SSE plc

Good morning everyone and welcome to our full year results presentation. I'm joined today by our Finance Director Gregor Alexander and Chief Commercial Officer Martin Pibworth. Over the next 45 minutes we'll cover in detail three things. Firstly, how a year of strong operational delivery has resulted in our financial objectives being met with adjusted EPS growing at a rate above the long-term target set in November and delivery of record capex. Secondly, how our resilient business mix is helping to navigate the group through exceptionally volatile markets. It gives us good earnings inflation protection, natural hedges and options right across the energy value chain. And finally, the prospect of further accelerated investment and growth as an encouraging financial outlook allows us to target further record investment of at least £2.5 billion. 2023 adjusted EPS of at least 120 pence and an increase to our target for adjusted EPS growth over the five years to March 2026. Critically, against the backdrop of a global gas crisis, the profit we are making has been reinvested at record levels into delivering clean energy infrastructure. And we will continue to invest at scale based on the clear opportunities we see in the coming years to deliver on the government ambitions, assuming a continued supportive policy environment. Our net investment into vital UK and Ireland infrastructure could exceed £25 billion this decade, creating thousands of jobs and directly addressing the energy crisis. SSE's strategy is responsive to the changing world around us. COP26 in November and the stark warnings that followed from the IPCC made clear the urgency needed on climate action. But volatile gas prices and the invasion of Ukraine have also led to policy change in the UK, the EU and further afield. In our fully funded net zero acceleration programme, which we'll refer to as the NSAP from here on, We provided a floor, not a ceiling of ambition, aligning ourselves to a 1.5 degree pathway across the five years to 2026, then on to 2031. We covered funding plans, capacity additions, pipeline targets, RAV targets and what this would mean for shareholder returns. And it was well received by the rating agencies. If anything, events this year have served to accelerate the long-term electrification and decarbonisation of energy which underpinned our NZAP and which are translating into more options for the second half of the decade. The NZAP set out the optimal pathway for SSE to grow and in the six months since we published it, I've become even more confident that with our capabilities, our pipeline prospects and the increasingly supportive operating environment, we can meet and potentially exceed these ambitions. Part of my confidence comes from how, in the face of some very challenging conditions, we've delivered our financial targets for the year and invested a record £2.1 billion, underlying the benefit of our resilient, integrated business model to both shareholders and wider society. We'll return to each of these points later, but in SSE Renewables, we have progressed our major projects at Dogger Bank, Seagreen and Viking, made strides internationally through our acquisitions in Southern Europe and Japan, and added one gigawatt to our domestic pipeline with our Scottwind site. And the future looks bright for transmission. Our flagship Shetland-HVDC link continues to be built at pace, while National Grid's network options assessment may clear the critical need for further network development. And the UK Government has thrown its weight behind an even faster, more strategic network build-out as part of its recent British Energy Security Strategy. In distribution we worked through six exceptional weather events in 12 weeks including back-to-back named storms while progressing a shareholder-led plan for ED2 that we continue to engage on with Ofgem and key stakeholders. In thermal commissioning started at QB2 so it provided useful system flexibility and elsewhere in the group we acquired our first solar and battery sites. We also completed the sale of SGN, the last step in a strategic streamlining of the group. And finally, we also announced an upweighting to our 2030 business goals, which are aligned to the UN Sustainable Development Goals to ensure they keep pace with the NSAP. This is clear and demonstrable strategic progress that will create future value, achieved while also delivering shareholder returns today. We need shareholders with us on our net zero journey and that's why they will be given a vote at our AGM on the progress we're making towards decarbonising our own activities. Our recently published net zero transition plan sets out the targets we set for Scope 1 and Scope 2 emissions by 2040 and for the remaining Scope 3 emissions by 2050 alongside our interim science-based targets aligned to a 1.5 degree pathway. The net zero transition will be exactly that, a transition with complex challenges along the way that we will navigate through open dialogue with both our shareholders and wider society. SSE's business model is based around the assets and capabilities required for the global transition to an electrified net-zero economy. This is the result of a highly successful disposals programme and targeted investments, which have created a group with the capabilities and projects to create value right across the clean electricity value chain. Our businesses share common capabilities in the financing, development, building and operation of world-class, highly technical electricity assets. They allow us to specialise in renewables, regulated networks and flexible, low-carbon power stations, while creating value as new opportunities emerge in areas like hydrogen, batteries and distributed energy. And with sustainability a core part of SSE's values, our credentials and performance underlie our positioning as an ESG-aligned growth investment opportunity. We have an attractive blend of regulated and market-based income streams across a very deliberately chosen integrated mix of businesses. Of course our people are central to the execution of our purpose of providing energy needed today while building a better world of energy for tomorrow. As always keeping those people safe remains paramount to SSE. Our record investment in financial year 22 was driven by a surge in construction activity and unfortunately with that came 14 more injuries versus the same period last year and a small rise in our total recordable incident rate. As I say, our 11,000-strong workforce is central to our success, and we'll be creating 1,000 new jobs a year on average in delivering our five-year plan. It's a busy and challenging year. It is the commitment and capability of our people that has enabled the strong growth performance that Gregor will now take us through.

