POWERING
CHANGE
SSE PLC ANNUAL REPORT 2021
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SSE has the largest renewable electricity
portfolio in the UK and Ireland, providing
energy needed today while building a
better world of energy for tomorrow.
It develops, builds, operates and invests
in low-carbon infrastructure in support
of the transition to net zero, including
onshore and offshore wind, hydro power,
electricity transmission and distribution
networks, alongside providing energy
products and services for businesses
and other customers.
UK-listed and headquartered in Scotland,
SSE is a major contributor to the UK and
Ireland economies. It employs more than
10,000 people and is real Living Wage
and Fair Tax Mark accredited.
Our reporting suite
Throughout this report you can find links
to our complementary suite of reporting
by following these icons:
online at sse.com/annualreport2021
in other SSE publications
within another section of this report
Links to our stories in action can be found
where you see these icons:
Engagement
in Action
Board Principal
Decision
Our cover: Jasmine Allen emerges from the nacelle of one of the turbines at Greater
Gabbard wind farm, 12 miles off the coast of Suffolk. Jasmine, 21, is an apprentice in
SSE Renewables and featured in SSE’s 2021 brand campaign in the lead-up to COP26.
POWERING
CHANGE
SSE PLC ANNUAL REPORT 2021
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POWERING
CHANGE
SSE SUSTAINABILITY REPORT 2021
Alternative Performance Measures
SSE assesses the performance of the Group using a variety of performance
measures. These measures are not all defined under IFRS and are therefore
termed ‘non-GAAP’ measures. A reconciliation from these non-GAAP measures
to the nearest prepared measure in accordance with IFRS is presented and
described on pages 172 to 177 . The alternative performance measures SSE
uses might not be directly comparable with similarly titled measures used by
other companies.
THE YEAR IN NUMBERS
OPERATING PROFIT
Adjusted
PROFIT BEFORE TAX
Adjusted
£1,506.5m
£1,064.9m
Reported
Reported
£2,743.5m
£2,516.4m
EARNINGS PER SHARE
Adjusted
87.5p
Reported
215.7p
CAPEX
Before refunds
£1,340.6m
DIVIDEND
Recommended for full-year
81p
DISPOSALS
Agreed cash proceeds to date
£1.5bn
ECONOMIC CONTRIBUTION UK/ROI
£5.2bn/
€439m
Coronavirus statement
The report covers the first full year
of operations within the constraints
of the coronavirus pandemic. Thanks
to a highly resilient business model
and the commitment and flexibility
of its employees, SSE maintained the
safe and reliable supply of electricity
throughout the year and did not draw
on furlough or rates relief in doing so.
SSE Renewables, SSEN Transmission
and SSE Thermal were not significantly
adversely affected by the pandemic
and the financial impact on the Group’s
other businesses was restricted to
£170m for the year. Further detail
of SSE’s response to the coronavirus
outbreak, and its impact, can be found
in the following sections.
Chief Executive’s review: page 6
Principal Risk assessment: page 54
Viability Statement: page 56
Financial review: page 64
Going Concern Statement: pages 73
and 133
Contents
Strategic Report
Chair’s introduction
Chief Executive’s review
Our purpose and our strategy
Our business model
Our operating model
Our business goals for 2030
Our strategy in action
Key performance indicators
Sector review
Our stakeholders
A sustainable approach
Risk-informed decision making
Principal Risks and uncertainties
Financial review
Operating review
Section 172 and Non-Financial
Information Statement
Directors’ Report
Chair’s introduction to the Directors’ Report
Board of Directors
Board Leadership and Company Purpose
Division of Responsibilities
Composition, Succession and Evaluation
Nomination Committee Report
Audit, Risk and Internal Control
Audit Committee Report
Energy Markets Risk Committee Report
Safety, Health and Environment
Advisory Committee Report
Remuneration Committee Chair’s statement
Remuneration at a glance
Annual report on remuneration
Directors’ Remuneration Policy – a summary
4
6
8
10
12
14
16
22
24
28
32
54
57
64
78
Other statutory information
92
Statement of Directors’ responsibilities
96
98
102
117
118
120
128
128
138
140
144
146
148
162
166
169
Financial Statements
Alternative Performance Measures
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
172
179
180
181
182
183
Notes to the consolidated financial statements
184
Accompanying information
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Independent Auditor’s report
Consolidated segmental statement
CSS audit opinion
Shareholder information
250
283
284
285
296
307
313
315
SSE plc Annual Report 2021
1
POWERING CHANGE WITH
STRATEGIC DELIVERY
SSE’s strategy is to create value for shareholders and society in a
sustainable way by developing, building, operating and investing in
the electricity infrastructure and businesses needed in the transition to
net zero. In delivering this strategy through its highly complementary
business model, SSE is fulfilling its core purpose of providing energy
needed today while building a better world of energy for tomorrow.
The following Strategic Report charts SSE’s recent progress in this
pursuit and identifies the opportunities for growth and value creation
that lie ahead as the world accelerates action to tackle climate change.
Strategic Report
Chair’s introduction
Chief Executive’s review
Our purpose and our strategy
Our business model
Our operating model
Our business goals for 2030
Our strategy in action
Key performance indicators
Sector review
Our stakeholders
A sustainable approach
Risk-informed decision making
Principal Risks and uncertainties
Financial review
Operating review
Section 172 and Non-Financial
Information Statement
4
6
8
10
12
14
16
22
24
28
32
54
57
64
78
92
Hydro electricity is a tried and tested source of green
energy and SSE has 78 hydro stations, including this one
at Sloy, providing clean, flexible power.
2
SSE plc Annual Report 2021
STRATEGIC REPORT SSE plc Annual Report 2021
3
CHAIR’S INTRODUCTION
PROMOTING SSE’S
LONG-TERM SUCCESS
This Strategic Report explains what SSE does and why we do it, the places
we work, the people we work with, the external factors affecting the Group’s
operations, the societal and environmental considerations behind the Board’s
decisions and the value we create every day. In doing so, it builds on the
disclosures we adopted in 2019/20 in response to new statutory requirements
and the UK Corporate Governance Code 2018.
Progress through the pandemic
We can look back on 2020/21 as a year of
unprecedented challenge in which SSE
delivered on its purpose and consolidated
its position as a driving force behind the
transition to net zero. In the face of a global
pandemic we played our part in “keeping
the lights on”, supporting the secure supply
of electricity that was needed in the fight
against coronavirus. We worked to keep our
employees safe and adapted to new ways
of working through successive lockdowns
without drawing on government support
schemes such as furlough or rates relief.
I am grateful for the commitment shown
by our employees throughout this difficult
period. It is thanks to their effort that we
have stayed true to our purpose of providing
energy needed today while building a better
world of energy for tomorrow.
The momentum that has been building
behind SSE’s strategic evolution in recent
years gathered pace in 2020/21. The
strategic milestones referred to elsewhere
in this report, which include delivery on
our capex and disposals programmes, have
set us up for continued progress. Growing
societal expectations on climate action,
and signals of a more supportive policy
environment in the UK through the Ten
Point Plan and the Energy White Paper,
combined with the Climate Action Plan in
Ireland and a growing appetite for clean
energy internationally, provide an exciting
platform for growth at home and abroad.
The business and operating models
described on pages 10 to 13 show the
clear strategic logic of the Group’s structure
and business mix. From the synergies of our
asset-rich core renewables and networks
businesses providing the foundations of an
investment-led decarbonised economy; to
the well-located sites we have for lower-
carbon thermal assets that will provide the
system flexibility needed in the transition to
net zero; and customer businesses providing
valuable routes to market and solutions for
4
SSE plc Annual Report 2021
consumers, we are powering change and
creating value for shareholders throughout
the net zero value chain.
In addition to coronavirus, 2020/21
presented other challenges for SSE to
deal with, including Brexit and the resulting
uncertainty over an Emissions Trading
System agreement, as well as adverse
weather which tested the resilience
of our distribution networks.
We also sought agreement with Ofgem
on a fair transmission price control
settlement that needed to balance low
costs for consumers with delivering net
zero. In our view we managed to get that
balance broadly right in terms of the overall
investment levels in the settlement, but we
had to agree to disagree on some of the
technical financial parameters. Put simply,
we do not believe they are commensurate
with the level of investment risk. We asked
the Competition and Markets Authority
(CMA) to review this, but in the meantime
we set about delivering the projects in our
ambitious RIIO-T2 business plan.
Our financial performance for the year
showed how our robust business mix and
the quality of our assets helped limit the
impact of coronavirus on SSE, although
clearly we were not entirely immune.
Our results reflected a period of significant
operational delivery and strategic progress.
We are well set financially for the future with
world-class assets, a strong financial position
and valuable growth options. Looking ahead,
the opportunities presented by the transition
to net zero put us in a strong position to
create lasting value for shareholders.
Purpose and strategic focus
Through delivery of our purpose we are
directly addressing the pressing issue of
the transition to net zero and reflecting
society’s shifting priorities on climate
change. It is a purpose that has proved
resilient over the past year and as we
emerge from the pandemic it takes on
even greater importance, resonating with
the public momentum that has grown
behind a green economic recovery.
Meeting this purpose through a net zero-
focused strategy of developing, building,
operating and investing in electricity
infrastructure and businesses ensures we
are fully contributing to that green recovery.
And we are putting our money where our
mouth is, too, by taking more than £10bn of
low-carbon projects to financial close since
March 2020. The drive to decarbonise and
electrify the economy presents opportunities
for us and creates value for our immediate
stakeholders and society more widely as
investment stimulates the economy, creates
green jobs and helps regions often far away
from traditional financial centres.
Many of the key Board deliberations
in 2020/21 outlined from page 108
related to achieving the best outcomes
for our businesses, with progress made on
growing our renewables pipeline at home
and abroad, securing fair price control
settlements for our regulated electricity
networks and advancing lower-carbon
thermal technologies.
Those decisions, their implementation
by the executive management team and
execution by our highly-skilled employees
have all contributed to the strategic
progress which, as described in the
Chief Executive’s review on page 6 ,
is transforming the energy sector.
Global goals, local consequences
We place our strategy firmly within a wider
global context, with delivery measured
against goals that are set out on page
14 and directly aligned to four of the
United Nations’ Sustainable Development
Goals on: climate action; affordable and
clean energy; industry, innovation and
infrastructure; and decent work and
economic growth.
STRATEGIC REPORT The values also form the basis of a code of
ethical business conduct that considers the
interests of all of SSE’s stakeholders, and the
importance of respectful relationships with
them. The code, in the form of a “Doing
the Right Thing Guide” was updated and
republished in 2020 to help employees
when faced with difficult ethical judgements.
Having succeeded Richard Gillingwater
as Chair on 1 April 2021, I am grateful to
him for leaving behind a Board of the
size, stature and technical expertise that
befits SSE’s place in a highly complex,
critical sector. We must now be alert
to the societal changes that will surely
come in a post-pandemic world. This will
mean working with my fellow Directors
in adapting our strategies and evolving
our governance structures to ensure we
continue to be successful in promoting
SSE’s long-term success.
Working with stakeholders
A key function of this Annual Report is
to aid understanding of how my fellow
Directors and I have exercised our duties
under Section 172 of the Companies Act
2006 to promote the long-term success
of SSE with consideration to the views of
all stakeholders.
Sustainable businesses do not operate in a
vacuum; they create prosperity, they meet
wider societal needs and they maintain
trusted relationships with stakeholders. With
this in mind, we are clear that SSE’s strategy
is actively meeting our social contract and
our purpose is one that is ultimately seeking
profitable solutions to the problems faced
by people and our planet.
While Section 172 and our stakeholder
interactions have been a long-standing
feature of SSE’s corporate reporting,
our disclosure on material stakeholder
issues is elevated further for 2020/21 with a
standalone Section 172 Statement on page
92 . This statement, the accompanying
Non-Financial Reporting matrix, on page
93 , and the Sustainability Report 2021
combine to demonstrate the totality of
economic, social and environmental value
created by SSE in 2020/21.
This Strategic Report and the associated
Section 172 Statement on page 92 have
been approved by the Board in line with
the Companies Act 2006. As always, we
welcome feedback on the report or the
matters covered within it as we continue to
take the Company forward, power positive
change and build a better world of energy.
Sir John Manzoni
Chair, SSE plc
25 May 2021
SSE plc Annual Report 2021
5
“Through delivery of our purpose we are directly
addressing the pressing issue of the transition to
net zero... It is a purpose that has proved resilient
over the past year and as we emerge from the
pandemic it takes on even greater importance.”
The focus on strategic delivery was
sharpened in October 2020 with the Board’s
commitment to an ambition to achieve net
zero emissions (both direct and indirect)
across all of our operations by 2050. This
was further underlined when SSE was
asked to be a Principal Partner at COP26,
which aligns with our well-established
Environment, Social and Governance (ESG)
credentials and decarbonising strategy.
We see COP26 as an important opportunity
to accelerate climate policy further as
countries take the practical steps required
to deliver on increasing levels of ambition.
Also this year we became signatories to
the Race to Zero campaign and signed
up to a science-based target aligned to
the 2016 Paris Agreement, which seeks a
well-below 2°C global warming trajectory
while pursuing efforts to limit it to 1.5°C.
Achieving net zero will mean some
fundamental changes right across our
economy and society. This change will
create an abundance of opportunities
for increased efficiency and economic
prosperity, but is unlikely to benefit everyone
equally. Without active intervention by
and collaboration between regulators,
governments, companies and others,
there is a risk that the benefits of the energy
transition are concentrated in some groups
and that the costs unfairly impact others.
We are alive to this risk and committed to
fully playing our part in mitigating it.
We became the first company, to our
knowledge, to publish a Just Transition
strategy (see page 45 ) outlining the
key principles we will apply. But we can’t
do it alone. We are actively seeking to
collaborate on our strategy and we believe
it is to the benefit of both the Company
and its shareholders if there is enhanced
engagement on climate-related matters.
That is why the Board is proposing an
enabling resolution to its 2021 Annual
General Meeting that establishes a
framework for an annual vote on SSE’s
Net Zero Transition report at future
AGMs. We look forward to discussing
this with shareholders and stakeholders
in due course.
Stretching carbon targets. Investment in
clean infrastructure. Economic contribution
through the payment of Fair Tax and support
of supply chains. Job creation and payment
of the Living Wage. These are all examples
of our purpose at work and our strategy in
action. Together they build a compelling
picture of SSE’s ESG commitment and
reflect a healthy business culture that is
informed by the needs of our stakeholders.
A healthy business culture
The transparency of the disclosures
made in this report speaks to a culture
we describe simply as “Doing the Right
Thing”. It is this ethos that runs beneath
our purpose, vision and strategy, and it
is guided by a long-established set of
core values, defined as Safety, Service,
Efficiency, Sustainability, Excellence
and Teamwork. Given the sometimes
hazardous nature of our operations,
Safety is regarded as our No. 1 value and
promotion and measurement of it is given
the highest priority right across the Group.
CHIEF EXECUTIVE’S REVIEW
POWERING CHANGE
ON THE ROAD TO NET ZERO
SSE’s Chief Executive, Alistair Phillips-Davies, leads development of SSE’s
strategy and its execution, as agreed by the Board. He chairs the Group
Executive Committee, and is the lead Executive Director for central functions
such as human resources, sustainability, corporate affairs and strategy.
He provides his reflections on a year of unprecedented challenge and
outlines the exciting opportunities that lie ahead.
Safety is more important
to SSE than ever…
The social and economic cost of the
coronavirus pandemic is a reminder,
should we need it, that the most important
job we all have as SSE employees is to
take care of our colleagues, customers
and communities. Every SSE employee
is empowered with the safety ‘licence’:
if it’s not safe, we don’t do it.
After achieving our best ever year of safety
performance in 2019/20, we built on this
in 2020/21, further reducing our Total
Recordable Incident Rate. In simple terms,
that means fewer people were hurt – 47
down from 55 the previous year – and
271 ‘safe days’ achieved where no injury,
environmental breach, serious road
traffic accident or high-potential incident
occurred. In a year when the world was re-
evaluating its own safety policies, our well
practised procedures proved adaptable for
safe working during the pandemic.
Our employees played their
part in fighting coronavirus…
During what has been a very uncertain
year, we’ve continued to be guided by our
purpose: to provide energy needed today
while building a better world of energy for
tomorrow. This twin focus on the present
and the future has characterised 2020/21
for SSE.
Very early on in the pandemic we were
clear that our first priority was to support
the safe and reliable supply of electricity
to those who needed it, particularly those
tackling coronavirus on the front lines –
and I am very proud of my colleagues right
across the business, but particularly those
working out in the field, for the flexibility,
resilience and hard work that has enabled
us to do this.
To support employees through the
pandemic we implemented measures to
enable homeworking for non-operational
6
SSE plc Annual Report 2021
staff and adopted a “flexible first” approach
to help people balance radically altered
work and home life patterns, including
offering additional paid leave for those
with caring responsibilities.
We’re leading the debate on
driving a green recovery…
At the same time, we recognised that
there would be a need to drive economic
recovery from the impacts of coronavirus,
and that investment in low-carbon
infrastructure could deliver a “win-win”;
helping to tackle climate change while
creating jobs and stimulating economies.
In May, we published our “Greenprint
for building a cleaner, more resilient
economy”, which formed the basis for
a year of constructive engagement with
government, the regulator and industry
bodies. We were therefore pleased to
see the Government signal its climate
action intentions in the form of the
Prime Minister’s Ten Point Plan for a
Green Industrial Revolution, including
the ambition for enough offshore wind
to power every home by 2030, and the
long-awaited Energy White Paper.
And we are putting our
money where our mouth is…
We set out in June our plans to
invest £7.5bn over a five-year period,
predominantly in low-carbon
infrastructure, and have made great
progress on each of our flagship
renewables projects. At Dogger Bank, we
are building the world’s largest offshore
wind farm with our joint venture partners
Equinor (40%), as well as Eni (20%).
The potential for Dogger Bank to create
jobs and reinvigorate the north east was
underlined by GE’s decision to invest in a
new turbine blade factory in Teesside – on
the strength of the significant orders from
Dogger Bank. Construction work is well
under way at Seagreen, Scotland’s largest
offshore wind farm and the world’s deepest,
and at Viking, which will be one of Europe’s
highest-yielding onshore wind farms.
Taken together these projects have already
created well in excess of 1,000 skilled, green
jobs and will continue to do so.
There are growth opportunities
for us internationally…
We have a strong track record as a
renewables developer in the UK and
Ireland, and an enviable pipeline of future
projects that will enable us to meet our
target of trebling our renewables output by
2030. However, we see more opportunities
for growth in renewables and have set
out our aspiration to reach a run rate of
at least 1GW of new assets a year during
the second half of the decade.
Part of that will entail identifying options
to bring our expertise to international
markets where we see value, and we took a
first step towards that when we announced
plans to form a 50/50 joint venture
partnership with Acciona S.A., a leading
Spanish renewables developer, to enter the
emerging Spanish and Portuguese offshore
wind markets. We are also partnering with
CIP and Danish energy company Andel
Holding on the tender process in Denmark
to develop the 800-1,000MW Thor wind
farm off the country’s west coast.
We’re building a ‘Transmission
Network for Net Zero’…
It’s clear that the UK Government’s offshore
wind ambitions can only be realised if there
is sufficient investment in the transmission
network to connect it all and transport the
output to where it’s needed. As we now
enter the RIIO-T2 price control period,
we are already getting on with delivering
the network upgrades required to enable
delivery of net zero. While we appealed
Ofgem’s final determination to the CMA on
a narrow range of technical points, we are
absolutely committed to delivering on our
plan and see a strong case for additional
STRATEGIC REPORT
projects over and above the base case that
will be key to delivering net zero.
And we are engaging
with stakeholders on ED2…
If we are fully to decarbonise our economy
by 2050, this will require both a significant
increase in electricity demand and a
fundamental shift in the way it is consumed
as millions more electric vehicles,
hundreds of thousands of heat pumps
and embedded generation and storage
come onto the system in the coming years.
That means distribution networks have
a critical role to play and the next price
control period between 2023 and 2028,
RIIO-ED2, is key to unlocking the strategic,
anticipatory investment required to deliver
the resilience, flexibility and responsiveness
we will need.
We’ve consulted extensively with all
stakeholders to build a robust and
compelling business plan and are
excited about the role we can play in the
transformation journey that lies ahead.
Refocusing thermal generation
for a net zero world…
As variable renewable electricity
increasingly dominates the electricity
systems in the UK and Ireland, SSE
Thermal’s fleet played an important role
last year securing electricity supplies for
homes and businesses when the wind
did not blow and the sun did not shine.
Gas-fired electricity will continue to
have a role to play for some years yet in
any credible net zero pathway, but we
don’t envisage running any of the fleet
unabated into the 2030s and have a
clear ambition to decarbonise through
pioneering carbon capture and storage
(CCS) and hydrogen technologies.
“Our vision is to be a leading energy company in a net zero
world. Our core renewables and networks businesses,
as well as our complementary businesses in thermal,
distributed energy and customer solutions, all have
important roles to play in delivering that vision.”
and storage infrastructure. Examples of this
can be seen in Aberdeenshire and in the
Humber where, with Equinor, we have plans
to jointly develop pioneering power stations
with CCS technology, and what could be
the world’s first major 100% hydrogen-
fuelled plant.
Construction of Keadby 2, meanwhile,
is progressing well and it will be the most
efficient gas plant in Europe providing
a much-needed capacity boost and
displacing less carbon efficient generation
on the system; however, we are clear this
will be the last unabated CCGT plant we
build and we are already looking at options
for hydrogen blending there.
Disposals have sharpened the
focus on our net zero vision…
Our vision is to be a leading energy
company in a net zero world. Our core
renewables and networks businesses, as
well as our complementary businesses in
thermal, distributed energy and customer
solutions, all have important roles to play
in delivering that vision. Our business mix
is very deliberate, highly effective, fully
focused and well set to prosper on the
journey to decarbonisation.
We’ve made great progress with our £2bn
disposals programme, recycling capital
from non-core assets less aligned with
our vision that will help to fund growth
opportunities in our core businesses and
sharpen our net zero focus.
sale of our stake in SGN set to be our next
material disposal (see page 16 ).
What we do matters and
we’re privileged to do it…
Above all, developments this year underline
the importance of our work to provide
energy needed today while building a
better world of energy for tomorrow. We
are delighted to be a Principal Partner of
the UK Government as it prepares to host
world leaders at the pivotal COP26 UN
climate summit being held in Glasgow
in November.
With the eyes of the world on the UK, it
is a reminder that the work we are doing
to decarbonise our economy and tackle
climate change is vitally important – and our
role in this puts us in a privileged position.
We are working hard to showcase the best
the UK has to offer and engaging with a
wide range of stakeholders to share our
experience on the decarbonisation journey
so far. There is a long way to go to deliver
net zero in the next three decades – but
with our clear strategic focus and expertise
in low-carbon assets and infrastructure,
we are extremely well placed to play an
important part in this effort and create
long-term value for shareholders and
society along the way.
SSE Thermal’s generation plant are located
in places of strategic importance to the
electricity system with good proximity to
industrial clusters and access to transport
That programme continues, with
agreement reached in April to sell our
Contracting business and the prospective
Alistair Phillips-Davies
Chief Executive
25 May 2021
SSE plc Annual Report 2021
7
OUR PURPOSE AND OUR STRATEGY
PROVIDING
ENERGY TODAY,
BUILDING A BETTER
TOMORROW
OUR PURPOSE
To provide energy needed
today while building a
better world of energy
for tomorrow.
OUR VISION
To be a leading energy
company in a net zero world.
VALUES
All of this is underpinned by
a set of core values designed
to guide decisions and
actions in SSE.
Safety
If it’s not safe,
we don’t do it.
Service
We are a company
that customers
can rely on.
8
SSE plc Annual Report 2021
STRATEGIC REPORT
SSE is a purpose-led company involved principally in the
generation, transmission and distribution of electricity; and
also in the supply of energy and related services to customers.
The delivery of SSE’s purpose and execution of its strategy
depend on the skills and talent of a diverse workforce, the
quality of its assets and the effective identification, understanding
and mitigation of risk.
OUR STRATEGY
To create value for shareholders and society
in a sustainable way by developing, building,
operating and investing in the electricity
infrastructure and businesses needed in the
transition to net zero.
OUR 2030 GOALS
On the road to net zero
in 2050, SSE has set four
interim goals aligned to
the UN’s SDGs for 2030.
Cut carbon intensity
by 60%.
P
O
DEV E L
I
N
V
E
S
T
B
U
I
L
D
P E RATE
O
Treble renewable
energy output.
Help accommodate
10m electric vehicles.
Champion Fair
Tax and a real
Living Wage.
See pages 14 to 15
for further detail.
Efficiency
We focus on what
matters.
Sustainability
We do things
responsibly to add
long-term value.
Excellence
We continually
improve the way
we do things.
Teamwork
We work together,
respect each other and
make a difference.
SSE plc Annual Report 2021
9
OUR BUSINESS MODEL
Who and what we rely on
What we do
CONTRIBUTING IN
KEY PARTS OF THE
ENERGY VALUE CHAIN
SSE has a resilient and highly complementary business model built on a mix
of market-based and economically regulated businesses, supported by efficient
group services. This business mix is strategically deployed across key parts of the
energy value chain. Its businesses are engaged in early- and late-stage development,
innovation, construction, operations and maintenance of low-carbon infrastructure;
providing a route to market for clean energy; and financing the foundation blocks of
net zero through capital allocation and equity partnering.
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Value chain
Customer-facing energy
businesses and EPM
Electricity generation
Network business
Group services
Employees
SSE’s strategy and success are
dependent on the shared talent, diversity
and values of the people it employs.
Shareholders and debt providers
SSE must be well-financed, with the
ability to remunerate shareholders
for their investment, secure debt at
competitive rates and grow the business.
Energy customers
Consumers create demand for the
energy and services SSE provides
and set the tone for our purpose.
Government and regulators
SSE relies on public services and policy
engagement to ensure sector frameworks
are fair on both customers and investors,
and able to maintain the pace needed for
net zero.
NGOs, communities, society
SSE needs the support of the communities
it works in and the backing of civil society
in pursuit of a Just Transition to net zero.
Suppliers, contractors, partners
SSE relies on a healthy supply chain and
works with partners whose capabilities
offer synergies for project development
and efficient ownership structures.
Natural resources
From wind and water to produce
energy, to materials used to build energy
infrastructure, natural resources are
essential to SSE’s value creation.
Innovation and technology
SSE’s innovation strategy is enabled by
partnerships, talent development and
digitalisation to accelerate technologies
needed to achieve net zero.
National infrastructure
SSE depends on good public services –
from roads and transport to health and
education – to enable its people and
business activities to function and thrive.
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SSE plc Annual Report 2021
STRATEGIC REPORT
Our competitive advantages
The value we create
Energy businesses
Development
• Project design and optimisation
• Site selection, consenting and permitting
• Community engagement and funding
• Financial modelling
• Regulatory and political management
• Bidding capability
• Value engineering
• Supply chain knowledge and relationships
• Financial partnering
Innovation
• Engineering technology centres
of excellence
• Technology and digital solutions for
cost-effective offshore renewables
• R&D in pumped hydro storage, CCS
and hydrogen
Building
• Large capital project management
• Project controls
• Supply chain relationships,
procurement and engagement on jobs
and sustainability
• Multi-contracting expertise
• Engineering expertise
Networks businesses
Development
• Network and business planning
• Customer and stakeholder
engagement
• Consenting and permitting
• Regulatory strategy
Innovation
• Accelerating the low-carbon transition
• Dedicated innovation teams leveraging
regulatory funding to R&D
• Co-creation with partners to develop
whole-system solutions
• Managing trials to test and scale
new solutions
Group services
Development
• Regulatory and policy understanding
• Strategic insight and direction
• Sustainability and ESG credentials
Innovation
• Cross-cutting engagement on
innovation in policy and markets
• Data, digitalisation and systems
Operations
•
In-house operation expertise of sites
across all turbine technologies
• Asset optimisation
• JV relationship management
• Customer service and metering
Maintenance
•
In-house maintenance expertise of
sites across all turbine technologies
• Turbine engineering experience
• Risk-based maintenance expertise
Route to market services
• Energy supply
• Trading and optimisation
• Power Purchase Agreements
• Marketing and customer solutions
• Risk management
• Bid management and auction strategy
• Business development
Financing
• Project finance expertise
• Equity partnering and sell-downs
Building
• Large capital project management
• Supply chain relationships and
procurement
• Connections management
Operations and maintenance
• Operations and field logistics
• Fault restoration
• Asset management and maintenance
• Crisis and risk management (e.g. storms)
• Distribution System Operator services
• Customer service and communications
Financing
• Regulatory finance
Employees
RETENTION RATE
92.1%
Shareholders and debt providers
DIVIDEND
81p
Energy customers
COMBINED CUSTOMER NUMBER
1.16m
Government and regulators
POSITIVE STAKEHOLDER OUTCOMES
Constructive engagement enables SSE
to create jobs, help energy consumers,
pay dividends and tackle climate change.
NGOs, communities, society
TOTAL JOBS SUPPORTED
43,560
Suppliers, contractors, partners
SUPPLY CHAIN SPEND
£2.4bn
Natural resources
SCOPE 1 AND 2 EMISSIONS CUTS
14%
Innovation and technology
JOINT INDUSTRY PARTNERSHIPS
Building
• Governance of large capital projects
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Operations
• Robust corporate governance,
compliance, reporting and BU
support through shared services
Financing
• Capital allocation and disposals
• Raising finance and treasury
National infrastructure
GDP CONTRIBUTION UK/ROI
£5.2bn/€439m
SSE plc Annual Report 2021
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OUR OPERATING MODEL
A HIGHLY COMPLEMENTARY MIX OF
NET ZERO-FOCUSED BUSINESSES
Core
Energy businesses
SSE Renewables
What it does
Develops, builds, operates and invests in assets that generate
electricity from renewable sources.
Who it does it for
For electricity customers across the GB and Ireland markets, who are
increasingly seeking lower-carbon sources of energy.
How it supports net zero
Develops and generates zero-carbon electricity at large scale from
onshore and offshore wind farms and provides clean flexible power
from hydro schemes.
How it is remunerated
Through the wholesale energy market, ancillary services market,
Capacity Market, power purchase agreements, and government
support schemes for renewable energy.
Delivery and growth page 83
Networks businesses
SSEN Transmission
What it does
Owns, operates and maintains the electricity transmission network
in the North of Scotland.
SSEN Distribution
What it does
Owns, operates and maintains the electricity distribution networks
in the North of Scotland and central southern England.
Who it does it for
Electricity generators, large electricity demand customers and
ultimately all electricity customers across GB.
How it supports net zero
Connecting sources of renewable electricity generation to the
national grid and transporting that clean electricity to areas of
demand.
How it is remunerated
Through economically regulated returns that are recovered from
electricity generators and customers and potentially enhanced
through efficient delivery.
Delivery and growth page 79
Who it does it for
For the homes, businesses, generators and service providers that are
connected to, or are seeking a connection to, its distribution networks
and electricity customers in its operating areas.
How it supports net zero
Through the timely connection of local renewables and the co-
ordinated delivery of network investment and flexible solutions
to alleviate network constraints and allow for further electrification.
How it is remunerated
Through economically regulated returns, recovered from customers
and connecting parties. Additional earnings through efficient delivery
of investment and targeted, performance-related incentives.
Delivery and growth page 81
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SSE plc Annual Report 2021
STRATEGIC REPORT Energy businesses
Renewables and networks are key to enabling a net zero economy, have significant
growth potential and, importantly, they fit together. With common skills and capabilities,
there is a strong strategic logic to them forming the low-carbon electricity core of SSE.
SSE will only retain other businesses where they are highly complementary to that core
and contribute to the transition to net zero.
Complementary
SSE Thermal
What it does
Generates electricity from
thermal sources in a reliable
way, supporting balancing of
the electricity systems in GB and
Ireland. In addition, SSE Thermal’s
Gas Storage business holds around
40% of the UK’s underground
capacity.
Who it does it for
For electricity suppliers, traders
and other generators through the
energy market; for the national
grid; and ultimately all electricity
customers across GB.
How it supports net zero
Produces progressively lower-
carbon electricity and electricity
system support to enable net zero
transition. Facilitates increasing
levels of renewable electricity
by offering flexibility to balance
renewables’ natural variability.
How it is remunerated
Through the wholesale energy
market, Capacity Market and
ancillary services market.
Delivery and growth page 86
Customers
What it does
SSE Business Energy and SSE
Airtricity provide energy and
related services to households,
businesses and public sector
organisations across Great Britain
and the island of Ireland.
Who it does it for
For domestic and business
customers in the Republic of
Ireland and Northern Ireland, and
business customers in Great Britain.
How it supports net zero
Increases the accessibility of
green energy solutions through
the provision of customer-driven
propositions and acts as a partner
to customers and stakeholders as
they seek ways to respond to the
climate crisis.
How it is remunerated
Competing for customers and
direct billing to them and third
party intermediaries (GB), and
through state-supported
schemes (ROI).
Delivery and growth page 88
Energy Portfolio
Management
What it does
Combines trading skills and deep
market insights to drive value by
providing energy trading, risk
management and settlement
services, and wider analytical
support and insights, including
business unit advice on long-term
market decisions.
Who it does it for
For SSE’s Business Units and the
SSE Group.
How it supports net zero
Provides efficient route-to-market
for low-carbon electricity, supports
system balancing and provides
energy solutions for business
energy customers.
How it is remunerated
Receives fees for providing energy
trading services to other parts of
the Group.
Delivery and growth page 91
SSE Enterprise
What it does
Following the sale of its Contracting
arm, SSE Enterprise is increasingly
focused on distributed energy
solutions. The business invests
in, builds and connects localised
flexible energy infrastructure. It
offers integration, aggregation and
trading capability via the Energy
as a Service platform and provides
digital services for buildings, cities
and businesses.
Who it does it for
The public sector and commercial
and industrial markets in the UK
and Ireland.
How it supports net zero
Through offering grid edge
services, bringing low-carbon,
on-site generation, storage and
delivery flexibility close to the point
of use. Diverse capabilities (battery,
solar, EV infrastructure, district
heating and networks infrastructure
deployment) offer a local ‘whole
system’ approach.
How it is remunerated
Through the open B2B market,
CPPAs and public and private
sector tenders.
Delivery and growth page 90
Group services
How it all fits together
What it does
Provides cost-effective shared
HR, legal, finance, IT, procurement,
investor relations, corporate
affairs and other services. Ensures
compliance with SSE’s regulatory
requirements as a listed company.
Develops a strategic framework
that maintains the Group’s focus
on net zero through targeted
acquisitions and non-core
disposals. Provides finance and
capital allocation to fund growth.
Offers the regulatory and policy
insight required to navigate each
stage of the energy value chain.
Who it does it for
For the SSE Group’s core and
complementary businesses
and their stakeholders.
How it supports net zero
Through the advancement and
promotion of SSE’s sustainability
and ESG credentials, and delivery
of a net zero-focused strategy.
How it is remunerated
The Group services function is
funded by Business Units through
a recharge model and corporate
unallocated costs as set out in
SSE’s Financial Statements.
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Energy Portfolio Management
Group services
SSE plc Annual Report 2021
13
OUR BUSINESS GOALS FOR 2030
MEASURES OF
PROGRESS
SSE has four 2030 business goals
linked to the UN’s Sustainable
Development Goals (SDGs).
In early 2019 SSE aligned its business objectives to
social objectives, choosing to link four core 2030
business goals to the United Nations SDGs. These
2030 targets provide important interim milestones
on the journey to net zero in 2050. Good progress
was made in 2020/21 towards the achievement of
these aspirations.
CO2
Cut carbon
intensity by 60%
Treble renewable
energy output
SSE made important strategic progress in 2020/21
towards achievement of its science-based 2030 goal to
cut by 60% the carbon intensity of electricity generated.
With construction under way on three large-scale wind
farms and the rationalisation of SSE’s higher-carbon
activities, SSE’s transition to net zero continues apace.
SSE’s last coal plant ceased operation on 31 March 2020,
meaning that 2020/21 represented the first year since
2005 that SSE’s generation fleet contained no electricity
output from coal. Carbon intensity of electricity generated
in the year was the lowest since SSE’s records began.
Nevertheless, more carbon reduction progress is still to be
made and SSE is progressing plans with Equinor to develop
carbon capture and storage generation plant at Keadby in
Humberside and Peterhead in northeast Scotland, as well
as what could be the world’s first hydrogen-fired power
station at Keadby.
Good progress made in 2020/21 on the development
and construction of wind farms, despite the operational
challenges posed by coronavirus, gives SSE confidence
that it will exceed its target of trebling renewable energy
output by 2030 compared to a 2017/18 baseline.
Final investment decisions taken on projects in early
2020/21, and ongoing construction, mean SSE is now
building more offshore wind than any other company in
the world. SSE reached a final investment decision (FID)
on Dogger Bank A and B offshore wind farms (with Dogger
Bank C aiming to reach financial close later this calendar
year), Seagreen, and Viking in Shetland. These projects
will be, respectively, the largest offshore wind farm in the
world, the largest offshore wind farm in Scotland and one
of the highest-yielding onshore wind farms in Europe.
Further progress was made on several other renewable
projects over the year, see pages 17 and 19 for
further detail.
In the short term, the carbon intensity of electricity
generated by SSE reduced by around 11% compared to
the previous year, a decrease of over 16% from the 2017/18
baseline. Year-to-year variation is to be expected based on
external factors, however the long-term trajectory is clear.
While renewable energy output decreased between
2019/20 and 2020/21, from 11,442GWh to 10,242GWh,
due to unfavourable weather conditions across both
wind and hydro, 2020/21 represented an increase of 4%
compared to the 2017/18 baseline.
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SSE plc Annual Report 2021
STRATEGIC REPORT CO2
Help accommodate
10m electric vehicles
Champion Fair Tax
and a real Living Wage
Collaboration has been key in 2020/21, with SSEN
Distribution moving ahead on innovation projects
with partners to support flexible markets and future
infrastructure provision for the mass adoption of electric
vehicles (EVs). In addition, SSE has continued with its
own EV roll-out across the organisation.
Major innovation projects have included: Project LEO,
which over 2020/21 continued to test demand and
generation matching, flexibility and balancing across
the Oxford region; Optimise Prime, a fleet electrification
project which has moved into physical trials; and Skyline,
a first-of-its-kind project launched in 2020/21, which
will establish data sharing with the automotive and
charge point industries to allow early visibility of planned
domestic EV charger connections. SSEN Distribution
is also a core member of the Scottish Government’s
Strategic EV Partnership.
Supporting the EV industry, SSE continues to increase
the proportion of EV used in its own operations. Over
2020/21, the Company launched a new low-emission
company car scheme and installed the infrastructure
needed for the charging of operational and employee
cars at SSE sites. The Company is also trialling a small
fleet of fully electric vans.
In addition to retaining its Fair Tax Mark and Living
Wage accreditations, in 2020/21 SSE became one
of a handful of companies that have achieved Living
Hours accreditation.
In March 2021, SSE became one of the first companies
in the UK to gain Living Hours accreditation. This
accreditation is timely given the insecurity of work for
many people caused by the coronavirus jobs crisis. SSE
also became Chair of the Living Wage Business Leadership
Group in Scotland, of which it has been a member since
2014, at the end of 2020/21. The Company sits on the
Living Hours Steering Group at a UK level and has taken
a leading role in supporting development of a formal
accreditation process for the real Living Wage in Ireland.
SSE published its Talking Tax 2020 report, offering leading
transparent disclosure of its tax approach and payment of
taxes. SSE met the threshold for accreditation in its annual
Fair Tax Mark assessment in 2020, the seventh time it has
done so.
SSE plc Annual Report 2021
15
OUR STRATEGY IN ACTION
OUR STRATEGY
IN ACTION
SSE has worked through the challenges of
coronavirus to make significant progress in
delivery of its strategy, from hitting project
milestones to successful disposals and
effective partnering and advocacy.
Streamlining the Group
EXECUTING OUR
DISPOSALS PROGRAMME
In June 2020, SSE set out plans to secure
proceeds of at least £2bn from disposals
of assets and businesses considered to be
‘non-core’ on the basis they are less aligned
with the transition to net zero emissions or
because SSE is not the principal operator.
This continued work undertaken since
2014 to streamline the SSE Group, sharpen
its focus on businesses contributing to
decarbonisation, and recycle capital from
mature assets into further growth and
development opportunities.
Significant progress has been made
towards this target during the course
of 2020/21:
•
In September 2020, SSE completed the
sale of its 25.1% non-operating stake in
Walney offshore wind farm to Greencoat
Wind plc for a total consideration of
£350m. The stake equated to 92MW
of capacity.
• Also in September, SSE agreed to sell
its 33% equity share in meter asset
provider MapleCo to Equitix, receiving
a total consideration of £95m.
In October, SSE entered into an
agreement to sell its 50% share in
energy-from-waste ventures Multifuel
•
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Energy Limited (MEL1) and Multifuel
Energy 2 Limited (MEL2) to European
Diversified Infrastructure Fund III,
an infrastructure fund managed by
First Sentier Investors, for a total cash
consideration of £995m.
In December, the Company agreed
to sell all of its interests in its portfolio
of gas exploration and production
(E&P) assets to Viaro Energy via its
subsidiary RockRose Energy Limited
for a total consideration of £120m.
This transaction, subject to regulatory
approval and partner consent, is
expected to be complete by the
end of the 2021 calendar year.
• And the 2020/21 financial year opened
with the sale of SSE’s Contracting
business to Aurelius Group on 1 April at
an enterprise value of £27.5m. As part
of this transaction some 2,000 former
SSE employees were transferred over to a
new contracting business that is expected
to have good growth prospects.
Cash proceeds from these transactions
will total over £1.5bn, representing
considerable progress. SSE’s next material
disposal will be the future divestment of
SSE’s 33.3% non-operating financial interest
in SGN. In light of market developments, and
in consideration of the RIIO-G2 price control
referral to the CMA, in March 2021 SSE stated
its intention to divest all of its equity stake in
SGN. It now expects to commence a formal
sale process in mid-summer 2021, with the
intention of having an agreed sale by the end
of the calendar year.
The progress of the disposals programme
underlines SSE’s commitment to achieving
its vision of being a leading energy
company in a net zero world. It leaves
the Group’s business mix more focused
on developing, building, operating and
investing in the electricity assets and
businesses needed in the transition to net
zero, with the proceeds helping directly
to support investment in these assets.
CASH PROCEEDS FROM DISPOSALS
AGREED SINCE THE START OF 2020/21
£1.5bn
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SSE plc Annual Report 2021
STRATEGIC REPORT Key
Build
Operate
Invest
Develop
Project milestones
GROWING AT HOME, SEEKING
OPPORTUNITIES ABROAD
SSE is committed to developing and
building more assets to achieve a
renewable output of 30TWh per year,
or a trebling of 2017/18 levels, by 2030.
In the year that SSE Renewables set out its
ambitions to expand its expertise beyond
the UK and Ireland, there have been
a number of key announcements for
projects in its pipeline.
SSE Renewables has been at the forefront
of the renewables revolution and has
engaged constructively with a range of
stakeholders in its pursuit to treble SSE’s
renewable output. SSE has engaged
with key officials in the UK, Ireland and
European Commission to showcase the
benefits of putting renewables at the heart
of net zero. This has involved constructive
engagement on barriers to reaching the
UK’s 40GW offshore wind by 2030 target,
urging the Irish Government to re-commit
to delivering 1GW of new offshore wind by
2025 in the Irish Sea, and discussions on
the European Offshore Renewable Strategy.
Construction is under way for what will be
the world’s largest offshore wind farm at
Dogger Bank and SSE has used its position
as a leader in the offshore wind sector to
support the development of a UK supply
chain, create substantial local jobs and
maximise UK supply chain opportunities.
In September 2020, SSE Renewables
announced that the Dogger Bank joint
venture would become the first offshore
wind farm in the world to install the
innovative 13MW GE Haliade-X turbines. Six
months later, Dogger Bank was the anchor
project for GE’s new blade manufacturing
plant in Teesside, creating 750 new green
jobs. Aberdeen’s North Star Renewables
was also awarded contracts worth an
estimated £270m to design and deliver
the service vessel fleet for Dogger Bank.
Coire Glas, the UK’s largest planned
pumped hydro storage scheme, was
granted revised consent by the Scottish
Government in October 2020, marking
another step towards helping Scotland
and the UK deliver their net zero ambitions.
In February 2021, a study by independent
researchers from Imperial College London
found that just 4.5GW of new long duration
pumped hydro storage with 90GWh of
storage could save up to £690m per year
in energy system costs by 2050.
In the Energy White Paper, the UK
Government stated that long-duration
storage technologies like pumped hydro
storage would play an essential role in
decarbonising the UK’s electricity supply
by integrating renewable energy and
maintaining security of supply.
With many countries setting out
increasingly ambitious climate change
targets, the market for renewables globally
is growing rapidly and SSE continues to
develop options for exporting its long-held
renewables expertise to new geographies.
In February 2021, SSE Renewables and
Acciona S.A., a leading Spanish renewable
energy developer, owner and operator,
announced plans to form a 50/50 joint
venture to enter the emerging Spanish
and Portuguese offshore wind markets.
Meanwhile, SSE Renewables is partnering
with CIP and Danish energy company
Andel Holding on the tender process in
Denmark to develop the 800-1,000MW
Thor wind farm off the country’s west
coast. Elsewhere, North West Europe and
North America have wind potential onshore
and offshore, whilst Japanese offshore
wind is of interest, too.
Emerging international options present
undoubted opportunities to diversify SSE’s
pipeline; however, capital discipline will
continue to guide investment decisions.
The optimisation of existing operations
is boosting the output and value of SSE
Renewables’ hydro fleet, and looking to the
future Coire Glas could provide even more
flexibility to the energy system.
SSE plc Annual Report 2021
17
OUR STRATEGY IN ACTION CONTINUED
Increasing demand for electric vehicle
infrastructure creates opportunities for
distribution network operators like SSE.
Positive advocacy
ENGAGING WITH GOVERNMENT
ON A GREEN RECOVERY
SSE has a long-established political
engagement policy which ensures the
highest standards of probity and respect
in its dealings with regulators, non-
departmental public bodies and the
institutions of government.
It makes representations to institutions of
government in a politically neutral and fair
way, representing its position truthfully and
honestly, and reflecting the Company’s
purpose which puts addressing the
challenge of climate change at its core.
The publication in May 2020 of SSE’s
Greenprint for building a cleaner more
resilient economy, saw SSE lay out practical
steps that could be taken to help instigate
a green recovery and accelerate progress
towards decarbonisation targets.
The Greenprint formed the basis of
constructive engagement with political
stakeholders in Westminster, Edinburgh,
Belfast and Dublin, while as a Principal
Partner of COP26 (see page 24 ) SSE
aims to support the UK Government’s
efforts to drive more urgent and ambitious
international action on climate change.
The UK Government is committed to
making offshore wind the central pillar
of net zero and in the Ten Point Plan for
a Green Industrial Revolution, the Prime
Minister hailed it as a major British success
story. Over the next decade, Britain wants
to quadruple its offshore wind capacity
to 40GW, enough to power every home,
and boost jobs in the sector.
Meanwhile, SSE has engaged positively
with stakeholders in Westminster and
Holyrood regarding the role of carbon
capture and storage (CCS) in reaching net
zero and is actively participating in the UK
Government’s process to develop pilot
projects within industrial clusters. The UK
Government wants to see four CCS clusters
in the UK by 2030 and intends to work with
industry to generate 5GW of low-carbon
hydrogen production capacity by 2030.
Meanwhile SSE has called for an
acceleration of the decarbonisation of
transport and promotion of EV take-up by
ending the sale of new petrol and diesel cars
and vans by 2030. It therefore welcomed
the UK Government’s decision in December
2020 to set a 2030 end date, backed up by a
£2.8bn support package for the automotive
sector. Since this announcement, a
number of leading car manufacturers have
confirmed they will be fully electric by 2030.
This increased ambition opens further
opportunities for SSE Enterprise and
SSEN Distribution, which are facilitating
the electrification of transport and heat
at the heart of their business plans.
Distribution networks will have a critical
role in accommodating the charging
points required for EVs that can make
the UK’s net zero ambition a reality.
SSE has put forward the case that CCS and
hydrogen can provide vital flexible low-
carbon power to help balance a renewables-
led system in the transition to net zero,
bridging emerging capacity gaps this decade
as coal and older gas stations come to
the end of their lives, and enabling wider
decarbonisation and economic growth
in key industrial regions across the UK.
“The publication of SSE’s
Greenprint for building
a cleaner, more resilient
economy formed the basis
of constructive engagement
with political stakeholders.”
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SSE plc Annual Report 2021
STRATEGIC REPORT Key
Build
Operate
Invest
Develop
Partnering for growth
WORKING WITH OTHERS
TO CREATE INCREASED VALUE
The strong interest from investors in low-
carbon electricity infrastructure presents
opportunities for SSE to form new financial
partnerships that fit with a strategy of
developing and operating – but not
necessarily wholly-owning – assets.
SSE continues to regard partnering
capability as vital for the future and an
important means of unlocking future
opportunities in its core businesses.
Through SSE Renewables, in 2020/21
SSE continued its established approach
to partnering to capitalise on the significant
development opportunities ahead related
to net zero.
In December, SSE entered into an
agreement to sell a 10% stake in the first
two phases of Dogger Bank wind farm to
Eni for an equity consideration of £202.5m,
subject to adjustments for interest on
closing – with the proceeds to be used to
enable delivery of its low-carbon growth
plans. This transaction leaves a Dogger
Bank A and B ownership structure of SSE
40%, Equinor 40% and Eni 20%.
The rationale for strategic partnering of
this nature is strong. SSE is well placed to
Partners and specialist suppliers support
SSE in the construction of major projects
such as Beatrice wind farm off the coast
of Caithness.
•
manage development risk; but selling down
stakes to retain typically 30-40% equity
interest in a project and working with
equity partners for construction, and/or
operation, brings a number of benefits:
It allows SSE to secure developer
•
premiums and realise value at the
earliest opportunity.
It reduces overall risk and financial
exposure on large-scale projects.
It avoids a large increase in net debt
that is not earning.
It enables SSE to bring in partners with
complementary skills and access new
markets and technologies.
It appeals to the different risk appetites
of different partners at different stages
of the project cycle.
•
•
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This approach to partnering and financing
in Renewables provides further optionality
to ensure SSE’s enviable development
pipeline is optimised. Delivering the current
pipeline will add, on average, over 500MW
of renewables capacity each year to 2030.
to reach a run rate of at least 1GW of new
assets a year during the second half of this
decade, which will support government
ambitions on net zero.
SSE also reiterated that it will consider
extending the partnering approach to
stakes in its core SSEN Transmission and
SSEN Distribution businesses over the
medium term, should it consider that
the released capital could facilitate the
realisation of greater growth opportunities
across its core businesses.
These would be minority stakes, enabling
SSE to retain the lead role in relation to
governance and also operational control.
And any partnership would only be entered
into if it was deemed to be in the interests
of customers, the electricity system as a
whole, and shareholders to do so.
SSE ASPIRES TO REACH A YEARLY RUN RATE
OF NEW ASSETS DURING THE SECOND HALF
OF THE DECADE OF AT LEAST
In addition, with upcoming seabed auctions
and the work being done to identify
opportunities to expand the portfolio
internationally, SSE has clear aspirations
1GW
SSE plc Annual Report 2021
19
OUR STRATEGY IN ACTION CONTINUED
Keadby 2, with its new technology CCGT,
will displace less efficient thermal plant
on the energy system.
Pioneering CCS and hydrogen
REPURPOSING THERMAL GENERATION
FOR A NET ZERO WORLD
For SSE Thermal, providing the energy
needed today while building a better
world of energy for tomorrow means
delivering flexible and reliable power,
while pioneering low-carbon solutions
that will be needed in the future.
term, widespread use of hydrogen as an
alternative fuel to hydrocarbons. Both
technologies have been identified as
necessary for meeting net zero by the
Committee on Climate Change and in
National Grid’s Future Energy Scenarios.
As the UK progresses to net zero,
‘dispatchable’ power is a fundamental
requirement of a renewables-led system,
providing stability to the grid through
provision of flexible system services,
increased system diversity and security of
supply. The challenge is to find ways to
reduce the carbon emissions associated
with this progressively. And progress is
being made on that front: in 2020/21,
carbon emissions associated with SSE’s
thermal fleet reached the lowest level
since SSE records began.
While some companies simply choose to
sell their unabated plant, that does nothing
to address the underlying challenge of
finding low-carbon ways to generate
electricity flexibly.
Achieving net zero cost-effectively will
require a transition from unabated to ultra
low-carbon gas-fired generation. This
is expected to involve carbon capture
and storage (CCS) and, in the longer
20
SSE plc Annual Report 2021
In terms of SSE’s thermal plant, with the
exception of Keadby 2, Marchwood and
Great Island, SSE cannot envisage any of
the fleet running into the 2030s unabated.
Instead, the focus is on developing the
flexible but ultra low-carbon solutions
needed in a net zero world, capitalising
on both SSE’s considerable engineering
capabilities and the excellent locations of
SSE’s sites close to emerging transport and
storage infrastructure.
In April 2021, SSE announced a new
partnership with Equinor to jointly develop
two first-of-a-kind power stations in North
Lincolnshire: Keadby CCS and Keadby
Hydrogen, which could be the world’s
first 100% hydrogen-fuelled power station.
And in May, SSE and Equinor announced
a similar partnership to develop a further
cutting-edge CCS power station at
Peterhead in Aberdeenshire. These would
be key projects in the Humber and north-
east Scotland clusters, and are well located
to underpin emerging transport and
storage infrastructure, which in can in turn
support broader industrial decarbonisation.
The announcement followed significant
steps forward in the development of SSE’s
own plans for the projects through 2020/21,
with progress made on applications for
development consents for both Keadby
CCS and Peterhead CCS.
Ultimately these projects will require
supportive policy mechanisms to be put in
place and the UK Government has set out a
framework for delivering investment within
industrial clusters which is expected to
progress at pace during 2021/22. With initial
successful clusters and capture projects
expected to be identified by November,
SSE, alongside others in the industry,
is continuing to engage on its projects
with the UK Government as it looks to
demonstrate international leadership
through its domestic decarbonisation
agenda ahead of COP26.
“Dispatchable power is a
fundamental requirement of
a renewables-led system."
STRATEGIC REPORT Key
Build
Operate
Invest
Develop
Networks price controls
DELIVERING ON RIIO-T2,
PLANNING FOR RIIO-ED2
In preparation for the next regulatory
price control, RIIO-T2, SSEN Transmission
developed a stakeholder-led business
plan over an 18-month period. The plan,
A Network for Net Zero, covers the period
from April 2021 to March 2026. Similarly,
SSEN Distribution is building a business
plan to submit to Ofgem for RIIO-ED2, the
next electricity distribution price control
period, which will run from 2023-2028.
In order to develop its objectives, SSEN
Transmission worked closely with a broad
range of stakeholders, including consumer
advocacy agencies such as Citizens Advice
and Citizens Advice Scotland, to ensure
delivery of a responsible and sustainable
business plan that was reflective of the
current and future needs of customers
and GB consumers.
This was led by a thorough action plan
and set out how SSEN Transmission plans
to engage with stakeholders. It described
key engagement principles and mapped
the multiple stakeholders that use or
have an interest in the business’ strategy
and objectives, such as but not limited to
generation customers, the supply chain,
consumer groups, and communities who
host SSEN Transmission’s infrastructure.
Based on feedback received, the final plan
aimed to support both the UK and Scottish
Governments’ net zero emissions targets
and meet the needs and expectations
expressed by stakeholders through five
clear, ambitious goals:
• Transport the renewable electricity
that powers 10m homes.
• Aim for 100% transmission network
reliability for homes and businesses.
• Every connection delivered on time.
• One third reduction in greenhouse
gas emissions.
• £100m in efficiency savings from
innovation.
In delivering this plan, SSEN Transmission
recognises the importance of creating
benefit to society through a Just Transition.
While its first priority is safely to deliver
a robust, efficient and reliable network
to customers in the North of Scotland.
In delivering this essential service, SSEN
Transmission also has a responsibility to
customers, employees, communities and
shareholders to ensure this need is met in
the most responsible way possible.
In February 2021, SSEN Distribution
published its Blueprint for RIIO-ED2,
Shaping a sustainable energy future.
