SSE plc (LON:SSE) has announced its half year results for the six months ended 30 September 2023.
CREATING VALUE BY DELIVERING ON CRITICAL INFRASTRUCTURE
· Major progress on flagship projects including first power at Dogger Bank and full power at Seagreen offshore wind farms, and planning and supply chain secured for Eastern Green Link 2 subsea transmission cable.
· Reporting adjusted earnings per share of 37.0p, ahead of pre-close guidance and reflecting the normal seasonal nature of operations that deliver the majority of annual earnings in the second half of SSE’s financial year.
· Maintaining balance sheet strength with 91% of adjusted debt paying a fixed rate and less than £1.5bn long-term debt refinancing required over the next 24 months.
· Focus on safety remains the number one priority for the group, with initiatives put in place as increased construction activity contributes to a Total Recordable Injury Rate of 0.24, an increase from 0.15.
· Reaffirming guidance for full year 2023/24 of more than 150p adjusted earnings per share.
INCREASING VISIBILITY OVER MEDIUM-TERM OUTLOOK
· Delivery, capital discipline and optionality provide greater certainty over Net Zero Acceleration Programme Plus (NZAP Plus) targets for the five years to 2026/27:
· Capital investment expectations upgraded to £20.5bn for the five-year programme reflecting increasing visibility over regulated networks spend and associated supply chain costs, with around 90% of the upweighted investment plan expected to be invested in electricity networks and renewables.
· Continue to target c.5GW net renewables capacity additions over the period and, given the additional clarity over networks investment, now expecting to grow net electricity networks RAV to more than £15bn by 2027 from the previous net target of £12 – 14bn.
· Increased investment provides greater certainty that we will be comfortably within an adjusted EPS CAGR of 13 – 16% over the five-year period, excluding developer profits, with the existing operational assets and committed capex together expected to contribute around 95% of 2026/27 adjusted EPS target.
· Investment plan remains fully funded, supported by strong balance sheet with a continued expectation to stay within or below a 3.5 – 4.0x net debt / EBITDA range across the plan.
· Reiterating commitment to target annual dividend increases of between 5 – 10% to 2026/27, based on an expected 60 pence full year dividend for 2023/24, with retention of the scrip option and dilution from uptake capped at 25%.
Alistair Phillips-Davies, Chief Executive, said:
“Our performance in the first half of 2023/24 demonstrates SSE’s well-balanced business mix and our ability to adapt and create value while maintaining capital discipline in a fast-evolving energy landscape. As visibility of growth options improves, we have upweighted our capex plans to meet the ambitions of the NZAP Plus plan.
“With an enduring broad political consensus behind the need to build the electricity infrastructure required for net zero, a supportive power price outlook, balance sheet strength underpinned by world-class assets and unrivalled optionality across the clean energy value chain, we have increased confidence in our earnings forecasts not only for this year, but out to 2026/27.”
FINANCIAL SUMMARY (continuing operations1)
| Adjusted | Reported | ||||||
| Sep 2023 | Sep 2022 | % mvmt | Sep 2023 | Sep 2022 | % mvmt | ||
| Operating profit / (loss) (£m) | 693.2 | 716.0 | (3%) | 602.3 | (635.1) | 195% | |
| Profit / (loss) before tax (£m) | 565.2 | 559.4 | 1% | 573.3 | (511.0) | 212% | |
| Earnings / (loss) per share (p) | 37.0 | 41.8 | (11%) | 28.3 | (39.7) | 171% | |
| Investment, capital & acquisitions (£m) | 1,054.3 | 1,743.2 | (40%) | 1,320.4 | 1,432.6 | (8%) | |
| Net Debt and Hybrid Capital (£bn)2 | (8.9) | (10.0) | (11%) | (8.1) | (9.1) | (11%) | |
1 Excluded discontinued operation relates to the disposal of the Gas Production business which contributed £35.0m to Reported profit for the period ended 30 September 2022 (30 September 2023: £nil). 2 Reported numbers exclude equity accounted hybrid capital.
STRATEGIC HIGHLIGHTS
· Historic moment for GB energy system as first power achieved by SSE Renewables at Dogger Bank, which will be the world’s largest offshore farm at 3.6GW.
· Critical milestones also reached at 1.1GW Seagreen offshore wind farm where full power achieved and 440MW Viking onshore wind farm where the final turbines have been installed.
