SSE plc

Good morning and welcome to our full year results presentation, my 12th and final as SSE's Chief Executive. I'm joined today by Barry O'Regan, our Chief Financial Officer, and Martin Pibworth, our Chief Executive Designate. We'd be delighted to take your questions after we present another strong set of earnings for the group. Let me start with a few words on the performance measure that is paramount in everything we do. Our combined total recordable injury rate is at its lowest in three years. And within that, the performance among our contract partners is particularly encouraging. This has been an area of focus in recent years as our investment plan has grown. We believe our industry-leading immersive training programme is having a positive impact, with more than 8,500 employees and around 1,000 contractors having been through it in its first year. The initiative uses state-of-the-art technology to improve understanding of the impact and consequences of safety failures. In the wider interests of advancing workplace safety, we're extending the training to interested organisations outside of SSE. We've delivered world-class assets and met our financial objectives, demonstrating yet again the value we are creating from our five-year net zero acceleration program plus investment plan. And we offer a compelling investment case through our balanced business mix and ongoing investment. We have delivered strong earnings and dividend growth in line with guidance. That value can be measured not only in shareholder return today, but also in the tangible contribution we're making to energy security and affordability tomorrow. Performance in the year has been underpinned by steadily increasing high-quality earnings from regulated networks and renewables growth. Over the past three years, we've seen our regulated networks asset base increase by around 60% as we continue to build a network for net zero. Renewables has also seen disciplined growth come through, with volumes increasing by around 40% from flagship projects such as Seagreen and Viking. Together, the contribution of earnings from regulated electricity networks and renewables has increased from around 60% at the start of the investment plan to around 90% today. And this is before we break ground on the majority of our Asti and Lotte projects or see even more volume flowing from Dogger Bank. The improved visibility of growth we now have allows us to upgrade our expected network asset growth rate from 15% to 20%, slightly ahead of the 15% growth rate in renewables volumes expected over the investment plan. Networks and renewables are at the heart of our balanced business model. They're creating both immediate value and long-term earnings growth. We have always been clear that as opportunities evolve, we would flex the optionality we have and that we would exercise both agility and capital discipline along the way. And as opportunities for accelerated transmission growth have emerged, we've steadily up-weighted our capital allocation to networks. That evolution continues today as we reduce the overall size of our capital investment plan to reflect the changed macro environment and policy and planning delays. It should come as no surprise that the vast majority of that reduction is in our energy businesses, where we have always progressed with strict discipline. Our portfolio of premium investment options in these businesses will be vital to the delivery of the clean energy transition, but we will only progress them when they offer the right risk adjusted returns. This means we are now working to a revised £17.5 billion plan, of which around 60% is weighted towards investment to upgrade the transmission and distribution grids. The past five years have seen some extraordinary changes, from a pandemic to a world economic downturn and wars in Europe and the Middle East. And the unrest continues with rapid changes in tariffs, commodity markets and policy. Throughout, SSE has continued to create value through focused investments in high-quality businesses that are exposed to strong, predictable regulatory environments. Regulated networks offer increased visibility over medium-term investment plans with stable real equity returns and inflation protection. And an increasing proportion of our renewables and flexibility assets also benefit from inflation protection through government-backed contracts for difference and the capacity market. This provides a foundation for growth and value in almost any scenario, with ultimately inflation linked earnings expected to account for around 70% of group EBITDA by 2027 and 91% of existing debt held at fixed rates. As a clean energy champion, we offer reliable earnings linked to an unstoppable drive to electrification. And this gives us every confidence in meeting our 2027 target of 175 to 200 pence earnings per share. Electrification is not only central to everything we do, it is central to a decarbonised economy driven by renewables, networks and flexibility. Each of these pillars underpin the clean energy transition in addition to delivering strong earnings and dividend growth whilst maintaining a strong credit rating. Over the past decade we've rebuilt SSE on these three pillars and Barry and Martin have been with me at every step as we have evolved and adapted. So of course I'm particularly delighted that the group's future will be in their hands following Martin's appointment as Chief Executive Designate. Martin's knowledge of SSE and the energy sector is exceptional and I share the board's confidence that he is the best person to take the company forward. I'll now hand you over to Barry, who will take us through today's results before we hear from Martin on the operating outlook for each of SSE's businesses.