This document helped provide stakeholders
with a solid platform of understanding from
which it could explore specific challenges,
topics, or regional issues that may be of
interest. A microsite was also developed,
while a variety of events were held with
stakeholders, both at a local and a
national level.
The development of SSEN’s ED2 plan has
been a continuous conversation and it will
oversee a critical period as the network
responds to dramatic increases in electric
vehicles and electric heat demand in line
with government policy. Working with
consultants Regen and local stakeholders,
SSEN Distribution projections show an
‘in area’ increase of EVs and heat pumps
from circa 30K each today to 5m and 2.5m
respectively by 2050. Stakeholders’ views
are critical and with the draft business plan
submitted this summer, there will be further
in-depth consultation to fine tune the plan
over the remainder of 2021.
SSEN TRANSMISSION’S RIIO-T2 BUSINESS
PLAN AIMS FOR EFFICIENCY SAVINGS OF
£100m
While appealing against certain elements of the RIIO-T2
price control settlement, SSEN Transmission is getting
on with delivering its ambitious business plan.
SSE plc Annual Report 2021
21
KEY PERFORMANCE INDICATORS
RESILIENCE
AND GROWTH
SSE uses a number of financial and non-financial measures to
track progress against its strategy to create value by developing,
building, operating and investing in electricity infrastructure and
businesses needed for net zero.
Financial KPIs
DIVIDEND PER SHARE
(PENCE)
2021
2020
2019
ADJUSTED
PER SHARE (£M)
AND REPORTED EARNINGS
ADJUSTED
BEFORE TAX (£M)
AND REPORTED PROFIT
81.0
80.0
97.5
2021
2020
2019
87.5
83.6
40.6
61.8
123.7
215.7
2021
2020
2019
1,064.9
1,023.4
587.6
685.1
1,300.3
2,516.4
Adjusted
Reported
Adjusted
Reported
Strategic relevance: SSE’s first financial objective
is to remunerate shareholders’ investment
through the payment of dividends.
Strategic relevance: Adjusted EPS gives a
meaningful measure of financial performance
over the medium term.
Performance: The recommended full-year
dividend for 2020/21 is in line with the five-year
dividend plan to 2023.
Performance: Results reflect the underlying
resilience of SSE’s business model and the fact
that the financial impact of coronavirus was held
to £170m. A marked rise in reported numbers
underlines the value created by the disposals
programme.
Strategic relevance: SSE’s objective is to earn a
sustainable level of profit over the medium term.
Performance: Results reflect the underlying
resilience of SSE’s business model and the fact
that the financial impact of coronavirus was held
to £170m. A marked rise in reported numbers
underlines the value created by the disposals
programme.
ADJUSTED
PROFIT BY CORE BUSINESS (£M)
AND REPORTED OPERATING
COMBINED NETWORKS REGULATED ASSET
VALUE (£M)
ADJUSTED
EXPENDITURE (£M)
INVESTMENT AND CAPITAL
Adjusted
2021
Reported
2021
Adjusted
2020
Reported
2020
731.8
220.9
267.3
856.0
220.9
267.3
567.3
218.1
356.3
459.9
218.1
351.9
2021
2020
2019
Renewables
Transmission
Distribution
9.4
2021
912.0
9.1
2020
8.7
2019
1,357.4
1,422.9
Strategic relevance: SSE’s purpose is built on
the strategic logic of a renewables and regulated
networks core that shares common skills and
capabilities in pursuit of net zero.
Strategic relevance: SSE currently has an
ownership interest in five economically regulated
networks, each of which has a Regulated Asset
Value or RAV.
Strategic relevance: SSE applies strict financial
discipline that supports investment in assets that
are expected to provide returns that are greater
than the cost of capital.
Performance: Combined, SSE’s core renewables
and regulated electricity networks businesses
accounted for 81% of Group adjusted operating
profit.
Performance: Compared to 2019/20, the RAV
of SSE’s electricity networks businesses (i.e.
excluding SGN) increased from £7.2bn to £7.4bn.
Performance: SSE has demonstrated through
effective capital allocation and optimal capital
recycling and partnering it can take advantage
of the opportunities in its existing financial
framework.
22
SSE plc Annual Report 2021
STRATEGIC REPORT
More information
SSE’s social contribution: page 32
Financial Review: pages 64 to 77
Transmission Operating Review:
pages 79 to 80
Distribution Operating Review:
pages 81 to 82
Renewables Operating Review:
pages 83 to 85
Non-financial KPIs
RENEWABLE OUTPUT (INC. PUMPED STORAGE)
(GWH)*
CARBON INTENSITY OF ELECTRICITY
GENERATED (GCO2E PER KWH)
2021
2020
2019
10,242
2021
255
11,442
2020
10,464
2019
288
284
Strategic relevance: Renewables are core to SSE’s
business strategy, which is centred around the
net zero transition. SSE has a goal of trebling its
renewable output by 2030.
Performance: Whilst renewable output decreased
slightly due to unfavourable weather conditions
across wind and hydro, SSE Renewables’ portfolio
proved to be extremely resilient.
* Includes pumped storage, biomass and constrained
off wind in GB.
Strategic relevance: As a significant generator of
electricity, SSE has a responsibility to reduce its
carbon intensity in line with climate science.
Performance: The carbon intensity of SSE’s
generated electricity decreased by 11% between
2019/20 and 2020/21, and was the lowest since
SSE’s records began.
ADJUSTED
(£M)
EBITDA
JOBS SUPPORTED IN UK AND IRELAND
TOTAL RECORDABLE INJURY RATE PER
100,000 HOURS WORKED (EMPLOYEES
AND CONTRACTORS COMBINED)
2021
2020
2019
2,229.9
2,191.4
1,718.1
2021
2020
2019
43,560
60,550
2021
2020
105,250
2019
0.15
0.16
0.16
Strategic relevance: Extracting interest, tax,
depreciation and amortisation from earnings
provides a useful measure of SSE’s operational
performance.
Performance: Results reflect the underlying
resilience of SSE’s business model and the fact
that the financial impact of coronavirus was held
to £170m, at the lower end of the guided range.
Strategic relevance: SSE relies on the people that
work for it in order to operate, with its activities
supporting jobs in both urban and rural areas.
Strategic relevance: Safety is SSE’s No. 1 value,
and everybody in the Company operates to the
safety licence of “if it’s not safe, we don’t do it”.
Performance: Through its operations in
the UK and Ireland, in 2020/21 SSE supported
41,400 and 2,160 jobs respectively. Figures for
2019/20 have now been restated to exclude
SSE Energy Services.
Performance: Against the backdrop of a
challenging year, SSE’s TRIR has decreased to
0.15, making 2020/21 SSE’s best year on record
for safety performance.
INVESTMENT AND CAPITAL EXPENDITURE BY
CORE BUSINESS, BEFORE REFUNDS (£M)
Adjusted
2021
Reported
2021
Adjusted
2020
Reported
2020
294.3
435.2
350.8
223.9
436.2
412.6
342.7
329.0
364.9
283.1
335.7
447.5
Renewables
Transmission
Distribution
Strategic relevance: The main focus of SSE’s
investment and capital expenditure is on
renewable energy and regulated electricity
networks.
Performance: SSE invested £1.08bn in its core
businesses, representing 80% of its total capital
and investment expenditure for the year.
TAXES PAID IN THE UK/IRELAND
ECONOMIC CONTRIBUTION IN UK/IRELAND
2021
€20.4m
2020
€18.1m
2019
€14.6m
£379.0m
£421.6m
£403.7m
2021
2020
2019
€439m
€650m
€689m
£5.2bn
£5.7bn
£8.9bn
UK
Ireland
UK
Ireland
Strategic relevance: Taxes support the public
services everyone relies on. When companies do
well, they should share their success with society
through the payment of taxes.
Strategic relevance: SSE depends on a healthy
and thriving economy to enable its business
success, which is why it calculates the value it
adds to UK and Irish GDP each year.
Performance: Taxes paid in the UK decreased
slightly in 2020/21 and increased in the Republic
of Ireland.
Performance: SSE continued to make a strong
economic contribution in the UK and Ireland.
Figures for 2019/20 have now been restated to
exclude SSE Energy Services.
SSE plc Annual Report 2021
23
SECTOR REVIEW
OUR OPERATING
ENVIRONMENT
The energy sector has demonstrated tremendous
resilience in the face of challenges brought about
by the coronavirus pandemic. It has been tested
rigorously since March 2020 and traditional energy
demand patterns have been disrupted, underlining
the need for a flexible, resilient system to reach
net zero.
Net zero
TIME TO DELIVER
ON CLIMATE PLANS
Countries representing 70% of the global
economy have committed to net zero.
There is now a need to move from
ambition to action.
SSE is proud to be a Principal Partner
of COP26. It will be the most important
climate summit since COP21 and critical
for global action on climate change. In
September 2020, China joined a growing
number of countries in adopting a mid-
century net zero goal, and Joe Biden’s
electoral victory ensured that the United
States rejoined the Paris Agreement, with
his climate envoy, John Kerry, calling
COP26 the “last best chance” to avert
a climate catastrophe. If the summit is
to be a success, these declarations must
be translated into deliverable climate
action plans.
Late 2020 saw a significant number of
energy and climate policy announcements
in both the UK and Ireland. In November,
the UK Prime Minister published his Ten
Point Plan for a Green Industrial Revolution
setting out plans to quadruple the UK’s
offshore wind capacity and deliver 5GW
of hydrogen production capacity by
2030. This was followed in December
by the Energy White Paper which set the
direction of travel for UK energy policy,
and subsequently, the publication of the
Climate Change Committee’s Sixth Carbon
Budget analysis.
In the US, the Biden Administration has
committed to a Plan for Clean Energy
Revolution and Environmental Justice
which proposes ensuring the US achieves
a 100% clean energy economy and
reaches net zero emissions no later than
2050. There have also been significant
policy developments in the European
Union, including the pathway to climate
neutrality by 2050. Last year, the European
Commission published strategies on
energy system integration, hydrogen
24
SSE plc Annual Report 2021
and offshore renewable energy. And in
response to the coronavirus pandemic,
a political agreement was reached on a
€672.5bn Recovery and Resilience Fund,
of which a minimum of 37% should support
climate objectives.
SSE finds itself firmly on the right side of the
climate argument, with a net zero-focused
strategy that is playing a major role in
decarbonising the economy and creating
lasting value for shareholders and society.
Chief Executive Alistair Phillips-Davies and Group
Energy and Commercial Director Martin Pibworth mark
SSE’s Principal Partnership of COP26.
STRATEGIC REPORT Capital flow
A PIVOTAL MOMENT
FOR ESG INVESTMENT
Against the backdrop of the pandemic and
calls to “build back better”, it has been widely
acknowledged that 2020 was a pivotal year
for sustainable investment in which there is
some evidence that Environmental, Social
and Governance (ESG) portfolios have
performed with resilience.
ESG investment is growing. According to
2021 data from the European Fund and
Asset Management Association, in Europe,
net assets in ESG funds grew to €1.2 trillion
in 2020, up 37.1% from 2019 and compared
to a 4.8% increase for non-ESG funds.
Renewable energy funds saw the highest
growth – 604% – since 2016.
It appears that coronavirus has redirected
the focus of investors and led to greater
scrutiny of businesses’ ESG credentials.
Understandably, there has been heightened
investor focus on social factors such as
employee welfare, supply chain issues
and the wider societal benefits generated
by job creation.
a new green investment taxonomy and
become the first country in the world
to make TCFD-aligned disclosures fully
mandatory across the economy by 2025.
In the UK, European Union and US,
rhetoric around a green recovery has
been backed up by credible policy changes,
or comprehensive stimulus plans with a
climate focus. Amid an increase in capital
flow to ESG funds, fund managers are
taking increasingly proactive stances
on climate risk.
This is significant at a time when the
European Union is seeking to implement
the EU Taxonomy to direct capital flows
towards green activities and scale up
sustainable investment. In November
2020, the Chancellor of the Exchequer
announced that the UK would also create
SSE has reported in line with the TCFD
framework since 2020 (see pages 40 and
41 ) and looks forward to disclosing
material issues that align with the UK’s
proposed green taxonomy when the
requirements are known.
NET ASSETS IN EUROPEAN ESG FUNDS
€1.2tr
Innovation and technology
TRANSFORMING
THE ENERGY SYSTEM
Advances in technology, larger turbine
capacities and efficient financing have made
wind power one of the cheapest forms of
power generation in many countries.
SSE Renewables is showcasing such
technologies on projects like its
Dogger Bank joint venture where the
groundbreaking 13MW GE Haliade-X
turbine, the most powerful offshore wind
turbine in operation today, is being debuted.
The key role for flexible low-carbon
thermal generation in the transition to
net zero is also becoming clear due to its
ability to decarbonise multiple sectors. The
Prime Minister’s Ten Point Plan included a
commitment to deploy two carbon capture
clusters by the mid-2020s, and a further
two clusters by 2030.
Thermal power stations with carbon
capture and storage (CCS) technology or
fired by hydrogen will be a cost-effective
way of meeting growing peak and seasonal
electricity demands. The UK can be a
global leader in low-carbon thermal with
its existing gas infrastructure and skills and
making use of its potential storage capacity
in the North Sea.
Additionally, fast reductions in battery costs
are improving the outlook for EVs. Rapid
innovation in battery storage technology
has seen costs plummet almost 90%
since 2010.
In electricity networks, High Voltage Direct
Current (HVDC) technology is increasing the
capacity, cost effectiveness and distances
covered by transmission infrastructure,
which is, in turn, improving the viability of
offshore and remote sources of renewables.
In all of this, SSE applies an innovation
strategy that has at its core a philosophy
of partnering with sector specialists in
order to gain access to the technologies,
experience and skills that its individual
businesses need to help them accelerate
projects in support of net zero.
SSE plc Annual Report 2021
25
SECTOR REVIEW CONTINUED
The latest offshore leasing round highlights the
value of SSE’s wind portfolio which includes
Greater Gabbard, pictured, and flagship projects
in construction like Dogger Bank.
Markets and regulation
A RAPIDLY EVOLVING
ENERGY LANDSCAPE
Delivering net zero will require traditional
electricity market design to be refreshed
and more considered market structures will
need to be implemented for the long term.
Welcome efforts by the UK Government
to address market design continue against
the backdrop of events in 2020/21, which
demonstrate the rapid pace at which the
sector is evolving.
In February 2021, the Crown Estate
announced the results of Offshore Wind
Leasing Round 4 with six proposed new
offshore wind projects in England and
Wales. The successful bids represented
record high levels for seabed, signalling the
attractiveness of UK offshore development.
While unsuccessful in this round, SSE
continues to hold the largest offshore
wind development pipeline in the UK and
Republic of Ireland at 7GW – and the value
of these options is now clearer than ever.
The UK’s target for 40GW of offshore
wind by 2030 is a challenge that will
require an equally ambitious approach to
seabed auctions. Both RenewableUK and
WindEurope have shared their concerns
regarding the auction process, noting
that insufficient sites were made available
to meet demand while the record high
bids involved will result in greater costs
for developers and ultimately consumers.
High demand is driven in part by oil majors
seeking to diversify their portfolios, with
more than 55% of Round 4 capacity won
by oil major-backed consortia.
If consumers and developers alike are to
reap the benefits of the booming offshore
wind market, then a coordinated approach
to developing the required amount of
offshore grid infrastructure will be crucial.
In August 2020, BEIS and Ofgem initiated
the Offshore Transmission Network
Review with workstreams reviewing near-,
medium- and long-term opportunities.
Additionally, the UK-EU Trade and
Cooperation Agreement includes provisions
for cooperation in the development of
offshore energy, with a focus on the North
Sea, while the European Commission has
proposed a framework under the revised
TEN-E Regulation for long-term offshore
grid planning, involving regulators and the
Member States in each sea basin.
SSEN Transmission, meanwhile, was greatly
encouraged by the broad support for its
stakeholder-led business plan throughout
Ofgem’s consultative process on its Draft
Determinations for RIIO-T2 and cautiously
welcomed Ofgem’s movement on a
number of fronts in its Final Determination
in December 2020. There are, however,
till some concerns.
While the bulk of the price control settlement
matched SSEN Transmission’s ambition, the
financial parameters did not. An appeal was
lodged – echoed by the rest of the industry
and now progressing with the CMA – that
is technical in nature, centring on the cost
of equity, which does not reflect market
conditions, and the flawed outperformance
wedge as well as exposure to under recovery
of TNUoS and loss of appeals rights.
Further afield, widespread blackouts in
Texas in early 2021 exposed vulnerabilities
of outdated market systems and sparked a
conversation regarding what can happen
with low levels of regulation and resilience.
A failure to prepare for severe weather
events and adequately invest in critical
infrastructure highlighted the importance
of anticipatory investment, system planning
and the value of necessary regulation.
26
SSE plc Annual Report 2021
STRATEGIC REPORT Meteorological impact
ADAPTING TO CHANGING
WEATHER PATTERNS
SSE must ensure its operations are resilient
and can adapt to changing weather
patterns that are emerging with climate
change. Changes in rainfall and wind
patterns can determine the output levels
of SSE Renewables’ generation assets.
Extreme weather events can also impact
the resilience of SSEN’s electricity networks
and lead to variations in energy demand
which affect SSE’s customer businesses.
the North of Scotland region contended
with some of the worst weather conditions
in over a decade which brought significant
localised challenges.
SSE has established crisis management
and business continuity plans in place to
help mitigate the impact of severe weather
events that pose a risk to critical national
energy infrastructure.
The interconnectivity of international
commodity markets and national energy
systems – particularly between GB,
Ireland and continental Europe – adds
an additional layer of complexity to the
impact of weather events on wholesale
energy prices and SSE’s earnings.
While it is vital that governments and
businesses act to mitigate the impact of
climate change, both must simultaneously
implement climate adaptation strategies
as climate-related events become
increasingly frequent.
Events in Texas in February 2021
demonstrated the vulnerability of energy
systems to extreme weather and the
importance of investment in infrastructure
to boost resilience in the face of a changing
climate. In the same month, SSE’s teams in
SSE’s expert teams closely monitor
meteorological events which enables
rapid response and early mobilisation when
required to support energy consumers
and ultimately strategic business goals.
This work includes:
• Predicting how forecast temperatures
might affect energy demand and whether
daily temperature fluctuations will require
a response from generation assets.
• Weather forecasting to inform the
purchasing decisions of SSE’s energy
portfolio managers, improving
procurement operations.
• Determining short-, medium- and
long-term wind forecasts and electricity
output from renewables assets.
• Gauging how rainfall patterns will impact
hydro-electric generation output and
storage capacity.
• Forecasting extreme and unseasonal
weather such as high winds, snow and
rainfall that could affect the resilience
of distribution and transmission
infrastructure.
Climate adaptation
The issue of climate adaptation
has been at the heart of the UK
Government’s advocacy policies
for COP26 and SSE welcomed the
UK’s Adaptation Communication
to the UNFCCC in December 2020.
Additionally, in February 2021, the
European Commission published the
EU Strategy on Adaptation to Climate
Change as part of the EU Green Deal.
For SSE, boosting resilience
and assessing climate adaptation
requirements is an essential aspect
of its sustainability work. SSE is
particularly supportive of the
Commission’s proposals to use
better data to inform necessary
climate adaptation preparations and
the recognition of climate adaptation
as a priority for a green-led recovery
from coronavirus.
In February 2021, SSEN Distribution had to contend
with some of the worst weather conditions in over
a decade.
SSE plc Annual Report 2021
27
OUR STAKEHOLDERS
WORKING FOR AND
WITH STAKEHOLDERS
Constructive engagement with stakeholders underpins SSE’s ability to
create value for shareholders and society in a sustainable way through
the fulfilment of its purpose and delivery of its strategy.
The role of stakeholder
engagement
SSE recognises that a sustainable strategy is
one which is reflective of stakeholder views
and input.
It therefore promotes an open and
transparent approach to stakeholder
engagement, which is supported by
accountability at both Group and Business
Unit level for demonstrating how stakeholder
interests have been considered in long-term
plans and day-to-day decision making.
This approach derives from the following
definition of stakeholder engagement in SSE:
The purpose of stakeholder engagement in
SSE is to ensure that the perspectives, insights
and opinions of stakeholders are understood
and taken account of when key operational,
investment or business decisions are being
taken, so that those decisions:
• are more robust and sustainable in
themselves; and
• support SSE’s strategic approach
of creating value for shareholders
and society.
SSE’s key stakeholder groups
A long-understood social contract
informs SSE’s view that its stakeholders are
people, communities and organisations
with an interest in its purpose, strategy,
operations and actions and who may
be affected by them. The relationship
with key stakeholders is two-way, with SSE
relying on a range of inputs, in return for
which value is generated. An overview of the
reciprocal nature of SSE’s relationship with
its stakeholders is illustrated by the business
model framework on pages 10 to 11 and
set out in detail on the following pages.
Employees
Shareholders and
debt providers
We engage to attract, retain and
develop a diverse and talented
workforce now and for the future.
We engage to ensure confidence
and support from those that
invest in and lend to SSE.
Input to SSE:
Talent, skills, values and output.
Value created:
Inclusive, fulfilling and high-
performing workplace.
Input to SSE:
Provision of finance, strategic
direction and stewardship.
Value created:
Sustainable return on investment.
Energy customers
We engage to support an
accessible low-carbon energy
system that represents value
for customers’ money.
Input to SSE:
Customer priorities and
expectations.
Value created:
Reliable and inclusive provision
of services.
Government
and regulators
NGOs, communities
and civil society
Suppliers, contractors
and partners
We engage to ensure fair energy
sector frameworks for energy
customers and investors that
support progress to net zero
at the required pace.
Input to SSE:
Public policy and regulatory
frameworks.
Value created:
Considered and expert sector
views; delivery of policy and
regulatory aims.
28
SSE plc Annual Report 2021
We engage to support the
achievement of shared goals
with social benefit.
Input to SSE:
Distinctive social, environmental
and energy-related perspectives.
Value created:
Robust social contract through
which value is shared.
We engage to support the
greatest all-round value from
our investments.
Input to SSE:
Quality goods and services
and investment.
Value created:
Sustainable relationships, value
creation and partnership expertise.
STRATEGIC REPORT Engagement methods,
impact and influence
SSE adopts a range of engagement methods
to build constructive relationships and a
dynamic, two-way dialogue that tracks
priorities and understanding on specific
stakeholder issues. These methods exist in a
strategic framework that sees a combination
of business-led and Board-level engagement
and is reflective of legislative and regulatory
requirements, characterised for example,
by the dedicated stakeholder forums in SSE’s
networks businesses. Details of just some
of the engagement methods deployed, and
views captured during 2020/21 are covered
on pages 30 to 31 .
A single metric cannot define the success
or otherwise of a stakeholder relationship.
However, by considering the size of the
stakeholder group, extent of engagement
and value returned – financial or non-
financial – certain measurements can
aid understanding of where further
opportunities or risks exist. Examples
of these measurements are provided on
pages 11, 22 to 23 and overleaf.
The full impact of SSE’s approach results
in stakeholder influence within, and
validity of, business plans and supporting
objectives. The framework set by the
Board in which decision making takes
place is explained on page 104 , which
confirms that consideration of SSE’s
purpose, vision, strategy and values, and its
interconnectivity with stakeholders should
drive appropriate outcomes. Situations
will continue to exist where not every
stakeholder interest can be addressed in
full, however stakeholder regard continues
to the fullest extent possible.
With stakeholder considerations long-
embedded in SSE’s definition of a healthy
business culture, evidencing the influence
of stakeholder perspectives remains a
focus across the Annual Report and SSE’s
Sustainability Report.
STRATEGY
IN ACTION
Multi-dimensional stakeholder
engagement influences the
direction of SSE’s strategy and
the choices it makes to create
value for shareholders and society
(see pages 16 to 21 ).
ENGAGEMENT
IN ACTION
SSE works directly with its key
stakeholders to understand
and respond to material issues
(see pages 39, 45, 48, 51, 52, 53, 105
and 116 ).
BOARD PRINCIPAL
DECISION
Responsible leadership and considered
decision-making require the
integration of stakeholder views and an
understanding of stakeholder outcomes
(see pages 107 to 109, 124 and 127 ).
SSE plc Annual Report 2021
29
OUR STAKEHOLDERS CONTINUED
Stakeholder group
Engagement methods in 2020/21
Material issues raised in 2020/21
Measuring value created
Engagement in action
Employees
Group engagement
• Virtual multi-channel approach for two-way conversations on strategy, culture and pandemic ways of working.
• Two Group-wide employee surveys to understand sentiment and lockdown impact.
• Data from exit surveys when employees leave SSE.
• Management-led engagement and business-specific updates including MD ‘town hall’ events.
• Formal methods for trade unions engagement and negotiation.
Board engagement (see pages 114 to 116 )
•
• Complementary and focused work of SSE’s Non-Executive Director for Employee Engagement.
• Continuous feedback on employee sentiment and the support being provided.
Involvement in SSE’s multi-channel Group approach and business-specific events.
Shareholders and
debt providers
Group engagement
• Response to incoming investor queries by Investor Relations.
• Engagement with Environmental, Social and Governance (ESG) ratings agencies to improve disclosures
and allow stakeholders to better assess SSE’s performance.
Board engagement (see page 105 )
• Virtual engagements including one-to-one investor meetings, roadshows and investor conferences.
• Monthly reporting of investor and financial market sentiment.
• Formal communication of financial results, quarterly trading statements and requisite regulatory announcements.
• Modified approach to the AGM 2020 shaping the platform for the AGM 2021.
Energy customers
Group engagement
• Dedicated panels to ensure perspectives of vulnerable customers are considered.
•
•
•
Specific forums to engage with large business customers.
Virtual stakeholder workshops and publications to seek feedback on business plans and projects.
Engagement with governments and regulators on key issues affecting energy customers as a result
of the pandemic.
Board engagement
•
Updates on customer performance from the SSEN Distribution, SSEN Transmission and Customers
Business Units.
Feedback on business plans which included input from customers.
•
Government
and regulators
Group engagement
• Engagement with ministers and other government and regulatory officials in regular meetings, round tables
and working groups by dedicated teams.
• Contributions to consultations regarding the development of regulation and policies which impact upon SSE
and its customers.
• Ongoing constructive dialogue with Ofgem on RIIO-T2 and RIIO-ED2 price control periods.
Board engagement
• Oversees advocacy priorities to be executed by SSE’s management team and direct formal engagement
where appropriate.
• External soundings and market research to inform strategic decision-making.
• Engagement with external advisers through strategic review work and supporting sessions.
• Safety, health and wellbeing policies and practice.
• Employee benefits and support, flexible employee
guidelines and ways of working.
• Senior leader visibility and engagement.
•
Inclusion and diversity.
• Employee voice and making a difference within SSE.
• Support for ‘doing the right thing’.
• Pay progression and development opportunities
• Clear and simple communication.
• Engagement survey results (see page 48 )
• Retention rate (see page 46 )
• Workforce diversity (see pages 46 and 49 )
• SHE performance (see page 45 )
• Learning and development (see page 46 )
Listening and responding
during the pandemic
(see page 48 )
Non-Executive Director
for Employee Engagement
(see page 116 )
• Financial performance, credit rating and dividends.
• Political and regulatory risk.
• Dividend plan (see page 70 )
• EPS (see page 68 )
•
Investment and capex plans, including focus on SSE‘s
• ESG scores, undertaken by third-party assessments
networks and renewables businesses.
• ESG performance.
(see page 35 )
• AGM engagement (see page 105 )
AGM 2020 and AGM 2021
(see page 105 )
A business first: SSE’s
strategy for a Just Transition
(see page 45 )
• Affordable and accessible energy.
• Responsiveness to need and vulnerability.
• Quality customer service.
• Using energy efficiently.
•
Impact of industry change.
• Energy not supplied on Transmission network
(see page 79 )
• Customer interruptions on electricity customer
Distribution network (see page 81 )
• Customer accounts and market share (see pages 88
to 90 )
Providing priority services
to vulnerable customers
(see page 51 )
• Safe continuation of critical national infrastructure
• Support of government efforts through SSE’s
Engaging with government
construction projects through coronavirus.
• Cost-effective delivery of low-carbon infrastructure.
• Fair treatment of energy customers.
pandemic response to ensure provision of critical
energy supply and services (see pages 44 to 53 )
• Open and constructive engagement in government
• Security of supply and critical infrastructure provision.
and regulatory policy development in support of net
on a green recovery
(see page 18 )
zero ambitions (see page 24 )
• Environmental protection and decarbonisation.
• Customer vulnerability and fuel poverty.
• A just and fair net zero transition.
• Employment standards, including Living Wage and
• Environmental performance (see pages 36 to 43 )
• GDP contributed and jobs supported (see page 44 )
• Taxes paid (see page 44 )
• Community investment (see page 53 )
Providing emergency
funding in a time of need
(see page 53 )
• The RIIO-T2 and RIIO-ED2 business plans.
• Flexible networks and the transition to Distribution
System Operator (DSO).
•
Increasing UK offshore wind supply chain content.
• Carbon pricing and support mechanisms for net zero.
• The UK’s future relationship with the EU.
• How SSE shares value with local communities and
inclusion and diversity.
wider society.
• Responsible behaviour of large businesses.
• Management and mitigation of health and safety risks
on sites.
• Economic opportunities in local supply chains.
• Mitigation and management of social and
environmental impacts.
• Project design and innovation.
• Effective governance and operations.
• Fair expectation in the delivery of projects and prompt
payment.
• Working collaboratively with joint venture partners
with clear responsibilities.
• Supply chain spend (see pages 11 and 52 )
• Supplier feedback (see page 52 )
• Joint venture investment (see pages 70 and 76 )
Working with supply chain
partners to cut carbon
(see page 39 )
A new Sustainable
Procurement Code
(see page 52 )
Group engagement
•
•
Promotion of key sustainable development frameworks, such as the UN’s Sustainable Development Goals.
Partnerships with key NGOs which deliver social and environmental benefits, including with the Fair Tax
Foundation and the Living Wage Foundation.
Sharing learnings and gaining feedback on SSE’s new Just Transition strategy.
Community consultation events to gather feedback on projects and business plans.
•
•
Board engagement
• Review of commitments set under the UN’s Sustainable Development Goals and supporting strategic plans.
• Updates on community funds including repurposing during coronavirus.
• Consideration of the community and locational benefits of large capital project investment.
Meetings with strategic suppliers to discuss material issues for both companies through SSE’s Supplier
Relationship Management (SRM) programme.
Creation of a Critical Contracts working group to hold direct engagements with suppliers, at a Business Unit
and Category level, relating to Brexit and coronavirus concerns and claims.
Collaboration with suppliers and government on attracting inward investment.
Supply chain webinars to highlight opportunities in key development projects.
Development of successful ways of working protocols with joint venture partners.
Sharing best practice and aims of sustainability strategies and goals, including direct input into SSE’s new
Sustainable Procurement Code.
Group engagement
•
•
•
•
•
•
Board engagement
• Executive Director meetings with strategic partners and suppliers.
• Regular updates on joint venture project strategy and progress.
• A dedicated briefing on sustainable supply chains from SSE’s Procurement and Sustainability teams.
NGOs, communities
and civil society
Suppliers, contractors
and partners
30
SSE plc Annual Report 2021
STRATEGIC REPORT Material issues raised in 2020/21
Measuring value created
Engagement in action
• Safety, health and wellbeing policies and practice.
• Employee benefits and support, flexible employee
guidelines and ways of working.
Inclusion and diversity.
• Senior leader visibility and engagement.
•
• Employee voice and making a difference within SSE.
• Support for ‘doing the right thing’.
• Pay progression and development opportunities
• Clear and simple communication.
• Engagement survey results (see page 48 )
• Retention rate (see page 46 )
• Workforce diversity (see pages 46 and 49 )
• SHE performance (see page 45 )
• Learning and development (see page 46 )
Listening and responding
during the pandemic
(see page 48 )
Non-Executive Director
for Employee Engagement
(see page 116 )
• Financial performance, credit rating and dividends.
• Political and regulatory risk.
•
Investment and capex plans, including focus on SSE‘s
networks and renewables businesses.
• ESG performance.
• Dividend plan (see page 70 )
• EPS (see page 68 )
• ESG scores, undertaken by third-party assessments
(see page 35 )
• AGM engagement (see page 105 )
AGM 2020 and AGM 2021
(see page 105 )
A business first: SSE’s
strategy for a Just Transition
(see page 45 )
• Affordable and accessible energy.
• Responsiveness to need and vulnerability.
• Quality customer service.
• Using energy efficiently.
•
Impact of industry change.
• Energy not supplied on Transmission network
(see page 79 )
• Customer interruptions on electricity customer
Distribution network (see page 81 )
• Customer accounts and market share (see pages 88
to 90 )
Providing priority services
to vulnerable customers
(see page 51 )
• Safe continuation of critical national infrastructure
• Support of government efforts through SSE’s
pandemic response to ensure provision of critical
energy supply and services (see pages 44 to 53 )
• Open and constructive engagement in government
and regulatory policy development in support of net
zero ambitions (see page 24 )
Engaging with government
on a green recovery
(see page 18 )
Stakeholder group
Engagement methods in 2020/21
Employees
Group engagement
• Virtual multi-channel approach for two-way conversations on strategy, culture and pandemic ways of working.
• Two Group-wide employee surveys to understand sentiment and lockdown impact.
• Data from exit surveys when employees leave SSE.
• Management-led engagement and business-specific updates including MD ‘town hall’ events.
• Formal methods for trade unions engagement and negotiation.
Board engagement (see pages 114 to 116 )
•
Involvement in SSE’s multi-channel Group approach and business-specific events.
• Complementary and focused work of SSE’s Non-Executive Director for Employee Engagement.
• Continuous feedback on employee sentiment and the support being provided.
Shareholders and
debt providers
Group engagement
• Response to incoming investor queries by Investor Relations.
and allow stakeholders to better assess SSE’s performance.
Board engagement (see page 105 )
• Engagement with Environmental, Social and Governance (ESG) ratings agencies to improve disclosures
• Virtual engagements including one-to-one investor meetings, roadshows and investor conferences.
• Monthly reporting of investor and financial market sentiment.
• Formal communication of financial results, quarterly trading statements and requisite regulatory announcements.
• Modified approach to the AGM 2020 shaping the platform for the AGM 2021.
Energy customers
Group engagement
• Dedicated panels to ensure perspectives of vulnerable customers are considered.
Specific forums to engage with large business customers.
Virtual stakeholder workshops and publications to seek feedback on business plans and projects.
Engagement with governments and regulators on key issues affecting energy customers as a result
Government
and regulators
of the pandemic.
Board engagement
Business Units.
Group engagement
and its customers.
Board engagement
where appropriate.
•
Updates on customer performance from the SSEN Distribution, SSEN Transmission and Customers
•
Feedback on business plans which included input from customers.
• Engagement with ministers and other government and regulatory officials in regular meetings, round tables
and working groups by dedicated teams.
• Contributions to consultations regarding the development of regulation and policies which impact upon SSE
• Ongoing constructive dialogue with Ofgem on RIIO-T2 and RIIO-ED2 price control periods.
• Oversees advocacy priorities to be executed by SSE’s management team and direct formal engagement
• External soundings and market research to inform strategic decision-making.
• Engagement with external advisers through strategic review work and supporting sessions.
NGOs, communities
Group engagement
and civil society
Promotion of key sustainable development frameworks, such as the UN’s Sustainable Development Goals.
Partnerships with key NGOs which deliver social and environmental benefits, including with the Fair Tax
Foundation and the Living Wage Foundation.
Sharing learnings and gaining feedback on SSE’s new Just Transition strategy.
Community consultation events to gather feedback on projects and business plans.
Board engagement
• Review of commitments set under the UN’s Sustainable Development Goals and supporting strategic plans.
• Updates on community funds including repurposing during coronavirus.
• Consideration of the community and locational benefits of large capital project investment.
Suppliers, contractors
Group engagement
and partners
Relationship Management (SRM) programme.
•
Creation of a Critical Contracts working group to hold direct engagements with suppliers, at a Business Unit
and Category level, relating to Brexit and coronavirus concerns and claims.
Collaboration with suppliers and government on attracting inward investment.
Supply chain webinars to highlight opportunities in key development projects.
Development of successful ways of working protocols with joint venture partners.
Sustainable Procurement Code.
Board engagement
• Executive Director meetings with strategic partners and suppliers.
• Regular updates on joint venture project strategy and progress.
• A dedicated briefing on sustainable supply chains from SSE’s Procurement and Sustainability teams.
•
•
•
•
•
•
•
•
•
•
•
construction projects through coronavirus.
• Cost-effective delivery of low-carbon infrastructure.
• Fair treatment of energy customers.
• Security of supply and critical infrastructure provision.
• The RIIO-T2 and RIIO-ED2 business plans.
• Flexible networks and the transition to Distribution
System Operator (DSO).
•
Increasing UK offshore wind supply chain content.
• Carbon pricing and support mechanisms for net zero.
• The UK’s future relationship with the EU.
• Environmental protection and decarbonisation.
• Customer vulnerability and fuel poverty.
• A just and fair net zero transition.
• Employment standards, including Living Wage and
inclusion and diversity.
• How SSE shares value with local communities and
wider society.
• Responsible behaviour of large businesses.
• Management and mitigation of health and safety risks
•
Meetings with strategic suppliers to discuss material issues for both companies through SSE’s Supplier
on sites.
Sharing best practice and aims of sustainability strategies and goals, including direct input into SSE’s new
payment.
• Working collaboratively with joint venture partners
with clear responsibilities.
• Economic opportunities in local supply chains.
• Mitigation and management of social and
environmental impacts.
• Project design and innovation.
• Effective governance and operations.
• Fair expectation in the delivery of projects and prompt
• Environmental performance (see pages 36 to 43 )
• GDP contributed and jobs supported (see page 44 )
• Taxes paid (see page 44 )
• Community investment (see page 53 )
Providing emergency
funding in a time of need
(see page 53 )
• Supply chain spend (see pages 11 and 52 )
• Supplier feedback (see page 52 )
• Joint venture investment (see pages 70 and 76 )
Working with supply chain
partners to cut carbon
(see page 39 )
A new Sustainable
Procurement Code
(see page 52 )
SSE plc Annual Report 2021
31
A SUSTAINABLE APPROACH
PROVIDING SOLUTIONS
FOR PEOPLE AND PLANET
SSE understands that a purpose-led business is one that offers
profitable solutions to the world’s problems; and in fulfilling
its purpose, it is more likely to be a sustainable business in the
long run. In building a better world of energy for tomorrow, SSE
seeks to meet its goal of creating value simultaneously for both
shareholders and society.
ABSOLUTE EMISSIONS (SCOPE 1 AND 2)
RENEWABLES IN CONSTRUCTION
AND OPERATION
RENEWABLES CONNECTED TO SSEN
TRANSMISSION’S NETWORK
7.6MtCO2e
5.8GW
6.7GW
MEDIAN GENDER PAY GAP (UK)
NUMBER OF SAFE DAYS
RENEWABLES COMMUNITY FUNDS
18.3%
271
£10.2m
CO2
32
SSE plc Annual Report 2021
STRATEGIC REPORT CO2
A key social impact of any company is on the lives
of its employees which is why, as set out on pages
45 to 50 , SSE is committed to fair and decent work.
SSE plc Annual Report 2021
33
A SUSTAINABLE APPROACH CONTINUED
A sustainable, resilient approach
The 2020/21 financial year was dominated
by the coronavirus pandemic which is
transforming the way society and the
economy operates, and will continue to
have profound long-term social, economic
and environmental implications.
SSE’s well-established approach to
sustainability, with clear environmental
and social objectives, underpinned by
robust stakeholder relationships, served
the Company well during the public health
crisis. This has meant that, in the face of a
particularly challenging year, SSE continued
to create and share considerable value with
shareholders and society – from making
a £5.6bn contribution to the UK and Irish
economies, to creating hundreds of new
jobs since the start of April 2020, to cutting
carbon emissions to its lowest level since
measurements began in 2001.
As society emerges from the worst of the
pandemic, there is a unique opportunity for
a green and resilient economic recovery
through investment in net zero, which
is being pursued by both the UK and
Irish governments.
Aligning societal and business
objectives through the SDGs
The UN’s 17 Sustainable Development Goals
(SDGs) framework is the global blueprint
for a sustainable future. SSE believes
that all organisations – whether they are
governments, businesses or civil society –
have a role to play in achieving them.
Since 2019, SSE has aligned its business
strategy to the SDGs most material to its
business. SSE believes that this approach
is good for its business and for society.
It enables SSE to find profitable solutions
to some of society’s greatest challenges.
The SDGs SSE defines as “highly material”
to its business and to which it aligns
its strategy and operations are: SDG13
Climate action; SDG7 Affordable and clean
energy; SDG9 Industry, innovation and
infrastructure; and SDG8 Decent work and
economic growth. SSE’s 2030 Goals for
the company, which are linked to executive
remuneration, are aligned to these highly
material SDGs (see pages 14 to 15 ).
In addition, SSE defines a further four
SDGs as material to its business: SDG10
Reduced inequalities; SDG12 Responsible
consumption and production; SDG14 Life
below water; and SDG15 Life on land.
SSE’s Sustainability Report 2021, the sister
document to the Annual Report 2021, is
structured entirely around SSE’s contribution
to these highly material, and material, SDGs.
POWERING
CHANGE
SSE SUSTAINABILITY REPORT 2021
SSE’s long-term commitment to sustainability
Environmental
Social
SSE acquires
Airtricity, and
with it a leading
wind portfolio
and renewables
expertise
Clyde, Europe’s
biggest onshore
wind farm at the
time, goes into
operation
SSE becomes the
first FTSE company
to gain the Fair Tax
Mark accreditation
SSE launches
largest ever
Green Bond by
a UK company
SSE launches
Inclusion and
Diversity Strategy
with Equal
Approach
2008
2010
2011
2013
2014
2016
2017
SSE sets target
to reduce carbon
intensity by 50%
by 2020, compared
to 2006 levels
SSE becomes
the largest FTSE
company to
become an
accredited UK Living
Wage employer
SSE becomes the
first large corporate
in Ireland to pay
employees the
Irish Living Wage
SSE becomes the
first FTSE company
to publish its UK
gender pay gap
34
SSE plc Annual Report 2021
STRATEGIC REPORT As well as linking SSE’s progress to a key
global blueprint, the goals provide an
important interim 2030 milestone on the
journey to net zero in 2050.
Using external frameworks
to guide disclosure
Alongside comprehensive stakeholder
input, external frameworks, common
standards and Environmental, Social and
Governance (ESG) platforms are key to
identifying and prioritising SSE’s material
sustainability impacts. They also allow
SSE assess its relative performance on
sustainability issues.
SSE is also a signatory to the United Nations
Global Compact (UNGC), incorporating the
Ten Principles of the UNGC into its approach
to business, and aligning disclosures and KPIs
in its Sustainability Report to international
non-financial reporting standards, including
the Global Reporting Initiative (GRI) and,
from 2021, the Sustainability Accounting
Standards Board (SASB).
SSE also actively engages with key investor
ESG ratings agencies and investor-led
initiatives, including S&P’s Corporate
Sustainability Assessment (CSA), the water
and carbon programmes in the CDP global
disclosure framework, Workforce Disclosure
Initiative (WDI), Morgan Stanley Capital
International, Vigeo Eiris, Sustainalytics,
Bloomberg Gender-Equality Index and
the FTSE4Good Index. Detail of SSE’s
performance in these ratings can be
found at sse.com/sustainability .
Over 2020/21, an ongoing debate on the
global standardisation of non-financial
reporting disclosures continued with key
developments including the IFRS proposal
for a new Sustainability Standards Board
and a statement of intent on alignment of
the five framework- and standard-setting
institutions. SSE is continuing to monitor
the dialogue around standardising non-
financial reporting disclosures and will
respond constructively when consensus
emerges. In the meantime, it will seek to
provide disclosures consistent with all the
main standard-setting bodies.
More information
Group policies, guides, assurance
documents and other reports can
be found on
sse.com/sustainability .
SSE’s Non-Financial Information
Statement is on page 93 .
“A long-term commitment
to sustainability recognises
the constant need to
pre-empt and adapt to
social and environmental
impacts of business activity.
That’s why SSE sought to
develop its understanding
of the social consequences
of net zero over 2020/21.”
Rachel McEwen
Chief Sustainability Officer
Construction
begins at Keadby
2, Europe’s most
efficient gas plant
SSE sets four 2030
Goals, aligned to
the UN’s Sustainable
Development Goals
SSE secures the
most low-carbon
contracts in the
UK’s third Contracts
for Difference
Allocation Round
Targets
approved by
the Science
Based Targets
Initiative for
the SSE Group
and for SSEN
Transmission
(page 39 )
SSE commits
to being net
zero by 2050
at the latest
(page 36 )
SSE becomes
a Principal
Partner for
COP26 in 2021
(page 37 )
2018
2019
2020
2021
SSE meets its
2020 carbon
intensity
reduction
target early
SSE meets
TCFD reporting
recommendations
in full, ahead of
the 2022 deadline
SSE closes its last
remaining coal
power station
SSE becomes
first company,
to its
knowledge,
to publish a
Just Transition
strategy
(page 45 )
SSE becomes
one of a
handful of UK
companies
with Living
Hours
accreditation
(page 47 )
Mixed progress
is made on
SSE’s senior
level gender
balance targets
(page 49 )
SSE plc Annual Report 2021
35
A SUSTAINABLE APPROACH CONTINUED
PROTECTING THE
ENVIRONMENT
As the world’s political leaders prepare for important climate negotiations at
COP26 in Glasgow later in 2021, an accelerated transition to net zero presents an
opportunity for a green and resilient recovery from coronavirus. SSE’s strategy is
focused on supporting this transition in a way that creates and shares value with
shareholders and society. SSE is committed to open and transparent disclosure
to allow its stakeholders to assess properly its environmental performance.
Driving climate action
SSE recognises the serious threat that
climate change poses to the natural world
and, therefore, to people and the economy.
Despite the coronavirus pandemic, the
climate emergency has continued to
dominate the public and political agenda
over 2020/21.
Mandating climate-related
financial disclosures in the UK
In November 2020, the UK Government
announced that it would be mandating
climate-related financial disclosures,
and that from 2022 all publicly listed UK
companies with a premium listing will
be required to report in line with the
Task Force on Climate-related Financial
Disclosures (TCFD) recommendations.
The TCFD recommendations set an
important framework for understanding
and analysing climate-related risks and
opportunities, and SSE is committed to
regular and transparent reporting to these
requirements. The information in this
Annual Report, along with disclosures in
its Sustainability Report 2021, represents
SSE’s third TCFD disclosure. A summary
table that highlights how SSE meets the
TCFD recommendations and signposts to
where additional information can be found
is provided on pages 40 and 41 .
In light of the upcoming mandated
TCFD reporting, in February 2021, it was
agreed that the Group Risk Committee
will now govern SSE’s TCFD processes
and disclosures.
Additional information can be found in
SSE’s CDP Climate Change Programme
submission, for which SSE received
an ‘A-’ for its 2020 disclosure. All of
these disclosures are available at
sse.com/sustainability .
SSE’s 2050 climate ambition
With the UK’s net zero legislation in place
since 2019 and Ireland’s Climate Action Bill
announced in March 2021, SSE believes
its most significant contribution is to align
with the Paris Agreement goal and aim to
achieve net zero greenhouse gas emissions
by 2050 at the latest.
In October 2020, the SSE plc Board
committed to the long-term ambition
of achieving net zero carbon emissions
across all its operations by 2050 at the
latest, covering both SSE’s direct and
indirect emissions, or its scope 1, 2 and 3
greenhouse gas emissions. At the same
time SSE joined the ‘Race to Zero’, a global
campaign which aims to rally leadership
and support from businesses, cities, regions
and investors to achieve net zero emissions
by 2050 at the latest.
Greenhouse gas emissions in SSE’s value chain*
EXTRACTION AND TRANSPORT
OF FUEL USED IN GENERATION
0.9 MtCO2e
FUEL USED IN SSE’S VEHICLE
FLEET AND PLANT
BUSINESS TRAVEL AND
COMPANY MILEAGE
0.03 MtCO2e
<0.01 MtCO2e
ELECTRICITY GENERATION
7.1 MtCO2e
36
SSE plc Annual Report 2021
* Due to rounding, figures do not add up to SSE’s total carbon emissions data point disclosed on page 38 .
STRATEGIC REPORT Underpinning its 2050 ambition to be net
zero, SSE has a series of 2030 science-
based targets, aligned with the Paris
Agreement. These targets set out SSE’s
medium-term emissions pathway, more
detail is provided on page 39 .
There are three elements to SSE’s net zero
plan: to reduce carbon in SSE’s operations;
to deliver low-carbon infrastructure in
the energy sector (renewables, thermal
and networks); and to support the value
chain in the transition to net zero through
electrification, suppliers and customers.
Advocating for climate action
SSE believes that bold and decisive policy-
making can unlock the kind of investment
needed to deliver net zero ambitions, tackle
climate change and help spur a green
recovery from the coronavirus crisis. Its
constructive approach to public advocacy
in 2020/21 was typified by the publication
of SSE’s ‘Greenprint’ in May 2020. The
objective of this document was to support
the UK Government with practical proposals
that could help stimulate economic activity
and support jobs and investment. It was
followed by a similar document in the
Republic of Ireland.
Extensive engagement followed the
publication of these proposals, focusing on
five core areas of policy development: a net
zero power system; strategic investment
in electricity networks; a clean industrial
revolution; leading the charge on electric
vehicles; and, green buildings for green
jobs. Subsequently, SSE warmly welcomed
the Prime Minister’s Ten Point Plan for a
Green Industrial Revolution published in
November 2020.
SSE is a Principal Partner of the UK’s
presidency of COP26 and will seek to use its
decade-long experience of the transition to
net zero as a practical example in support of
further, accelerated international action.
Proposed climate resolution
SSE believes that both the company and
its investors will benefit from enhanced
engagement on climate-related issues.
Having worked closely with investor group
Climate Action 100+ over 2020/21, SSE is
therefore proposing an enabling resolution
to its 2021 Annual General Meeting (AGM)
that will establish a framework for annual
votes on its Net Zero Transition report at
future AGMs. More information around the
key considerations taken by the Board in
agreeing the proposed climate resolution
can be found on page 111 .
Financing the net zero transition
SSE understands that investors are
increasingly looking for robust mechanisms
through which they can ensure their
investments are sustainable and take
account of climate-related risks. As a
result, SSE has deliberately pursued a
strategy of issuing green bonds to finance
its investment plans. In March 2021, it
issued its fourth green bond in five years,
reaffirming its position as the largest issuer
of green bonds from the UK corporate
sector. It remains the only UK corporate
to offer up multiple green bonds and the
latest issuance brings the total outstanding
to £2bn.
Furthermore, in March SSE published a
new framework through which it can
issue its first sustainability-linked bond.
Unlike a green bond, where proceeds
are ringfenced for qualifying low-carbon
investments, a sustainability-linked
bond would set a coupon based on a
commitment from the company to achieve
strategic, sustainability-related KPIs.
SSE’s key climate-related
risks and opportunities
SSE has assessed the climate impact on
its operations from the physical risks of
increased extreme weather events or
changes in average weather trends to
the potential transition risks from policy,
technology or market change. SSE has
identified the climate-related risks and
opportunities that are most material to the
business as a result of the potential impact
they may have. SSE provides extensive
detail in its Sustainability Report 2021,
alongside detailed discussion around
impacts and mitigation measures.
The key climate risks identified were the
physical impacts of extreme or changing
weather conditions on renewable and
network operations; alongside transition
risks related to renewable wholesale prices
and the resilience of network assets to
changing policy. The opportunities relate
to the role that renewables, transmission,
thermal and networks play in supporting the
transition to net zero by 2050 at the latest.
EMISSIONS ARISING FROM
SSE’S ELECTRICITY NETWORKS
ENERGY CONSUMPTION
IN SSE’S ASSETS
GAS USED BY SSE’S
CUSTOMERS
0.6 MtCO2e
0.1 MtCO2e
2.4 MtCO2e
SSE plc Annual Report 2021
37
A SUSTAINABLE APPROACH CONTINUED
Carbon performance summary
Total carbon emissions1
Scope 1 carbon emissions – total (UK/Ire)
Scope 2 carbon emissions – total (UK/Ire)
Scope 3 carbon emissions – total (UK/Ire)
Carbon intensity of electricity generated
Total renewable generation output2 – total (UK/Ire)
Total non-renewable generation output – total (UK/Ire)
Total generation output – total (UK/Ire)
Unit
Million tCO2e
Million tCO2e
Million tCO2e
Million tCO2e
gCO2e per kWh
GWh
GWh
GWh
2020/21
11.03(A)
7.10(A)
(6.00/1.10)
0.54(A)
(0.54/<0.01)
3.39(A)
(2.66/0.73)
2019/20
12.49*
8.26(B)
(7.35/0.91)
0.64*
(0.64/<0.01)
3.59*
(2.81/0.78)
255(A)
288(B)
9,649
(8,295/1,354)
10,753
(9,221/1,532)
18,045
(15,612/2,433)
17,761
(15,325/2,436)
27,694
(24,014/3,680)
28,514
(24,546/3,968)
This table, taken in conjunction with the energy use information in the Resource use summary on page 43 , represents SSE’s disclosures in line with the UK
Government Streamlined Energy and Carbon Reporting requirements.
1 SSE’s GHG and Water reporting criteria detail the emission sources included in SSE’s carbon emissions data and is available at sse.com/sustainability .
2 Totals include pumped storage and biomass output, and exclude GB constrained off wind.
(A) This data was subject to external independent assurance in 2021. For the limited assurance opinion see sse.com/sustainability .
(B) This data was subject to external independent assurance in 2020. For the limited assurance opinion see sse.com/sustainability .
*
In 2020/21, additional data points and minor amendments to methodologies has resulted in some 2019/20 figures being restated. For the limited assurance
opinion see sse.com/sustainability .
SSE’s carbon emissions
performance
In 2020/21, SSE’s total carbon emissions
consisted of 64% scope 1 emissions,
5% scope 2 emissions and 31% scope 3
emissions. SSE’s total carbon emissions
(scope 1, 2 and 3) decreased by around
12% between 2019/20 and 2020/21. While
carbon emissions reduced across all three
scopes, the most material contributing
factor to this decrease was a result of
the change in the generation mix of
SSE’s thermal generation plant. Carbon
emitted from the generation of electricity
contributes 99% of SSE’s scope 1 emissions.
1. The thermal generation mix changed in
2020/21 following the closure of SSE’s
final coal-fired power station, Fiddler’s
Ferry, in March 2020. This led to a
corresponding reduction in the carbon
emissions from SSE’s thermal generation
plant which meant that SSE’s electricity
generation emissions fell by 14% (from
8.21MtCO2e to 7.06MtCO2e); and
2. With no coal generation output less
electricity was required to operate the
thermal generation plant and as a result
scope 2 emissions relating to electricity use
in power stations reduced by around 45%.
In addition to the change in thermal
generation mix, the carbon factors SSE
used to calculate its emissions fell as a
direct result of the decarbonisation of
the GB electricity grid which impacted
emissions associated with electricity
38
SSE plc Annual Report 2021
consumption in buildings and operations
and the associated electricity network
losses in both the transmission and
distribution networks.
This means that SSE made good progress
towards one of its key science-based
targets to cut by 40% carbon emission
associated with its scope 1 and 2 activity
between 2017/18 and 2030. Between
2017/18 and 2020/21 those emissions have
fallen by over 3MtCO2e (from 11.07MtCO2e
to 7.64MtCO2e ), representing a 31% fall.
SSE’s carbon intensity performance
The carbon intensity of SSE’s generated
electricity decreased to 255gCO2e/kWh
in comparison to 288gCO2e/kWh the
previous year.
While SSE’s carbon emissions from thermal
generation fell between 2019/20 and
2020/21, thermal generation output was
higher in 2020/21 than in the previous
year, reflecting the important role thermal
generation plays in providing flexible and
dispatchable generation when renewable
output is low on the electricity system.
In the same period, output from SSE’s
renewable generation portfolio fell to
9.7TWh in 2020/21, from 10.8TWh the
previous year (inc. pumped storage and
biomass). This was due to reduced wind
and hydro output because of lower wind
and rain.
