Creating value in a sustainable way financial results to 31 march 2018 and business update 25 May 2018
Creating value in a sustainable way - strategy Building on SSE s Strength to create value Richard gillingwater chairman 2
Creating value in a sustainable way - strategy Building on SSE s Strength to create value Alistair Phillips-Davies Chief Executive 3
Responding to a changing energy sector opportunities decarbonisation electrification infrastructure Leading renewable generator reduce carbon intensity by 50% to c150g/kwh by 2030 Leading electricity generator, distributor and utilities services provider Growing provider of local energy, telecoms and rail solutions Challenges arising from sector change Auctions Competition Regulation and politics Focus on core strengths and competencies Businesses with options and opportunities 4
Renewing SSE Strategic decision to demerge GB household retail business Right for customers Right for energy market Right for SSE Right for shareholders On course to complete creation of new, independent supplier by end of FY19* New supplier will be able to secure greater value Strategic and operational focus Combined resources Strong independent competitor Contributing to lower costs for customers Delivering benefits for customers and the energy market *Subject to shareholder approval and CMA process 5
Taking forward a new business model 1 Operating profit, 3 year average % split* 16% 28% 56% Greater focus on infrastructure and related services Greater visibility of assets and earnings Networks Renewables Other *Excludes SSE Energy Services and is subject to shareholder approval and CMA process Over 80% of SSE Group operating profit related to renewables and regulated networks, excluding demerged businesses 6
Taking forward a new business model 2 7
Making the most of the strengths of SSE 8
Making the most of future opportunities People Shared talent, skills and values Top ftse 350 company for contribution to inclusive job growth 9
Making the most of future opportunities Sustainability AAA Leader Rating Sustainability Report Talking Tax Report Sustainability impact - large infrastructure projects Achieving dividend targets by executing our strategy in a sustainable way 10
Making the most of future opportunities DISCIPLINE Commitment to A strong balance sheet Effective cash flow management Diverse funding sources Agility in raising capital Maintaining optionality Disciplined approach to capital allocation, investment and acquisitions Maintaining a disciplined approach to generating future earnings 11
Making the most of future opportunities Focus on core markets Open to extending core competencies to other markets, e.g. renewables 12
Making the most of future opportunities Culture of continuous improvement Influence and prepare for a smarter electricity system Enhance the value derived from hydro Relentless focus on operational efficiency 13
Making the most of future opportunities Quality assets Since March 2008 SSE has invested 15bn across the Group Five economically-regulated networks Four classes of renewable energy Three types of thermal Generation Telecoms network; two growing B2b businesses; Gas production; Gas storage 40% 32% 11% 18% Continuing to add to a prized collection of assets with strong returns 14
Making the most of future opportunities Pipeline of opportunities Electricity Distribution Connecting clean energy, supporting electrification, facilitating change to DSO Generation Valuable prospects in each technology type, especially in offshore wind Strong pipeline of future opportunities for value creation 15
Making the most of future opportunities Development of capital projects Design Development Delivery Beatrice, Offshore Wind Farm 235MW* Ferrybridge Multifuel 1 and 2 69MW* Spittal substation Caithness-Moray Stronelairg 228MW Development and execution is fundamental in a world of auctions and tenders *SSE share 16
Making the most of future opportunities Partnering Principal jv and associate Asset type Beatrice 588MW offshore Sse holding 40% Cloosh valley part of galway 105mW onshore 50% Clyde windfarm 522mW onshore 50.1% Dogger bank Ferrybridge mfe 1 and 2 Up to 3,600MW offshore 68MW and 70mw 50% 50% Greater gabbard 504MW offshore 50% Marchwood power Scotia gas network Seabank power seagreen 840MW ccgt Gas distribution network 1,140mw ccgt Phase 1 up to 1,050mw offshore 50% 33% 50% 50% Walney UK Offshore windfarm 367mw offshore 25.1% 17
Setting a strategy for the future 1 to be a leading energy provider in a low carbon world To create value for shareholders and society from developing, owning and operating energy and related infrastructure and services in a sustainable way 18
