Notification of close period
SSE plc will enter its close period on 1 April 2017, prior to the publication on Wednesday 17 May of its financial results for the year to 31 March 2017. This statement sets out information on its financial outlook, operational activities and investment programme.
Financial outlook – 2016/17
SSE expects that it will deliver for 2016/17:
- an increase in the full-year dividend that is at least equal to RPI inflation*, currently expected to be slightly over 2%;
- adjusted earnings per share* of between 122 pence and 125 pence, which compares with the stated target of at least 120 pence; and
- dividend cover that is towards the top of the range of around 1.2 times to around 1.4 times that SSE expects, as stated in May 2016, to deliver over the three years to 2018/19.
* Adjusted EPS and RPI inflation as defined in SSE’s interim results statement on 9 November 2016.
SSE expects to report that all three of its segments - Wholesale, Networks and Retail - have been profitable during 2016/17:
- Wholesale operating profit is expected to be higher than in 2015/16, despite lower renewable energy output, due to improved financial performance in Energy Portfolio Management, thermal generation and Gas Production;
- Networks operating profit is expected to be similar to 2015/16, with higher operating profit in Electricity Distribution offset by expected reductions in operating profits from Electricity Transmission and SGN (the latter due to the partial equity disposal during the year); and
- Retail operating profit is expected to be slightly lower than in 2015/16.
SSE now expects that its capital and investment expenditure in 2016/17 will total around £1.7bn; and it expects that its adjusted net debt and hybrid capital will be around £8.6bn at 31 March 2017, compared to £9.0bn at 30 September 2016.
Since the publication of its third quarter trading statement on 31 January 2016 SSE has:
- secured agreements to provide a total of 4,451MW of de-rated electricity generation capacity from October 2017 to September 2018 in the GB Capacity Market Auction;
- stated it is reviewing future options for Peterhead gas-fired power station;
- successfully launched a dual tranche issue of c.£1.0bn hybrid capital securities, with an all-in funding cost to SSE of 3.02% per annum;
- taken the difficult decision to increase its electricity prices by 14.9% for GB domestic customers (equating to an average 6.9% for a typical dual fuel customer) from 28 April 2017 and increased its regulated gas prices by 7.6% for Northern Ireland customers from 31 March 2017;
- published a statement emphasising that any referendum on Scotland’s future is a matter for the Scottish and UK parliaments and ultimately for voters while acknowledging that politics, regulation and compliance is one of SSE’s principal risks and that prolonged uncertainty following any major constitutional change would add to that risk; and
- continued to return value to shareholders by way of an on-market share buy back which is expected to total around £500m and to be completed in the course of this calendar year, with shares with a total value of £112m so far purchased.
Financial Outlook - 2017/18
In 2017/18 SSE currently anticipates that its Networks’ operating profit, including SGN, will be affected by the following previously-disclosed factors:
- as highlighted in its Q3 trading statement in January 2017, base revenue in Electricity Transmission is expected to decrease by around £40m compared with the current year (2016/17). Base revenue is then expected to return to 2016/17 levels for the subsequent three years, although depreciation charges are also expected to increase as a result of continued investment; and
- as noted in its results for 2015/16, Electricity Distribution revenue in 2016/17 includes an additional £38m that was ‘under-recovered’ from a previous financial year.
In addition, changes in the Gas Distribution revenue earned by SGN are likely to have the effect of reducing its operating profit contribution to SSE by around £20m, after taking account of SSE’s sale of a 16.7% stake in the business.
As a result of these factors, SSE expects its operating profit in Networks, including SGN, in 2017/18 will be around £100m lower than in the current year, on a like-for-like basis.
This and other challenges, such as a lower than expected clearing price in the 2017 Capacity Market Year-Ahead Auction, mean that SSE expects that its dividend cover for 2017/18 will be within, but towards the bottom of, the expected range of around 1.2 times to around 1.4 times that it set out in its Annual Report 2016 for the three years to 2018/19**. This dividend cover range is based on dividend increases that at least keep pace with RPI inflation, which SSE is continuing to target for 2017/18 and the subsequent years.
**Subject to the factors that affect profit in its market-based businesses as set out in SSE’s Annual Report 2016 and again in its Interim Results in November 2016.
Forecast capital and investment expenditure
In line with its strategy of creating value from long-term investment, SSE expects that its capital and investment expenditure in 2017/18 will be similar to the current year at around £1.7bn, with:
- around 20% of this being invested in government-mandated renewable sources of energy. The benefit of the returns earned from recent and planned investment in wind farms should be reflected in adjusted earnings per share and dividend cover towards the end of this decade - reflecting both the phasing of increased output from new renewable assets and the contracted position of renewable energy output in the next two years; and
- around 45% of this being invested in economically-regulated electricity networks. This should help take the total net Regulated Asset Value of all of SSE’s economically-regulated networks businesses to close to £9bn by 2020.
Gregor Alexander, Finance Director of SSE, said:
“The operating environment has presented SSE with a number of complex issues to manage, but in this financial year we have been able to offset the impact of disappointing renewable energy output caused by drier and less windy weather conditions, and we are on course to deliver adjusted earnings per share of between 122 pence and 125 pence. We are also on course to deliver a full-year dividend increase that at least keeps pace with RPI inflation.
“We can expect additional challenges in the new financial year, but we are committed to delivering annual dividend growth that at least keeps pace with inflation, and to working towards ensuring that dividend cover remains within the expected range, albeit towards the bottom of it.
“SSE is a resilient business and we will continue to focus on securing maximum value from our portfolio of Wholesale assets, achieving further efficiencies and customer service improvements in our Networks businesses, responding positively to competition in our Retail markets and creating long-term value through investment of around £1.7bn in 2017/18.”
Publication of preliminary results for 2016/17 and Annual General Meeting
As stated above, SSE will publish its preliminary results for 2016/17 on Wednesday 17 May 2017. Its Annual General Meeting will take place on Thursday 20 July 2017.