Trading Statement

RNS Number : 0651D

SSE PLC

26 January 2015

 



SSE plc

 TRADING STATEMENT

SSE plc completed the third quarter of its financial year on 31 December 2014.

This trading statement:

·     includes information about SSE's operational and investment activities for the nine months to 31 December 2014;

·     confirms SSE's expected financial results for the year to 31 March 2015, which are forecast to be in line with the financial outlook given in the interim results statement;

·     confirms that SSE still expects to report an increase in the full-year dividend for 2014/15 that will at least be equal to RPI inflation;

·     confirms that SSE is targeting an increase in the full-year dividend for 2015/16 of at least RPI inflation, with annual increases thereafter of at least RPI inflation also being targeted;

·     details key developments since SSE published its interim results on 12 November;

·     announces that SSE will reduce household gas prices in Great Britain by 4.1% on 30 April and then extend its household gas and electricity price guarantee to at least July 2016; and

·     includes an update on SSE's value programme of operational efficiency and asset disposals.

Alistair Phillips-Davies, Chief Executive of SSE, said:

"Customers are at the heart of SSE's business, and our work to secure their energy supplies in wholesale markets last spring enabled us to guarantee that prices would not increase until at least January 2016, showing we are committed to treating all of our customers fairly and to giving them stable prices over the long-term.  We're being true to that commitment with a 4.1% reduction in the typical gas bill and an extended guarantee meaning gas and electricity prices won't go up before July 2016 at the earliest.

"The challenging business environment we identified at the start of this financial year is likely to continue into the new financial year and we believe that addressing the resulting issues directly is the right thing to do for customers and the best way of safeguarding the interests of investors. That is why, at the same time as reducing tariffs for customers, we're continuing to make sure our own house is in order for the future, with a clear focus on our value programme to make sure SSE is well-positioned for the long term."

Operations in the nine months to 31 December 2014
In the nine months to 31 December 2014 (comparisons with the same nine months in 2013, unless otherwise stated):

·     SSE's Total Recordable Injury Rate was 0.12 per 100,000 hours worked, compared with 0.12 during 2013/14 as a whole;

·     Wholesale: total electricity output¹ from gas-fired power stations was7.5TWh, compared with 7.6TWh; from coal-fired power stations output was 5.1TWh, compared with 11.3TWh;

·     Wholesale: total electricity output¹ from renewable sources (conventional and pumped storage hydro electric schemes, onshore and offshore wind farms and dedicated biomass plant) was 5.6TWh, compared with 6.1TWh; 

·     Wholesale:total output from gas production assets was 296 million therms, compared with 300 million therms;

·     Networks: the number of Customer Minutes Lost² in the Scottish Hydro Electric Power Distribution area was 50, compared with 57; in the Southern Electric Power Distribution area it was  43, compared with 47;

·     Networks: the number of Customer Interruptions (power cuts) per 100 customers in the Scottish Hydro Electric Power Distribution area was 53, compared with 59; in the Southern Electric Power Distribution area, it was 46, compared with 51;

·     Retail: SSE's number of electricity and gas customer accounts in markets in Great Britain and Ireland fell from 9.10 million on 31 March 2014 to 8.71 million;

·     Retail: the prolonged period of mild weather to 31 December 2014 means that average consumption of electricity by SSE's household customers in Great Britain is estimated to have fallen by 5.6% from 2,860kWh to 2,700kWh; average consumption of gas by SSE's household customers in Great Britain is estimated to have fallen by 15.8%  from 285 therms to 240 therms;

¹Output from electricity generating plant in which SSE has an ownership interest (output based on SSE's contractual share).

² Excludes exceptional events

Investment in the nine months to 31 December 2014
SSE expects that its capital and investment expenditure will total around £1.55bn (gross) in 2014/15 and total around £5.5bn (net of disposals) over the four years to March 2018.  In the nine months since 1 April 2014:

·     Wholesale:  SSE's CCGT development at Great Island in the South-East of Ireland is on course to be fully commissioned this Spring, with capacity to export 431MW on to the electricity network;

·     Wholesale:  Multifuel Energy Ltd, the 50:50 joint venture between SSE and Wheelabrator Technologies Inc, continues to make good progress in constructing the £300m, 68MW multi-fuel generation facility adjacent to SSE's Ferrybridge power station, with 'first fire' expected to take place in the next few weeks and commissioning anticipated to be completed in the autumn;

·     Wholesale: SSE invested around £140m in onshore renewable sources of energy and now has just under 300MW of new onshore wind farm capacity in construction;

·     Networks: SSE's subsidiary Scottish Hydro Electric Transmission has undertaken capital works totalling around £330m to improve and increase the capacity of its network, including work on SSE's section of the Beauly-Denny line which now has all towers installed with two of the three sections of the new line energised; and

·     Retail:  SSE has invested around £75m in energy supply and related services, including work associated with the roll-out of smart meters and improving digital services for customers.

SSE estimates that its adjusted net debt and hybrid capital will total around £7.8bn on 31 March 2015, compared with £7.64bn on the same date in 2014.

Financial outlook
SSE will publish its results for the financial year to 31 March 2015 on 20 May 2015, and in advance of that will publish a Notification of Close Period on 31 March. While its final results remain subject to the factors set out in its six-month financial report in November, it still expects that it will report:

·     an increase in the full-year dividend that will be at least equal to RPI inflation³; and

·     adjusted earnings per share³ for 2014/15 that will be around the level achieved in 2013/14.