Setting a strategy for the future 2 to be a leading energy provider in a low carbon world Create value Returns for shareholders Positive economic and social contribution Energy and related infrastructure services Range of complimentary businesses Depth of insight in to core-sector Develop, own, Operate Efficiency in developing, owning and operating Agility in creating and securing value Sustainable way Do things responsibly from day-to-day operations to longer-term decision-making 19
Remunerating shareholders investment dividends Dividend per share, pence 75.0 70.0 66.0 60.5 55.0 80.1 84.2 86.7 88.4 89.4 91.3 94.7 25.7 27.5 30.0 32.4 35.0 37.7 42.5 46.5 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY18 dividend 20th successive increase since SSE was formed in 1998 20
Remunerating shareholders investment Dividend sustainability Dividend per share, pence Planned retail Demerger 25.7 27.5 30.0 32.4 35.0 37.7 42.5 46.5 55.0 60.5 66.0 70.0 75.0 80.1 84.2 86.7 88.4 89.4 91.3 94.7 97.5* 80.0* +RPI +RPI +RPI FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e FY21e FY22e FY23e Forecast Dividend sustainability based on quality and nature of operations, assets and on long-term financial outlook *Intend to recommend 21
Remunerating shareholders investment A five year commitment 2018/19 Full-year dividend of 97.5* pence per share Planned retail demerger 2019/20 Full-year dividend of 80.0* pence per share 2020/21 Annual increase in full-year dividend of at least RPI 2021/22 Annual increase in full-year dividend of at least RPI Forecast 2022/23 Annual increase in full-year dividend of at least RPI *Intend to recommend 22
Summary Opportunities Decarbonisation Electrification Infrastructure Business model strengths Enduring dividend focus Focus on core strengths and competencies Businesses with options and opportunities 23
Creating value in a sustainable way - finance Maintaining financial discipline for long-term success Gregor Alexander Finance director 24
Delivering solid financial results 2017/18 FY17 - m FY18 - m % change Adjusted profit before tax 1,545.9 1,453.2-6.0% Movement on derivatives 255.7-118.8 Net exceptional items -8.2-213.3 Interest on net pension liabilities -3.1 2.9 Tax on JVs and associates -13.7-37.8 Reported profit before tax 1,776.6 1,086.2-38.8% Adjusted earnings per share 125.7p 121.1p -3.1% Adjusted effective tax rate 10.2% 9.0% Dividend 91.3p 94.7p +3.7% Good operational performance, exceeding expectations 25
Exceptional items 2017/18 Net exceptional charges Exceptional charges - m Gas Production 104.7 Retail technology developments 63.O other 45.6 Total exceptional charges, impairments and provisions 213.3 Gas Production Impairment driven by latest independent reserves report for Greater Laggan and Bacton fields Charges slightly offset by reversal of previous impairment on ECA field following an increased hydrocarbon reserves estimate Retail Impairments related to system and software development assets 26
Earning operating profit to support dividend growth Wholesale Adjusted operating profit, m FY17 FY18 % change Generation 510.3 578.9 Energy Portfolio Management -9.1 46.0 Gas Production 26.4 34.0 Gas Storage -13.0-6.5 10 8 6 4 2 0 Renewable output, TWh 9.7 9.4 9.0 8.5 8.0 FY14 FY15 FY16 FY17 FY18 30 24 18 12 6 0 Gas- and oil-fired output, TWh 21.9 17.4 10.1 11.9 9.8 FY14 FY15 FY16 FY17 FY18 Wholesale operating profit 514.6 652.4 +26.8% 20 Coal-fired output, TWh 800 Gas & Liquids production output, mth 516MW new onshore wind delivered in FY18 228MW onshore wind in construction Stronelairg 235MW* offshore in construction Beatrice 15 10 5 0 16.6 9.1 6.1 1.5 0.9 FY14 FY15 FY16 FY17 FY18 600 400 200 0 676 588 414 403 412 FY14 FY15 FY16 FY17 FY18 Complementary portfolio of assets *SSE share 27
Earning operating profit to support dividend growth Networks Adjusted Operating Profit, m FY17 FY18 % change Electricity Distribution 433.4 402.2 Transmission 263.7 195.6 Gas Distribution (SGN) 239.4 165.3 Networks Operating Profit 936.5 763.1-18.5% Transmission - Phasing of capital expenditure - Sharing of previous years totex underspend with customers Distribution - Base revenue increased with growing RAV - Offset by expected net reduction in under-recoveries and losses incentive income SGN - 16.7% equity disposal in October 2016 - Phasing of regulatory revenue - Sharing of out-performance with customers 28
Earning operating profit to support dividend growth Retail Adjusted Operating profit, m FY17 FY18 % change Energy Supply 260.8 260.4 Energy Related Services 12.7 18.3 SSE Energy services 273.5 278.7 Airtricity 42.7 33.0 Business energy 89.4 64.2 Enterprise 16.7 26.9 Total Retail 422.3 402.8-4.6% Robust financial performance: - Increased electricity prices to reflect rising nonenergy costs - Secured efficiency savings - Offset by customer account losses and price caps for certain customer groups Energy Customer Accounts, m 8.00 7.58 Energy Related Service Accounts, m 0.47 0.45 29
