Interim Management Statement

RNS Number : 8915M

Scottish & Southern Energy PLC

06 February 2009

 



INTERIM MANAGEMENT STATEMENT

Scottish and Southern Energy plc ('SSE') remains on course to deliver the financial and operational goals for the period to 31 March 2009 set out in its financial report in November 2008, including the delivery of a reduction in energy prices for its domestic customers.

This Interim Management Statement includes updates on operations, major projects, energy prices and other developments and a financial outlook. 

Operational Update

In the nine months to 31 December 2008 (comparisons are with the same nine months in 2007):

• The number of units of electricity distributed was 31.2TWh, compared with 30.8TWh; 

• The number of Customer Minutes Lost in the Scottish Hydro Electric Power Distribution area was 52, compared with 47; in the Southern Electric Power Distribution area it was 47, compared with 49; 

• The amount of gas transported by Scotia Gas Networks, in which SSE has a 50% stake, was 110.7TWh, compared with 105.3TWh;

• The number of energy customers reached nine million for the first time, compared with 8.3 million;

• The output from conventional hydro electric schemes and wind farms (including Airtricity) was 3.35TWh, compared with 2.36TWh (excluding Airtricity); and

• The total output from coal-fired power stations was 4.39TWh, compared with 10.14TWh; from wholly-owned gas-fired stations it was 11.59TWh, compared with 12.53TWh.  

During the period, the coal-fired power stations operated under limits on their output of electricity, pending the commissioning of flue gas desulphurisation equipment, which no longer apply (see below). Although there have been increases in output of electricity from a number of SSE's gas-fired power stations, total output has continued to be affected by a series of technical issues at Medway, including the steam turbine failure which occurred in September. Returning the station to service remains a top priority, and this is now expected to take place around the end of next month. The outage itself is the subject of an insurance claim.

Major Projects Update

In addition to delivering a high standard of performance in its operations, SSE stated in its financial report on 12 November that its priority for the second half of 2008/09 is to meet key milestones in its investment programme. Since then, progress has been made in the following key areas:

• The maximum 100MW of electricity was successfully generated for a full 24 hours at the new Glendoe hydro electric scheme for the first time in December, following which it was formally commissioned and transferred to SSE's Generation Operations' portfolio. During January, it generated 12.7GWh of electricity.

• The progress made in commissioning flue gas desulphurisation equipment at Fiddler's Ferry and Ferrybridge power stations means SSE is now able to operate all of its 3,000MW of plant opted in to the Large Combustion Plant Directive in line with its limits on emissions of sulphur dioxide - and without any further Article 5(1) derogations or restrictions on either running hours or electricity output. During January, the two stations generated 1.48TWh of electricity.

• Commissioning has begun at the new 840MW combined cycle gas turbine plant at Marchwood in Southampton, a 50:50 joint venture between SSE and ESB International, and the 'first firing' of the gas turbines is scheduled to occur around the end of this month.

• Dewatering of two caverns at the new Aldbrough gas storage facility, a two thirds/one third joint venture between SSE and Statoil UK Ltd, has made sufficient progress to allow around 65 million cubic metres of storage capacity to become operational before the end of this financial year.

Energy Prices Update

The falls in wholesale energy prices which started between July and October 2008 have been maintained and mean SSE, which supplies energy as Southern Electric, SWALEC, Scottish Hydro Electric and Atlantic, is able to deliver its first cut in domestic energy prices since March 2007 (it was the last of the major suppliers to introduce a price increase in the early part of 2008). SSE is today announcing that average prices for electricity will reduce by 9% and for gas they will reduce by 4% on 30 March 2009.

Other Developments

In addition to the developments described elsewhere in this Statement, SSE acquired in December 2008 17.5% of the equity in RockTron (Widnes) Ltd, the developer of the new plant being constructed at Fiddler's Ferry to extract minerals from ash, for a total cash consideration of £10m.

It has also acquired stakes in wind farm projects in Scotland and the Republic of Ireland with total final capacity in the range of 180MW-250MW (depending on the most economic turbine option) for a total investment, including relevant construction costs, of just over £300m.  SSE now has 3,500MW of renewable energy capacity (onshore wind, offshore wind, hydro and dedicated biomass) in operation, under construction or with consent for development in the UK and Ireland. Including the Butendiek and West Rijn offshore wind farms, SSE's overall total is now around 4,000MW.

SSE and Iberdrola announced in January their intention to form a joint venture with the initial aim of securing sites suitable for the development of nuclear power stations. SSE accepts that one more tranche of nuclear power stations is necessary from around the end of the next decade to ensure achievement of the UK's energy policy goals, and it recognises that it will have to continue to be able to source power generated from nuclear stations if it is to meet customers' energy needs in the long term. This supplements SSE's core investment strategy, which is to focus on renewable energy and on thermal generation of electricity with a diminishing carbon intensity.

On 19 January, Ofgem announced it had decided to close a Competition Act 1998 case into the behaviour of Scottish Power and SSE in the wholesale electricity market. This was in line with SSE's view that its actions in electricity generation have always been consistent with a competitive market.

Financial Outlook

SSE remains on course to deliver sustained real dividend growth in the years ahead. Specifically, it is on course to deliver a full-year dividend of at least 66.0 pence in respect of 2008/09, which would be 9.1% higher than the previous year, and at least 4% annual real growth in respect of 2009/10.  

In its financial report on 12 November, SSE said it would 'retain its opportunistic approach to financing investment, examining all options'. It completed in the following month an agreement with the relevant banks to extend by one year, to 30 June 2010, part of its Airtricity-related facility. Since then it has:

• achieved gross proceeds of £479m from the placing of 42 million shares, representing approximately 4.8% of SSE's share capital; and

• issued a £700m five-year sterling bond with a coupon of 5.75%.

This has taken to £2.7bn the total funding and financing which SSE has secured since July 2008, which has reinforced SSE's already-strong balance sheet (rated 'A' by Standard & Poors and 'A2' by Moodys) and enhanced its future options by providing additional sources of funding for appropriate investment and acquisition opportunities. 

SSE will publish its preliminary results for 2008/09 on 21 May 2009 and its expectations, for a modest increase in adjusted profit before tax, remain unchanged.

Ian Marchant, Chief Executive of SSE, said:

'I am pleased with the financial and operational progress we have made so far in the second half of this financial year, including today's announcement of a cut in prices for our energy customers. 

'Despite a turbulent year in financial and energy markets and in the economy as a whole, we are still on course to deliver a modest increase in adjusted profit before tax and a full-year dividend of at least 66.0 pence per share.  

'In a period in which little can be taken for granted, the importance of profitability and dividends has been reinforced. The challenges are ongoing, but the fundamental strength of our strategy - the efficient operation of, and investment in, a balanced range of regulated and non-regulated energy-related businesses - is again being demonstrated.  

'Our priority now is to deliver on it for the rest of this financial year and beyond. We have put ourselves in a position to get 2009/10 off to a good start, with a balanced series of steps to finance future investment, substantial progress in our programme to develop new assets and the announcement of the reduction in electricity and gas prices.'

 

END

 

 

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