Thank you, Alastair, and good morning, everyone. I will now take you through the financial performance of the group in a year that was marked by improving earnings quality before providing some more detail on how we expect earnings and our balance sheet to evolve out to 2027. Our disciplined investment programme continues to create sustainable earnings growth, and I am delighted to start today by noting our networks and our renewables businesses have each contributed over £1 billion in adjusted operating profit for the first time. I am also pleased to deliver on the commitments we made for the year, with a 160.9p EPS achieved despite the expected normalisation of profitability in our flexible thermal portfolio. and we have continued to progress our growth-enhancing investment plans, delivering capital investment this year of around £2.9 billion. Turning first to our networks businesses, our combined transmission and distribution businesses delivered a 53% increase in adjusted operating profit. All of our licence areas need accelerated investment to meet the Clean Power Challenge, and to fund this, we receive a growing level of underlying allowed revenues. While both businesses had some timing effects, whether inflationary catch-ups for SSEN distribution or tax allowances for SSEN transmission, these were expected under price control forecasts. Overall, our networks businesses have delivered very strong financial and strategic performance in the year. The renewables business saw a record-breaking year, with adjusted operating profit increasing by 25% to just over £1 billion for the first time ever. Capacity additions from Viking, as well as a full year's contribution from Seagreen, drove a 18% increase in output to around 13 terawatt hours, despite variable weather conditions. But a highly profitable year for the business in no way diminishes our commitment to capital and operational discipline. And that discipline has meant we have taken an exceptional £250 million non-cash impairment relating to the slower than anticipated build-out of some parts of our Southern Europe pipeline. With sector-wide delays affecting permitting and grid connections, build-out of this platform has been slower than originally planned. we will continue to create shareholder value rather than simply delivering volume, while sharpening our focus on efficiency in response to shifting market dynamics, as we ensure the business remains fit and competitive enough to deliver on its potential in the coming years. Lower profitability from our conventional thermal generation and gas storage businesses should come as no surprise, as we fully expected markets to normalize following the volatility seen in recent years. However, the spark spread during the period has been low, with market distortion also affecting gas storage. While these businesses have performed strongly over the winter months to deliver profitability in line with guidance, this has been against the context of a challenging market environment. Despite this short-term challenge, the SSC thermal portfolio and pumped storage hydro and batteries offered by SSC Renewables have a critical role to play in the UK energy system, and as Martin will set out shortly, their long-term value has never been clearer. Finally, our other businesses have delivered a 66% increase in adjusted operating profit over the year, which has been predominantly driven by strong performance from our customer-facing businesses. With a focus on serving customers, extending service options and expanding their product portfolio, Energy Customer Solutions continues to play a strategic role for SSE in both the GB and Irish markets. Tight commercial and risk controls have helped these businesses navigate volatility and minimise consumer tariffs whilst returning margins to more sustainable levels. And although profitability slightly decreased in GB while an upgraded customer management system was implemented, we are already starting to see the business benefit from improvements made in customer data quality. Finally, it is worth noting we have now incorporated the activities of SSE Enterprise into other parts of the group to simplify the organizational structure whilst enhancing growth opportunities. Below the line, net finance charges rose, reflecting a higher level of net debt in the period, as well as interest on Seagreen Project Finance. Meanwhile, a declining tax rate was driven by the full expense in capital allowance tax relief available on our investment program. A decline we expect to continue, as we will cover later. In light of today's results, we are recommending a final dividend of 43 pence. taking the full-year dividend to 64.2 pence, which is an increase of 7% on the prior year. Renumerating shareholders will always be an important part of our plans and our commitment to delivering on the growth-enabling 2027 dividend plan remains. As we progress through the remainder of the five-year investment programme, and with half of the investment made, our overall levels of debt remain low and leverage ratios have fallen since the start of the plan. This is testament to the strength of the Group's funding strategy during a period that has seen a huge amount of energy