offshore Wind Power No.1 G.K.,
Aichi Offshore Wind Power No.2 G.K., Enshunada Offshore Wind Power
No.1 G.K., Goto-Fukue Offshore Wind Power G.K., Izu Islands
Offshore Wind Power G.K., Minami-Izu Offshore Wind Power No.1 G.K.,
Niigata Offshore Wind Power No.1 G.K., Oki Islands Offshore Wind
Power G.K., Wakayama-West Offshore Wind Power No.1 G.K. and
Wakayama-West Offshore Wind Power No.2 G.K..
Acquisition costs of GBP7.2m were expensed to operating costs in
the year. The subsidiaries acquired had nil revenue and contributed
a loss of GBP0.1m to the consolidated result of the Group for the
year. The assets and liabilities acquired largely comprise tangible
and intangible assets, being windfarm site development costs and
goodwill as set out in the table below. The goodwill recognised
represents early stage intangible development costs that do not
qualify for separate recognition. The non-controlling interest
acquired was measured at fair value, where fair value represents
the non-controlling interest's proportionate share of the assets
and liabilities acquired through the transaction.
12.1.1 Acquisition of 80% equity interest in Japanese offshore
wind development platform (continued)
The assets and liabilities acquired largely comprise tangible
and intangible assets, being early-stage development costs and
goodwill as below:
Fair value at 29 October 2021
GBPm
Net assets acquired:
Intangible development assets 20.5
Cash 4.3
Other assets 0.4
Total net assets acquired 25.2
Non-controlling interest (40.6)
Goodwill 176.7
161.3
Cash consideration 141.3
Deferred consideration 20.0
161.3
During the year the Group made other smaller asset acquisitions
(of special purpose vehicles as opposed to businesses) for
consideration of GBP4.0m. In the prior year there were no
significant acquisitions. The acquired intangible assets of
GBP197.8m consist of the goodwill balance and development assets
noted above (GBP197.2m) plus other immaterial acquired assets. The
cash consideration for the business combination of GBP141.3m is
included in the Group's Adjusted investment, capital and
acquisition metric.
12.2 Disposals
12.2.1 Current year disposals
During the year the Group completed its strategic disposal plan
for non-core assets announced in June 2020, and continued its
programme of strategic partnering generating developer gains. As a
result, it recognised an exceptional gain on disposal of GBP576.5m
of its investment in SGN (discontinued), a combined exceptional
loss of GBP120.8m on disposal of SSE E&P UK Limited
(discontinued) and other less material exceptional gains and losses
on disposal (see note 7) and a non-exceptional gain on disposal of
GBP67.1m. The disposals below primarily comprise sales of stakes in
non-operated investment assets, or the sale of a stake in early
stage offshore windfarm development, which aligns to the Group's
stated policy to realise value from these assets.
Sale of investment in SSE Contracting: On 30 June 2021, the
Group completed the sale of its Contracting and Rail business to
the Aurelius Group for headline consideration of 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 additional exceptional
loss on disposal of GBP18.9m on completion, in addition to the
exceptional impairment loss of GBP51.2m recognised during the year
ended 31 March 2021.
Sale of stake in Dogger Bank C: On 10 February 2022, SSE
completed the sale of a 10% stake in Dogger Bank C to Eni for
consideration of GBP70.0m and contingent consideration of up to
GBP40m, resulting in a non-exceptional gain on disposal of
GBP64.3m. The gain has been recognised within the adjusted profit
of the Group in line with the Group's stated exceptional policy for
gains on disposal of divestments in early stage offshore windfarms
(see note 4.2). After the sale the Group's shareholding in Dogger
Bank C is 40%.
Other disposals: On 19 August 2021 the Group received a dividend
of 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
the Group recognising an exceptional gain on disposal of
GBP576.5m.
Sale of investment in Gas Production: On 14 October 2021, the
Group completed the sale of its Gas Production business to Viaro
Energy through its subsidiary RockRose Energy Limited. In the
period to 14 October 2021, the Gas Production business had an
operating profit (recognised in discontinued operations) of
GBP101.4m. The Group recorded a combined loss on sale of GBP120.8m
following on completion of the disposal.
12.2.2 Prior year disposals
Sale of investment in Ferrybridge Multifuel : On 13 October
2020, the Group announced it had reached an agreement to dispose of
its 50% joint venture investment in Multifuel Energy Limited and
Multifuel Energy 2 Limited (together 'MEL'), to European
Diversified Infrastructure Fund III for headline consideration of
GBP995m. The agreement was subject to antitrust approval by the
European Commission, which was granted on 7 January 2021 when the
transaction completed. The Group recorded an exceptional gain on
disposal of GBP669.9m on completion.
