SSE plc

Good morning everyone. I'm joined today by Gregor in person and Martin digitally. Today we plan to cover two things. Firstly, our interim results to 30th September 2021. And secondly, a strategic update containing the detail behind what we are calling our net zero acceleration programme. You will have seen the outline of our capex plans in this morning's release and I fully appreciate that you'll be keen to hear more. However, Our performance in the half year to 30th September forms part of the foundation for that exciting plan, so we'll reflect on that briefly before getting into the detail you've come for and answering any questions you might have. I'll start with a word on safety performance. Our day-to-day priority is always to ensure everyone goes home safe after every working day. We've enjoyed a run of improving safety performance over recent years, and for the six months to 30th September, Our total recordable injury rate fell to 0.16 from 0.19 over the comparable period in 2021. Nevertheless, every injury is an injury too many and we maintain an ongoing determination to keep everyone safe. No review of recent months would be complete without mention of our involvement in COP26. Our principal partnership of the summit here in Glasgow has left us more committed than ever to a strategy that creates value whilst addressing climate change. Our strategy is fully aligned with the UK government's net zero strategy and that of many other countries around the world. Strategically, we've made good progress over the last six months, reshaping the group and driving forward our plans for growth. Our disposals programme has created £2.8 billion of value and further simplified the group's focus on electricity assets and infrastructure. You will also have seen earlier this month we completed a further capital recycling of a stake in Jogger Bank CEE, We've made steps forward internationally in Japan through a joint ownership company formed with Pacifico Energy in Denmark with our bid for the Thor offshore wind tender and in the US with pre-qualification for the New York Bight auction. Closer to home, construction is progressing well on Seabank, Dogger Bank A and B and at Viking and we've amalgamated Berwick Bank and Marr Bank into a single wind farm with a potential capacity of 4.1 gigawatts. In thermal, KB2 CCGT achieved first power in October, and we welcome to track one accreditation for the East Coast Cluster, which includes our interest in the Net Zero Humber project. Turning to networks, excellent progress has been made in transmission on the Shetland HVDC link, while needs cases under the uncertainty mechanism continue to progress. And in distribution, an ambitious Rio ED2 business plan goes to final submission to Ofgem in December. It's been a busy half year that has seen us emerge strongly from the pandemic and lay the groundwork for an acceleration to net zero. I'll now hand you over to Gregor, who'll run through the financial performance.

Thanks, Alistair, and good morning, everyone. Whilst renewables output was significantly lower than planned due to the weather conditions, our other businesses have delivered a solid performance during the first six months, as recovery following coronavirus continues. Adjusted operating profit increasing by 15% to £377 million. Adjusted profit before tax increasing by 30% to £174 million. And adjusted EPS increasing by 44% to £10.5 above the expected range provided. And the second half of the year has started well. as average wind speeds have returned towards planned levels and with thermal and hydro plant in particular achieving strong prices in the market. Subject to normal weather, plant availability and similar levels of commodity prices over the coming winter months, we would expect to report full year adjusted earnings per share at a level which is at least in line with the current Bloomberg consensus of 83 pence adjusted earnings per share. We'll provide further guidance later in the financial year. Market volatility has, however, impacted the reported metrics, which include £1.4 billion of positive mark to market movements and operating derivatives held at the half year end. And as I've said before, The movements of these derivatives demonstrate the volatility that can arise on revaluation from period to period, which is unrelated to current operating performance and therefore excluded from SSE's adjusted profit measures. As you will be aware, the last few months have seen significant volatility in both power and gas prices in the market. An extended period of calm weather over the summer months coincided with a substantial increase in gas prices across Europe and has led to some significant movements in the wholesale market prices. However, I'm pleased to say that the Group has managed any direct exposure to these short-term fluctuations well during the first six months of the year due to a combination of factors. Firstly, Our balanced portfolio means our regulated networks businesses are insulated from power price movements, whilst thermal and gas storage have improved results by providing balance against lower renewables output. Secondly, disciplined application of clearly defined hedging policy has limited any short-term exposure to power price movements. In addition, low trading limits, which are closely monitored, reduced any potential exposure from liquidity or shape positions. Performance across the regulated networks businesses has been strong. In transmission, adjusted operating profit was 58% higher than the comparative period, as the newly commenced T2 regulatory period resulted in earlier phasing of allowed revenues. And in distribution, a combination of higher allowed revenue and volume recovery following coronavirus lockdowns in the prior period meant that operating profit increased by 34%. However, in line with the wider market, renewables have seen a significant decrease in adjusted operating profit to £25 million in the current period. A prolonged period of high pressure across Northern Europe over the summer resulted in one of the least windy periods across most