SSE plc Annual Report 2014 Providing the energy people need SSE plc Annual Report 2014 We are 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 58 Chairman’s introduction 98 Consolidated income 118 9. Taxation 140 31. Retirement benefit 02 Chairman’s statement to SSE corporate statement 120 10. Dividends obligations governance 144 32. Employee share-based 03 Strategy 99 Consolidated statement 120 11. Earnings per share 60 Board of Directors of comprehensive income 121 12. Notes to the group payments 04 Our business explained 62 How the Board works 100 Balance sheets cash flow statement 149 33. Capital and financial 06 Our value chain explained 122 13. Goodwill and other risk management 67 Nomination Committee 101 Statement of changes 08 Sector overview intangible assets 163 34. Related party Report in equity transactions 08 Great Britain 126 14. Property, plant and 68 Safety, Health and 103 Cash flow statements equipment 164 35. Commitments and 08 Ireland Environment Advisory 104 Notes on the financial 127 15. Biological assets contingencies 09 Weather Committee report statements 128 16. Investments 166 Accompanying 10 Questions and answers 70 Audit Committee Report 104 1. General information information with the SSE Executive 128 17. Subsidiary undertakings 74 Remuneration Report and basis of preparation Team 128 18. Acquisitions, disposals 166 A1. Basis of consolidation 74 Introduction 104 2. Summary of significant and held-for-sale assets and significant 12 Financial overview new accounting 76 Policy 132 19. Inventories accounting policies policies and reporting 22 Risk management 84 Remuneration in 2013/14 174 A2. Principal jointly changes 132 20. Trade and other 28 Key performance 93 Other statutory receivables controlled entities, 106 3. Critical accounting operations and indicators information 132 21. Cash and cash judgements and key associates 30 Sustainability overview equivalents 94 Statement of Directors’ sources of estimation 175 A3. Subsidiary undertakings 32 Wholesale responsibilities uncertainty 133 22. Trade and other in respect of the annual payables 177 Independent auditor’s 40 Networks 108 4. Segmental information report and the financial report 113 5. Other operating 133 23. Current tax liabilities 46 Retail statements income and cost 133 24. Construction contracts 52 People, values and 95 SSE’s financial results 114 6. Exceptional items 134 25. Loans and other Shareholder information the environment explained and certain borrowings re-measurements 137 26. Deferred taxation IBC Shareholder information 116 7. Directors and 138 27. Provisions employees 139 28. Share capital 117 8. Finance income and 139 29. Reserves costs 139 30. Hybrid capital * This financial report describes adjusted profit before tax before exceptional items (£747.2m), re-measurements arising from IAS 39 (£212.0m) and after the removal of taxation on profits from jointly controlled entities and associates (£11.6m). Following the adoption of IAS 19R, adjusted profit before tax is stated excluding interest costs on net pension scheme liabilities (£28.2m). In addition, this financial report describes adjusted operating profit before exceptional items, re-measurements arising from IAS 39, and after the removal of taxation and interest on profits from jointly controlled entities and associates. It also describes adjusted profit after tax and adjusted earnings per share before exceptional items, re-measurements arising from IAS 39 and deferred tax and excluding interest costs on net pension scheme liabilities. (See also pages 95 and 96). 1. Strategic Report 2. 3. Strategic Report An overview of the year Providing the energy people need Performing for customers Producing more Output of renewable energy – TWh green energy 10 9.2 7.6 8 7.3 During 2013/14, SSE’s conventional hydro electric 6 schemes and onshore and offshore wind farms produced 9.2 terawatt hours (TWh) of electricity, 4 confirming SSE’s position as the biggest generator of electricity from renewable sources across the 2 ’1 ’1 ’1 4 2 UK and Ireland. 3 XXFor more information see page 36. Building for Capital expenditure and investment – £m 2,000 1,706.9 the future 1,582.5 1,485.5 1,500 In 2013/14, SSE continued to invest in its new 460 megawatt (MW) gas-fired power station at Great 1,000 Island, County Wexford, which is on course to be fully commissioned before the end of 2014. 500 ’1 ’1 ’1 4 2 3 XXFor more information see page 38. Customer minutes lost Getting the in central southern England 100 67 lights back on 65 80 60 During the autumn and winter 2013/14, there were a record eight major weather-related incidents 60 affecting SSE’s electricity networks in the north 40 of Scotland and central southern England; for 99% of affected customers, supplies were 20 restored within two days. ’1 ’1 ’1 4 2 3 XXFor more information see page 43. Gas supplied (household average, GB) – Pricing our therms 600 544 energy fairly 465 451 450 In March 2014, SSE announced a freeze on household electricity and gas prices in GB until at least January 300 2016. By that stage, SSE will not have increased its prices for 26 months, making it the longest-lasting 150 comprehensive energy price freeze in the market. ’1 ’1 ’1 4 2 3 XXFor more information see page 48. 