SSE plc's Annual General Meeting takes place today (19 July) in Perth, followed by a General Meeting in respect of the proposed demerger of SSE Energy Services and combination of that business with npower Group Limited. This trading statement:
· Provides an overview of the performance of SSE's businesses in the first quarter of this financial year, including the financial impact of weather and energy market conditions.
· Updates on the progress of SSE's plans for investment and capital expenditure of around £6bn across the five years to March 2023.
· Re-states SSE's intention to recommend a full-year dividend of 97.5 pence per share for 2018/19, as part of the five-year dividend plan set out in May 2018.
It also confirms that the above-mentioned SSE Energy Services transaction is on course – subject to shareholder and regulatory approvals – for completion by the end of the current financial year.
SSE Chief Executive Alistair Phillips-Davies said:
“This new financial year has so far been characterised by lower than expected output of renewable energy and persistently high gas prices, but looking ahead, we are very focused on fulfilling our obligations to energy customers and delivering on our key priorities.
“Those priorities include successful delivery of our plans to invest around £1.7bn in this financial year, and we are pleased with the progress of key projects, including the installation of the first two turbines at the Beatrice offshore wind farm.
“Investment of this kind supports our strategic goal of creating value in a sustainable way, including remunerating shareholders for their investment, and we are strongly committed to delivering the five-year dividend plan we set out in May.”
Summarising Q1 performance
SSE believes sustainable value creation is only possible in a safe working environment and significant effort is put into ensuring SSE's activities do no harm to people. The combined Total Recordable Injury Rate for SSE's employees and employees of contractors working on its sites was 0.20 per 100,000 hours worked in the first quarter, the same as that for the same period in 2017, on a rolling 12-month basis.
The weather across the UK and Ireland has an impact on production of energy from renewable sources (Wholesale), the operation of electricity transmission and distribution businesses (Networks) and the amount of gas and electricity used by customers (Retail). In the three months to 30 June 2018:
· Hydro output was higher than the same period in 2017, mainly due to higher snow melt in the period. However, hydro output in both Q1-17/18 and Q1-18/19 was below expected levels, with Q1-18/19 around 20% lower than plan.
· Poorer than average wind conditions in Q1-18/19 have resulted in output from onshore and offshore wind farms being around 15% lower than plan.
· The temperature in the UK across the 3 months to 30 June 2018 was 1.5 degrees centigrade warmer than the thirty-year average. This led to average domestic gas demand being around 10% lower than plan.
In addition to dry, still and warm weather, the financial year so far has also been characterised by persistently high gas prices. All of this has resulted in a higher cost of energy, lower than expected output of electricity from renewable sources and lower volumes of energy being consumed.
This has negatively impacted on SSE's adjusted operating profit in Q1-18/19 by around £80m, compared with plan, and this will potentially impact on its full year results – dependent on the range of factors that apply in its market-based businesses, in which energy portfolio management is a major influence. These factors were most recently set out in SSE's Preliminary Results in May 2018 and include:
· Wholesale prices for energy;
· Electricity market conditions and plant performance;
· Output of renewable energy and the price achieved for the output;
· Output from gas production assets and the price achieved for the output; and
· Customers' energy consumption.
SSE will provide an update on 2018/19 performance in its Notification of Close Period Statement on 25 September.
The performance of SSE's businesses is summarised below.
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3 months to 30-Jun-2018 |
3 months to 30-Jun-2017 |
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Wholesale |
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Conventional hydro generation output – GWh |
535 |
427 |
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Pumped storage output – GWh |
48 |
61 |
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Onshore wind generation output – GWh |
766 |
854 |
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Offshore wind generation output – GWh |
213 |
254 |
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Gas- and oil-fired (incl. CHP) generation output – GWh |
5,313 |
5,350 |
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Coal-fired generation output – GWh |
201 |
0 |
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Gas production – M therms |
112 |
130 |
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Output from electricity generating plant in which SSE has an ownership interest (output based on SSE's contractual share). Wind output excludes 86MWh of constrained off generation in Q1 2018/19 and 80MWh in Q1 2017/18. Fiddler's Ferry coal fired power station used more electricity than it generated in the 3 months to 30 June 2017, therefore net generation is reported at zero.