Thanks, Alistair, and good morning, everyone. We outlined in November the scale of capital investment and growth opportunities as well as the market leading capabilities and attractive secured pipeline held by the group. And we are using those capabilities to deliver on those opportunities, investing a record £2.1 billion investment this year with almost 90% of that in low carbon assets and infrastructure. We plan to keep accelerating our investment as we push forward with the net zero transition. And in the financial year 23, we're expecting investment to be in excess of £2.5 billion, including our Southern European acquisition once completed. SSE is delivering the energy needed today, while significantly investing in the innovative low-carbon technologies that will provide the energy needed tomorrow. Alistair outlined earlier how the outlook for companies providing low carbon solutions is strong, but not all of those companies have the balance mix to enable them to weather the unprecedented volatility observed this year. SEC is able to deliver in such uncertain times for a number of reasons. Much of our revenue is index linked, be it via CFDs, ROCs, refit, capacity payments, or through regulated network price controls. Our RAV is also index linked. Our business is designed for variability. Our integrated portfolio means lower win days can be compensated for through the flexibility we have elsewhere in our fleet. And our assets performed very strongly in the balancing market this year because the system valued the flexibility we provided in terms of both generation and storage. We are well funded with a strong balance sheet and we have maintained good liquidity which is important in uncertain times. We have a stable debt profile and our financing strength has enabled us to be nimble in acquisitions. Overall, this year has clearly underscored the advantages of a balanced, integrated business. That business mix played a key part in our strong financial year 22 performance. Higher allowed revenues in the new transmission price control period, combined with higher customer volumes for distribution following coronavirus, have meant our regulated networks businesses have more than recovered from the prior year. And looking at our generation portfolio, lower weather-related renewables output, mainly across the summer months, was more than offset by strong, flexible generation performance in volatile markets. As a result of this strong operational performance, adjusted operating profit increased by around 15% to £1.5 billion. And with 96% of our debt at fixed rates, this strong performance is also reflected in the adjusted profit before tax, which increased by around 23% to £1.2 billion. And finally, adjusted EPS was 95.4 pence. This represented an increase of around 9% on the 87.5 pence originally reported for the financial year 2021. You have noted on the previous slide the marked disparity between reported and adjusted metrics this year. This is the result of exceptional items and fair value re-measurements unrelated to underlying operating performance in the year and which are therefore excluded from SSE's adjusted profit measures. In terms of exceptional items, as touched on earlier, The volatile conditions have enabled strong performance from a flexible generation fleet and gas storage operations. With volatility set to continue in the near term, significant historical impairment charges have now been reversed, resulting in a £429 million exceptional credit to the income statement. This is partly offset by exceptional charges of £230 million, including a write-down of the fair value uplift recognised on the part disposal of our NIOS telecoms business. We completed our £2 billion plus disposals programme announced in June 2020, with the sale of our stake in SGN for nearly £1.3 billion in cash proceeds in March. which generated £577 million of exceptional gains. From our initial outlay of £505 million for a 50% stake in 2005, SDN has delivered an IRR for the group of over 18%. Overall, we achieved headline consideration of over £2.8 billion from our disposals programme, significantly more than the original £2 billion target. Turning to fair value re-measurements, as with previous years, SSE has entered into forward purchase contracts for power, gas and other commodities that fall under IFRS 9 and are required to be recorded at their fair value at 31 March. The positive movement of £2.1 billion reported in the income statement is a relative increase in the fair value of these contracts reflecting the remarkable market conditions. However, this fair value movement does not reflect the overall group position on forward contracts, as it excludes fair value movements on forward contracts deemed to be for the group's own use under IFRS 9, which predominantly relates to contracted power sales contracts. In fact, there is an unrealised £2 billion of negative movement in the fair value of these own-use contracts in 21-22, which largely offsets the IFRS fair value re-measurement gains reported. For SSEN transmission, adjusted doctor-aimed profit increased by 72% to £381 million. mainly driven by increases in allowed revenues under the new price control as the business continues to position itself to