market and interest rate volatility. SSE has a strong balance sheet with room to accommodate an acceleration in investment. In addition, leverage to the end of the fully funded plan remains consistent with being well within investment grade credit ratings, with the net debt to EBITDA ratio expected to be around four times in 2027. Over and above the updated funding plan you can see outlined on the chart, we have a number of levers for additional investment to 2027 and beyond. They include additional debt capacity within strong investment-grade credit ratings, access to around £2 billion of additional hybrid funding, which we expect will continue to increase over time, a portfolio of capital recycling options and partnering opportunities, leveraging our proven track record of realising asset value whilst enabling growth. As part of this, a minority stake sale in our distribution business remains an option open to us, Additionally, some discretionary capex remains within the existing plan and could be subject to cancellation or delay if the right investment conditions don't emerge. These levers offer additional funding headroom within our existing means. It's not an exhaustive list and we retain full optionality on funding sources. One thing is certain. Whatever funding route we choose over the decade ahead, any decisions will be based on the option and timing that will create maximum value for shareholders. You will hear us talk a lot this morning about discipline and efficiency, so I want to take some time to outline how we deliver that in practice. The chart on the left-hand side details our strict hurdle rate criteria by technology, which frames our disciplined approach to capital allocation. These are not notional rates. They are used alongside procurement controls and project-level contingencies to give us confidence to deliver strong risk-adjusted returns. And we have applied that discipline in practice throughout the year, whether through deferring projects in Southern Europe or even closer to home with Blarick Extension, where we chose not to take a financial investment decision reflecting the risk-return profile at this time. With low levels of committed value and plenty of opportunities to deploy CapEx, we will continue to act with agility and discipline. And, as Alistair mentioned earlier, this agility and discipline will naturally mean that our investment plans will evolve to reflect market conditions. At the same time, our internal structures will need to evolve as well to ensure we remain efficient, competitive and best able to deliver on our potential. To that end, over the last few months we have been simplifying our organisational design to remove duplication in resources and enhance efficiency in operating expenses. We expect that this exercise will deliver around £100 million per annum of recurring efficiencies. But immediate savings are not the sole driver. The actions we are taking today will enable the most effective and efficient delivery of our growth tomorrow whilst ensuring resilience and flexibility. As with any long-term investment plan, expectations and assumptions will change over time to reflect the operating environment. The profit guidance for individual businesses will also change over time, but our overall outlook reflects a diverse and resilient business mix with increasingly high quality earnings. In line with our usual practice, we expect to provide earnings guidance for the group later in the financial year. However, we summarise here our expectations for each business across the next two years. Our primary focus is on delivery of sustainable growth by the end of the plan. We are confident about meeting our 2027 target of adjusted EPS between 175 and 200p, given the strength and clarity of the opportunities immediately ahead of us and our emphasis on discipline and operational efficiency. This slide maps out the earnings growth to come over the next two years from the 160.9 adjusted EPS announced today. In flexibility, we have already secured around £150 million of additional capacity market payments in 2027 across flexible thermal and hydro renewables, increasing earnings per share by around 10 pence. Additional renewables capacity, principally Dogger Bank, which Martin will cover later, will deliver around a 40% increase in output. Our hedging approach has already locked in strong prices for that year, with over two-thirds of the merchant exposure hedged at prices of around £75 a MWh. And in networks, the 50% increase in gross RAV we expect over the next two years will deliver increases in allowed revenues, which will more than offset any timing differences anticipated. At the same time, the quality of our earnings continues to improve, with secure and visible revenue contracts as we pivot to where the value lies. We expect circa 85% of earnings to be driven by the networks and renewables businesses, and around 70% of EBITDA will be underpinned by regulated and contracted income. I'll close by reiterating that this is a particularly strong set of results that builds on the success of recent years. We've shown yet again the defensive value of our strategic focus on dependable inflation-linked earnings. I'll now hand over to Martin.

