SSE plc

Good morning and welcome to our interim results presentation. Before we begin, let me first address today's announcement that I intend to retire from SSE during 2025 after 11 years leading the company. It's been an immense privilege to be SSE's chief executive and I am extremely proud of what we have achieved during my time here. However, I believe the time is right for the Board to begin the search for a successor, and I'm fully committed to delivering a smooth handover that maintains momentum on our significant growth plans. Our Chair, Sir John Manzoni, will lead the appointment process, taking account of our highly capable internal team and the wider market, and we'll update you in due course. In the meantime, I, along with the rest of the executive team, remain fully focused on delivering our strategy. I'm joined this morning by Barry O'Regan, our Chief Financial Officer, and Martin Pibbworth, our Chief Commercial Officer. And, as you will hear shortly, there is plenty to be getting on with as we make the most of the significant opportunities in front of us. We'd be delighted to take your questions after we present what has been a strong start to the year as we continue to drive high-quality, sustainable earnings across the Group. I'll start with our number one priority, safety. I'm pleased to say we've seen a significant reduction in both the number of injuries and the total recordable injury rate compared with the same period last year. In April 2024, we opened an industry-leading immersive safety centre where actors bring the reality of a safety incident to life for our employees and contractors. We've already put over 6,000 employees and partners through this programme and hope this investment will continue to have a real-world impact in ensuring everyone working for SSE gets home safely. You've heard me speak before about the mission-critical role SSE has in the clean energy transition in our core markets, markets that are increasingly attractive. Decarbonisation and electrification are two defining structural trends, and while climate targets have slipped in some parts of the world and the implications of a new US administration are yet to be seen, the deployment of clean power in our home markets is accelerating. We are uniquely placed to benefit with one of the best clean energy portfolios in the world, spanning renewables, flexibility and electricity networks. These are the key enablers of net zero and energy security more broadly. Our balanced business mix provides multiple short growth options in offshore and onshore wind, hydro, carbon capture, batteries, transmission and distribution. This mix also provides deep resilience, enabling us to generate value through a variety of market conditions as we've seen in recent years. And these tailwinds are strengthening. In the UK, our biggest market, the government has put delivery of clean power in an accelerated timescale at the heart of its growth agenda. Already in the first few months of the Parliament, we've seen the new government taking bold steps at a noticeably faster pace as it seeks to put its 2030 Clean Power Mission into action. Whether it's spending, speeding up the outdated planning system for electricity infrastructure in Scotland, or long overdue support for long duration storage projects like Corrie Glass, the policy landscape is already more supportive than it was at our full year results in May. And the NISA was now handed over to government, its detailed priorities for successful pathways to clean power by 2030. They point to the pace of strategic investment that will be required for economic growth. Whichever way you look at it, SSE is ideally placed to deliver a significant proportion of any 2030 Clean Power Plan. But it isn't just a UK story. As other countries intensify their focus on clean energy, there will be opportunities in other geographies across the EU and Japan where we have a growing presence. So whether at home or abroad, SSE is a business with the right strategy, in the right markets, at the right time, with a once in a generation opportunity before us. We're now at the midpoint of our five-year fully funded investment plan that will see us target around 20 billion pounds in capex investment to drive long-term earnings growth. The Net Acceleration Programme Plus or NSAT Plus is supported by world-class assets and pipelines, balance sheet strength, capital discipline and highly capable teams. This is essentially a clean power plan. And as you'll hear throughout this presentation, we're making significant progress on delivering it. It gives us a clear pathway to deliver strong and increasingly high-quality growth, which includes increasing adjusted EPS to between 175 to 200 pence by 2027. So in summary, this is a company at the heart of the clean energy transition that is delivering investment in world class assets, creating sustainable value for shareholders and society, a carefully balanced business mix that provides deep resilience and multiple growth options and a highly disciplined approach to investment with never increasing organic pipeline of projects that offer long term value creation. Whether your eyes on today, this decade or beyond, SSE is well-placed, well-balanced and fit for the future. I'll now hand you over to Barry.