Earning operating profit to support dividend growth Re-shaped SSE Adjusted operating profit FY17 - m FY18 - m % share Generation 510.3 578.9 37.3% EPM -9.1 46.0 Gas production 26.4 34.0 Gas storage -13.0-6.5 Wholesale 514.6 652.4 Electricity transmission 263.7 195.6 Electricity distribution 433.4 402.2 Gas distribution 239.4 165.3 Networks 936.5 763.1 49.2% Airtricity 42.7 33.0 Business energy 89.4 64.2 Enterprise 16.7 26.9 Corporate unallocated 0.6 10.4 Total remain operating profit 1,600.5 1,550.0 30
Delivering a five year dividend 2018/19 Full-year dividend of 97.5* pence per share Planned retail demerger 2019/20 Full-year dividend of 80.0* pence per share 2020/21 Annual increase in full-year dividend of at least RPI 2021/22 Annual increase in full-year dividend of at least RPI Forecast 2022/23 Annual increase in full-year dividend of at least RPI *Intend to recommend 31
Focusing on dividend sustainability Illustrative use of cash Maintenance capex Networks EBITDA Net operating cash flow Supported by strong EBITDA from Regulated Networks, Renewables and other businesses Cash Dividend Payments 80p/share and 20% scrip uptake Cash to support disciplined growth investment A sustainable dividend consistent with investment in future growth opportunities 32
A strong asset base from which to deliver dividends 1800 1600 1400 1200 1000 800 600 400 200 0 Historical capex and investment, m Regulated electricity networks FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Electricity Networks Renewables Other 10 Year Capex 11bn Networks & Renewables FY18 EBITDA 15bn Total 2.4GW Renewable Capacity 3.7GW 692m from Renewables 2.7bn Electricity Networks RAV 6.5bn 894m from electricity Networks 33
Continuing to invest to earn returns 2018/19 capex and investment split FY18-1.5bn FY19-1.7bn Net debt forecast to increase from 9.2bn to a peak of around 10bn c3% of SSE s debt is in index-linked bonds Networks Renewables Other Wholesale Other c70% spent on Networks and Renewables in FY18 Around two thirds forecast spend on Networks and Renewables in FY19 34
Continuing Investment to earn returns 1 2018-2023 Renewables capex & investment forecast to 2023, m* 400 200 FY19 focus on Beatrice and Stronelairg FY20 4.2GW capacity and 12TWh electricity FY20 45/MWh electricity price and 50/MWh ROC price equals EBITDA of c 800m 0 FY19 FY20 FY21 FY22 FY23 FY24 output forecast to increase to c16twh due to new offshore wind coming online Sustained, disciplined investment creates earnings engine and cash flow capability to deliver five-year dividend commitment *Based on prudent successful CfD auction outcomes 35
Continuing Investment to earn returns 2 2018-2023 networks capex & investment forecast to 2023, m* Networks rav forecast to 2023, bn 600 9 400 7 5 200 3 0 FY19 FY20 FY21 FY22 FY23 1 FY19 FY20 FY21 FY22 FY23 Electricity Transmission Electricity Distribution SGN (SSE Share) Invest c 2.8bn in next five years in electricity networks EBIT contribution to average around 800m pa Sustained, disciplined investment creates earnings engine and cash flow capability to deliver five-year dividend commitment *Electricity Networks, excluding SGN 36
Continuing Investment to earn returns 3 2018-2023 capex & investment forecast to 2023, m 1500.0 Pipeline of investment opportunities to support earnings and dividend 1000.0 500.0 ~ 6bn Total ~80% committed 0.0 FY19 FY20 FY21 FY22 FY23 Networks Wholesale Other Enterprise Committed Regulated Networks and renewables account for 70% of capex and investment Inclusive of multifuel plant And Keadby 2 Electricity Networks investment to average over 500m pa to 2023 Creating value, contributing to adjusted EPS and supporting dividend growth 37
Maintaining investment discipline DISCIPLINED INVESTMENT TO SECURE RETURNS Greater than cost of capital Enhance Earnings Support dividend delivery 38
Responding to a changing energy sector Eps and dividend supported by 3 qualities Optionality Agility Discipline Investment in Networks and Renewables Flexible thermal Gas production, Enterprise, Business Energy and Airtricity FY18 EBITDA of over 310m Creating and securing value from existing and planned assets Timely disposals to create value and support future investment Ensuring the best platform for success Record of successful, strategic, decisions over last two decades 39