Sale of investment in Walney Windfarm : On 2 September 2020, the
Group agreed to sell its subsidiary, SSE Renewables Walney Limited,
to Greencoat UK Wind Plc for consideration of GBP350m, resulting in
an exceptional gain on sale of GBP188.7m. SSE Renewables Walney
Limited was the holding company of the Group's non-operated 25.1%
joint venture stake in Walney Offshore Windfarm. As essentially a
financial investment and as Walney Offshore Wind Farm Limited has
been operational for several years, the disposal is not considered
to be aligned to the Group's strategic objective of gaining value
from divestment of stakes in offshore or international wind
developments, therefore the gain on disposal has been recognised as
exceptional.
Sale of investment in Maple Smart Meter Assets : On 23 September
2020, the Group disposed of its 33% joint venture investment in
Maple Topco Limited, the smart meter services provider, for
proceeds of GBP95.3m, recognising an exceptional gain on disposal
of GBP70.4m.
Sale of stake in Doggerbank A&B Windfarms : On 4 December
2020, the Group announced it had agreed to sell a 10% stake in
Doggerbank A and Doggerbank B windfarms to Eni for consideration of
GBP206.3m, including an interest adjustment of GBP3.8m, resulting
in a non-exceptional gain on disposal of GBP202.8m. The gain has
been recognised within the adjusted profit of the Group in line
with the Group's stated exceptional policy for gains on disposal of
divestments in offshore windfarms (see note 4.2).
On the same date, Eni entered into an agreement with Equinor to
purchase a further 10% stake in the development. Following these
transactions, SSE and Equinor each hold a 40% equity stake and Eni
a 20% stake.
Sale of stake in Seagreen 1 Windfarm : On 3 June 2020, the Group
disposed of a 51% stake in its wholly owned subsidiary, Seagreen
Holdco 1 Ltd ('Seagreen 1'), to Total. The transaction was for
initial cash proceeds of GBP70m, plus contingent consideration of
up to GBP60m dependent upon future criteria being met. The Group
has assessed that control of the company was lost on that date, and
that the investment in Seagreen 1 should be accounted for as an
equity accounted joint venture under the principles of IFRS 11
"Joint Arrangements". The Group acquired the joint venture
investment at fair value under the principles of IFRS 10
"Consolidated Financial Statements", resulting in a total gain of
GBP49.0m. Of that gain, GBP25.7m was recognised as exceptional, as
it represented the fair value gain on acquisition of the joint
venture investment retained by the Group. The remaining GBP23.3m of
the gain was included in underlying operations, in line with the
Group's stated exceptional policy (see note 4.2).
Sale of stake in Slough Multifue l: On 2 April 2020, the Group
disposed of a 50% stake in its wholly owned subsidiary, SSE Slough
Multifuel Ltd, to Copenhagen Infrastructure Partners. The
transaction was for initial cash proceeds of GBP10m, plus
contingent consideration of up to GBP59.1m dependent upon future
criteria being met. The Group has assessed that control of the
company was lost on that date, and that the investment in Slough
Multifuel should be accounted for as an equity accounted joint
venture under the principles of IFRS 11 "Joint Arrangements". The
Group acquired the joint venture investment at fair value under the
principles of IFRS 10 "Consolidated Financial Statements",
resulting in a total gain of GBP41.7m. Of that gain, GBP21.3m was
recognised as exceptional, as it represented the fair value gain on
acquisition of the joint venture investment retained by the Group.
The remaining GBP20.4m of the gain was included in underlying
operations, in line with the Group's stated exceptional policy (see
note 4.2).
12.2.3 Disposal reconciliation
The following table summarises disposals of subsidiaries,
businesses and assets during the financial year, including other
assets and investments disposed of as part of the normal course of
business but before recognition of impairment charges in the year,
which are noted in the relevant respective notes to the financial
statements.
