UK: SSE Issues Interim Management Statement

SSE plc will today hold its Annual General Meeting in Bournemouth. This Interim Management Statement summarises SSE’s performance since the start of the current financial year, which began on 1 April 2012, and includes updates on operations and investments in SSE’s Networks, Retail and Wholesale businesses and on the financial outlook.

Operations
In the three months to 30 June 2012 (comparisons with the same three months in 2011, unless otherwise stated):

• SSE’s Total Recordable Injury Rate was 0.13 per 100,000 hours worked, compared with 0.11 during 2011/12 as a whole;
• Networks: the number of Customer Minutes Lost in the Scottish Hydro Electric Power Distribution area was 17, compared with 16; in the Southern Electric Power Distribution area it was also 17, compared with 16;
• Networks: the amount of replacement and reinforcement gas mains laid by Scotia Gas Networks was 304km, compared with 263km;
• Retail: SSE’s number of electricity and gas customer accounts in markets in Great Britain and Ireland increased from 9.55 million to 9.66 million, reflecting 130,000 customers gained through the completed acquisition of Phoenix Holdings Ltd on 23 June 2012;
• Retail: average consumption of electricity by SSE’s household customers in Great Britain increased by almost 6%; average consumption of gas by SSE’s household customers increased by 42%, reflecting cooler weather conditions (on a weather-corrected basis, however, there was an underlying reduction of 2.5% in average household gas consumption and no underlying change in average household electricity consumption);
• Wholesale: total electricity output* from gas-fired and coal-fired power stations was 5,690GWh, compared with 9,905GWh, reflecting planned outages at Keadby and Medway power stations;
• Wholesale: total electricity output from renewable sources (conventional hydro electric schemes, onshore wind farms and dedicated biomass plant) was 1,331GWh, compared with 1,325GWh;

Investment In its Annual Report 2012, SSE set out its investment priorities for 2012/13, including commissioning new assets and meeting other development and construction milestones in its programme of investment in renewable energy, electricity networks and gas storage. It is currently forecasting total capital and investment expenditure of just over £1.6bn for 2012/13 as a whole. In the period since 1 April 2012:

• Networks: SSE’s subsidiary Scottish Hydro Electric Transmission Ltd (SHETL) has undertaken capital works totalling £80m, including completing the new £25m 275kV substation at Beauly, and remains on course to achieve a Regulated Asset Value of over £1bn for the first time later this year;
• Wholesale: SSE’s onshore wind farm capacity in operation has increased by 50MW to 1,353MW as a result of progress at the Clyde wind farm development;
• Wholesale: SSE’s commissioned offshore wind farm capacity (net) has increased by 69MW to 256MW as a result of the completion of Walney and ongoing construction progress at Greater Gabbard, where 137 of the 140 turbines have now generated electricity; and
• Wholesale: The seventh of the nine caverns at the new Aldbrough gas storage facility being developed by SSE and Statoil UK Ltd have been brought into commercial operation in June and dewatering of the eighth was also completed in June, keeping the development on track to achieve full operation later this summer. Meanwhile, the facility continues to operate with high availability to meet commercial requirements.

In addition, the reservoir at the 100MW Glendoe hydro electric scheme is now being filled, in advance of electricity generation which is expected to resume shortly.

Other developments
Since the publication of its full-year results on 16 May 2012, SSE has also entered into an agreement with Endesa Generacion SA to acquire electricity generation assets in Ireland which are in operation (1,068MW), under construction (460MW) or in development for a total cash consideration of €320m (£256m) plus an estimated €43m (£34m) for working capital and €125m (£100m) to complete the construction of the Great Island CCGT. The acquisition is expected to be completed in the next few weeks.

In addition, SSE has continued to implement its programme of initiatives to build customers’ trust in the retailing of electricity and gas. This began in July 2011 with its announcements of an end to the cold-calling approach to selling energy on the doorstep and a cap on household energy prices in Great Britain, which was subsequently extended to October 2012.

In recent weeks, the first meetings of its independently-chaired customer forums have taken place and good progress has been made with SSE’s commitment to offer every household customer an Annual Energy Review, with priority currently being given to vulnerable customers. The Reviews are designed to help customers assess their tariff and overall energy requirements, thereby helping them to manage their household costs in a higher price environment.

The UK government has announced the outcome of its review of the bands of support provided by the Renewables Obligation. It will have no impact on existing assets in operation or under construction. Nevertheless, it means SSE no longer expects to develop any new conventional hydro electric schemes and that the scope to increase generation of electricity from biomass at coal-fired power stations is significantly reduced.

In addition, the decision to limit the guarantee of 0.9 Renewable Obligation Certificates to electricity from onshore wind farms commissioned between April 2013 and March 2014 introduces a new uncertainty that could potentially restrict the future development of this technology.

Financial outlook
SSE will publish its six month results for 2012/13 on 14 November 2012. In measuring adjusted profit before tax, SSE focuses on the full year, as opposed to six months, because – as was again demonstrated in the six months to 30 September 2011 – half-year results at group level and within reportable segments, especially in Retail and Wholesale, are more likely to fluctuate, with unusual variations or circumstances.

As stated in its Annual Report 2012, SSE’s expectation at the start of each financial year is that it will not provide an outlook for adjusted profit before tax before the publication of its third quarter Interim Management Statement, and that continues to be the case.

SSE’s core financial objective is to deliver annual, above-RPI inflation increases in the dividend payable to shareholders, and it remains on course to deliver a full year dividend increase of at least 2% more than RPI inflation for 2012/13 and above-RPI inflation dividend increases from 2013/14 onwards.

Ian Marchant, Chief Executive of SSE, said:
“SSE has made a solid start to this financial year, with good progress in operations and investments. Energy market conditions are challenging however, with upward pressures on the cost of supplying energy, and are expected to remain so for some time. This means SSE’s twin focus must continue to be the achievement of operational excellence, especially in customer service, and appropriate returns from investments in order to achieve our continuing goal of sustained real dividend growth.” 

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Offshore WIND staff, July 26, 2012; Image: SSE