GENERATION OUTPUT AND ELECTRICITY GENERATION CARBON EMISSIONS
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
)
h
W
G
(
t
u
p
t
u
o
n
o
i
t
a
r
e
n
e
G
25
20
15
10
5
13/14
14/15
15/16
16/17
17/18
18/19
19/20
20/21
Renewables output
Electricity generation carbon emissions
Gas and oil output
Coal output
Multifuel output
s
n
o
i
s
s
i
m
e
n
o
b
r
a
c
n
o
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t
a
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e
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t
i
c
i
r
t
c
e
E
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)
e
2
O
C
M
t
(
STRATEGIC REPORT
Overall, this means that SSE is making
good progress towards its second key
science-based target which is to cut the
carbon intensity of electricity generation
by 60% by 2030 from a 2017/18 baseline.
Since 2017/18, SSE has reduced its carbon
intensity by 16% from over 300gCO2e/kWh
to 255gCO2e/kWh.
Science-based carbon targets
In April 2020, SSE set medium-term
carbon targets, approved by the Science
Based Targets Initiative (SBTi), aligned to
the Paris Agreement and a ‘well below
two-degree’ pathway. These targets are
aligned to climate science and meet the
strict SBTi criteria which requires that they
cover scope 1, 2 and 3 emissions. Detail of
these four carbon targets and where to find
information on performance is outlined in
the pull-out box.
In line with the requirements of the SBTi,
SSE Group will review its targets in advance
of the five-year review period or if there is
material change to SSE’s business activities
that impacts its carbon emissions, or which
ever happens first. This review of targets
will be completed in accordance with the
latest scientific evidence and criteria.
In August 2020, SSEN Transmission had
its own series of carbon targets approved
by the SBTi, making it the first electricity
networks company globally to receive
external accreditation for a science-
based target in line with a 1.5°C pathway.
These carbon targets can be found in
SSEN Transmission’s Sustainability Report
2019/20.
SSEN Distribution became the first UK
Distribution Network Operator to commit
publicly to setting science-based targets, in
January 2021. It will announce its science-
based targets as part of its upcoming draft
business plan for RIIO-ED2 in July 2021.
SSE Group SBTi-approved
carbon targets:
Reduce the carbon intensity of
electricity generated by 60% by
2030, from 2017/28 baseline
See ‘SSE’s carbon intensity performance’
section, on page 38 .
Reduce absolute scope 1 and 2 GHG
emissions by 40% by 2030 from a
2017/18 base year
See ‘SSE’s carbon emissions performance’
section, on page 38 .
Reduce absolute GHG emissions
from use of products sold by 50%
by 2034 from a 2017/18 base year
See SSE’s Sustainability Report 2021
for progress .
Engage with 50% of suppliers by
spend to set an SBT by 2024
See SSE’s Sustainability Report 2021
for progress .
CARBON INTENSITY OF SSE’S GENERATED
ELECTRICITY
CARBON INTENSITY REDUCTION ACHIEVED
FROM 2017/18 BASE YEAR
255gCO2e/
kWh
(2019/20: 288gCO2e/kWh)
16.4%
(2017/18 base year: 305gCO2e/kWh)
WORKING WITH SUPPLY CHAIN
PARTNERS TO CUT CARBON
To deliver carbon reductions from its
scope 3 activity in its supply chain, SSE
must work closely with its supply chain
partners. One of SSE’s SBTi-approved
targets is to engage with 50% of suppliers
(according to financial expenditure) to set
their own science-based targets by 2024.
Over 2020/21, SSE held 29 workshops
with key suppliers to facilitate dialogue
and knowledge-sharing around the
setting of science-based carbon targets
and the challenges and opportunities
presented for various industries. SSE has
been encouraged by the appetite for
supplier engagement on climate-related
issues and welcomes the proactive
engagement from its supply chain.
At 31 March 2021, 29% of SSE’s suppliers
(by value) had set their own science-
based targets.
29
Workshops held with key
suppliers sharing knowledge on
science-based carbon targets
ENGAGEMENT
IN ACTION
SUPPLIERS, CONTRACTORS
AND PARTNERS
SSE plc Annual Report 2021
39
A SUSTAINABLE APPROACH CONTINUED
SSE’s progress against the TCFD recommendations
SSE believes that high-quality climate disclosures support shareholders making long-term investment decisions. While its full TCFD
reporting is outlined, once again, in its Sustainability Report, the following table outlines a summary of the TCFD disclosures made
for financial year 2020/21.
Governance
Disclose the organisation’s governance around climate-related risks and opportunities.
TCFD recommended disclosures
SSE’s disclosure
a) Describe the board’s oversight of climate-
related risks and opportunities.
b) Describe management’s role in assessing and
managing climate-related risks and opportunities.
SSE’s Chief Executive has lead responsibility for climate-related issues, including at Board-level. The
Board sets the Group strategy direction and, when setting strategic objectives, it considers all material
influencing factors including those relating to climate change. The Group Executive Committee (GEC)
implements the Group strategy set by the Board and drives climate-related performance programmes
across the organisation. The Chief Sustainability Officer (CSO) advises the Board, GEC, Group Risk
Committee and Business Units on climate-related matters.
The Finance Director oversees SSE’s progress in meeting the TCFD recommendations, supported by the
CSO and the TCFD Steering Group. The TCFD Steering Group conducts an annual review of the outputs
of the climate-related risk and opportunity assessment process, and assesses the potential financial
impact of key risks and opportunities. This is then reviewed and approved by the Group Risk Committee.
Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy,
and financial planning where such information is material.
TCFD recommended disclosures
SSE’s disclosure
a) Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium, and long term.
b) Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy and financial planning.
c) Describe the resilience of the organisation’s
strategy, taking into consideration different climate-
related scenarios, including a 2°C or lower scenario.
SSE’s business strategy is focused on supporting the net zero transition and providing profitable
solutions to the challenge of climate change. SSE annually assesses the impact of physical and
transitional climate impacts on its businesses over the short, medium and long term. Comprehensive
disclosure of SSE’s climate-related risks and opportunities is outlined within in SSE’s Sustainability
Report 2021, including an outline of the potential financial impacts and the time horizons SSE uses
to assess them. The Sustainability Report also provides information on how SSE considers the price
of carbon in its decision making.
SSE has explored its climate resilience using two key analyses: SSE’s Post Paris report, published in
July 2017, assessed the resilience of SSE’s electricity businesses to different warming scenarios; and,
in November 2019, SSE assessed the resilience of SSE’s gas businesses to different climate-related
scenarios in its Transition to Net Zero report.
Risk management
Disclose how the organisation identifies, assesses, and manages climate-related risks.
TCFD recommended disclosures
SSE’s disclosure
a) Describe the organisation’s processes for
identifying and assessing climate-related risks.
b) Describe the organisation’s processes for
managing climate-related risks.
c) Describe how processes for identifying,
assessing, and managing climate-related risks
are integrated into the organisation’s overall
risk management.
Climate change is one of SSE’s Group Principal Risks, with scenarios relating to both the physical and
transitional risks posed by climate change now featuring in SSE’s viability assessment. Climate-related
influencing factors will continue to be considered against all relevant Group Principal Risks.
SSE has a specialist TCFD climate-related risk assessment process which provides the strategic
framework for identifying material climate-related risk and opportunities. This is designed to ensure
climate analysis is then fed into SSE’s business strategy and risk management processes. SSE’s Group
Risk Management Framework, outlined on page 137 , has been designed to help ensure SSE can
address all material issues that threaten the achievement of its strategic objectives including those
relating to climate change, as well as all strategic opportunities climate change may present.
Metrics and targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information
is material.
TCFD recommended disclosures
SSE’s disclosure
a) Disclose the metrics used by the organisation
to assess climate-related risks and opportunities in
line with its strategy and risk management process.
SSE uses a suite of metrics to track progress against key targets. The key targets SSE uses to manage
climate-related risks and opportunities are its four core 2030 business goals and its series of Science
Based Targets Initiative (SBTi)-approved carbon targets.
b) Disclose Scope 1, Scope 2, and, if appropriate,
Scope 3 greenhouse gas (GHG) emissions, and the
related risks.
c) Describe the targets used by the organisation
to manage climate-related risks and opportunities
and performance against targets.
SSE publicly reports on its scope 1, 2 and 3 GHG emissions and the carbon intensity of electricity
generated, alongside progress against the targets outlined above, in its Annual Report and
Sustainability Report, as well as in other relevant publications. Performance against SSE’s 2030 Goals
is linked to executive remuneration and, as part of assessing performance, SSE provides detailed
progress updates against the Goals in its Remuneration Committee Report in the Annual Report
and Sustainability Report. The metrics used to assess key climate-related risks and opportunities
and to quantify their potential financial impact are summarised in the Sustainability Report.
40
SSE plc Annual Report 2021
Key developments in 2020/21
• Board consideration of net zero in strategic development and
Principal Decisions, see pages 106 to 109 .
• Group Risk Committee now governs SSE’s TCFD process and
disclosures, see page 37 .
• Board approves decision to propose a management sponsored
climate resolution at the 2021 AGM, see pages 37 and 111 .
• Board approved net zero advocacy priorities, see page 111 .
Key developments in 2020/21
• SSE reassessed its climate-related risks and opportunities, see SSE’s
Sustainability Report 2021 .
• SSE has quantified the potential financial impact of these risks and
opportunities, see SSE’s Sustainability Report 2021 .
• SSE announced new ambition to achieve net zero carbon emissions
across all its operations by 2050 at the latest, see pages 36 and 37 .
• SSE issued its fourth Green Bond, proceeds of which were allocated to
the refinancing of part of SSEN Transmission’s programme of critical
investments in infrastructure, see page 37 .
Key developments in 2020/21
• SSE’s Climate Change Group Principal Risk was assessed as part of its
Group Risk Management process, see page 57 .
• SSE received an ‘A-’ for its disclosure the CDP Climate Change
programme, which provides detail on how SSE identifies and manages
climate-related risks and opportunities, see sse.com/sustainability
for the submission.
Key developments in 2020/21
• SSE’s total carbon emissions reduced by around 12%, see page 38 .
• The carbon intensity of SSE’s generated electricity fell by 11%, see page
38 .
• SSE set SBTi-approved carbon targets, see page 39 .
• SSEN Transmission set SBTi-approved carbon targets, see page 39 .
• SSEN Distribution made a commitment to set science-based targets
as part of its regulated business plan for the period 2023-2028,
see page 39 .
• Assessed executive performance against 2030 Goals, see page 152 .
STRATEGIC REPORT Governance
Disclose the organisation’s governance around climate-related risks and opportunities.
TCFD recommended disclosures
SSE’s disclosure
a) Describe the board’s oversight of climate-
SSE’s Chief Executive has lead responsibility for climate-related issues, including at Board-level. The
related risks and opportunities.
b) Describe management’s role in assessing and
managing climate-related risks and opportunities.
Board sets the Group strategy direction and, when setting strategic objectives, it considers all material
influencing factors including those relating to climate change. The Group Executive Committee (GEC)
implements the Group strategy set by the Board and drives climate-related performance programmes
across the organisation. The Chief Sustainability Officer (CSO) advises the Board, GEC, Group Risk
Committee and Business Units on climate-related matters.
The Finance Director oversees SSE’s progress in meeting the TCFD recommendations, supported by the
CSO and the TCFD Steering Group. The TCFD Steering Group conducts an annual review of the outputs
of the climate-related risk and opportunity assessment process, and assesses the potential financial
impact of key risks and opportunities. This is then reviewed and approved by the Group Risk Committee.
Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy,
Strategy
and financial planning where such information is material.
TCFD recommended disclosures
SSE’s disclosure
a) Describe the climate-related risks and
SSE’s business strategy is focused on supporting the net zero transition and providing profitable
opportunities the organisation has identified
solutions to the challenge of climate change. SSE annually assesses the impact of physical and
over the short, medium, and long term.
transitional climate impacts on its businesses over the short, medium and long term. Comprehensive
b) Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy and financial planning.
c) Describe the resilience of the organisation’s
strategy, taking into consideration different climate-
related scenarios, including a 2°C or lower scenario.
disclosure of SSE’s climate-related risks and opportunities is outlined within in SSE’s Sustainability
Report 2021, including an outline of the potential financial impacts and the time horizons SSE uses
to assess them. The Sustainability Report also provides information on how SSE considers the price
of carbon in its decision making.
SSE has explored its climate resilience using two key analyses: SSE’s Post Paris report, published in
July 2017, assessed the resilience of SSE’s electricity businesses to different warming scenarios; and,
in November 2019, SSE assessed the resilience of SSE’s gas businesses to different climate-related
scenarios in its Transition to Net Zero report.
Risk management
Disclose how the organisation identifies, assesses, and manages climate-related risks.
TCFD recommended disclosures
SSE’s disclosure
a) Describe the organisation’s processes for
Climate change is one of SSE’s Group Principal Risks, with scenarios relating to both the physical and
identifying and assessing climate-related risks.
transitional risks posed by climate change now featuring in SSE’s viability assessment. Climate-related
b) Describe the organisation’s processes for
managing climate-related risks.
c) Describe how processes for identifying,
assessing, and managing climate-related risks
are integrated into the organisation’s overall
risk management.
influencing factors will continue to be considered against all relevant Group Principal Risks.
SSE has a specialist TCFD climate-related risk assessment process which provides the strategic
framework for identifying material climate-related risk and opportunities. This is designed to ensure
climate analysis is then fed into SSE’s business strategy and risk management processes. SSE’s Group
Risk Management Framework, outlined on page 137 , has been designed to help ensure SSE can
address all material issues that threaten the achievement of its strategic objectives including those
relating to climate change, as well as all strategic opportunities climate change may present.
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information
Metrics and targets
is material.
TCFD recommended disclosures
SSE’s disclosure
a) Disclose the metrics used by the organisation
SSE uses a suite of metrics to track progress against key targets. The key targets SSE uses to manage
to assess climate-related risks and opportunities in
climate-related risks and opportunities are its four core 2030 business goals and its series of Science
line with its strategy and risk management process.
Based Targets Initiative (SBTi)-approved carbon targets.
b) Disclose Scope 1, Scope 2, and, if appropriate,
Scope 3 greenhouse gas (GHG) emissions, and the
related risks.
c) Describe the targets used by the organisation
to manage climate-related risks and opportunities
and performance against targets.
SSE publicly reports on its scope 1, 2 and 3 GHG emissions and the carbon intensity of electricity
generated, alongside progress against the targets outlined above, in its Annual Report and
Sustainability Report, as well as in other relevant publications. Performance against SSE’s 2030 Goals
is linked to executive remuneration and, as part of assessing performance, SSE provides detailed
progress updates against the Goals in its Remuneration Committee Report in the Annual Report
and Sustainability Report. The metrics used to assess key climate-related risks and opportunities
and to quantify their potential financial impact are summarised in the Sustainability Report.
Key developments in 2020/21
• Board consideration of net zero in strategic development and
Principal Decisions, see pages 106 to 109 .
• Group Risk Committee now governs SSE’s TCFD process and
disclosures, see page 37 .
• Board approves decision to propose a management sponsored
climate resolution at the 2021 AGM, see pages 37 and 111 .
• Board approved net zero advocacy priorities, see page 111 .
Key developments in 2020/21
• SSE reassessed its climate-related risks and opportunities, see SSE’s
Sustainability Report 2021 .
• SSE has quantified the potential financial impact of these risks and
opportunities, see SSE’s Sustainability Report 2021 .
• SSE announced new ambition to achieve net zero carbon emissions
across all its operations by 2050 at the latest, see pages 36 and 37 .
• SSE issued its fourth Green Bond, proceeds of which were allocated to
the refinancing of part of SSEN Transmission’s programme of critical
investments in infrastructure, see page 37 .
Key developments in 2020/21
• SSE’s Climate Change Group Principal Risk was assessed as part of its
Group Risk Management process, see page 57 .
• SSE received an ‘A-’ for its disclosure the CDP Climate Change
programme, which provides detail on how SSE identifies and manages
climate-related risks and opportunities, see sse.com/sustainability
for the submission.
Key developments in 2020/21
• SSE’s total carbon emissions reduced by around 12%, see page 38 .
• The carbon intensity of SSE’s generated electricity fell by 11%, see page
38 .
• SSE set SBTi-approved carbon targets, see page 39 .
• SSEN Transmission set SBTi-approved carbon targets, see page 39 .
• SSEN Distribution made a commitment to set science-based targets
as part of its regulated business plan for the period 2023-2028,
see page 39 .
• Assessed executive performance against 2030 Goals, see page 152 .
SSE’s TCFD timeline
June 2017
TCFD Recommendations published
July 2017
SSE publishes its first carbon scenarios report, Post-Paris
November 2017
SSE commits to meet TCFD recommendations by 2021
May 2018
SSE sets a new target to reduce carbon intensity of
electricity by 50% by 2030, from a 2018 base
March 2019
SSE sets four core 2030 business Goals, directly aligned
to the UN’s SDGS, aimed at addressing climate change
June 2019
SSE publishes its first comprehensive TCFD report within
its Sustainability Report
November 2019
SSE’s second carbon scenario analysis, Transition to Net
Zero, is published
April 2020
SSE sets new science-based carbon targets, which includes
increasing its carbon intensity reduction target to 60%
June 2020
Climate change is defined as a SSE Group Principal Risk
July 2020
SSE discloses its second TCFD report in its Sustainability
Report, and believes it has met the recommendations in full
November 2020
SSE sets new ambition to achieve net zero carbon emissions
across all its operations by 2050 at the latest
SSE plc Annual Report 2021
41
Managing air emissions
In 2020/21, SSE’s thermal generation
sites emitted 4,103 tonnes of nitrogen
oxides (NOx), compared 6,080 tonnes
the previous year – a reduction of 33%.
In addition, emissions of sulphur dioxide
(SO2) fell considerably by 44%, to 1,372
tonnes from 2,464 tonnes the previous
year. Both of these reductions were as a
result of the closure of SSE’s last remaining
coal-fired generation plant in March 2020.
In 2019/20, SSE’s sulphur hexafluoride
(SF6) emissions fell slightly to 295kg from
318kg the previous year. In 2020/21, SSE’s
electricity networks businesses reviewed
the methodology used to report SF6 data,
therefore 2019/20 data has been restated.
SF6 is widely used by the electricity industry
around the world due to its insulating
properties and therefore its ability to keep
people safe from electrical ‘arcing’. You
can read more about what SSE is doing to
increase the use of alternative technologies
in its Sustainability Report 2021.
Data assurance and
environmental metrics
Where data has been externally and
independently assured, this has been
noted in the relevant tables. In all other
areas, data is identified and disclosed
according to SSE’s internal processes
and guided by environmental regulations
where appropriate.
A SUSTAINABLE APPROACH CONTINUED
Responsible resource use
It is understood that the consequence of
human activity on the natural environment
through consumption and the resulting
habitat loss and species decline is as great
a risk to people as climate change. In its
transition to net zero, SSE seeks actively
to manage its environmental footprint in a
way that minimises adverse environmental
impacts and, where possible, it seeks to
add environmental value too.
Managing water use
SSE depends on water in various ways
across its operations, from use in electricity
generation to an amenity in its buildings,
and it seeks to use water in a sustainable
way. None of SSE’s thermal and hydro-
electric generation assets impact on water
stressed areas, as defined by the relevant
environmental regulators.
In 2020/21, total water abstracted by SSE fell
to 26,030 million m3 from 27,757 million m3
the previous year. This was largely due to
a reduction in water passing through SSE’s
hydro-electric generation plant as a result
of lower levels of rainfall compared to the
previous year.
The vast majority (97%) of water abstracted
in 2020/21 was used in SSE’s hydro-electric
generation operations. This water passes
through turbines to generate electricity
and is returned to the environment almost
immediately. Total water abstracted is
often used by SSE’s stakeholders to judge
its environmental impact and allow a
comparison across businesses and sectors.
SSE believes that this indicator taken in
isolation can reflect negatively on hydro-
electricity generators. To help stakeholders
better understand a more proportionate
environmental impact, SSE’s abstraction
volume excluding hydro-electric generation
has also been provided in the table below.
Total water consumed also fell over this
period, by almost 29%. This was due to
a change in the generation mix and the
different types of cooling water used by
SSE’s thermal generation activities.
SSE’s energy consumption
SSE acts to reduce energy use and thereby
cut carbon from its assets through a
combination of physical improvements
and building user engagement. Between
2019/20 and 2020/21, the energy SSE
purchased for use in its assets (offices,
depots, power stations and data centres) fell
by almost 30%, from 334GWh to 234GWh.
This was largely as a result of a reduction
in electricity used to operate SSE’s thermal
generation plant, as a result of the closure
of SSE’s last coal-fired power plant.
Despite the coronavirus pandemic resulting
in the majority of SSE’s employees working
from home, energy consumption in its
facility managed offices didn’t decrease
as significantly as might be expected
due to the need to continue to maintain
buildings to meet heating and ventilation
industry and government guidelines for
the safe operation of buildings during
the pandemic.
During 2020/21, SSE also invested in a
range of energy efficiency measures
and in particular delivered a programme
of LED lighting upgrades to depot sites.
Over this period, SSE purchased 100% of
its electricity for use in its facility managed
offices from renewable sources, backed by
renewable guarantees. In 2020/21, 39%
of the electricity that SSE purchased for
its assets was from renewable sources,
up from 29% the previous year.
SSE’s ‘Better Off’ behaviour change
campaign, alongside its investment of
£12.8m since 2011/12 in energy efficiency
and building renewable generation
programmes, has helped to reduce carbon
emissions from energy used in its buildings.
This investment programme has assisted in
the delivery of a 42% reduction in carbon
emissions since 2017/18.
SSE is a member of the Climate Group’s
EP100 initiative to encourage businesses
to improve energy productivity and has
pledged to cut carbon from its offices
and depots by 20% by 2030 from a 2018
baseline. SSE is also a member of the
EV100 pledge to move to an electric
vehicle fleet by 2030.
42
SSE plc Annual Report 2021
STRATEGIC REPORT Resource use summary
Water use
Total water abstracted
Total water abstracted (exc. Hydro-electric generation)
Total water returned
Total water consumed
Energy use*
Purchased heat from non-renewable sources – UK/Ire
Purchased electricity from renewable sources – UK/Ire
Purchased electricity from non-renewable sources – UK/Ire
Fuel used in vehicle fleet and plant (inc. fixed generation) – UK only
Electricity transmission and distribution networks substation
electricity use – UK only
Air emissions
Sulphur dioxide (SO2) – thermal generation
Nitrogen oxide (NOx) – thermal generation
Sulphur hexafluoride (SF6) – thermal generation and electricity
transmission and distribution activities**
Unit
2020/21
2019/20
Million m3
Million m3
Million m3
Million m3
GWh
GWh
GWh
GWh
GWh
Tonnes
Tonnes
kg
26,030 (A)
830
26,027 (A)
3.6 (A)
3.6/0.14
89.4/0.9
140.4/0
94.63
43.6
1,372
4,103
295
27,757 (B)
722
27,751 (B)
6.9 (B)
3.4/0.15
96/1.5
233/0
120.01
42.14
2,464
6,080
318
* This information, taken in conjunction with the carbon performance summary table on page 38 , represents SSE’s disclosures in line with the UK Government
Streamlined Energy and Carbon Reporting requirements.
** Due to changes in methodologies in data collection in SSE’s electricity transmission and distribution businesses, 2019/20 data has been restated. Detail of how
data is collected can be found in SSE’s GHG and Water reporting criteria, available at sse.com/sustainability .
(A) This data was subject to external independent assurance in 2021. For the limited assurance opinion see sse.com/sustainability .
(B) This data was subject to external independent assurance in 2020. For the limited assurance opinion see sse.com/sustainability .
As part of efforts to decarbonise SSE’s generation
fleet, Peterhead is unlikely to be running in its current,
unabated, form into the 2030s.
SSE plc Annual Report 2021
43
A SUSTAINABLE APPROACH CONTINUED
CREATING
SOCIAL IMPACT
Change of the scale and nature needed to achieve net zero brings social consequences,
impacting people – employees, consumers, suppliers, communities and wider society
– in many different ways. SSE has a responsibility to influence those impacts as it
transitions out of high-carbon activities at the same time as seizing the opportunities to
increase value and share economic prosperity from the transition into a net zero world.
A Just Transition to net zero will mean that the actions and investments required to
decarbonise energy systems attract long-term public support and legitimacy.
GDP and tax contribution
The way that SSE invests in the
decarbonisation of the UK and Irish
economies contributes to society by
adding economic value, supporting jobs
and contributing to the public purse
through tax revenues.
Contributing to UK and Irish GDP
By investing across the UK and Ireland, SSE
supports thousands of jobs and contributes
billions of pounds to these economies each
year. SSE’s £7.5bn capex plan across the five
years to FY25 is on track, with construction
well under way at flagship SSE Renewables
projects including Seagreen, Viking and
the world’s largest offshore wind farm at
Dogger Bank. The Company is therefore
playing an important role in supporting
the green economic recovery from the
coronavirus pandemic.
SSE has commissioned professional
services firm PwC to calculate the size of
its economic contribution in the UK and
Ireland each year since 2011/12. Over this
10 year period, the PwC analysis shows
that SSE has contributed £100bn (in current
prices) to the UK and Irish economies.
The 2020/21 PwC analysis showed
that SSE contributed £5.2bn to the UK
economy and €439m to the Irish economy,
supporting a total of 43,560 jobs across
these countries. This compares to a £5.7bn
(£7.7bn including SSE Energy Services)
contribution to the UK economy and a
€650m contribution to the Irish economy
in 2019/20.
Paying a fair share of tax
The reliance on public services to keep
people safe and support workers during the
coronavirus pandemic demonstrates the
importance of the social contract between
companies and society to pay their fair
share of tax. In 2014 SSE became the first
FTSE 100 company to be accredited with
the Fair Tax Mark, an independent standard
for tax fairness and transparency. It has
remained committed to paying its fair
share of tax in the right place, at the right
time, and providing open and transparent
disclosure on its tax approach through its
annual ‘Talking Tax’ report. Its latest report,
‘Talking Tax 2020: Proud to pay our part’,
was published in November 2020.
The PwC reports on SSE’s economic
contribution for 2020/21 and all previous
years of analysis can be found on sse.com/
sustainability/reporting .
2020/21 UK and Irish GDP and tax contribution*
IRELAND CONTRIBUTION TO GDP
€439m
2019/20: €650m
IRELAND JOBS SUPPORTED
2,160
2019/20: 3,740
TAX PAID IN IRELAND
€20.4m
2019/20: €18.1m
* 2019/20 contribution excludes contribution from SSE Energy Services.
44
SSE plc Annual Report 2021
UK CONTRIBUTION TO GDP
£5.2bn
2019/20: £5.7bn
UK JOBS SUPPORTED
41,400
2019/20: 56,810
TAX PAID IN THE UK
£379m
2019/20: £421.6m
STRATEGIC REPORT A BUSINESS FIRST: SSE’S STRATEGY
FOR A JUST TRANSITION
already taken place at 10 different
stakeholder conferences, including
four with the investor community, since
November. SSE also supported the
launch of the Investor Coalition for a Just
Transition, led by the Grantham Institute
alongside investors and trade unions.
ENGAGEMENT
IN ACTION
SHAREHOLDERS
AND DEBT PROVIDERS
SUPPORTING A
JUST TRANSITION
November 2020
SSE HAS PRESENTED ITS JUST TRANSITION
STRATEGY AT
10
stakeholder conferences since
November 2020
Royal London Asset Management and
Friends Provident Foundation submitted
a question in advance of the 2020 AGM
asking SSE to consider adopting a formal
Just Transition strategy. SSE committed to
doing so in its response and continued to
engage with the investors as the strategy
developed. The investors proved both
influential and helpful in shaping SSE’s
thinking around the Just Transition and
how it could best be formalised and
communicated. Furthermore, direct
engagement with a wide group of
stakeholders including trade unions at
a company and national level continues
to support the development of the
strategy and its priority actions.
In November 2020, SSE published its Just
Transition strategy which outlines SSE’s
principles for integrating social impacts of
delivering net zero. This strategy
has been described as the world’s first
business strategy for a Just Transition.
Ongoing and constructive dialogue
continues with a broad range of
stakeholders. Active engagement has
SSE is one of the UK’s biggest taxpayers,
ranking 16th in the PwC 2020 Total Tax
Contribution survey of the 100 Group,
published in December 2020, in terms of
taxes borne. Over 2020/21, SSE paid £379m
of tax in the UK, compared with £421.6m in
the previous year. Information on why there
was a reduction in taxes paid can be found
on page 76 .
In 2020/21 SSE also paid €20.4m of taxes in
Ireland, compared to €18.1m the previous
year. Ireland is the only country outside the
UK in which it has any trading operations.
Employees
A primary social impact of any company is
made through the people it employs. SSE
has a long-standing commitment to fair
and decent work for the people that work
for the company, whether that’s directly or
on SSE’s behalf.
Taking care of physical
and mental health
From March 2020, SSE’s immediate safety
and health priority was the management of
the coronavirus crisis and associated risks.
This demonstrated why a robust health and
safety culture is so important for businesses,
with SSE able to build on existing approaches
to ensure that it took care of employees
and was able to implement quickly new
measures and provide new guidance.
SSE’s message to all employees is “If it’s
not safe, we don’t do it”, with key aim that
everyone who works for the Company
or on its behalf gets home safe each day.
SSE’s safety performance over 2020/21
is provided in the Safety, Health and
Environment Advisory Committee Report
on pages 140 to 143 .
SSE has emphasised the importance of
parity of focus between mental and physical
health, with initiatives including Mental
Health First Aiders, employee assistance
counselling, additional counselling through
a partnership with Nuffield Health, and
access to a range of wellbeing programmes,
as well as muscular-skeletal treatments
and a range of subsidised and participatory
physical exercise programmes.
In response to the potential increase in
stress levels and isolation as a result of
the majority of employees working from
home on a full-time basis, new initiatives
were also introduced over 2020/21 for
employees. This included online workout
sessions, online learning on topics from
mental health to resilience and coping with
change, mindfulness conference calls and
weekly virtual wellbeing cafes.
SSE plc Annual Report 2021
45
A SUSTAINABLE APPROACH CONTINUED
SSE also granted 10 days of emergency
leave to help employees having to cope
with caring responsibilities during the
pandemic.
Employee absence levels over 2020/21
have been at a historic low, with an average
of 5.9 days lost per head over the year, a
35% improvement from the year before.
For 2021/22, SSE has set a target of 6.7 days
lost per head, reflecting improvements
and the impact of coronavirus in terms
of suppressing other types of sickness
absence, with flexibility and working from
home seen as a key driver of the reduction
in absence levels.
A growing and
changing workforce
Providing energy needed today while
building a better world of energy for
tomorrow has enabled SSE to grow its
workforce through its core businesses
during this challenging period and not draw
on government coronavirus worker support
schemes. The company has not made any
coronavirus-related redundancies and has
worked with trade union partners to ensure
all employees are kept on normal pay.
SSE’s headcount grew from 12,133 at the
end of 2019/20 to 12,489 at the end of
2020/21. 1,529 people joined SSE over the
year (2019/20: 1,428) and retention of SSE’s
workforce also increased significantly during
2020/21 compared to 2019/20, from 88%
to 92.1%, which has largely been attributed
to the pandemic and consequential labour
market instability. 95% of SSE employees are
on permanent contracts, consistent with
previous years.
Major SSE Renewables infrastructure
projects in development and construction
are driving a significant increase in
recruitment, with core staffing in this
business expected to grow by at least
another 10% over 2020/21. Implementation
of SSEN Transmission’s RIIO-T2 business
plan, “A Network for Net Zero”, is also
expected to significantly increase
headcount within this business.
SSE’s focus on its core networks and
renewables businesses, supported by
businesses complementary to that core,
means that it is continuing with planned
disposals of other non-core business areas.
In 2019/20, this included the sale of SSE
Energy Services which resulted in around
8,000 SSE employees moving to OVO
Energy Services Ltd. On 1 April 2021,
SSE announced that it had entered into an
agreement to sell its Contracting business
to the Aurelius investment group. This will
mean around 1,900 employees will transfer
to the new contracting business outside
of SSE, where SSE believes the business
will be better able to fulfil its potential for
customers and employees.
Developing skills
The energy sector faces the challenge
of maintaining traditional skills and
capabilities, whilst also developing those
needed for the transformation to net zero.
To achieve this, SSE has developed training
plans aligned to its strategic objectives;
delivering inclusive, accessible, modern
learning that builds capability, develops
talent and skills, and supports long-term,
rewarding careers.
Over 2020/21, SSE invested £15.8m
in internal and external learning and
development activities (2019/20: £18.6m).
The majority of this investment, £9m,
was to support 470 people in early career
programmes, including apprenticeships,
Technical Skills Trainees, graduates and
employability programmes. Early career
positions are valued by SSE and the wider
industry, demonstrated by the continued
support during a time of significant labour
market uncertainty.
Safety measures taken during the
coronavirus pandemic paused non-critical
training, condensed in-person courses,
and increased virtual and digital delivery
sessions. This resulted in a reduction in
the average number of formal training
hours per full-time SSE employee from
24.9 hours in 2019/20 to 9.0 hours in
2020/21. Additional support was provided
by promoting an ‘everyday learning’
culture and an increase of self-led digital
learning assets, with over 140 new items
added to SSE’s ‘My Learning’ portal. Formal
training was reinforced with coaching
conversations and mentoring. The self-led
learning and informal arrangements are not
captured in the average number of training
hours per employee.
SSE’s HR and Strategy teams continue to
work closely to identify company-wide
core capabilities, as well as with each of
SSE’s businesses to determine specific
skills, training, learning and recruitment
needs. More information on SSE’s learning
and training programmes can be found in
the Sustainability Report 2021.
EMPLOYEE
STATISTICS
FOR 2020/21*
DIRECT EMPLOYEE HEADCOUNT
12,489
2019/20: 12,133
EMPLOYEE GENDER SPLIT (MALE/FEMALE)
9,190/3,299
2019/20: 9,088/3,045
EMPLOYEE GENDER SPLIT (% MALE/FEMALE)
73.6/26.4
2019/20: 74.9/25.1
CONTINGENT WORKER HEADCOUNT
1,950
2019/20: 2,335
EXTERNAL RECRUITMENT (HEADCOUNT)
1,529
2019/20: 1,428
TOTAL RETENTION/TURNOVER RATE (%)
92.1/7.9
2019/20: 88.0/12.0
VOLUNTARY TURNOVER RATE (%)
3.6
2019/20: 6.5
MEAN/MEDIAN LENGTH OF SERVICE (YEARS)
10.7/7.7
2019/20: 11.1/8.4
EMPLOYEES ON PERMANENT CONTRACTS (%)
95.0
2019/20: 95.4
* Employee data for 2020/21 and 2019/20 excludes SSE Energy Services employees and includes SSE’s Contracting business. Further information on how SSE has
defined these metrics can be found within the Sustainability Report 2021.
46
SSE plc Annual Report 2021
STRATEGIC REPORT Reinforcing a healthy
ethical culture
An organisation’s culture is a key
determinant of its long-term success.
SSE’s revised “Doing the Right Thing:
guide to good business ethics”, published
in early 2020/21 and available on
sse.com/sustainability , is SSE’s code of
conduct which supports the adoption of
the right values, attitudes and behaviours to
contribute to an ethical business culture at
SSE. The guide applies to all SSE employees
as well those that work on its behalf. It covers
topics including fair competition, business
separation, engagement with politicians and
regulators, modern slavery, safeguarding
the environment, managing data and cyber
security. SSE also has mandatory ethics
and compliance training modules which
all employees are required to complete.
For the first time in 2019/20, SSE undertook
a culture health-check to understand how
employee sentiment, provided from the
employee engagement survey, aligned
with a range of additional metrics, such
as employee turnover rates, sickness
rates, safety metrics and wellbeing figures.
This is reported to the Board biannually
as a cultural dashboard. See pages 112
and 113 for information on the Board’s
focus on SSE’s workplace culture.
Speaking up against wrongdoing
Empowering people to speak up against
wrongdoing is a central element of SSE’s
approach to good business ethics and doing
the right thing. This can be done through
an independent whistleblowing channel,
called SafeCall, as well as through SSE’s
internal channels. The effectiveness of SSE’s
whistleblowing arrangements are reviewed
twice yearly by the GEC and the Board.
Over calendar year 2020, there were 66
reports of wrongdoing made through
SSE’s speak up channels, a decrease from
88 in 2019 which is understood to be
driven by changes in working caused by
the coronavirus pandemic. A breakdown
of these reports, including how they
were made, what they related to and the
outcomes of investigation can be found
in the Sustainability Report 2021.
Preventing bribery and corruption
Corruption and criminality, including
bribery, fraud and other financial crime,
are unacceptable in all circumstances.
SSE takes proactive steps to mitigate
this risk occurring in its direct or supply
chain operations.
This includes a robust approach to
governance, mandatory training and an
established policy framework. SSE’s “Doing
the Right Thing” guide to ethical behaviour
and its Group Corruption and Financial
Crime Prevention Policy are available on
sse.com/sustainability .
SSE’s Anti-Corruption and Financial Crime
Committee (ACFCC) reports into the
Group Risk Committee and is chaired
by SSE’s Finance Director. It oversees
work across the Company to strengthen
controls and ensure a robust and proactive
approach to the corruption and financial
crime compliance program. The ACFCC
is supported by the Anti-Financial Crime
Steering Group and Crime Prevention and
Investigation Steering Group.
At the end of 2020/21, 95% of SSE
employees were certified in the company’s
‘Anti-Money Laundering and Financial
Sanctions’ eLearning module, 90%
were certified in the ‘Bribery and Anti-
Corruption’ eLearning module and 93%
were certified in the ‘Fraud Awareness’
eLearning module.
Of the total 66 reports of potential
wrongdoing made over calendar
year 2020, 26% (17 reports) related to
‘Dishonest behaviour’ (2019: 25%) which
includes reports relating to fraud, theft,
integrity, corruption and bribery. All of
these reports were investigated fully by
appropriate areas of the business, with
outputs reviewed by SSE’s Group Security
and Investigation Team prior to closure
on the Whistleblowing Register. Of the 17
reports: two resulted in dismissals, one was
subsequently investigated as a grievance;
eight were investigated but with the case
not proven; three resulted in an initial
investigation establishing that there was
insufficient evidence to proceed further;
and three cases could not be investigated
due to insufficient information to establish
the nature, cause, location or otherwise of
the allegation being provided.
Mitigating the risk of
modern slavery
Modern slavery in any form is unacceptable
in any circumstances. SSE undertakes steps
to mitigate the risk of modern slavery in
its direct and supply chain operations and
in 2020/21 commissioned human rights
experts Stronger Together to undertake
a gap analysis of SSE’s approach to
preventing human rights violations and
modern slavery against best practice.
Using the result of this process with
Stronger Together, SSE has developed a
new Modern Slavery Action Plan for 2021-
23, focused on five key areas of focus: Tier
1 and beyond; Due diligence; Awareness
and education; Response and doing the
right thing; and Messaging and comms.
This Action Plan is underpinned by robust
governance, with the SSE Human Rights
Steering Group now reporting directly to
the Risk Committee, as well as to the GEC
and to the Board annually.
Detail on the gap analysis carried out by
Stronger Together, SSE’s Modern Slavery
Action Plan and an update of SSE’s activity
over 2020/21 to mitigate the risk of human
rights abuses within its direct and supply
chain operations will be found within its
Modern Slavery Statement 2021 which will
be located on the sse.com homepage.
Guaranteeing standards: a real
Living Wage and Living Hours
SSE has been a Living Wage accredited
employer in the UK since 2013 and paid
the Living Wage in Ireland since 2016, with
“Champion the real Living Wage” as one of
the Company’s 2030 Goals (see page 15 ).
In late 2020/21, SSE gained accreditation as
a Living Hours employer.
Leading workforce reporting
SSE supports and encourages
an investor-led approach to the
standardisation of workforce
disclosure to enable meaningful
information to be reported and
used to compare the approaches
of different organisations. SSE has
therefore been one of the leading
companies providing detailed and
open disclosure to the Workforce
Disclosure Initiative (WDI).
SSE was shortlisted for the ‘WDI award’
and ‘Contingent workforce data’
award at the 2020 WDI Awards, with
a special mention in the ‘COVID-19
transparency’, ‘Workforce action’ and
‘Most transparent’ categories.
SSE plc Annual Report 2021
47
A SUSTAINABLE APPROACH CONTINUED
Living Hours is a new accreditation from
the Living Wage Foundation in the UK
which recognises that people cannot earn
a real Living Wage unless fair wages are also
accompanied by secure and sufficient hours
of work. SSE will work over 2021/22 to begin
rolling this initiative out across its UK supply
chain, as it has done with the Living Wage
since 2014.
Listening to the employee voice
The core strand of SSE’s employee voice
strategy is the all-employee engagement
survey. Typically these run annually,
but were run more regularly during the
coronavirus crisis period to capture
employee sentiment on a number of
key themes, including communication,
strategy, leadership and wellbeing.
This feedback has influenced employee-
focused decisions on ways of working,
communication and wellbeing. SSE’s
September 2020 employee engagement
survey had a participation rate of 82% and
an engagement score of 82%. This was 3%
above the utilities sector benchmark and
8% above the UK benchmark.
Over the past year, SSE has enhanced its
employee voice strategy with the addition
of exit surveys. The exit survey aligns
to SSE’s overall approach to gathering
employee engagement insights through
its employee engagement survey, and
therefore allows a comparison of top/
bottom scoring answers for ex-employee
sentiment on the company. The results
are enabling SSE to gather meaningful and
robust insights into why people leave the
company, informing actions which aim to
improve the employee experience.
In the context of the coronavirus pandemic,
employee voice has been a particularly
important consideration for the Board.
Dame Sue Bruce DBE, SSE’s non-Executive
Director for Employee Engagement,
undertook enhanced direct engagement
with colleagues, using virtual technologies
and covering multiple Business Units and
geographies. See pages 114 to 116 .
Engagement with union partners
Everyone that works for SSE has the
fundamental right to freedom of
association, including the right to join a
trade union. In 2020/21, 53.9% of SSE’s
total direct workforce were covered by
collective bargaining agreements.
The Joint Agreement, covering 46.9%
of SSE employees, is the main collective
bargained agreement for SSE employees.
It is negotiated through the Joint
Negotiating and Consultative Committee
(the JNCC) which comprises SSE and its
four recognised trade union partners:
Unite, Unison, Prospect and the GMB.
The full JNCC met eight times over
2020/21 to discuss terms, conditions and
arrangements on employees’ behalf.
There has been greater communication
than ever between SSE and its union
partners due to the coronavirus pandemic
with weekly update calls held between
senior managers and full-time officials
and Joint Business Committees meeting
on a monthly basis.
ENGAGEMENT
IN ACTION
EMPLOYEES
LISTENING AND RESPONDING
DURING THE PANDEMIC
SSE’s listening tools have been key in
shaping the approach to employee support
and Group-wide communications. A pulse
survey conducted in May 2020 was the start
point in identifying employees’ concerns
and priorities as the pandemic took hold.
The research followed an overnight switch
to a predominately working from home
model, with those deemed critical workers
continuing in their critical operational roles
with enhanced health and safety measures
in place.
The survey was completed by around
8,000 employees and set out clear
requests for IT capability, increased health
and wellbeing support, a desire to remain
connected to SSE and anxiety over the
future. In addition, clear guidelines on
working arrangements were called for
given the additional responsibilities that
were being experienced by employees
through home schooling and family care.
Targeted actions were agreed and
implemented, including: the ability to order
the necessary IT; the roll-out of Office
365 training including on its collaborative
functionality; flexible working patterns
and caring days; and the publication of a
comprehensive health and wellbeing guide
for employees to promote good physical
and mental health, covering everything
from healthy eating and exercise, to remote
management and communications advice.
In an effort to increase employee reach,
the communication style has been a
combination of written intranet articles,
targeted emails, employee (including all-
company) calls and virtual contacts. The
impact of SSE’s response has in turn been
assessed through additional employee
focus groups including the programme
of engagement conducted by the non-
Executive Director for Employee Engagement
and a Great Place to Work pulse survey.
In May 2021, 400 days after the first day
of the UK national lockdown, SSE also
announced that it was providing employees
with a £400/€450 thank you for their
contribution through the pandemic.
48
SSE plc Annual Report 2021
STRATEGIC REPORT Providing employee benefits
SSE provides employees with a wide
range of benefits, detailed on careers.
sse.com/employee-benefits . This
includes flexible working arrangements,
market-leading maternity benefits, all-
employee shareplans, a holiday purchase
scheme, cycle-to-work schemes and
technology loans. In 2020/21, 98% of
employees returned to work after maternity
leave (84% in 2017, before SSE’s current
maternity benefits were introduced).
A total of 73%/66% of UK/Ireland
employees participated in the company’s
Share Incentive Plan and 46%/21% of
UK/Ireland employees participated in
the Sharesave programme (77%/38%
and 24%/16% respectively in 2019/20).
Working towards inclusion
and diversity
SSE wants its business to be welcoming
to all employees and to have a workplace
culture that is inclusive to everyone. The
company has therefore been implementing
its 2017-2021 Inclusion Strategy, jointly
developed with experts EAInclusion
(previously called Equal Approach), which
it refers to as its ‘IN, ON and UP’ approach.
This strategy focuses on bringing all kinds
of different people ‘IN’ to SSE, encouraging
them to stay ‘ON’, and supporting them
to progress ‘UP’ by ensuring processes,
practices and policies are wholly inclusive.
Significant progress has been made in the
key areas targeted by the strategy:
•
IN: Gender bias language reviews of all
job adverts; inclusive hiring training for
all hiring managers; open advertising of
roles (78% of all roles in 2020/21); and
flexible working offered in job adverts
(89% of all roles in 2020/21);
• ON: Roll-out of agile working practices;
Inclusion and Diversity Working Groups
in most businesses; six employee-led
communities formed under the banner
“Belonging in SSE”; inclusion training
for employees (95% of employees were
certified at the end of 2020/21); and
market-leading maternity benefits.
• UP: Inclusion and diversity training
for all; the creation of an Inclusive
Leadership Development Programme
(93 participants over 2020/21); greater
focus on inclusion and diversity by the
Board (see page 127 ).
Gender balance at senior levels
Gender split of:
Unit
Group Executive
Committee1
Group Executive
Committee1 and
direct reports (excl.
admin employees)
Group Executive
Committee1, its
sub-committees
and Business
Unit Executive
Committees2
Roles at £70,000 or
above (indexed to
1 April 2017)
Male/female
headcount
in group3
(% female
shown in
brackets)
2020/21
target
–
30%
female
2020/21
2019/20
2018/19
6/2
(25%)
39/13
(25%)
7/2
(22%)
48/12
(20%)
7/2
(22%)
44/10
(19%)
25%
female
67/26
(28%)
62/23
(27%)
53/17
(24%)
20%
female
518/100
(16%)
524/108
(17%)
477/91
(16%)
1
In the context of gender reporting, the Group Executive Committee (GEC) includes all members of the
GEC and the Company Secretary. This is the definition of senior managers in SSE for the purposes of
s414C(8)(c)(ii).
2 Figures for all BU Executive committees includes relevant attendees and the relevant Committee
Secretary. Duplication of individuals have been removed.
3 Data is correct as at 31 March in each financial year, with the exception of the ‘Group Executive
Committee, its sub-committees and Business Unit Executive Committees’ in 2018/19 which is correct
as at 1 April 2019. SSE’s revised operating model was implemented on 1 April 2019 and was embedded
throughout that financial year.
In SSE’s 2020 employee engagement pulse
survey, 84% of employees said they believe
that their managers support diversity and
inclusion, and recognise and respect the
value of human difference. This is 7%
above the utilities sector benchmark
and 4% above the UK benchmark.
below its own internal target to have a
three-year rolling average of 33% women
on its Board, showing that this target will
take time to reach despite good progress.
More information about the diversity of the
SSE Board and SSE’s Board-level gender
target is on page 121 .
Further information on SSE’s inclusion and
diversity initiatives is detailed within SSE’s
Sustainability Report 2021.
Striving for gender balance
SSE is concerned at the lack of diversity
in the energy sector and specifically
within the Company. For seven years it
has focused on promoting greater gender
balance at every level as part of its wider
inclusion and diversity strategy. While there
are signs of improvement, SSE operates
in an environment where 69% of its job
applicants are male, and delivering gender
equality is proving to be a long-term
challenge. This is therefore an area of
increased focus for the Board and GEC.
At 31 March 2021, four of SSE’s 11 Board
members are women, meaning that SSE
is one of 68 FTSE 100 companies that has
met or exceeded the Hampton-Alexander
Review target of 33% women on Boards.
SSE was ranked 52nd out of FTSE 100 by
Hampton Alexander in 2020, a move up
from 65th in 2019. SSE is however still
In 2018, in response to the Hampton-
Alexander Review and in recognition of
the challenges of its recommendations for
the Company due to a very small pipeline
of women at the most senior levels, SSE
established a series of broader supporting
pathway targets for greater gender balance
at senior levels to be reached by the end
of 2020/21. As shown in the table on this
page, there has been mixed progress
towards these targets.
The Hampton-Alexander Review targets
33% female representation within the
Group Executive Committee and its Direct
Reports by 2020. SSE is fully supportive
of this target, but has always understood
that, with a low starting point, it would take
SSE longer to reach this target. SSE now
has 25% senior female representation at
this level. This does not however achieve
the Hampton-Alexander recommendation
or SSE’s own target of 30%. SSE’s Board
and GEC are fully committed to increasing
gender balance at this level.
SSE plc Annual Report 2021
49
A SUSTAINABLE APPROACH CONTINUED
SSE surpassed its target to have 25%
female representation on its GEC, its sub-
committees and Business Unit Executive
Committees, reaching 28% female
representation at the end of 2020/21.
Whilst this is positive, SSE intends to
make further progress in this area.
Whilst SSE publishes its headline gender
pay gap statistics within its Annual Report,
further data and detailed information on
the action SSE is taking to reduce its gender
pay gap and promote gender diversity
at every level of the organisation can be
found within the Sustainability Report.
SSE has focused on ensuring it has
effective inclusive recruitment processes.
The percentage of women applying for
and being offered senior roles in SSE has
increased since 2018/19: from 10% female
applications to 17% in 2020/21; and from
6% female offer rates to 18% in the same
timeframe. Despite this, and alongside
some wider restructuring of the business,
the Company did not meet its target to
have 20% women out of all people earning
£70,000 or above (indexed to 1 April 2017).
SSE believes that important progress has
been made on establishing a more inclusive
culture through its ‘IN, ON and UP’ strategy,
but knows much remains to be done and
understands that the diversity of its senior
leaders will take time to change.
Having completed a significant
restructuring of the business portfolio, the
Board and GEC are committed to agreeing
a future set of ambitions and delivery plans
that increase the overall gender diversity
and wider difference across leadership and
senior management positions, with clear
initiatives in place to achieve this.
SSE’s gender pay gap
SSE has published its UK gender pay
gap since 2016. SSE’s UK median and
mean gender pay gap as at 5 April 2021
were 18.3% and 16.5% respectively. This
compares to 18.4% and 17.1% respectively
as at 5 April 2020.
Creating an inclusive SSE for
ethnic and racial diversity
The lived experiences of black and ethnic
minorities received global focus over
the course of 2020. SSE listened to its
employees who shared their reactions to
last year’s Black Lives Matter movement
and worked with them to design the best
way the Company could offer support and
help raise awareness for all.
In September 2020, SSE launched a new
employee led “Belonging in SSE Black and
Ethnic Minority Community”, one of a suite
of new communities, the shared aims of
which are to:
• Bring people together – by encouraging
open and constructive employee-led
discussion, allowing people to connect,
communicate and collaborate.
• Access latest thinking – by employees
sharing relevant and topical insights and
knowledge, as well as external articles,
studies and thinking.
• Support each other – by offering peer to
peer support and advice amongst those
with similar lived experiences.
• Educate each other – by shining a light
on the realities of others who may be
different to ourselves.
Alongside this, SSE has encouraged
employees to share their lived experiences
in short “By Colleague, For Colleague”
personal stories on internal channels to
increase shared understanding. This has
been accompanied by senior leadership
blogs sharing thoughts and experiences
around inclusion and difference.
50
SSE plc Annual Report 2021
Consumers
The provision of energy to homes and
businesses across GB and the island
of Ireland is an essential service. SSE’s
relationship with the end consumer can
be a direct one, as a supplier of energy
or a distributor of electricity. While the
relationship between SSE’s electricity
generation businesses and its Transmission
business might be less direct, the interests
of the end user are key. From driving
down the costs of generating electricity
from renewables, the careful balancing
of consumer interests in the Transmission
business plan to the creation of local
flexible electricity grids that engage all
users, SSE’s businesses can do much to
deliver value for consumers.
New challenges for energy
affordability and vulnerability
The coronavirus pandemic has
demonstrated the complex and transient
nature of consumer vulnerability. Significant
financial challenges have been brought to
many of SSE’s customers and it has shown
how important it is to remain flexible, agile
and continually evolve to meet customers’
needs.
SSEN Distribution serves over 3.8m
customers and adapted its service provision
quickly to support customers in 2020/21:
• SSEN’s industry-leading customer
vulnerability mapping tool was
enhanced in 2020/21 with the addition
of a new social indicator showing
levels of Universal Credit uptake to
complement existing data on low-
income and long-term unemployment.
The mapping tool was shared widely
with partners to inform and support
more accurate coronavirus responses.
• A new joint Priority Services Register
(PSR) Scotland website was launched
in collaboration with Scottish Water
and SP Energy Networks to offer a PSR
one-stop-shop across Scotland, making
it easier for partners to promote and
customers to sign up.
• A focus on energy efficiency continued,
with the trebling of referrals from SSEN
to energy efficiency agencies in Scotland
and England.
• SSEN Distribution’s partnerships
to support vulnerable customers
helped 2,754 households in 2020/21.
Furthermore, SSEN Distribution extended
its energy adviser programme with
Citizens Advice Scotland for a further
12 months and enhanced its Citizens
Advice Hampshire and NHS Home
and Well partnership to specifically
target support for people coming
out of hospital.
STRATEGIC REPORT PROVIDING PRIORITY SERVICES
TO VULNERABLE CUSTOMERS
In response to coronavirus, SSEN Distribution
worked to maintain customers’ power
supply, with additional efforts focused on
supporting those most vulnerable and
isolated. Extensive customer engagement
has been ongoing to raise awareness of an
extension to SSEN’s Priority Services Register
to include those who were instructed to self-
isolate for a 12-week period and a dedicated
team was established to proactively call
customers who may be at risk of social
isolation during the lockdown period.
The frontline healthcare response
was also prioritised, with connections
accelerated for temporary hospitals and
research centres, and a dedicated phone
line set up for hospitals, health centres
and care homes to ensure optimisation
of incident response. SSEN Distribution’s
customer care team and Safety, Health
and Environmental (SHE) teams were
recognised for their efforts in February this
year when they received the “Keeping us
Connected” award from Utility Weekly –
a one-off award for excellence in the face
of the pandemic.
ENGAGEMENT
IN ACTION
ENERGY CUSTOMERS
MORE THAN
6,000
welfare calls made to
SSEN Distribution’s most
vulnerable customers
SSE Airtricity supplies green electricity,
natural gas and essential services to homes
and businesses across Ireland. The safety
and wellbeing of employees, customers
and communities is its number one priority,
with 2020/21 characterised by the ongoing
response to customer needs through the
coronavirus pandemic:
• Disconnection activity was suspended
for domestic customers and enhanced
payment arrangements were offered
to help ease worries about energy bills.
• Extra supports were for shielding
customers and those who could not
purchase credit for pre-paid-meters.
• SSE Airtricity worked to keep energy
costs low and, despite a recent price
increase due to increased external costs,
SSE Airtricity customers continue to
pay less for their energy than before
the pandemic outbreak as a result of
a summer price decrease and winter
price freeze in 2020.
• SSE Airtricity continued to expand
its products and services through
enhanced partnerships, such as the
introduction of a Green Home Upgrade
partnership with An Post and the growth
of the Solar for Schools Project with
Microsoft Ireland.
More information on action taken to
support customers can be found within
the Sustainability Report 2021.
Designing smarter and fairer
distribution networks
The emergence of a digital electricity grid
will be key to reducing carbon emissions
locally. It also creates opportunities for
consumers to manage their energy, with
the potential of reducing energy costs. SSE
is concerned to ensure however, that these
benefits of smart grids are shared widely.