2022 2021
Total Total
GBPm GBPm
Net assets disposed:
Property, plant and equipment 105.1 25.7
Intangible and biological assets 28.4 348.4
Investments and loans - joint ventures 662.5 490.3
Other investments 2.0 -
Deferred tax asset 14.8 0.6
Inventories 6.9 -
Trade and other receivables 28.5 29.2
Cash and cash equivalents - 172.8
Trade and other payables (33.2) (23.8)
Deferred tax liability - (0.2)
Derivative financial liabilities - (3.1)
Provisions (159.8) -
Loans and borrowings (0.8) (438.7)
Net assets 654.4 601.2
Proceeds of disposal:
Consideration 1,372.1 1,753.6
Fair value uplift - 47.0
Recognition of investment on loss of control - 51.5
Provision recognised on disposal (35.0) -
Costs of disposal (29.8) (23.0)
Net proceeds 1,307.3 1,829.1
Recycle of amounts recognised in hedge reserve (28.2)
Gain on disposal 624.7 1,227.9
Presentation:
Continuing operations
Income statement exceptional (loss)/gain (18.9) 976.0
Income statement non-exceptional credit 67.1 251.9
48.2 1,227.9
Discontinued operations
Income statement exceptional credit 576.5 -
Total SSE Group 624.7 1,227.9
Net proceeds of disposal 1,279.1 1,829.1
Fair value uplift - (47.0)
Recycle of amounts recognised in hedge reserve 28.2 -
Provision recognised on disposal 35.0 -
Recognition of investment on loss of control - (51.5)
Costs of disposal 29.8 23.0
Deferred consideration (5.2) (18.8)
Total cash proceeds 1,366.9 1,734.8
Less: cash disposed - (172.8)
Net cash proceeds 1,366.9 1,562.0
12.3 Held-for-sale assets and liabilities
There were no assets and liabilities classified as held for
disposal at 31 March 2022. The assets held for disposal at 31 March
2021 the Group's Gas Production assets and liabilities, which were
sold to Viaro Energy through its subsidiary RockRose Energy Limited
on 14 October 2021 and the assets and liabilities of the Group's
Enterprise Contracting and Rail Business, which was sold to
Aurelius Group on 30 June 2021.
Total
Gas Production SSE Contracting 2021
GBPm GBPm GBPm
Property, plant and equipment 167.5 - 167.5
Goodwill and other intangible assets 49.6 - 49.6
Deferred tax asset 14.7 0.2 14.9
Inventories 2.6 2.1 4.7
Trade and other receivables 7.7 94.7 102.4
Total assets 242.1 97.0 339.1
Trade and other payables (9.1) (46.3) (55.4)
Current tax liabilities - (0.1) (0.1)
Provisions (149.3) (46.5) (195.8)
Loans and borrowings - (2.2) (2.2)
Total liabilities (158.4) (95.1) (253.5)
Net assets/(liabilities) held for sale 83.7 1.9 85.6
12.4 Discontinued operations
The discontinued operations during 31 March 2022 represent the
Group's investment in SGN, which was disposed on 22 March 2022 and
the Group's investment in Gas Production assets, which was sold on
14 October 2021. In the prior year comparative, the discontinued
operations included Gas Production, and the Group's Enterprise
Contracting and Rail Business, which was sold on 30 June 2021. The
profit/(loss) of the discontinued operation is as follows:
2022 2021 (restated*)
Before exceptional 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 - 142.0 105.0 - 105.0
Cost of sales (38.9) - (38.9) (68.9) - (68.9)
Gross profit 103.1 - 103.1 36.1 - 36.1
Operating costs (1.7) (120.8) (122.5) (3.1) - (3.1)
Operating
profit/(loss)
before joint
ventures 101.4 (120.8) (19.4) 33.0 - 33.0
Joint ventures:
Share of operating
profit 21.0 - 21.0 173.0 - 173.0
Share of interest (11.1) - (11.1) (64.1) - (64.1)
Share of movement
on derivatives - (4.6) (4.6) - 1.9 1.9
Share of tax (1.7) (84.7) (86.4) (21.9) (0.3) (22.2)
Share of
profit/(loss)
on joint ventures 8.2 (89.3) (81.1) 87.0 1.6 88.6
Operating
profit/(loss) 109.6 (210.1) (100.5) 120.0 1.6 121.6
Finance income 6.8 - 6.8 9.8 - 9.8
Finance costs (0.1) - (0.1) (2.3) - (2.3)
Profit/(loss) for
the year 116.3 (210.1) (93.8) 127.5 1.6 129.1
Profit on disposal
of discontinued
operations,
after tax - 576.5 576.5 - - -
Profit/(loss) form
discontinued
operations,
net of tax 116.3 366.4 482.7 127.5 1.6 129.1
*The comparatives have been restated. See note 2.3.