Thank you, Alistair, and good morning, everyone. I'll now take you through what was a strong start to the financial year before touching on our continued confidence in the long-term financial outlook. In the first half, the group delivered adjusted operating profit of £860 million, 24% higher than the prior year. I'll step through the business by business movements shortly, but first I want to highlight the changes in earnings mix coming through the results today. As you may have noticed in May, the higher contribution from our networks businesses this year has not only increased the predictability of results, but also reduced the level of seasonality in group profitability. And this up-weighted contribution, combined with an improvement in renewables performance that reflects weather conditions and year-on-year capacity increases, meant that these businesses delivered twice the total operating profit they did in the prior period. Meanwhile, these same weather conditions contributed to more stable markets, which saw the thermal business make a small loss in the first half. This is a strong group performance that shows the benefits of our business mix and the value from our investments starting to come true. Turning to that investment, our continued focus on networks and renewables meant around 90% of the £1.3 billion invested in the period was in these businesses and their delivery of high quality earnings. Overall, the group delivered adjusted EPS of 49.8p in line with our expectations for the period. Turning to SSEN transmissions performance, adjusted operating profit decreased by 27% to 157 million pounds. Despite growing investments and therefore underlying revenue allowances, the year-on-year reduction includes a one-off timing effect after the business benefited from full expensing accelerated capital allowances in the prior period. In addition to this economically neutral timing effect, the cost of transmissions workforce continues to grow in preparation for the major investment program Alistair will cover later, and depreciation has increased as the asset base expands. SSEN Distributions operating profit was up 188% year-on-year to £346 million. As we have flagged before, and in line with our guidance for the business for the full financial year, this is because allowed revenues include a multi-year cost inflation catch-up. This follows a sustained period of high inflation rates which were not reflected in tariffs, which are set 15 months before the start of the financial year. In renewables, we were delighted to announce that Viking reached full commercial operations in August. When combined with a full contribution from Seagreen Wind Farm and our Salisbury battery facility, the business finished the period with over one gigawatt of additional installed capacity when compared to the same six months last year. And after adverse weather in the previous summer, the period saw a return to favourable conditions, which output increasing across wind and hydro. Combined with the increase in hedge prices, these factors meant that SSE Renewables' operating profit increased by 287% year-on-year to £336 million. As we highlighted in May, we fully expected that thermal and gas storage operating profits would be significantly lower than the prior year, reflecting market prices and assumed normal volatility. The favourable weather conditions shown on the previous slide for renewables also contributed to the more stable market conditions over the summer, meaning that flexible thermal generation was not required to the same extent as in previous years. Turning to gas storage, the business continues to make a seasonal loss, which is expected to revert back to profitability for the full financial year. With already contracted increases in capacity market payments not due to start for another 18 months, the market environment outlined above drove a combined operating loss for these businesses of £44 million for the half year. In our customers' business, we are continuing to see supply margins return to more sustainable levels. In electricity, with competitive and responsible pricing in place, we have been implementing tariff decreases whilst continuing to support vulnerable customers. And while business energy was affected by lower volumes, the decrease in customer tariffs across the businesses also contributed to lower levels of bad debt provisions required. With customers' needs and expectations evolving rapidly, combined with an increasing market requirement for low-carbon power supply solutions, the importance of this business as a route to market for renewable generation will only increase. And turning very briefly to our other businesses, I would highlight that we have commenced a reorganisation of SSE Enterprise, which will see existing activities integrated into other business units for a simpler group organisational structure that provides an enhanced platform for growth. Below the line, net finance charges rose reflecting the interest on Seagreen project financing, while the fall in tax rate was driven by the full expensing capital allowance relief available on our investment programme. As we have guided to previously, we expect the benefit from full expensing to increase in line with our CapEx delivery and our current tax rate to continue to fall to an average of 12% over our five-year plan. Dividends continue to be an important part of delivering value to our investors. And in line with the plan set out 18 months ago, we've today declared an interim dividend of 21.2 pence, reflecting an increase of 6% on the prior year. and we will make the recommendation for the final dividend in May alongside publication of full year results. Our commitments to delivering on the FY27 dividend plan remains as we target dividend growth of between 5% to 10% per annum, whilst also restricting earnings dilution from the script option. The strength and stability of SSE's capital structure has been a significant part of the Group's delivery in recent years, as it has navigated volatile commodity prices, increased collateral requirements and higher interest rates. Looking forward, it is this same strength and stability that will enable the Group to increase investment in high-quality, long-term infrastructure required for the energy transition. And that increased investment has meant that adjusted net debt rose to £9.8 billion at September 24, with 94% held at fixed rates. The successful issuance by SSEN Transmission of an €850 million each year green bond in August 24 at an attractive fixed rate has solidified SSEN's status as the largest corporate issuer of green bonds in the UK. and we have replaced our existing credit facilities with enhanced sustainability linked facilities that will run to the end of the decade and provide a good liquidity base. There is a lot of detail on this slide, but ultimately not much has changed since May. We have seen the stronger performance from networks and renewables come through the results presentation today in line with our expectations of better performance. And whilst the weather conditions meant flexible thermal generation was not required to the same extent during the first half of the year, we still expect the business to benefit over the key winter months and deliver around £200 million of profits. Looking out over the medium term to FY27, the progress made to date on our investment plan means we continue to have confidence in the long-term earnings projections for our businesses. As ever, final performance for FY25 will be dependent upon market conditions, plant availability and the weather over the second half of the financial year. And therefore, consistent with the approach we have taken in the past, we will look to give specific EPS guidance later in the financial year. Finally, I wanted to return to the value creation we see out to FY27. We are now halfway through the five-year investment plan, and with around 80% of CapEx either delivered or committed, we are seeing the benefits of that capacity additions and regulatory asset growth that are a core part of that plan. And with ever-increasing investment each year, we're expecting to deliver around £20 billion of CapEx by 2027 as we progress through the plan. Whilst phasing of spend may mean we don't hit this number exactly, that does not affect our confidence in achieving our earnings targets. Crucially, we have already locked in and are delivering on the key projects that will deliver our FY27 earnings guidance. And we have done so through the selective progression of organic projects with a highly disciplined commitment to hurdle rates. This ensures delivery of attractive risk adjusted returns over any volume targets. And it is this commitment to disciplined investment that drives our confidence in achieving not only our 175 to 200p guidance, but also a higher quality of earnings for the group. This is high quality value creation that we expect to be delivering for years to come. I'll now pass you over to Martin to talk through operational performance for the energy businesses.

