Q1 Trading Statement
SSE plc completed the first quarter of its 2017/18 financial year on 30 June 2017 and its Annual General Meeting is taking place today (20 July) in Perth. This trading statement provides information on its operational and investment activities in the first quarter of the financial year including:
- operational performance in SSE’s Wholesale, Networks and Retail businesses;
- progress made in SSE’s plans to invest around £1.7bn in 2017/18 in energy infrastructure in the UK and Ireland;
- confirmation that SSE is continuing to target an increase in the full-year dividend for 2017/18 of at least RPI inflation, with annual increases thereafter of at least RPI inflation also being targeted; and
- confirmation that SSE is continuing to work to keep dividend cover for 2017/18 within the expected range of around 1.2-1.4 times, although as previously indicated, it remains likely to be towards the bottom of that range.
Alistair Phillips-Davies, Chief Executive of SSE, said:
“As expected, 2017/18 is presenting a number of complex challenges to manage, but SSE is a focused, resilient and adaptable business with efficient operations and disciplined investment at its core. There continues to be significant change across the energy sector, but also opportunities for responsibly-minded businesses to contribute positively to its direction in the interests of customers and investors alike. Our priorities remain to support positive outcomes for customers, provide reliable and sustainable energy and deliver annual dividend growth for investors that at least keeps pace with inflation.”
Focusing on delivering operational efficiency
Central to SSE’s strategy is operational efficiency across its Wholesale, Networks and Retail (including Enterprise) businesses, and performance in the three months to 30 June 2017 is summarised below.
Fundamental to this is safety. The Total Recordable Injury Rate for SSE employees and employees of other companies working on SSE sites was 0.20 per 100,000 hours worked, compared with 0.26, on a rolling 12 month basis.
|3 months to 30-Jun-2017||3 months to 30-Jun-2016|
|Gas-and-oil-fired (incl. CHP) generation output - GWh||5,350||4,400|
|Coal-fired generation output - GWh||0||0|
|Hydro generation output (incl. pumped storage) - GWh||488||583|
|Wind generation output - GWh||1,108||908|
|Biomass generation output - GWh||17||18|
|Gas production - M therms||130||158|
|Gas production - mmboe||2.15||2.56|
|Liquids production - mmboe||0.19||0.20|
Output from electricity generating plant in which SSE has an ownership interest (output based on SSE's contractual share). Wind output excludes 80MWh of constrained off generation in Q1 2017/18 and 35MWh in Q1 2016/17. Fiddler’s Ferry coal fired power station used more electricity than it generated in the 3 months to 30 June, therefore net generation is reported at zero.
|3 months to 30-Jun-2017||3 months to 30-Jun-2016|
|Customer minutes lost (SHEPD) - average per customer||12||14|
|Customer minutes lost (SEPD) - average per customer||10||10|
|Customer interruptions (SHEPD) - per 100 customers||13||16|
|Customer interruptions (SEPD) - per 100 customers||13||11|
Excludes exceptional events.
|3 months to 30-Jun-2017||3 months to 30-Jun-2016|
|Electricity supplied household average (GB) - kWh||793||821|
|Gas supplied household average (GB) - th||66 78|
|As at 30-Jun-2017||As at 30-Mar-2017|
|Total energy cusomter accounts (GB, Ire) - m||7.77||8.00|
|Total Smart meters installed||over 600,000||over 500,000|
|Home services customer accounts (GB) - m||0.47||0.47|
The average temperature in the UK in the three months to 30 June 2017 was 0.9C warmer than the same period in 2016; energy consumption by household customers was lower. During the period, rainfall in the north of Scotland was slightly above average although low hydro storage levels at the start of the period meant hydro output was lower than expected. Wind speeds were 0.5 to 1.0m/s above average across Scotland and very close to average across Ireland, which contributed to the higher amount of electricity generated from wind farms compared with the same three months in 2016.
Creating value from capital and investment expenditure
SSE continues to expect that its capital and investment expenditure will total around £1.7bn in 2017/18 and be around £6.0bn across the four years to March 2020 mainly in electricity networks and renewable energy. It is on course to create significant value and deliver by then: an increase in its capacity for generating electricity from renewable sources, including pumped storage, to 4.3GW; and an increase in the Regulatory Asset Value of its economically regulated networks businesses to close to £9bn. Progress with SSE’s major investments since 1 April 2017 includes:
- Wholesale onshore wind: At 31 March 2017, SSE had seven onshore wind farm projects in construction, comprising 260 turbines and a total net capacity of 761 MW when complete. At 30 June, 123 of these turbines were capable of exporting electricity and the six wind farms scheduled to be completed by the end of 2017 remain on course to be so. The construction of the seventh wind farm, Stronelairg, remains on course to be completed in 2018. The full benefits of the returns earned from this investment in onshore wind are still expected to be reflected in adjusted earnings per share towards the end of this decade and beyond.
- Wholesale offshore wind: The Beatrice offshore wind farm (588MW; SSE share 235MW) is continuing to progress in accordance with the terms of the Investment Contract awarded to it by the UK government in 2014 and is still expected to be fully operational in 2019.