Other comprehensive income from discontinued operations
2022 2021
GBPm GBPm
Items that will subsequently be reclassified to profit or loss:
Share of other comprehensive gain/(loss) of joint ventures and associates, net of taxation 0.5 4.7
Items that will not be reclassified to profit or loss:
Share of other comprehensive (loss)/income of joint ventures, net of taxation (1.7) (23.3)
Other comprehensive loss from discontinued operations (1.2) (18.6)
Cashflows from discontinued operations
2022 2021
GBPm GBPm
Cashflows from operating activities 11.6 26.8
Cashflows from investing activities (11.6) (26.8)
Net (decrease)/increase in cash and cash equivalents in discontinued operations - -
13. Sources of finance
13.1 Capital management
The Board's policy is to maintain a strong balance sheet and
credit rating to support investor, counterparty and market
confidence in the Group and to underpin future development of the
business. The Group's credit ratings are also important in
maintaining an efficient cost of capital and in determining
collateral requirements throughout the Group. As at 31 March 2022,
the Group's long-term credit rating was BBB+ stable outlook for
Standard & Poor's and Baa1 stable outlook for Moody's.
The maintenance of a medium-term corporate model is a key
control in monitoring the development of the Group's capital
structure and allows for detailed scenarios and sensitivity
testing. Key ratios drawn from this analysis underpin regular
updates to the Board and include the ratios used by the rating
agencies in assessing the Group's credit ratings.
The Group's debt requirements are principally met through
issuing bonds denominated in Sterling and Euros as well as private
placements and medium term bank loans including those with the
European Investment Bank. On 1 April 2021, the Group exercised its
option to redeem its EUR600m hybrid equity bond (GBP421.1m). The
bond had no fixed redemption date, but the Group had the option to
redeem all of the bond on 1 April 2021 or every 5 years
thereafter.
SSE's adjusted net debt and hybrid capital was GBP8.6bn at 31
March 2022, compared with GBP8.9bn at 31 March 2021.
The GBP1.5bn of committed bank facilities, being a GBP1.3bn
Revolving Credit Facility with a March 2026 maturity and a GBP0.2bn
bilateral facility with an October 2026 maturity. These facilities
can also be utilised to cover short term funding requirements;
however, they remain undrawn for most of the time and were undrawn
at 31 March 2022. In addition, the Group has an established
EUR1.5bn Euro commercial paper programme (paper can be issued in a
range of currencies and swapped into Sterling) and at 31 March 2022
GBP507m of commercial paper was outstanding compared to GBPnil at
31 March 2021.
The Group capital comprises:
2022 2021
GBPm GBPm
Total borrowings (excluding lease obligations) 8,671.2 8,989.6
Less: Cash and cash equivalents (1,049.3) (1,600.2)
Net debt (excluding hybrid equity) 7,621.9 7,389.4
Hybrid equity 1,051.0 1,472.4
Cash held as collateral and other short term loans (74.7) 37.1
Adjusted Net Debt and Hybrid Equity 8,598.2 8,898.9
Equity attributable to shareholders of the parent 8,082.2 5,208.7
Total capital excluding lease obligations 16,680.4 14,107.6
13.1 Capital management (continued)
Under the terms of its major borrowing facilities, the Group is
required to comply with the following financial covenant:
-- Interest Cover Ratio: The Group shall procure that the ratio
of Operating Profit to Net Interest Payable for any relevant period
is not less than 2.5 to 1.
The following definitions apply in the calculation of these
financial covenants:
-- "Operating Profit" means, in relation to a relevant period,
the profit on ordinary activities before taxation (after adding
back Net Interest Payable) of the Group for that relevant period
but after adjusting this amount to exclude any exceptional profits
(or losses) and, for the avoidance of doubt, before taking account
of any exceptional profits (or losses) and excluding the effect of
IFRS 9 remeasurements.
-- "Net Interest Payable" means, in respect of any relevant
period, interest payable during that relevant period less interest
receivable during that relevant period.
In summary, the Group's intent is to balance returns to
shareholders between current returns through dividends and
long-term capital investment for growth. In doing so, the Group
will maintain its capital discipline and will continue to operate
within the current economic environment prudently. There were no
changes to the Group's capital management approach during the
year.