Thank you, Barry. As Alastair said earlier, accelerated clean power targets are making our markets increasingly attractive for investments. Whilst energy markets have settled at lower levels than those we experienced during the last few years, gas prices remain historically strong. Peak spark spreads are positive and the capacity mechanism is increasing over time. Our portfolio of businesses is designed to react to changes in the price environment. High wind speeds are obviously good for onshore and offshore assets. But when the wind doesn't blow, our hydro and growing battery flexibility protects renewables from overexposure to pricing events. And our thermal fleet is able to dispatch in line with the positive pricing dynamics. Our FY27 earnings guidance is based upon a long-term assumed power price for unhedged renewables that is consistently tracking below the GB base load price. This is despite historically low spark spreads and a dislocated UK carbon price impacting the future market value assessments. Both could offer upside to our price scenario. Our guidance is also underpinned by rising capacity mechanism price in GB and Ireland. But it is also based upon a measured assessment of the option value of assets that offer market flexibility. Finally, we are continuing to lock in future value through our hedging activities and, with almost half of our hedge position through gas equivalents, we would expect the outturn prices to be significantly higher once spark, carbon and traded option values are factored in. Our hedge books therefore offer a guide to an income floor rather than a locked in energy value. And it really is worth re-emphasizing the risk management quality of our energy book. No other UK competitor has day-to-day hedging and trading optionality at every price point in the merit order. This offers a level of protection and assurance to the exposures of the group that allows us to trade in additional value and supports our confidence. A key aspect of this is relentlessly converting our project pipeline to deliver high quality, sustainable earnings growth. In renewables, our delivery record has led to a 45% increase in output year on year as projects come through and generate. At Seagreen, Scotland's largest offshore wind farm, the asset is performing exceptionally well in its first full year of operations. In hydro, the plant at Tummel has been repowered and its generation potential increased with the biggest overhaul in its 91 year history and we are carrying out other improvement works across the fleet. And we've deployed our first battery projects at Salisbury, with work currently ongoing on our 320 megawatt battery projects at Monk Fryston, which is the largest of its kind in the UK under construction. We continue to create future value too. We were successful in the North Sea with Aymood and Vair, where we are looking towards financial close towards the end of 2025. In AR6 with Cloysha on Shore Wind Farm, and in RES4 with Drumner Howe. As ever, financial discipline remains paramount, and we will only pursue opportunities domestically and internationally where they meet the bar we have set on returns. Our focus on quality of earnings means that by 2027, around 50% of our renewables output will ultimately be contracted, providing reliable recurring income and optimising our level of market exposure. Completion of Viking Wind Farm over the summer, on time and on budget, represented a major milestone for SSE, whilst demonstrating our ability to deliver across a number of businesses. We took the financial investment decision on a merchant revenue basis, before locking in value through two 15-year CFD auctions, which achieved an average of £67 per MWh in today's prices. First conceived more than 20 years ago, Viking will continue to create societal and commercial value for decades, as well as leaving a legacy of enabling Shetland to access the UK grid. Viking is just one of any number of examples of SSC showcasing its skills across energy markets in terms of commercial optimization, regulatory engagements, engineering solutions, and environmental standards, whilst managing multi-supply relationships to deliver complex, highly technical projects. Seagreen offers evidence of the same, likewise KB2 or Slough Multifuel. And of course, SSCN transmissions pioneering HVDC link to Shetland, which Alistair will talk about shortly. The point is that in all of these projects, the group took a long-term approach, applied strategic insight and brought together a blend of commercial, engineering and development skills to create long-term value. In a similar way, Dogger Bank will be a world-class asset with excellent long-term prospects. As is often the case with first-of-a-kind technologies being deployed on this scale, it too has faced challenges, particularly related to the issues with the Haliade X turbines and the remedial actions required by manufacturer GE Vinnova. We are continuing to make progress on installing and commissioning at Dogger Bank A, and as I speak, the vessel is out on site preparing to start installation of the 32nd turbine. Improvements are starting to come through and we will seek to make up lost ground where possible as we target completion