Currently access to smart services such
as flexibility payments, time-of-use tariffs
and electric vehicle tariffs, is limited to a
relatively small group of early technology
adopters. SSEN Distribution recognises
that the benefits of a smarter energy
system should be accessible to all and
is an important component of achieving
a Just Transition to net zero.
‘Smart and Fair?’ is an ongoing research
programme led by the Centre for
Sustainable Energy and supported by
SSEN Distribution which explores social
justice in the future energy system.
The Phase 1 Report, published in September
2020, investigated how this can be achieved
without leaving consumers behind. An
analytical framework and methodology –
called a Capability Lens – was developed
to measure the impact of changes to
the energy system on a diverse group
of customers. The research programme
has made several recommendations to
Ofgem, the UK Government, consumer
advocates and energy practitioners
(network companies and suppliers), with
key findings adopted by the Just Transition
Commission’s final recommendations to
the Scottish Government.
Phase 2 will improve the analytical tools,
pilot interventions to widen participation
and analysis of the value of the smart
energy market to a range of different
stakeholders. It will determine whether
the analytical framework can be used ‘in
reverse’ to develop profiles of communities,
types of smart energy offerings and model
types of interventions that may be required.
SSE plc Annual Report 2021
51
A SUSTAINABLE APPROACH CONTINUED
A NEW SUSTAINABLE
PROCUREMENT CODE
SSE recognises the key role its supply chain
partners play in achieving its sustainability
goals. It therefore provided its strategic
suppliers with the opportunity to review and
provide comment on its new Sustainable
Procurement Code and accompanying
Supplier Guidance (both available on sse.
com/sustainability/policies-assurances )
ahead of publication.
Reaching out to SSE’s strategic supply
partners, input was requested on
overarching themes, principles and specific
requirements outlined in the documents.
Ten suppliers provided detailed feedback
Suppliers
SSE depends upon a sustainable,
vibrant and varied supply chain to deliver
its business strategy. Ensuring that its
standards and values are supported and
upheld by its suppliers and contractors is
central to the social impact SSE makes.
Renewing SSE’s sustainable
procurement strategy
The ISO 20400 Sustainable Procurement
Guidance was identified as the most
appropriate framework to structure
a renewed and invigorated approach
to managing sustainability risks and
opportunities in SSE’s supply chain.
Following an independent gap analysis
against the ISO 20400 standard by supply
chain experts Action Sustainability in early
2020, over the course of 2020/21 SSE has
developed and begun implementation of
a three-part plan designed to advance its
approach to sustainable procurement to a
mature state. Detail of this plan is provided
in the Sustainability Report 2021.
Core activities undertaken during 2020/21
to advance SSE’s approach to sustainable
procurement included:
• An extensive assessment of social and
environmental risks across all purchasing
categories to identify where the most
material risks lie and enabling proactive
risk mitigation.
52
SSE plc Annual Report 2021
which was subsequently integrated into the
documents, with agreement to continue
engagement on this topic to understand
potential areas of collaboration to fulfil
common sustainability goals.
ENGAGEMENT
IN ACTION
SUPPLIERS, CONTRACTORS
AND PARTNERS
DETAILED FEEDBACK FROM
10
strategic suppliers helped shape
SSE’s Sustainable Procurement
Code
• Creation of advanced sustainability-
focused pre-qualification and tender
question sets and KPI measures,
designed to target shared opportunities
as well as risk.
• Development of a new Sustainable
Procurement Code and linked Supplier
Guidance document (replacing SSE’s
Responsible Procurement Charter)
which are aligned to the UN’s Sustainable
Development Goals (SDGs) material to
SSE’s business.
• A proposal to work with supply chain
partners on SSE’s major projects to
quantify and enhance the social value
of SSE’s major project investment.
• Partnership with the Supply Chain
Sustainability School to enable SSE and
its supply chain to access high-quality
training, wider resources and networks
focused on sustainability.
Supporting local supply chains
on offshore wind projects
For more than a decade, SSE has
demonstrated its commitment to
developing sustainable, domestic supply
chains for its major infrastructure projects.
SSE reached financial investment decisions
on just under £10bn of renewables projects
in 2020/21, with SSE’s share representing
around £4.5bn. The opportunities for
supporting and creating UK supply chains
and jobs as a result of these projects,
in particular Seagreen and Dogger Bank
offshore wind farms, has been a major
strategic focus for the organisation.
The most significant development, in
March 2021, was the announcement that
GE Renewable Energy plans to open a new
blade manufacturing plant on Teesside in
the North East of England to support the
growing offshore wind market in the UK
and Europe and to produce blades for its
Haliade-X turbine that will power Dogger
Bank. The significant order of Haliade-X
offshore wind turbines from Dogger Bank
wind farm was a decisive factor in GE
Renewable Energy’s decision to greenlight
the new manufacturing plant, delivering a
long-term renewable energy jobs boost to
the region. The blade factory is expected
to create up to 750 direct and up to 1,500
indirect jobs locally.
Communities
SSE’s long-standing approach to community
engagement and investment has enabled
it to build strong relationships with
communities in the areas where it operates.
Implementing responsible
developer principles
SSE’s business strategy depends upon
its ability to develop and execute major
infrastructure projects from new electricity
transmission lines to wind farms. The
successful development of such projects
requires good community relationships
with the people who live near the projects.
SSE’s approach to community liaison
has been built over the past 10 years
with a Large Capital Project governance
STRATEGIC REPORT process to ensure rigour and careful
management of risk as projects develop.
Stakeholder engagement is an important
part of that process, with SSE’s approach
being defined by early and transparent
engagement through the statutory
planning process. Through construction,
dedicated community liaison officers work
closely with community representatives
and local authorities to ensure minimum
disruption as components are delivered
and construction progresses.
Through the coronavirus pandemic,
methods of community liaison were
adapted, with new digital platforms
implemented to engage effectively with
stakeholders remotely. Feedback has
demonstrated improved inclusion of
communities who may have struggled to
attend in-person events due to childcare,
distance or work commitments.
In the future, the model is expected to
develop further as stakeholders confirm
they value some face-to-face engagement.
To continue meeting their needs, a mix
of in-person and digital engagement
methods will be used, keeping costs and
limited stakeholder resources in mind.
Direct funding for
community projects
The principle of sharing the economic
value of renewables projects with local
communities is one SSE has been committed
to since 2008. SSE Renewables’ community
RENEWABLES COMMUNITY FUNDS*
£m
11
10
9
8
7
6
5
4
3
2
1
0
2.6
1.8
1.0
0.4
0.6
10.2
8.0
8.0
5.9
6.1
5.2
3.9
4.0
2008/09
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
* Total community grants administered by SSE Renewables, which includes grant giving from JV partners.
investment funds provide an important
source of funding to communities close to
its assets, many of which are in rural areas
across the UK and Ireland. Over 2020/21,
£10.2m of community investment grants
were administered by SSE Renewables to
finance 980 projects across the UK and
Ireland. Total fund payments between 2008
and 2050 are expected to be at least £250m,
adjusted for inflation. This includes the Viking
wind farm fund, with expected payments to
the Shetland community over the lifetime
of the wind farm totalling £70m (nominal)
– the largest UK community fund linked to
renewable energy.
In addition to the SSE Renewables funds,
SSEN Distribution operates the Resilient
Communities Fund (RCF) which helps
communities to build resilience for
emergency events and protect the welfare
of vulnerable community members. Since
2015, the RCF has provided £2.8m to 540
not-for-profit community groups and
charities in SSEN’s electricity distribution
network areas in central southern England
and the North of Scotland. Over 2020/21,
the fund was used to support communities’
responses to the coronavirus pandemic,
with over £320k granted through the
RCF and an additional £40k granted to
Citizens Advice Scotland and Citizens
Advice Hampshire to help them transition
to home working and develop their
capacity and resilience to deliver the
increased demand for remote services.
PROVIDING EMERGENCY
FUNDING IN A TIME OF NEED
SSE has supported communities quickly
and flexibly throughout the pandemic.
Early in 2020, SSE engaged communities
near its renewable assets to understand
how the community investment could
best support them to respond to immediate
challenges. Based on the communities’
suggestion, emergency funding was
made available with over £2m provided
in emergency grants to assist community
responses throughout the pandemic. More
than 250 communities were supported
to manufacture PPE, retain community
assets and to provide essential services
for vulnerable residents.
Beyond the granting of emergency
funds, SSE’s Community Investment
Team engaged existing grant holders and
determined how best to support them
during the pandemic. The grant award
period for over 100 existing grants was
extended and additional funding was
made available to 38 groups to help them
respond to consequences of the pandemic,
for example providing youth support
services and training for the self-employed.
ENGAGEMENT
IN ACTION
NGOs, COMMUNITIES
AND CIVIL SOCIETY
SSE is now engaging with communities
to ensure they are supported as they
seek to stabilise and thrive during the
recovery period.
SSE HAS MADE MORE THAN
£2m
available since March 2020 to
support communities with their
coronavirus pandemic response
SSE plc Annual Report 2021
53
RISK-INFORMED DECISION MAKING
MANAGING SSE’S
PRINCIPAL RISKS
The execution of SSE’s strategy and delivery of its
purpose is dependent on the effective identification,
understanding and mitigation of the Group’s
Principal Risks.
SSE’s established Risk Management
Framework and the wider system of internal
control described on page 137 of the
Directors’ Report continued to inform
strategic decision-making in 2020/21. This,
combined with a resilient business model,
helped the Group manage and minimise the
human, operational and financial impacts
of coronavirus and to meet its objective of
supporting the reliable supply of electricity
to those who needed it, particularly those
tackling the pandemic.
In addition to coronavirus, SSE managed
and assessed the potential risks associated
with a number of other external factors
throughout the year. Brexit gave rise to a
high degree of economic, regulatory and
political change. SSE was well prepared
and the direct impacts were limited,
but it continues to manage the resulting
uncertainty over carbon pricing and
the establishment of a standalone UK
Emissions Trading System agreement.
SSE also appealed to the CMA on a narrow
range of technical points against Ofgem’s
final RIIO-T2 price control determination,
seeking to balance affordability for energy
consumers with the need to attract the
investment needed for the transition to
net zero.
Against this backdrop SSE continued to
deliver significant strategic progress through
its disposals and capex programmes. The
Group has been streamlined and £1.5bn of
proceeds have been announced through
the sale of non-core assets and construction
is under way on a number of predominantly
low-carbon infrastructure projects including
the world’s largest offshore wind farm at
Dogger Bank.
The above factors, along with the likely
longer-term impacts of the coronavirus
pandemic in the UK, Ireland and abroad
and all other influencing factors formed the
basis of the full review of SSE’s Principal Risks
that took place during the financial year.
54
SSE plc Annual Report 2021
Board considerations
Effective identification, understanding
and mitigation of Principal Risks underpins
the Board’s approach to setting strategic
objectives for SSE and informing strategic
decision making. The Board aims to
consider all material influencing factors
and key external trends in the energy
market, including those relating to climate
change, technological developments and
capital flow and aims to do so in a way
that reflects the expectations of SSE’s key
stakeholder groups.
These material influencing factors also
have an impact on the nature and extent
of risks the Board is willing to take in order
to meet these objectives, and related
mitigation strategies adopted by the Group.
Material changes in the nature and potential
impacts of SSE’s Group Principal Risks
are regularly assessed with appropriate
mitigations implemented where necessary.
Overseeing risk
The Group Executive Committee and
its sub-committees have responsibility
for overseeing SSE’s Principal Risks.
During the third quarter of SSE’s financial
year, an assessment of each Principal
Risk is completed by the assigned
oversight committee. This assessment
requires committee members to provide
commentary on contextual changes to
the risks and whether they consider them
to have become more or less material
during the year. In 20/21 this commentary
covered both changes specifically related
to coronavirus and those changes that
are not related to the pandemic impacts.
Consideration is also given to potential
emerging risks and whether or not any
of those identified have the potential to
become a Principal Risk to the business
in the medium- to long-term.
key information relating to Business Unit
Principal Risks and Controls. These reports
form the basis for the committees to discuss
and confirm the risk trend (more, less or
equally material), overall effectiveness of the
risk control and monitoring environment,
and whether any additional control
improvement actions are required. This is
an inclusive and iterative process that results
in considered and objective outputs and a
robust assessment of Principal Risks.
The outputs from these committee
assessments are then presented to the
Group Executive Committee for full review,
with any emerging risks or additional
material changes resulting from this
being proposed to the Board.
2020/21 review outcome
Following the 2020/21 annual review
process, the number of Principal Risks
to the Group remains at 11 but there are
two revisions of note.
The “Large Capital Projects Quality” risk has
been redefined and renamed “Large Capital
Projects Management”. This broadens the
risk definition in response to changes in
the operating environment and reflects
the increase in value of SSE’s Large Capital
Projects portfolio over the next 10 years.
The emerging risk “Joint Venture and Partner
Management” previously identified during
2019/20 was retained by the Board. The
importance of joint ventures and partner
management continues to increase in SSE
as its Business Units pursue their strategic
and business objectives in association
with other companies and organisations,
in some cases in international markets. An
additional review of this emerging risk will
be undertaken by the Group Risk Committee
in Q2 of the financial year 21/22.
These responses are then consolidated into
reports, one for each Principal Risk, which
are presented back to the committees
along with the results of provisional
viability testing and analysis of relevant,
current management information and
Important revisions have also been
made to the descriptions of each of the
other Principal Risks to take account of
key developments and corresponding
mitigations that were introduced during
the year. Full details of the Group Principal
Risks are available on pages 57 to 63 .
STRATEGIC REPORT
Group Principal Risks
h
g
H
i
Politics, regulation
and compliance
Cyber security
and resilience
Energy affordability**
t
u
p
t
u
O
t
n
e
m
s
s
e
s
s
A
f
l
e
S
Commodity prices
Safety and the
environment*
Speed of change
Energy infrastructure
failure
People and culture
Large capital projects
quality/management
Climate change
Financial liabilities
w
o
L
Less
Potential Impact
on Group Viability
More
* Safety remains SSE’s most important value, and management of this risk remains SSE’s highest priority.
** It should be noted that Energy Affordability is particularly closely linked to – and therefore impacted by – Politics, Regulation and Compliance and
Commodity Prices.
SSE operates in fast-moving markets that
are under normal circumstances subject
to a high degree of political, regulatory
and legislative intervention. It is therefore
essential that SSE’s Risk Management
Framework is dynamic and flexible,
allowing decision makers to focus on
material risk information that may have
an impact, whether positive or negative,
on strategic objectives.
The Board and Group Executive Committee
look for as complete a perspective as
possible when assessing the Principal Risks
that face the Group. The graphic above
illustrates SSE’s 11 Group Principal Risks
positioned on a relative basis against the
output of the Principal Risk Self Assessment
process (based on changes in the context
and prevalence of each risk) and the
potential impact on Group Viability based
on critical risk scenarios developed with
business experts.
In addition, Principal Risks that were
considered by their oversight committees
to have increased in materiality during
the year are shown in red, those that
have not changed significantly are shown
in blue and those that have reduced in
materiality are shown in green.
SSE plc Annual Report 2021
55
RISK-INFORMED DECISION MAKING CONTINUED
Risk Appetite Statement
No business is risk free and indeed the
achievement of SSE’s strategic objectives
necessarily involves taking risk. SSE will
however only accept risk where it is
consistent with its core purpose, strategy
and values; is well understood; can be
effectively managed; with consideration
of stakeholder expectations and offers
commensurate reward.
The sectors in which SSE operates continue
to be subject to a high degree of political,
regulatory and legislative risk as well as
risks arising from other developments and
change including technology, the impact
of competition, stakeholders’ evolving
expectations and climate change.
Furthermore, each of SSE’s Business
Units have differing levels of exposure to
additional risks. For example, the SSEN
Transmission and Distribution businesses
are largely economically regulated and are
characterised by relatively stable, inflation
linked cash flows while the SSE Renewables
business benefits from cash flows linked
to government-mandated renewables
subsidies. Those Business Units that
generate and trade energy are also exposed
to significant medium- to long-term energy
market and commodity risks in operational
and investment decision making.
The key elements of SSE’s Strategic
Framework – including the focus on
regulated energy networks and renewable
sources of energy, particularly clean
electricity, complemented by flexible
thermal generation and business energy
sales – and its financial objective in relation
to dividend growth are fully reflective of its
risk appetite.
Fundamentally:
• SSE is focused on creating value in
a sustainable way from developing,
building, operating and investing in the
energy infrastructure and businesses
needed in the transition to net zero.
This provides a complementary portfolio
of business activities whilst keeping
the depth of focus on a single sector
– energy.
• SSE has a clear understanding of the risks
and opportunities in the Great Britain
and Ireland energy markets and these
markets therefore continue to provide
the Group’s geographic focus, with any
expansion into other markets being
subject to especially rigorous scrutiny.
• Safety is SSE’s first value and it has no
appetite for risks brought on by unsafe
actions, nor does it have any appetite
for risks brought on by insecure actions
including those relating to cyber security.
56
SSE plc Annual Report 2021
In areas where SSE is exposed to risks
for which it has little or no appetite,
even though it has implemented high
standards of control and mitigation,
the nature of these risks mean that they
cannot be eliminated completely.
In determining its appetite for specific risks,
the Board is guided by three key principles:
1. Risks should be consistent with SSE’s
core purpose, financial objectives,
strategy and values;
2. Risks should only be accepted where
relevant approvals have been attained
through the Governance Framework to
confirm appropriate reward is achievable
on the basis of objective evidence and
in a manner that is consistent with SSE’s
purpose, strategy and values; and
3. Risks should be actively controlled and
monitored through the appropriate
allocation of management and
other resources, underpinned by
the maintenance of a healthy
business culture.
The Board has overall responsibility for
determining the nature and extent of the
risk it is willing to take and for ensuring
that risks are managed effectively across
the Group.
Viability Statement
SSE is a purpose-led company involved
principally in the generation, transmission
and distribution of electricity; and also in
the supply of energy and related services
to customers. Its strategy is to create
value for shareholders and society in a
sustainable way by developing, building,
operating and investing in the electricity
infrastructure and businesses needed in
the transition to net zero. The delivery of
SSE’s purpose and execution of its strategy
depends on the skills and talent of a diverse
workforce, the quality of its assets and the
effective identification, understanding and
mitigation of risk.
As required within provision 41 of the UK
Corporate Governance Code the Board
has formally assessed the prospects of
the Company over the next 3 financial
years to the period ending March 2024.
The Directors have determined that as
this time horizon aligns with the Group’s
current capital programme and is within
the strategy planning period, a greater
degree of confidence over the forecasting
assumptions modelled can be established.
In making this statement the Directors have
considered the resilience of the Group
taking into account its current position,
the impacts of the coronavirus outbreak,
the Principal Risks facing the Group and
the control measures in place to mitigate
each of them. In particular the Directors
recognise the significance of the strong
balance sheet, and total committed lending
facilities of £1.5bn – with £200m committed
to October 2025 and £1.3bn committed to
March 2026. The Group is an owner and
operator of critical national infrastructure
and has a proven ability to maintain access
to capital markets during stressed economic
conditions. The Group has demonstrated
this through securing £2.5bn of funding
since April 2020 including the issuance of
a dual tranche £500m Eurobond in March
2021, its fourth Green bond in 5 years.
The Group has a number of highly
attractive and relatively liquid assets –
including a regulated asset base which
benefits from a strong regulated revenue
stream as well as the operational wind
portfolio – which provide flexibility of
options. This has been demonstrated
through the success of the programme
of disposals set out by the Group in June
2020 with already agreed disposals of non-
core assets expected to yield over £1.5bn
in net proceeds, of which over £1.4bn cash
proceeds have been received to date.
To help support this Statement, over the
course of the year a suite of severe but
plausible scenarios has been developed
for each of SSE’s Principal Risks. These
scenarios are based on relevant real life
events that have been observed either
in the markets within which the Group
operates or related markets globally.
Examples include critical asset failure
(for Energy Infrastructure Failure); changes
to key government energy policies (for
Politics, Regulation & Compliance); and
the impact of the loss of key systems
(for Cyber Security and Resilience).
Scenarios are stress tested against forecast
available financial headroom which this
year also considered sensitivities resulting
from the coronavirus pandemic. Further
details can be found in A6.3 (Accompanying
Information to the Financial Statements
in the Annual Report and Accounts). In
addition to considering these in isolation,
the Directors also consider the cumulative
impact of different combinations of
scenarios, including those that individually
have the highest impact.
Upon the basis of the analysis undertaken,
and on the assumption that the
fundamental regulatory and statutory
framework of the markets in which the
Group operates does not substantively
change, the Directors have a reasonable
expectation that the Group will be able to
continue to meet its liabilities as they fall
due in the period to March 2024.
STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES
GROUP PRINCIPAL
RISKS
Climate Change
Oversight:
Group Executive Committee
What is the risk?
The risk that SSE’s strategy, investments or operations are deemed to have
an unacceptable future impact on the natural environment and on national
and international targets to tackle climate change.
Material influencing factors:
• The impact of physical risks associated with climate change, such as
severe adverse weather that causes damage or interrupts energy supply
or generation.
• The speed of technological developments.
• Transitional risks relating to developments in political and regulatory
requirements around the products and services that SSE provides.
Material influencing factors most impacted by coronavirus:
• Fast developing stakeholder needs and expectations in relation to
efficient, innovative and flexible products and services.
• Ensuring the continuation of Large Capital Projects which are
fundamental to Group net zero targets.
• Global and domestic policies including those published by the UK’s
Committee on Climate Change relating to the 6th carbon budget for
the period 2032 and 2037.
• Political and regulatory engagement.
Strategic link:
Key
Build
Operate
Invest
Develop
Key developments:
• In its role as a principal partner to the UK Government at COP26, SSE
will strive to continue to build its reputation as a responsible UK-listed
company, delivering in the public interest and a key enabler of net
zero ambitions. More information on COP26 can be found in the
Sustainability Report.
• In November 2020, SSE became the first company to publish its
Just Transition Strategy. This strategy outlines SSE’s 20 principles
for achieving a socially just transition to net zero and details these in
action. More information on SSE’s Just Transition strategy is available
on sse.com .
Key developments associated with coronavirus:
• In May 2020, SSE published “A Greenprint for building a cleaner, more
resilient economy”. The publication highlights SSE’s policy proposals to
build a greener more resilient economy while driving progress to net
zero. Continued focus on SSE’s vision to be a leading energy company in
a net zero world and its strategic objectives ensure that it is best placed
to play its part in long-term economic recovery. Further details are
available on page 18 .
Key mitigations:
• Policy Link: SSE Climate Change Policy.
• SSE provides transparent disclosures to allow its stakeholders to properly
assess its performance in managing climate related issues. The Group
believes it met the TCFD reporting recommendations in full in 2020
ahead of the UK Government 2022 deadline.
• The Group Executive Committee is responsible for implementing
the Group strategy set by the Board and driving climate-related
performance programmes across the organisation. The Chief
Sustainability Officer is responsible for advising the Board, Group
Executive Committee and businesses on climate-related matters
and provides support in the implementation of relevant initiatives
across the Group.
• In March 2019, SSE’s Remuneration Committee took the decision that
from 2019/20 onwards 20% of the total Annual Incentive Plan (AIP)
for Executive Directors would be determined by the progress made
in meeting SSE’s four 2030 Business Goals which are focused on
addressing the challenge of climate change.
SSE plc Annual Report 2021
57
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Commodity Prices
Oversight:
Group Risk Committee
What is the risk?
The risk associated with the Group’s exposure to fluctuations in both the
physical volumes and price of key commodities, including electricity, gas,
CO2 permits, oil and related foreign exchange values.
Material influencing factors:
• Weather associated seasonal fluctuations in demand, supply and
generation capabilities – which may not be in line with historical trends,
and which may or may not be associated with climate change – both
in GB and globally. Further detail is available on page 27 of the
Strategic Report.
• Generation technology advancements.
• Global and domestic political change, including the impacts of Brexit
and the implications of a second Scottish Independence Referendum.
• European generation outputs and availability.
• International and national agreements on climate change.
• International flows of fuel.
Material influencing factors most impacted by coronavirus:
• Fluctuations in foreign exchange values.
• Fluctuations in the global supply and demand of fuel.
• Global economic growth.
• Geopolitical events.
Strategic link:
Key developments:
• Managing the impacts of geopolitical events including those relating
to Brexit.
Key developments associated with coronavirus:
•
Managing the impacts of a continued significant reduction
in energy demand.
Managing the impacts of significant fluctuations in commodity prices
and foreign exchange values.
•
Key mitigations:
• Policy Link: An asset-by-asset approach to hedging strategy that ensures
trading positions cannot have a material impact on SSE Group earnings.
The latest update on SSE’s hedging approach can be found in the
Financial Review section of this report.
• The Energy Markets Risk Committee monitors the effectiveness of
Group hedging arrangements.
• SSE uses VaR and PaR measures to monitor and control exposures.
Trading limits are reviewed regularly by the Energy Markets Risk
Committee, with consideration given to changes in the material
influencing factors noted above, before being approved by the Board.
• SSE’s Energy Economics team provides commodity price forecasts which
are used to inform decisions on trading strategy and asset investment.
• SSE utilises hedging instruments to minimise exposure to fluctuations in
foreign exchange markets, details of which are available in the Financial
Statements section of the Annual Report and Account.
Cyber Security and Resilience
Oversight:
Group Risk Committee
What is the risk?
The risk that key infrastructure, networks or core systems are compromised
or are otherwise rendered unavailable.
Material influencing factors:
• Software or hardware issues, including telecoms network and
connectivity and power supplies.
Key developments:
• Continuation of work to ensure the successful technological separation
of systems associated with divestments, including the sale of SSE Energy
Services to Ovo, in a secure manner without interruption to services.
Key developments associated with coronavirus:
• Ensuring the continued security and resilience of Critical National
Infrastructure given the heightened threat of malicious cyber
attack, particularly the increased volume and sophistication of
ransomware attacks.
• Ineffective operational performance, for example, breach of information
• Continued maintenance of secure onsite systems and facilities in
security rules or poor management of resilience expertise.
• Employee and contractor understanding and awareness of information
preparation for the gradual return to the office environment of those
staff currently working from home.
security requirements.
Material influencing factors most impacted by coronavirus:
• Geopolitical events.
• Malicious cyber attack.
Strategic link:
58
SSE plc Annual Report 2021
Key mitigations:
• Policy Link: SSE Cyber Security Policy and SSE Data and Information
Policy.
• Key technology and infrastructure risks are incorporated into the
design of systems and are regularly appraised with risk mitigation plans
recommended.
• SSE conducts regular internal and third party testing of the security of its
information and operational technology networks and systems.
• Continued strengthening and embedding of the cyber risks and controls
framework to continue to identify threats and reduce exposures through,
for example, improved use of data analytics and further migration from
unsupported systems.
• Significant longer term Security Programme investment and planning
which seeks to strengthen the resilience of the systems on which
SSE relies.
• IT Service Assurance works with individual business units to form and
agree appropriate service level agreements for business critical IT services.
• Business continuity plans are reviewed in response to changes in the
threat to the Group and regularly tested.
STRATEGIC REPORT Energy Affordability
Oversight:
Group Executive Committee
What is the risk?
The risk that energy customers’ ability to meet the costs of providing
energy, or their ability to access energy services is limited, giving rise to
negative political or regulatory intervention that has an impact on SSE’s
core regulated Networks and Renewables businesses.
Material influencing factors:
• Technology changes and innovations.
• Supply chain cost management.
• Public policies, including those aimed at reducing carbon emissions
and energy consumption.
• Accessibility to energy and related services for all.
• Required investment in the upgrading of the UK’s energy infrastructure
to achieve net zero.
• Political interventions.
Material influencing factors most impacted by coronavirus:
• Macro-economic impacts on household and business incomes.
• Fluctuations in the cost of fuels.
• Supplier and customer failures and related bad debt.
Strategic link:
Energy Infrastructure Failure
Oversight:
Group Executive Committee
What is the risk?
The risk of national energy infrastructure failure, whether in respect
of assets owned by SSE or those owned by others which SSE relies on,
that prevents the Group from meeting its obligations.
Material influencing factors:
• Severe adverse weather that causes damage or interrupts energy
supply or generation.
• Government policy regarding the operation of the energy network
which relates to security of supply.
• Transition to net zero.
• Failures in any aspect of the GB national critical infrastructure.
• Continuing access to the European energy markets and continued
inclusion of Northern Ireland in the all-island Single Electricity Market.
Material influencing factors most impacted by coronavirus:
• Appropriate asset management and necessary upgrading works
of both generation and network assets.
• Malicious attack on the GB energy infrastructure.
• Energy network balancing mechanisms.
• Continued availability of competent personnel.
• Continued availability of key systems.
Strategic link:
Key
Build
Operate
Invest
Develop
Key developments:
• Ensuring energy consumers are provided with affordable energy and
accessible energy services throughout and following the transition to
net zero are key objectives of SSE’s Just Transition strategy published in
November 2020.
Key developments associated with coronavirus:
• Following the outbreak of coronavirus in the UK in March 2020, and in
line with the commitments of the C-19 Business Pledge, SSE adapted
its approach to grant funding to make funds immediately available to
communities who required them. By June 2020 over £1m had been
provided to 250 communities to support the emergency response to
the pandemic.
Key mitigations:
• Policy Link: SSE Sustainability Policy
• During the financial year, SSEN attained the British Standard for inclusive
service provision (BS 18477) for the sixth year in a row. This recognition,
from business standards company BSI, is achieved through rigorous
assessments to ensure SSEN’s policies, procedures and services are
accessible and fair to all customers.
• SSE Airtricity continues to focus on helping customers reduce their
carbon output and to save on energy costs. Through partnerships with
local authorities, the Sustainable Energy Authority Of Ireland (SEAI) and
others, SSE Airtricity Energy Services has been delivering large-scale
energy efficiency retrofit projects for homes across Ireland.
• SSE continues to advocate its belief that modernisation of the energy
market is best delivered by a cost-effective privatised system that is
properly regulated.
Key developments:
• Continued progress in developing and building electricity network
flexibility and infrastructure to facilitate net zero.
Key developments associated with coronavirus:
• The successful implementation and continuation of comprehensive
crisis management and business continuity plans designed to protect
and ensure the ongoing security of energy supplies. The frontline
healthcare response was prioritised, with connections accelerated
for temporary hospitals and research centres, and a dedicated phone
line set up for hospitals, health centres and cares homes to ensure
optimisation of incident response.
• SSE’s electricity networks business continues to use its well established
Priority Services Register to provide additional support to vulnerable
customers, working closely with local agencies to ensure those who
are vulnerable, or shielding can be reached as quickly as possible in
the event of an electricity network fault. A dedicated team was also
established to proactively call customers who may have been at risk
of social isolation during the periods of lockdown.
Key mitigations:
• Policy Link: Business Unit Asset Management Policies.
• SSE’s dedicated Engineering Centre of Excellence reviews and develops
plans to ensure the ongoing integrity of its generation assets is maintained.
• Targeted investment plans to ensure the ongoing health and integrity of
network assets.
• Crisis management and business continuity plans are in place across the
Group. These are tested regularly and are designed for the management
of, and recovery from, significant energy infrastructure failure events.
Where there are material changes in infrastructure (or the management
of it) additional plans are developed.
• SSE continues to be an active participant in national security forums
such as the Centre for the Protection of National Infrastructure (CPNI).
SSE plc Annual Report 2021
59
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Financial Liabilities
Oversight:
Group Risk Committee
What is the risk?
The risk that funding is not available to meet SSE’s financial liabilities,
including those relating to its defined benefit pension schemes, as these
fall due under both normal and stressed conditions without incurring
unacceptable costs or risking damage to its reputation.
Material influencing factors:
• Ongoing commitment to an Investment Grade credit rating.
Material influencing factors most impacted by coronavirus:
• Global macro-economic changes and subsequent volatility in foreign
exchange markets.
• Fluctuations in interest rates and inflation which influence borrowing
costs.
• Defined benefit pension scheme performance including the impact
of fluctuations in gilt yields on the value of scheme liabilities.
Strategic link:
Key developments:
• Proceeds in the region of £1.5bn have been announced towards the
£2bn planned disposal programme target set in June 2020.
Key developments associated with coronavirus:
• In spite of the impact on the macro economy caused by the pandemic,
in March 2021 SSE issued its fourth Green bond in 5 years with the
issuance of a dual tranche £500m Eurobond. SSE is the UK’s largest
corporate issuer of green bonds and is the only UK corporate to launch
multiple green bonds. During the year SSE also set out a new framework
for issuing innovative sustainability-linked bonds in the future.
Key mitigations:
• Policy Link: SSE Financial Management Policy.
• Committed borrowings and facilities are available at all times equal to
at least 105% of forecast borrowings over a rolling 6 month period.
• SSE seeks to maintain a diverse and innovative portfolio of debt to avoid
over-reliance on any one market. This allows it to build relationships
with, and create competition between, debt providers.
• Each of SSE’s defined benefit pension schemes has a Board of Trustees
which acts independently of the Group.
Large Capital Projects Management
Oversight:
Group Large Capital Projects Committee
What is the risk?
The risk that SSE develops and builds major assets that do not realise
intended benefits or meet the quality standards required to support
economic lives of typically 15 to 30 years within forecast timescales
and budgets.
Material influencing factors:
• Appropriate contractual arrangements.
• New or unproven technology.
• Appropriate and effective budget management.
• All aspects of supply chain management, including those relating to
human rights, modern slavery and labour standards, as well as those
impacts associated with Brexit.
Material influencing factors most impacted by coronavirus:
• Availability of competent contractors.
Strategic link:
Key developments:
• Following an independent assessment against ISO 20400 by supply
chain experts Action Sustainability in early 2020, SSE has developed
and begun implementation of a three-part plan designed to mature
its approach to sustainable procurement. For further details please
see the Sustainability Report .
Key developments associated with coronavirus:
• Despite the challenges associated with the pandemic the Group
reached Final Investment Decisions (FID) on a number of significant
projects including the Seagreen 1 and Dogger Bank A and B offshore
windfarms.
Key mitigations:
• Policy Link: SSE’s Large Capital Projects Governance Framework
manual ensures that all major capital investment projects for the Group
are governed, developed, approved and executed in a consistent
and effective manner, with full consideration of best practice project
delivery. The manual, which was reviewed in detail during the year,
with support from a specialist third party, provides common standards
across the Group and incorporates continuous improvement practices.
• The Large Capital Project Services function employs dedicated quality
and assurance teams who perform in-depth quality reviews.
• In major projects, SSE generally manages insurance placement by
organising owner controlled insurance. This strategy allows it to have
greater control and flexibility over the provisions in place. SSE also sees
the insurance market as an important source of information on the
reliability of technology and uses this to inform the design process of
major projects.
60
SSE plc Annual Report 2021
STRATEGIC REPORT People and Culture
Oversight:
Group Executive Committee
What is the risk?
The risk that SSE is unable to attract, develop and retain an appropriately
skilled, diverse and responsible workforce and leadership team, and
maintain a healthy business culture which encourages and supports
ethical behaviours and decision-making.
Material influencing factors:
• Rewarding employee contributions through fair pay and benefits.
• Recognition of the value and benefit of having an inclusive and
diverse workforce.
• A responsible employer ethos. For full details please see the
Sustainability Report .
• Clearly defined roles, responsibilities and accountabilities for all
employees.
• Availability of career development opportunities and appropriate
succession planning that recognises potential future skills shortages.
• Clear personal objectives and communication of the SSE SET of values.
• A focus on ethical business conduct and creating a culture in which
employees feel confident to speak up when they suspect wrongdoing.
Material influencing factors most impacted by coronavirus:
• The health and wellbeing of all employees. For full details please see the
Sustainability Report .
Clear and well structured employee communications.
•
Strategic link:
Key
Build
Operate
Invest
Develop
Key developments:
• “Championing the real living wage” is one of SSE’s 2030 goals and it has
been accredited Living Wage employer in the UK since 2013 and since
2016 in Ireland. In March 2021 SSE gained accreditation as a Living Hours
employer, this is a new accreditation, currently in a pilot phase, from
the Living Wage Foundation in the UK which recognises that people
cannot earn a real Living Wage unless fair wages are also accompanied
by secure and sufficient work. Further details are available in the
Sustainability Report and on page 47 of this Report.
Key developments associated with coronavirus:
• In May 2020 a pulse survey completed by around 8,000 employees
was conducted in order to understand employee’s immediate concerns
and priorities in the new working environment. Targeted actions were
agreed and implemented, including: flexible working patterns and
caring days; and reminders of the available support offered by the
employee assistance programme. Further surveys have been conducted
throughout the year the results of which will be used to inform how SSE
plans future ways of working.
Key mitigations:
• Policy Link: SSE Employment Policy and SSE Whistleblowing Policy.
• SSE has a detailed Inclusion and Diversity plan, progress against which
is reviewed and monitored by SSE’s Group Executive Committee on a
regular basis. Further details are available in the Sustainability Report and
on pages 126 to 127 of the Directors’ Report.
• There are a wide range of tools and services available to all employees
to support mental health and wellbeing, including those provided as
part of the Employee Assistance Programme. Full details are available
in the Sustainability Report.
• “Doing the Right Thing, a guide to ethical business conduct”, explicitly
outlines the steps employees should take to ensure their day-to-day
actions and decisions are consistent both with SSE’s values and ethical
business principles. SSE employees can report incidents of wrongdoing
through both internal and external mechanisms. SSE uses an
independent “Speak Up” phone line and email service, hosted externally
by SafeCall, through which incidents can be reported.
• The Audit Committee reviews all key accounting judgements made
as part of the preparation of the Annual Report and Accounts.
• SSE’s business leaders are required to undertake regular succession
planning reviews. At a Group level, SSE continues to develop its
approach to the management of talent.
SSE plc Annual Report 2021
61
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Politics, Regulation and Compliance
Oversight:
Group Risk Committee
What is the risk?
The risk from changes in obligations arising from operating in markets
which are subject to a high degree of regulatory, legislative and political
intervention and uncertainty.
Material influencing factors:
• Changes to regulatory frameworks.
• International and national agreements such as the 2015 Paris Agreement
on Climate Change and The Climate Change Act 2008.
Material influencing factors most impacted by coronavirus:
• Government intervention into the structure of the energy sector.
• Constitutional uncertainty, including relating to any second
independence referendum in Scotland.
• Changes in financial, employment, safety and consumer legislation
and regulation and the impact of these changes on business as
usual activities.
Strategic link:
Safety and the Environment
Oversight:
Group Safety, Health and Environment Committee
What is the risk?
The risk of harm to people, property or the environment from SSE’s
operations.
Material influencing factors:
• Clear and appropriately communicated safety processes.
• Regular and documented training.
• Adverse weather.
• The size, scale, complexity and number of projects under way.
• Challenging geographic locations.
• Appropriate task and asset risk assessment.
Material influencing factors most impacted by coronavirus:
• Safety culture – “if it’s not safe, we don’t do it”.
• Clear, effective and regular communications of all relevant
safety updates.
• Competent employees and contractors.
Strategic link:
62
SSE plc Annual Report 2021
Key developments:
• Publication of the Prime Minister’s ‘Ten point plan for a green industrial
revolution’ setting out increased policy ambition to drive a green
recovery and the long-awaited Energy White Paper.
Key developments associated with coronavirus:
• SSE’s Greenprint published in May 2020 outlines SSE’s green recovery
policy proposals, highlighting 5 priority areas it believes the UK to focus
on in order to build a greener, more resilient economy while driving
progress to net zero. These priorities are: net zero by 2040; strategic
investment in networks; clean industrial revolution; leading the charge
on EVs; and, green buildings for green jobs. Further details are available
on page 18 of the Strategic Report.
Key mitigations:
• Policy Link: SSE Political and Regulatory Engagement Policy.
• The Group has dedicated Corporate Affairs, Regulation, Legal and
Compliance departments that provide advice, guidance and assurance
to each business area regarding the interpretation of political, regulatory
and legislative change. These teams take the lead in engagement with
regulators, politicians, officials, and other such stakeholders.
• SSE has a clear Political Engagement Statement that sets out principles
for any employees who make representations to institutions of
governments or to legislatures on the Company’s behalf.
• The Group puts in place dedicated project teams to manage all aspects
of significant regulatory and legislative change including those relating
to Brexit.
• There is regular engagement with the Board and Group Executive
Committee on political and regulatory developments which may impact
SSE’s operations or strategy. Further details are available on page 111
of the Directors’ Report.
Key developments:
• During the year 271 Safe Days were achieved, compared to 247 the
previous year; in addition the Total Recordable Injury Rate (TRIR) fell to
0.15 per cent per 100,00 hours worked. Further details are available on
page 142 of the Directors’ Report.
Key developments associated with coronavirus:
• Following its deployment in early 2020, SSE’s Business Continuity
Framework has been used to manage the Group’s response to the
pandemic. All employees who can do so continue to work from home.
Coronavirus testing was introduced at an early stage when needed
for critical workers whose attendance on site was essential to ensure
continued operations and, hygiene and social distancing measures were
established and maintained in order to ensure safe working conditions.
Key mitigations:
• Policy Link: SSE Safety and Health Policy and SSE Environment Policy.
• Safety is the Group’s number one value with Board oversight being
provided by the Safety Health and Environment Advisory Committee.
• Crisis management and business continuity plans are in place across the
Group. These are tested regularly and are designed for the management
of, and recovery from, significant safety and environmental events.
• Each business carries out regular SHE assurance reviews of the risks
faced, the controls in place and the monitoring that is undertaken.
• SSE’s dedicated Engineering Centre of excellence reviews and develops
plans to ensure that the integrity of its generation assets is maintained.
• Full environmental impact assessments are carried out for all major
projects, to ensure adverse environmental impacts are well understood
and minimised.
STRATEGIC REPORT Speed of Change
Oversight:
Group Executive Committee
What is the risk?
The risk that SSE is unable to keep pace with the speed of change affecting
the sector and markets in which it operates and so fails to meet the evolving
expectations of its stakeholders or achieve its strategic objectives.
Material influencing factors:
• Fast developing customer needs and expectations in relation to efficient,
innovative and flexible products and services.
• Technological developments and innovation.
• Net zero strategic goals.
• Increased competition from market entrants including international
oil companies.
• Longer term capital investment plans and budgets.
Material influencing factors most impacted by coronavirus:
• The size, scale and number of change programmes underway, including
those relating to regulatory or legislative requirements.
• Geopolitical events.
• Governance and decision-making frameworks within the Group.
Strategic link:
Key
Build
Operate
Invest
Develop
Key developments:
• In February 2021 – as part of SSE’s strategy to seek to bring its expertise
in renewables to international markets where it sees value – it was
announced that SSE Renewables and Acciona S.A., a leading Spanish
Renewable energy developer, owner and operator, had signed an
exclusivity agreement regarding plans for the formation of a 50/50
joint venture to enter the emerging Spanish and Portuguese offshore
wind markets.
Key developments associated with coronavirus:
• In order to ensure the safety of its employees and to implement social
distancing measures required in response to the coronavirus outbreak,
around two thirds of SSE’s workforce continue to work from home on a
full-time basis. SSE’s ability to sustain this significant change in working
arrangements with minimal impact on productivity is a result of the
major financial investment and the wider efforts over previous years to
provide modern, flexible working for its employees.
Key mitigations:
• Policy Link: SSE Operating Model Policy.
• The Board sets the risk appetite of the Group and approves and regularly
reviews the Group’s commercial strategy, business development
initiatives and long term options ensuring alignment of risk appetite
and strategic objectives.
• SSE’s revised Group operating model has been designed to ensure
dynamic and efficient decision making, empowered and accountable
delivery of Business Unit strategies and to fulfil SSE’s purpose to provide
energy needed today while building a better world of energy for
tomorrow. Details of SSE’s decision making framework are available
on page 104 of the Directors Report.
• The Group Executive Committee is responsible for ensuring that
Business Unit strategies are consistent and compatible with the
overarching Group strategy and its vision to be a leading energy
provider in a net zero world.
Emerging Risk: Joint Venture and Partnership Management
Oversight:
Group Executive Committee
Overview:
An essential tenet of SSE’s Risk Management process is the consideration
of potential emerging risks and whether or not any of those identified has
the potential to become a Group Principal Risk in the medium to long term.
As such, following the 2020/21 review process the emerging risk “Joint
Venture and Partner Management” was updated and retained. The Group
Executive and Group Risk Committees will continue to be monitored over
the course of the year.
What is the risk?
The reshaped SSE Group features an increasing number of significant
Joint Ventures (operated and non-operated) both in the UK and Ireland
and in other carefully selected geographic locations. SSE must ensure that
joint venture structures, governance and operations are robust in order to
protect the investments made.
Key mitigations:
• Policy Link: SSE Joint Venture Management Policy
• The Group Risk Committee will undertake an additional detailed review
of this emerging risk in Q2 of FY 21/22. The output of this review will be
reported to the Group Executive Committee for further consideration.
SSE plc Annual Report 2021
63
FINANCIAL REVIEW
PERFORMING THROUGH
A CHALLENGING YEAR
Despite a year of exceptional challenges faced by the global economy,
the following pages reflect a period of significant strategic progress for
SSE and value creation for its shareholders.
We can be very proud of the performance
delivered in 2020/21. Against the backdrop
of a global pandemic, we delivered strong
earnings, made significant strategic
progress and developed value-creating
opportunities associated with net zero
right across the energy value chain.
The resilience of SSE’s business model and
the commitment of our employees have
helped us weather the coronavirus storm
with the financial impact on the Group
restricted to £170m.
We saw strong underlying performance
in our core renewables and networks
businesses and, while the long-term
implications from the pandemic remain
uncertain, the ongoing cost is likely to
felt largely in SSE Enterprise and SSE
Business Energy, and any future impact
will be assumed within normal business
performance.
“These results provide a platform for us to
pursue the opportunities we see arising
from the transition to net zero.”
Those core renewables and networks
businesses accounted for £1,220m of
adjusted operating profit – around 80% of
the Group total of £1,506m, which itself was
up 1% year-on-year. A marked increase in
Group reported operating profit, up 185% at
£2,743m, reflects mark-to-market gains on
derivatives but also underlines the value we
have created for shareholders through our
disposals programme. As well as sharpening
the Group’s net zero focus, strategically-
driven disposals in the region of £1.5bn
have been announced and we expect to
exceed our £2bn target on completion of
the sale of SGN.
In addition to well-executed disposals,
we showed in 2020/21 that our increasing
developer focus opens opportunities for
creating value through effective financial
partnering in renewables. The sale of
stakes in Dogger Bank A and B raised just
over £200m, we partnered with Total at
Seagreen and we expect to sell a stake in
Dogger Bank C during the first half of the
financial year. We have been clear that we
would also consider, in time, extending a
partnering approach potentially through
sales of minority stakes in our regulated
electricity networks businesses.
The £7.5bn capital investment and
expenditure plan, meanwhile, is on track
and we expect the run rate for capex to
increase in 2021/22 and 2022/23 to around
£2bn in each year. Success of the capex
plan can be seen in the excellent progress
being made on Dogger Bank, Seagreen
and Viking wind farms. Thanks to these
flagship renewables projects, we are
building more offshore wind than anyone
else in the world. At the same time, our
regulated networks businesses are pushing
ahead with plans to support the transition
to net zero in the RIIO-T2 and RIIO-ED2
regulatory price control periods.
On the basis that financial performance in
2020/21 met the Board’s expectations, we
have recommended a full-year dividend of
81.0p and we are targeting RPI increases
over the next two financial years, as set out
in our 2023 dividend plan.
Combined, these results provide a platform
for us to pursue the opportunities we see
arising from the transition to net zero. We
have options available to us to make the
most of those opportunities and the best
interests of shareholders will continue to
be met through effective capital allocation,
optimal capital recycling and partnering,
and sound financial management.
Gregor Alexander
Finance Director
25 May 2021
64
SSE plc Annual Report 2021
STRATEGIC REPORT Group Financial Review
This Group Financial Review sets out the financial performance of the SSE Group for the year ended 31 March 2021. See also the
separate sections on Group Financial Outlook 2021/22 and Beyond and Supplemental Financial Information.
The definitions SSE uses for adjusted measures are consistently applied and are explained in the Alternative Performance Measures
section of this document, before the Financial Statements.
Key financial metrics
Operating profit
Net Finance costs
Profit before Tax
Current Tax charge
Effective current tax rate (%)
Profit after Tax on continuing operations
Profit/(Loss) after Tax on discontinued operations
Profit/(Loss) after Tax
Less: hybrid equity coupon payments
Profit/(Loss) after Tax attributable to ordinary shareholders1
EPS (pence)
Number of shares for basic/reported and adjusted EPS (million)
Shares in issue 31 March (million)
1 After distributions to hybrid capital holders.
Dividend per Share
Interim Dividend (pence)
Final Dividend (pence)
Full Year Dividend (pence)
Adjusted
Reported
March
2021
£m
1,506.5
(441.6)
1,064.9
(107.8)
10.1
957.1
–
957.1
(46.6)
910.5
March
2020
£m
1,488.4
(465.0)
1,023.4
(114.2)
11.2
909.2
–
909.2
(46.5)
862.7
March
2021
£m
2,743.5
(227.1)
2,516.4
(224.3)
9.4
2,292.1
30.7
2,322.8
(46.6)
2,276.2
March
2020
£m
963.4
(375.8)
587.6
(121.5)
20.7
466.1
(478.6)
(12.5)
(46.5)
(59.0)
87.5
83.6
218.7
(5.7)
1,040.9
1,043.0
1,032.5
1,039.4
1,040.9
1,043.0
1,032.5
1,039.4
March
2021
24.4
56.6
81.0
March
2020
24.0
56.0
80.0
SSE plc Annual Report 2021
65
FINANCIAL REVIEW CONTINUED
Operating profit performance 2020/21
Business-by-business segmental
Operating profit/(loss)
SSEN Transmission
SSEN Distribution
Electricity networks total
Investment in SGN
Adjusted
Reported
March
2021
£m
March
2020
£m
March
2021
£m
March
2020
£m
220.9
267.3
488.2
218.1
356.3
574.4
220.9
267.3
488.2
218.1
351.9
570.0
173.0
202.3
88.6
80.8
Economically-regulated networks total
661.2
776.7
576.8
650.8
SSE Renewables
Thermal Generation
Gas Storage
Thermal Energy Total
Business Energy (GB)
SSE Airtricity (NI and Ire)
Customer Solutions Total
731.8
567.3
856.0
459.9
160.5
(5.7)
154.8
(24.0)
44.0
20.0
152.7
3.7
156.4
9.2
48.8
58.0
775.3
2.8
778.1
(3.9)
50.0
46.1
15.5
(1.4)
14.1
(18.5)
42.8
24.3
Energy Portfolio Management
18.4
(60.3)
608.5
(94.5)
Enterprise
Corporate Unallocated
(21.3)
8.1
(106.7)
(2.0)
(58.4)
(17.8)
(15.3)
(89.2)
Total operating profit from continuing operations
1,506.5
1,488.4
2,743.5
963.4
Net finance costs
(441.6)
(465.0)
(227.1)
(375.8)
Profit before tax from continuing operations
1,064.9
1,023.4
2,516.4
587.6
Discontinued operations:
Gas Production Assets
SSE Energy Services – sold Jan 2020
Total operating profit/(loss) from discontinued operations
33.0
–
33.0
25.8
32.7
58.5
33.0
–
33.0
(265.5)
(205.0)
(470.5)
In order to present the financial results and performance of the Group in a consistent and meaningful way, SSE applies a number of
adjusted accounting measures throughout this financial report. These adjusted measures are used for internal management reporting
purposes and are believed to present the underlying performance of the Group in the most useful manner for ordinary shareholders
and other stakeholders.
The definitions SSE uses for adjusted measures are consistently applied and a reconciliation of adjusted operating profit by segment to
reported operating profit by segment can be found in Note 6.2 to the Financial Statements.
Segmental EBITDA results are included in Note 6.3 to the Financial Statements.
66
SSE plc Annual Report 2021
STRATEGIC REPORT Impact from coronavirus
Coronavirus has had a significant impact
on every company operating in the UK and
Ireland, but, relative to other companies,
SSE has been resilient in the face of the
pandemic and it has not prevented the
Group from making progress on its strategy.
Correspondingly, in line with the
expectations set out in the June 2020
Preliminary Full-Year Results, financial
performance in the Group’s Transmission,
Renewables and Thermal businesses has
not been significantly adversely impacted
by coronavirus. However, as reported
throughout the year, the pandemic has
caused greater challenges for SSE’s other
businesses. The full-year impact on
operating profit is estimated to be £170m,
slightly below the estimate provided in
SSE’s March Notification of Closed Period
and mainly due to better than expected
demand in Distribution.
The adjusted financial metrics include
the effect of coronavirus, with estimated
adverse impacts for each business area
as follows:
•
In SSEN Distribution, operating profit
has been reduced by approximately
£40m, principally due to reduced
DUoS revenue resulting from reduced
customer demand although reduced
connection activity also contributed.
It is expected that around £34m of this
decrease will be recoverable through
tariff adjustments in 2022/23 under
established regulatory arrangements in
relation to uncollected DUoS revenue.
In SSE Business Energy, operating profit
has been impacted by approximately
£80m due to a combination of reduced
demand, increased bad debts and £24m
of losses incurred on early settlement of
excess commodity hedges with negative
mark-to-market valuations.
In SSE Enterprise, the Contracting and
Rail and, to a lesser extent Telecoms,
businesses have been impacted by
approximately £40m due, primarily,
to a reduced contracting order book
and lower overall activity.
In SGN, reduced activity has led
to approximately a £5m share of
unproductive costs.
•
•
•
• For Corporate Unallocated, incremental
and unproductive costs incurred are
estimated at £5m.
While the long-term economic implications
from the coronavirus pandemic are still
uncertain, SSE expects the ongoing
impact to the Group from the pandemic
to be restricted to the performance of SSE
Business Energy and SSE Enterprise and it
SSE Renewables: Adjusted operating profit
increased by 29% to £731.8m, compared
to £567.3m. 2020/21 includes developer
profits totalling £226m resulting from the
disposal of a 51% stake in the Seagreen
offshore wind farm development on 3 June
2020 and a 10% stake in the Dogger Bank
A and B offshore wind farm development
on 26 February 2021. Excluding these,
operating profit decreased due to a
combination of the Walney disposal and
adverse weather conditions reducing
output by 10% on prior year, partially offset
by higher plant availability and higher
achieved power prices.
Reported operating profit was £856.0m
compared to £459.9m. In addition to the
factors outlined above, this reflects an
exceptional gain resulting from the disposal
of the Group’s financial interest in the
Walney offshore wind farm of £188.8m,
and a fair value gain of £25.7m arising on
revaluation of the retained 49% investment
in the Seagreen offshore wind farm
development. In addition, joint venture
share of interest and tax charges decreased
by £22.0m compared to the prior year.
Thermal Generation: Adjusted operating
profit increased by 5% to £160.5m,
compared to £152.7m. Strong operational
performance in the year, combined with
higher utilisation to stabilise the energy
system in periods of low generation or high
demand, and a £20.4m developer profit
on the non-exceptional disposal of a 50%
sale in Slough Multifuel on 2 April 2020
entirely offset the £51m of non-recurring
GB Capacity Market reinstatement income
received in the prior year.
Reported operating profit increased to
£775.3m, compared to £15.5m, due to
the above factors and in addition: an
exceptional gain on disposal of £669.7m
on the sale of Multifuel Energy; a fair value
gain of £21.3m arising on revaluation of
the retained 50% investment in Slough
Multifuel; a £58.1m exceptional impairment
charge recognised for Great Island CCGT
plant following reductions in forward price
curves and reductions in forecast electricity
demand in Ireland; and a £112.3m net
exceptional charge recognised in 2019/20
for Fiddlers Ferry coal station following the
decision to close the plant in March 2020.
will therefore be assumed within normal
business performance from 2021/22.
Operating profit – including
coronavirus impact
Adjusted and reported operating profit/
losses in SSE’s business segments for
the 12 months to 31 March 2021 are as
set out below; comparisons are with the
same 12 months to 31 March 2020 unless
otherwise stated.
SSEN Transmission: Adjusted and
reported operating profit increased by 1%
to £220.9m, compared to £218.1m, with
increases in phasing of allowed revenue
and increased connection activity being
offset by increased operational costs
and depreciation charges driven by the
significant capital investment made in this
business in recent years.
SSEN Distribution: Adjusted operating
profit decreased by 25% to £267.3m,
compared to £356.3m, mainly due to
the reduction in volumes across non-
domestic tariffs reflecting the impact
of national and regional lockdowns but
also due to reduced new connections
activity and increased depreciation charges
driven by prior year capital investment.