13.2 Loans and borrowings
2022 2021
GBPm GBPm
Current
Other short-term loans 1,118.7 864.7
Lease obligations 72.1 72.9
1,190.8 937.6
Non-current
Loans 7,552.5 8,124.9
Lease obligations 321.4 348.1
7,873.9 8,473.0
Total loans and borrowings 9,064.7 9,410.6
Cash and cash equivalents (1,049.3) (1,600.2)
Unadjusted net debt 8,015.4 7,810.4
Add/(less):
Hybrid equity (note 14) 1,051.0 1,472.4
Lease obligations (393.5) (421.0)
Cash held as collateral and other short term loans (74.7) 37.1
Adjusted net debt and hybrid capital 8,598.2 8,898.9
Cash and cash equivalents (which are presented as a single class
of asset on the face of the balance sheet) comprise cash at bank
and short term highly liquid investments with a maturity of six
months or less. The cash and cash equivalents are lower year on
year due to a lower surplus cash position at March 2022 as a result
no debt issue in March 2022 compared to a GBP500m debt issue in
March 2021.
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 2022 there was GBP507m commercial
paper outstanding (2021: GBPnil). The Group also has GBP1.5bn of
revolving credit facilities (see note 21.1). These facilities
continue to provide back-up to the commercial paper programme and,
as at 31 March 2022 these facilities were undrawn (2021:
undrawn).
During the year to 31 March 2022, the Group through its Scottish
Hydro Electric Transmission entity priced and committed to a
GBP350m dual tranche private placement being a GBP175m 10 year
tranche @ 3.13% and GBP175m 15 year tranche @ 3.24% giving an all
in average rate of 3.19%. The pricing was committed to in March
2022 and the proceeds will be received on 30 June 2022.
In April 2022 SSE plc issued a EUR1bn NC6 equity accounted
Hybrid bond @ 4% to re-finance the dual tranche debt accounted
Hybrid bonds whose first call date occurs on 16 September 2022
although SSE will take advantage of the 3 month par call option on
these Hybrid bonds meaning the bonds will be repaid on 16 June
2022. The 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 European onshore renewables development
platform from Siemens Gamesa Renewables Energy.
The weighted average incremental borrowing rate applied to lease
liabilities during the year was 4.92% (2021: 4.84%). Incremental
borrowing rates applied to individual lease additions in the year
ranged between 4.81% to 5.06% (2021: 4.01% to 5.06%).
13.3 Reconciliation of net increase in cash and cash equivalents
to movement in adjusted net debt and hybrid equity
2022 2021
GBPm GBPm
(Decrease)/increase in cash and cash equivalents (550.9) 1,435.6
Add/(less):
New borrowing proceeds (506.1) (1,912.9)
New hybrid equity proceeds - (1,051.0)
Repayment of borrowings 865.0 1,895.9
Disposal of borrowings - 438.6
Repayment of hybrid equity (i) 421.4 748.3
Non-cash movement on borrowings (40.5) 306.0
Increase/(decrease) in cash held as collateral and other short-term loans 111.8 (293.5)
Movement in adjusted net debt and hybrids 300.7 1,567.0
(i) On redemption of the hybrid equity GBP4.6m of costs were
recognised within retained earnings.
14. Equity
14.1 Share capital
Number
(millions) GBPm
Allotted, called up and fully paid:
At 31 March 2021 1,049.1 524.5
Issue of shares (i) 24.0 12.0
At 31 March 2022 1,073.1 536.5
i. Shareholders were able to elect to receive ordinary shares in
place of the final dividend of 56.6p per ordinary share (in
relation to year ended 31 March 2021) and the interim dividend of
25.5p (in relation to the current year) under the terms of the
Company's scrip dividend scheme. This resulted in the issue of
22,201,443 and 1,782,473 new fully paid ordinary shares
respectively (2021: 1,918,977 and 883,408). In addition, the
Company issued 0.6m (2021: 0.9m) shares during the year under the
savings-related share option schemes (all of which were settled by
shares held in Treasury) for a consideration of GBP6.3m (2021:
GBP10.4m).
The Company has one class of ordinary share which carries no
right to fixed income. The holders of ordinary shares are entitled
to receive dividends as declared and are entitled to one vote per
share at meetings of the Company.
Of the 1,073m shares in issue, 5.5m are held as treasury shares.
These shares will be held by the Group and used to award shares to
employees under the Sharesave scheme in the UK.
During the year, on behalf of the Company, the employee share
trust purchased 0.9m shares for a total consideration of GBP14.1m
(2021: 0.9m shares, consideration of GBP12.9m) to be held in trust
for the benefit of employee share schemes. At 31 March 2022, the
trust held 6.3m shares (2021: 7.7m) which had a market value of
GBP110.0m (2021: GBP112.5m).