of the UK and Ireland, and one of the driest in SSE's hydro catchment area in the past 70 years. This shortfall, which was around 30% or 1.2 terawires at low plan, was compounded by the need to buy back edges in the volatile markets. Despite the renewable's results, together these core businesses contributed over 95% of Group Adjusted EBIT in the year. Elsewhere in our complementary businesses, Thermo demonstrated its value with strong balancing market performance and achieving higher market prices, despite lower year-on-year availability due to phasing of planned maintenance to respond to system needs and unplanned outages. Merchant operation of the gas storage facility enabled that business to capture the spread in the gas price markets. Business energy showed continued recovery following coronavirus lockdowns. However, Airtrust's recovery was impacted by net adjustment to historic accruals in the period. The distributed energy result is adversely impacted by the inclusion of operating losses from the contracting rail business up to its disposal in June. Following disposal, it is expected that this business will return to a small operating profit as it continues to develop battery, solar and heat network related opportunities. And the corporate unallocated costs increased as transitional service agreements from past disposals unwind. The group through the EPM and gas storage businesses is exposed to price movements on net unsettled commodity contracts and physical gas inventory held. At 30 September, the total net re-measurement under IFRS 9 of these unsettled contracts and inventory totalled over £1.4 billion. However, these do not include the re-measurement of around £1.3 billion of own use derivatives which are excluded from recognition under IFRS 9. Taking these derivatives into account, the group does not expect to realize significant gains upon settlement of those contracts. The volatility in these revaluations and the exclusion of certain contracts under IFRS 9 demonstrate why these re-measurements are unrelated to current operating performance and therefore continue to be excluded from SSE's adjusted profit measures. In addition to these re-measurements, the higher power prices have led to a £182 million reversal of historic impairment charges being recognised on the SSE thermal operating assets. This reversal, which does not impact on cash, evidences the strategic importance and value of flexible generation in a period of volatility. Finally, a number of other adjustments including disposals and true-up adjustments on prior year exceptional transactions have been recorded as exceptional in the period. Like Alistair, I will save discussion of the capital investment required for our net zero acceleration programme until later. However, our existing capital investment plan for this financial year continues at pace. Alistair has referenced the progress we have made on delivery of our projects this year, which has seen over £1 billion investment to date. In many ways, we are already accelerating our investment in net zero. Even excluding project development expenditure refunds, this represents a more than 50% increase on prior year spend and demonstrates our continued delivery. We now expect capital investment expenditure to be in excess of £2 billion for the full year. We've also progressed at pace to simplify the group, to predominantly focus on our renewables and networks core. Since the start of 21-22, we've completed the disposal of a contracting rail business, as well as completing the disposal of gas production assets in October. And we have also agreed to dispose of our equity stake in SGN for over £1.2 billion. Disposal is conditional on receipt of certain regulatory approvals and is expected to complete by 31 March 2022. Following completion of SGN, we will have achieved headline consideration of over £2.8 billion, significantly in excess of the £2 billion target. and including the expected SGN gain on disposal, which we expect will be in excess of £570 million, we have achieved over £1.4 billion in exceptional gains on sale. The CAS generated and gains recognised in disposal demonstrate the value SSE can create. Following the completion of the Triennial Valuation during the period, it was agreed that the contribution holiday received in respect of the CHEPS scheme will continue. And changes in financial assumptions and experience adjustments have meant that the combined net surplus for both schemes has increased by £81 million during the period. SFA's strong balance sheet continues to be underpinned by high-quality assets and following continued capital investment in long-term generation and infrastructure assets Adjusted net debt and hybrid capital has increased by over £700 million to £9.6 billion. And in line with the accelerated net zero investment programme, we're targeting a four and a half times debt to EBITDA ratio at the end of this financial year. Our S&P credit rating remains at BBB plus stable outlook and our Moody's rating remains at BA1 stable which has been updated to stable outlook earlier this morning following the strategic update announcement. These compare favourably to peers and reflect the group's business mix, funding plans and future dividends. SSE remains fully committed to our 2023 dividend plan and continues to target dividend increases in line with RPI for both this year and next. As such, we are declaring an interim 2122 dividend of 25.5 pence. This will take the total dividends declared to over £15 per share since SSE's formation in 1998. Our post-2023 plans will be covered in more detail shortly, but looking ahead, we are clearly in a strong position to create lasting value for shareholders and to remunerate their investment with dividends going forward. In closing, our first half has demonstrated yet again the resilience of an optimal business model that drives both economically regulated and market-based earnings from assets and operations that are critical to decarbonisation. I'll now hand you back to Alistair for his introduction to the strategic update that you've all been waiting for.

