SSE Plc – Preliminary results for the year to 31 March 2018

Overview of 2017/18

SSE's financial highlights for the year to 31 March 2018 are set out below and are in line with its Notification of Closed Period statement of 29 March 2018, with adjusted earnings per share ahead of expectations at the start of the financial year.  Comparisons are with the previous financial year unless otherwise stated.

·      Recommended full-year dividend up 3.7% to 94.7p;

·      Adjusted earnings per share down 3.6% to 121.1p;

·      Adjusted operating profit down 2.4% to £1,828.7m#;

·      Adjusted profit before tax down 6.0% to £1,453.2m;

·      Net exceptional charges of £213.3m;

·      Investment and capital expenditure down 12.9% to £1,503.0m;

·      Adjusted net debt and hybrid capital up 8.7% to £9.2bn at 31 March 2018;

·      Reported operating profit down 28.9 % to £1,379.2m;

·      Reported profit before tax down 38.9% to £1,086.2m; and

·      Reported earnings per share down 48.7% to 81.3p.

# Follows sale by SSE of 16.7% stake in SGN in October 2016.

Note:  The definitions SSE uses for adjusted measures are consistently applied and are explained in the Alternative Performance Measures section of this document, before the Summary Financial Statements

Key developments in 2018/19

In its Notification of Close Period statement on 29 March, SSE said that the 2018/19 financial year is expected to be one of transition for the SSE group.  Key developments are expected to include:

·      The planned transaction* relating to SSE's GB household energy supply and services business (now named SSE Energy Services), subject to approvals, which remains on track for completion in the last quarter of 2018 or the first quarter of 2019.  SSE shareholders will retain their existing SSE shares and will also hold one share in the newly-listed business for every existing SSE share they hold at demerger record date; and from that point, SSE will no longer derive cash flow or earnings from supplying energy and services to households in GB.

·      The expected enactment later this year of the Domestic Gas and Electricity (Tariff Cap) Bill and subsequent introduction of a temporary cap on the price of standard variable and default electricity and gas tariffs.  It is intended to be in place for the winter of 2018/19.

*See: Important note: planned SSE Energy Services transaction above

Outlook for 2018/19 to 2022/23

SSE's strategy is to create value for shareholders and society from developing, owning and operating energy and related infrastructure and services in a sustainable way, and at its core will be regulated energy networks and renewable energy. 

The financial objective of this strategy is to remunerate shareholders' investment through the payment of dividends.  SSE believes that its dividends should be sustainable, based on the quality and nature of its assets and operations, the earnings derived from them and the longer-term financial outlook. 

In line with this, taking account of the impact of the expected key developments in 2018/19, and reflecting the underlying quality and value of its assets and earnings and the cash flows they deliver, SSE's plan for the dividend for the five years to 2023 is as follows:

·      For 2018/19, SSE is intending to recommend a full-year dividend of 97.5 pence per share, an increase of 3% on 2017/18, which is broadly in line with expectations for RPI inflation.  This provides clarity in a year of transition and is not subject to the timing of either the SSE Energy Services transaction or the Domestic Gas and Electricity (Tariff Cap Bill).

·      For 2019/20, SSE is planning to set the first post-transaction dividend at 80.0 pence per share, which reflects the impact of the changes in the SSE group expected to take effect by then.  This provides a sustainable basis for future dividend growth.

·      For 2020/21, 2021/22 and 2022/23 SSE is targeting annual increases in the full-year dividend that at least keep pace with RPI inflation.  This reflects SSE's confidence in the quality and value of its assets and earnings and cash flows they deliver.

This plan for the dividend for the five years to March 2023, when the current electricity distribution Price Control comes to an end, supersedes SSE's previous reference to a dividend cover range and is a plan which:

·      Aims to provide shareholders with certainty in 2018/19, a year of transition for SSE;

·      Reflects the changes in the SSE group expected to take effect by the start of the 2019/20 financial year; and

·      Sets the dividend on a path for sustainable growth for the three years from 2020.

SSE intends to retain a Scrip dividend scheme but where take-up of the full-year dividend exceeds 20%, SSE now intends to buy back shares so the dilutive effect of the Scrip is limited.

In addition to the dividend plan above, subject to the necessary approvals being secured, the transaction relating to SSE Energy Services announced on 8 November means shareholders in SSE will receive one share in the planned new independent energy supply and services company for every one SSE share they hold at the demerger record date.

Continuing to invest in assets and infrastructure

Over the five years to March 2023, and based on existing plans, SSE expects its capital and investment expenditure to total around £6bn.

Around 70% of the total capex and investment forecast is expected to be related to regulated electricity networks and renewable sources of energy; it also includes £350m investment in a new highly efficient and flexible 840MW gas-fired power station at Keadby in Lincolnshire (Keadby '2'). 

In the first of the five years, 2018/19, capital and investment expenditure is forecast to be around £1.7bn.  SSE currently expects its adjusted net debt and hybrid capital to peak at around £10bn and to fall back towards £9bn by 2023.

Contributing to the UK and Irish economies

SSE's wider economic contribution is substantially larger than the profit it makes.  In addition to creating value for shareholders, SSE supports inclusive economic growth across the UK and Ireland by developing, owning and operating energy and related infrastructure and services in a sustainable way.  Its contribution to UK Gross Domestic Product in 2017/18 totalled £8.6bn, taking the total for the last seven years to £65.2bn (in 2017/18 prices).  In Ireland, it was €806m in 2017/18.  These results are provided by PwC, which has undertaken SSE's economic contribution analysis for every financial year since 2011/12.

SSE has today published a summary of its sustainability impacts in 2017/18, in advance of the publication of its Sustainability Report 2018 on 15 June 2018.

Richard Gillingwater, Chairman of SSE, said:

“As expected, 2017/18 presented a number of complex challenges to manage, but SSE's operational performance was generally very robust and significant progress was achieved in key aspects of the company's capital investment programme.  It is encouraging that the company's financial results are ahead of expectations at the start of the financial year.

“The challenges will continue in 2018/19, which is also expected to be a year of major transition for SSE.  A strong operational and investment focus on meeting the current and future needs of energy customers is essential, as is preparing the businesses in the SSE group for the changes that lie ahead.

“SSE's strategic goal is to create value in a sustainable way, for shareholders and society.  The changes we are making as we renew SSE are intended to have positive outcomes over the long term for customers, stakeholders and investors. 

“For investors, by giving clarity on the dividend for the five years to March 2023, SSE is demonstrating that remunerating them for their investment is and will remain its first financial objective.”

SSE's financial performance in 2017/18 at-a-glance