Thanks, Barry. I'm grateful for the kind words in Alistair's introduction, and I'm excited about the role I will take on after our AGM. We are the UK and Irish clean energy champion, and my main focus will be in these core markets where the opportunity is huge. These markets and delivery of the NSAT Plus will be front of mind as we evolve the strategy that Barry, Alistair and I have worked together on for a number of years. It is true that for the first time in the UK, the political consensus on net zero is showing signs of fraying at the edges. Regardless of the politics, the climate science hasn't changed, and I genuinely believe that electrification remains an inevitable and unstoppable societal and investment trend. The journey will clearly be non-linear, as we've seen in the ongoing debate about the validity of net zero targets, but I believe the ultimate destination is clear. Electrified economies powered by renewables-led energy systems. Commercial possibilities for well-positioned players are immense, and thanks to its core integrated mix of businesses and assets, SSE is well set for decades of sustainable growth. Renewables will provide the bulk low carbon power. Networks will be needed to transport it and flexibility will be required for system security. We have a fantastic opportunity right now to lean into the network's investments and grow the group whilst always retaining the flexibility to pivot for future opportunities. And while current market dynamics persist, it is particularly important that we continue to maintain discipline to ensure we create optimal value from the options in our energy businesses. As we build out the energy needed to meet society's needs, this commerciality will be at the forefront of everything we do to ensure we maximise our opportunities. The UK government has set out ambitious plans for decarbonisation by 2030. And while it is earlier days for the Irish government, they have also been crystal clear in their focus to deliver a legally binding 51% emissions reduction target by 2030, ahead of net zero by 2050. These long-term ambitions are welcome, but they need to be accompanied by pacier policy-making decisions. We continue to see green shoots from governments, such as the commitment to progress UK-EU carbon price linking announced earlier this week, something we have long advocated for. However, right now there are a number of outstanding catalysts that will influence the future shape of the sector in the UK, from decisions on market reform and zonal pricing to determinations on networks price controls and the parameters of the upcoming allocation round for renewables contracts. As these are resolved in the coming weeks and months, we will have greater clarity over the speed and scale of emerging opportunities over the next 12 months, but we remain confident that our strategy, shape and strength will serve us well in all likely scenarios. And while we continue to engage to secure the best outcomes for all concerned, the reality is that even if progress slows, the scarcity value in our existing assets will fundamentally be worth more. Ultimately, we have a portfolio that can respond to all likely policy scenarios and market frameworks, giving us confidence in our future earnings growth. In SACN transmission, where we are creating the network needed to transport Scotland's immense renewables potential around the country, we have clear visibility of a transformational growth opportunity. Our near-term delivery is increasingly turning lines on maps into projects in the planning system and assets on the ground. And this year has seen major steps achieved, including consents granted on Argyll and Kintyre and Fort Augustus reinforcements, groundbreaking on the Eagle 2 and Orkney projects, and energisation of the pioneering Shetland HVDC link. But we could also point to plenty of projects across the north of Scotland that illustrate our development, construction and operational strengths. And our confidence in these strengths has led us to upgrade our annual asset growth expectations from 20% to 25% over the plan. On this basis, we believe that the business is one of, if not the fastest growing regulated network in the world. Driving that growth into the future will be our Rio T3 business plan, which will represent one of the most significant programmes of investment ever seen in the north of Scotland, with around £16 billion of approved expenditure and potential for £9.4 billion of further uncertainty mechanism spend. But the numbers alone don't do justice to the full extent of the social and economic benefit this investment will bring to the region. This includes new community benefit funding, projected to be over £100 million, and a commitment to supporting the delivery of 1,000 new homes. At the same time, we are underpinning inward investment in domestic manufacturing facilities and the creation of thousands of skilled supply chain jobs. This is a just transition, not just talked about, but in action, and the vast majority of this plan is required under any future energy scenario. There is also potential for further spend, including a second link to Shetland and investment well beyond 2030 to connect ScotWind projects. But T3's positive impact on customer bills, energy security and economic growth can only be fully realised if the financial parameters are adequate to unlock the investment required and mitigate the related risks. With draft determinations due this summer, it is imperative that Ofgem provides fair returns and adequate cash flows for investors. Ofgem's Asti and Lottie projects form the backbone of our business plan equating to some 16 billion pounds of our investments over the five year price control. These projects