deliver further growth across the remainder of the decade. Increased allowed revenue was supported by increased investment in network build-out and resilience, which was 41% higher than the prior year. SACN distribution, following a £40 million negative impact from coronavirus in the prior year, saw a recovery of nearly 28% to report adjusted operating profit of £352 million. Higher volumes and allowed revenues were partially offset by increased operating expenses, which included storm costs of around £40 million. Capital investment slightly increased in the period as ED1 committed investment continues to plan. In SEC renewables, adjusted operating profit fell by 22% to £568 million, driven mainly by a lower level of developer profits in the year. A 7% or 0.7 terawires decrease in output year-on-year due to exceptionally still and dry weather during the first half, was offset by a £55 million increased contribution to adjusted operating profit by hydro and pump storage, despite lower than expected rainfall. And strong progress continued on flagship construction projects. with gross investment more than travelling to £952 million, including the Japanese platform acquisition that we'll come to shortly. In thermal and gas storage, adjusted operating profit more than doubled to £337 million and reflected the critical role played by our thermal power stations and gas storage assets in ensuring secure supplies. They were rewarded for their availability and flexibility in volatile energy markets, and we believe the UK electricity system will need substantial flexibility in the future, as we will cover later. Business Energy's performance was broadly flat compared with last year, as the continued recovery from the coronavirus was offset by higher non-commodity costs and mutualisation charges following a significant number of supplier failures during the year. Our electricity adjusted operating profit increased to £60.4 million, driven by refit wind generation receipts. EPM recorded an adjusted operating loss of £16.8 million, resulting from the unwind of a legacy power contract with OVO in a higher commodity environment. The distributed energy result includes predisposal losses from contracting and rail. and corporate unallocated costs increased to £96 million, driven by reductions of income from transitional services agreements with recently sold businesses and increased investment in Group IT. The commodity price environment has led to significant challenges across the industry. However, our established hedging approach has helped us to manage exposure to price volatility And across renewables, we've locked in substantial value for the future. We've increased the value of our hedge prices across the group, reflecting the increases in commodity prices and winter peak spark spreads, which has flowed into forward prices. This sets us up well for future years. SSE's strong balance sheet is underpinned by high quality assets and we remain well financed and well set for our NZAP period and beyond. Our S&P credit rating remains at BBB Plus Stable Outlook and our Moody's rating remains at BA1, having been updated to Stable Outlook on publication of our NZAP. These compare favourably to peers and reflect the stability from the group's business mix, funding plans and future dividends. In March, we successfully agreed a new £350 million private placement to support critical transmission investment. And in April, we launched a successful €1 billion hybrid bond, the coupon of 4% to replace our hybrids from 2017. SSE's adjusted net debt and hybrid capital has decreased by £300 million to £8.6 billion, with the SGN sale clearly playing a part. We've beaten our target of 4.5 times the ratio of net debt to EBITDA at the end of this financial year. Our defined benefit pension schemes continue to perform well, with both schemes in surplus at the year end. Our well-supported NZAP included proposed sales of minority interest stakes in our electricity networks businesses. These are highly quality core businesses and we intend to retain control. But the scale of potential growth and the associated investment required mean that bringing in minority partners will create greater long-term value for shareholders. This will enable us to harness significant growth in networks whilst maintaining an attractive balance of capital allocation across the group. We've recently commenced a sales process for a 25% share of the SSEN transmission business first, primarily due to the fact that its growth is clearer given that its price control runs ahead of distributions. A decision and the timing of a similar stake sale in SSE end distribution will be made later in the financial year. SSE expects that its highly prized assets will generate strong interest in the market from financial partners, being a significant pool of investors seeking such an investment and who are content to leave SSE to add management value as the operator. Finally, I will cover the dividend and our financial outlook. We remain committed to our existing five-year dividend plan, financial year 23, which targets dividend increases in line with RPI each year. In line with that clear commitment, we will propose a financial year 22 full-year dividend of 85.7 pence. shareholders