Thanks, Gregor. We've been spending the past two years moving our strategy forward, reshaping the group through strategic disposals and focusing it on the electricity infrastructure needed for net zero. As a result, we've been creating a wealth of opportunities right across our businesses, both domestically and internationally. As we said in May, this led to us taking a comprehensive evaluation of our CAPEX plans and the sources of funding that will underpin them with the aim of maximising our potential over the decade ahead. With that evaluation now complete, SSE is today setting out its resulting net zero acceleration program, which represents the optimal pathway for the group. And as you will see, the plan is transformative for the SSE group, ambitious for accelerated growth, focused on unlocking value from the transition to net zero, paced to deliver long-term shareholder return, and aligned with a 1.5 degree pathway. Our net zero acceleration programme will accelerate clean growth, lead the energy transition and maximise value for all stakeholders. It includes enhanced, fully funded £12.5 billion strategic capital investment plans to 2026, alongside ambitious targets to 2031, all aligned with net zero. The plan represents the optimal pathway for SSE to build on its position as the UK's clean energy champion. enabling delivery of over 25% of the UK's 40 gigawatt offshore wind target and over 20% of UK's electricity networks investment whilst deploying flexibility solutions and exporting renewables capabilities overseas. It is an ambitious but deliverable roadmap for how we will allocate capital and seize the fantastic opportunities we've created over the next decade. Importantly, it contains the investment needed to meet a 1.5 degrees pathway, and it will maximise both earnings and asset value growth while remunerating shareholders with a new growth-enabling dividend plan. In this strategic update, we will set out how the reshaped SSE Group provides the right blend of businesses to create sustained value on the journey to net zero, provide details on the £12.5 billion CapEx plan, which is a 65% step up with a billion pounds a year additional investment and our plans for funding it. Outline what this bold investment plan will deliver by 2026 in terms of capacity, regulated asset value and critically shareholder returns. And set a clear ambition for where this trajectory will take us into the 2030s. The energy transition is gathering pace. and the opportunities in front of us are crystallising rapidly. Today, we're giving shareholders a comprehensive strategy for creating long-term value. It is no accident that we are ready to seize the wealth of opportunities that are emerging in the transition to net zero. Following a highly successful disposals programme, the reshaped SSE Group is now firmly focused on renewables and regulated electricity networks. We've talked about their net zero aligned growth potential already, but they share common capabilities in the development, construction, financing and operation of world-class, highly technical electricity assets. The other businesses SSE retains are highly complementary, providing customers with additional green power solutions and routes to market. With significant synergies running through the group, together the SSE businesses provide an ESG-aligned growth investment opportunity, an attractive mix of regulated and market-based income streams and valuable linkages with each other which support efficient financing. SSE has been transforming into the optimal combination of electricity infrastructure businesses. Our business mix allows specialisation in electricity assets such as in renewables, networks and low-carbon power stations, alongside the ability to create value right across the electricity value chain as new opportunities emerge in hydrogen, batteries, and distributed energy. This reshaping into electricity infrastructure has already demonstrated its value in terms of total shareholder returns since the retail transaction. So in summary, SSE's business mix is very deliberate, highly effective, fully focused and set to deliver long-term shareholder returns on the journey to net zero in both domestic and international markets. At COP26, I was encouraged by the collaborative efforts taken by countries across the world to tackle the climate crisis. The challenge of limiting global warming to 1.5 degrees C will require significant actions from individual countries to commit to cut emissions over the next decade. This presents exciting options for SSE in its traditional home markets as well as overseas, where we are actively pursuing opportunities to export our renewables capability. Here in the UK, the government's net zero strategy sets a globally leading ambition for net zero electricity in the UK by 2035. This strategy demands a quadrupling of wind generation, which in turn requires network capacity to more than double over the same period. And to achieve this, it's estimated that over £250 billion of investment will be needed in the UK alone. As the UK's national clean energy champion, SSE is central to delivery of these opportunities right across the low carbon energy value chain. As I mentioned earlier, we're delivering a substantial proportion of the networks and renewables investment needed by the UK government. We also have consent for the UK's largest pump storage project. We're developing options for gigawatt scale distributed energy solutions and we're developing critical flexible first of a kind carbon capture and hydrogen projects. We are accelerating investment in the low carbon electricity infrastructure that will support the UK targets. And this provides a platform for sustainable future growth abroad in activities where SSE is globally competitive and proven capability. So now for