- Networks transmission: The new Caithness-Moray transmission link remains on schedule to be commissioned by the end of 2018 with good progress being made on both the subsea cable and the onshore infrastructure.
In addition, SSE is fulfilling its obligation to offer smart meters to its Energy Supply customers in GB. At 30 June 2017, SSE had installed over 600,000 smart meters in customers’ homes. Post installation, SSE’s meters will transfer to a contracted Meter Asset Provider, so SSE’s investment and capital expenditure excludes the capital cost of installation and meter assets. SSE welcomes the inclusion of a Smart Meter Bill in the UK Government’s legislative programme. The planned legislation will extend by five years the UK government’s ability to make changes to smart meter regulations, which can help to ensure the rollout is delivered effectively, and that the future benefits for customers are maximised.
Key developments since 17 May 2017
Since SSE published its Preliminary Results for 2016/17, there have been important developments in the energy sector:
- Wholesale: It has been announced by National Grid in June 2017 that the T-1 capacity market auction for 2018/19 will take place in January 2018, with a target volume of 6.0GW, and that the T-4 capacity market auction for delivery in 2021/22 will take place in February 2018, with a target volume of 50.1GW. SSE also welcomes Ofgem’s decision in June 2017 to reduce a specific payment that some small electricity generators receive for producing electricity at peak times as the level of this payment is distorting the capacity and wholesale markets.
- Networks: Ofgem set out in June 2017 its ‘minded to’ position on financial adjustments relating to the Distribution Price Control for 2010-15, based on the extent to which electricity distribution companies have delivered the outputs they committed to. SSE’s Scottish and Southern Electricity Networks (SSEN) delivered all of the benefits required under its major capital schemes, asset health, network loading and fault performance and so will not be subject to an allowance adjustment in respect of these areas. As a result of lower electricity demand across the five-year period and reduced requirement for network reinforcement, however, SSE will experience a total revenue reduction of around £3m spread over the period to 2023.
In July 2017, in launching its ‘Framework Review Stage’ Ofgem said that investors should prepare for lower returns from 2021, with ‘tougher’ price controls to maintain good value for customers. SSE believes the RIIO regulatory framework is delivering the highest-ever standards of customer service in the sector and record levels of investment in a robust and secure network. There are also opportunities as networks evolve in line with changes to how electricity is produced and used and SSE will respond constructively to the questions raised by Ofgem at this initial stage in the development of the post-2021 Price Controls.
- Retail: In June 2017, the Secretary of State for Business, Energy and Industrial Strategy wrote to Ofgem seeking advice on its plans in relation to the energy supply market. Ofgem responded on 3 July 2017 with proposals including the option of a ‘safeguard tariff’ for vulnerable customers and plans to make it ‘even easier’ for customers to switch their energy supplier. It said it would work with the industry and other stakeholders ‘as we move towards a smarter, fairer, and more competitive energy market’ and SSE will engage constructively. SSE believes that competition should be at the heart of the retail energy market and in line with that promotes a range of tariffs, products and services. The GB domestic energy market remains highly competitive and in the first three months of 2017/18 SSE continued to experience a net loss in total customer account numbers.
- Enterprise: In June 2017 the UK government confirmed that its legislative programme ‘will work to attract investment in infrastructure to support economic growth’ with new legislation announced covering electric vehicles and the next phase of high-speed rail, to complement the rollout plans for telecoms infrastructure underpinning mobile and broadband services. Whilst still relatively small compared to the rest of the SSE group, this public policy direction presents opportunities to grow SSE’s Enterprise businesses, both in terms of its energy-related businesses (utilities, rail, contracting) and its telecoms business, which will seek to provide additional communications infrastructure and services to these growing telecoms markets in Great Britain and Ireland.
Consolidated Segmental Statements
SSE published its Consolidated Segmental Statements (CSS) for 2016/17 on sse.com on 19 July 2017, the content of which was previewed in its Preliminary Results statement in May and which is in line with that statement.
Share Buy Back Programme
In line with its Interim Results Statement in November 2016, SSE is intending to use around £500m of the proceeds from the 16.7% equity stake divestment in Scotia Gas Networks Limited (‘SGN’) to return value to shareholders by way of an on-market share buy-back. At 14 July 2017, SSE had completed £323m of the buy-back, including £192m of shares purchased since 1 April 2017, with the process expected to be concluded by 31 December 2017.
SSE continues to fulfil its core purpose of providing the energy people need in a reliable and sustainable way. It operates with a clearly-defined and long-term strategic framework built around a continued focus on efficient operations and disciplined investment. The financial objective of SSE’s strategy is to give shareholders a return on their investment through the payment of a full-year dividend that increases annually by at least RPI inflation in 2017/18 and beyond. SSE remains on course to deliver this.
As stated in its Preliminary Results, SSE is working to keep dividend cover in 2017/18 within the expected range of around 1.2 to 1.4 times, although it is likely to be towards the bottom of it, which means adjusted earnings per share in 2017/18 is likely to be lower than it was 2016/17; and as also stated in the Preliminary Results, the level of dividend cover remains subject to the ongoing factors that influence earnings in SSE’s market-based businesses.
Notification of Close Period
SSE will issue a Notification of Close Period statement on Wednesday 27 September 2017.
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