14.2 Hybrid Equity
2022 2021
GBPm GBPm
EUR 600m 2.375% perpetual subordinated capital securities (i) - 421.4
GBP 600m 3.74% perpetual subordinated capital securities (ii) 598.0 598.0
EUR 500m 3.125% perpetual subordinated capital securities (ii) 453.0 453.0
1,051.0 1,472.4
(i) March 2015 EUR600m Hybrid Capital Bonds
The March 2015 hybrid equity bonds had no fixed redemption date,
but the Company may, at its sole discretion, redeem all, but not
part, of the capital securities at their principal amount. The date
for the first discretionary redemption of the EUR600m hybrid equity
bond was executed and this hybrid bond was redeemed on 1 April
2021.
(ii) 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 coupon payments are made annually on 14 April and for the
EUR500m Hybrid the coupon payments are made annually on 14
July.
(iii) Coupon Payments
In relation to the EUR600m hybrid equity bond, the final coupon
payment of GBP17.5m (2021: GBP17.5m) was made on 1 April 2021 and
for the GBP750m hybrid equity bond the final coupon payment of
GBP29.1m was made on 10 September 2020. In relation to the GBP600m
hybrid equity bond a coupon payment of GBP16.8m (2021: GBPnil) was
made on 14 April 2021 and for the EUR500m hybrid equity bond a
coupon payment of GBP16.4m (2021: GBPnil) was made on 14 July
2021.
The coupon payments in the year to 31 March 2022 consequently
totalled GBP50.7m (2021: GBP46.6m).
The Company has the option to defer coupon payments on the bonds
on any relevant payment date, as long as a dividend on the ordinary
shares has not been declared. Deferred coupons shall be satisfied
only on redemption; or on a dividend payment on ordinary shares,
both of which occur at the sole option of the Company. Interest
will accrue on any deferred coupon.
14.3 Equity attributable to non-controlling interests
Equity attributable to non-wholly owned subsidiaries which are
consolidated within the financial statements of the Group under
IFRS.
15. Retirement Benefit Obligations
15.1 Valuation of combined pension schemes
Value Value
Quoted Unquoted at 31 March 2022 Quoted Unquoted at 31 March 2021
GBPm GBPm GBPm GBPm GBPm GBPm
Equities 511.5 - 511.5 626.8 - 626.8
Government bonds 1,332.7 - 1,332.7 1,139.9 - 1,139.9
Corporate bonds 167.6 - 167.6 176.7 - 176.7
Insurance contracts - 713.5 713.5 - 780.3 780.3
Other investments 1,585.9 - 1,585.9 1,588.4 - 1,588.4
Total fair value of plan assets 4,311.2 4,312.1
Present value of defined benefit
obligation (3,726.3) (3,955.1)
Surplus in the schemes 584.9 357.0
Deferred tax thereon (i) (146.2) (67.8)
Net pension asset 438.7 289.2
(i) Deferred tax rate of 25% applied to pension surplus and deficit positions (2021: 19%).
Balance sheet presentation Balance sheet presentation
2022 2021
GBPm GBPm
Retirement benefit asset 584.9 543.1
Retirement benefit liability - (186.1)
Net pension asset 584.9 357.0
15.1 Valuation of combined pension schemes (continued)
Movements in the defined benefit asset obligations and assets
during the year:
2022 2021
Assets Obligations Total Assets Obligations Total
GBPm GBPm GBPm GBPm GBPm GBPm
at 1 April 4,312.1 (3,955.1) 357.0 3,922.9 (3,581.2) 341.7
Included in Income Statement
Current service cost - (31.0) (31.0) - (29.3) (29.3)
Past service cost - (5.1) (5.1) - (5.8) (5.8)
Settlements (2.5) 2.6 0.1 (7.7) 9.3 1.6
Interest income/(cost) 85.2 (77.6) 7.6 88.5 (80.2) 8.3
82.7 (111.1) (28.4) 80.8 (106.0) (25.2)
Included in Other Comprehensive Income
Actuarial gain/(loss) arising from:
Demographic assumptions - 16.8 16.8 - (23.1) (23.1)
Financial assumptions - 195.6 195.6 - (461.5) (461.5)
Experience assumptions - (41.5) (41.5) - 21.8 21.8
Return on plan assets excluding interest income 26.4 - 26.4 447.0 - 447.0
26.4 170.9 197.3 447.0 (462.8) (15.8)
Other
Contributions paid by the employer 59.0 - 59.0 56.3 - 56.3
Scheme participant's contributions 0.1 (0.1) - 0.1 (0.1) -
Benefits paid (169.1) 169.1 - (195.0) 195.0 -
(110.0) 169.0 59.0 (138.6) 194.9 56.3
Balance at 31 March 4,311.2 (3,726.3) 584.9 4,312.1 (3,955.1) 357.0
Charges/(credits) recognised:
2022 2021
GBPm GBPm
Service costs (charged to operating profit) 36.1 35.1
Settlements and curtailment gains (0.1) (1.6)
36.0 33.5
(Credited)/charged to finance costs:
Interest on pension scheme assets (85.2) (88.5)
Interest on pension scheme liabilities 77.6 80.2
(7.6) (8.3)
16. Financial risk management
16.1 Financial risk management
The Board has overall responsibility for the establishment and
oversight of the Group's risk management framework. The Group's
policies for risk management are established to identify the risks
faced by the Group, to set appropriate risk limits and controls,
and to monitor risks and adherence to limits. Exposure to
commodity, currency and interest rate risks arise in the normal
course of the Group's business and derivative financial instruments
are entered into to hedge exposure to these risks.