the highlights. This is what I like to call the plan on a page. We'll be investing £12.5 billion over five years in high growth, low carbon assets split approximately 40-40-20 across networks, renewables and our flexible generation and other complementary businesses respectively. The plan is fully funded and well balanced, providing an attractive mix of regulated and market-based earnings. This is a huge acceleration of investment that will see an additional £1 billion spent annually on high-quality options and projects. To help deliver this accelerated growth, This morning, we're outlining our baseline plan to sell down minority stakes of around 25% in both transmission and distribution. They'll still be core to SSE's businesses, but the proceeds will help realise value and unlock further growth, both in electricity networks and elsewhere in the group. This type of partnering has already proven successful for us in renewables, but we'll continue to deploy that approach to realise developer premiums and fund further pipeline and capacity growth, both at home and abroad. And our new growth enabling dividend plan will enable us to offer an attractive growth profile while providing shareholders with strong income. The plan rebases the dividend to 60 pence in 23-24 before targeting at least 5% dividend increases in 24-25 and 25-26. And we expect the dividend to total more than £3.50 per share over this five-year period. We believe this represents a highly attractive combination of of dividend and capital appreciation. This investment will drive serious growth. By 2026, we expect to add over four gigawatts of net renewables to double our capacity, increase underlying networks RAV by around 10% per annum, and achieve a compound annual growth rate of between 5% and 7% in adjusted EPS over the course of the five-year plan. We plan to maintain a strong investment grade credit rating too, targeting a net debt to EBITDA ratio of 4.5 times. This will enable the SSE group to continue delivering projects at record-breaking scale, such as Dogger Bank and Barrick Bank. And finally, there's the longer-term vision. Fast forward to 2026, and delivering this plan will have given us a fantastic platform from which to grow further. But this is just the foundation. We're looking further ahead, and we are thinking bigger. By 2031, we're targeting over 13 gigawatts of net installed renewable capacity, building on our existing ambitions to add one gigawatt a year of the net new renewable capacity by the second half of the decade. A renewables pipeline of at least 15 gigawatts, maintaining the 2026 level. Another three gigawatt net of low carbon flexible technologies, including carbon capture and storage, hydrogen and batteries. and the network's RAB of between 11 and 13 billion net of minority interests. These targets will in turn mean we can set and meet 1.5 degree aligned science-based carbon targets. In a world in which decarbonisation ambition continues to expand exponentially, we're positioning ourselves to take more opportunities as they emerge. These are exciting times for the SSE group as it delivers for shareholders and society. It will consolidate the work we've done over the past few years to transform the business, while building a foundation to achieve a significant international footprint into the 2030s. The strategic review carried out by the Board was robust. Our resulting plan reflects the immediacy of the net zero opportunities ahead, the views of all stakeholders, including some quite vocal but constructive public opinions. and the considerations we have given to all possible routes to value creation. Ultimately, the review sought to identify the best way to drive sustainable long-term value for all shareholders, deliver on the scale of our capex investment and growth opportunities, and optimise the sources of funding for those commitments. We ran a number of detailed scenarios and considered all possible asset combinations which were fully tested with independent advisors. Following that rigorous process, we concluded unequivocally that the existing strategy combination of renewables and networks together with integrated complementary businesses was the optimal route to deliver on our growth potential by providing funding power to drive large-scale CapEx projects forward, maintain a strong investment credit rating and an efficient financing capability, retain existing shared skills, intergroup investment opportunities and synergies. And importantly, optimised risk adjusted returns for long term shareholder value. This plan represents the path that will create the greatest long term overall value for shareholders and society. SSE's purpose to provide the energy needed today while building a better world of energy for tomorrow provided powerful proved powerful in steering us through the worst of the coronavirus pandemic, but its ultimate aim is to tackle the climate emergency. Our purpose was central to the Board's considerations when conducting the strategic review that's culminated in the plan being presented today. And this purpose, coupled with a strategy of creating value for shareholders and society in a sustainable way, is a driving force behind our leadership position in the energy sector. Our purpose aligns with that of governments and society. It was behind our participation in COP26 this month, and it guides everything we do. I use the plural government very deliberately. The climate emergency is a global phenomenon, stimulating decarbonisation the world over. And if decarbonisation of energy accelerates, electricity becomes the core of the global energy system. Global electricity generation is predicted to at least double by 2050, with generation from renewable technologies needing to at least travel as a result. And SSE is among the best in the