are game changing for the GB energy system, alleviating constraints faced by existing generation assets and underpinning the future energy system. They are already locked into our license conditions and we are progressing towards delivery at pace. All substation consent applications required for 2030 delivery have been submitted to the Scottish Government, with only a handful of major consents for the entire programme remaining. And with supply chains secured for all but one project, faster consenting is imperative. We welcome the recent ambition from both UK and Scottish governments to speed up decision making. This is clearly in the consumer interest and some of it is already translating into action. We are well set to progress these projects, but the real test will be in the commitment to actual delivery on all sides. We have played our part with one of Scotland's largest ever public consultation processes, optimising our plans in line with community feedback. We're now waiting to see what comes of the commitment from Scottish ministers to a 52-week consenting timeline. Turning to SSE end distribution, we are two years into our ED2 business plan and this year has seen record capex delivery alongside an additional £106 million in approved uncertainty mechanism submissions. In our Scottish network, we are meeting the growing demand to connect distributed renewables, whilst our southern network continues to see higher than average uptake in EVs, combined with increased demand from data centres and large industry, given its geography. This has us uniquely positioned for near-term growth and gives us the confidence to target RAV of around £7 billion by the end of the plan. We are already seeing increased electrification and distributed energy, which requires a reinforced but also more dynamic grid system able to optimise supply and demand. This has been backed by a recent National Infrastructure Commission report highlighting the need for a new proactive regulatory approach and more than double annual load investment through to 2050. The system operator is in the process of producing regional strategic energy plans to enable this investment in an accelerated yet efficient manner, which in turn will inform the timing and scale of our own local network investment plans. With that work underway and the regulator already focused on ensuring the next price control delivers investments, the pieces to unlock the next wave of growth are falling into place. and having prioritised data and technology deployment to improve operational effectiveness, the business is well placed to deliver the growth ahead. Turning to our market-based businesses, it is clear that the future operating environments will be shaped to a significant extent by the imminent outcome of the UK Government's review of electricity market arrangements. The arguments for and against zonal pricing are well known, and given it remains an option under active consideration, it is important to reiterate that SSE has strategic resilience and a balanced portfolio that can operate within any market framework. Firstly, we envisage zonal pricing would have no impact on a transmission build-out that will drive the bulk of our medium to long-term growth, with the projects within ASTI and LOTI playing key roles in all future energy scenarios. Secondly, for our existing generation plant, we would expect some level of grandfathering arrangements to be introduced to ensure that investors are kept whole and that market confidence in the UK is not shattered. And finally, this slide highlights that we retain an energy portfolio that has a surplus of flexibility in key zones and would therefore be less exposed to regional pricing outcomes than may have been assumed. It also underlines that when we argue so strongly against a zonal scenario, we are doing so on the basis of general market interest rather than our own. Fundamentally, we believe that zonal pricing will raise risk rates, push up the price of new infrastructure and not necessarily fix any of the temporary constraint issues it is looking to resolve, which will instead be addressed through imminent network build. This will all impact affordability and will be to the detriment of all system users. We hope that policymakers understand this. With natural balance across the energy value chain, we have attractive options at our disposal to navigate the ensuing market volatility it would cause. We continue to engage, but our position is clear. Zonal is not in the market or public interest. SCC Renewables is a long-term business with a pipeline of premium opportunities that create options for deployment later this decade and beyond. However, those opportunities have not been immune to the macro environment and wider delays to planning processes over the past 12 months. Our capital discipline in this environment has led us to reduce both our investment and our capacity expectations. We are now targeting around seven gigawatts of installed capacity by 2027, with around one gigawatt under construction at that point. The vast majority of this growth will be delivered by the first two phases of Dogger Bank and well-progressed onshore and battery projects. Crucially, these investments are underpinned by long-term government-backed contracts such as CFDs or the capacity mechanism, providing price certainty and inflation protection for the vast majority of volumes produced. We have continued to progress a number of high-quality options during the year, such as Barrick Bank and Corrie Glass, where discussions over a cap-and-floor mechanism continue with Ofgem. These are strong projects with robust industrial logic, and they will be required to meet decarbonisation targets. but we have been