SSE's Preliminary Results for the year to 31 March 2015
SSE plc has today announced its preliminary results for the year to 31 March 2015 during which adjusted profit before tax rose by 0.9% to £1.56bn.
The broadly flat profits reflect a challenging year for the business with tough market conditions and lower output in its wholesale division.
Following a comprehensive review of its coal-fired power stations, SSE has today taken the difficult decision to close Ferrybridge C Power Station in Yorkshire by 31st March 2016.
Costs at the 48-year-old power station have been rising due its age and it is forecast to lose £100m over the next five years. This, combined with the impact of environmental legislation and tough market conditions make it unsustainable.
As the UK moves towards a cleaner and more sustainable energy mix, coal is gradually being phased out and the Government and other parties have made it clear that unabated coal doesn’t have a role in the future.
Due to more favourable forecasts for gas fired plant, SSE today announced it intends to re-open its Keadby Gas Fired Power Station in Lincolnshire by end of October 2015. SSE hopes to redeploy some Ferrybridge staff there and across other parts of the SSE group and will do everything it can to avoid compulsory redundancies.
Its Networks business saw operating profits up by 1.8% to £938.6m due to continuing major investment in Transmission business and efficiencies in gas distribution.
SSE’s Retail group reported an operating profit of £456.8m. Within this division profits in energy supply, the part of the business that supplies energy to customers, are naturally volatile. This year it reported a profit of £368.7m, a return to a more typical level of profit and similar to 2012/13. This was due to a sustained focus on driving operational efficiencies after a difficult 2013/14.
Its Energy Supply profit margin for the year 2014/15 was 4.6%, compared with 2.9% in 2013/14 and 4.2% in 2012/13, equating to £69 per year for a typical dual fuel customer. However SSE again expects to see a reduction in Energy Supply profit during 2014/15.
Alistair Phillips-Davies, Chief Executive of SSE, said:
“It’s been a challenging year with some difficult decisions being made but it is a year in which we have continued to deliver for customers. In a very competitive market we’ve cut prices twice in 13 months and extended our price guarantee which will mean SSE customers will have seen no increases for at least two and a half years.
“Every day SSE invests £4m in Great Britain and Ireland – in jobs, in infrastructure and in the economy and it’s doing it responsibly. This year we earned the Fair Tax Mark which guarantees we pay the right amount, at the right time and in the right way and we are one of the largest Living Wage employers in the UK.
“We will continue to engage constructively as the new UK government sets out its energy priorities and are keen to work with them to keep bills as low as possible and deliver a stable framework to facilitate much needed investment in energy infrastructure.”
Lord Smith of Kelvin, Chairman of SSE, said:
"The 2014/15 financial year was expected to present a number of major challenges, and it certainly did. Politics and regulation loomed large with the first-ever auction for electricity generation capacity, the CMA investigation into the energy market, final proposals from Ofgem on the eight-year price control in electricity distribution and the extended build-up to the recent UK general election.
“Market conditions for thermal power stations have been persistently difficult, [requiring us to take the difficult decision we have announced this morning to end coal-fired generation at Ferrybridge power station by next March]; the new price control in distribution is driving significant change; and energy supply has once again proved to be a highly competitive business.
"We have throughout this maintained a strong focus on the needs of customers, with a significant reduction in the number and duration of power cuts experienced by our distribution customers; a price reduction and extended price freeze for our household energy customers across Britain; and new, integrated services for our business customers. This focus on customers has been allied to strong financial discipline, with the value programme to streamline and simplify the business delivering significant cost and other efficiencies. As I prepare to step down from the Board in July, I am confident that SSE is on a very sound footing to maintain its position as one of the most reliable dividend-paying stocks in the FTSE 100.”
SSE reports in three segments, reflecting its business structure.
- Profit fell to £473.8m, down 25.3% due to tough market conditions and lower output.
- The difference between the cost of coal and emissions allowances and the price for electricity generated and future outlook has proved difficult for SSE’s coal fired fleet, [resulting in today’s announcement of the closure of Ferrybridge C Power Station in Yorkshire by 31 March 2016.]
- Lower wholesale prices for gas have affected its gas production and storage businesses.
- Operating profit up 1.8% to £936.8m reflecting the continuing major investment in the infrastructure, pipes and wires used to transmit and distribute energy to homes and businesses across Great Britain.
- SHE Transmission’s investment has totalled £816.4m since 2013 and it expects to invest over [£600m] in 2015/16.
- Fastest ever restoration of customers’ supplies following a Category 2 storm event in the north of Scotland. Over 110 HV faults restored within a record 24 hours and reductions in the number of power cuts and average time without power.
- Energy Supply profits up to £368.7m, similar to 2012/13 levels due to operational efficiencies.
- Profit margin was 4.6% compared with 2.9% in 2013/14 and 4.2% in 2012/13.
- Expect to see a reduction in Energy Supply profit during 2015/16.
- Customer numbers fell from 9.10 to 8.58 million in a highly competitive market.
CAPITAL EXPENDITURE AND INVESTMENT
In the year to 31 March SSE invested £1.47bn, exclusively in Great Britain and Ireland, building the infrastructure needed to ensure customers have secure and affordable energy supplies in future years. This included SSE's 461MW CCGT power station development at Great Island in County Wexford which is now in full commercial operation; the close to completion Beauly-Denny replacement line and Retail investment of £134.7m, which included its Enterprise business, new systems to deliver enhanced services to customers and support for the installation of smart meters in the years to 2020.
SSE’s capital investment and expenditure is forecast to total around £1.75bn (gross) in 2015/16 and - although the phasing of investment and value of disposals are subject to variation - to total around £5.5bn (net of asset and business disposals) in the four years up to and including 2017/18.
Recognising this investment in UK and Ireland infrastructure and the impact on the economy, an independent report by PwC found that SSE has delivered a £8.8bn contribution to the economy in 2014/15 and £27.4bn in the last three years and supported on average 110,000 jobs each year.
BEING A FAIR TAX PAYER
In October 2014, SSE became the first FTSE 100 company to be awarded the Fair Tax Mark. The Fair Tax Mark is the world’s first independent accreditation process for identifying companies making a genuine effort to be open and transparent about their tax affairs. In complying with the Fair Tax Mark criteria, SSE is providing information that moves its disclosure well beyond the current requirements of UK company law to ensure that it provides all its stakeholders with the information they need to properly appraise its tax affairs. SSE is already an accredited Living Wage employer.