In addition, phasing of changes in tariffs
and volumes between reporting periods
has meant an over-recovery of £37m in
2019/20 was replaced with a £28m net
under-recovery in 2020/21. We have
estimated that approximately £34m of
this was coronavirus related and, under
the established regulatory arrangements
in relation to uncollected DUoS revenue,
future tariffs will be adjusted for any historic
over or under recoveries.
In the prior year, reported operating profit
included a non-recurring £4.4m exceptional
charge for restructuring expenses.
Investment in SGN: Adjusted operating
profit decreased by 14% to £173.0m,
compared to £202.3m, due to a
combination of reduction in non-recurring
commercial income from the disposal
of surplus land, cost increases driven by
changes in the charging methodology and
reduced activity from coronavirus leading to
higher unproductive costs being incurred.
The decreases to adjusted operating profit
were largely offset by a £37.1m reduction
in SSE’s share of SGN interest, tax and IFRS
9 remeasurements. As a result, reported
operating profit was £88.6m compared
to £80.8m.
SSE plc Annual Report 2021
67
FINANCIAL REVIEW CONTINUED
Gas Storage: An adjusted operating loss
of £(5.7)m was recognised in the year,
compared to an adjusted operating profit of
£3.7m in the prior period. As with the prior
year, this year’s auction of storage capacity
resulted in no contracted sales, with SSE
therefore continuing to run the plant on
a merchant basis. The adjusted operating
loss recognised reflects market conditions
during the year as well as higher levels of
gas retained in storage over the year end.
Reported operating profit was £2.8m as a
result of a £8.5m revaluation gain on gas
held in storage at the period end to fair
market price.
SSE Business Energy: Adjusted operating
loss was £(24.0)m, compared to an adjusted
operating profit of £9.2m in the prior year.
As previously noted coronavirus reduced
customers’ demand for electricity and
related services, increased the levels of
bad debt and led to a loss of approximately
£24m being incurred on early settlement
of excess commodity hedges with negative
mark-to-market valuations. This more than
offset the underlying increase in profitability
from improvements in margin discipline.
The reported operating loss was
£(3.9)m, compared to £(18.5)m, due to
the above factors and in addition a £20.1m
release during 2020/21 from the £27.7m
exceptional charge relating to bad debts
arising from coronavirus that was previously
recognised in 2019/20. Whilst the original
charge reflected the Group’s best estimate
of the incremental bad debt exposure
caused by the coronavirus pandemic at that
date, higher cash collections in recovery of
debt were achieved during the year largely
due to government support schemes and
other factors.
SSE Airtricity: Adjusted operating profit was
£44.0m, compared to £48.8m, reflecting a
delay in increasing tariffs despite increased
non-commodity costs from October 2020
onwards.
EPM was expected to earn a small adjusted
operating profit from 2020/21 onwards
through service provision to those SSE
businesses requiring access to the
energy markets.
The adjusted and reported operating
result for both the current and prior
period includes the previously separately
presented “Gas Production (continuing)”
results. The associated hedges contributed
a net £20.4m of income for EPM during the
year and have now fully unwound.
Reported operating profit was £608.5m,
compared to a reported operating loss
of £(94.5)m, mainly due to a higher net
remeasurement gain in the period on
forward commodity contracts. This net
remeasurement gain reflects settlement of
previously out of the money commodity
contracts and gains on unsettled forward
commodity contracts, which were entered
into during 2019/20 and 2020/21 in line
with the Group’s hedging approach, that
will be settled predominantly within the
next 12-18 months.
SSE Enterprise: Adjusted operating loss
was £(21.3)m, compared to an adjusted
operating profit of £8.1m, mainly reflecting
the impact coronavirus has had on activity
within the Contracting and Rail business
in particular.
Reported operating loss in the year was
£(106.7)m, compared to £(2.0)m in the prior
year due to the factors above as well as an
exceptional impairment charge of £51.2m
relating to Contracting and Rail assets and
liabilities following classification as held
for sale and a £21.8m exceptional charge
arising from the Group’s investment in the
Neos Networks Joint Venture (previously
SSE Telecoms). These exceptional charges
include impairment charges recognised
within adjusted operating losses as part of
SSE’s Interim Results for the six months to
30 September 2020 as they did not meet
SSE’s exceptional item criteria at that time.
Reported operating profit was £50.0m,
compared to £42.8m, due to the above
factors and also including the release in full
of a £6.0m exceptional provision relating to
bad debts arising from coronavirus that was
previously recognised in 2019/20.
Corporate Unallocated: Adjusted operating
loss of £(58.4)m, compared to £(17.8)m
and reflecting a change in the recovery of
corporate costs following the sale of SSE
Energy Services on 15 January 2020 as well
as a small impact from coronavirus.
separation costs and property impairments.
In the prior year, exceptional charges
recognised related to both the disposal
of SSE Energy Services of £48.8m and
exceptional IT write-offs and redundancy
provisions totalling £41.2m.
Investment in Gas Production – held for
sale (discontinued operations): The assets
held for sale had a reported operating
profit of £33.0m, compared to a loss of
£(265.5)m, which is excluded from SSE’s
adjusted results. Revenue had significantly
decreased as a result of lower gas prices
in recent years; however, increases in gas
prices in recent months have resulted
in increased revenue during the year.
However, the prior year reported result
also included a £291.3m exceptional
impairment to reduce the carrying value
of the business to its expected recoverable
value from disposal. As the business
remains held for sale, depreciation
has not been charged during 2020/21,
compared to a depreciation charge of
£31.1m recognised prior to held for sale
classification in 2019/20.
Adjusted Earnings per share
Adjusted Earnings per share –
including coronavirus impact
To monitor its financial performance
over the medium term, SSE reports on
its adjusted earnings per share measure.
This measure is calculated by excluding the
charge for deferred tax, interest costs on
net pension liabilities, exceptional items,
depreciation on fair value adjustments and
the impact of certain remeasurements.
SSE’s adjusted EPS measure provides
an important and meaningful measure
of underlying financial performance. In
adjusting for depreciation on fair value
adjustments, non-recurring joint venture
refinancing costs, exceptional items
and certain remeasurements, adjusted
EPS reflects SSE’s internal performance
management, avoids the volatility associated
with mark-to-market IFRS 9 remeasurements
and means that items deemed to be
exceptional due to their nature and scale
do not distort the presentation of SSE’s
underlying results. For more detail on these
and other adjusted items please refer to the
Adjusted Performance Measures section of
this statement.
Energy Portfolio Management (EPM):
Adjusted operating profit was £18.4m,
compared to an adjusted operating loss of
£(60.3)m. The 2019/20 result reflected the
last of the losses related to gas positions
closed out in 2018. As previously stated,
Reported operating loss was £(15.3)m,
compared to a loss of £(89.2)m. In the
current year, an exceptional gain on disposal
of £70.4m was recognised relating to
MapleCo Meter Asset Provider offset by a
further £24.2m charge from the disposal
of SSE Energy Services from further IT
In the year to 31 March 2021, SSE’s
adjusted earnings per share on continuing
operations was 87.5p, after the negative
impact on pre-tax operating profit from
coronavirus estimated at £170m in the
year to 31 March 2021 (or around 13 pence
on adjusted EPS). This compares to 83.6p
68
SSE plc Annual Report 2021
STRATEGIC REPORT for the year to 31 March 2020 and reflects
the developer profits recognised by SSE
Renewables and reduction in the EPM-
related losses offset by the impact from
coronavirus as outlined above.
Group financial outlook –
2021/22 and beyond
Key points
• SSE remains committed to its five-year
dividend plan to March 2023.
• SSE is not providing full guidance for
2021/22 at this stage but expects the
ongoing impact to the Group from the
coronavirus pandemic to be mainly
restricted to the performance of
Enterprise and Business Energy, where
it will be assumed within normal
business performance and no longer
separately reported.
• Completion of the agreed disposals of
non-core assets in SSE’s Contracting and
Rail business, and SSE’s Gas Production
assets, expected by the end of June
2021 and the end of this calendar
year respectively.
• Expected to commence a disposal
process for all of SSE’s interest in SGN
during mid-summer 2021, with the
intention of having an agreed sale by
the end of the calendar year.
• Capital expenditure and investment
is expected to total around £2bn
in 2021/22 (net of project finance
development expenditure refunds).
• Continuing to target a ratio of net debt
to EBITDA at the lower end of a 4.5 to
5 times range between 2021/22 and
2024/25.
• SSE remains committed to delivering its
£7.5bn capital investment plan to 2025;
indeed much of this is now contracted,
but there is considerable potential for
future growth above and beyond.
• As emerging opportunities in SSE’s
core businesses become clearer in the
coming months, SSE expects to be
able to provide an update on its capital
investment plans in November.
Maintaining a strong balance
sheet and creating value
SSE’S programme to securing
value from disposals of non-core
assets
Since 2014, SSE has undertaken a series
of targeted disposals of non-core assets
and businesses as part of its strategy to
simplify the SSE Group; sharpen its focus on
businesses supporting the transition to net
zero emissions; recycle capital from mature
assets; realise value from development
and operation of assets; and establish
partnerships to support investment in new
assets. In total, since 2014, these have
secured proceeds in excess of £4.9bn.
In June 2020, the Group announced a
target to achieve disposal proceeds from
non-core assets in excess of £2bn. Since
this announcement, agreement has been
reached to divest a number of non-core
businesses and assets, which is expected
to yield over £1.5bn of proceeds with over
£1.4bn cash proceeds received to date. The
following agreed disposals are expected
to complete during the next financial year:
• SSE’s Contracting and Rail business,
with the sale process expected to be
completed by the end of June 2021; and
• SSE’s Gas Production assets, with the
sale process expected to be completed
by the end of this calendar year.
SGN is expected to be the next material
disposal. Whilst the business has a stable
foundation that is set to benefit from
increased hydrogen usage in the future, it
is a financial investment for SSE, run largely
independently and the synergies with the
Group’s low-carbon electricity businesses
are less clear. As SSE set out in its March
Pre-Close Statement, it is planning to divest
all of its interest in the business and it now
expects to commence a formal sale process
in mid-summer 2021 with the intention of
having an agreed sale by the end of the
calendar year. The market will be updated
on the prospective sale in due course.
SSE’S £7.5bn capital
investment plan to 2025
SSE is now in the second year of its £7.5bn
capital investment plan to March 2025.
During the year to 31 March 2021, SSE’s
investment and capital expenditure (net of
project financing development expenditure
refunds) totalled £912.0m. As indicated
in SSE’s interim results in November, this
lower run rate is expected to reverse in
2021/22 when investment and capital
expenditure (net of project financing
development expenditure refunds) is
expected to be around £2bn.
SSE remains committed to delivering its
£7.5bn capital investment plan to 2025,
indeed much of this is now contracted.
Furthermore, the quality of SSE’s net zero
aligned assets and pipeline means there is
considerable potential for future growth
above and beyond this. For instance,
the following are examples of potential
opportunities not currently included in
the £7.5bn plan:
• Three significant SSEN Transmission
projects for which SSE plans to submit
needs cases to Ofgem over the summer;
• Potential Transmission island links to
Orkney and the Western Isles;
• SSE Renewables’ opportunities to
increase its pipeline of projects;
• Emerging options in Government-
backed carbon capture and storage
competitive processes; and
• SSE’s distributed energy opportunities to
invest in battery technology.
As these emerging opportunities become
clearer in the coming months, SSE expects
to be able to provide an update on its capital
investment plans in November. SSE has
repeatedly demonstrated through effective
capital allocation and optimal capital
recycling and partnering that it can take
advantage of the opportunities it creates
within its existing financial framework.
With a wealth of assets and options,
a strong financial position and strong
credit rating, and the ability to partner
strategically and financially, SSE has every
confidence in its ability to continue to
deliver on future opportunities.
Securing value from partnering
As mentioned above, SSE continues to
regard partnering capability as vital for
the future and an important means of
unlocking future opportunities in its core
businesses. Through SSE Renewables, SSE
will continue its established approach to
partnering to capitalise on the significant
development opportunities ahead related
to net zero.
SSE is well placed to manage development
risk but selling down stakes to retain
typically 30-40% equity interest in a project
and working with equity partners for
construction, and/or operation brings a
number of benefits: it allows SSE to secure
developer premiums and realise value at
the earliest opportunity; it reduces overall
risk and financial exposure on large-scale
projects; it avoids a large increase in net
debt that is not earning; and it appeals to the
different risk appetites of different partners
at different stages of the project cycle.
SSE plc Annual Report 2021
69
FINANCIAL REVIEW CONTINUED
The sale of a 10% equity stake in Dogger
Bank A and B during 2020/21 showed the
value SSE can create through partnering,
bringing in just over £200m of cash
proceeds and developer profits. It expects
to progress with the sale of an equivalent
equity stake in Dogger Bank C during the
first half of 2021/22.
SSE has previously been clear that it
would also consider, in time, extending a
partnering approach potentially through
sales of equity stakes in its core SSEN
Transmission and SSEN Distribution
businesses, should it consider that the
released capital could facilitate the
realisation of greater growth opportunities
across its core businesses. Any sales would
be of minority stakes, enabling SSE to retain
the lead role in relation to governance and
also operational control, but would only
be pursued if deemed to be in the interests
of customers, the electricity system as a
whole, and shareholders to do so.
Dividend
Dividend plan
SSE’s first financial objective has always
been to remunerate shareholders for
their investment through the payment
of dividends.
Overall, financial performance in the year
was in line with the Board’s expectations
and, on that basis, SSE is recommending a
full-year dividend of 81.0p representing an
average annual RPI rate of 1.2%.
SSE continues to target RPI increases in the
next two financial years, measured against
the average annual rate of RPI inflation, as
set out in its 2023 dividend plan.
Longer term, SSE continues to believe
that the core businesses of the SSE Group
provide a good foundation to support
dividends to shareholders. They will
therefore underpin SSE’s ability to create
value for shareholders over the long term.
Scrip dividend scheme
The scrip dividend uptake during 2020/21
was:
• 4% for the 2019/20 final dividend;
• 5% for the 2020/21 interim dividend; and
• The interim and final scrip take-up
resulted in a £39.0m saving in dividend
payments.
In June 2020, SSE confirmed that it would
not buy back shares even if uptake of
the Scrip Dividend exceeds 20% and this
remains unchanged.
70
SSE plc Annual Report 2021
Supplemental financial information
Investment and capital expenditure
Adjusted investment and capex summary
SSEN Transmission
SSEN Distribution
Electricity networks total
SSE Renewables
Thermal Generation
Gas Storage
Thermal Energy Total
Customer Solutions
Energy Portfolio Management
Enterprise
Corporate Unallocated
Gas Production
March
2021
Share %
March
2021
£m
March
2020
£m
33%
26%
59%
22%
8%
–
8%
2%
–
5%
2%
2%
435.2
350.8
786.0
294.3
106.5
1.9
108.4
31.2
2.1
66.0
25.8
26.8
329.0
364.9
693.9
342.7
177.0
0.2
177.2
0.3
–
57.4
85.9
–
Adjusted investment and capital expenditure,
before refunds
100%
1,340.6
1,357.5
Project finance development expenditure refunds
(428.6)
–
Adjusted investment and capital expenditure
912.0
1,357.5
Progress of capital
expenditure programme
During the year to 31 March 2021, SSE’s
investment and capital expenditure (before
project finance development expenditure
refunds) totalled £1,340.6m, including
£1,080.3m of investment in SSE’s core
renewable energy and regulated networks
businesses both of which are fundamental
to delivery of net zero.
Total investment and capital expenditure
in the year included the following:
• Further significant investment in
electricity networks totalling £786.0m,
or 59% of SSE’s total investment and
capital expenditure:
– SSEN Transmission continued to
make excellent progress on its capital
investment programme, despite the
impact of the coronavirus pandemic.
Significant projects completed in the
year including completion of several
load related schemes to upgrade the
network, as well as the replacement of
the Inveraray to Crossaig transmission
line in Argyll. Good progress also
continues to be made on the Shetland
HVDC link, which remains on track for
energisation in 2024.
– SSEN Distribution continued its
major capital investment programme
across both of its networks,
delivering significant improvements
for customers and increasing the
Regulated Asset Value (RAV). The
business successfully completed
major upgrades to its network
including a refurbishment programme
of equipment spanning 58km of
overhead network in Wiltshire
and Hampshire.
• The construction of SSE’s flagship
renewable energy projects continues to
progress at pace, with investment during
the period totalling £294.3m across a
number of projects including:
– Onshore construction of Phases A
and B of Dogger Bank, the world’s
largest offshore wind farm;
– Construction of the onshore
substation and installation of
the onshore cable for Seagreen,
Scotland’s largest wind farm and the
world’s deepest tethered project;
– Commencing construction on Viking,
which will be among the highest-
yielding onshore wind farms in
Europe; and
– Other onshore projects such as
Lenalea in Ireland and Gordonbush
extension.
• SSE’s flexible thermal fleet has continued
to demonstrate its value in the transition
to a renewables-led, net zero energy
system and investment in thermal
generation amounted to £106.5m,
covering Keadby 2, which is on track
to be fully commissioned in 2022, and
Slough Multifuel projects.
STRATEGIC REPORT SSE’S hedging position
at 31 March 2021
SSE has an established approach to
hedging through which it generally seeks
to reduce its broad exposure to commodity
price variation in relation to electricity
generation and supply at least 12 months
in advance of delivery. As market conditions
change, SSE may require to vary its
hedging approach to take account of any
resultant new or additional exposures. SSE
will continue to provide a summary of its
current hedging approach, including details
of any changes in the period, within its
Interim and Full-year Results Statements.
A summary of the hedging approach for
each of SSE’s market-based businesses
at 31 March 2021 is set out in the table
on the right.
SSE’s established approach to hedging
seeks to account for the effect of the
‘wind capture price’ by targeting a hedge
of less than 100% of its anticipated wind
energy output for the coming 12 months.
Historically this target was set at 85%.
Following an assessment of the latest
market conditions and wind capture
percentages for the relevant wind assets
the targeted hedge percentage will now
be least 90% across the year and will be
adjusted as necessary going forward to
reflect the changes in future market and
wind capture information.
To date, target hedge levels have been
achieved solely through the forward sale of
electricity. Future target hedge levels will be
achieved through the forward sale of either
electricity, or gas and carbon equivalent
(if converted to electricity). This approach
aims to reduce the exposure of these
wind assets to volatile spot power market
outcomes whilst still providing a hedge for
the vast majority of the anticipated energy
and carbon commodity price exposure
12 months in advance of delivery. This
updated approach will be introduced for
incremental volumes as they naturally
come into the hedging window, i.e. historic
hedge positions will not be unwound.
The approach to hedging hydro energy
output remains unchanged at approximately
85% of its anticipated energy output for the
coming 12 months.
SSE Renewables – GB wind and hydro hedging position
Since March 2019, as part of its Full-year and Interim Results, SSE has reported the hedge
position in relation to its GB Wind and Hydro generation. The following table provides an
update at 31 March 2021.
2018/19
2019/20
2020/21
2021/22
2022/23
2023/24
Wind
Hydro
Expected volume – TWh
Volume hedged - %
Hedge price - £MWh
Expected volume – TWh
Volume hedged - %
Hedge price - £/MWh
4.5
100%
£39
3.4
100%
£39
4.5
100%
£39
3.5
100%
£43
4.5
100%
£46
3.4
100%
£48
4.2
85%
£48
3.6
83%
£50
5.3
60%
£49
3.6
56%
£49
6.8
19%
£47
3.7
17%
£48
For comparison purposes, for years up to and including 2020/21, volumes are based on average expected
output, and the contracted hedge price is at the beginning of each financial year. The table excludes additional
volumes and income for BM activity, ROCs, ancillary services, pre-commissioning, capacity mechanism and
shape variations. It also excludes volumes and income relating to Irish wind output, pumped storage and CfDs.
UK Business Energy: The business supplies
electricity and gas to business and public
sector customers. Sales to contract
customers are 100% hedged: at point of
sale for fixed contract customers; upon
instruction for flexi contract customers;
and on a rolling hedge for tariff customers.
Business Energy’s sales demand volumes
have been impacted by the economic
uncertainty created by the coronavirus
lockdown. The extent to which this will
impact customers’ consumption in the
medium term remains uncertain. To reflect
this Business Energy has adopted a more
dynamic forecasting approach with an
adjustment to hedging volumes as nearer
term economic and consumption signals
become clearer.
GB Thermal: In the six months prior to
delivery, SSE aims to hedge all of the
expected output of its CCGT assets, having
progressively established this hedge
over the preceding 24 months. Hedging
activity depends on the availability of
sufficient market depth and liquidity, which
can be limited, particularly for periods
further into the future. As stated in its
Q3 Trading Update on 2 February 2021,
due to the uncertainty surrounding UK
carbon pricing, SSE temporarily suspended
forward hedging of the expected generation
profiles of its CCGTs in GB. SSE will continue
to monitor market developments, in
particular developments surrounding UK
carbon pricing, and will adjust its hedging
approach to take account of any resultant
change in exposures.
Gas Storage: The annual auction to offer
gas storage capacity contracts from Atwick,
held in April 2021, resulted in no third-party
contracts being secured. As such the assets
are being commercially operated and the
business continues to manage its exposure
to changes in the spread between summer
and winter prices, market volatility and
plant availability.
Gas Production: As the E&P business
remains held for sale on an unhedged
basis, no forward hedge activity is currently
being undertaken for the likely production
profiles of the business.
Energy Portfolio Management (EPM): EPM
provides the route to market and manages
the execution for all of SSE’s commodity
trading outlined above (spark spread,
power, gas, and carbon). This includes
managing market conditions and liquidity
and reporting and monitoring net Group
exposures. The business operates under
strict position limits and VAR controls.
There is some scope for small position-
taking to permit EPM to manage around
liquidity and shape but this is contained
within a VAR limit of £2m.
Ireland: Vertical integration of the
generation and customer businesses in
Ireland limits the Group’s commodity
exposure in that market.
SSE plc Annual Report 2021
71
FINANCIAL REVIEW CONTINUED
Summarising movements on exceptional items and certain remeasurements
Exceptional items
In the year to 31 March 2021, SSE recognised a net exceptional gain of £850.3m before tax. The following table provides a summary of
the key components making up the net gain position:
Exceptional Gain/(Charges)
Disposals of non-core assets:
Walney offshore wind farm
MapleCo meter asset provider
Multifuel Energy
Gas Production assets
Contracting & Rail business
Fair value uplifts on loss of control:
Seagreen offshore wind farm
Slough Multifuel
Impairments and other exceptional (charges)/credits
Thermal (Great Island) Plant Impairment
SSE Energy Services disposal costs
Neos Networks (formerly SSE Telecommunications) adjustment to consideration
Other historic true-up credits
Coronavirus impact:
Customer Solutions reversal of bad debt provisions
Total exceptional items
Total
£m
188.7
70.4
669.9
–
(51.2)
877.8
25.7
21.3
47.0
(58.1)
(24.2)
(21.8)
3.5
(100.6)
26.1
850.3
The definition of exceptional items can be found in Note 4.2 of the Financial Statements.
Non-core assets are defined as being assets in which SSE is not the principal operator or are less aligned with the transition to net zero emissions.
In addition to the exceptional fair value uplifts on loss of control noted above were developer profits on disposal of stakes in Dogger Bank offshore windfarm
development (£202.8), Seagreen offshore windfarm development (£23.3m) and Slough Multifuel (£20.4m).
As part of the Group’s strategy to secure
value from disposals of non-core assets,
the Group recorded a net exceptional gain
of £877.8m in the year from completed
disposals and recognition of impairment
charges on businesses classified as held
for sale. The final exceptional result on
sale of the Gas Production assets and
the Contracting and Rail business will be
recognised following completion during
the 2021/22 financial year.
For a full description of exceptional items,
see Note 7 of the Financial Statements.
Operating derivatives
SSE enters into forward purchase contracts
(for power, gas and other commodities)
to meet the future demands of its energy
supply businesses and to optimise the value
of its generation assets. Some of these
contracts are determined to be derivative
financial instruments under IFRS 9 and as
such require to be recorded at their fair value
as at the date of the financial statements.
SSE shows the change in the fair value
of these forward contracts separately as
this mark-to-market movement does not
reflect the realised operating performance
of the businesses. The underlying value
of these contracts is recognised as the
relevant commodity is delivered, which
for the large majority of the position at
31 March 2021 is expected to be within
the next 12-18 months.
Commodity stocks
held at fair value
Gas inventory purchased by the Gas
Storage business for secondary trading
opportunities is held at fair value with
reference to the forward month market
price. The £8.5m positive movement in
the year arose from increases in both the
volume and the fair value of gas held over
historic cost at the year end.
The balance sheet movement in the
operating derivative mark-to-market
valuation was a £590.1m increase from a
net “out-of-the-money” position into a net
“in-the-money” position. This movement
consisted of:
• Settlement during the year of £161.0m
of previously “out-of-the-money”
contracts in line with the contracted
delivery periods; and
• Mark-to-market gains of £429.1m on
unsettled contracts entered into during
the course of 2019/20 and 2020/21 in
line with the Group’s stated hedging
policy. These mark-to-market gains
reflect the volatility in commodity
markets during the year due to
coronavirus and weather conditions
impacting gas prices in particular.
Financing derivatives
In addition to the positive movements
above, a positive movement of £55.6m
was recognised on financing derivatives
in the year to 31 March 2021, including
SSE’s share of joint venture financing
derivative remeasurements. These gains
are predominately due to higher interest
rates on cross currency swaps and interest
rate swaps, offset by the impact of stronger
Sterling against the Dollar and Euro on
cross currency swaps linked to Eurobonds,
Hybrids and US private placement debt.
These remeasurements are presented
separately as they do not represent
underlying business performance in the
period. The result on financing derivatives
will be recognised in adjusted profit before
tax when the derivatives are settled.
72
SSE plc Annual Report 2021
STRATEGIC REPORT Reported profit before tax
and earnings per share
Taking all of the above into account,
reported results for the year to 31 March
2021 are significantly higher than the
previous year. In addition to the £850.3m
pre-tax exceptional gains and the
£654.2m cumulative gain on fair value
remeasurements noted above, reported
results also reflect depreciation and
amortisation expenses on historic fair value
uplifts of £(20.6)m, interest on net pension
assets/(liabilities) of £11.0m and the Group’s
share of joint ventures and associates’ tax
of £(44.5)m.
Reported results in the prior year reflected
pre-tax exceptional charges of £738.7m both
in relation to the reshaping of SSE, with the
sale of SSE Energy Services and the closure
of Fiddlers Ferry coal-fired power station,
and a deterioration in market conditions.
These are explained in more detail in Note 7
of the Financial Statements.
Financial management and balance sheet
Debt metrics
Net Debt/EBITDA*
Adjusted net debt and hybrid capital (£m)
Average debt maturity (years)
Adjusted interest cover (excluding SGN) times
Adjusted interest cover (including SGN) times
Average interest rate for the period (excluding JV/assoc. interest and all hybrid coupon payments)
Average cost of debt at period end (including all hybrid coupon payments)
March
2021
£m
September
2020
£m
March
2020
£m
4.6
(8,898.9)
7.4
3.5
3.4
3.12%
3.75%
N/A
(10,622.1)
6.9
1.5
1.7
3.15%
3.58%
5.7
(10,465.9)
6.5
3.3
3.2
3.18%
3.51%
* Net debt represents the group adjusted net debt and hybrid capital. EBITDA represents the group adjusted EBITDA, less £311.8m (Mar 20 - £340.1m) for the
proportion of adjusted EBITDA from equity-accounted Joint Ventures relating to off-balance sheet debt.
Net finance costs reconciliation
Adjusted net finance costs
Add/(less):
Lease interest charges
Notional interest arising on discounted provisions
Hybrid equity coupon payment
Adjusted finance costs for interest cover calculation
SSE Principal Sources of debt funding
Bonds
Hybrid debt and equity securities
European investment bank loans
US private placement
Index –linked debt & short-term funding
% of total SSE borrowings secured at a fixed rate
March
2021
£m
March
2020
£m
441.6
465.0
(35.3)
(3.8)
46.6
449.1
(37.6)
(9.2)
46.5
464.7
March
2021
£m
September
2020
£m
March
2020
£m
58%
24%
8%
8%
2%
98%
51%
23%
11%
8%
7%
93%
48%
21%
12%
8%
11%
87%
Rating Agency
Rating
Criteria
Date of Issue
Moody’s
Standard and Poor’s
Baa1 ‘negative outlook’
BBB+ ‘outlook stable’
‘Low teens’ Retained Cash Flow/Net Debt
About 18% Funds From Operations/Net Debt
September 2020
September 2020
Maintaining a strong
balance sheet
While there may be short-term fluctuations,
a key objective of SSE’s approach to
managing cash outflow and securing value
and proceeds from disposals is its target of
a net debt/EBITDA ratio at the lower end
of a range of 4.5 – 5 times across the four
years to 31 March 2025.
As well as promoting the long-term
success of the Company, this approach is
also designed to ensure that SSE maintains
credit rating ratios (Retained Cash Flow
(RCF)/Net Debt and Funds From Operations
(FFO)/Net Debt) that are comparable with
private sector utilities across Europe and
comfortably above those required for an
investment grade credit rating.
SSE’s S&P credit rating remains at BBB+
‘stable outlook’ and its Moody’s rating
remains at Baa1, albeit on negative outlook,
following review in September 2020.
Adjusted net debt
and hybrid capital
SSE’s adjusted net debt and hybrid capital
was £8.9bn at 31 March 2021, down from
£10.5bn at 31 March 2020, reflecting the
ongoing disposal programme and debt
revaluation adjustments partially offset by
the ongoing capital investment programme
and working capital movements including
the impact from coronavirus.
The Group accessed the debt and hybrid
capital markets three times during the year
issuing c.£2.5bn of debt over six tranches.
Debt summary as at
31 March 2021
In April 2020 SSE plc issued a €1.1bn
(£970m) 5-year and 10-year dual tranche
Eurobond with €600m (£531m) maturing
in 2025 and €500m (£443m) maturing in
2030 with coupons of 1.25% and 1.75%
respectively. Both tranches were swapped
back to fixed Sterling resulting in an all-
in funding cost of 2.43% for the 5-year
tranche and 2.89% for the 10-year tranche.
In March 2021, SSEN Transmission issued
a new £500m dual tranche green bond, in
the form of a 7-year bond with a coupon of
1.50% and a 15-year bond with a coupon
of 2.125%.
SSE plc Annual Report 2021
73
FINANCIAL REVIEW CONTINUED
This was SSE’s fourth green bond in five years and reaffirmed its status as the largest issuer of green bonds in the FTSE 100. At the same
time, SSE set out a new framework for issuing innovative sustainability-linked bonds in the future.
Date
Apr 2020
Apr 2020
Mar 2021
Mar 2021
Issuer
SSE plc
SSE plc
SHET plc
SHET plc
Debt Type
Eurobond
Eurobond
Eurobond
Eurobond
Term
5yr
10yr
7yr
15yr
Value
Coupon (€)
All in Funding Cost
€600m (£531m)
€500m (£443m)
£250m
£250m
1.25%
1.75%
1.50%
2.125%
2.43%
2.89%
1.50%
2.125%
The debt revaluation adjustment of £3.2m
as at 31 March 2021, down from £276.8m at
31 March 2020, relates to mark-to-market
movements on cross-currency swaps
and floating rate swaps that are classed as
hedges under IAS 39. The hedges ensure
that any movement in the value of net debt
is predominately offset by a movement in
the derivative position. The debt revaluation
decrease at March 2021 was primarily
driven by stronger Sterling against the
Euro and Dollar.
In addition to the hybrid bond called in April
2021 as outlined below, £450m of debt will
mature in September 2021 with a further
£415m maturing in February 2022.
Hybrid bonds summary
as at 31 March 2021
Hybrid bonds are a valuable part of SSE’s
capital structure, helping to diversify SSE’s
investor base and most importantly to
support credit rating ratios, with their 50%
equity treatment by the rating agencies
being positive for SSE’s credit metrics.
In July 2020, SSE issued a dual tranche
equity accounted hybrid bond intended to
replace the hybrids issued in 2015 (at an
all-in rate of 4.02%), which have issuer first
call dates of 10 September 2020 (£750m)
and 1 April 2021 (€600m). This dual tranche
issue comprises a perpetual non-call
5.75-year note at £600m with a coupon of
3.74%; and a perpetual non-call 7.0-year
note at €500m with a coupon of 3.125%.
The €500m tranche has been partly
swapped back to Sterling, resulting in
an all-in funding cost for both tranches
to SSE of just under 3.8% per annum.
A summary of SSE’s Hybrid Bonds as at
31 March 2021 can be found below:
Issued
March 2015
March 2017
March 2017
July 2020
July 2020
Hybrid Bond Value*
All in rate
First Call Date
Accounting Treatment
€600m (£440m)
£300m
$900m (£749m)
£600m
€500m (£454m)
4.04%
3.73%
2.72%
3.74%
3.68%
April 2021
September 2022
September 2022
Apr 2026
July 2027
Equity accounted
Debt accounted
Debt accounted
Equity accounted
Equity accounted
* Sterling equivalents shown reflect the fixed exchange rate where proceeds have been swapped to Sterling and where proceeds remain in Euros the Sterling
equivalent is revalued each period.
Further details on each hybrid bond can be found in Notes 13 and 14 to the Financial Statements and a table noting the amounts,
timing and accounting treatment of coupon payments is shown below:
Hybrid coupon payments
Total equity (cash) accounted*
Total debt (accrual) accounted
Total hybrid coupon
2021/22
2020/21
HYe
£51m
£15m
£67m
FYe
£51m
£31m
£82m
HYa
£47m
£15m
£62m
FYa
£47m
£30m
£77m
* The first coupon payments on the new Hybrid bonds, issued in July 2020, fall in April 2021 for the £600m Hybrid and July 2021 for the €500m Hybrid.
SSE’s March 2015 and July 2020 hybrid
bonds are perpetual instruments and are
therefore accounted for as part of equity
within the Financial Statements but, as in
previous years, have been included within
SSE’s ‘Adjusted net debt and hybrid capital’
to aid comparability. The remaining March
2017 hybrid bonds have a fixed redemption
date and are therefore debt accounted
and included within Loans and Other
Borrowings; as such they are already part of
SSE’s adjusted net debt and hybrid capital.
The coupon payments relating to the
equity accounted hybrid bonds are
presented as distributions to other equity
holders and are reflected within adjusted
earnings per share when paid. The coupon
payments on the debt accounted hybrid
bonds are treated as finance costs under
IFRS 9.
In accordance with the first call date noted
above, the €600m (£440m) March 2015
Hybrid Bond was called and redeemed in
April 2021.
Managing net finance costs
SSE’s adjusted net finance costs – including
interest on debt accounted hybrid bonds
but not equity accounted hybrid bonds –
were £441.6m in the year to 31 March 2021,
compared to £465.0m in the previous year
reflecting the full year impact of interest on
the £100m loan note issued as part of the
SSE Energy Services disposal in January
2020.
74
SSE plc Annual Report 2021
STRATEGIC REPORT Reported net finance costs were £227.1m
compared to £375.8m, reflecting a
£138.6m year-on-year change in the
mark-to-market revaluation of financing
derivatives held at fair value.
Summarising cash and
cash equivalents
At 31 March 2021, SSE’s adjusted net debt
included cash and cash equivalents of
£1.6bn, up from £0.2bn at March 2020
reflecting proceeds from disposals received
prior to 31 March 2021 and the issuance
of the £500m dual tranche green bond
in March 2021. This strong cash position
will allow SSE to meet its near term debt
repayment and capital investment needs as
set out above.
As the fair value of forward commodity
contracts has moved from an “out of the
money” position in the prior year to an “in
the money” position in the current year,
the related collateral required has similarly
unwound. At 31 March 2021, £37.1m of
cash was held as collateral from third
parties on these “in the money” contracts,
compared to £256.4m of cash provided as
collateral to third parties in the prior year.
Revolving credit facility
SSE has £1.5bn of committed bank facilities
in place to ensure the Group has sufficient
liquidity to allow day-to-day operations
and investment programmes to continue in
the event of disruption to Capital Markets
preventing SSE from issuing new debt for
a period of time. These facilities, noting
any options to extend, are set out in the
table below.
Date
Issuer
Debt type
Term
Mar 19
Oct 19
SSE plc
SSE plc
Syndicated Revolving Credit Facility with 10 Relationship Banks
Revolving Credit Facility with Bank of China
2026
2025 (option to extend to 2026)
Value
£1.3bn
£200m
The facilities can also be utilised to cover
short-term funding requirements; however,
they remain undrawn for most of the
time and at 31 March 2021 they were
both undrawn.
Transactional foreign exchange risk arises
in respect of procurement contracts,
fuel and carbon purchasing, commodity
hedging and energy portfolio management
operations, and long-term service
agreements for plant.
Going concern
The Directors regularly review the Group’s
funding structure and have assessed
that the Financial Statements should be
prepared on a going concern basis.
Both facilities are classified as sustainable
facilities with interest rate and fees paid
dependant on SSE’s performance in
environmental, social and governance
matters, as assessed independently by
Vigeo Eiris.
Maintaining a prudent
treasury policy
SSE’s treasury policy is designed to be
prudent and flexible. In line with that,
cash from operations is first used to
finance regulatory and maintenance capital
expenditure and then dividend payments,
with investment and capital expenditure for
growth generally financed by a combination
of cash from operations, bank borrowings
and bond issuance. In 2020/21 growth was
also financed by disposal proceeds.
As a matter of policy, a minimum of 50%
of SSE’s debt is subject to fixed rates of
interest. Within this policy framework, SSE
borrows as required on different interest
bases, with financial instruments being
used to achieve the desired out-turn
interest rate profile. At 31 March 2021, 98%
of SSE’s borrowings were at fixed rates.
Borrowings are mainly in Sterling and
Euros to reflect the underlying currency
denomination of assets and cash flows
within SSE. All other foreign currency
borrowings are swapped back into either
Sterling or Euros.
SSE’s policy is to hedge any material
transactional foreign exchange risks
through the use of forward currency
purchases and/or financial instruments.
Translational foreign exchange risk arises
in respect of overseas investments; hedging
in respect of such exposures is determined
as appropriate to the circumstances on a
case-by-case basis.
Ensuring a strong debt structure
through medium- and long-term
borrowings
The ability to raise funds at competitive
rates is fundamental to investment. SSE’s
fundraising over the past five years,
including senior bonds, hybrid capital and
term loans, now totals £7.7bn (including
over £2.5bn of debt and hybrid capital
raised in the financial year to 31 March
2021) and SSE’s objective is to maintain
a reasonable range of debt maturities. Its
average debt maturity, excluding hybrid
securities, at 31 March 2021 was 7.4 years,
up from 6.5 years at 31 March 2020. This
reflects SSE’s recent debt issuance which
has replaced maturing debt. SSE’s average
cost of debt is now 3.75%, compared to
3.51% at 31 March 2020.
In making their assessment the Directors
have considered sensitivities on the
forecast future cashflows of the Group
for the period to 31 December 2022
resulting from the coronavirus pandemic;
the Group’s credit rating; the success of
the Group’s disposal programme through
2020/21; and the successful issuance
of £2.5bn of medium to long term debt
and hybrid equity during the year. In line
with expectations in June, the impact
from coronavirus on SSE is mitigated by
its robust business model and the nature
and quality of its asset base. As such, there
has been minimal adverse impact on the
financial performance of the Group’s
transmission, renewables and thermal
businesses, with the coronavirus impact
limited to the Group’s other businesses.
The Directors have also assessed that
the Group remains able to access Capital
Markets, despite a period of disruption
due to coronavirus, as demonstrated by
the £2.5bn of debt issued over the last 12
months via the dual tranche Euro bond
issuance in April 2020, the dual tranche
hybrid issuance in July 2020 and the dual
tranche green bond issuance in March
2021. There is also an expectation of
future available liquidity in the commercial
paper market in addition to the Group’s
existing liquidity with £1.5bn of undrawn
committed borrowing facilities.
SSE plc Annual Report 2021
75
FINANCIAL REVIEW CONTINUED
SSE’s principal joint ventures and associates
SSE’s financial results include contributions from equity interests in joint ventures (‘JVs’) and associates, all of which are equity accounted.
The details of the most significant of these are included in the table below. This table also highlights SSE’s share of off-balance sheet
debt associated with its equity interests in JVs, which, including SGN, is under £3.4bn as at 31 March 2021.
SSE principal JVs and associates
Asset type
SSE holding
SSE share of external
debt as at 31 March 2021
SSE Shareholder loans
as at 31 March 2021
50%
50%
50.1%
Seabank Power Ltd
Marchwood Power Ltd
Clyde Windfarm (Scotland) Ltd
Dogger Bank A Wind Farm
Dogger Bank B Wind Farm
Dogger Bank C Wind Farm
Seagreen Windfarm Ltd
Seagreen 1a Ltd
Lenalea Wind Energy Ltd
Scotia Gas Network Networks Ltd Gas distribution network
Beatrice Offshore Windfarm Ltd
Cloosh Valley Wind Farm
1,234MW CCGT
920MW CCGT
522MW onshore wind farm
Up to 1,200MW offshore wind farm. 40%
Up to 1,200MW offshore wind farm. 40%
50%
Up to 1,200MW offshore wind farm.
49%
1,075MW offshore wind farm
50%
Offshore wind farm extension
50%
30MW of onshore windfarm
33.3%
40%
25%
588MW offshore wind farm
105MW onshore windfarm
(part of Galway Wind Park)
Neos Networks Ltd
Slough Multifuel Ltd
Stronelairg Windfarm Ltd
Dunmaglass Windfarm Ltd
Private telecoms network
50MW energy-from-waste facility
228MW onshore wind farm
94MW onshore windfarm
50%
50%
50.1%
50.1%
No external debt
No external debt
No external debt
£291m
£118m
No external debt
£504m
No external debt
No external debt
£1,489m
£919m
£28m
No external debt
No external debt
No external debt
No external debt
No loans outstanding
£47m
£127m
Project financed
Project financed
£27m
£4m
£1m
£1m
£119m
Project financed
Project financed
£61m
£28m
£88m
£47m
Greater Gabbard, a 504MW offshore windfarm (SSE share 50%) is proportionally consolidated and is reported as a Joint Operation with no loans outstanding.
Slough Multifuel Ltd has been included for the first time at 31 March 2021, due to loss of control following divestment of a 50% stake on 2 April 2020.
Seagreen Windfarm Ltd has been included for the first time at 31 March 2021, due to loss of control following divestment of a 51% stake on 3 June 2020.
In 2020/21 SSE also paid €20.4m of taxes in
Ireland, compared to €18.1m the previous
year. Ireland is the only country outside the
UK in which it has any trading operations.
As with other key financial indicators, SSE’s
focus is on adjusted profit before tax and, in
line with that, SSE believes that the adjusted
current tax charge on that profit is the
tax measure that best reflects underlying
performance. SSE’s adjusted current tax
rate, based on adjusted profit before tax,
was 10.1%, compared with 11.2% in 2019/20
on the same basis. The reduction in
adjusted current tax rate year-on-year was
primarily as a result of an increase in the
level of non-taxable developer profits made
on the sale of shares.
In November 2020, SSE published ‘Talking
Tax 2020: Proud to pay our part’. It did
this because it believes building trust with
stakeholders on issues relating to tax is
important to the long-term sustainability
of the business.
In the year to 31 March 2021, SSE paid
£379.0m of taxes on profits, property taxes,
environmental taxes, and employment
taxes in the UK, compared with £421.6m
in the previous year. The reduction in total
taxes paid in 2020/21 compared with the
previous year was primarily due to:
• Fewer corporation tax payments made in
the current year, as the UK Government
changed the phasing of quarterly tax
payments in the previous year;
• Lower Climate Change Levy being
paid as a result of lower levels of
carbon emissions; and
• Lower employment tax being paid as a
result of the sale of the Energy Services
Group to OVO in January 2020, and
corresponding reduction in headcount.
Taxation
SSE is one of the UK’s biggest taxpayers,
and in the PwC survey published in
December 2020 was ranked 16th out
of the 100 Group of Companies in 2020
in terms of taxes borne (those which
represent a cost to the company, and
which are reflected in its financial results).
SSE considers being a responsible taxpayer
a core element of its social contract with
the societies in which it operates. SSE
seeks to pay the right amount of tax on its
profits, in the right place, at the right time,
and was the first FTSE 100 company to be
awarded the Fair Tax Mark. While SSE has
an obligation to its shareholders, customers
and other stakeholders to efficiently
manage its total tax liability, it does not seek
to use the tax system in a way it does not
consider it was meant to operate, or use
‘tax havens’ to reduce its tax liabilities.
SSE understands it has a social contract.
This means it has an obligation to the
society in which it operates, and from
which it benefits – for example, tax receipts
are vital for the public services SSE relies
upon. Therefore, SSE’s tax policy is to
operate within both the letter and spirit of
the law at all times.
76
SSE plc Annual Report 2021
STRATEGIC REPORT Pensions
Contributing to employees’ pension schemes – IAS 19
Pension scheme asset recognised in the balance sheet before deferred tax £m
Pension scheme liability recognised in the balance sheet before deferred tax £m
Net pension scheme asset recognised in the balance sheet before deferred tax £m
Employer cash contributions Scottish Hydro Electric scheme £m
Employer cash contributions Southern Electric scheme £m
Deficit repair contribution included above £m
March
2021
September
2020
543.1
(186.1)
357.0
1.1
55.2
37.9
528.5
(382.0)
146.5
0.5
27.4
17.7
March
2020
534.2
(192.5)
341.7
5.8
66.5
42.6
In the year to 31 March 2021, the surplus
across SSE’s two pension schemes
increased by £15.3m, from £341.7m to
£357.0m, primarily due to contributions
made to the schemes offset by current
service costs. At 30 September 2020, there
was a large decline in the valuation of the
Southern Electric Pension Scheme (‘SEPS’)
due to market volatility and changing
financial assumptions associated with
coronavirus. By 31 March 2021 the scheme
had recovered from the market volatility,
reducing the net deficit on SEPS by £15.0m
compared to prior year.
members through the purchase of ‘buy-in’
contracts meaning that the Group only
retains exposure to volatility in active
employees. During the year the SHEPS
surplus increased by £8.9m.
The Scottish Hydro Electric Pension
Scheme (‘SHEPS’) has insured against
volatility in its deferred and pensioner
Additional information on employee
pension schemes can be found in Note 15
to the Financial Statements.
SSE plc Annual Report 2021
77
OPERATING REVIEW
BUSINESS UNIT
OPERATING REVIEW
SSE’s strategy of developing, building, operating and investing
in the electricity infrastructure and businesses needed in the
transition to net zero is delivered through a range of core and
complementary Business Units.
The networks and renewables businesses form SSE’s low-carbon
electricity core. These businesses are key to enabling a net zero
economy, have significant growth potential and, importantly, fit
together. With common skills and capabilities in the development,
construction, financing and operation of world-class, highly technical
electricity assets, there is a strong strategic logic to them forming the
low-carbon electricity core of SSE. The other businesses SSE retains
are highly complementary to that renewables and networks core and
all contribute towards delivery of SSE’s net zero strategy. SSE’s business
mix is very deliberate, highly effective, fully focused and well set to
prosper on the journey to net zero and beyond.
The review of the Business Units that follows provides visibility
of performance and future priorities.
78
SSE plc Annual Report 2021
STRATEGIC REPORT SSEN
TRANSMISSION
SSEN Transmission key performance indicators
SSEN Transmission
Transmission adjusted and reported operating profit – £m
Regulated Asset Value (RAV) – £m
Renewable Capacity connected to SSEN Transmission Network – MW
Transmission adjusted investment and capital expenditure – £m
March
2021
March
2020
220.9
3,631
6,750
435.2
218.1
3,469
6,298
329.0
The RIIO-T1 period has also seen significant
growth in the volume of renewables
connected to SSEN Transmission’s network,
which has more than doubled, from 3.3GW
to 6.7GW. This includes growth of 277MW
in 2020/21, bringing the total installed
generation capacity in the north
of Scotland to over 8GW.
This growth has been underpinned by
successful delivery of major reinforcements,
on time and within allowances. Despite the
coronavirus pandemic, SSEN Transmission
made – and continues to make – excellent
progress on its capital investment
programme, with the continued delivery
of several projects carrying over to RIIO-T2,
as planned.
This includes reinforcements to upgrade
the existing onshore transmission network
on the East Coast to 400kV operation, as
well as the replacement of the Inveraray
to Crossaig transmission line in Argyll.
The main construction works for the first
phase, between Inveraray and Port Ann,
is now complete, with these works a
critical component of the wider 275kV
Argyll strategy.
Good progress also continues to be
made on the Shetland HVDC link, which
remains on track for energisation in 2024.
The project is currently expected to entail
around £650m of investment.
SSEN Transmission overview
SSEN Transmission owns, operates and
develops the high voltage electricity
transmission system in the north of
Scotland and remote islands.
Over the duration of the eight-year RIIO-T1
price control since 2013, investment and
capital expenditure by SSEN Transmission
has totalled nearly £3.5bn, including £435m
in 2020/21.
This investment plays a pivotal role in
providing the critical national infrastructure
required to facilitate the transition to net
zero and to maintain network reliability for
the communities SSEN Transmission serves.
Operational delivery
SSEN Transmission expects to perform
well against its main regulatory outputs for
RIIO-T1 and correspondingly the business
expects to close out the price control with
a modest outperformance, delivering both
shareholder and societal value through
efficiency savings which will be equally
shared with consumers through the Totex
Incentive Mechanism.
Performance throughout RIIO-T1 has been
built on a strong historic track record for
keeping the lights on for the homes and
businesses SSEN Transmission serves,
delivering an impressive network reliability
of over 99.9%. As a result of its continued
strong operational performance during
2020/21, SSEN Transmission will receive
the full reward of £1.2m through the
Energy Not Supplied (ENS) Incentive
for 2020/21, which will be reflected in
revenue in 2022/23.
“SSEN Transmission has
a critical role to play in a
green-led recovery from
coronavirus and we are
helping the UK and Scottish
governments meet their
decarbonisation targets by
getting on with the agreed
elements of our RIIO-T2
business plan and delivering
a network for net zero.”
Rob McDonald
Managing Director,
SSEN Transmission
SSE plc Annual Report 2021
79
OPERATING REVIEW CONTINUED
In May 2021, Ofgem published its
consultation on the Eastern HVDC
project Initial Needs Case, recognising
the need and consumer benefit for the
reinforcement. The project, which will
see the first of two HVDC links planned
from Peterhead to England, is required
to alleviate current and future constraints
on the transmission system and remains
on track for energisation in 2029. A Final
Needs Case for the link is expected to be
submitted to Ofgem later this year.
RIIO-T2 investment programme –
the certain view
In December 2020, Ofgem published
its Final Determinations for the RIIO-T2
period, which covers the period from
April 2021 to March 2026. With totex set at
£2.2bn these reflected a significant increase
in totex from Ofgem’s Draft Determinations
and, taken together with the island link to
Shetland, which is already in construction,
allow spend across the T2 period of around
£2.8bn. The business has chosen not to
appeal the investment programme aspect
of the Final Determination and is fully
focused on delivering its ‘Network for
Net Zero’ business plan.
However, while the bulk of the price control
settlement matched SSEN Transmission
and its stakeholders’ collective ambition,
the financial parameters did not.
Correspondingly, in March 2021, SSEN
Transmission confirmed its intention to
appeal certain elements of the settlement
to the Competition and Markets Authority.
The appeal is both technical and narrow
in scope, focused on areas where Ofgem’s
decision does not reflect the robust
evidence provided throughout the price
control process, alongside material errors
in the decision. The appeal areas are:
• Cost of equity.
• Outperformance wedge.
• New exposure to transmission charges.
• Loss of appeals right.
While SSEN Transmission fully understands
the need to minimise customer bills, the
appeal is the right thing to do, it is echoed
by others in the sector and it does not
undermine the broader constructive
relationship the business has with Ofgem.
A conclusion to the appeal is expected by
November 2021.
Meanwhile, by focusing on delivering
the agreed elements of its business plan,
SSEN Transmission is supporting UK
Government’s net zero targets and a green
recovery from the coronavirus pandemic.
Taking the Certain View alone of around
£2.8bn totex, Transmission RAV would
exceed £5bn by the end of RIIO-T2.
RIIO-T2 – uncertainty
mechanisms
With the North of Scotland home to
some of the world’s greatest resources of
renewable energy, SSEN Transmission is
uniquely placed to play a leading role in the
transition to net zero and the significant
growth opportunities this presents.
During the RIIO-T2 period, SSEN
Transmission expects to progress a number
of investments over and above its £2.8bn
Certain View. SSEN Transmission expects to
unlock the additional investments required
to put the North of Scotland on a pathway
to net zero through Ofgem’s Uncertainty
Mechanisms. These investments include:
• Development and early construction
expenditure for the first East Coast
HVDC link from Peterhead to the north
east of England.
• Upgrading the Argyll transmission
network to 275kV operation, as well as
the replacement of the Fort-Augustus
to Skye transmission line. Initial Needs
Cases for both projects are expected
to be submitted to Ofgem this year.
• Further expenditure to connect new
renewable generation, rail electrification
and system security.
.
These investments could see the total
installed generation capacity increase
to around 14GW by the end of RIIO-T2,
with almost 13GW of this from renewable
sources. However, they represent an
‘uncertain view’ because final investment
decisions remain subject to a range of
factors, including generator commitment,
necessary planning permissions, and,
crucially, Ofgem’s approval of ‘Needs
Cases’ However, combined, these
investments, alongside the Certain View,
could bring the total expenditure across
the RIIO-T2 period to over £4bn, with
Transmission RAV increasing to over £6bn
by the end of RIIO-T2.
Further growth opportunities
In addition to the opportunities outlined
above, SSEN Transmission continues to
work with stakeholders in Orkney and the
Western Isles to develop and take forward
proposals to enable mainland transmission
connections.
Beyond RIIO-T2, the ScotWind leasing
round is expected to unlock up to 10GW
of new renewable generation which will
require significant transmission upgrades
both onshore and offshore. This includes
a second HVDC link from Peterhead to
England, required to deliver 2030 offshore
wind targets, supporting future earnings
and RAV growth.
For financial performance commentary
please refer to the Group Financial Review
under Operating Profit Performance
2020/21.
CO2
80
SSE plc Annual Report 2021
STRATEGIC REPORT SSEN
DISTRIBUTION
SSEN Distribution key performance indicators
SSEN Distribution
Distribution adjusted operating profit – £m
Distribution reported operating profit – £m
Regulated Asset Value (RAV) – £m
Distribution adjusted investment and capital expenditure – £m
Electricity Distributed – TWh
Customer minutes lost (SHEPD) average per customer
Customer minutes lost (SEPD) average per customer
Customer interruptions (SHEPD) per 100 customers
Customer interruptions (SEPD) per 100 customers
March
2021
March
2020
267.3
267.3
3,792
350.8
36.1
57
44
64
48
356.3
351.9
3,685
364.9
38.0
56
46
63
47
SSEN Distribution overview
SSEN Distribution, operating under
licence as Scottish Hydro Electric Power
Distribution plc (SHEPD) and Southern
Electric Power Distribution plc (SEPD),
is responsible for safely and reliably
maintaining the electricity distribution
networks supplying over 3.8m homes
and businesses across central southern
England and the north of Scotland.
There are two years remaining of the
RIIO-ED1 Price Control period and SSEN
Distribution is focusing on:
•
Improved performance in relation
to customer and network incentives
available within RIIO-ED1.
• Efficient delivery of capital investment.
• Focused delivery of regulatory outputs.
• Maintaining a leadership position in
innovation.
SSEN Distribution is also shaping its future
and will publish its draft business plan
for the next regulatory period RIIO-ED2
(2023-2028) in July this year. Informed
by an extensive stakeholder engagement
programme, the plan will support a cost-
effective and secure path to net zero
for customers and communities while
representing a fair financial package for
investors that recognises current and
future demand and risk.
Operational delivery
Key to successful delivery against any
regulatory price control is efficient and
focused capital investment, upgrading
and expanding the infrastructure critical to
support the net zero transition. In 2020/21,
SSEN Distribution continued its major
capital investment programme across
both of its networks, delivering significant
improvements for customers and
increasing Regulated Asset Value (RAV).