will continue to receive a script dividend option. However, as previously announced, take-up will be capped at 25%. Following completion of our existing commitments to FY23, we will rebase our dividend to 60 pence in FY24 before targeting at least 5% dividend increases in FY25 and FY26. Turning to the financial year 23 outlook, for transmission, SSE expects to report strong growth and adjusted EBIT with a 20% increase in allowed revenues under the Rio2T2 price control as the network continues to expand its operational capability and asset base. For renewables, Assuming normal weather and plant availability, SSE expects to report generation output of 11.4 TWh, including 0.9 TWh of output from Seagreen. And for thermal, assuming normal plant availability, SSE expects to report adjusted EBIT of at least the same level as financial year 2022, excluding the benefit of Keyed B2. Taking the above into account, SEC therefore currently expects to report full-year adjusted earnings per share of at least 120 pence, an investment in excess of £2.5 billion. In addition to the strong performance expected this year, SSE is today updating adjusted EPS CAGR target out to the financial year 26, from 5% to 7% to between 7% to 10%. This is as a result of confidence derived from strong delivery in the financial year 2022, higher inflation forecasts, higher and more volatile energy commodity prices and evidence of increased value creation potential from flexible generation and gas storage assets. Importantly, this earnings growth will be put to good use It will underpin the huge increase in investment we are making into critical national infrastructure that will deliver cheaper, cleaner, homegrown energy for decades to come. I'll now hand you over to Martin.

Thank you Gregor and good morning everybody. In the context of the global push to phase out reliance on Russian gas and accelerate the transition to low carbon electricity, there is increased volatility but also increased opportunity in low carbon infrastructure across Europe. As we have seen in recent EU and UK policy documents, more wind, more solar, and more flexibility will be needed. And the breadth and balance of our businesses mean we are extremely well-placed to provide these solutions. So I'll now take you through the strategic delivery and value creation we're driving from the market-based businesses within the portfolio. In renewables, we have a world-class business. As the new MD, Stephen Wheeler brings decades of wider energy sector experience to the role. He transformed SSE Thermal and before that worked internationally at ABB and Siemens. He was also part of the management team that successfully grew Atricity's renewable energy platform before SSE acquired it in 2008. The new technology-based operating model Stephen has put in place sees distinct teams for offshore and onshore Europe with end-to-end accountability for the development, construction and operation of their assets. Under this new structure, Stephen is supported by a leadership team with vast experience, including Barry O'Regan as Finance Director. Barry also joined the group in 2008 as part of the successful AirTricity management team. As the company building more offshore wind than anyone on the planet, we have proven our ability to manage complex global supply chains and compete for talent. We are creating a team with the experience and capability to deliver on our international ambitions, building on the significant international pedigree we already have. This year, we were joined by the hugely talented Japanese team from the SSE Pacifico transaction. In a few months time, we will be joined by the Siemens Gamesa Renewables team in Southern Europe. We are blending our deep experience and capability as one of the world's leading developers with in-country specialists in the markets we are entering. People remain SSE's biggest assets and the breadth and depth of experience in the Renewables team will drive long-term domestic and international growth. Around £5 billion of investment within our £12.5 billion CapEx plan has been allocated to renewables. Around 50% of this investment is on assets currently under construction, and by 2026 we will have built Seagreen, Dogger Bank and Viking, adding 2.4 gigawatts of renewable capacity to the portfolio. At Seagreen, we have made progress with 21 turbines now installed. Setbacks can occur on construction projects of this scale. However, the experienced project team are doing a great job and will continue to monitor any project delivery impacts from the widely reported issue with the turbine installation vessel. At present, we anticipate first power in July with commercial operations by mid-April 2023. Seagreen's projected financial returns remain in line with expectations at financial close. Onshore works have progressed well at Dogger Bank, which will be the world's largest offshore wind farm, and offshore construction got underway in April as planned. At Viking, construction is going very well, with the onshore transmission works expected to be largely complete this year. Turbine installation will begin in early 2023 and it is expected to be one of the UK's most productive onshore wind farms. The delivery of these wind projects