SSE plc Annual Report 2015 Providing the energy people need SSE plc Annual Report 2015 At SSE, our purpose is to provide the energy people need in a reliable and sustainable way. Section 1 Section 2 Section 3 Strategic Report Directors’ Report Financial Statements 01 An overview of the year 72 Chairman’s introduction 115 Consolidated income statement 153 17. Acquisitions, disposals 02 Chairman’s statement 73 How the Board works 116 Consolidated statement of and held-for-sale assets 04 Our business explained 74 Board of Directors comprehensive income 156 18. Inventories 06 Strategy 82 Nomination Committee Report 117 Balance sheets 156 19. Trade and other receivables 08 Our value chain explained 84 Audit Committee Report 118 Statement of changes in equity 157 20. Cash and cash equivalents 10 Being responsible 88 Safety, Health and Environment 120 Cash flow statements 157 21. Trade and other payables 12 Risk management Advisory Committee (SHEAC) 121 Notes on the financial statements 157 22. Current tax liabilities Report 14 Questions and answers 121 1. General information and 158 23. Construction contracts 90 Remuneration Report basis of preparation 16 Financial overview 158 24. Loans and other borrowings 100 Annual Remuneration Report 121 2. Summary of significant new 24 Weather 161 25. Deferred taxation 2014/15 accounting policies and 26 Key indicators 162 26. Provisions 109 Other Statutory Information reporting changes 28 Wholesale 163 27. Share capital 111 Statement of Directors’ 126 3. Critical accounting judgements 163 28. Reserves 38 Networks responsibilities in respect and key sources of estimation 46 Retail of the annual report and the uncertainty 163 29. Hybrid capital 56 Sustainability overview financial statements 128 4. Segmental information 164 30. Retirement benefit obligations 66 Principal risks 112 SSE’s financial results explained 133 5. Other operating income 168 31. Employee share-based and cost payments 134 6. Exceptional items and certain 172 32. Capital and financial risk re-measurements management 136 7. Directors and employees 186 33. Related party transactions 138 8. Finance income and costs 186 34. Commitments and 139 9. Taxation contingencies 142 10. Dividends 189 Accompanying information 143 11. Earnings per share 189 A1. Basis of consolidation and significant accounting policies 144 12. Notes to the Group cash flow statement 197 A2. Subsidiary undertakings 145 13. Goodwill and other 198 A3. Final survey intangible assets 199 Independent auditor’s report 148 14. Property, plant and equipment 150 15. Investments 153 16. Subsidiary undertakings IBC Shareholder information 1. Strategic Report 2. 3. Strategic Report An overview of the year Total Recordable Injury Rate per 100,000 hours worked in 2014/15 Efficient operations 0.12 At the heart of SSE’s business are core Safety is SSE’s first priority. During 2014/15, operations. In 2014/15 it: produced the Total Recordable Injury Rate among SSE employees was at the same level as the enough electricity to power 8.6 million previous year. homes; delivered electricity to 3.7 million homes, office and businesses; supplied electricity and gas to 8.58 million customer accounts; and provided energy-related services to around 250,000 customers. Electricity networks capital expenditure Disciplined investment £794.8m Central to SSE’s strategy is efficient SSE invested almost £1.5bn in 2014/15 modernising, investment in a balanced range of energy upgrading and maintaining essential energy infrastructure in the UK and Ireland. Over half of businesses to help deliver a sustainable this investment was made in its Networks business. energy system for the UK and Ireland. In the five years to 31 March 2015, SSE’s investment and capital expenditure has totalled over £7.7bn. Adjusted profit before tax* Balanced business £1,564.7m In 2014/15, SSE’s adjusted profit before tax* increased SSE has reportable segments covering slightly by 0.9%. SSE’s Wholesale, Networks and Retail segments were all profitable. Wholesale, Networks and Retail (including Enterprise) businesses. * See full explanation of adjusted profit before tax and adjusted earnings per share on pages 112 and 113. This means SSE has a broad platform from which to deliver the levels of profitability and long term value required to support annual dividend growth. Completion of SSE’s first new thermal power station in Ireland Geographic focus 464MW SSE’s focus is to operate and invest in SSE has invested over €350m to deliver Ireland’s a balanced range of energy-related newest and most efficient gas fired power station at Great Island in Co. Wexford. businesses in the UK and Ireland. 