· Successful in AR5, the UK’s fifth Contract for Difference auction, with 605MW of onshore wind contracted as well as Ireland’s third RESS process where the 101MW Yellow River onshore wind farm secured a contract.
· Installation of SSEN Transmission’s Shetland HVDC on track for energisation in Summer 2024 whilst approval of need agreed with Ofgem on reinforcements at Orkney, Skye and Argyll.
· Secured supply chain and planning consent for Eastern Green Link 2, a 2GW subsea HVDC which will help unlock renewable resource in Scotland and be delivered in partnership with National Grid.
· First RIIO-ED2 Uncertainty Mechanism funding secured by SSEN Distribution as it makes a strong start to delivering increasing investment under its new price control.
FINANCIAL HIGHLIGHTS
· Adjusted earnings per share of 37.0p, ahead of pre-close guidance reflecting stronger operational performance combined with a lower anticipated effective rate of tax for the full year.
· Reported earnings per share of 28.3p, as a non-cash accounting impairment on Triton Power and a movement on financial guarantee liabilities were only partially offset by a favourable fair value movement on derivatives.
· Greater investment led to increasing profitability in SSEN Transmission, offset by the 25% non-controlling interest divested in November 2022, whilst the timing of cost inflation recovery in SSEN Distribution principally led to lower profitability.
· Profitability in Renewables reflects higher hedged prices combined with lower hedge buybacks required, albeit with unfavourable weather conditions leading to a shortfall against planned output.
· Strong financial performance in SSE Thermal with additional year-on-year capacity from Triton Power and Keadby 2 offering increased flexibility to the market and supporting security of supply.
· Gas Storage recorded seasonal half-year loss due to inventory churn, expected to revert back to profitability of more than £75m for the full financial year as gas is sold over the winter.
· €750m eight-year Green Bond successfully issued in September 2023 at a fixed coupon of 4.0% and nearly three-times oversubscribed. SSE is now the UK’s largest issuer of Green Bonds.
· Adjusted investment, capital and acquisition expenditure of £1.1bn.
· Adjusted net debt and hybrid capital at £8.9bn, broadly unchanged after the first six months of the financial year and in line with pre-close guidance.
INTERIM DIVIDEND IN LINE WITH GROWTH-ENABLING PLAN
· Announced an interim dividend of 20p for payment on 8 March 2024.
· Interim dividend represents a third of the expected full year dividend of 60p per share.
KEY PERFORMANCE INDICATORS
| Key Financial Indicators | Adjusted | Reported | |||
| (continuing operations) | Sep 2023 | Sep 2022 | Sep 2023 | Sep 2022 | |
| Operating profit / (loss) by business £m | |||||
| – SSEN Transmission | 215.6 | 208.4 | 287.3 | 208.4 | |
| – SSEN Distribution | 120.1 | 174.6 | 120.1 | 174.6 | |
| – SSE Renewables | 86.8 | 15.0 | (23.7) | (36.8) | |
| – SSE Thermal & Gas Storage | 226.2 | 248.2 | 143.3 | 887.5 | |
| – Other businesses inc. corporate unallocated | 44.5 | 69.8 | 75.3 | (1,868.8) | |
| Operating profit / (loss) £m | 693.2 | 716.0 | 602.3 | (635.1) | |
| EBITDA £m | 1,109.6 | 1,109.3 | 1,050.2 | (224.7) | |
| Profit / (loss) before tax £m | 565.2 | 559.4 | 573.3 | (511.0) | |
| Earnings / (loss) per share (EPS) pence | 37.0 | 41.8 | 28.3 | (39.7) | |
| Interim dividend per share (DPS) pence | 20.0 | 29.0 | |||
| Investment and capital expenditure £m | |||||
| – SSEN Transmission | 242.6 | 270.9 | 324.8 | 270.9 | |
| – SSEN Distribution | 245.5 | 175.8 | 336.9 | 222.0 | |
| – SSE Renewables | 447.1 | 477.8 | 381.2 | 686.9 | |
| – SSE Thermal & Gas Storage | 38.4 | 95.7 | 20.8 | 37.8 | |
| – Other businesses | 80.7 | 83.0 | 256.7 | 215.0 | |
| Acquisition consideration £m | – | 640.0 | – | – | |
| Investment, capital and acquisitions £m | 1,054.3 | 1,743.2 | 1,320.4 | 1,432.6 | |
| Net debt and hybrid capital £m | 8,943.8 | 9,988.6 | 8,050.6 | 9,076.4 | |
Notes: HY2022/23 segmental numbers above restated to reflect movement of Solar and Battery business to SSE Renewables and Building Energy Management Systems to Business Energy, both previously reported under SSE Enterprise. Excluded discontinued operation relates to the disposal of the Gas Production business which contributed £35.0m to Reported profit for the period ended 30 September 2022 (30 September 2023: £nil).