clear that we will only progress if we are convinced we have a solid remuneration contract with appropriate risk-adjusted returns. This is the practical manifestation of our value over volume ethos, which sets a high bar for equity return on investment, demanding high quality growth. Disciplined investment will only pay dividends if it is matched by operational excellence, and the business has been focused on delivering its commercial potential. Our hedging approach continues to maximise the value of our existing operational base, capturing prices above current price curves and de-risking future profit expectations. We have also taken action on controllable costs and efficiencies to reset the business for the growth ahead. But, most importantly, we have maintained our focus on delivering high-quality investments such as Viking Onshore Wind Farm in Shetland, which underlined its position as the most productive onshore wind farm in the UK by achieving a 50% load factor in the last quarter of the financial year. I've already mentioned our significant battery portfolio under construction. It is well-sighted and optimally sized to provide vital flexibility services and increased optionality and risk management qualities within our generation fleets. And as these premium projects have been delivered, we have been selectively adding others to the construction pipeline, such as Strathdee South Onshore Wind Farm, which benefits from a long-term government-backed contract. Of course Dogger Bank Hay is another landmark project for the group and despite delays in the first half of the year we have made strong progress over the winter months with turbine installation and commissioning work. Last month the turbine installation campaign on this first phase passed the halfway mark with 55 of the 95 turbines installed as I stand here today. The progress we have made over the past few months is testimony to our project team and our supply partners who have worked in difficult conditions to keep things on track for completion in the second half of calendar year 2025. Turning to Dogger Bank B, material progress has also been made, with all 95 foundations now installed, while inter-array cable laying work is expected to complete this summer. A second turbine installation vessel has been contracted and we will expect it will commence installation work during Q2 2026. Finally, on Dogger Bank C, we have now commenced installation of foundations, with 17 monopiles now installed. Dogger Bank will be the world's largest offshore wind farm and, with an operational life in the region of 35 years, it will create real and lasting value for decades to come. There are risks associated with complex projects on this scale, but the high bar we set for equity returns combined with the dedication of our delivery team means we continue to expect all three phases to be comfortably in line with our hurdle rates. In recent years, there has been a material shift in the role played by SSE Thermal within the group. The premium placed by the capacity mechanism on flexible thermal plants' ability to back up intermittent renewables has increased dramatically. In Ireland, we have seen prices at €200 per kilowatt, with GB values at £60 per kilowatt. SSE Thermals assets have now secured contracts out to September 2029, and the capacity mechanism continues to offer sustainable earnings well beyond that too. Not only will the fleet provide valuable backup to the markets, but it will also offer strong risk management services to our other market-facing interests. This flexibility shores the group up against market volatility, protects against shortfalls in renewables output, and offers mitigation from wider commodity price uncertainties. Over the medium term, our pipeline of low carbon development options in hydrogen and carbon capture and storage remains hugely valuable given the obvious need for additional flexible capacity towards the end of the decade. As with renewables, we will only progress investment if we are convinced we have a solid remuneration contract with strong economics in place and in the case of flexible thermal, a clear pathway to decarbonisation. And there is no better example of this than Talbot Next Generation Power Station, where the expected capital investment has been de-risked by secured long-term government contracts and, when complete in 2027, will add 300 megawatts of low carbon capacity to help an increasingly tight Irish market. SSE's various customer businesses have always provided valuable routes to market. A strategic realignment of those businesses, notably with the integration of the former SSE enterprise, now provides an enhanced role for energy customer solutions as a decarbonisation partner of choice. We are providing around 1.1 million customers with around 17 terawatt hours of electricity and energy services whilst expanding PPA offerings including round-the-clock green options for data centres. Tailored distributed energy solutions including solar, battery and private networks are a growing area for us, enabling customers to reduce costs in carbon and we're establishing strategic partnerships delivering a range of services from domestic solar installation to EV charging. and we're advancing data-led solutions using AI to create powerful energy management systems. Regulated networks, market-facing renewables and flexibility, and highly commercial customer propositions. These are great businesses. They are well-funded, stacked with world-class assets and run by highly talented teams. I can't wait to get fully into my new role, working with Barry and the wider leadership team as we continue to shape their contribution to the clean energy transition. I'll now hand you back to Alistair.