in the second half of 2025. For their part, GE have revised their operational procedures and quality assurance thresholds, whilst introducing additional controls to ensure the long-term performance of turbines installed and commissioned. In parallel, work continues apace on doggobank B and C. We already have most of the monopile and transition pieces in place on B and are well underway in procuring a second turbine installation vessel. Importantly, even with this delay and second vessel, we continue to expect our equity returns across all three phases will be comfortably above our hurdle rates. And as we have learned over many years of building major infrastructure projects, it's important to take a long-term view. Dogger Bank will be the world's largest offshore wind farm, able to power around 6 million homes, with an operational life in a region of 35 years. It will create real value for decades to come, whilst building deep supply chain relationships, enhancing expertise and generating further option value through a potential fourth phase at Dogger Bank D. With 5 gigawatts of renewables capacity already installed and around 2.5 gigawatts under construction, the bulk of our 9 gigawatt FY27 target is well underway. And we have been clear throughout the execution of our plan that our focus is on value over volume, with clear hurdle rates that need to be met before we take an investment decision. Building out with discipline may mean that it takes longer to take projects into construction, particularly given the turbulence of the last few years. However, with a portfolio of high quality options, we believe this is the right approach to delivering value. And as Barry highlighted in May, we do not need to take FID on the 1.5 gigawatt balance to reach our FY27 earnings target. We believe our growing 17 gigawatts of diverse early and late stage options will be required under every scenario in the future energy system, with major projects like Barrick Bank and Corrie Glass capable of making a vital contribution once policy and planning hurdles are overcome. Our projects are unique in their scale, but sites like our pump storage options offer market responsiveness qualities that we, and indeed the NISO in its recommendations to government, believe to be strategically critical. Geographically, our primary focus remains GB and Ireland, but we continue to make progress internationally with projects under construction in Hubera, Shontrix and Puglia, taking our southern European portfolio of in-construction sites to over 100 megawatts. With recent auction successes in the Netherlands and with auctions ahead in Japan, we will continue to selectively grow our international pipeline where it makes strong financial sense to do so. The critical role that flexible thermal generation will play in supporting security of supply in a future energy system is becoming better understood. Policymakers are recognising the pressing need to back up a renewables-led system and greater value is being placed on availability in a tightening market, with our fleet locking in more than £1 billion of capacity market revenues over the five-year plan. As demand grows and legacy nuclear sites retire, we expect future capacity mechanism outturns to remain strong and ensure ageing CCGTs can extend their asset lives. As with elsewhere in the group, delivery is the key focus within thermal and the business has operationally performed well, with fewer unplanned outages during the period. Strategic milestones have also been met in the first half of the year with completion, ahead of time and within budget, of the joint venture 55MW Slough Multifuel Plant. And consent has been granted for 300MW of new-build biofuel generation capacity at the Tarbert Next Generation Plant, a project that will contribute to much-needed security of supply in an increasingly tight Irish market. Looking further ahead, we remain committed to offering hydrogen and carbon capture and storage generation solutions as the business progresses a four gigawatt development pipeline that could deliver clean, flexible assets towards the end of this decade and into the early 2030s. Whilst SSE is primarily focused on the supply of electricity, it is becoming increasingly clear that the demand side can not only drive an increased need for our product, but in the form of CPPAs, it can also provide vital routes to market and underpin new generation investments. In our customers' business, we are leveraging the group's capabilities across the energy value chain to offer increasingly integrated solutions to large corporates across the UK and Ireland. These include more bespoke green contracts, longer duration sales agreements and hybrid offerings that assist end users with their own net zero ambitions. We are also continuing to supply energy and efficiency solutions to households in the vertically integrated Irish markets and having supported customers through the worst impacts of the cost of living crisis by forgoing profits, this business is returning to more normal operating conditions. Our customers' business will continue to provide an important shopfront option to our wider energy businesses in the years ahead. I'll now hand back to Alistair.