and many more will be required for a net zero world. As we have seen this year, however, the wind doesn't always blow and requirements for fast response, dispatchable generation has increased as the UK continues to progress through its energy transition. In addition, we have noted that the demand for ancillary and voltage support services has also increased and we expect all of these trends to sustain. SSE's hydro fleet and pumped storage asset at Foyers offers all of these services at scale and we continue to see the hydro business as the jewel in the crown of our generation assets. Our confidence in its increasing contribution to the energy transition is reflected in the circa £50 million of capex that we are investing each year into maintaining and modernising the portfolio to increase ramp rates, water capture, storage capacities and overall flexibility. This confidence, alongside the growing logic for further capacity, is reflected in our investment into Corrie Glass, which would be the UK's largest pumped hydro storage project and the first built in over 30 years. Located in the Highlands, the consented 1.5 gigawatt project would have 30 gigawatt hours of storage, more than doubling existing UK power storage capacity. The system benefits are vast and include reducing wind curtailment and helping accommodate more wind, as well as displacing fossil plants. To progress to investment, it does not need subsidy, rather revenue stabilisation, and it was encouraging to see the UK government committing to developing appropriate policy to enable investments into long-duration energy storage in its recent energy strategy. We will examine all options for bringing this plant onto the market. We have made significant progress exporting our capabilities in renewable energy to carefully selected international markets. We have been disciplined and we have secured valuable options for the future. Most recently, we were very happy to have agreed the acquisition of the European Onshore Wind Development Platform from Siemens Gamesa Renewable Energy. It marks our entry into Southern Europe with a circa 3.9 gigawatt portfolio of early stage onshore wind development projects across France, Italy, Greece and Spain with scope for up to one gigawatt of additional co-located solar development opportunities. SSE will take on a team of around 40 Siemens Gamesa employees with vast experience in the sector and a transaction is likely to complete in September. The aim is to have around 500 megawatts of the portfolio of renewable projects operational by March 2026 with at least 500 megawatts more in construction and by financial year 31 we'd expect to see the development platform contributing up to 3 gigawatts towards our renewable capacity targets. The four countries in which the acquired portfolio of development assets are located have strong growth prospects, underpinned by 2030 renewables or carbon reduction targets. It is an exciting acquisition and will provide an excellent base for further development opportunities across onshore and offshore wind, solar, batteries and hydrogen. Closer to home, in December we won one of the premier sites in the ScotWind process with our partners at Marabeni and CIP. This gave us the rights to develop what will become one of the world's largest floating offshore wind farms off the east coast of Scotland. The site is close to our existing Seagreen and Berwick Bank sites, giving obvious benefits. The lease area has average depths of 72 meters, making the site suitable deploying floating offshore wind to deliver up to 2.6 gigawatts of new capacity. We are targeting first generation before the end of this decade. Our ScotWind win, Southern European acquisition and the optimisation of some of our existing sites represent important strides towards the pipeline target for financial year 26 of more than 15 gigawatts. With more opportunities to grow, the pipeline to come, we remain confident. The UK and Ireland remain our core markets and our development team will continue to explore high quality development opportunities such as the Crown Estate's Celtic Sea leasing round and Ireland's marine area consent seabed leasing process. We are also keen to export our offshore expertise and in the Netherlands have partnered with Brookfield to bid for tenders for the two 700 megawatt sites within the Holland's Coast West wind farm zone which are currently underway. We have also announced with our partners, Acciona, our application for development rights for an offshore wind farm in the Baltic Sea in Poland. Earlier this year, we created SSC Pacifico with Pacifico Energy, acquiring around eight gigawatts of early stage development prospects in Japan in the process. Our office in Tokyo is the base for our talented team who are progressing these prospects with the aim to start entering bid rounds around the middle of the decade. And finally, we have opened an office in America to pursue a number of opportunities there. Taken together, as you can see here, we are already beginning to make serious headway on our NSAP ambitions. With the ongoing construction projects complemented by pipeline additions from the ScotWind auction and European platform acquisition, we are well positioned to meet or indeed