| Operational Key Performance Indicators | Sep 2023 | Sep 2022 |
| Thermal generation – GWh1 | 7,020 | 9,158 |
| Renewable generation – GWh (inc. pumped storage and constrained off in GB) | 3,723 | 3,725 |
| Distributed Energy – GWh | 49 | 38 |
| Total generation output – all plant – GWh | 10,792 | 12,921 |
| SSEN Transmission RAV – £m2 | 5,289 | 4,590 |
| SSEN Distribution RAV – £m | 5,138 | 4,525 |
| SSE Total Electricity Networks RAV – £m2 | 10,427 | 9,115 |
| Business Energy Electricity Sold – GWh | 5,203 | 5,806 |
| Business Energy Gas Sold – mtherms | 60.8 | 65 |
| Airtricity Electricity Sold – GWh | 3,110 | 2,693 |
| Airtricity Gas Sold – mtherms | 67 | 69 |
1HY2022/23 excludes 651GWh of pre-commissioning output from Keadby 2 which entered commercial operation on 15 March 2023
2Gross of 25% non-controlling interest in SSEN Transmission
| ESG Key Performance Indicators | Sep 2023 | March 2023 | Sep 2022 |
| Carbon emissions (scopes 1&2) MtCO2e | 2.14 (6 months) | 6.52 (12 months) | 3.26 (6 months) |
| Scope 1 GHG intensity gCO2e/kWh | 232 | 254 | 271 |
| Total water consumed (million cubic meters) | – | 1.4 | – |
| Total recordable injury rate per 100,000 hours worked | 0.24 | 0.19 | 0.15 |
| Total economic contribution – UK/Ireland (£bn/€m)1 | – | 6.0/429 | – |
| Jobs supported – UK/Ireland (headcount)2 | – | 39,940/2,430 | – |
| Total taxes paid UK/Ireland (£m/€m) | – | 501.7/53.8 | – |
| Employee retention/turnover rate (%)3 | – | 89.5/10.5 | – |
| Employee engagement index (%)4 | 85 | 84 | 84 |
| Average board tenure – years5 | 3.3 | 4.4 | 3.9 |
| Female board members (%)6 | 42 | 46 | 46 |
| Independent board members (%)6 | 73 | 75 | 75 |
| Total number of board members | 12 | 13 | 13 |
1Direct, indirect and induced Gross Value Added, from PwC analysis; 2 Direct, indirect and induced jobs supported, PwC analysis.
3 Includes voluntary and involuntary turnover, excludes end of fixed term contracts and internal transfers.
4 Results from SSE’s annual employee engagement survey.
5 Non-Executive directors including non-Executive Chair 6 Excludes non-Executive Chair.
Disclaimer
This financial report contains forward-looking statements about financial and operational matters. These statements are based on the current views, expectations, assumptions, and information of management, and are based on information available to the management as at the date of this financial report. Because they relate to future events and are subject to future circumstances, these forward-looking statements are subject to unknown risks, uncertainties and other factors which may not have been in contemplation as at the date of the financial report. As a result, actual financial results, operational performance, and other future developments could differ materially from those envisaged by the forward-looking statements. Neither SSE plc nor its affiliates assumes any obligations to update any forward-looking statements.
SSE plc gives no express or implied warranty, representation, assurance or undertaking as to the impartiality, accuracy, completeness, reasonableness or correctness of the information, opinions or statements expressed in the presentation or any other information (whether written or oral) supplied as part of it. Neither SSE plc, its affiliates nor its officers, employees or agents will accept any responsibility or liability of any kind for any damage or loss arising from any use of this presentation or its contents. All and any such responsibility and liability is expressly disclaimed. In particular, but without prejudice to the generality of the foregoing, no representation, warranty, assurance or undertaking is given as to the achievement or reasonableness of any future projections, forward-looking statements about financial and operational matters, or management estimates contained in the financial report.