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3 months to 30-Jun-2018 |
3 months to 30-Jun-2017 |
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Networks |
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Customer minutes lost (SHEPD) – average per customer |
17 |
12 |
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Customer minutes lost (SEPD) – average per customer |
12 |
10 |
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Customer interruptions (SHEPD) – per 100 customers |
21 |
13 |
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Customer interruptions (SEPD) – per 100 customers |
12 |
13 |
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Excludes exceptional events; part of the Interruptions Incentive Scheme for electricity distribution customers operated by Ofgem. |
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Retail |
3 months to 30-Jun-2018 |
3 months to 30-Jun-2017 |
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Electricity supplied household average (GB) – kWh |
775 |
793 |
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Gas supplied household average (GB) – therms |
65 |
66 |
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As at 30- Jun- 2018 |
As at 30- Jun-2017 |
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Total energy customer accounts (GB, Ire) – m |
7.45 |
7.77 |
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Total energy customer accounts at 31 March 2018 – 7.58m |
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Total home services customer accounts (GB) – m |
0.44 |
0.47 |
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Total Smart meters on supply (GB) |
>950,000 |
>500,000 |
As of 30 June 2018, SSE has 2.28 million electricity accounts and 1.53 million gas accounts on Standard Variable Tariffs (SVTs) which could be impacted by the Government's proposed SVT cap.
Remunerating shareholders' investment through the payment of dividends
SSE is committed to remunerating shareholders through the payment of dividends. SSE believes that its dividends should be sustainable, based on the quality and nature of its assets and operations, the earnings derived from them and the longer-term financial outlook. It is also committed to its plan for the dividend for the five years to 2023, as set out in May 2018, including its intention to recommend a full-year dividend of 97.5 pence per share for 2018/19.
Delivering capital and investment expenditure
For 2018/19 SSE expects investment and capital expenditure to be around £1.7bn and around £6bn across the five years to March 2023. The Stronelairg onshore wind farm (228MW), output from which will qualify for Renewables Obligation Certificates, remains on course for completion in 2019. Beatrice offshore wind farm (588MW; SSE share 40%) has all 84 turbine jacket support structures installed as well as 2 turbines. The project will achieve first power generation this month and remains on track for completion in 2019. Scottish and Southern Electricity Networks continues to work very closely with its key contractors to make the necessary progress so that the commissioning and energising of the new Caithness-Moray transmission link is successful and remains on track for delivery by the end of 2018.
Proposed SSE Energy Services transaction
On 27 June SSE published a Circular and Notice of General Meeting for shareholders in respect of the proposed demerger of SSE Energy Services and, subject to regulatory approval, subsequent combination of that business with npower Group Limited under a new holding company to be listed on the Premium Segment of the Main Market of the London Stock Exchange. Subject to the results of the resolutions being considered at the General Meeting and other conditions that must be satisfied or waived for the transaction to be completed (which are set out in the Shareholder Circular), the transaction remains on course for completion in this financial year.
Key developments since 25 May 2018
Since SSE published its Preliminary Results for 2017/18 on 25 May:
· SSE Energy Services made the difficult decision to increase standard household energy prices in GB to reflect the impact of higher wholesale and policy costs.
· SSE Energy Services also responded to Ofgem's formal consultation on a price cap for Standard Variable Tariffs. SSE believes that any price caps must reflect accurately the costs that energy suppliers incur.
· The UK government has confirmed that onshore wind farm developments on the Scottish islands will have the opportunity to compete in future Contracts for Difference (CfDs) allocation rounds.
Priorities for the remainder of 2018/19
The financial objective of SSE's strategy is to remunerate shareholders' investments. To achieve this, SSE will focus the remaining months of the financial year on:
· Successful completion of the proposed SSE Energy Services transaction;
· Reshaping the post-demerger SSE around its regulated networks and renewables businesses, plus its complementary businesses;
· Financial and operational discipline in relation to capital and investment expenditure, and, ultimately;
· Delivery of the first part of the five-year dividend plan through recommendation of a full-year dividend of 97.5 pence per share for 2018/19.
Notification of Close Period
SSE will issue a further business update with its Notification of Close Period statement on 25 September 2018.
Enquiries
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Investors and Analysts |
+ 44 (0)345 0760 530 |
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Media |
+ 44 (0)345 0760 530 |
Adjusted operating profit: the definitions SSE uses for adjusted measures are consistently applied and are explained most recently in the Alternative Performance Measure section of SSE's 2017/18 Annual Report.