SSE has a Group wide risk committee reporting to the Group
Executive Committee, which is responsible for reviewing the
strategic, market, credit, operational and liquidity risks and
exposures that arise from the Group's operating activities. In
addition, the Group has two dedicated Energy Market risk committees
reporting to the Group Executive Committee and Board respectively,
with the Group Executive Sub-committee chaired by the Group Finance
Director and the Board Sub-committee chaired by Non-Executive
Director Tony Cocker. These Committees oversee the Group's
management of its energy market exposures, including its approach
to hedging.
During the year ended 31 March 2022, the Group was exposed to
exceptional volatility in energy markets impacting the primary
commodities to which it is exposed (Gas, Carbon and Power). The
Group's approach to hedging, and the diversity of its energy
portfolios (across Wind, Hydro, Thermal and Customers) has provided
significant mitigation of these exposures. Exceptional rises and
volatility in commodity prices have created a particular challenge
in managing counter-party credit and collateral exposures and
requirements, to ensure continued access to energy markets to
enable hedging and prompt optimisation of SSE's energy portfolios.
This market access has been successfully maintained.
Exposure to the commodity, currency and interest rate risks
noted arise in the normal course of the Group's business and
derivative financial instruments are entered into to hedge exposure
to these risks. The objectives and policies for holding or issuing
financial instruments and similar contracts, and the strategies for
achieving those objectives that have been followed during the year
are explained within A6 Accompanying Information to the Group's
consolidated Financial Statements
The net movement reflected in the income statement can be
summarised thus:
2022 2021
GBPm GBPm
Operating derivatives
Total result on operating derivatives (i) 3,527.2 429.1
Less: amounts settled (ii) (1,426.8) 161.0
Movement in unrealised derivatives 2,100.4 590.1
Financing derivatives (and hedged items)
Total result on financing derivatives (i) (43.3) 35.2
Less: amounts settled (ii) 64.3 20.4
Movement in unrealised derivatives 21.0 55.6
Net income statement impact 2,121.4 645.7
(i) Total result on derivatives in the income statement
represents the total amounts (charged) or credited to the income
statement in respect of operating and financial derivatives.
(ii) Amounts settled in the year represent the result on
derivatives transacted which have matured or been delivered and
have been included within the total result on derivatives.
16.2 Fair Value Hierarchy
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable.
-- Level 1 fair value measurements are those derived from
unadjusted quoted market prices for identical assets or
liabilities.
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices)
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data.
2022
Level 1 Level 2 Level 3 Total
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
Loan note receivable - - 136.4 136.4
Unquoted equity investments - - 8.7 8.7
884.1 2,429.3 145.1 3,458.5
Financial Liabilities
Energy derivatives - (828.7) - (828.7)
Interest rate derivatives - (376.1) - (376.1)
Foreign exchange derivatives - (46.3) - (46.3)
Loans and borrowings - (31.6) - (31.6)
- (1,282.7) - (1,282.7)
There were no significant transfers out of level 1 into level 2
and out of level 2 into level 1 during the year ended 31 March
2022.
2021
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Financial Assets
Energy derivatives 68.8 275.9 - 344.7
Interest rate derivatives - 217.6 - 217.6
Foreign exchange derivatives - 23.3 - 23.3
Loan note receivable - - 115.9 115.9
Unquoted equity investments - - 3.6 3.6
68.8 516.8 119.5 705.1
Financial Liabilities
Energy derivatives - (138.1) - (138.1)
Interest rate derivatives - (489.7) - (489.7)
Foreign exchange derivatives - (63.0) - (63.0)
Loans and borrowings - (3.2) - (3.2)
- (694.0) - (694.0)
There were no significant transfers out of level 1 into level 2
and out of level 2 into level 1 during the year ended 31 March
2021.