Over £350m was invested in network
infrastructure in the last year, bringing the
total invested since the beginning of the
price control to over £1.9bn. This is part of
a forecast investment of £2.6bn throughout
the RIIO-ED1 period, supporting future
earnings and building RAV growth.
This included a £9.8m refurbishment
programme spanning 58km of overhead
lines in Wiltshire and Hampshire and
a £10m programme of investment in
Aberdeen to upgrade the underground
network and install automation capability.
As part of its ‘flexibility first’ approach to
network investment, an additional 348MW
of flexible energy service contracts were
secured during 2020/21, enough to power
approximately 91,000 homes. SSEN
now has 446MW of contracted flexibility
services across its networks, which will
increasingly play a vital role in supporting
the delivery of a smarter electricity grid and
a cost-effective transition to net zero.
Under the RIIO regulatory regime,
providing increasing reliability for
customers remains a key revenue driver.
“We are confident that
our RIIO-ED2 business
plan for the next price
control period will provide
the strategic investment
required to achieve net
zero while continuing to
provide the safe, reliable
and affordable service
our customers and
communities need.”
Chris Burchell
Managing Director,
SSEN Distribution
SSE plc Annual Report 2021
81
OPERATING REVIEW CONTINUED
As part of the Interruptions Inventive Scheme
(IIS), SSEN is incentivised on its performance
against the loss of electricity supply through
the recording of Customer Interruptions
(CI) and Customers Minutes Lost (CML),
which include both planned and unplanned
supply interruptions. These incentives will
typically be collected two years after they are
earned. Across both licence areas, overall IIS
incentive earnings were £7.6m in 2020/21,
slightly down from the £7.8m secured in
2019/20 and improving performance in
this area is a key focus for the year ahead.
Incentives can also be earned for
performance against key customer service
and stakeholder metrics. In 2020/21, SSEN
Distribution secured a Broad Measure of
Customer Satisfaction (BMCS) incentive
reward of £4.9m. This is down from £5.6m
last year, reflecting the challenges during
the coronavirus lockdown and recovery,
particularly in the busier SEPD licence
area which are being addressed through a
targeted improvement programme. In the
SHEPD area, performance remained strong
with an overall BMCS ranking of third out of
14 DNO licensees.
Due to the impact of coronavirus
restrictions, reward from core connections
incentives, which include the time to
connect customers, fell to £2m in 2020/21
from £2.7m last year. An increased £1.1m
reward was secured from the Stakeholder
Engagement and Consumer Vulnerability
incentive, representing SSEN’s best return
since 2016/17.
It should be noted that whilst Distribution
Use of System (DUoS) revenue declined
in 2020/21, primarily due to the impact of
coronavirus, an overall under-recovery of
£28m against Allowed Revenue in 2020/21
will be built into tariffs for collection in
FY 2022/23.
Growth Opportunities
Achieving the UK’s net zero ambitions
will require extensive electrification of heat
and transport and it is crucial that the local
electricity distribution networks act as an
enabler not a constraint to this significant
change. SSEN Distribution strongly
supports a mechanism for strategic
investment in flexible solutions or network
reinforcement to enable a cost-effective
transition to net zero for the households,
businesses and communities it serves.
In support of this aim and the Government’s
green recovery ambitions, SSEN partnered
with Ofgem and other DNO licensees
to develop a targeted Green Recovery
investment programme. Following a six-
week stakeholder consultation to identify
‘shovel-ready’ low-carbon projects that
could be unlocked by early investment in
the network, 12 network schemes were
approved by Ofgem representing £41m of
additional investment during the current
price control period. This expenditure will
be incurred outside of the totex investment
mechanism, delivering additional value
for shareholders.
To understand the growth potential of
electrification for SSEN’s distribution
networks, updated Distribution Future
Energy Scenario reports were published in
December 2020. The upper range of the
net zero scenarios forecast the number
of electric vehicles in SSEN Distribution
licence areas to increase from 30,000 in
2020 to 5 million in 2050, with heat pumps
rising from 32,000 to 2.5m and local
renewable capacity from 5GW to 18GW.
This analysis is one of the factors informing
SSEN’s RIIO-ED2 business plan which
will be published in draft form in early
July, with the final plan submitted to
Ofgem in December. Co-created with
stakeholders and customers, the ambitious
plan will deliver targeted investment in
network resilience to build a foundation
for an electrified future, improvements
to the valued service for customers and
communities and further development of
the smart, flexible, local energy networks
to accelerate progress to net zero. While
it is too early for specific projections, an
increase in investment on ED1 rates is
needed to meet customer needs and keep
pace with net zero policy and targets.
For financial performance commentary
please refer to the Group Financial Review
under Operating Profit Performance
2020/21.
Investment in Scotia Gas Networks (SGN)
SGN key performance indicators
Scotia Gas Networks (SGN)
SSE’s 33.3% share
SGN adjusted operating profit – £m
SGN reported operating profit – £m
Regulated Asset Value – £m
Overview of SSE’s
investment in SGN
SSE holds a 33% financial investment stake
in SGN, the gas distribution company which
serves 5.9 million homes and businesses
across the south of England, all of Scotland,
and the western region of Northern Ireland.
SGN has been a good financial investment
but it is part a £2bn disposals programme
that is sharpening SSE’s focus on its core,
low-carbon electricity businesses. SSE
expects to commence a formal sale
process for SGN in mid-summer 2021,
with the intention of having an agreed
sale by the end of the calendar year.
82
SSE plc Annual Report 2021
March
2021
March
2020
173.0
88.6
1,949
202.3
80.8
1,952
Operational delivery
In the year to 31 March 2021 98.9% of
uncontrolled gas escapes were attended
in under an hour. In the same period SGN
delivered 11,034 new gas connections,
including 1,263 assisted connections as
part of efforts to help those in fuel poverty.
SGN has also appealed the financial
parameters of the settlement to Ofgem but
has accepted the totex settlement. As with
SSEN Transmission, it too expects to use the
re-opener process with Ofgem for further
net zero aligned investment outside of the
price control.
With its focus on innovation, decarbonisation
and engineering excellence, SGN’s RIIO-
GD2 price control business plan commits
the business to making a positive impact
on society, delivering a safe and efficient
service and contributing to net zero goals
by accelerating decarbonised gas solutions.
For financial performance commentary
please refer to the Group Financial Review
under Operating Profit Performance
2020/21.
STRATEGIC REPORT SSE
RENEWABLES
SSE Renewables key performance indicators
SSE Renewables
Renewables adjusted operating profit – £m
Renewables reported operating profit – £m
Renewables adjusted investment and capital expenditure before
refunds – £m
Generation capacity – MW
Onshore wind capacity (GB) – MW
Onshore wind capacity (NI) – MW
Onshore wind capacity (ROI) – MW
Total onshore wind capacity – MW
Offshore wind capacity (GB) – MW
Conventional hydro capacity (GB) – MW
Pumped storage capacity (GB) – MW
Total renewable generation capacity (inc. pumped storage) –MW
Contracted capacity
Generation output – GWh
Onshore wind output (GB) – GWh
Onshore wind output (NI) – GWh
Onshore wind output (ROI) – GWh
Total onshore wind output – GWh
Offshore wind output (GB) – GWh
Conventional hydro output (GB) – GWh
Pumped storage output (GB) – GWh
Total renewable generation (inc. pumped storage) – GWh
March
2021
March
2020
731.8
856.0
567.3
459.9
294.3
342.7
1,247
122
567
1,936
487
1,159
300
3,882
2,792
2,377
282
1,354
4,013
1,845
3,476
244
9,578
1,247
122
567
1,936
579
1,159
300
3,974
2,884
2,676
373
1,531
4,580
2,244
3,743
127
10,694
Total renewable generation (also inc. constrained off) – GWh
10,171
11,384
Note 1: Capacity and output based on 100% of wholly owned sites and share of joint ventures.
Note 2: Contracted capacity includes sites with a CfD, eligible for ROCs, or contracted under REFIT.
Note 3: Onshore wind output excludes 592GWh of constrained off generation in 2020/21 and 687GWh in
2019/20; Offshore wind output excludes 1GWh constrained off generation in 2020/21 and 2GWh in
2019/20.
Note 4: Offshore wind capacity in GB reflects the disposal of Walney in September 2020.
Note 5: Biomass capacity of 15MW and output of 71GWh in 2020/21 and 58GWh in 2019/20 is excluded, with
the associated operating profit or loss reported within SSE Enterprise.
SSE Renewables Overview
SSE Renewables comprises the Group’s
existing operational assets and those under
development in onshore wind, offshore
wind, flexible hydro-electricity, run-of-river
hydro-electricity and pumped storage.
Its operational offshore wind installed
capacity is 487MW with its onshore wind
and hydro-electric installed capacity at
1,936MW and 1,159MW respectively.
Whilst SSE Renewables’ output in 2020/21
was down around 10% compared to
2019/20 due to the sale of Walney and
poor weather conditions across both wind
and hydro, its fleet proved to be extremely
resilient through the coronavirus pandemic.
Operational delivery
In terms of operational maintenance and
plant performance, it was a strong year
with overall availability high across onshore
and offshore wind and hydro operations.
“The work we are doing in
developing, constructing
and operating world-class
renewable electricity assets
is powering change in the
UK and Irish economies. We
are currently building more
offshore wind than anyone
else, and developments in
the market this year have
shown just how valuable
our pipeline is.”
Jim Smith
Managing Director,
SSE Renewables
SSE plc Annual Report 2021
83
OPERATING REVIEW CONTINUED
Offshore, major works were completed to
schedule and without incident at Greater
Gabbard offshore wind farm (504MW,
SSE Renewables share 50%), which SSE
Renewables operates on behalf of its joint
venture partner, RWE.
Onshore, first power was achieved at SSE
Renewables’ first fully merchant wind farm,
Gordonbush Extension (38MW). In March,
the project secured a 15-year Capacity
Market Agreement in the T-4 auction for
the delivery year 2024/25 (3MW de-rated
at an auction clearing price of £18/kW).
Maintenance of more onshore sites were
brought in-house in the second half of the
2020/21 financial year, bringing the total
to 63% of SSE Renewables’ wholly-owned
onshore wind assets (excluding joint
venture sites). New operational technology
in its dedicated wind operations centre is
now commissioned and will enable future
efficiency improvements from an already
strong industry position.
The optimisation of SSE Renewables’ hydro
operations continues to yield positive
results in terms of output and value.
Through adjusted running regimes, focused
performance metrics, and digitalisation
efforts, enhanced performance of the
hydro fleet will play an important role in
providing low-carbon flexibility required
for the net zero transition, while continuing
to meet environmental obligations.
The 300MW pumped storage assets at
Foyers returned from a planned outage
in the second half of the year and have
achieved exceptional performance via the
utilisation of their vital flexibility to the GB
electricity system and focused commercial
management of the assets.
Hydro continued to illustrate the benefit
it brings to the SSE Renewables portfolio
from its flexible capabilities and range
of service provision by successfully
securing additional contracts across
multiple markets, including further
flexible constraint managed zone (CMZ)
agreements and positive results within
the recent T-1 Capacity Market auction
where two units at Lochay hydro station
42.709MW (de-rated) and two units at
Tummel hydro station (de-rated) secured
agreements at an auction clearing price
of £45/kW.
SSE Renewables continues to make
progress with its programme of capital
investment focusing on extending the life
of large flexible hydro assets and improving
reliability and efficiency. The last
84
SSE plc Annual Report 2021
stage of the works associated with SSER’s
investment in Grudie Bridge (18.7MW)
is forecast to be complete this year as
planned. Progress has also been made with
additional investment in Fasnakyle (69MW)
and Rannoch (44MW). A final investment
decision has been reached on the replant
of Tummel Bridge (34MW), which is on
track to commence works later this year.
Growth opportunities –
construction programme
SSE Renewables is currently leading
construction of more offshore wind
capacity than any other company globally.
The first two phases of the world’s largest
offshore wind farm at Dogger Bank,
Dogger Bank A and B (each 1,200MW,
SSE Renewables share 40%), reached
financial close in November 2020. In
February SSE Renewables closed the
agreement to sell a 10% interest in Dogger
Bank A and Dogger Bank B to Eni, securing
significant additional value in the process
(£206.3m) and underlining its ability to
realise value and recycle capital for future
development projects. Following the
transaction Dogger Bank is jointly owned
by SSE (40%) and partners Equinor (40%)
and Eni (20%). Onshore construction on
phases A and B continue to progress well.
SSE Renewables expects to start offshore
construction on A in a year’s time, aiming
for first power in summer 2023 and full
power in spring 2024. Dogger Bank B is
planned to effectively run a year behind.
Dogger Bank C aims to reach financial
close and progress a stake sale later this
calendar year.
The Dogger Bank projects will cumulatively
contribute around 18TWh of additional
renewable output to the UK electricity
system annually. They will create hundreds
of direct jobs and thousands more in the
supply chain, and SSE was delighted that,
on the strength of orders from Dogger
Bank and with its support and efforts, GE
was able to commit to investing in a new
blade manufacturing facility in Teesside.
Seagreen 1 (1,075MW, SSE Renewables
share 49%), located in Scottish waters,
is a joint venture with Total and reached
a final investment decision in June 2020.
When complete, it will be Scotland’s largest
wind farm and the world’s deepest tethered
project. Construction of the onshore
substation and installation of the onshore
cable are progressing well. Offshore
construction is due to begin in Autumn
2021 with the installation of turbine
foundations expected this year and full
power targeted at the end of 2022.
With 621MW not currently attached to a
CfD, there is the potential to compete in
the next auction for the uncontracted part
of the project.
Viking, at 443MW with a load factor of 48%,
will be among the highest-yielding onshore
wind farms in Europe, producing almost
2TWh annually. Construction is progressing
well with work on the DC substation
starting this summer, turbines in early 2023
and completion planned for autumn 2024.
The wind farm will also have the option to
enter CfD Allocation Round 4 later this year.
In Ireland, Lenalea wind farm (30MW, SSE
Renewables share 50%) has entered into
construction following success in the first
RESS auction, which cleared at a weighted
average price of €74/MWh.
Growth opportunities – pipeline
Beyond these flagship projects SSE has a
healthy pipeline and delivering it will see,
on average, over 500MW of renewables
capacity added each year to 2030. SSE
Renewables has a clear aspiration to reach
a run rate of at least 1GW of new assets a
year during the second half of this decade
and now expects to exceed its target for
trebling its renewable output by 2030.
Near-term growth opportunities will
come from SSE Renewables’ consented
offshore sites: Seagreen 1A (360MW,
SSE Renewables share 49%), which is
an extension to the Seagreen 1 site,
and Arklow Bank Wind Park (520MW) in
Ireland. Design and development work
on Seagreen 1A is ongoing, the outputs
of which will inform the JV decision
whether to bid it into AR4 and, with a first
Irish offshore auction to be scheduled in
2022, the Arklow Bank project will be well
placed to take part.
If successful, both projects could be
operational by 2025/26. SSE Renewables is
also focused on achieving consents for its
planned projects at Berwick Bank and Marr
Bank offshore wind farms (up to 4,150MW)
located off the Firth of Forth. Following
further refinements to the projects,
planning applications should be submitted
by Spring 2022 with the aim of securing
consent by 2024.
North Falls offshore wind farm (up to
504MW, SSE Renewables share 50%),
which is an extension to the Greater
Gabbard wind farm off the east coast of
England, continues to progress at a similar
pace to Berwick Bank and could also be
operational by 2030.
STRATEGIC REPORT Whilst SSE Renewables did not secure any
new seabed in the Crown Estate Round
4 leasing process, the auction outcome
demonstrated the huge value of SSE
Renewables’ existing pipeline. There will be
opportunities to secure further seabed via
Crown Estate Scotland’s ScotWind leasing
process. Following review by the Scottish
Government, the process will maintain a
capped option fee structure, albeit at a
higher level than the previous cap, which
should help to ensure the projects remain
competitive versus those in England. The
process will be completed towards the end
of 2021.
SSE Renewables has stated its ambition
to contribute a significant amount of the
capacity needed to meeting Ireland’s
5GW offshore wind target by 2030. A
foreshore licence has been secured for site
investigations for the 800MW Braymore
Point project off the north-east coast
and an application has been submitted for
the 800MW Celtic Sea array off the south-
east coast.
Future onshore growth can be delivered
through SSE Renewables’ consented sites
at Strathy South (208MW) and Tangy
repower (57MW) in Scotland and Yellow
River (105MW) in Ireland. Four new
additional onshore wind opportunities
in Scotland, totalling 245MW, have been
identified and for which preliminary
environmental and engineering studies
have commenced. That takes the total
unconsented GB and Ireland onshore
wind pipeline (SSE share) to over 700MW.
SSE Renewables continues to see an
important role for its Coire Glas pumped
hydro storage project (up to 1,500MW)
in providing critical flexibility to balance
increasing volumes of variable renewables.
Coire Glas would more than double
existing pumped hydro capacity –
potentially powering 3m homes for up to
24 hours – and is the most proven long
duration storage solution which could be
built by 2030. Further clarity on the policy
framework and route to market for such
projects is expected from BEIS and Ofgem
later this year.
SSE Renewables project pipeline
Project
Location
Technology
Capacity
(MW)
SSE Share
(MW)
Due FID or in Construction
Dogger Bank A
Dogger Bank B
Dogger Bank C
Seagreen 1
Viking
Gordonbush extension
Lenalea
Consented
Arklow Bank 21
Seagreen 1A
Yellow River
Tangy
Requiring consent
Berwick Bank
Marr Bank
North Falls
Strathy South
Cloiche
Other
Future prospects
Braymore Point
Celtic Sea Array
Scotwind
Thor
Other GB
Other NI
Other ROI
Coire Glas2
GB
GB
GB
GB
GB
GB
ROI
ROI
GB
ROI
GB
GB
GB
GB
GB
GB
–
Offshore wind
Offshore wind
Offshore wind
Offshore wind
Onshore wind
Onshore wind
Onshore wind
Offshore wind
Offshore wind
Onshore wind
Onshore wind
Offshore wind
Offshore wind
Offshore wind
Onshore wind
Onshore wind
Onshore wind
Offshore wind
ROI
Offshore wind
ROI
GB
Offshore wind
Denmark Offshore wind
Onshore wind
GB
Onshore wind
NI
Onshore wind
ROI
Pumped storage
GB
1,200
1,200
1,200
1,075
443
38
31
520
360
105
57
480
480
600
527
443
38
16
520
176
105
57
Up to 2,300
Up to 1,850
504
208
155
c200
800
800
–
800-1,000
c250
c50
c250
Up to 1,500
Up to 2,300
Up to 1,850
252
208
155
c200
800
800
–
800-1,000
c250
c50
c250
Up to 1,500
1 Partially consented.
2 Consented but expected to require revenue stabilisation mechanism.
Growth opportunities –
international
SSE Renewables will retain a UK and Irish
core but has made progress in diversifying
its pipeline overseas. With countries around
the world committing to more ambitious
renewables targets, the addressable market
is increasing in size. SSE Renewables is
primarily interested in offshore and onshore
wind, with a focus on growth markets and
local partnerships where it can add value.
A partnership agreement was struck with
Madrid-based renewables developer
Acciona to explore opportunities for
offshore wind projects in Spain and
Portugal, which are in the early phase of
policy and industry development. The
Spanish Government is expected to set
out its offshore wind strategy later this
year. These markets will not reach the size
of the North Sea, but over the longer term
do have attractive potential.
In Europe, SSE Renewables is now involved
in a consortium participating in the tender
process for the 800-1000MW Thor
offshore wind site in Denmark, which will
conclude later in 2021. Whilst expected
to be highly competitive, SSE is partnering
well with Copenhagen Infrastructure
partners and local energy company
Andel Holding.
Further afield, SSE Renewables is
continuing to build networks and explore
options and expects to make further
progress over the next year focusing on
Europe, North America and Japan. SSE
Renewables sees value in a diverse pipeline,
but it will retain its capital discipline.
For financial performance commentary
please refer to the Group Financial Review
under Operating Profit Performance
2020/21.
SSE plc Annual Report 2021
85
OPERATING REVIEW CONTINUED
SSE Thermal
SSE Thermal key performance indicators
SSE Thermal
Thermal adjusted operating profit – £m
Thermal reported operating profit – £m
Thermal adjusted investment and capital expenditure – £m
Generation capacity – MW
Gas- and oil-fired generation capacity (GB) – MW
Gas- and oil-fired generation capacity (ROI) – MW
Multifuel capacity – MW
Total thermal generation capacity – MW
Generation output – GWh
Gas- and oil-fired output (GB) – GWh
Gas- and oil-fired output (ROI) – GWh
Coal-fired output – GWh
Multifuel output – GWh
Total thermal generation – GWh
March
2021
March
2020
160.5
775.3
106.5
3,992
1,292
–
5,284
15,324
2,433
–
251
18,008
152.7
15.5
177.0
4,004
1,292
68
5,364
12,948
2,436
1,946
395
17,725
Note 1: Capacity is wholly owned and share of joint ventures.
Note 2: Output is based on SSE 100% share of wholly owned sites, 100% share of Seabank & Marchwood PPAs
due to the contractual arrangement and % share multifuel JVs.
Note 3: SSE’s last remaining coal fired power station Fiddlers Ferry, closed in March 2020. Output for 2019/20
is reflected above with capacity omitted as at 31 March 2020.
Note 4: Decreased multifuel capacity relates to disposal of Ferrybridge Multifuel in October 2020.
Note 5: Decreased gas- and oil-fired capacity relates to the transfer of 12MW of small plant to SSE Enterprise.
SSE Thermal overview
SSE Thermal owns and operates
conventional thermal generation in the
UK and Ireland. These assets play a key
transitional role in the SSE Group, and
wider energy system, in balancing the
system on the journey to net zero. While
providing much-needed system flexibility
to ensure stability and security of supply
in the short term, SSE Thermal is actively
developing options to progressively
decarbonise its fleet.
However, SSE is in no doubt about the need
to decarbonise its fleet and repurpose it for
the net zero world. In 2020/21, the carbon
intensity of the electricity generated by its
thermal plant reached its lowest level since
records began. This means that SSE is well
on the way towards two of its key science-
based targets: to cut the carbon intensity
of electricity generated by 60% and good
progress is made to cut all scope 1 and
scope 2 operational emissions by 40%
between 2018 and 2030.
Operational delivery
SSE Thermal’s Combined Cycle Gas
Turbine (CCGT) fleet is among the most
flexible in the UK and Ireland electricity
systems and is creating value from its intra-
day flexibility. Providing flexibility through
the Balancing Mechanism is an increasingly
important earnings stream. In 2020/21,
the SSE Thermal fleet delivered significant
value to the system during tight periods
and responded to the market during
periods of high demand and low wind,
with a 50% increase in response contracted
by National Grid. This demonstrates
the importance of flexible, dispatchable
generation in ensuring a resilient power
sector in the transition to net zero.
SSE Thermal’s assets have been awarded
the following capacity contracts in GB and
Ireland through competitive auctions.
Growth opportunities
In terms of SSE’s older plant, with the
exception of Keadby 2, Marchwood, Great
Island and potentially Seabank, SSE cannot
envisage any of its thermal plant running
into the 2030s unabated. Therefore, its
focus is on carbon capture and storage
(CCS) and hydrogen.
SSE Thermal has announced an agreement
with Equinor to co-develop low-carbon
thermal options at its Keadby site, in North
Lincolnshire, and at its Peterhead site, in
Aberdeenshire. This will include:
86
SSE plc Annual Report 2021
“We are providing the firm,
flexible capacity that is
needed to balance the
variability of renewables
and, as we decarbonise
our fleet, we have exciting
options at Keadby and
Peterhead with the potential
to create value from low-
carbon technologies in the
transition to net zero.”
Stephen Wheeler
Managing Director,
SSE Thermal
• Keadby CCS – a 900MW gas-fired
power station with carbon capture and
Peterhead CCS – a 900MW gas-fired
power station with carbon capture,
both of which have the potential to be
the UK’s first power plants with carbon
capture facilities.
• Keadby Hydrogen – a 900MW low-
carbon hydrogen-fired power station,
with a peak demand for hydrogen of
1800MW. This could be the world’s first
major hydrogen-fired power station.
These plans would support the UK’s
transition to net zero and accelerate the
decarbonisation of some of the UK’s most
carbon intensive regions, underpinning
investment in shared carbon and hydrogen
pipelines which other emitters in the region
could plug into. The projects at Keadby
would utilise the pipelines being developed
by the Zero Carbon Humber partnership,
of which SSE Thermal is a member. The
project at Peterhead would be an early
customer for the Acorn CCS infrastructure.
STRATEGIC REPORT Station
Asset type
Station Capacity
SSE share
Capacity obligation
Medway (GB)
Keadby (GB)
Keadby 2 (GB)
Peterhead (GB)
Seabank (GB)
Marchwood (GB)
Slough Multifuel
Great Island (Ire)
Rhode (Ire)
Tawnaghmore (Ire)
Tarbert (Ire)
CCGT
CCGT
CCGT
CCGT
CCGT
CCGT
Energy from Waste
CCGT
Gas/oil peaker
Gas/oil peaker
Oil
735MW
755MW
840MW
1,180MW
1,234MW
920MW
50MW
464MW
104MW
104MW
620MW
100%
100%
100%
100%
50%
50%
50%
100%
100%
100%
100%
To September 2022
To September 2022
15-years commencing October 2023
To September 2025
To September 2025
To September 2025
15-years commencing October 2024
To September 2025
To September 2025
To September 2025
To September 2022
Capacity contracts are based on de-rating factors issued by the delivery body for each contract year, therefore will not directly match SSE’s published station capacity.
These projects are in the development stage
and SSE Thermal continues to engage with
government, regulators and stakeholders.
Final investment decisions will depend on
the progress of policy frameworks that
support delivery of the shared infrastructure,
create routes to market for CCS and
hydrogen technologies, and represent an
appropriate balance of risk and reward.
Keadby 2, SSE Thermal’s £350m 893MW
CCGT brings Siemens’ first-of-a-kind,
high efficiency, gas-fired generation
technology to the UK and is on track to
be fully commissioned in 2022. As part of
the co-operation agreement with Equinor,
SSE Thermal is also developing options to
blend hydrogen at Keadby 2.
SSE Thermal completed the sale of its
50% share in Multifuel Energy Limited
(MEL1) and Multifuel Energy 2 Limited
(MEL2) to First Sentier Investors for a total
cash consideration of £995m, creating
considerable value for shareholders.
This included Ferrybridge Multifuel 1 and
Ferrybridge Multifuel 2 energy-from-waste
assets, which SSE had jointly developed,
constructed and operated before securing
value on sale. In April 2020, SSE Thermal
also sold a 50% stake in Slough Multifuel,
SSE’s only energy-from-waste interest,
to Copenhagen Infrastructure Company
(CIP). The joint venture project began
construction on 3 May 2021.
For financial performance commentary
please refer to the Group Financial Review
under Operating Profit Performance
2020/21.
Gas Storage
Gas Storage key performance indicators
Gas Storage
Gas Storage adjusted operating (loss)/profit – £m
Gas Storage reported operating profit/(loss) – £m
Gas storage adjusted investment and capital expenditure – £m
March
2021
March
2020
(5.7)
2.8
1.9
3.7
(1.4)
0.2
Gas Storage overview
SSE Thermal holds around 40% of the
UK’s conventional underground gas
storage capacity. These assets can play
an important role in the transition to net
zero, supporting security of supply with
the UK’s continuing shift away from coal-
fired generation and the resulting loss of
inherent energy storage in coal stocks.
In 2020/21 these assets were used to
respond to unpredictable and changeable
weather conditions, particularly in the
January to March period.
SSE Thermal remains committed to
working with UK Government departments
and Ofgem to ensure that the critical role
of UK storage in relation to security of
CO2
supply and stability of gas price is properly
rewarded. These assets may also prove
useful in the longer-term decarbonisation
of our energy system with potential
repurposing for other lower carbon gases
in future, including hydrogen.
For financial performance commentary
please refer to the Group Financial Review
under Operating Profit Performance
2020/21.
SSE plc Annual Report 2021
87
OPERATING REVIEW CONTINUED
SSE Business Energy
SSE Business Energy key performance indicators
SSE Business Energy
Business Energy adjusted operating (loss)/profit – £m
Business Energy reported operating profit/(loss) – £m
Electricity Sold – GWh
Gas Sold – mtherms
Aged Debt (60 days past due) – £m
Bad debt expense – £m
Exceptional bad debt (credit)/expense – £m
Energy customers’ accounts – m
March
2021
March
2020
(24.0)
(3.9)
13,070
245
73.8
37.8
(20.1)
0.48
9.2
(18.5)
16,914
272
48.7
31.3
27.7
0.52
SSE Business Energy overview
SSE Business Energy provides a potential
shopfront and route to market for SSE’s
low-carbon energy solutions and green
products to non-domestic customers
across GB.
safety and wellbeing of customer service
operations. Physical services such as meter
reading, smart meter installation activities
and field debt collections were paused but
are now operating effectively as lockdowns
are eased.
Operational delivery
Business Energy retains a strong customer
base with a 9.2% market share by volume
for electricity supply (ranked 3rd) and 2.5%
market share for Gas (ranked 5th for Small-
and Medium-sized Enterprises and 7th for
Industrial and Commercial customers).*
Business Energy supplied 4.7TWh of SSE
asset-backed wind and hydro-generated
electricity to its customers and this year
saw the launch of its renewable gas tariff
‘Green Gas plus’, which is gaining traction
in the market and has received third party
accreditation from EcoAct. It continues
to invest in digital and customer service
solutions to adapt and evolve its offerings
in a highly competitive market.
In response to coronavirus, remote
working was successfully implemented
across the business, prioritising the
* Cornwall Insight figures released January 2021.
Growth opportunities
Business Energy will work together with
SSE’s distributed energy operations under
a single customer-facing brand, SSE Energy
Solutions. SSE Energy Solutions will provide
customers with a single ‘shopfront’ for
Energy Supply and Energy Optimisation
solutions. It will offer an expanded product
portfolio including customer workplace EV
charging solutions and flexible corporate
power purchase agreement offerings.
This year will also see the launch of its
‘Next Generation’ green supply product to
help businesses meet their own net zero
targets. SSE believes that the division will
be increasingly important as a complement
to SSE Renewables growth plans.
For financial performance commentary
please refer to the Group Financial Review
under Operating Profit Performance 2020/21.
“The coronavirus pandemic
has presented challenges
with reduced demand
and constraints on our
operations, but throughout
we maintained our focus
on our customers and
continued to provide a
valuable route to market for
the Group’s renewables and
energy solutions in both GB
and the island of Ireland.”
Nikki Flanders
Managing Director,
SSE’s customer businesses
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SSE plc Annual Report 2021
STRATEGIC REPORT SSE Airtricity
SSE Airtricity key performance indicators
SSE Airtricity
Airtricity adjusted operating profit – £m
Airtricity reported operating profit – £m
Aged Debt (60 days past due) – £m
Bad debt expense – £m
Exceptional bad debt (credit)/expense – £m
Airtricity Electricity Sold – GWh
Airtricity Gas Sold – mtherms
All Ireland energy market customers (Ire) – m
SSE Airtricity overview
SSE Airtricity provides a valuable route
to market for SSE’s low-carbon energy
solutions and green products to customers
across the island of Ireland. Airtricity retains
a strong market position as Ireland’s largest
supplier of 100% green energy, supplying
approximately 680,000 customers and
holding 23% market share by load.
Operational delivery
Airtricity has a solid diversified customer
mix with 23.1% market share of Power by
Volume and 22.9% Gas by Volume, split
across the Republic of Ireland and Northern
Ireland. It retains a competitive position in
the markets in which it operates.
Throughout the pandemic, Airtricity’s
priority was the safety and wellbeing of its
teams. Non-domestic demand reduced
as economic activity scaled back but was
partly offset by increased demand from
households. Several physical services were
suspended due to lockdown restrictions,
including door-to-door sales and residential
March
2021
March
2020
44.0
50.0
7.9
6.9
(6.0)
7,595
219
0.68
48.8
42.8
5.6
3.4
6.0
8,053
221
0.72
construction projects such as housing
upgrades. These services are now operating
effectively as lockdown restrictions are
eased across the island of Ireland.
Airtricity continued to pursue its strategic
imperatives in 2020/21, including the
launch of its ‘One-Stop Shop’ in September
2020 in conjunction with An Post, a first
of its kind in the ROI market, providing
customers with energy efficient home
upgrades and practical routes to reducing
their usage.
Airtricity also delivered the next phase
of the Microsoft Solar for Schools
programme, with 27 installations
completed at schools around the
country, providing real-time tracking of
grid carbon emissions, screens displaying
real-time solar generation and an
education programme for students
focusing on sustainability.
The business continues to prioritise
delivery of high-quality customer service.
Digitisation is key to seamless customer
journeys and in 2020/21, SSE Airtricity
launched a mobile app with a new online
billing capability. In addition, it launched
the first phase of its Smart Services, a
major milestone in the ROI National Smart
Metering Programme and key to supporting
its customers on their net zero journey.
Growth opportunities
SSE Airtricity continues to support
customers and empower communities in
their transition towards a greener future.
A key area of focus is the provision of
extended services and offerings, including
a new partnership with ePower on electric
vehicle charging infrastructure. Additional
partnership opportunities are being
explored around lighting-as-a-service,
solar and Corporate Power Purchase
Agreements.
For financial performance commentary
please refer to the Group Financial Review
under Operating Profit Performance
2020/21.
SSE plc Annual Report 2021
89
OPERATING REVIEW CONTINUED
SSE Enterprise
SSE Enterprise key performance indicators
March
2021
March
2020
(21.3)
(106.7)
10,482
431
8.1
(2.0)
8,851
259
Elsewhere in Enterprise the distributed
energy business has continued to maintain
its existing portfolio of heat networks,
private wires and distributed generation
efficiently and effectively.
Whilst run at arm’s length from the rest
of the group, SSE Enterprise Telecoms
continues to grow its network and customer
base and intends to more than double its
BT exchange reach by connecting 550 BT
exchanges by the end of summer 2021.
Growth opportunities
Going forward, the primary focus for
Enterprise will be distributed energy
and developing ‘whole system thinking’
solutions which will enable the
decarbonisation of transport and heating
and lay the platform for a data-driven and
sustainable world, including: distributed
generation, energy optimisation, heat and
cooling networks, electrical networks,
smart buildings and EV charging. SSE
Enterprise is developing offerings in solar
and has plans to develop over 500MW
of battery storage across the UK to help
respond to the needs of local generation.
Initially its focus is on redeveloping existing
SSE sites with grid connections.
For financial performance commentary
please refer to the Group Financial Review
under Operating Profit Performance
2020/21.
SSE Enterprise
Enterprise adjusted operating (loss)/profit – £m
Enterprise reported operating profit/(loss) – £m
SSE Heat Network Customer Accounts
Telecoms Number of BT exchanges unbundled
SSE Enterprise overview
Enterprise’s role is to pursue opportunities
in areas that complement the SSE Group’s
core energy portfolio; going forward this
will focus on distributed energy. To give
its B2B customers a new single point of
entry, SSE is replacing its Enterprise brand
with ‘SSE Energy Solutions’, which brings
distributed energy and business energy
services under a single customer-facing
brand, as outlined above.
In April 2021, SSE announced it had entered
into an agreement to sell its Contracting
(and Rail) business to the Aurelius Group at
an enterprise value of £27.5m as part of its
ongoing disposal programme of non-core
assets. The sale process is expected to
complete by the end of June 2021 when
around 1,900 Contracting employees will
work under the new ownership. Under
Aurelius, the Contracting business should
benefit from greater focus, enabling it to take
fuller advantage of growth opportunities.
SSE retains a 50% stake in SSE Enterprise
Telecoms, which provides infrastructure-
based connectivity. This year it launched
its new brand name: Neos Networks. Its
transformation journey began in 2019,
when Infracapital acquired 50% of the
business and it retains a strong and
growing customer base.
Operational delivery
Financial performance in Enterprise
was heavily impacted by the effects of
coronavirus on its Contracting and Rail
business which is being sold to Aurelius.
“SSE Enterprise has
undergone a period of
transformational change
with the sale of its
Contracting business and
a timely refocusing on
distributed energy which
promises strong growth
potential through ‘whole
system thinking’ solutions,
including distributed
generation and storage,
which will also enable
the decarbonisation of
transport and heating.”
Neil Kirkby
Managing Director,
SSE Enterprise
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SSE plc Annual Report 2021
STRATEGIC REPORT Energy Portfolio Management
EPM key performance indicators
EPM
EPM adjusted operating profit/(loss) – £m
EPM reported operating profit/(loss) – £m
EPM overview
Energy Portfolio Management (EPM) is the
energy markets heart of the SSE Group,
securing value for SSE’s asset portfolios in
wholesale energy markets and managing
volatility through risk-managed trading
of energy-related commodities for SSE’s
market-based business units.
SSE trades the principal commodities to
which its asset portfolios are exposed, as
well as the spreads between two or more
commodity prices (e.g. spark spreads):
power (baseload and other products);
gas; and carbon (emissions allowances).
Each commodity has different liquidity
characteristics, which impacts on the
quantum of hedging possible. See also
SSE’s Hedging Position at 31 March 2021
earlier in this document.
Operational delivery
In January 2021, under the leadership of a
new managing director, a comprehensive
review was undertaken to determine how
EPM could best support the SSE Group
strategy within a rapidly evolving energy
landscape. This identified a critical role
for EPM to play as the short-term energy
market asset optimiser and a long-term
energy market adviser. This role enables SSE
to focus its investment in energy markets
capabilities in one centre of excellence.
March
2021
March
2020
18.4
608.5
(60.3)
(94.5)
The value EPM secures for SSE’s asset
portfolio will continue to be reported
against individual Business Units.
2020/21 was a turbulent year in
carbon policy with the UK deciding to
introduce its own UK Emissions Trading
Scheme alongside the existing Carbon
Price Support. While this has created
uncertainties which SSE has had to
manage prudently, SSE is encouraged
that all policy scenarios lead to high
carbon pricing, which SSE supports
as a critical tool in decarbonisation.
Opportunities for growth
In addition to taking on responsibility
for SSE’S Energy Economics and Market
Codes teams, EPM plans to further develop
its risk management and trading teams
and introduce a new analytics function.
These enhanced data capabilities will
support decision making and enable
further value creation on behalf of the
Group’s Business Units.
For financial performance commentary
please refer to the Group Financial Review
under Operating Profit Performance
2020/21.
“With an eye to the pace of
change we are seeing in
the energy sector, we have
reviewed and stepped up
EPM’s role within SSE as an
asset optimiser and market
adviser to the Group’s
Business Units, and put
plans in place to strengthen
our data analytics
capabilities.”
Finlay McCutcheon
Managing Director,
Energy Portfolio Management
SSE plc Annual Report 2021
91
SECTION 172 AND NON-FINANCIAL INFORMATION STATEMENTS
COMMITTED TO
TRANSPARENCY
Section 172 Statement
SSE has an unwritten social contract
with its stakeholders that both informs
decision making by the Board and aligns
closely with the spirit of Section 172 of the
Companies Act 2006 (Section 172). Under
this contract SSE relies on society for public
services and infrastructure, human capital
and the implicit right to earn a profit and
remunerate shareholders. In return it safely
and reliably provides energy, invests in
critical national infrastructure needed for
net zero, creates jobs and contributes to
GDP through fair payment of tax.
This Statement summarises how, over the
course of 2020/21, the Board has upheld
this contract by promoting the long-term
success of the Company for the benefit of
SSE’s six key stakeholder groups (see pages
28 to 31 ). This has been undertaken with
regard to the matters set out in Section
172(1)(a) to (f), being:
(a) The likely consequences of any decision
in the long term.
(b) The interests of the Company’s
employees.
(c) The need to foster the Company’s
business relationships with suppliers,
customers and others.
(d) The impact of the Company’s operations
on the community and the environment.
(e) The desirability of the Company
maintaining a reputation for high
standards of business conduct.
(f) The need to act fairly between
members of the Company.
SSE’s approach to the above social contract
is exemplified throughout this Annual
Report, with specific disclosures of decisions
and actions which are supportive of this
Section 172 Statement detailed as follows.
Long-term direction
SSE’s strategy is to create value for
shareholders and society in a sustainable
way by developing, building, operating and
investing in the electricity infrastructure
and businesses needed in the transition
to net zero. Four 2030 business goals
support this strategy, and provide important
interim milestones to net zero in 2050. This
longer-term view set by the Board frames
its annual review of strategy and agreement
92
SSE plc Annual Report 2021
of objectives which extends to capex plans,
the Group budget, dividend plans and
future resourcing requirements. SSE’s Risk
Management Framework, including the
Groups’ Principal Risks, the identification
of emerging risks and the Group’s Risk
Appetite statement, further underpins
the Board’s long-term approach.
More on the longer-term context
• Pages 8 to 9 Our purpose and our
strategy. SSE’s purpose, vision, strategy,
values and 2030 goals as agreed by
the Board.
• Page 106 Strategic review and Board
focus in 2020/21. An overview of the
Board’s annual strategy review including
considerations and outcomes.
• Pages 54 to 56 Risk-informed
decision making. The approach
to identifying, understanding and
mitigating the Group’s Principal Risks.
Purpose-led engagement
Despite the challenges of the pandemic,
constructive two-way dialogue has
continued with SSE’s key stakeholders
to maintain understanding of the issues
material to each group. Supporting
conversations have been conducted within a
well-established framework that encourages
both Group and complementary Board-
level engagement. This is reflective of SSE’s
operating model based on autonomous
Business Units in which decision-making
takes place every day. The Board creates
the correct conditions for this approach by
setting SSE’s long-term direction and the
overarching decision-making framework
and culture. This is in line with the Board’s
own understanding of stakeholder needs.
More on engagement
• Page 104 Considered decision-
making. The context set by the Board
in which decision-making across the
Group takes place.
• Pages 28 to 31, 105 and 114 to 116
Working for and with stakeholders.
Information on: the role of stakeholder
engagement; SSE’s key stakeholder
groups, including employees,
shareholders, suppliers, communities
and customers; the engagement
mechanisms which have been used at
Board and below-Board level in 2020/21;
the material issues raised; and examples
of how stakeholder value creation
is measured.
• Page 112 Focusing on culture.
How the Board promotes high
standards of conduct and monitors
an appropriate culture.
Stakeholder-focused decisions
Conversations with key stakeholder groups
can result in actions which are specific to
an individual group and also see integration
into decisions with multi-stakeholder
impact. This Strategic Report and the
Directors’ Report have been prepared with
this in mind and illustrative examples of
decision-making are provided throughout.
More on decision making
• Page 31 Engagement in action.
Details of actions taken in response
to the views of individual stakeholder
groups, of which the Board has received
full oversight.
• Pages 107 to 109, 124 and 127 Board
Principal Decisions. Decisions taken
by the Board during the year including
details of stakeholder considerations
and impacts.
Environmental impact
SSE recognises the serious threat that
climate change poses to the natural world
and, therefore, to people and the economy.
The climate emergency has continued
to feature across the Board agenda and
SSE commits to open and transparent
disclosure to allow proper assessment
of its environmental performance.
More on environmental
performance
• Page 111 Sustainability and climate
impacts. Board considerations and
outcomes in 2020/21.
• Pages 140 to 143 SHEAC Report.
Provides Board assurance of safety,
health, environmental and sustainability
matters.
• Pages 36 to 43 Protecting the
environment. Actions agreed to
drive climate action, SSE’s carbon
performance and resource use.
STRATEGIC REPORT Non-Financial Information Statement
SSE has reported extensively on its non-financial impacts within its Annual Report for a number of years and welcomes continued
increasing focus from regulators, shareholders and other stakeholders. This table outlines how SSE meets the Non-Financial Reporting
requirements contained within the Companies Act 2006. Further disclosure can also be found in SSE’s Sustainability Report 2021.
Reporting requirement and
SSE’s material areas of impact
Relevant Group Principal
Risks, pages 57 to 63
Relevant Group Policies
on sse.com
Climate Change
Group Climate Change Policy
Safety and the Environment
Group Environment Policy
People and Culture
Group Employment Policy
Safety and the Environment
Group Safety and Health
Policy
People and Culture
Group Sustainability Policy
Speed of Change
Group Taxation Policy
Energy Affordability
Group Procurement Policy
Policy embedding, due diligence,
outcomes and key performance
indicators
Our business goals for 2030,
pages 14 to 15
Our strategy in action,
pages 16 to 21
Protecting the environment,
pages 36 to 43
Safety, Health and Environment
Advisory Committee Report,
pages 140 to 143
Our business goals for 2030,
pages 14 to 15
Creating social impact,
pages 45 to 50
Focusing on culture, pages 112
to 113
Supporting and listening
to the employee voice,
pages 114 to 116
Safety, Health and Environment
Advisory Committee Report,
pages 140 to 143
Our business goals for 2030,
pages 14 to 15
Creating social impact,
pages 44 to 45, 50 to 53
Environmental matters
• Delivering net zero
• Managing climate-related
issues
• Carbon performance,
metrics and targets
• Responsible resource use
– water and energy use,
air emissions
Employees
• Health and safety
• Training and learning
• Culture and ethics
• Reward and benefits
• Employee voice
•
• Support during the
coronavirus crisis
Inclusion and diversity
Social matters
• A just transition to net zero
• Contributing to the
economy and supporting
local supply chains
• Sustainable procurement
• Responsible approach to tax
• Supporting vulnerable
customers
• Energy affordability
• Sharing value with
communities
• Support during the
coronavirus crisis
Human rights, anti-corruption
and anti-bribery
• Reinforcing an ethical
business culture
• Speaking up against
wrongdoing
• Prevention of bribery
and corruption
• Approach to human rights
and modern slavery
People and Culture
Group Human Rights Policy
Large Capital Projects Quality
Group Corruption and Financial
Crime Prevention Policy
Group Whistleblowing Policy
Creating social impact,
page 47
Focusing on culture,
pages 112 to 113
SSE plc Annual Report 2021
93
94
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE GOVERNANCE FOR
TODAY AND TOMORROW
Good governance and a strong corporate culture are the
foundations of SSE’s purpose, vision and strategy. The Board gives
close consideration to the views of all stakeholders in its decision-
making and understands the importance of clear disclosures of
this, and other material issues, in its reporting of how governance
matters contribute to the long-term success of the Company.
This Directors’ Report is prepared on that basis.
Directors’ Report –
Corporate Governance
Chair’s introduction to the Directors’ Report 96
Board of Directors
Board Leadership and Company Purpose
Division of Responsibilities
Composition, Succession and Evaluation
Nomination Committee Report
Audit, Risk and Internal Control
Audit Committee Report
98
102
117
118
120
128
128
Energy Markets Risk Committee Report
138
Safety, Health and Environment
Advisory Committee Report
140
Remuneration Committee Chair’s statement 144
Remuneration at a glance
Annual report on remuneration
146
148
Directors’ Remuneration Policy – a summary 162
Other statutory information
Statement of Directors’ responsibilities
166
169
SSEN Distribution engineers at work on site at SSE
Renewables’ Griffin wind farm. Both businesses
support local people touched by their operations
through community funding programmes.
SSE plc Annual Report 2021
95
CHAIR’S INTRODUCTION TO THE DIRECTORS’ REPORT
GOVERNANCE
FOR TODAY AND TOMORROW
It is with this in mind that we look forward
to working with government to support
its efforts to secure the best possible
outcomes from the COP26 summit later
this year.
Assessing risk
Opportunities must be assessed against
the related parameter of risk, to ensure
decisions are taken responsibly and in good
faith to deliver acceptable stakeholder
outcomes. To maintain an informed view,
the Board has taken soundings on matters
such as the political landscape, long-term
commodity pricing, project economics,
and seabed leasing. Throughout the year,
the risk presented by the pandemic has
been considered through a monthly
review of its impact on financial and
operational performance.
The formal assessment of the overarching
risk environment which confirms the
Group’s risk appetite and its Principal
Risks was completed in March 2021. This
followed engagement between individual
Board members and SSE’s Group Risk
function in the course of the year, to provide
challenge to, and gain detailed insight into,
the risk management practices currently
undertaken. Details of the Group approach
can be found on pages 54 to 63 .
Given the close alignment of both our
purpose and strategy to the net zero
transition, the impact and risks associated
with climate change are integrated
across the Board’s and management’s
considerations. This is a multi-dimensional
approach, and one which I hope is evident
throughout this Annual Report and
accompanying Sustainability Report.
Enhancing Board dialogue
Social distancing guidelines have resulted in
significant changes to the way we work and
engage. With the inability to meet physically,
a comprehensive engagement programme
complemented by two all-employee
surveys and the work of Dame Sue Bruce,
our Non-Executive Director for Employee
Engagement, has drawn on technology
to create new platforms for conversations
at all levels. Whilst not a direct substitute
for in-person discussion, these have been
successful in keeping the Board and senior
leadership in touch with employee sentiment
and we will retain the aspects which have
worked well. Employee engagement,
including what we have heard in the year,
and the actions taken in response, is covered
on pages 114 to 116 .
The Board has also adopted a virtual
platform for its own meetings which has
proven effective to progress our full agenda.
And I extend my appreciation to those
individuals who have inducted me virtually,
a process which has been well-managed
and provided a wide introduction to the SSE
Group. When safe to do so, I look forward
to meeting colleagues in person, as do my
fellow Board members.
Monitoring culture
Being new to SSE it has been important to
reflect and learn about SSE’s culture first
hand. Prior to joining, I was introduced to
SSE’s approach to ‘Doing the Right Thing’,
underpinned by the core values set out
on page 8 and the primary focus on
safety. Understanding how these translate
into SSE’s culture has been enhanced by
the conversations I mention above and
through exposure to the work of the Board
Committees and discussions with senior
leadership teams.
The maturing cultural dashboard which the
Board reviews bi-annually is in its second
year. This was last considered in November
2020 and is a rich source of information
that will continue to inform the Board’s
appreciation of cultural indicators and
allow identification of cultural changes
and trends. The impact of coronavirus
on reported metrics will be monitored
as we progress through 2021/22,
alongside actions to reiterate broader
cultural expectations. Combined with
our engagement work, this will continue
to shape how the Board influences
and understands culture, as covered
on pages 112 to 113 .
Evaluating Board performance
Central to setting the correct tone is the
review of the Board’s own performance.
An internal assessment was carried out
in 2020/21, in advance of an external
evaluation in the coming year. The positive
outcomes of this were well received, and
in the spirit of continuous improvement,
we were pleased to hear areas to work on.
These included arrangements to ensure the
right balance between presentations and
Dear Shareholder,
It has been an unprecedented time in
which to join the Board, and a period that
has afforded me a deep understanding
of the strength of leadership and culture
within SSE. As the coronavirus pandemic
has continued to impact on society, I have
observed SSE’s consideration of stakeholder
needs and experiences, and the integration
of these throughout work and discussions
in the Boardroom. This approach reflects
the Board’s focus on embedding high
standards of corporate governance, with
the objective of the Directors’ Report being
to provide a transparent and engaging
account of this in practice.
Strength of purpose
The clarity of our purpose – to provide
energy needed today while building a
better world of energy for tomorrow – has
guided actions at every level throughout
the year. In the immediate term, this meant
unbroken support for the national response
to coronavirus through the safe and reliable
supply of essential services. Across a
longer time horizon, it has driven strategic
progress and identified opportunities to
secure a sustainable energy system for the
future. The Board recognises the collective
contribution and commitment of SSE’s
more than 10,000 employees in the above,
and is proud of what has been achieved
during a time of uncertainty and challenge.
The pandemic has not distracted from
the enduring challenge presented by the
climate emergency and the important part
SSE has to play in the net zero transition,
which as described across pages 106 to
109 , will continue as the backdrop to
the Board’s long-term strategic focus.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE discussion in Board meetings and, through
elevation of the role of the Nomination
Committee, the agreement to identify
opportunities for Board-level support on the
issue of inclusion and diversity. This support
extends to considerations surrounding
the Board’s own diversity, as well as that
of senior management, wider teams and
new recruits, alongside the approach to
addressing sector-wide challenges.
The suite of evaluation actions from 2020/21,
alongside progress against the findings from
2019/20, are set out on pages 118 to 119 .
The discussions surrounding inclusion and
diversity are on pages 126 to 127 .
Working for stakeholders
Section 172 has never been in
sharper focus, and the importance of
Environmental, Social and Governance
(ESG) matters to investors continues to
grow at pace. To ensure the Board remains
in touch with material issues and concerns,
it has received a combination of dedicated
stakeholder-focused updates and engaged
constructively on Group-wide issues with
key stakeholder groups during the year.
This approach is supported by business-led
stakeholder relationships as explained on
pages 28 to 31 and within the Section
172 Statement on page 92 .
The Board’s annual review of sustainability
priorities reflects SSE’s wider social contract,
which in 2020/21 saw the adoption of an
enhanced sustainable procurement strategy
and a commitment to achieving net zero
within all scopes of SSE’s own operations by
2050. In the coming year, Board decision-
making will continue to be tested through
external soundings on strategy. Work is also
under way to review the current breadth
of focus provided by the Safety, Health,
Environment and Advisory Committee,
to assist the Board in its oversight of the
approach to, and assurance of, a range of
ESG matters.
Shareholder views remain a key influence
and have been gathered through the year
within investor meetings, conferences and
the engagement which surrounded the
AGM 2020. I look forward to taking part in
these events in the months to come. The
Board encourages continued participation
through the AGM 2021, which will include
opportunities for interaction before and
during the meeting. This includes a platform
to allow shareholders to view proceedings
and ask questions remotely for the first
time. To support ongoing engagement
with shareholders on climate-related issues,
we have proposed an enabling resolution,
within the business of the meeting, that
establishes a framework for an annual
advisory vote on SSE’s Net Zero Transition
report at future AGMs.
Board changes
There have been two additions to the
Board in the year. Dame Angela Strank
joined as a non-Executive Director
on 1 May 2020, followed by myself on
1 September 2020. Having received a
warm welcome from our fellow Directors,
we look forward to another year of
working together across the Board and
respective Committees. The Board was
sorry to see Crawford Gillies step down
on 30 September 2020 and we express our
gratitude for his contribution throughout
his five years as Senior Independent
Director. I am grateful to Tony Cocker who
assumed the role of Senior Independent
Director following this departure, and who
will bring significant industry knowledge
and experience to the position.
Following the above changes, the
composition of the Board aligns with the
ambitions set by the Hampton-Alexander
and Parker reviews for achievement
by FTSE 100 companies in 2020 and
2021. Our approach to driving enduring
balance within the Board is set out in the
Nomination Committee Report on pages
120 to 127 .
Finally, I thank Richard Gillingwater on
behalf of myself and all the Directors for his
strong leadership and vision. Since joining
SSE in 2007, he worked as a non-Executive
Director, Senior Independent Director,
Deputy Chair and Chair. His contribution
to the shape of the SSE Group is evident,
and I appreciate the experience and skill
of the Board which he has assembled.
Governance
highlights
Board Leadership and Company
Purpose
pages 102 to 116
Division of Responsibilities
page 117
Composition, Succession and
Evaluation
pages 118 to 127
Audit, Risk and Internal Control
pages 128 to 143
Remuneration pages 144 to 165
UK Corporate
Governance Code
The Board continues to assess its
approach to corporate governance
through application of the FRC’s UK
Corporate Governance Code (the
Code). It reports against the 2018
Code for the year ended 31 March
2021, a copy of which can be found
at www.frc.org.uk.
As set out above, this Annual
Report has been structured to
allow evaluation by shareholders
of how the Code Principles have
been applied. Appropriate cross
references are included where
supporting information is contained
outside of the Directors’ Report.
The Board believes that the spirit
of the 2018 Code continues to be
upheld throughout its work and
that of its Committees, and reports
one instance of non-compliance
for 2020/21 against the Code
Provisions. This was in relation
to Chair tenure (Provision 19) and
is a position which was rectified
on 1 April 2021 following the
appointment of Sir John Manzoni.
The process which concluded the
previously agreed actions to ensure
an appropriate Chair transition can
be found on page 124 .
Sir John Manzoni
Chair, SSE plc
25 May 2021
SSE plc Annual Report 2021
97
BOARD OF DIRECTORS
Key
Chair
Executive Directors
Committee membership
NC Nomination Committee
AC Audit Committee
ER Energy Markets Risk Committee
SHE Safety, Health and Environment Advisory
Committee
RC Remuneration Committee
Committee Chair
Board departures
Two Board departures were announced
in 2020/21.
• Richard Gillingwater stepped down
from the Board and role of Chair
on 31 March 2021.