01 Strategic Report Chairman’s statement Lord Smith of Kelvin Focused on the needs of customers and investors SSE’s core purpose is to provide the energy Throughout these events, SSE had three in the UK and Ireland over the long term. I am people need in a reliable and sustainable priorities: work constructively with legislators, pleased that the Board is recommending a final way. In fulfilling this purpose, SSE requires the regulators, consumer bodies and other dividend that will take the full-year dividend support of shareholders, to whom this report is stakeholders to secure practical changes that for 2014/15 to 88.4 pence per share; and I am addressed. It summarises SSE’s performance in will benefit energy bill payers now and in the equally pleased that SSE’s commitment to future 2014/15 and looks ahead to 2015/16 and beyond. future; fulfil successfully its core purpose of investment remains strong, with plans to invest providing the energy people need in a reliable around £5.5bn (net) in the four years to 2018. There is no doubt that 2014/15 saw a remarkable and sustainable way; and deliver a financial confluence of events for SSE: confirmation that performance to support the continuing In summary, 2014/15 brought the challenges the Competition and Markets Authority (CMA) remuneration of shareholders’ investment expected at the start of the year; and more would investigate the supply and acquisition of through the payment of dividends. challenges are on the horizon as SSE looks energy in Great Britain; the Scottish independence forward to the rest of 2015/16 and beyond. referendum; Ofgem’s decision to approve SSE’s SSE’s approach to the CMA investigation and I have no doubt those challenges will be met. largest ever capital project; the final stages of the political debate about energy has been The Company’s business model is robust; the electricity distribution price control process; to demonstrate how the energy market in the management team is strong; and in its the first-ever auction for provision of electricity Great Britain is generally well-functioning employees SSE has a remarkable group generation capacity; and the intense debate and benefiting customers, while highlighting a of talented, committed and enthusiastic about the energy sector in the run-up to the number of areas where there may be potential people focused on doing the right thing UK general election. for reforms that produce additional benefits by the customers on whom the Company for customers. While the CMA process still has ultimately depends. some way to go and the UK general election has only just taken place, SSE believes that there is It has been my privilege to be SSE’s Chairman for now an opportunity to achieve a stable policy 10 years. In my first Annual Report as Chairman, and regulatory framework that gives customers I wrote that SSE had experienced much change confidence, allows regulators to regulate and over the previous two years. Change has certainly encourages investors to invest in the Great been the hallmark of the 10 years since then and Britain energy market. will no doubt continue to be so. The Company is in a good shape to be successful during the next SSE’s business is focused on the provision of phase of change, and I am delighted that Richard energy and related services to customers in Gillingwater has agreed to lead the Board as homes, offices and businesses across the UK Chairman. He has a long-standing association and Ireland. Encouraging progress was made with and interest in the energy sector, as well in 2014/15, with the successful launch of the as a breadth of experience in other sectors new Enterprise division to bring together SSE’s and organisations, from which the Board services in competitive markets for industrial and SSE will benefit greatly. and commercial customers; achieving periods of best-ever performance in minimising the There is no doubt that the next few years will number and duration of power cuts experienced bring many challenges for Richard, the Board, by Networks customers; and extending to at least the management team and employees, but SSE’s July 2016 the freeze on household energy prices clear purpose, simply-stated strategy and core in Great Britain so that there won’t have been values will stand it in very good stead for the long an increase for more than two and a half years. term, as will its commitment to giving customers service it is proud of and to remunerating SSE’s commitment to the dividend is clear: the shareholders for their investment through financial objective of the Company’s strategy the dividend. is to increase annually the dividend payable to shareholders by at least RPI inflation. This is because shareholders have either invested Lord Smith of Kelvin directly in SSE or, as owners of the Company, Chairman have enabled it to borrow money from debt investors to finance investment in the assets that will help meet the energy needs of customers 02 SSE plc Annual Report 2015 1. Strategic Report 2. 3. Deputy Chairman, Richard Gillingwater CBE Richard Gillingwater will become Chairman of SSE plc on completion of the Company’s Annual General Meeting in July, subject to being re-elected to the Board at the meeting.