17. Capital commitments
2022 2021
GBPm GBPm
Capital expenditure:
Contracted for but not provided 985.9 1,189.5
Contracted for but not provided capital commitments include the
fixed contracted costs of the Group's major capital projects. In
practice contractual variations may arise on the final settlement
of these contractual costs.
18. Related party transactions
The following transactions took place during the year between
the Group and entities which are related to the Group, but which
are not members of the Group. Related parties are defined as those
in which the Group has control, joint control or significant
influence over.
2022 2021
Sale of 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 Ltd 51.9 (49.1) - - 75.2 (86.7) 0.1 (16.8)
Marchwood
Power Ltd 104.3 (229.3) - (7.6) 45.3 (142.3) 0.6 (11.2)
Scotia Gas
Networks
Ltd 42.9 (10.1) - - 29.9 (13.1) 17.3 (1.1)
Clyde
Windfarm
(Scotland)
Ltd 4.6 (259.3) 0.1 (74.2) 4.3 (116.1) 0.1 (38.2)
Beatrice
Offshore
Windfarm
Ltd 5.0 (163.7) 0.9 (20.6) 5.3 (43.7) 1.1 (5.3)
Stronelairg
Windfarm
Ltd 2.1 (138.5) - (36.7) 1.9 (44.7) - (17.1)
Dunmaglass
Windfarm
Ltd 1.0 (57.9) - (13.7) 0.9 (22.2) - (6.6)
Neos
Networks
Ltd 31.2 (27.1) 52.2 (13.8) 38.0 (26.3) 41.4 (1.4)
Other Joint
Ventures 54.5 (196.3) 15.8 (23.8) 22.5 (193.8) 54.8 (1.9)
Associates - - - - - (16.2) - -
The transactions with Seabank Power Limited and Marchwood Power
Limited relate to the contracts for the provision of energy or the
tolling of energy under power purchase arrangements. Scotia Gas
Networks Limited ('SGN') operates the gas distribution networks in
Scotland and the South of England. The Group's gas supply activity
incurs gas distribution charges while the Group also provides
services to SGN in the form of a management services agreement for
corporate and shared services. On 2 August 2021, the Group
announced it had agreed to sell its 33.3% stake in SGN. The Group
assessed that the investment met the criteria to be classified as
held for sale on 11 June 2021 when an Exclusivity Agreement was
signed by the acquiring consortium. Accordingly, from 11 June 2021
the Group ceased to equity account for SGN. On 22 March 2022 the
Group completed its disposal of its interest in SGN.
The amounts outstanding are trading balances, are unsecured and
will be settled in cash. No guarantees have been given or received.
No provisions have been made for doubtful debts in respect of the
amounts owed by related parties.
19. Post balance sheet events
19.1 Acquisition of European onshore wind development platform
On 19 April 2022 the Group announced that it had entered into an
agreement with Siemens Gamesa Renewable Energy ("SGRE") to acquire
SGRE's existing European onshore renewable energy development
platform for consideration of EUR580m, subject to a number of
conditions. The SGRE portfolio is mainly located in Spain with the
remainder across France, Italy and Greece. The transaction is
expected to complete by the end of September 2022 subject to the
receipt of relevant foreign direct investment and regulatory
approvals. This acquisition is aligned to the Group's published
strategy to pursue overseas renewable opportunities
19.2 Issuance of hybrid equity bond
In April 2022 SSE plc issued a EUR1bn NC6 equity accounted
Hybrid bond @ 4% to re-finance the dual tranche debt accounted
Hybrid bonds whose first call date occurs on 16 September 2022
although SSE will take advantage of the 3 month par call option on
these Hybrid bonds meaning the bonds will be repaid on 16 June
2022. The 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 European onshore renewable development
platform from SGRE.
19.3 Issuance of private placement debt
In March 2022 the Group, through its Scottish Hydro Electric
Transmission entity, priced and committed to a GBP350m dual tranche
private placement being a GBP175m 10 year tranche @ 3.13% and
GBP175m 15 year tranche @ 3.24% giving an all in average rate of
3.19%. The pricing was committed to in March 2022 and the proceeds
will be received on 30 June 2022.
19.4 Fiddlers Ferry site disposal
Subsequent to the year end, the Board committed to dispose of
the Fiddlers Ferry site, pending resolution of a final agreement
with anticipated completion expected within 6 months.
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