01 Strategic Report Chairman’s statement Lord Smith of Kelvin Focused on our customers and investors SSE’s core purpose is to provide The announcement by Ofgem of a referral Indeed, across all of SSE’s businesses employees the energy people need in a of the energy market in Great Britain to the have shown outstanding commitment and Competition and Markets Authority (CMA) professionalism, with which I am very proud reliable and sustainable way. In should also be seen as an opportunity. Many to be associated. For over 10 years they were led fulfilling this purpose, SSE requires of the key features of the energy market have by Ian Marchant, an outstanding Chief Executive, the support of shareholders, to become politically contentious and been subject who was succeeded on 1 July by his deputy, to significant change designed to achieve a Alistair Phillips-Davies. Alistair has made a very whom this report is addressed. mixture of objectives. SSE has demonstrated impressive start in his new job and has been It summarises SSE’s performance consistently its appetite for reform that is in able to count on an excellent contribution from the interests of customers and believes that a the senior management team and the rest of in 2013/14 and looks ahead to market reference should provide a platform the organisation. 2014/15 and beyond. for achieving greater political and regulatory stability for the GB energy market, for the Change has extended to the non-Executive benefit of customers and investors. team also, with Susan Rice and Thomas Thune As an energy provider, SSE has a key role to play Andersen stepping down after 11 and five years’ in addressing the energy ‘trilemma’ of security There will be a degree of uncertainty while the service respectively, having been first class of supply, decarbonisation and affordability. CMA looks at the market and uncertainty also Directors in that time. I am delighted that The company’s decision-making, for both arises as a result of the Scottish referendum in Sue Bruce and Peter Lynas agreed to become operations and investment, aims to reflect all September, about which SSE is strictly neutral. non-Executive Directors as they each bring three parts of the ‘trilemma’ and in this way be We take account of all uncertainties in our perspective and judgement that is invaluable as consistent as possible with the direction of decision-making and will engage constructively in the work of any Board. energy policy and politics in the UK and Ireland. with the UK and Scottish governments whatever During 2013/14 it became clear that while there the outcome of the referendum, so that we can There is no doubt that plenty of work lies ahead. rightly remains widespread political support for best meet the needs of all of our networks and At the same time, I believe that SSE is well- action to address climate change there is also energy supply customers, while safeguarding placed for the future. The company is listening a requirement to ensure such action does not the interests of investors. to and helping customers with the longest-ever make energy unaffordable for the most energy price freeze in the GB market; it has vulnerable customers. Meeting the needs of customers has presented well-defined plans for net investment of around significant challenges over the past year. In £5.5bn between now and 2018 to maintain, SSE’s decision to freeze until at least January particular, the severe late autumn and winter upgrade and build the assets the customers 2016 household electricity and gas prices in weather put SSE’s electricity networks under depend on; and it is committed to giving Great Britain was a practical response to the unprecedented strain and caused networks investors a fair return through an annual concerns of customers and the politicians they customers to be without electricity more dividend that at least keeps pace with inflation. elect. The price freeze also provides SSE with often and for longer than would normally be All of this means that SSE is not part of the an opportunity to work constructively with expected. We have carried out a wide-ranging problem but part of the solution to meeting legislators, regulators, consumer bodies and consultation to see what we can do better in the the energy needs of customers in Great Britain other stakeholders to secure practical changes future, but in the meantime I have no doubt that and Ireland.