exceed expectations by 2031. We have seen this year how important thermal plant is to complementing renewables capacity on the system and SSE Thermal is well positioned to deliver this flexibility to the markets both now and in the future. The business has a talented new MD in Catherine Raw who has significant experience in commodity markets and investments. SSE's existing fleet remains critical as we transition, providing energy and a whole host of system services. These assets successfully secured £270 million worth of contracts in the capacity auctions this year. However, gas power stations will clearly need to decarbonise, and we continue to envisage the closure of more than 50% of the existing fleet by 2030, subject to security supply requirements. We don't often talk about the gas storage business, but at times like these we should. It has played a critical role in the UK's energy security this year and will play an important role in the portfolio over the coming years. In addition to supporting the system today, our gas storage assets also have potential as hydrogen storage facilities in the future. Thermal currently brings a huge amount of value to the portfolio, principally through selling its generation output for spark, the price arbitrage between gas and carbon input costs and realised electricity revenue. But whilst that is important, it is far from the whole story. Indeed, in an increasingly volatile renewables-led system, it is the option value of being able to respond to forward market volatility and the value its flexibility brings to balancing the system on the day that is increasingly important. Having an efficient, responsive, best-in-class fleet is critical over the short to medium term. The business has a strong strategic logic as part of the SSE Group, providing balance when wind speeds are low, as we have seen this financial year. Looking ahead to the medium to long term, it is state-of-the-art assets like our brand new CCGT at KeyB2 and our pipeline of CCS and hydrogen options that will drive this strategic value in future. KeyB2 will be Europe's most efficient CCGT. It will displace output from older, less efficient plants, reducing both GB demand for gas and carbon emissions. Commissioning started in October 2021 with full commercial operation targeted for 1 October 2022. The station is capable of being upgraded to further decarbonise through carbon capture or hydrogen technology as routes to market develop, but will play a critical security of supply role over the rest of this decade. Ultimately, the system benefits of the existing thermal fleet need to be replicated in a net zero world, and for this we need to see progress with CCS and hydrogen generation. We have been encouraged by the government's commitment to its cluster sequencing process. As part of this, our Kibi CCS plant is progressing within the Humber Teesside cluster, but we believe the reserve cluster at Peterhead is moving too slowly. In addition to those credible CCS projects that we are progressing with Equinor, we are also seeking to pioneer a first-of-a-kind hydrogen-fuelled power station adjacent to Keebee CCS, and our Medway power station is well located to deliver future hydrogen solutions in the Thames Estuary. Hydrogen power could be a very useful peaking plant in a net-zero world. With hydrogen being pursued by SSE Renewables at our wind farms at Gordon Bush and Galway, and through Thermals Hydrogen projects, alongside the potential for repurposing Albra gas storage over time, we're beginning to build options for the hydrogen components of net zero. Yet another example of the optionality resulting from being an integrated SSE group. Of course, SSE retains a direct link to customers through SSE Business Energy and SSE Electricity. Business Energy offers a route to market for renewable power and with the advance of PPAs and corporate decarbonisation, the potential for growth is clear and the synergies are evident. In Ireland, this is particularly the case with data centre growth. And whilst the group is no longer active in a domestic retail market in GB, in Ireland, SSC Electricity is a great business that works alongside Generation in the more integrated Irish market structure. Customer businesses are our green shop fronts and they share important linkages within the group. We have refocused our distributed energy business over the last few years to primarily focus on batteries and solar. And the battery and solar teams have made significant progress this year. Last August we announced our first battery acquisition with a 50MW site in Salisbury and in January our first 30MW solar acquisition. Our existing grid connections at former coal-fired sites also put SSE in a relatively unique position to deploy battery storage at scale and pace with 150 megawatt opportunities being considered at Ferry Bridge and at Fiddler's Ferry. Our secured solar and battery pipeline is now 380 megawatts with more than a gigawatt of other opportunities being evaluated. As with batteries, solar can be deployed quickly within the current CAPEX program. And these businesses undoubtedly benefit from being part of our integrated group. I'll now hand back to Alistair to talk about the regulated networks businesses.