This financial report does not constitute an offer or invitation to underwrite, subscribe for, or otherwise acquire or dispose of any SSE plc shares or other securities, or of any of the businesses or assets described in the financial report, and the information contained herein cannot be relied upon as a guide to future performance.
Definitions
The financial information set out in this Interim Results Statement has been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and UK adopted International Accounting Standard 34 Interim Financial Reporting. The interim financial information is unaudited but has been formally reviewed by the Group’s statutory auditor and its report to the Company is set out after the Interim Financial Statements.
In order to present the financial results and performance of the Group in a consistent and meaningful way, SSE applies a number of adjusted accounting measures throughout this financial report. These adjusted measures are used for internal performance management and are believed to present the underlying performance of the Group in the most useful manner for ordinary shareholders and other stakeholders.
The definitions SSE uses for adjusted measures are explained in the Alternative Performance Measures (“APMs”) section before the Interim Financial Statements. SSE continues to prioritise the monitoring of developing practice in the use of APMs, ensuring the financial information in its results statements is clear, consistent, and relevant to the users of those statements.
For the purpose of calculating the ‘Net Debt to EBITDA’ metric, ‘Net Debt’ represents the group’s ‘Adjusted Net Debt and Hybrid Capital” APM and ‘EBITDA’ represents the full year group “Adjusted EBITDA” APM and including a further adjustment to remove the proportion of “Adjusted EBITDA” from equity-accounted Joint Ventures which relates to project financed debt.
Important note: Discontinued Operations – Gas Production
On 14 October 2021, the Group completed the sale of its Gas Production business which had been presented as a discontinued operation prior to disposal as the transaction constituted the exit of all activity in that industry. The Group’s adjusted measures therefore exclude the contribution from this business in all periods presented. The Group continues to retain a 60% share of the decommissioning obligation of the Gas Production business following disposal. Any adjustments to the decommissioning obligation are accounted for through the Group’s consolidated income statement and removed from the Group’s adjusted profit measures as the revaluation of the provision is not considered to be part of the Group’s core continuing operations.
Important note: Non-controlling equity stake sale
On 30 November 2022, the Group completed the sale of a 25% non-controlling equity stake in Scottish Hydro Electric Transmission plc (‘SHET’) (see note 11 of the Interim Financial Statements).
As this transaction did not result in a loss of control, the business continues to be classified as a continuing operation and its result continues to be included within the Group’s adjusted profit-based measures, after removing the relevant share of profit attributable to holders of non-controlling equity stakes from the point when the ownership structure changed in accordance with the APM definitions
STRATEGIC OVERVIEW
DELIVERY, DRIVE AND DISCIPLINE
Recent months have shown yet again the benefit that both shareholders and society derive from a truly balanced energy business with an unwavering strategic focus on a value-creating transition to net zero.
We continue to make excellent progress against our plans, but we are sensitive to events in the world around us and so far in 2023/24 there has been much for us to consider and navigate. We have seen abnormal weather patterns and meteorological events, geopolitical conflict on two fronts with related economic aftershocks, and heightened uncertainty over short-term domestic policy as a UK General Election approaches.
Through it all, at SSE we have concentrated on a purpose that enjoys broad political and societal consensus. We are delivering on the execution of a long-term, climate-based strategy, and maintained our commitment to health and safety.
BUILDING MOMENTUM BEHIND OUR STRATEGY
In practice, this has meant building even more momentum behind our Net Zero Acceleration Programme Plus and creating real value for all of our stakeholders.
Our strategy is built on the knowledge that networks, renewables and flexible thermal generation will be major features of a future energy system with electricity at its heart. And while the policy and delivery pace of all three will shift over time, there are tailwinds behind each of them and a wealth of increasing opportunities for value and growth as we transition to net zero.
The unrivalled optionality and balance of the SSE business mix means that our capital allocation will move across the value chain, reflecting changes to the visibility of growth opportunities and the relative attractiveness of returns. The changes to the capex weightings within the NZAP Plus as announced today are evidence of that strategy in action.
DELIVERING ON INVESTMENT
We have further strengthened our standing as a national clean energy champion, investing £10m a day over the five years of the NZAP Plus plan in the critical infrastructure that is so clearly needed for a future energy system that is cleaner, more secure and more affordable.
