SSE plc

NOTIFICATION OF CLOSE PERIOD

SSE plc will enter its close period on 31 March 2015, prior to the publication on Wednesday 20 May of its financial report for the year to 31 March 2015.

Developments since publication of IMS

Since the publication of its trading statement on 26 January 2015, SSE has:

·     successfully launched an issue of hybrid capital securities comprising £750m and €600m with an all-in funding cost to SSE of 4.02% per annum;

·     confirmed a reduction in interim dividend cash funding of £81.6m as a result of the Scrip alternative;

·     responded to the decision by other parties to seek permission from the CMA to appeal the decision of GEMA with regard to the electricity distribution price control for 2015-23;

·     confirmed that Deputy Chairman Richard Gillingwater will take up his previously-announced appointment as Chairman on the completion of the Company's AGM in July, subject to being re-elected to the Board;

·     been awarded a National Grid contract to provide voltage support from Peterhead Power Station for 18 months from 1 April 2016 with a baseline value of £15m; and

·     announced the sale of Langhope Rig, a 16MW wind farm nearing construction completion in the Scottish Borders, as part of its disposal programme of onshore windfarm assets.

Financial outlook

As set out in its trading statement, SSE expects that it will deliver for 2014/15: 

·     an increase in the full-year dividend that is at least equal to RPI inflation¹, expected to be around 2% ; and

·     adjusted earnings per share¹ that will be around the level achieved in 2013/14.

¹  As defined in SSE's interim results statement in November 2014.

SSE expects to report that all three of its segments - Networks, Retail and Wholesale - have been profitable during 2014/15. Compared with the last financial year, it expects to report that market conditions have resulted in a decline in operating profit in Wholesale; at the same time, operational performance and cost efficiencies are expected to have contributed to increases in operating profit in Networks and Retail. Profit margin (i.e. adjusted operating profit as a percentage of revenue) in household energy supply in Great Britain can vary significantly from year to year and is expected to recover to around the more typical level reported for 2012/13.  Across the SSE group, operating profit is expected to be slightly higher than 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 £7.5bn in the five years since April 2010 (including around £1.5bn in the current financial year) 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 its objective for 2015/16, and subsequent financial years, is to deliver a full-year dividend increase of at least RPI inflation.

At the same time, however, in view of the wider energy sector conditions, SSE continues to recognise that its ability to deliver increases in adjusted earnings per share remains subject to additional risk in 2015/16 and 2016/17.

To enhance the transparency of the measurement and reporting of the performance of its Wholesale businesses, SSE has completed the incorporation of a new subsidiary company for energy portfolio management, SSE EPM Limited, which will sit alongside the separately disclosed Energy Supply and Generation activities of the Group and will produce separately audited accounts from April 2015 onwards.   SSE is also making sure that the financial arrangements between its companies continue to be clear and transparent.

Next steps in the 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:

·     transactions to dispose of assets with a total value of £445m completed;

·     the £100m target annual savings in overheads now secured; and

·     the process to dispose of onshore wind farm assets, in order to realise value to support future investment, now under way.

SSE will provide an update on its value programme in its full year results presentation in May 2015. 

Generation market conditions and opportunities

In line with its statements on 19 December and 26 January, SSE has been analysing electricity generation market conditions and opportunities for 2015 and beyond.  The last year has seen: an increase in the Carbon Price Support rate, which has increased the cost of coal-fired generation relative to gas-fired generation; the introduction of the Supplemental Balancing Reserve (SBR) to support security of electricity supply at times of peak demand; and the completion of the first Capacity Auction, which has provided developers and operators of thermal plant with greater clarity about the public policy framework and future revenue streams.  The net impact of these developments will be to favour generation assets that are flexible and reliable, cost less to maintain and emit relatively less carbon dioxide.

As a result, SSE has concluded that it should:

·     prepare to bring its 735MW gas-fired power station at Keadby out of deep mothball, so that it has the option of returning it to service;

·     continue the investment programme at its gas-fired power station at Peterhead that will improve its flexibility, allowing it to operate in the market at up to 400MW from the winter of 2015/16;

·     continue to offer the services of the Peterhead station to National Grid under the SBR and other arrangements should this be required to support security of electricity supply including the National Grid voltage support contract from April 2016; and

·     start a comprehensive and detailed assessment of the already-limited longevity of its remaining coal-fired generation capacity at Ferrybridge (1,000MW) and Fiddler's Ferry (2,000MW), to be completed in the course of 2015/16.

In the meantime, the 68MW plant at Ferrybridge for generating electricity from waste-derived fuels, in which SSE has a 50% stake, is expected to begin generating electricity shortly and to be fully operational in the autumn; and SSE's new 460MW gas-fired power station at Great Island in County Wexford, is expected to be fully commissioned in the next few weeks.

Gas Storage market conditions

SSE has identified that the costs of operating, maintaining and upgrading the older withdrawal plant at its Hornsea gas storage facility are not currently supported by market returns and, as such, it has decided to mothball 33% of the withdrawal capacity of the site (6mcm/d) with effect from 01 May 2015.

This change to the site's capability will ensure the storage service it offers creates a greater value product for SSE's gas storage customers.  It will, however, also result in a reduction in Gas Storage employee numbers of around 12. SSE will seek to achieve this reduction through voluntary means where possible, and will work with the employees affected to identify redeployment opportunities across the rest of the SSE group.

Gregor Alexander, Finance Director of SSE plc, said:

"There is no doubt that 2014/15 has been a challenging year for the energy sector, and our assessment of market conditions in Generation has highlighted the need to take a series of decisions with regard to plant that are likely to reshape significantly our portfolio.  Market conditions have also required us to take difficult decisions with regard to our gas storage site at Hornsea.

"The challenges are unlikely to abate in the new financial year.  SSE is focused on treating customers and investors fairly, and delivering value from everything it does.  Meanwhile, the forthcoming UK general election and the ongoing CMA market investigation do provide opportunities to achieve greater regulatory and policy stability in the GB energy market, for the benefit of customers and the required investment in the country's energy system."