Shareholders have either invested directly in SSE or, as owners of the company, enabled it to borrow money from debt investors to finance investment totalling over £7bn since April 2010 in maintaining, upgrading and building energy assets that customers depend on.  SSE aims to give them a return on their investment through the payment of dividends and SSE's objective for 2015/16 is to deliver a full-year dividend increase of at least RPI inflation.

As stated in its interim results statement in November 2014, in view of the wider energy sector conditions, SSE continues to recognise that its ability to deliver increases in adjusted earnings per share is subject to additional risk in 2015/16 and 2016/17.

³  As defined in SSE's interim results statement in November 2014.

Result of the capacity auction in December 2014

The completion of the first capacity auction in December 2014 was a major milestone in the implementation of a series of reforms affecting electricity generation in Great Britain.  The capacity market, the carbon price support mechanism, contracts for difference and the emissions performance standard, along with the supplemental balancing reserve, represent the biggest change in electricity generation since privatisation.

SSE secured agreements to provide a total of 4,409MW of de-rated generation capacity from October 2018 to September 2019 at a price of £19.40/kW as a result of the auction.  This means capacity totalling 2,796MW did not secure an agreement, including Ferrybridge, Peterhead, one unit at Fiddler's Ferry and the proposed new gas-fired station at Abernedd.  In line with its statement on 19 December, SSE is continuing to analyse generation market conditions and opportunities for 2015 and beyond.

Acceptance of Ofgem proposals in electricity distribution and transmission

In December 2014, SSE confirmed its intention to accept Ofgem's proposals for the price control for its two electricity distribution subsidiaries for the eight years from 1 April 2015.  SSE is committed to delivering good performance during this new price control which will require the achievement of efficiencies and the delivery of a stronger, more robust network to drive improved customer service while also providing a fair return to investors.

In January 2015, SSE confirmed its intention to accept Ofgem's proposals for the funding of the new Caithness-Moray electricity transmission link at a cost of £1,118m and with regulatory arrangements that allow it to apply for additional funding during construction if required.  The link will enable the connection of 1.2GW of new renewable electricity generation following completion in 2018 and will help to support over 600 jobs during construction.   SSE expects to invest around £600m in electricity transmission assets in 2015/16 and the Regulated Asset Value of SSE's transmission business is expected to increase from just over £1.5bn now to over £2.5bn by March 2017.

On 21 January, Ofgem announced it has used its competition powers to open an investigation into whether SSE put its competitors at a disadvantage in the electricity connections market. As Ofgem stated, the fact that it has launched an investigation does not imply that SSE has breached competition law and SSE will co-operate fully and constructively with Ofgem in the coming months.

Competition and Markets Authority investigation and UK general election

SSE pointed out in its interim results statement in November 2014 that the capacity market auction, the electricity distribution price control review, the CMA investigation into the GB energy market and the UK general election all presented a degree of uncertainty and risk but also presented the opportunity to achieve a stable policy and regulatory framework that gives customers confidence, allows regulators to regulate and encourages investors to invest in the GB energy market.

The completion of the first capacity market auction and of the electricity distribution price control review means that the political and regulatory focus is now on the implications of the UK general election in May and the CMA investigation.  The CMA is expected to publish an annotated statement of issues in the next few weeks and to set out its provisional findings and possible remedies (if required) in May or June.  In engaging with both the CMA investigation and with the political parties, SSE continues to highlight those features of the GB energy market that are well-functioning  and benefiting customers while also proposing sustainable solutions to address widely-shared objectives.

Household energy prices in Great Britain

SSE will reduce household gas prices in Great Britain by 4.1% on 30 April 2015 and will cap gas prices at their new level, and household electricity prices at their existing level, until at least July 2016.

This price cut will save a typical household customer⁴ £28 per year and, when combined with the previous cut implemented on 24 March 2014, means that SSE's average annual standard gas bill will be 7.0% lower than it was in March 2014.  SSE's commitment not to increase household energy prices to January 2016 will be extended until at least July 2016.  This means that SSE's household energy prices will not have gone up for more than two and a half years.  Prices will, in fact, have come down at least twice in that period and SSE remains committed to cutting household energy prices again, if it can.

Wholesale energy costs, however, now make up less than half of the typical household energy bill.  There are significant other costs within energy bills, including those relating to government-sponsored environmental and social policies and the roll-out of smart meters.  SSE believes that such policies should be funded in a more progressive way related to people's ability to pay and believes that the GB-wide smart meter roll-out should be subject to review to identify what can be done to minimise its costs and optimise its benefits to all energy consumers in GB.

⁴  Based on consumption of 13,500 kWh gas and 3,300 kWh electricity and including VAT

Next steps in value programme

In March 2014, SSE announced a value programme to secure operational efficiencies and to complete asset and business disposals, with the overall objective of streamlining and simplifying the business.  The programme is on course to achieve its objectives with:

·     completed transactions to dispose of assets with a total value of £440m;

·     90% of the £100m target annual savings in overheads being realised to date; and

·     the process to dispose of onshore wind farm assets now under way.

SSE will continue to focus on business simplification and operational efficiency and will set out the next steps in its value programme by its full year results presentation in May 2015.

Fulfilling SSE's core purpose

SSE's ability to achieve its first financial objective of annual dividend growth that at least keeps pace with RPI inflation is ultimately dependent on fulfilling successfully its core purpose of providing the energy people need in a reliable and sustainable way, and it is the fulfilment of that core purpose which will continue to be the focus of its long term strategic, investment and operational decisions in 2015/16 and beyond.

Enquiries

Sally Fairbairn - Director of Investor Relations [phone]

Lee-Ann Fullerton - Head of Media [phone]

 

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