Dogger Bank, which will be the world’s biggest offshore wind farm, exported first power last month; Seagreen offshore wind farm is now fully operational, with capacity to power 1.6m UK homes; and Viking, which will be Europe’s most productive onshore wind farm, has all of its turbines installed on Shetland. These flagship renewables projects support our growth targets and earnings guidance as they enter a market that is offering prices that are likely to be higher for longer, but equally will help keep those prices lower for consumers than they would otherwise be.
At the same time, Ofgem’s Large Onshore Transmission Investments (LOTI) re-opener and the Accelerated Strategic Transmission Investment (ASTI) framework have given SSEN Transmission greater visibility of future growth. This visibility, along with greater certainty over supply chain costs, has allowed us to update our investment forecasts and we now expect £2.5bn of additional capex to be spent across the five years to 2026/27 in that business – contributing to a net increase to the NZAP Plus investment of £20.5bn.
Investment on this scale comes with a surge in construction activity, and with it an increased level of physical risk. This has been reflected in a regrettable rise in our TRIR measure of safety performance in the first half. Getting people home safe at the end of each working day remains SSE’s primary objective; we take our responsibility in this regard very seriously, and we have put measures in place to address the underlying causes of the recent rise in incidents.
DRIVING SUSTAINABLE EARNINGS
We have stability, reliable earnings and natural hedges right across the Group. The networks and renewables businesses are highly complementary in terms of their growth characteristics, asset focus, and combined financial strength, whilst elsewhere in our energy businesses we have assets that offer important flexibility to manage the variability of wind.
Networks have long been an underlying value driver for SSE, and that is even clearer now. The resulting revision to our capex plan not only grows our regulated asset base, but also gives us greater confidence in being comfortably within our earnings guidance to 2026/27.
In the near term, attractive returns are being delivered from our existing portfolio of world-class assets. Over the medium term we expect our large, multi-year capital programmes to increase earnings over the course of the NZAP Plus. And looking to the long term, our growing development pipeline promises more value over the decade to come and beyond.
MAINTAINING CAPITAL DISCIPLINE
Our capital discipline has stood us in good stead in the recent market environment. In the Contracts for Difference Allocation Round 5 we held back from an offshore process that did not meet our investment criteria, but onshore we were rewarded with contracts secured for over 600MW at attractive returns.
Put simply, when we cannot see attractive returns from contracts, or where seabed is too expensive, we will exercise discretion in our decision making. Our very deliberate business mix supports this approach by providing wide-ranging optionality.
We have the flexibility to dial our capital allocation up or down – prioritising investment to the asset classes offering the best returns in the prevailing market conditions. With this in mind, on a risk-adjusted basis, increasing investment in regulated networks is the sensible choice right now.
This disciplined approach extends to new technologies too. As we transition to net zero, we will need lower-carbon thermal generation such as hydrogen and carbon capture and storage; and pumped hydro storage; but our commitment to development expenditure is measured, and clarity on supportive policy is needed for us to invest at scale. All credible pathways to existing government targets indicate these assets will be needed quickly and we expect policy to recognise this.
MEETING LONG-TERM, ESG-ALIGNED, TARGETS
SSE is an ESG-rated stock with business goals aligned to a 1.5°C global warming pathway. The revised targets we set out in May as part of the NZAP Plus contribute to those goals and are well within reach. But those targets were only ever a floor, not a ceiling, to our ambitions and today we have made further refinements to our capex projections.
With the increase in networks investment announced today, we have already secured the vast majority of the assets that will deliver our expected earnings growth to 2026/27. Our balanced portfolio of regulated and market-based businesses provides us with a defensive earnings mix which has significant indexation to inflation and is supported by a strong balance sheet, with the vast majority of debt held at fixed rates.
SSE is a long-term business with excellent prospects over the next decade and beyond. Credit for much of this goes to Gregor Alexander. His stewardship as Finance Director has been central to leading us to the strong position we are in today. I thank him for his 33 years of tireless service with the Company to date, and wish him well in his continued involvement as Chair of the SSEN Transmission Board and as a member of the Neos Networks Board.
We have a highly capable successor to Gregor in Barry O’Regan. In his role as Chief Financial Officer, I have every confidence that Barry will help us meet our targets and build on a compelling investment proposition featuring exposure across the clean energy value chain; balance sheet strength; exceptional optionality and capability; and visibility of sustainable earnings growth.
Alistair Phillips-Davies
Chief Executive
SSE plc