Being agile in financing SSE Green Bond 600m at a coupon of 0.875% : Largest green bond issued by a UK company and first green bond issued by a UK energy company As at 31 March FY17 FY18 FY19e Investment and capital expenditure, bn 1.7 1.5 1.7 Adjusted net debt and hybrid capital, bn 8.5 9.2 9.7 Average debt maturity, excl. hybrid capital 8.8 years 7.9 years Na Average cost of debt at period end, incl. hybrid capital 4.10% 3.84% Na Excluding short-term debt 627m of borrowings matures in 2018/19 and 175m matures in 2019/20 Continuing to maintain a strong balance sheet and market rating 40
Managing net debt Net debt to peak ~ 10bn Capex to decline over five years to 2023 Net debt to fall back towards 9bn by 2023 Based on Completing demerger Capex plans to 2023 Planned scrip changes Delivering dividend targets If opportunities to invest or acquire emerge, capex and net debt levels may be higher 41
Maintaining SSE s financial strength Credit rating agency Rating Current criteria Date of Issue Standard and Poor s A- Stable outlook 23% FFO/Net Debt August 2017 Moody s A3 Stable outlook Mid-teens RCF/Net Debt August 2017 Illustrates resilience and quality of SSE s businesses Committed to robust ratios for RCF and FFO to net debt Sustains capacity to secure competitively-priced funding Committed to balance sheet strength 42
Reforming the scrip dividend scheme 24% average take-up since 2010 Gives optionality regarding capital structure Must be balanced If Scrip take-up of full-year dividend exceeds 20%, SSE now intends to buy-back shares Limit dilutive effect 40% 30% 20% 10% 0% Scrip % uptake 33% 36% 30% 26% 22% 20% 16% 12% FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Shareholder choice; cash dividend savings; managing shares issued 43
Managing pension schemes Ias 19 valuation at 31 march 2018, m Funding levels at highest level for at least a decade -238 SEPS Reflective of asset performance, cash funding, continued benefits of interest rate and inflation hedging and longevity swaps SHEPS Total 335 573-250 -50 150 350 550 Impact of planned demerger expected to be largely neutral with no material impact on existing schemes 44
Renewing SSE for the long term Targeting full year dividend of 97.5*p in 2018/19 Committed to paying dividends targets to 2023 Building dividend on core SSE businesses Confident but disciplined investment to 2023 Focused on robust financial management *Intend to recommend 45
Creating value in a sustainable way financial results to 31 march 2018 and business update 25 May 2018
disclaimer This financial report contains forward-looking statements about financial and operational matters. Because they relate to future events and are subject to future circumstances, these forward-looking statements are subject to risks, uncertainties and other factors. As a result, actual financial results, operational performance and other future developments could differ materially from those envisaged by the forward-looking statements. SSE plc gives no express or implied warranty as to the impartiality, accuracy, completeness or correctness of the information, opinions or statements expressed herein. Neither SSE plc nor its affiliates assume liability of any kind for any damage or loss arising from any use of this document or its contents. This document does not constitute an offer or invitation to underwrite, subscribe for, or otherwise acquire or dispose of any SSE shares or other securities and the information contained herein cannot be relied upon as a guide to future performance. Definitions These financial results for the twelve months to 31 March 2018 are reported under IFRS, as adopted by the EU. In order to present the financial results and performance of the Group in a consistent and meaningful way, SSE applies a number of adjusted accounting measures throughout this financial report. These adjusted measures are used for internal management reporting purposes and are believed to present the underlying performance of the Group in the most useful manner for ordinary shareholders and other stakeholders. The definitions SSE uses for adjusted measures are consistently applied and are explained in the Alternative Performance Measures section of the Preliminary Results Statement, before the Condensed Interim Statements. In preparing this financial report SSE has been mindful of the commentary issued in May 2016 by the Financial Reporting Council on the European Securities and Markets Authority s Guidelines on Alternative Performance Measures. SSE will monitor developing practice in the use of Alternative Performance Measures and will continue to prioritise this, ensuring the financial information in its results statements is clear, consistent and relevant to the users of those statements. 47