• Crawford Gillies stepped down as
non-Executive Director and Senior
Independent Director on 30 September
2020.
External appointments
The Board considered and approved the
additional external commitments taken
on by Sir John Manzoni and Dame Angela
Strank during the period. In each case, it
was agreed that there would be no impact
on the time commitment required as Chair
and non-Executive Director, nor on the
independence and objectivity required
to discharge the agreed responsibilities
of each role. The resultant position is
believed to be consistent with recognised
proxy advisor guidelines.
98
SSE plc Annual Report 2021
Sir John Manzoni
Chair
NC
ER
SHE
RC
Alistair Phillips-Davies
Chief Executive
Gregor Alexander
Finance Director
Martin Pibworth
Tony Cocker
Group Energy and Commercial Director
Senior Independent Director
ER
ER
NC
AC
ER
SHE
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Non-Executive Director since September 2020
and Chair from April 2021
Executive Director since January 2002 and
Chief Executive from July 2013
Executive Director and Finance Director since
Executive Director since September 2017 and
Non-Executive Director since May 2018 and
Group Energy and Commercial Director from
Senior Independent Director from October 2020
Board tenure
Under 1 year
Board tenure
19 years
Career and experience
Career and experience
Career and experience
Career and experience
Career and experience
Sir John has wide-ranging experience across the
energy industry and both the private and public
sectors. Through an executive career at BP which
spanned 24 years, he held a number of senior roles
including Chief Executive, Refining and Marketing
in which he was a Main Board member. This
was followed by President and Chief Executive
Officer at Talisman Energy Inc before a move
to UK Government where he spent six years as
Chief Executive of the Civil Service and Permanent
Secretary of the Cabinet Office. He has previously
been a non-Executive Director of SABMiller plc
and Chair of Leyshon Energy Limited.
Alistair joined SSE in 1997 and possesses extensive
knowledge of the Group having held senior roles
across multiple business areas. Prior to joining
the Board in 2002 as Energy Supply Director,
Alistair was Director of Corporate Finance and
Business Development. In 2010, he became
Generation and Supply Director, before Deputy
Chief Executive in 2012, then Chief Executive in
2013. Alistair is a fellow of the Energy Institute
and a former Vice President of Eurelectric.
He is a Chartered Accountant.
October 2002
Board tenure
18 years
November 2020
Board tenure
3 years
Board tenure
3 years
Gregor joined SSE in 1990 and has been Finance
Martin joined SSE in 1998 as an energy trader,
Tony possesses highly detailed knowledge of the
Director on the Board since 2002. Prior to Finance
which was followed by a series of commercial
energy sector through a 20 year career with E.ON.
Director, Gregor worked in senior finance roles and
roles before becoming Managing Director, Energy
Latterly, he held the position of CEO and Chair of
led specialist teams including as Group Treasurer
Portfolio Management, and a member of SSE’s
E.ON UK plc, which comprised the Company’s
and Tax Manager. Gregor is Chair of the Scottish
then Management Board, in 2012. In 2014, he was
main businesses in the UK, including the supply
and Southern Energy Power Distribution Board
appointed Managing Director, Wholesale, and a
of energy to households, businesses and
and a Director of Scotia Gas Networks Limited.
member of SSE’s Group Executive Committee. In
communities, digital transformation programmes
He is a Chartered Accountant and member of
2017 he joined the Board as Group Energy Director,
and the smart meter roll-out. Previous roles
the Accounting for Sustainability (A4S) CFO
a role which was expanded to Group Energy and
include CEO of E.ON Energy Trading SE and
Leadership Network.
Commercial Director in November 2020.
Managing Director of E.ON UK Energy Wholesale.
He has served on the Board of Energy UK.
Skills and attributes which support strategy
and long-term success
Skills and attributes which support strategy
and long-term success
Skills and attributes which support strategy
Skills and attributes which support strategy
Skills and attributes which support strategy
and long-term success
and long-term success
and long-term success
• Dynamic and engaging leadership style
with diverse perspectives gained across
multiple sectors, organisational settings
and geographies, which complement the
responsibilities of SSE Chair.
• Experienced in the governance of large scale
business operations, leading reform and the
management of complex projects to drive
commercial performance, skills key to the
fulfilment of SSE’s vision and purpose.
• Strong communicator with insight into
the management and development of
stakeholder relations aligned with SSE’s
approach to decision-making.
• Working knowledge of energy regulation,
government and policy considerations which
underpin the success of a net zero transition.
• Sound executive leadership and a considered
approach to strategy which is evidenced
through continued delivery under the Group
operating model, and the development of
SSE’s sustainability plans and associated
targets.
• Broad knowledge of the energy markets in
Great Britain and Ireland and across Europe,
which informs views of long-term direction.
• Detailed understanding of the external
context including the climate transition,
politics and regulation enabling constructive
engagement in these areas.
• Proactive approach to understanding
stakeholder priorities including the impact of
the coronavirus pandemic and SSE’s response.
• Focused on people development, culture
and digital enablement in order to develop
capabilities for future growth.
• Extensive knowledge of financial markets and
• Literacy in complex energy markets which
• Wide-ranging insight regarding technical
leader of SSE’s financial strategy, including
the approach to sustainable financing and
expertise.
is supported by technical and operational
and operational matters, including energy
infrastructure and assets, commodity markets,
emerging practice in this area.
• End-to-end experience in large capital
energy trading and risk.
• Experienced in directing significant corporate
projects including joint venture engagement
• Combined industry and non-Executive
projects and major transactions, including
and governance, which has been applied in
experience enhances Board understanding
SSE’s approach to investments, divestments
the development of SSE’s diverse and flexible
of trends relevant to SSE’s operations and of
and partnering.
generation portfolio, including the renewables
utilities regulation.
• Oversees appropriate governance in the
pipeline.
management of the Group risk environment
• Commercially minded in seeking future
• A balanced sounding board with additive
experience in strategic consultancy and
including those emerging from the evolving
growth within SSE’s market-based businesses,
energy and utility stakeholder management.
energy sector and the transition to net zero.
and has overseen key capital recycling
• Deep appreciation of shareholder views and
opportunities and transactions to refine SSE’s
related ESG matters including the continued
core and complementary business areas and
commitment to lead on Fair Tax and the Living
secure optimum value from investments.
Wage as part of SSE’s 2030 Goals.
• Understanding of change management and
• Practical regulatory insight and Board
oversight of SSE’s networks businesses.
sources of commercial risk having led on SSE’s
Brexit transition arrangements, and the impact
of coronavirus on energy markets.
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
• Non-Executive Director of Diageo
• Chair Designate of the Atomic Weapons
Establishment (Chair appointment due to
commence in July 2021)
• Member of Scottish Energy Advisory Board
• Member of the UK Government’s Hydrogen
Advisory Council (commenced in December
2020)
• Member of the COP26 Business Leaders
group (commenced in September 2020)
• Non-Executive Director of Stagecoach
• Member of Energy UK Board
Group plc
• Stepped down as Chair of Scotia Gas
Networks Limited in February 2021 where
he remains a Director
• Chair of Infinis Energy Management Limited
• Deputy Chair and Governor of Warwick
Independent Schools Foundation
• Stepped down as Chair of Affinity Water
Limited in January 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE
Executive Directors
Independent non-Executive Directors
Sir John Manzoni
Chair
NC
ER
SHE
RC
Alistair Phillips-Davies
Chief Executive
Gregor Alexander
Finance Director
Martin Pibworth
Group Energy and Commercial Director
Tony Cocker
Senior Independent Director
ER
ER
NC
AC
ER
SHE
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Non-Executive Director since September 2020
Executive Director since January 2002 and
and Chair from April 2021
Chief Executive from July 2013
Executive Director and Finance Director since
October 2002
Executive Director since September 2017 and
Group Energy and Commercial Director from
November 2020
Non-Executive Director since May 2018 and
Senior Independent Director from October 2020
Board tenure
Under 1 year
Board tenure
19 years
Board tenure
18 years
Board tenure
3 years
Board tenure
3 years
Career and experience
Career and experience
Career and experience
Career and experience
Career and experience
Gregor joined SSE in 1990 and has been Finance
Director on the Board since 2002. Prior to Finance
Director, Gregor worked in senior finance roles and
led specialist teams including as Group Treasurer
and Tax Manager. Gregor is Chair of the Scottish
and Southern Energy Power Distribution Board
and a Director of Scotia Gas Networks Limited.
He is a Chartered Accountant and member of
the Accounting for Sustainability (A4S) CFO
Leadership Network.
Martin joined SSE in 1998 as an energy trader,
which was followed by a series of commercial
roles before becoming Managing Director, Energy
Portfolio Management, and a member of SSE’s
then Management Board, in 2012. In 2014, he was
appointed Managing Director, Wholesale, and a
member of SSE’s Group Executive Committee. In
2017 he joined the Board as Group Energy Director,
a role which was expanded to Group Energy and
Commercial Director in November 2020.
Tony possesses highly detailed knowledge of the
energy sector through a 20 year career with E.ON.
Latterly, he held the position of CEO and Chair of
E.ON UK plc, which comprised the Company’s
main businesses in the UK, including the supply
of energy to households, businesses and
communities, digital transformation programmes
and the smart meter roll-out. Previous roles
include CEO of E.ON Energy Trading SE and
Managing Director of E.ON UK Energy Wholesale.
He has served on the Board of Energy UK.
Skills and attributes which support strategy
and long-term success
Skills and attributes which support strategy
and long-term success
Skills and attributes which support strategy
and long-term success
• Extensive knowledge of financial markets and
leader of SSE’s financial strategy, including
the approach to sustainable financing and
emerging practice in this area.
• Experienced in directing significant corporate
projects and major transactions, including
SSE’s approach to investments, divestments
and partnering.
• Oversees appropriate governance in the
management of the Group risk environment
including those emerging from the evolving
energy sector and the transition to net zero.
• Deep appreciation of shareholder views and
related ESG matters including the continued
commitment to lead on Fair Tax and the Living
Wage as part of SSE’s 2030 Goals.
• Practical regulatory insight and Board
oversight of SSE’s networks businesses.
• Literacy in complex energy markets which
is supported by technical and operational
expertise.
• End-to-end experience in large capital
projects including joint venture engagement
and governance, which has been applied in
the development of SSE’s diverse and flexible
generation portfolio, including the renewables
pipeline.
• Commercially minded in seeking future
growth within SSE’s market-based businesses,
and has overseen key capital recycling
opportunities and transactions to refine SSE’s
core and complementary business areas and
secure optimum value from investments.
• Understanding of change management and
sources of commercial risk having led on SSE’s
Brexit transition arrangements, and the impact
of coronavirus on energy markets.
• Wide-ranging insight regarding technical
and operational matters, including energy
infrastructure and assets, commodity markets,
energy trading and risk.
• Combined industry and non-Executive
experience enhances Board understanding
of trends relevant to SSE’s operations and of
utilities regulation.
• A balanced sounding board with additive
experience in strategic consultancy and
energy and utility stakeholder management.
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
• Non-Executive Director of Stagecoach
• Member of Energy UK Board
Group plc
• Stepped down as Chair of Scotia Gas
Networks Limited in February 2021 where
he remains a Director
• Chair of Infinis Energy Management Limited
• Deputy Chair and Governor of Warwick
Independent Schools Foundation
• Stepped down as Chair of Affinity Water
Limited in January 2021
SSE plc Annual Report 2021
99
Sir John has wide-ranging experience across the
Alistair joined SSE in 1997 and possesses extensive
energy industry and both the private and public
knowledge of the Group having held senior roles
sectors. Through an executive career at BP which
across multiple business areas. Prior to joining
spanned 24 years, he held a number of senior roles
the Board in 2002 as Energy Supply Director,
including Chief Executive, Refining and Marketing
Alistair was Director of Corporate Finance and
in which he was a Main Board member. This
Business Development. In 2010, he became
was followed by President and Chief Executive
Generation and Supply Director, before Deputy
Officer at Talisman Energy Inc before a move
Chief Executive in 2012, then Chief Executive in
to UK Government where he spent six years as
2013. Alistair is a fellow of the Energy Institute
Chief Executive of the Civil Service and Permanent
and a former Vice President of Eurelectric.
Secretary of the Cabinet Office. He has previously
He is a Chartered Accountant.
been a non-Executive Director of SABMiller plc
and Chair of Leyshon Energy Limited.
Skills and attributes which support strategy
Skills and attributes which support strategy
and long-term success
and long-term success
• Dynamic and engaging leadership style
• Sound executive leadership and a considered
with diverse perspectives gained across
multiple sectors, organisational settings
and geographies, which complement the
responsibilities of SSE Chair.
approach to strategy which is evidenced
through continued delivery under the Group
operating model, and the development of
SSE’s sustainability plans and associated
• Experienced in the governance of large scale
targets.
business operations, leading reform and the
• Broad knowledge of the energy markets in
management of complex projects to drive
commercial performance, skills key to the
Great Britain and Ireland and across Europe,
which informs views of long-term direction.
fulfilment of SSE’s vision and purpose.
• Detailed understanding of the external
• Strong communicator with insight into
context including the climate transition,
the management and development of
stakeholder relations aligned with SSE’s
approach to decision-making.
politics and regulation enabling constructive
engagement in these areas.
• Proactive approach to understanding
• Working knowledge of energy regulation,
stakeholder priorities including the impact of
government and policy considerations which
the coronavirus pandemic and SSE’s response.
underpin the success of a net zero transition.
• Focused on people development, culture
and digital enablement in order to develop
capabilities for future growth.
• Non-Executive Director of Diageo
• Member of Scottish Energy Advisory Board
• Chair Designate of the Atomic Weapons
• Member of the UK Government’s Hydrogen
Establishment (Chair appointment due to
Advisory Council (commenced in December
commence in July 2021)
2020)
• Member of the COP26 Business Leaders
group (commenced in September 2020)
BOARD OF DIRECTORS CONTINUED
Independent non-Executive Directors
Dame Sue Bruce DBE
Non-Executive Director of the Board and for
Employee Engagement
Peter Lynas
Non-Executive Director
Helen Mahy CBE
Non-Executive Director
Melanie Smith CBE
Non-Executive Director
Dame Angela Strank DBE
Non-Executive Director
Sally Fairbairn
Company Secretary and
Director of Investor Relations
NC
RC
NC
AC
RC
NC
AC
SHE
NC
ER
RC
NC
SHE
RC
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Non-Executive Director since September 2013
Non-Executive Director since July 2014
Non-Executive Director since March 2016
Non-Executive Director since January 2019
Non-Executive Director since May 2020
Company Secretary and Director of Investor
Relations since December 2014
Board tenure
7 years
Board tenure
6 years
Board tenure
5 years
Board tenure
2 years
Board tenure
1 year
Career and experience
Career and experience
Career and experience
Career and experience
Career and experience
Career and experience
Dame Sue has extensive public sector experience
from a career which spanned almost 40 years,
holding a variety of roles in local government.
These included the positions of Chief Executive at
East Dunbartonshire Council and the first female
Chief Executive of both Aberdeen City Council
and the City of Edinburgh Council. Sue has also
held a number of Board and Board Committee
positions in organisations across the arts,
education and charitable sectors.
Peter has over 30 years of business experience
spanning all areas of finance. He retired from the
role of Group Finance Director of BAE Systems
plc in March 2020, prior to which he was Director,
Financial Control, Reporting and Treasury. His
early career involved roles within GEC Marconi,
where he was appointed Finance Director of
Marconi Electronic Systems before the completion
of the British Aerospace/Marconi merger. He
is a Fellow of the Chartered Association of
Certified Accountants.
Helen is a former Company Secretary and General
Counsel of National Grid plc and an experienced
non-Executive Director. Previous non-Executive
roles include directorships at Bonheur ASA, Aga
Rangemaster plc, Stagecoach Group plc, SVG
Capital plc, Chair of MedicX Fund Limited and
Deputy Chair and Senior Independent Director of
Primary Health Properties PLC. Helen is a member
of the Parker Review steering committee into
the Ethnic Diversity of UK Boards, a patron of the
charity Social Mobility Business Partnership, Co-
chair of the Employers Social Mobility Alliance and
an Equality and Human Rights Commissioner.
Skills and attributes which support strategy
and long-term success
Skills and attributes which support strategy
and long-term success
Skills and attributes which support strategy
and long-term success
• Strategic and operational experience of
• Brings recent and relevant financial
• Long-standing energy and regulatory
Melanie has over 20 years of in-depth strategy
Dame Angela has a depth of executive experience
Sally joined SSE in 1997 as a chartered accountant
experience and is currently CEO of Ocado Retail,
through a long-standing international career at
working in the Corporate Finance team. Through
the world’s largest pureplay online grocer and
BP. Prior to retirement in December 2020, she
this role which included responsibility for long-
the UK’s fastest growing grocer. Prior to this she
was a member of BP’s Executive Management
term financial modelling of the SSE Group, she
was Strategy Director for Marks & Spencer with
team as BP Group Chief Scientist and Head of
developed knowledge of the Group’s diverse
responsibility for group strategy, M&S Bank and
Downstream Technology. This followed business
operations and the UK energy industry. In 2007
M&S Services. Earlier roles include Global Strategy
and technical leadership positions spanning
Sally became Director of Investor Relations
and Marketing Director at Bupa, Chief Operating
technology and digital, innovation, engineering
and Analysis, allowing her to develop extensive
Officer at TalkTalk and a Partner in McKinsey’s
and renewable energy. Angela is a Fellow of
experience of the shareholder and financial
Consumer practice.
the Institute of Chemical Engineers, the Royal
analyst community, and through associated
Academy of Engineers, the Royal Society and the
engagement has a detailed understanding of
UK Energy Institute. She was awarded a DBE for
investor views. Sally was appointed to the joint
longstanding services to the energy industry and
role of Company Secretary and Director of
pioneering STEM careers, especially for women.
Investor Relations in December 2014.
leading organisations covering large numbers
of employees, significant assets, economic
development, construction projects and
engaging with communities, which provides
insight into SSE’s approach to its social contract.
• Distinguished in stakeholder engagement
•
with a highly personable style as is evident in
the roles of Remuneration Committee Chair
and Non-Executive Director for Employee
Engagement.
• Expert knowledge of Scottish government
and understanding of political affairs.
experience to the Board and strong direction
to the Audit Committee, as Chair of which,
he drives focus on the risk and control
environment including Group resilience
and the compliance culture.
International business perspective and
an applied understanding of long-term
project management and delivery, including
investment appraisal, contracting and supply
chain experience.
• Up-to-date investor relations experience
through his executive career at BAE and
pensions insight having been Chair of the
trustee Board of a major UK scheme.
experience underpinned by a comprehensive
understanding of the listed company context
including the applicable legal, compliance,
governance and risk frameworks in which
SSE’s businesses operate.
Insight into a broad range of investor and
stakeholder perspectives and trends from
cross-sectoral, international and external
Board interests that enable wider discussion
and debate.
•
• An advocate of SSE’s safety culture, inclusion
and diversity and employee wellbeing with
extensive knowledge of people matters and
a focus on sustainability.
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
• Convenor of Court of the University
• No key external appointments
• Chair of The Renewables Infrastructure
of Strathclyde
• Chair of the Royal Scottish National Orchestra
• Electoral Commissioner, the Electoral
•
Commission
Independent Chair of Nominations
Committee, the National Trust for Scotland
• Trustee of the Prince’s Foundation
100
SSE plc Annual Report 2021
Group Limited
• Stepped down as Non-Executive Director
of Bonheur ASA in July 2020
Skills and attributes which support strategy
Skills and attributes which support strategy
and long-term success
and long-term success
• Highly qualified to appraise strategy
• Expert understanding of the current and
development and execution having advised
future role of technology and science within
and led both growth and performance
transformation in the consumer and retail
the broader energy industry including the
impact of disruptive trends and resultant
sectors worldwide.
transformation.
• Deep commercial and digital experience
• Knowledge of leading and collaborating
across multiple goods and services categories,
on a large scale and with international
including insurance, telco and energy that
outlook having worked in the Middle East,
furthers Board understanding of the customer.
Europe, the Far East, Africa and America.
• Has a people centric style as an executive and
• Corporate social responsibility and
organisational leader and brings knowledge
sustainability experience through active
of operational efficiency and change
management.
involvement in climate science research,
embracing the energy transition, reputation
and safety management, pioneering women
in STEM careers and as a champion of
inclusion and diversity.
• CEO, Ocado Retail Limited
• Advisory Board member of Manaia
• Trustee of Sadlers Wells
• Non-Executive Director of Severn Trent plc
• Non-Executive Director of Rolls Royce plc
• Non-Executive Director of Mondi plc
(commenced in April 2021)
DIRECTORS’ REPORT – CORPORATE GOVERNANCE
Independent non-Executive Directors
Company Secretary
Dame Sue Bruce DBE
Peter Lynas
Non-Executive Director of the Board and for
Non-Executive Director
Employee Engagement
Helen Mahy CBE
Non-Executive Director
Melanie Smith CBE
Non-Executive Director
Dame Angela Strank DBE
Non-Executive Director
Sally Fairbairn
Company Secretary and
Director of Investor Relations
NC
RC
NC
AC
RC
NC
AC
SHE
NC
ER
RC
NC
SHE
RC
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Date of appointment
Non-Executive Director since September 2013
Non-Executive Director since July 2014
Non-Executive Director since March 2016
Non-Executive Director since January 2019
Non-Executive Director since May 2020
Company Secretary and Director of Investor
Relations since December 2014
Board tenure
7 years
Board tenure
6 years
Board tenure
5 years
Board tenure
2 years
Board tenure
1 year
Career and experience
Career and experience
Career and experience
Career and experience
Career and experience
Career and experience
Dame Sue has extensive public sector experience
Peter has over 30 years of business experience
Helen is a former Company Secretary and General
from a career which spanned almost 40 years,
spanning all areas of finance. He retired from the
Counsel of National Grid plc and an experienced
holding a variety of roles in local government.
role of Group Finance Director of BAE Systems
non-Executive Director. Previous non-Executive
These included the positions of Chief Executive at
plc in March 2020, prior to which he was Director,
roles include directorships at Bonheur ASA, Aga
East Dunbartonshire Council and the first female
Financial Control, Reporting and Treasury. His
Rangemaster plc, Stagecoach Group plc, SVG
Chief Executive of both Aberdeen City Council
early career involved roles within GEC Marconi,
Capital plc, Chair of MedicX Fund Limited and
and the City of Edinburgh Council. Sue has also
where he was appointed Finance Director of
Deputy Chair and Senior Independent Director of
held a number of Board and Board Committee
Marconi Electronic Systems before the completion
Primary Health Properties PLC. Helen is a member
positions in organisations across the arts,
of the British Aerospace/Marconi merger. He
of the Parker Review steering committee into
education and charitable sectors.
is a Fellow of the Chartered Association of
Certified Accountants.
the Ethnic Diversity of UK Boards, a patron of the
charity Social Mobility Business Partnership, Co-
chair of the Employers Social Mobility Alliance and
an Equality and Human Rights Commissioner.
Melanie has over 20 years of in-depth strategy
experience and is currently CEO of Ocado Retail,
the world’s largest pureplay online grocer and
the UK’s fastest growing grocer. Prior to this she
was Strategy Director for Marks & Spencer with
responsibility for group strategy, M&S Bank and
M&S Services. Earlier roles include Global Strategy
and Marketing Director at Bupa, Chief Operating
Officer at TalkTalk and a Partner in McKinsey’s
Consumer practice.
Dame Angela has a depth of executive experience
through a long-standing international career at
BP. Prior to retirement in December 2020, she
was a member of BP’s Executive Management
team as BP Group Chief Scientist and Head of
Downstream Technology. This followed business
and technical leadership positions spanning
technology and digital, innovation, engineering
and renewable energy. Angela is a Fellow of
the Institute of Chemical Engineers, the Royal
Academy of Engineers, the Royal Society and the
UK Energy Institute. She was awarded a DBE for
longstanding services to the energy industry and
pioneering STEM careers, especially for women.
Sally joined SSE in 1997 as a chartered accountant
working in the Corporate Finance team. Through
this role which included responsibility for long-
term financial modelling of the SSE Group, she
developed knowledge of the Group’s diverse
operations and the UK energy industry. In 2007
Sally became Director of Investor Relations
and Analysis, allowing her to develop extensive
experience of the shareholder and financial
analyst community, and through associated
engagement has a detailed understanding of
investor views. Sally was appointed to the joint
role of Company Secretary and Director of
Investor Relations in December 2014.
Skills and attributes which support strategy
Skills and attributes which support strategy
Skills and attributes which support strategy
and long-term success
and long-term success
and long-term success
Skills and attributes which support strategy
and long-term success
Skills and attributes which support strategy
and long-term success
• Strategic and operational experience of
• Brings recent and relevant financial
• Long-standing energy and regulatory
• Highly qualified to appraise strategy
• Expert understanding of the current and
leading organisations covering large numbers
experience to the Board and strong direction
experience underpinned by a comprehensive
of employees, significant assets, economic
to the Audit Committee, as Chair of which,
understanding of the listed company context
development, construction projects and
he drives focus on the risk and control
engaging with communities, which provides
environment including Group resilience
including the applicable legal, compliance,
governance and risk frameworks in which
insight into SSE’s approach to its social contract.
and the compliance culture.
SSE’s businesses operate.
• Distinguished in stakeholder engagement
•
International business perspective and
•
Insight into a broad range of investor and
with a highly personable style as is evident in
an applied understanding of long-term
stakeholder perspectives and trends from
the roles of Remuneration Committee Chair
project management and delivery, including
cross-sectoral, international and external
and Non-Executive Director for Employee
investment appraisal, contracting and supply
Board interests that enable wider discussion
Engagement.
chain experience.
and debate.
• Expert knowledge of Scottish government
• Up-to-date investor relations experience
• An advocate of SSE’s safety culture, inclusion
and understanding of political affairs.
through his executive career at BAE and
pensions insight having been Chair of the
trustee Board of a major UK scheme.
and diversity and employee wellbeing with
extensive knowledge of people matters and
a focus on sustainability.
development and execution having advised
and led both growth and performance
transformation in the consumer and retail
sectors worldwide.
• Deep commercial and digital experience
across multiple goods and services categories,
including insurance, telco and energy that
furthers Board understanding of the customer.
• Has a people centric style as an executive and
organisational leader and brings knowledge
of operational efficiency and change
management.
future role of technology and science within
the broader energy industry including the
impact of disruptive trends and resultant
transformation.
• Knowledge of leading and collaborating
on a large scale and with international
outlook having worked in the Middle East,
Europe, the Far East, Africa and America.
• Corporate social responsibility and
sustainability experience through active
involvement in climate science research,
embracing the energy transition, reputation
and safety management, pioneering women
in STEM careers and as a champion of
inclusion and diversity.
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
Key external appointments and changes
• Convenor of Court of the University
• No key external appointments
• Chair of The Renewables Infrastructure
Group Limited
• Stepped down as Non-Executive Director
of Bonheur ASA in July 2020
• CEO, Ocado Retail Limited
• Advisory Board member of Manaia
• Trustee of Sadlers Wells
• Non-Executive Director of Severn Trent plc
• Non-Executive Director of Rolls Royce plc
• Non-Executive Director of Mondi plc
(commenced in April 2021)
• Chair of the Royal Scottish National Orchestra
• Electoral Commissioner, the Electoral
of Strathclyde
Commission
•
Independent Chair of Nominations
Committee, the National Trust for Scotland
• Trustee of the Prince’s Foundation
SSE plc Annual Report 2021
101
BOARD LEADERSHIP AND COMPANY PURPOSE
SSE’S APPROACH TO
CORPORATE GOVERNANCE
SSE’s Governance Framework
Board of Directors
Nomination
Committee
Audit
Committee
Energy Markets Risk
Committee (EMRC)
Safety, Health and
Environment Advisory
Committee (SHEAC)
Remuneration
Committee
See pages 120 to 127
See pages 128 to 137
See pages 138 to 139
See pages 140 to 143
See pages 144 to 165
t
h
g
i
s
r
e
v
o
d
r
a
o
B
SSEPD Board
Group Executive Committee
Business Unit Executive Committees
Group Committees
SSEN Transmission
SSEN Distribution
SSE Renewables
SSE Thermal
Group Safety,
Health and
Environment
Group Large
Capital Projects
M
a
n
a
g
e
m
e
n
t
a
c
c
o
u
n
t
a
b
i
l
i
t
y
SSE Enterprise
Customers
Energy Portfolio
Management
Group
Risk
Group
Disclosure
The SSEPD Board oversees SSE’s economically regulated networks businesses in compliance with applicable regulatory license conditions.
Customers comprises SSE Business Energy and SSE Airtricity.
Board meetings and
attendance in 2020/21
In the period to 31 March 2021, there were
seven scheduled meetings of the Board
with update calls in alternate months
to maintain coverage of key business
developments, emerging issues and
opportunities. Arrangements remain
in place should a Board decision or
approval be required outside these times.
All Board and Committee contact has
been conducted on a platform to allow
face-to-face conversations to continue
virtually, with meeting attendance for
the year set out opposite.
Board
Nomination
Committee
Audit
Committee
EMRC SHEAC
Remuneration
Committee
Number of meetings held
Sir John Manzoni1
Alistair Phillips-Davies
Gregor Alexander
Martin Pibworth
Tony Cocker
Dame Sue Bruce
Peter Lynas
Helen Mahy
Melanie Smith2
Dame Angela Strank3
Richard Gillingwater
Crawford Gillies4
7
4/4
7/7
7/7
7/7
7/7
7/7
7/7
7/7
7/7
6/7
7/7
4/4
7
4/4
7/7
7/7
7/7
7/7
7/7
4/4
7/7
1/1
4
2/2
4/4
4/4
3/4
3/3
4
4
4/4
4/4
4/4
2/2
4/4
2/2
4/4
4/4
4/4
2/2
4
2/2
4/4
4/4
4/4
4/4
4/4
2/2
1 Sir John Manzoni joined the Board and Nomination Committee on 1 September 2020, and the
Remuneration Committee and SHEAC on 1 October 2020.
2 Melanie Smith joined the EMRC on 1 October 2020 and stepped down from the SHEAC on 1 April 2021.
In anticipation of the latter change Melanie did not attend the meeting of the SHEAC in March 2021.
3 Dame Angela Strank joined the Board, Nomination Committee and SHEAC on 1 May 2020 and the
Remuneration Committee on 1 October 2020. She was unable to attend the January Board meeting
in full due to a pre-existing external non-Executive commitment, this was notified and approved prior
to her appointment to the SSE Board.
4 Crawford Gillies stepped down from the Board and his respective Committee positions on 30 September
2020.
102
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE
The role of the Board
The primary role of the Board is to lead
the SSE Group in a way that ensures its
long-term success. This is a wide-ranging
duty and is guided by the cornerstones of
SSE’s purpose and vision. The last material
re-definition of SSE’s purpose and vision
was in 2019/20, when the Board agreed
further alignment with the Group’s societal
role, its net zero ambitions and strategic
transformation structured around core
and complementary businesses.
Following on from purpose and vision
the Board sets the Group’s strategy. This
is centred on sustainable value creation
for shareholders and considers SSE’s
wider contract with its key stakeholders.
The implementation of strategy is led
by the Group Executive Committee and
management across SSE’s Business Units.
Further information of SSE’s business
model and strategic progress in 2020/21
is covered across pages 1 to 93 .
Board reserved matters
Supporting purpose, vision and strategy and
SSE’s long term position, the Board retains a
schedule of matters reserved for its decision.
These are areas material to the Group’s
direction, people and resilience, and include:
• Agreement and monitoring of a healthy
corporate culture including SSE’s values.
• Approval of key financial communications
and SSE’s dividend policy.
• Ensuring sound systems of internal
control and risk management.
• Changes to the Group’s capital structure.
• Changes to Board and Board Committee
structure, size and composition.
• Approval of the electricity distribution
and transmission price control reviews
proposed by Ofgem.
• Material changes to the rules of the
Company pension schemes.
• Major transactions.
The Schedule of Reserved Matters is one
of a collection of documents and policies
which make up SSE’s Board Charter. The
contents of the Board Charter govern the
Board’s operations and pertinent Group-
wide matters and is subject to annual
Board approval.
The Board Charter contains:
• Articles of Association.*
• Schedule of Reserved Matters.*
• SSE’s Guide to Good Business Ethics.*
• SSE’s Guide to Governance.
• Board Committee Terms of Reference.*
• Non-Audit Services Policy.*
• Procedure for Taking Independent
Advice.
• Non-Executive Directors’ Shareholding
Policy.
• Board Inclusion and Diversity Policy.*
• Responsibilities of key Board roles. *
* Documents available in full at sse.com
Corporate governance
within SSE
Within SSE, corporate governance can be
explained as the minimum expectations
set by the Board surrounding standards,
responsible conduct and controls. The
Governance Framework specifically maps
out where accountability resides in line
with delegated authorities and forms part
of the Group’s System of Internal Control,
see page 137 .
Areas of importance to both the Board
and the Group’s operations influence the
features of the Governance Framework.
This is illustrated in part by the Committees
which have been agreed to provide
dedicated focus to areas on behalf of the
Board and the Group Executive Committee.
Oversight of delegated matters is supported
by formal reporting channels. For Board
Committees this is a personal account from
the non-Executive Director who chairs
the Committee. On executive matters,
the Chief Executive, Finance Director and
Group Energy and Commercial Director
are charged with providing full updates at
each Board meeting. This is in addition to
minutes, written reports and KPIs to monitor
financial and non-financial performance.
Board operations
The Board, led by the Chair, seeks to
nurture a Boardroom in which informed and
transparent decision-making takes place.
This is supported by clearly defined Board
roles (see page 117 ) and constructive
dialogue within and outside of meetings.
Structured agendas are developed by
the Chair, Chief Executive and Company
Secretary who consider the Board’s annual
plan of business and the current status of
projects, strategic workstreams and the
overarching operating context. Adequate
time is allocated to support effective and
constructive discussion, and guidance
is available to authors and presenters of
Board materials. An electronic meeting
portal allows efficient navigation of papers,
information and requests. Details of Board
meeting activity in 2020/21 can be found
on pages 106 to 111 .
With one of the key responsibilities of
the non-Executive Directors being to
challenge and provide counsel, it is
deemed appropriate that relationships
can be built with different levels across the
Group. The Board therefore has unfettered
access to senior leadership, their teams and
specialist functions. For details of employee
engagement and knowledge development
in 2020/21 see pages 114 to 116 and 123 .
Group Executive Committee
The membership of the Group Executive Committee comprises the Executive Directors, the Managing Directors of SSE’s core Business
Units and the General Counsel. The Director of HR and the Director of Corporate Affairs and Strategy attend every meeting in full.
Alistair Phillips-Davies
Chief Executive, Member
Gregor Alexander
Finance Director, Member
Martin Pibworth
Group Energy and Commercial
Director, Member
Sally Fairbairn
Company Secretary and Director
of Investor Relations, Committee
Secretary
Rob McDonald
MD, SSEN Transmission, Member
Chris Burchell
MD, SSEN Distribution, Member
Jim Smith
MD SSE Renewables, Member
Biographical details can be
found at sse.com
Liz Tanner
General Counsel, Member
John Stewart
Director of HR, Regular Attendee
Sam Peacock
Director of Corporate Affairs
and Strategy, Regular Attendee
SSE plc Annual Report 2021
103
BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
CONSIDERED
DECISION-MAKING
Decision-making context
Promoting SSE’s long-term success is rooted,
in part, through setting conditions for effective
decision-making. The decision-making context
stems from SSE’s Governance Framework explained
on pages 102 to 103 , with the Board confirming
key parameters and expectations. These include
SSE’s purpose, vision, strategy and culture and the
approach to reflecting stakeholder views within
long-term plans and day-to-day operations. The
connectivity between these concepts is depicted
opposite.
Our purpose
To provide energy needed today, while building
a better world of energy for tomorrow.
Our vision
To be a leading energy company in a net zero world.
Our strategy
To create value for shareholders and society in a
sustainable way by developing, building, operating
and investing in the electricity infrastructure and
businesses needed in the transition to net zero.
Our culture
See pages 112 to 113 .
Our stakeholders
SSE’s stakeholders are people, communities and
organisations with an interest in SSE’s purpose,
strategy, operations and actions and who may
be affected by them.
S h a r eholders and
d e b t providers
Em plo y e e s
c
u
E
n
s
t
e
r
o
g
Vision
m
y
e
r
s
s
r
e
d
l
o
h
e
k
a
t
S
s
w
e
i
v
Purpose
Strategy
v
i
e
w
s
S
t
a
k
e
h
o
l
d
e
r
s
S
c
u
a
o
p
n
n
d
p
t
r
li
p
a
c
t
a
r
t
n
e
e
o
r
s,
rs
rs
Culture
NGOs, comm u n i
t
and civil so c i e t y
i e s
o v ern m ent
d re g ulators
n
G
a
Stakeholder views
The Board shapes the framework within
which stakeholder relationships are
developed and maintained; confirming SSE’s
key stakeholder groups and the purpose
of stakeholder engagement in relation
to decision-making and strategy. These
principles, alongside SSE’s key stakeholder
relationships and engagement in 2020/21
are explained on pages 28 to 31 .
To ensure meaningful reflection of
stakeholder views across all of SSE’s
business operations, breadth and depth of
stakeholder engagement is required. The
scale of this activity cannot be discharged by
the Board alone and it therefore encourages
a progressive approach to engagement
through a network of mature executive
and business-led stakeholder relationships
across the Group. Robust oversight and
104
SSE plc Annual Report 2021
understanding of stakeholder views at Board
level is gathered through a combination
of direct engagement and reporting of
below Board activity. This supports the
timely recognition of emerging stakeholder
issues, and ensures Board engagement
complements the expectation that senior
leadership and SSE’s Business Units take
demonstrable account of stakeholder views
in their decisions and longer-term objectives.
Direct and indirect Board engagement
mechanisms are set out on pages 30 to
31 , with additive detail on shareholders
and debt providers on page 105 and
employees on pages 114 to 116 .
The influence of stakeholder views within the
Board’s own work is exemplified across the
Directors’ Report. This includes, but is not
limited to, the Board’s Principal Decisions
on pages 107 to 109, 124 and 127 .
To guide Board focus in 2021/22,
engagement priorities have been agreed
as follows.
• Oversee the delivery of a comprehensive
COP26 stakeholder engagement plan.
• Engage with investors to confirm
understanding of ESG-driven funds
and UK/EU taxonomy.
• Encourage AGM participation.
• Further external soundings on
strategy with framing around SSE’s
key stakeholder groups.
• Prioritise conversations with employees
on future ways of working and their
contribution to strategy and tackling
climate change.
DIRECTORS’ REPORT – CORPORATE GOVERNANCE
Shareholder and debt
provider engagement
SSE engages with equity and debt investors
to understand the views of those that
invest in SSE and to communicate its
strategic plans, Environmental, Social and
Governance (ESG) approach and financial
performance. Investors are able to contact
the Company at any time through SSE’s
dedicated channels (see page 315 ).
Retail shareholders. To allow management
of an individual’s shareholding, SSE’s investor
website provides a source of equivalent
information, housing all regulatory news
announcements and published financial and
non-financial reports. The Investor Relations
team, and the Company Secretariat, with
support from SSE’s Registrar, engage with
retail shareholders in response to private
shareholding queries.
Institutional investor programme. Across
2020/21, standing engagement supported
by SSE’s Investor Relations team, comprised
112 one-to-one and 25 group meetings,
representing direct engagement between
the Board and over 40% of SSE’s actively-
managed issued capital. These contacts
were conducted virtually across investor
roadshows, conferences and ad-hoc
meetings. The majority of which were
led by the Executive Directors, with the
Chair, the Senior Independent Director,
and members of SSE’s senior leadership
team joining where requested or deemed
appropriate to the subject of the meeting.
Conversations were more international
with virtual visits to over 12 countries,
and this form of meeting will continue
as an available option.
Feedback was provided to the Board
following each engagement, supplemented
by a monthly report of investor and market
sentiment and share price performance,
and two independent sessions co-ordinated
by SSE’s Brokers. Outcomes included
improved disclosure around SSE’s renewable
operational fleet and development pipeline,
its thermal generation assets, and its financial
framework including a target net debt/
EBITDA ratio.
ESG. Engagement on ESG issues. Against
the backdrop of increasing investor focus
on ESG and sustainability practice, SSE
has engaged regularly with shareholders
AGM 2020
AND 2021
AGM 2020. The Board’s overriding
priorities for the format of SSE’s AGM
in 2020 were safety and the need to
safeguard shareholder participation
and engagement.
After careful consideration of the ongoing
coronavirus pandemic, social distancing
measures and the Corporate Governance
and Insolvency Bill, the Board agreed
that shareholders would not attend the
AGM in person. Supporting arrangements
to encourage voting by proxy and
submission of questions to the Board
in advance were therefore put in place.
Questions received were grouped
by theme and responded to in full
through a combination of a video
presentation published on sse.com
on the day of the AGM and direct written
reply. The engagement with Royal
London Asset Managers and Friends
Provident Foundation at this time,
further resulted in the development of
SSE’s Just Transition strategy which is
explained on page 45 . Through proxy
arrangements an equivalent level of
share capital directed votes on meeting
business, with all resolutions passed with
in excess of 90.24% votes cast in favour.
ENGAGEMENT
IN ACTION
SHAREHOLDERS
AND DEBT PROVIDERS
AGM 2021. The learnings from the
coronavirus context in 2020 identified
opportunities for enhanced engagement
arrangements for the AGM in 2021. It
was recognised that methods for remote
shareholder interaction were paramount,
where any physical element of the meeting
remains subject to government guidelines.
Accordingly, shareholders will now be able
to submit and have questions answered
both in advance and during the meeting
and observe proceedings in real time by
webcast. Proxy arrangements remain in
place to allow all shareholders to cast their
vote in any resulting meeting format. To
allow the fullest flexibilities for shareholder
participation, the necessary authorities to
hold hybrid meetings in the future are also
being put to shareholder vote.
on a broad range of ESG topics. As well as
increasingly frequent discussions of ESG
issues during regular investor engagement,
numerous ESG-themed one-to-one
meetings were held during the year and
SSE’s Finance Director, Group Energy
and Commercial Director, and Chief
Sustainability Officer, jointly presented
at two ESG-themed investor events.
ESG ratings agencies. SSE actively
engages with key ESG ratings agencies
and investor-led initiatives to help
demonstrate SSE’s performance to its
stakeholders, while allowing identification
of areas for improvement in its operations
and disclosure.
Green debt financing. Recognising
increasing investor demand for debt used
to fund sustainable assets, in March 2021,
SSE – via SSEN Transmission – issued
its fourth green bond in five years. The
issuance reaffirmed SSE’s status as the
largest issuer of green bonds from the UK
corporate sector, with over £1.9bn in green
debt outstanding. In addition, SSE has set
out a new framework for issuing innovative
sustainability-linked bonds in the future.
Remuneration. The engagement between
the Remuneration Committee Chair and
SSE’s largest shareholders on the expanded
Group Energy and Commercial Director
role, and associated terms, are set out on
page 145 .
SSE plc Annual Report 2021
105
BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
STRATEGIC REVIEW AND
BOARD FOCUS IN 2020/21
Strategic developments in 2020/21
Annual strategy review
Strategic
priorities
agreed
Seagreen
FID and sale
of stake
Viking FID
SSEN
Transmission
SSEN
Distribution
SSE
Renewables
SSE Thermal
Customers
Dogger Bank
(A+B) FID
Crown Estate
Round 4
approvals
Annual strategy review work
Business Unit update
Linked to Board Principal Decision
FID: Final Investment Decision
Annual
strategy
review
preview
Five-year
financial
outlook
SSE
Enterprise
Dogger
Bank (A+B)
sale of stake
SSE
Renewables
RIIO-T2
intention to
appeal
Low-carbon
thermal
2020
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2021
Jan
Feb
Strategic disposals to streamline the Group (see page 16 )
Walney, Maple Co, Multifuel Energy, Gas Production, Contracting
Mar/
Apr
Setting strategic direction
The Board’s strategy activities comprise
an annual and rolling review of the Group’s
overall strategic situation, current direction
and future priorities, alongside individual
sessions from each of SSE’s Business Units.
This work, which includes consideration
of how value is generated and sustained,
allows the Board to effectively oversee
and confirm the continued appropriateness
of SSE’s business and operating model
(see pages 10 to 13 ).
Strategic review in 2020/21
Building on 2019/20. In 2019/20 the
Board confirmed priorities to further
SSE’s position and safeguard its long-term
success. These were confirmed on page
101 of the Annual Report 2020. Progress
made across 2020/21 is set out in the
timeline above and discussed across
the Board Principal Decisions on pages 107
to 109 .
Review inputs and discussion. The Board’s
review of Group strategy in 2020/21
focused on:
• The external environment and how
this impacts SSE and its stakeholders,
including trends in policy, regulation,
competitor behaviour, technology,
energy markets and capital markets.
106
SSE plc Annual Report 2021
This review was supported by
presentations from Colin Mayer of
Saïd Business School on the role of
responsible listed corporations in society
and Flint Global on key policy and political
trends. Further commentary on sector
developments can be found on pages 24
to 27 .
• Growth, including a review of the
size of growth markets and returns for
opportunities in the transition to net zero.
• SSE’s strategic progress and its financial
situation. This included progress against
the previous year’s strategic priorities,
valuation of the SSE Group and scenario
analysis of the five-year financial outlook.
• Strategic choices for the next five years
including capital allocation options.
• The long-term shape of the SSE
Group and implications for its investor
proposition and financial strategy.
Board as they arose, which saw discussion
of the Energy White Paper, the 6th Carbon
Budget, and the Crown Estate Offshore
Leasing Round 4.
Output. The 2020/21 strategy review
agreed the following areas for continued
focus across a time horizon to 2025:
• The evolution of the shape of the
SSE Group.
• Strategic priorities for the Group
and each Business Unit.
• Key decisions around SSE’s capital
allocations.
Looking forward. In April 2021, the Board
agreed a refinement of the description of
the Group’s strategy in order to ensure it
more accurately articulated the existing
strategy ahead of its strategic review work
in 2021/22.
Analysis and debate was informed by
a range of inputs from specialist teams
including: Corporate Finance; Energy
Economics; Business Unit leadership
teams; and Group Strategy. Each
Business Unit further presented detailed
performance updates over the year to
discuss and agree their own strategic
priorities for progression. Key events of
potential strategic were presented to the
DIRECTORS’ REPORT – CORPORATE GOVERNANCE BOARD PRINCIPAL DECISION
WIND DEVELOPMENT PIPELINE
Key
Build
Operate
Invest
Develop
Background
In 2019/20 and 2020/21, the Board confirmed priorities to support the growth of SSE Renewables’ wind development
pipeline. These have been furthered by one of SSE’s 2030 business goals; to develop and build enough infrastructure
to treble the output of SSE’s renewable energy to 30TWh per annum. In line with the above, Board consideration was
required in 2020/21 surrounding the Final Investment Decisions (FID) in the Seagreen 1 (offshore, 1075MW*), Dogger
Bank A and B (offshore, 2,400MW*) and Viking (onshore, 443MW*) wind projects.
Board discussion
* total project capacity with SSE’s share is in line with its equity holding.
All large capital projects within SSE are subject to an agreed governance framework, where set criteria must be
met to allow progression through key milestones. Prior to reaching FID, Board assurance is provided through these
governance arrangements in relation to project development, safety, design, and risk. In each case, the decision to
move into the project execution phase saw Board evaluation of:
• total capex, project economics and funding;
• engineering and construction findings;
• contracting strategy including the potential coronavirus impact on supply chain;
• overall project risk; and
• UK energy market design.
Board stakeholder
considerations
and impacts
The Board remained appraised of stakeholder views through SSE Renewables’ engagement strategy, in addition to
those material issues identified by SSE’s established engagement methods (see pages 28 to 31 ). A summary of the
key considerations which informed Board decision making were:
• Climate change and net zero. The transition to net zero is of material interest to society and through SSE’s
purpose, the Board is committed to supporting strategic opportunities which accelerate decarbonisation of the
electricity system with an appropriate risk and return profile. The Board’s advocacy priorities reflect SSE’s net
zero ambitions which are consistent with the UK Government’s offshore wind ambitions, and more recently,
the Government’s Ten Point Plan.
• Supporting a green economic recovery. In line with SSE’s social contract, the Board recognised the potential
contribution large-scale project investment could have on local economies, namely through the creation of
highly skilled jobs and in supporting indigenous supply chains.
• Working for customers. A material issue to energy customers is the cost of electricity supply, and increasingly,
the ability to trace the source of electricity generation. When complete, the capacity of the total Seagreen,
Dogger Bank and Viking projects have the potential to deliver enough renewable output to power 8.1 million
homes. The Board will continue to advocate for the right conditions for investment in renewable infrastructure
to deliver a sustainable and affordable energy system.
• Combining expertise. The opportunity presented by strategic partnerships to deliver excellence through the
combining of expertise is consistent with SSE’s strategy and values. Given the large scale of these wind projects,
working with partners was deemed an appropriate risk mitigation for the construction phase and allows the
deployment of capital in a more diverse portfolio of projects.
• Shareholders and debt providers. The trajectory and pace of SSE’s renewables strategy has been transparently
reported and subject to discussion and support in investor meetings. When approving FID, the Board considered
the returns which would be acceptable to investors in each case.
The Board approved the FID in the Seagreen 1, Dogger Bank A and B, and Viking wind projects between April
and September 2020, all of which progressed to financial close. Consistent with the partnering approach, a sale in
the stakes of Seagreen and Dogger Bank to Total and Eni respectively was approved and completed in June 2020
and February 2021. To further SSE Renewables’ ambitions, and following the successful delivery of key project
milestones, endorsement was provided for an aspirational run rate of at least 1GW (net) of new assets a year during
the second half of the decade. Supporting activity for this has been Board-approved participation in the Crown
Estate Round 4 seabed auctions and the seeking of international opportunities to support portfolio diversification
across different geographies and markets.
Strategic link:
Link to Principal Risk:
Climate Change
Large Capital Projects Management
See also:
Pages 17, 19 and 83 to 85 .
Outcome, next
steps and related
decisions
SSE plc Annual Report 2021
107
BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
STRATEGIC REVIEW AND BOARD FOCUS IN 2020/21 CONTINUED
BOARD PRINCIPAL DECISION
RIIO-T2 PRICE CONTROL
Key
Build
Operate
Invest
Develop
Background
In December 2019, SSEN Transmission submitted its final business plan for the RIIO-T2 price control, entitled ‘A
Network for Net Zero’ (the business plan). Its creation followed structured consultation with SSEN Transmission’s
stakeholders over a two-year period and committed to the delivery of five goals which had been designed to meet
stakeholder expectations. During development, the Board remained updated on business plan progress and the
supporting constructive stakeholder engagement, including that with the GB Energy Regulator, Ofgem, throughout
its determination process.
Board discussion Co-creation of a business plan with stakeholders was endorsed as the correct approach to allow SSEN Transmission
Board stakeholder
considerations
and impacts
to simultaneously attract the investment needed to tackle the issue of climate change, whilst taking account of
evidence-based stakeholder needs. Following the publication in December 2020 of Ofgem’s Final Determinations
for the RIIO-T2 period, and Ofgem’s subsequent consultation on associated licence condition modifications, the
Board noted the broad support for SSEN Transmission’s stakeholder-led business plan. However, it also recognised
that certain technical but very important issues required correction.
SSEN Transmission deploys a range of communication methods, within an agreed engagement strategy, to actively
listen and gather stakeholder views. For RIIO-T2 this included a dedicated Network for Net Zero Stakeholder Group.
The outputs of this overarching engagement work have been considered by the Board through the below, with
the Board further cognisant of the longer-term position, in which the outcomes of the RIIO-T2 price control could
impact upon future price controls.
• Firm commitment to the business plan. The business plan is supported by five clear goals which create
stakeholder benefit through: the transportation of renewable energy consistent with net zero ambitions;
transmission network reliability for homes and businesses; the delivery of all customer connections on time;
a reduction in greenhouse gas emissions; and efficiency savings from innovation.
• Long-term success. The business plan, including the significant investments in the network that will go through
uncertainty mechanisms as part of the RIIO-T2 price control, was produced to: protect current and future
consumers; maintain security of supply; and act on climate change while attracting the investment that creates
jobs and future prosperity. Working constructively within the regulatory framework allows SSEN Transmission
to put forward its view of appropriate and balanced stakeholder outcomes based on robust, objective evidence.
Outcome, next
steps and related
decisions
The Board confirmed its support surrounding SSEN Transmission’s intention to appeal certain elements of Ofgem’s
RIIO-T2 price control settlement to the Competition and Markets Authority (CMA). The appeal is both technical
and narrow in scope, focused on areas where Ofgem’s decision does not reflect the robust evidence provided
throughout the price control process, alongside material errors in the decision. A conclusion to the appeal is
expected by November 2021. The Board will remain updated as the CMA considers the merits of the appeal and
will oversee enaction of the business plan which is now underway and contributing to the transition to net zero.
Strategic link:
Link to Principal Risk:
Climate Change
Energy Affordability and Politics
Regulation and Compliance
See also:
Pages 21 and 79 to 80 .
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE BOARD PRINCIPAL DECISION
LOW CARBON THERMAL GENERATION
Key
Build
Operate
Invest
Develop
Background
Board discussion
Board stakeholder
considerations
and impacts
Outcome, next
steps and related
decisions
SSE Thermal plays a complementary role within the SSE group of businesses through the provision of firm and
flexible capacity to balance the variability of renewable output. The investment in Keadby 2 signalled early support
for efficient lower-carbon technology within this important asset class. This has been followed by consideration of
the possible investment opportunities presented by clean carbon, capture and storage (CCS) and hydrogen fuelled
generation, to tackle climate change whilst ensuring continued security of supply across the energy system.
Across 2020/21, the Board received detailed updates from the SSE Thermal senior leadership team allowing
assessment of development opportunities, and their strategic fit with SSE’s net zero and sustainability ambitions
including its 2030 business goals. This included optionality within the traditionally carbon intensive Humber cluster;
an area in which Keadby 2 and the potential development of Keadby CCS, a gas fired power station with carbon
capture technology, are located.
Through formal consultation surrounding Keadby CCS and SSE’s established stakeholder engagement mechanisms
(see pages 28 to 31 ), the below matters were reflected across Board discussions in the year:
• Sustainable electricity system. Flexible thermal generation plays a pivotal part to ensure a reliable energy system
that supports the supply of essential services to society. Dispatchable thermal plant with minimal emissions can
continue to fulfil this key role whilst contributing to the UK’s net zero targets. SSE’s own science based targets
remain a key baseline against which to judge the low-carbon fit of future investments and CCS and hydrogen
are deemed to complement this pathway.
• A Just Transition. Investment within industrial regions is a key principle within SSE’s view of a just transition.
Existing skills and knowledge can be deployed across green technologies, in which workers and local
communities are supported through the protection of existing jobs and creation of new employment
opportunities.
• Progressive partnering. Complementary skills, a common investment approach and shared stakeholder and
policy views are key inputs into SSE’s partnering strategy. Further developing the long-standing relationship with
Equinor, which includes mutual involvement in the Zero Carbon Humber partnership, was confirmed as a natural
progression to allow joint development of valuable low carbon opportunities both in the Humber cluster and
elsewhere in the UK.
• Developing appropriate governance. Robust regulatory and policy frameworks are key to driving new
investment with fair returns for developers, operators and end customers. The adequacy of proposed support
to align with the UK Government’s ambition for these new technologies will be monitored to ensure they
translate into a compelling case for all stakeholders.
The Board confirmed entry into a cooperation agreement with Equinor to jointly develop Keadby CCS and Keadby
Hydrogen. Research and development of the supporting CCS and hydrogen technologies will be progressed under
the partnership, alongside options to further decarbonise the Keadby 2 project through hydrogen blending. It was
announced in May 2021, the scope of the co-operation agreement was expanded to include the Peterhead CCS
Power Station in Aberdeenshire. Engagement with government, regulators and stakeholders will continue, with
any Final Investment Decisions dependent on the progress of policy frameworks that are commensurate with the
delivery of this net zero enabling infrastructure. Sessions on the role of clusters and hydrogen technology in support
of emerging climate science have been agreed for integration into future Board work.
Strategic link:
Link to Principal Risk:
Climate Change
Energy Infrastructure Failure
Large Capital Projects Management
See also:
Pages 20 and 86 to 87 .