world at deploying renewables, with a lead player in the world's largest offshore wind market and the world's fifth largest national economy. And by developing platforms in international markets like East Asia, Europe and North America, we're creating options in carefully selected international markets, while we see future growth. We bring our capabilities in development and delivery, with local knowledge and other important skills provided by carefully chosen partners. However, hitting net zero also requires decarbonising heat and transport. According to recent projections by the UK government, the increasing decarbonisation of society will more than double electricity demand by 2050, and this will require electricity networks to increase both their capacity and reach to meet this demand and keep the system in balance locally. This means networks are no longer just steady yield businesses. They're exposed to the same growth opportunities as renewables and our plans reflect this. The UK Prime Minister seeks a clean electricity system by 2035 and the energy crisis has turned attention towards gas price dependency. We've seen a dramatic reduction in our own carbon emissions during the last decade as SSE's legacy coal output was phased out in an orderly and managed way. But our generation mix through the next decade will be defined by the rapid deployment of renewable and low carbon technologies. Our enviable pipeline of onshore and offshore development opportunities will enable us to reach 50 terawatt hours of clean renewable generation by 2031. However, recent market volatility, worsened by calm weather conditions, has renewed focus on the optimum way to provide security of supply and price. Whilst the current system needs have been provided by unabated generation plant or beard at high prices, this cannot continue in a clean electricity system by 2035. SSE is flexible generation already, and we have more optionality in low-carbon flexible plants than any competitor in the GB market. We boast mature options in pumped storage, carbon capture and storage, hydrogen and batteries. By 2031, we expect over 90% of SSE's electricity generation output to be from decarbonised sources. This represents a key interim milestone in the transition to net zero, not just for SSE, but for the UK as a whole. Aligning to a one and a half degree pathway is urgent and it has cross-party political and international support. SSE is at the centre of this and has the capabilities and options that will be absolutely vital to achieving net zero, whatever pathway you choose. We continue to engage stakeholders on climate-related issues every step of the way. We continue to champion our Just Transition strategy, the first of its kind by a corporate, and we firmly believe that fair tax, a real living wage and green job creation underpin a just transition. We received overwhelming support at our 2021 AGM for an annual shareholder vote on our net zero plan. And we took that as a clear signal of ongoing support for our decarbonisation efforts. With a window of opportunity closing to prevent the most dangerous climate change, plans to decarbonise the global economy must accelerate. That is why we can announce today an acceleration of our science-based carbon targets to align with a science-based target initiative's 1.5 degree pathway for the power sector. These revised targets for scope one and two absolute emissions cut in half the previously planned emissions for 2030 for SSE and are a crucial step towards achieving net zero across all business activities by 2050 at the latest. This acceleration towards net zero is integrated with the acceleration of investment we're outlining today. We have the confidence to deliver on these challenging targets because of the wealth of clean growth opportunities we are creating. There's a lot of detail on this slide that Gregor and Martin will come on to shortly, but the point I'd make is that the range of opportunities available to us is second to none. Today we're building more offshore wind than anyone in the world, including the world's largest offshore wind farm at Dogger Bank, and we're developing at Corrie Glass the first new pumped storage project in the UK for 30 years, providing critical flexibility. Only by being part of a larger group can this world-class renewables business take on projects of this scale, backed by a stable asset base and credit rating. Our network's investment capabilities and pipeline are also immense. We are pursuing major projects above and beyond the Rio T2 settlement through Ofgem's uncertainty mechanisms, and our Rio ED2 plan is a step up from ED1 and will yield still more investment in bringing net zero to the front door. In our people, we have world-class asset developers, the best builders and the best operators. Again, like the business mix and asset base, this is no accident. We're focused on long-term growth and we invest in the assets and people to make it happen. To recap before I hand over to Gregor, what we have for you today is a fully funded plan that enables SSE to cement its leadership position in the UK while expanding overseas. It's a plan that will accelerate the group's growth over the next five years, with more installed renewables capacity, more much-needed low-carbon flexibility, more networks RAV, attractive and visible EPS growth, and manageable levels of debt. It rebalances our capex allocation across the group, proposes to extend our highly successful partnering model to electricity networks, and sets out a growth-enabling dividend plan. This is a platform for longer-term growth and ambitious targets over the coming decade as we develop, build, operate and invest in the infrastructure that will help deliver net zero. I'll now ask Gregor to talk you through the five-year CAPEX plan in more detail.