SSE plc Annual Report 2021
109
BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
STRATEGIC REVIEW AND BOARD FOCUS IN 2020/21 CONTINUED
Board meeting focus
In addition to the strategic deliberations on pages 106 to 109 , Board meeting agendas
have included consideration of the following matters. These are non-exhaustive and detail
the breadth of oversight provided by the Board in order to discharge responsible leadership.
Key
Focus area
Board considerations
and monitoring
• Outcome
Safety, health and environment (SHE)
Workforce and culture
Employee safety during coronavirus
The approach to assessing and managing the new and emerging
pandemic risks across work settings, including critical operations
and working from home.
• Assurance of SSE’s employee response, including: PPE;
employee guidance; wellbeing; mental health support;
and fatigue.
• A report of all supporting employee communications in
Board meeting packs.
SHE strategy, performance and initiatives
SHE KPIs including positive performance under the new
Safe Days measure and the ongoing SHE strategy refresh.
• Standing Board monitoring activity.
Culture and employees
See pages 112 to 116 .
Whistleblowing
Progress in the approach and culture to support engagement
and trust in SSE’s whistleblowing channel, reviewing indicators of
performance and the potential impact of coronavirus on reporting
suspected incidents.
• Confirmation that SSE’s whistleblowing arrangements be
considered effective.
Pensions
Pension developments across the Group’s Defined Benefits
Schemes and Defined Contribution Scheme.
• Noted the current governance arrangements, performance and
on-going management across the Pension Schemes including
funding, returns and employee engagement.
Financial management
Risk
Financial performance
Monthly updates on financial performance by Business Unit
including detail of the estimated impact of coronavirus.
• Additional EPS guidance was issued to the market in September
and December 2020, consistent with continued business
operations and the assessed impact of coronavirus on SSE’s
customer facing businesses.
Financial strategy and resilience
Funding requirements, planned project expenditure and the
timing of disposal proceeds. And financial headroom and cash
flow following the additional viability work carried out in June
2020, which were considered against the objective of maintaining
a strong balance sheet, investment grade credit ratings and a
commitment to remunerating shareholders through the 2023
dividend plan.
•
Issuance by SSEN Transmission of a £500m green bond in
March 2021.
• Approved and recommended interim and final year dividends
of 24.4p and 56.6p.
• Confirmed the output of the assessment which forms the basis
of SSE’s Viability Statement (see pages 56 and 133) .
Budget and financial modelling
The proposed 2021/22 Group budget which reflected the
expected phasing in capital investment and expenditure in
line with RIIO-T2 outcomes and SSE Renewables projects.
• Long-term financial modelling assumptions and outputs
as context for future decisions and strategy discussions.
• Approved the 2021/22 annual budget.
• Endorsed updated assumptions for project investment analysis.
Risk profile
The supporting programme of work to assess SSE’s Group risk
environment including any changes in the risk context that should
be reflected in the relative positioning of the Group Principal Risks
and SSE’s risk appetite.
• Approved the identification and definition of 11 Group Principal
Risks and the retention of the emerging risk ‘Joint Venture and
Partner Management’ (see page 54) .
• Confirmed updates to SSE’s Risk Appetite Statement
see page 56) .
Coronavirus and energy markets
Energy market liquidity and forecast electricity demand in line with
coronavirus developments including lockdowns and government
guidelines, and SSE’s position under its approach to hedging.
• Received updates on the management and governance of
commodity exposures, including the position following the
decision to suspend and reduce SSE Renewables hedging
in March 2020 and the initiation of a temporary Demand
Management Committee (see page 138) .
Information and cyber security
The external cyber risk environment and deliverables from the
internal programme of work, which included focus on employee
awareness and training, and SSE’s risk tolerance which underpins
the cyber risk culture. The status of the 2020/21 GDPR Privacy
Programmes and data considerations surrounding employee
coronavirus information and Brexit scenarios.
• Approved updates to the 2021 Cyber Risk Appetite Statement.
• Confirmed SSE’s current GDPR governance and mitigation
work.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Sustainability and climate impacts
Governance
Sustainability approach
SSE’s annual sustainability plan which set out priorities to ensure
continued legitimacy as a purpose-led company with a strategy
that delivers wider value creation. The priorities were reflective
of immediate and longer-term stakeholder needs and increased
understanding of the socio-economic impact of investments.
• Endorsed actions centred on the core themes of a green and
Board and senior leadership
The leadership needs of the Board, its Committees and senior
executive teams in line with succession plans, including
opportunities to increase diversity and expertise.
• Approved the appointment of the Chair, Senior Independent
Director and the expanded role of the Group Energy and
Commercial Director.
sustainable recovery, sustainable procurement, and systematic
engagement on ESG issues.
• Approved changes to Board Committee membership.
• Noted senior leadership appointments in SSEN Distribution
• Endorsed the approach to stakeholder pandemic support
and Energy Portfolio Management.
including publication of stakeholder based communications*.
• Approved inclusion of an ethnicity target in the Board’s
• Approved the 2020 Modern Slavery Statement*.
• Publication of SSE’s Just Transition strategy*.
• A new Sustainable Procurement Code*.
• Complementary to the sustainability approach, provided
support for SSE to be a Principal Partner on COP26 in 2021.
* Available to view on SSE.com
Sustainability targets
The pathway to meeting SSE’s 2030 business goals through
Business Unit strategic plans and SSE’s sustainability approach
(see above). This included science-based target accreditation
for SSEN Transmission’s five-year business plan goal to reduce
greenhouse gas emissions by 33%.
• To further support the decarbonisation of SSE’s own operations,
the Board approved a commitment to reaching net zero
emissions by 2050, building upon the existing medium-term
science-based carbon targets set in 2020 (see page 36) .
Stakeholders
SSE’s strategic approach to stakeholder engagement.
• Reaffirmed SSE’s six key stakeholder groups and agreed
engagement priorities (see page 104) .
Climate strategy
The growing importance of shareholder engagement on
SSE’s plan to achieve net zero carbon emissions across all
of its operations by 2050 at the latest.
• Proposed an enabling resolution within the business of the 2021
Annual General Meeting (AGM) that establishes a framework
for an annual vote on SSE’s Net Zero Transition report at
future AGMs.
Politics and regulation
Brexit
Updates from the Group Energy and Commercial Director and
the Brexit project team surrounding the assessment of risk, and
potential impact of, different deal scenarios at Group and Business
Unit level, including detail of whether these were short or long-
term considerations for SSE’s strategy and operations. Focus areas
included import tariffs, people, data, supply chain and commodity
and financial markets.
• Noting that each scenario would present limited risk, the
Board continued to receive updates on emerging matters
post-transition, and approved actions to mitigate exposure to
carbon price risk by way of an adjustment to SSE’s approach
to the forward hedging of its thermal generation output as
reported in SSE’s Q3 trading update. Approval to monitor and
recommence hedging when appropriate was provided in April
2021 (see page 138) .
Inclusion and Diversity Policy.
Corporate reporting
The contents of corporate reports and associated regulatory
market announcements, in conjunction with recommendations
and feedback from the Audit Committee on judgements, balance
and basis of preparation.
• Approved the release of quarterly trading updates, the interim
results and the Annual Report and Accounts 2021.
Annual General Meeting (AGM)
Feedback from the AGM 2020 and the approach and business to
be considered in 2021, including methods to facilitate continued
and safe shareholder participation.
• Approved the Notice of AGM 2021 and meeting arrangements.
Governance developments
Observations surrounding the impact of the Market Abuse
Regulation on the UK disclosure regime since implementation.
And an annual update covering: the ongoing reform of the
Financial Reporting Council and the Audit sector; external views
of best practice as seen by investors and proxy advisors; and
coronavirus related guidance including emergency legislation.
• Noted the governance landscape and external expectations.
• Considered internal practice and work which was ongoing by
supporting teams.
Advocacy priorities
Consistent with SSE’s Greenprint the Board considered the policy
framework and market design required to deliver net zero and
build economic resilience.
• Approved the advocacy priorities to deliver the correct
outcomes for SSE’s key stakeholders, ensuring appropriate
representation of their views. This included regulatory price
controls that support continued investment and fair returns
and a policy pathway that supports the infrastructure required
for net zero.
Landscape and external developments
Updates on the political landscape in the UK and Ireland relevant
to SSE’s operating environment and emerging risks. This included:
the development of the Government’s policy agenda for net zero
ahead of COP26; the emergence of the Labour Party’s policy
platform under a new leader and implications for public ownership
in the energy sector; and Scottish independence.
• Approved SSE’s approach to: monitoring the political landscape
in the UK and Ireland; considering its potential impact on SSE’s
strategy and operations; and managing potential opportunities
and risks associated with key developments.
SSE plc Annual Report 2021
111
BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
FOCUSING
FOCUSING
ON CULTURE
ON CULTURE
Influence of culture
The Board recognises the cultural tone
set within the Group has both internal
and external influence; guiding employee
interactions and directing decisions with
stakeholder impact. This pervasive context
is reflected within the agreed definition of a
healthy corporate culture for SSE and is the
baseline against which cultural guidance is
developed and tested.
Aligning culture with purpose,
vision and strategy
SSE’s purpose, vision and strategy provide
confirmation to employees and external
stakeholders as to why SSE exists, what it is
seeking to achieve and the direction which
has been agreed to get there. Engagement
with these elements to ensure everyone in
SSE understands their contribution to the
Group’s long-term success, is fundamental
to creating a culture that can be embraced
at every organisational level.
Board support in 2020/21
In March 2020, the Board recognised
the resilience of SSE’s culture would be
tested by the quickly evolving coronavirus
situation. This saw a shift to critical worker
status for front line staff and a working from
home model for a significant proportion of
the workforce. Unable to provide on-site
support and have in-person conversations,
two surveys were conducted in 2020/21
to understand how employees were
feeling and what support was required.
One outcome was a comprehensive
communications strategy that could reach
employees in all work settings and maintain
engagement. The content covered both
coronavirus related issues and an employee
guide to strategy, with the Board involved
in the delivery of key messages. Through
virtual calls, employees were encouraged
to submit questions for live discussion with
the Board (see pages 114 to 116 ).
Guiding and promoting culture
Ethical business conduct within SSE is
known as ‘doing the right thing’. To support
this, the Board confirms the appropriate
values, attitudes and behaviours, to
drive the creation of an inclusive and fair
workplace in which responsible decisions
are taken. Employee guidance is provided
through the Board-approved SSE SET
of values, SSE’s Group Policies and an
employee guide; all of which are supported
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SSE plc Annual Report 2021
by mandatory online training. Leading by
example is re-enforced through the Board’s
own conduct and the communication to
employees of key activity. Senior leaders
across SSE’s Business Units and Group
Services have the same responsibility to
lead, embed and oversee cultural standards.
Cultural signals at Board-level include:
• SSE’s Governance Framework and
corporate governance practices
(see pages 102 to 104 ).
• Feedback from all Board-employee
engagement.
• Non-Executive Director for Employee
Engagement programme insights.
• Employee survey results.
• Twice yearly Cultural Dashboard review.
• Monthly people updates from the Chief
Executive covering key developments
and employee sentiment.
• A monthly compliance report from the
Finance Director.
• Monthly safety and employee wellbeing
• Board decision-making (see pages 106
data.
to 111 ).
• The approach to people strategy and
leadership (see Nomination Committee
on pages 120 to 127 ).
• SSE’s risk, controls and compliance
culture (see Audit Committee and
EMRC on pages 128 to 139 ).
• The prime focus on safety, health
and the environment (see SHEAC on
pages 140 to 143 ).
• Attitudes towards reward and
remuneration (see Remuneration
Committee on pages 144 to 165 ).
Board support in 2020/21
Following the refresh of SSE’s Group Policies
in 2019/20, the Board approved an updated
version of SSE’s employee guide which
contained enhanced decision-making
tools. All Group Policies were reviewed
and approved in 2020/21 through the
Board’s standing annual review.
Reflective of cultural drivers around
leadership and values, commitments were
made in March 2020 not to furlough any
employees, with the priority being a longer-
term approach to the pandemic through
continuity of work. This has remained a
stated Board focus, alongside appropriate
recognition of employee commitment
and achievement. To this end, the Board
endorsed flexible remote working policies
and an ‘SSE Day’ of leave for all employees.
Monitoring indicators of culture
The Board does not use a singular tool for
the assessment of culture; instead drawing
upon multiple sources to understand the
way employees feel about SSE and how this
translates into observed behaviours and
trends. These sources can be described
as a combination of the below regularly
reported metrics, standing reports and
listening channels.
• Whistleblowing performance.
• SSE’s Principal Risk ‘People and Culture’.
Board support in 2020/21
The maturity of the Board’s Cultural
Dashboard has been furthered in 2020/21,
with work undertaken to enhance
the linkage of data to accompanying
observations. It remains a collective
of three parts, with: data from Group
HR; information on Group Compliance
reviews; and commentary on financial
crime and corruption prevention controls.
An illustrative view of the Group HR
component is set out opposite.
Due to the impact of coronavirus on
metrics, the cultural dashboard could not
be read comparatively across 2019/20 and
2020/21. Its interpretation was therefore
supported by insights from the all-employee
surveys, Board engagement and listening
events. This allowed consideration of
the coronavirus impact and changes in
sentiment. Through discussion of the issues
raised by employees, the Board approved:
• the continued development of business-
led responses to employee survey
findings, which the Non-Executive
Director for Employee Engagement
would engage on;
• plans to develop a future ways of
working model; and
• continuation of enhanced
communication.
Additional challenge was provided to
ensure listening remained dynamic in
style, field staff did not feel isolated from
the communication approach and the
impact on new entrants and those early
on in their careers be considered.
DIRECTORS’ REPORT – CORPORATE GOVERNANCE BOARD’S CULTURAL DASHBOARD – THE MEASUREMENTS WE USE
A healthy corporate culture is one in which SSE has a purpose, values and strategy that are respected by the
Company’s stakeholders and an operating environment:
• that is inclusive, diverse and engaging;
• that encourages employees to make a positive difference for stakeholders;
•
•
in which values guide decisions and actions; and
in which attitudes and behaviours are consistent with high standards of conduct and doing the right thing.
Our culture is
determined
by the way we…
This is reflected in our
key cultural themes…
We start by measuring
employee sentiment…
And we review with our supporting
employee metrics and KPIs…
Attract and
retain our people
Employee
engagement levels
Look after
each other
Safety
Wellbeing
Make decisions
Doing the right thing
Lead from
the top
Senior leaders
Communication
Manage
performance
My manager
See ourselves
Our strategy
Latest all-
employee survey
results and
trend analysis
EMPLOYEE TURNOVER LEVELS YTD
TOP REASONS FOR LEAVING
SAFE DAYS RECORDED YTD
AVERAGE DAYS OF SICKNESS ABSENCE
RECORDED PER COLLEAGUE
TOP REASONS FOR ABSENCE
EMPLOYEE CONTACTS RECEIVED
ON SPEAK UP PLATFORMS YTD
NO. OF LEADERS ENGAGED VIRTUALLY
WITH OUR LEADERSHIP PROGRAMME
BOARD AND GEC HOSTED EMPLOYEE
ENGAGEMENTS YTD
‘CLICK’ RATE FOR THE SSE LEADERS
EMAIL YTD
NO. OF ACTIVE LEADERSHIP
PAGE MEMBERS
NO. OF DELEGATES VIRTUALLY ATTENDED
MANAGEMENT TRAINING SESSIONS YTD
NO. OF VIEWS OF SSE EMPLOYEE
GUIDE TO STRATEGY
NO. OF INDIVIDUALS ENGAGED WITH
THE SUSTAINABILITY NETWORK
COMMUNITY GROUP
Work together
Inclusion
% EMPLOYEES ABLE TO WORK DIFFERENTLY
My team
See also:
• Reinforcing a healthy ethical culture on page 47 ).
• Listening and responding during the pandemic on page 48 ).
% ROLES OPENLY ADVERTISED
% ROLES ADVERTISED WITH FLEXIBLE
WORKING OPTION
NO. OF EMPLOYEE-LED “BELONGING
IN SSE” GROUPS ESTABLISHED
% OF COLLEAGUES ABLE TO
COLLABORATE EFFECTIVELY
% OF COLLEAGUES FEEL WELL-
CONNECTED TO THEIR TEAM
% OF COLLEAGUES ABLE TO
WORK PRODUCTIVELY
SSE plc Annual Report 2021
113
BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
SUPPORTING AND LISTENING
TO THE EMPLOYEE VOICE
A GREENPRINT FOR
BUILDING A CLEANER
MORE RESILIENT
ECONOMY
Policy action today for a better
world of energy tomorrow
Engagement highlights
VIRTUAL SESSIONS LED BY
THE EXECUTIVE DIRECTORS
12
EMPLOYEES ENGAGED VIRTUALLY
+2,800
NON-EXECUTIVE DIRECTOR FOR
EMPLOYEE ENGAGEMENT SESSIONS
ALL-EMPLOYEE SURVEY 2020
ENGAGEMENT SCORE:
9
VIRTUAL SESSIONS LED BY THE EXECUTIVE
AND NON-EXECUTIVE DIRECTORS
82%*
* 8/10 employees recommend SSE as a good
place to work and feel energised and able to
fulfil their role.
5
How the Board engages
The two-way dialogue between the
Board and employees is facilitated by a
combination of engagement methods,
which in normal circumstances would
include face-to-face contacts through
meetings, site visits and attendance at
employee events. These tools complement
the established annual all-employee survey
process and the Board’s review of findings.
The adoption of a diverse range of listening
channels has been based on the principle
that everyone in SSE should have a voice,
and is consistent with employee feedback
of the benefit of multiple platforms to raise
areas for discussion. In turn, it supports the
Board in gathering a fair and representative
view of the issues which are important to
employees and builds an appreciation of
how these may differ by business, role
and geography.
Engagements can be classed as formal
and informal, with both required to identify
ongoing themes and new concerns.
Typically, the formal approach is used to
gather a structured and holistic view across
a large population of individuals at a point
in time. With the Board’s informal methods
providing a greater depth of feedback, truer
understanding of underlying sentiment and
supporting development of constructive
relationships with employees. The size and
format of discussions is determined by the
stated objective of the Board’s engagement.
Board engagement in 2020/21
The modified engagement approach
adopted during 2020/21 as a result
of working arrangements during the
coronavirus pandemic, alongside details of
what has been heard and the action taken,
is set out in page 115 . The central feature
of the approach has been new technologies
and the associated opportunity to conduct
conversations on a much larger scale and
simultaneously with individuals located
across different parts of Great Britain and
Ireland. Conversations have continued to
be broad ranging and cognisant of, and
responsive to, the changing status of the
pandemic in the year.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Board listening approach
Board listening channels
Engagement class What this channel brings
Non-Executive Director for Employee
Engagement (see page 116 )
Formal: Virtual
focus groups
and trade unions
discussions
Informal: Hosted
calls with diverse
employee groups
Virtual Director-employee meetings
and interactive sessions
Virtual focus groups
Informal
Formal
All-employee surveys
Formal
Blogs and written communications
Formal
All-employee setting. Offers a Board perspective which can
otherwise be missed from business-led communications, and
provides the Board with insight of employee opinion on life at SSE.
People leaders. Provides the opportunity to replay key messages
which have been heard through listening channels, and supports
and challenges management actions and response.
Senior leadership. Creates a platform for two-way interaction
between senior leaders and the Board through which the Board
can offer views and personal external perspectives.
Provides employees with Board accessibility and direct two-way
interaction, and supports discussion of specific topics in detail.
Allows interaction with different geographies and diversities across
the Group, and being smaller in size, provides the opportunity to seek
out added context surrounding employee sentiment through true
conversation. The impact can be fast and help influence decisions
which may affect employees.
Exists as a long-standing tool with a mature strategy that attracts
a consistently strong response rate, with the results viewed as
representative of the majority of employee voices. The question
set and associated findings are used to enhance the cultural agenda,
ensuring that employee sentiment and feedback is considered in
all key decision making.
Reinforces matters of importance and embeds the tone through
the Board’s written reflections.
Listening insights and Board action
What employees requested
How the Board responded
Understanding of SSE’s vision
and strategy from the Board
and senior leadership.
• The Chair delivered a session to wider senior leaders on the power of purpose-led
strategy and how sustainable businesses provide profitable solutions to world issues.
• The Senior Independent Director and the Group Energy and Commercial Director held
a focus group to present on energy markets, and in return listened to employee views on
the climate transition and opportunities.
• Each Board member that participated in virtual sessions provided views on SSE’s strategy
and long-term direction.
Confirmation that action will
be taken on employee views.
• Dedicated calls covered the findings of the all-employee survey results, with one shaped
through pre-submitted employee questions.
• The Chief Executive personally sponsors key areas of focus following each all-employee
External perspectives including
different sectoral responses
to coronavirus.
Opportunity to learn more
about the Board and to get
to know the Directors.
survey.
• The Non-Executive Director for Employee Engagement presented on the outcomes of
the all-employee survey to people-leaders, identifying clear accountabilities specific to
that group.
• The Finance Director hosted a senior leadership call in which SSE’s Brokers and the
Company Secretary and Director of Investor Relations covered financial results and
investor views.
• The Chief Executive and Melanie Smith hosted a CEO-to-CEO roundtable answering
questions from a cross-section of SSE’s senior leaders.
• The Chief Executive hosted Cindy Rose, President of Microsoft, Western Europe, and
a group of over 150 leaders, to consider how the world of work is evolving during
the pandemic.
• See ‘Engagement highlights’ on page 114 for details of the breadth of engagement
undertaken.
• All non-Executive Directors participate in informal written Q&As which are issued via
SSE’s all-employee newsletter.
• The Group Energy and Commercial Director has maintained a personal blog on daily
life and working from home which employees have interacted with, and requested
he continue.
SSE plc Annual Report 2021
115
BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
SUPPORTING AND LISTENING TO THE EMPLOYEE VOICE CONTINUED
Non-Executive Director for
Employee Engagement
The role of Non-Executive Director for
Employee Engagement was a natural and
progressive step in the evolution of SSE’s
employee voice strategy, which whilst
mature and firmly established within the
operating rhythm of the Group, was ready
for an enhanced and more interactive
understanding of employee sentiment.
Dame Sue Bruce was appointed to the
role in 2018.
The Nomination Committee made
the above recommendation through
consideration of the agreed role profile
and in recognition of Sue’s depth of
experience, active listening skills and
empathetic approach. It was further
deemed complementary, that as Chair
of the Remuneration Committee,
relevant employee perspectives could
be understood in the context of wider
remuneration policy and the approach
to reward.
Each year, the programme of work is
structured and supported by SSE’s Group
HR Employee Engagement Manager. The
success of the role is measured in action,
whereby the employee voice is consistently
represented in meetings attended by the
Non-Executive Director for Employee
Engagement, allowing the views and
opinions of colleagues to feature and
contribute to discussions and decisions
being made.
“It was great to engage with Sue on our
virtual town halls, and hear first-hand
about the focus on employee engagement
and two-way communication at Board
level. I think it’s really important people
see a genuine appetite from leaders
across SSE to incorporate the opinion of
employees into their decision making.”
James Moran,
Low Carbon Thermal Engineer
The strength of this dedicated role in
providing feedback to the Board, and
a factor which has come to the fore in
2020/21, is the speed at which views
can be heard. This has been invaluable in
assessing the adequacy of our employee
support in an unprecedented period.
The collaborative role of Group HR
ensures that responsive business-led
action can be channelled directly to
senior leaders and informs the overall
engagement approach.
I would like to re-iterate the pride
felt by the Board for what has been
achieved in challenging circumstances,
and welcome comments on our
engagement agenda. I look forward to
the continuation of our programme in
2021/22 and the open, constructive and
enjoyable conversations this will entail.
Dame Sue Bruce
Non-Executive Director for Employee
Engagement
A GREENPRINT FOR
BUILDING A CLEANER
MORE RESILIENT
ECONOMY
Policy action today for a better
world of energy tomorrow
• Support for a range of
communication channels and
continued clarity of messaging.
• The value of ready access to
managers and ability to provide
feedback.
• Successful and continued business
delivery through responsive IT
solutions.
• The high importance of SSE’s
inclusive culture especially within
recruitment.
• That focus on safety has remained
paramount.
To keep in touch with a range of views,
our virtual meetings have reached
colleagues in different business areas
and settings. This included attendance
at formal business meetings and
discussion in more intimate groups
without senior leaders. The diversity
of these contacts has comprised:
frontline coronavirus workers in SSE
Enterprise; engineering colleagues
in SSEN Distribution; senior leaders
in SSE Thermal; teams in Customers;
and an Energy Portfolio Management
employee survey focus group.
The engagement programme also
incorporates meetings twice annually
each with trade unions FTOs and
with JNCC colleagues. These seek
to give alternative direct access to
the Board and support the formal
industrial relations activities led by the
executive team. This underpins our
commitment to openness, inclusivity
and transparency whilst respecting
and keeping intact our respective
roles and responsibilities.
ENGAGEMENT
IN ACTION
EMPLOYEES – NON-EXECUTIVE
DIRECTOR FOR EMPLOYEE
ENGAGEMENT
Engaging with colleagues has looked
substantially different in 2020/21,
reflecting the challenges that have
been faced by society at large. Through
its ability to adapt, SSE has enabled
continued engagement by ‘travelling’
across our businesses and geographies
with virtual conferencing. Resilience and
strength in depth has been evident in
every group of colleagues with whom
I have had the opportunity to engage.
In addition to contributing to the listening
channels set out on pages 114 to 115 ,
my focused discussions have explored
the outcomes of two all-employee
surveys, working during lockdown
and allowed open Q&As.
As well as the measured responses to
the all-employee surveys, consistent
feedback has reflected:
• Loyalty and commitment to SSE
and delivering for stakeholders.
• A pledge to support colleague
wellbeing, with a focus on mental
health and those living and working
alone during lockdown.
116
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE
DIVISION OF RESPONSIBILITIES
DIVISION OF
RESPONSIBILITIES
Defining Board responsibilities
The below role specifications set out the clear division of responsibility between executive and non-Executive members of the Board
which support the integrity of the Board’s operations.
Non-Executive
Chair
• Leading the effective operation and
governance of the Board.
Independent non-Executive Directors
• Scrutinising, measuring and reviewing the
performance of management.
• Setting agendas which support balanced
• Constructively challenging and assisting
decision-making.
• Ensuring effective Board relationships and
a culture that supports constructive debate.
• Understanding key stakeholder views and
seeking assurance they have been considered.
• Overseeing the annual Board evaluation and
identifying any actions required.
• Leading initiatives to assess SSE’s culture and
ensuring the Board sets the correct tone.
Senior Independent Director1
• Providing a sounding board for the Chair.
• Leading the Chair’s performance evaluation.
• Serving as an intermediary to other Directors
when necessary.
• Being available to all stakeholders if they have
any concerns which require resolution.
in the development of strategy.
• Providing independent insight and support
based on relevant experience.
• Reviewing Group financial information and
ensuring the System of Internal Control and
Risk Management Framework are appropriate
and effective.
• Reviewing succession plans for the Board
and key members of senior management.
• Monitoring actions to support inclusion and
diversity in line with Board and Group Policy.
• Engaging with key stakeholders and feeding
back insights as to their views, including
employees in relation to culture.
• Setting executive remuneration policy.
• Serving on or chairing various Committees
of the Board.
Non-Executive Director for
Employee Engagement 1
• Developing, implementing and feeding
back on employee engagement initiatives
in conjunction with management; providing
an employee voice in the Boardroom.
• Representing the Board in discussions
with employees and communicating
Board decisions on specific matters.
• Engaging with officers of trade unions and
internal trade unions representatives on key
strategic issues affecting the workforce.
Executive
Chief Executive
• Proposing and directing the delivery of
strategy as agreed by the Board through
leadership of the Group Executive Committee.
• Communicating and providing feedback
on the implementation of Board-agreed
policies, and their impact on behaviours and
culture, ensuring SSE operates in a way that is
consistent with its values.
• Responsibility for the overall Group of
businesses and leading the functions of:
HR; Corporate Affairs and Strategy; and
Sustainability.
• Engaging with SSE’s six key stakeholder
groups and leading on related activity
at EU and UK level.
Company Secretary
• Compliance with Board procedures
and supporting the Chair.
• Ensuring the Board has high quality
information, adequate time and the
appropriate resources.
Finance Director
• Deputising for the Chief Executive.
• Proposing policy and actions to support
Group Energy and Commercial Director
• Supporting the work of the Chief Executive
and Finance Director.
sound financial management and leading
on M&A transactions.
• Leading SSE Renewables, SSE Thermal, EPM,
Customers and SSE Enterprise at Board level.
• Leading the functions of: Finance;
• Driving growth and commercial market
Procurement and Logistics; Group Risk
and Audit; IT and Cyber Security; Investor
Relations and Company Secretarial; and
the General Counsel areas of responsibility.
• Overseeing and reporting on SSE’s networks
businesses.
• Overseeing SSE’s relationships with the
investment community.
• Engaging with SSE’s six key stakeholder
groups and leading on related activity
in Scotland.
risk activities for all of SSE’s non-networks
businesses at Group-level.
• Leads executive relations with trade unions.
• Engaging with SSE’s six key stakeholder
groups and leading on related activity in
Ireland and Northern Ireland.
• Advising and keeping the Board updated
on corporate governance developments.
• Considering Board effectiveness in
conjunction with the Chair.
• Facilitating the Directors’ induction
programmes and assisting with professional
development.
• Providing advice, services and support to
all Directors as and when required.
1 The responsibilities of Senior Independent Director and Non-Executive Director for Employee Engagement apply in addition to those of non-Executive Director.
SSE plc Annual Report 2021
117
COMPOSITION, SUCCESSION AND EVALUATION
ASSESSING BOARD
EFFECTIVENESS
2020/21 Board and
Committee review
The Board monitors and improves
performance by reflecting on the continuing
effectiveness of its activities, the quality of its
decisions and by considering the individual
and collective contribution made by each
Board member. This is conducted annually
through formal performance evaluation,
which considers the work of the Board, its
Committees and the individual Directors.
with an open and collegiate culture that
allows good challenge on key issues.
Non-Executive Directors’ insight and
experience is welcomed, with the correct
balance of work between the Board and
its Committees being achieved.
Details of the full areas of assessment
are set out below, alongside commentary
and actions for progression in 2021/22.
An overview of progress against areas
identified for 2020/21 is also provided.
The 2020/21 performance evaluation
was an internal process, facilitated by the
Company Secretary in consultation with
the Board and Board Committee Chairs.
This is ahead of an external evaluation in
2021/22, with the last external evaluation
conducted by Schneider Ross in 2018/19.
Overall, it was the collective view of the
Directors that the Board is effective in
discharging its responsibilities; operating
Board Committees
The evaluation of Board Committee
performance confirmed that each
Committee remained effective in providing
Board support. Specific findings and the
agreement of actions was overseen by
each Committee Chair, with consideration
of the overall Board findings where
deemed relevant to the Committee’s work.
Progress will continue to be monitored and
assessed by each forum, with details set out
in the Reports across pages 120 to 165 .
Individual Director performance
Individual Director performance and
contribution was assessed through one-
to-one meetings with the Chair. These
sessions allowed reflection on personal
development and discussion of matters
relevant to Boardroom culture and process.
The findings, in combination with individual
skills (see pages 98 to 101 and 121 ),
the time commitment and independence
assessments (see page 123 ), confirmed
that each Director continues to contribute
positively and effectively both within and
outside of Board meetings.
Chair performance
The performance of the Chair was evaluated
by the Senior Independent Director, with
feedback provided from non-Executive
Directors, Executive Directors and
Board and Committee evaluation cycle
2018/19
External evaluation
2019/20
Internal evaluation
Progress made on actions identified in 2019/20
Actions 2019/20
Update
Energy Markets Risk Committee (EMRC)
should continue as a Board Committee.
Agree further Board agenda time on
other risk areas.
• The EMRC continued to operate in 2020/21 and will remain in place.
• Group Risk matters continue to be monitored through the Group Executive Committee
and Board.
• The new Group Energy and Commercial Director role includes responsibility for commercial
market risk activities for all of SSE’s non-network activities.
Opportunities to further work on culture
including employee and trade unions
engagement should be considered.
Additional deep dives and discussion
time for certain topics relevant to the
Board’s work should be arranged.
• This was a major Board focus in 2020/21 and full details can be found on pages 112 to 116 .
Several deep dive sessions were arranged, including:
long-term energy price scenarios from SSE’s Energy Economics team;
the Customers Business Unit’s plans and customer context;
•
•
• seabed leasing; and
• hurdle rate analysis.
Consideration should be given to the use
of Board sessions for external guests and
additional non-Executive Director only time.
• Two external sessions formed part of the strategy review work in 2020/21 with presentations
from Colin Mayer of Saïd Business School and Flint Global (see page 106 .)
• Arranging further non-Executive Director only time has been postponed due to coronavirus
restrictions and normal non-Executive Director only meetings continue through a virtual
platform.
Additional stakeholder engagement
opportunities that complement business-led
engagement should be sought.
• Physical site visits have not been possible in 2020/21 due to coronavirus. However, SHEAC
members have undertaken virtual visits (see page 141 ) which included a dedicated feedback
meeting in October 2020. Site visits will resume when safe to do so, and in the interim, further
virtual visits are being arranged.
• The breadth of employee engagement in 2020/21 is set out on pages 114 to 116 .
118
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE selected senior leaders. The output of this
performance review confirmed that Richard
Gillingwater provided strong leadership
to the Board in the year, particularly
with the challenge of the coronavirus
pandemic and the UK’s exit from the EU.
He was considered to drive a committed
and inclusive culture that encouraged
constructive debate, appropriate challenge
and diversity of views, and established a
positive and open tone that supported
discussion and the effective operation of
meetings. It was confirmed that he devoted
sufficient time to the role, and except for the
Provision surrounding tenure, in all respects
met the requirements of the Code. Sir John
Manzoni succeeded Richard Gillingwater
as Chair of the Board on 1 April 2021, with
further details of Chair succession on page
122 .
2020/21 Internal Board and Board Committee evaluation process
Stage 1. Evaluation design
Questionnaires for the Board and its
Committees were developed by the
Company Secretary in consultation
with the Board and Committee Chairs.
Questions were set in consideration of
relevant recommendations from 2019/20,
in addition to best practice and revised
guidance such as the Code and Guidance
on Board Effectiveness.
Stage 2. Evaluation process
Questionnaires were issued to Board
members and senior leaders who
regularly attend various Board Committee
meetings. Responses were collated
and draft reports which summarised
the findings and included proposed
recommendations for discussion, were
prepared by the Company Secretary.
These reports were reviewed by the
relevant Board or Committee Chairs
for feedback and comment.
Stage 3. Discussion and actions
The relevant report of findings was
presented at the corresponding Board
and Committee meetings between
January and March 2021. Through review
and discussion actions were agreed for
implementation and monitoring.
2020/21
Internal evaluation
2021/22
External evaluation
Areas of assessment and findings for the 2020/21 Board Evaluation
Areas of assessment
Commentary and actions
Board dynamics
Strategy
Engagement
Risk management
and internal control
Board practice
The relationship between Board members remains appropriate, supporting: constructive challenge on key decisions;
equal participation from all Directors; and the proper resolution of issues in meetings.
The level of Board involvement in strategy development is correct, with good and open discussion of strategic issues.
Site visits, employee and other stakeholder engagement should remain areas of continued focus. Despite the impact
of coronavirus on the ability to meet in-person, the use of technology has been successful to maintain engagement,
notwithstanding, elements of physical engagement would be welcomed when possible.
The Board’s approach to the management of risk and to SSE’s System of Internal Control, including the delegated
Committee support, is deemed effective.
Board practice is effective and papers and presentations are of a high quality. To improve the use of presenters’
allocated time, and with an increased focus on discussion, the Company Secretary has issued updated guidance
to presenters on meeting practice.
The deep dive subjects and external speakers in 2020/21 have been useful and important. Additional sessions
and discussion time for certain topics relevant to the Board’s work should be arranged for 2021/22.
Coronavirus impact
Meetings remained effective and despite the impact of the coronavirus pandemic worked well with the use
of technology.
SSE plc Annual Report 2021
119
COMPOSITION, SUCCESSION AND EVALUATION CONTINUED
NOMINATION
COMMITTEE REPORT
Discussion surrounding future talent
pipelines has reflected on both the current
talent pool and the diversity they represent.
Since 2017, SSE’s inclusion strategy has
worked to deliver change in this area
and we recognise that further progress
is required. In conjunction with senior
leadership, we have agreed to increase
the Committee’s involvement across
separate talent and inclusion and diversity
workstreams where there are opportunities
to provide additional support. Further
details are provided page 127 and
will be a key focus in the year ahead.
I look forward to reporting on further
progress as we continue our work across
2021/22.
Sir John Manzoni
Chair of the Nomination Committee
25 May 2021
I am delighted that Tony Cocker has
been appointed to the role of Senior
Independent Director in line with Board
succession plans, and we have reviewed
and updated committee membership in
light of the changes to the Board. Related
executive talent considerations included
the expansion in the role of the Group
Energy and Commercial Director, a position
which now has greater accountability
and oversight of commercial growth
opportunities and risk in SSE’s market-
based businesses. Through our annual
evaluation we further agreed to refresh
our non-Executive Director skills matrix
such that it fully reflects and aligns with
SSE’s purpose, vision and strategy. Once
complete, it will support our succession
planning efforts going forward.
With 2020 and 2021 set as the target years
for the achievement of Hampton-Alexander
and Parker Review ambitions, I am
pleased that we are in line with the stated
recommendations surrounding Board
gender and ethnic diversity. To signal our
commitment to enduring change, we have
taken steps to formalise our Board ethnicity
ambition with its inclusion in the Board’s
Inclusion and Diversity Policy.
The Board’s female representation has
increased year on year and now stands
at 40%, as we continue to work towards
a rolling three-year ambition of 33%. The
Composition Dashboard page 121 sets
out a number of our additional Board
diversity indicators.
The ongoing search for a new non-
Executive Director outlined on page 123
will remain cognisant of our ambitions and
look to strengthen our diversity of skills,
knowledge and personal experiences.
Dear Shareholder,
At the heart of every organisation are its
people and its culture; a matter that speaks
to the important role of the Nomination
Committee. The Committee sets the
framework for the development of an
inclusive and high-performing leadership
team and workforce now and for the future.
Reflecting on the Committee’s work at
Board-level during 2020/21, a stated focus
was identifying a successor to Richard
Gillingwater as Chair of the Board. This
was a formal and rigorous process which is
set out in detail on page 124 . Following
its completion, I joined the Board as a
non-Executive Director on 1 September
2020 and became Board and Nomination
Committee Chair on 1 April 2021.
Prior to this, the Board and Committee
welcomed Dame Angela Strank on
1 May 2020 following her recommended
appointment. On 30 September 2020 and
31 March 2021 respectively, Crawford Gillies
and Richard Gillingwater stepped down
from their respective roles, and I want to
extend our gratitude for their dedicated
service to SSE.
120
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Board Composition Dashboard
BOARD GENDER BALANCE
ROLLING THREE-YEAR FEMALE
REPRESENTATION (%)
BOARD ETHNICITY2
31 March
20211
31 March
2020
31 March
2019
Male
Female
7 (64%)
4 (36%)
7 (70%)
3 (30%)
7 (70%)
3 (30%)
Target
31 March
2021
31 March
2020
31 March
2019
33.0
29.91
28.52
29.63
1 As at 25 May the female representation on the
Board is 40%, this follows the transition in the role
of Chair and stepping down of Richard Gillingwater.
1 Comparable size of Board: 10.1 members
2 Comparable size of Board: 9.7 members
3 Comparable size of Board: 9.3 members
White British: 9
Maori: 1
BOARD INDEPENDENCE2
CHAIR AND NON-EXECUTIVE DIRECTOR TENURE2
Sir John Manzoni
Dame Sue Bruce
Tony Cocker
Peter Lynas
Helen Mahy
Melanie Smith
Dame Angela Strank
0
1
2
3
4
5
Years
6
7
8
9
10
Non-Executive Director tenure
Chair tenure
Executive Directors: 3
Independent non-Executive Directors: 6
Non-Executive Chair: 1
2 Figures as at 25 May 2021
SKILLS MATRIX
Supporting SSE to be a leading energy
company in a net zero world
SSE’s Business Units face unique challenges through
their individual operating contexts. Understanding of
external trends is key for agreeing long-term direction.
Skills and experience required
• Energy sector
• Utilities regulation
• Government and public policy
• Net zero
SSE has well-defined strategic priorities aligned with net
zero which require, amongst other things, understanding
of project development, asset construction and operation.
• Strategy development
• Low-carbon technologies
• Large capital project management
• Commercial and supply chain
Creating value for shareholders and providing a stable
return on investment requires sustainable financing,
suitable corporate transactions and appropriate
growth opportunities.
• Financial literacy
• Capital markets
• Project economics
• Partnering
SSE is focused on responsible and ethical operations,
and being a Company that people want to work for and
with, and invest in.
• Consumer and commercial
• Stakeholder management
• Wider social contract
• Sustainability
SSE’s diverse operations are supported by the skills of
its employees and contractors who are based within
in a wide range of working environments.
• Safe working practices
• Corporate culture
• Organisational leadership
• Employee wellbeing
• People development
SSE is a premium listed company with a group company
structure and is committed to the highest standards of
governance and compliance.
• Corporate governance
• Listed company compliance
• Risk management
Non-Executive Directors
Sir John Manzoni
Dame Sue Bruce
Tony Cocker
Helen Mahy
Dame Angela Strank
Sir John Manzoni
Tony Cocker
Peter Lynas
Melanie Smith
Dame Angela Strank
Dame Sue Bruce
Sir John Manzoni
Tony Cocker
Peter Lynas
Melanie Smith
Sir John Manzoni
Dame Sue Bruce
Tony Cocker
Peter Lynas
Helen Mahy
Melanie Smith
Dame Angela Strank
Sir John Manzoni
Dame Sue Bruce
Tony Cocker
Helen Mahy
Melanie Smith
Dame Angela Strank
Sir John Manzoni
Dame Sue Bruce
Peter Lynas
Helen Mahy
SSE plc Annual Report 2021
121
COMPOSITION, SUCCESSION AND EVALUATION CONTINUED
NOMINATION COMMITTEE REPORT CONTINUED
Role of the Committee
The Nomination Committee provides dedicated focus to the following people-led matters. Where findings from the annual Board
evaluation process fall under one of these heads, it will integrate them into relevant considerations and supporting workstreams.
The full responsibilities of the Committee are set out in its Terms of Reference which are available on sse.com .
Board leadership
Board Committees
Through active consideration of SSE’s purpose, vision and strategy,
the Committee identifies the skills, knowledge and experience
required for effective leadership and long-term success. The
balance and representation of these competencies across the
Board is managed through succession planning, knowledge
development and targeted recruitment.
The Committee monitors the size, structure and composition
of the Board Committees to ensure they are able to provide the
necessary support, and possess the correct expertise to discharge
their role now, and going forward, in line with succession plans.
Talent pipeline
Inclusion and diversity
The Committee monitors the talent pipeline for senior leadership
and the initiatives to develop internal capability to support
succession. It engages in leadership programmes and receives
updates on external recruitment.
Under the Board’s Inclusion and Diversity Policy, the Committee
considers the range of perspectives and attributes across the
Board and senior leadership to ensure they remain appropriate to
SSE’s strategy and culture. It confirms ambitions to drive progress
and challenges areas where further work is required. Holistically,
it considers Group-wide inclusion and diversity strategy which
embeds SSE’s approach to valuing difference.
Committee membership and attendance
The membership of the Committee comprises the non-Executive Directors and the Chair of the Board, who is also Chair of the
Nomination Committee. The Company Secretary is Secretary, and where appropriate to do so, the Executive Directors attend meetings.
Biographical details of the Committee members can be found on pages 98 to 101 .
Committee evaluation
The annual evaluation process (see pages 118 to 119 ) confirmed the continued effective operation of the Committee.
The questionnaire-led process saw appraisal of the Committee’s operations and dynamics, and sought views on each of
its agreed focus areas, supporting information flows and oversight.
Evaluation
confirmed
• The membership of the Board and Board Committees delivers an appropriate balance of experience and
technical knowledge and is a position which continues to be monitored.
• Chair succession and appointment has been managed well under the prevailing coronavirus context and
associated guidelines and restrictions.
• Positive progress has been made in relation to talent and capability, and inclusion and diversity, however
further opportunities for Committee support should be identified.
Actions for
2021/22
• Non-Executive succession. Refresh the existing non-Executive Director skills matrix and review succession plans
for those Board members nearing the maximum recommended tenure.
• Executive succession and talent pipeline. Retain talent and capability as an action and continue to strengthen
dialogue and oversight of action plans, including leadership programmes for high-potential candidates.
• Inclusion and diversity. Recommend an increase in the Committee’s support and profile surrounding inclusion
and diversity (see page 127 ).
Meeting and focus
areas in 2020/21
The Committee met seven times in
2020/21 with details of meeting attendance
on page 102 . The work carried out in
the year is detailed over the following
pages and is structured under each of the
Committee’s key areas of responsibility.
Board leadership
Composition and succession
The composition of the Board is informed
by the Committee’s plans for orderly
succession within key Board and Committee
roles. This is supported by assessment
of the required Board skills, experience
and diversity in line with agreed strategy
and changes in SSE’s operating context.
The backdrop to these discussions is the
components of the Board Composition
Dashboard on page 121 , which are
subject to formal review each year.
Succession planning and the review of
Board composition saw two new non-
Executive Directors join the Board in
2020/21. The appointment of Dame Angela
Strank commenced on 1 May 2020 with
details of the recruitment process set out in
SSE’s Annual Report 2020. The work which
supported the appointment of Sir John
Manzoni from 1 September 2020 is set out
on page 124 . Following the departure
of Richard Gillingwater on 31 March 2021,
Sir John Manzoni assumed the position of
Board Chair on 1 April 2021.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Knowledge development
and training
Any Director can request further
information to support the fulfilment of
their individual duties or collective Board
role. The arrangements are overseen
by the Company Secretary and can be
internally or externally facilitated, with
sessions typically originating from technical
Board discussions, an identified training
opportunity or area of general interest
which relates to the SSE Group. Sessions
in 2020/21 included:
• supplementary deep dives and external
guest speakers on strategic matters (see
pages 106 and 118 ); and
• virtual one-to-one meetings with senior
leaders covering: business priorities;
safety culture and performance,
including the impact of coronavirus;
digital; Group Risk; energy markets; and
large capital project governance.
Further sessions for 2021/22 were agreed
through the annual Board evaluation.
Through SSE’s mandatory training
programme all Directors are requested
to refresh their understanding of current
obligations and recent developments in
areas pertinent to their role. These modules
address, among other matters: the legal
duties of a Director; competition law; anti-
money laundering and financial sanctions;
GDPR; and inclusion and diversity.
To remain abreast of, and connected to,
broader societal trends, expectations and
issues, the Directors are encouraged to
participate in seminars and events hosted
by external organisations. Discussion
with peers, other sectors and individuals
in different professional and personal
situations develops broader perspectives
and insights, which can translate into
different thinking styles and new debate
within Board discussions.
Crawford Gillies stepped down from the
Board on 30 September 2020 after five
years of service. This was followed by the
recommendation, in line with internal
succession plans, that Tony Cocker
become Senior Independent Director
from 1 October 2021.
Following Crawford’s departure, the
Committee considered the requirement
for additional Board recruitment to
preserve the diversity and breadth of
Board and Committee skills and attributes.
Spencer Stuart1 has been engaged to
support a prospective search against an
initial set of objective criteria, which centre
on depth of understanding of Scottish
politics and business environments,
and strong commercial experience.
An expanded remit for the Energy Director
was further considered and recommended
to the Board for approval. From 1 November
2020 Martin Pibworth assumed the role of
Group Energy and Commercial Director,
through which he now has additional
responsibility for: commercial and
associated risk management activities
for all of SSE’s non-networks businesses;
SSE Enterprise which comprises distributed
energy including solar and storage; and
accountability for identifying and delivering
on growth opportunities across all of SSE’s
market businesses.
Time commitment
The expected time commitment of the
Chair and non-Executive Directors is
agreed and set out in writing in the Letter
of Appointment to the position, at which
point the existing external demands on an
individual’s time are assessed to confirm
their capacity to take on the role. Further
appointments which could impair the
ability to meet these arrangements can
only be accepted following approval of
the Board. The taking on of any external
appointments by an Executive Director is
also subject to Board consent. Changes
to key external Board appointments in
2020/21 are set out on page 98 .
Director re-appointment
All non-Executive Directors undertake a
fixed term of three years subject to annual
re-election by shareholders. The fixed
term can be extended, and consistent with
best practice, would not go beyond nine
years unless exceptional circumstances
were deemed to exist. The Committee
considered and recommended a further
three-year extension to the tenure of
Peter Lynas and Tony Cocker representing
a third and second term in each case.
This decision was supported by the
continuing independence, experience
and contribution that each Director
continues to bring to both the Board
and its Committees (see pages 99 to 100,
118 and below ).
Conflicts of interest
and independence
Each Director has a duty to disclose
any actual or potential conflict of
interest situations, as defined by law, for
consideration and approval if appropriate
by the Board. This requirement is supported
by an annual conflicts authorisation
process, where the Committee reviews
SSE’s Conflicts of Interest Register and
seeks confirmation from each Director of
any changes or updates to their position.
The above process informs the
simultaneous assessment of a non-
Executive Director’s independence, as
following the absence of any conflict,
the Committee reflects upon the outcome
of each individual Director’s performance
evaluation (see page 118 ) and the
circumstances set out in the Code which
could compromise an individual’s position.
Following review in 2020/21, and to the
exclusion of the interested Director in
each case, the Committee recommended
and the Board confirmed: updates to the
Conflicts of Interest Register; the continuing
independence and objective judgement
of each non-Executive Director; and the
overall independence of the Board in line
with the recommendations of the Code.
Additional safeguards to support Director
independence of thought and judgement
are:
• Meetings between the Chair and the
non-Executive Directors, individually
and collectively, without the Executive
Directors present. These are used to
discuss areas relevant to the operation
and performance of the Board and the
SSE Group. Two meetings were held in
2020/21 with no areas of concern raised.
• Separate and clearly defined roles
for the Chair, as head of the Board,
and the Chief Executive, as head of
executive management. This division of
responsibility is supported by a degree
of contact outside Board meetings to
ensure an effective ongoing dialogue
and channel for the timely escalation
of external or internal developments.
SSE plc Annual Report 2021
123
COMPOSITION, SUCCESSION AND EVALUATION CONTINUED
NOMINATION COMMITTEE REPORT CONTINUED
BOARD PRINCIPAL DECISION
APPOINTMENT OF THE CHAIR OF THE BOARD
Key
Build
Operate
Invest
Develop
Background
The Nomination Committee confirmed in 2019/20, that work had been initiated with the support of Sam Allen
Associates (SAA)1, to identify a suitable candidate who would succeed Richard Gillingwater as Chair of the Board.
This was conducted in line with the previously disclosed time limited extension in Chair tenure which would end no
later than 31 March 2021. Peter Lynas was nominated as the non-Executive Director to lead the process, with Richard
Gillingwater abstaining from involvement to preserve the objectivity of considerations.
Board discussion
The Nomination Committee managed the search as set out below and provided standing updates to all independent
Board members at each stage.
Nomination
Committee
process
Stage 1. A detailed candidate specification was agreed, setting out the key responsibilities, experience and personal
qualities required for the position of Chair. This included specific attributes which aligned with SSE’s long-term
direction and culture.
Stage 2. SAA identified a candidate longlist which was mapped against the role profile and a core skills matrix
comprising Chair, public listed company (FTSE 100 or FTSE 250) and regulatory experience. The candidates with
the strongest fit were reviewed by the Committee and progressed to the next stage.
SAA LONGLIST GENDER DIVERSITY
Male (72%)
Female (28%)
Stage 3. Discussions between SAA and candidates confirmed time capacity, interest in the role and potential conflicts
to deliver a shortlist who would meet with members of the Committee.
SAA SHORTLIST GENDER DIVERSITY
Male (60%)
Female (40%)
Stage 4. Face-to-face interviews took place between the shortlist and each member of an appointed sub-Committee.
Preferred candidates were nominated to meet the full complement of independent Board members.
Stage 5. A final evaluation which included a benchmarking exercise against the candidate specification, core skills
matrix and specific personal qualities which the Committee wished to preserve covered the broader considerations
set out below.
• Supporting SSE’s long-term success. With the Chair instrumental in directing the development and delivery
of SSE’s strategy; fit and enthusiasm for SSE’s purpose and vision and strategy, including its business goals and
sustainability ethos was key.
• Leading the Board and culture. An individual with the ability to create the conditions for overall effectiveness
within and outside Board meetings was a priority. This would require constructive relations with Directors and
senior leadership, and was considered a prerequisite to promoting a cohesive culture that respects and supports
the needs of all employees.
• Professional experience. In order to support high standards of corporate governance and business ethics,
demonstrable experience of working at an appropriate level within a listed business of a similar scale and
complexity as SSE was requested.
• Understanding stakeholders. As a lead ambassador for the Group, strong communication skills to further SSE’s
approach to stakeholder engagement was mandatory, alongside a commitment to engage personally where
appropriate. Complementary to this, was an understanding of how SSE creates financial and non-financial value.
Board and
Nomination
Committee
stakeholder
considerations
and impacts
Outcome, next
steps and related
decisions
The Nomination Committee confirmed that Sir John Manzoni possessed the desired capabilities and experience,
and would bring sound leadership to the Board and SSE Group. The Board approved the recommendation that he
be deemed independent on appointment and take on the role of non-Executive Director from 1 September 2020
prior to becoming Chair of the Board from 1 April 2021. Full biographical details are set out on page 98 and details
of the Board induction programme are on page 125 .
Strategic link:
Link to Principal Risk:
People and culture
See also:
Pages 4 to 5 and 96 to 97 .
1 Sam Allen Associates and Spencer Stuart have no other connection with the Company or the individual Directors.
124
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Director induction
Following appointment, all Directors
receive a comprehensive and tailored
induction programme. This is designed
through discussion with the Chair and the
Company Secretary and considers existing
expertise and any prospective Board or
Board Committee roles.
Sir John Manzoni
Due to the nature of the Chair role and the
restrictions placed on physical meetings,
the substantive programme agreed for Sir
John Manzoni was initially phased over six
months and delivered virtually. When safe
to do so, a plan for physical meetings and
operational site visits will be put in place.
The formal element of the programme
comprised the engagements set out below.
These were structured to provide the
information needed to engage in Board
meetings upon appointment and then
further develop the oversight required
as Chair thereafter. Informal follow-up
sessions were arranged where requested,
in order to connect with and get to know
senior leaders including their management
areas and current focus. Time was also
spent with Richard Gillingwater as part
of the role transition to gain additional
perspectives from his time as Chair.
Dame Angela Strank
Throughout 2020/21, Dame Angela Strank
continued to engage in the induction
programme set out in the Annual Report
2020.
Board Committees
The composition of SSE’s Board
Committees is designed around the
following principles: to ensure alignment
between skillset and specific Committee
responsibilities; to prevent undue reliance
on the capacity of any Director; and to
comply with recognised guidance including
the Code. Changes are recommended
following directorate appointments and
succession, or in response to formal review.
In the year, the Board approved
recommendations resulting in the below
changes.
• Sir John Manzoni joined the Nomination
Committee as of 1 September 2020; the
Remuneration Committee and SHEAC
from 1 October 2020; and the EMRC on
1 April 2021. He became Chair of the
Nomination Committee on 1 April 2021.
• Dame Angela Strank joined the
Remuneration Committee on 1 October
2020.
• Melanie Smith joined the EMRC on
1 October 2020 and stepped down
from the SHEAC on 1 April 2021.
• Chris Burchell, MD SSEN Distribution,
joined the SHEAC on 29 January 2021.
Sir John Manzoni induction programme
Areas covered
To aid strategic discussion
• SSE’s purpose and net zero, the status of ongoing strategic priorities
and agreed next steps, SSE’s Business Unit mix and the backdrop
informing SSE’s long-term view.
• Separate introductions to SSE’s core and complementary
Business Units.
Delivered by
Chief Executive
Group Strategy
MD of each Business Unit
To allow appraisal of financial performance and risk
• Group financial position, liquidity, funding and investment strategy.
• View from the investment community.
• The role of the External Auditor in assurance.
Finance Director
Senior Finance leaders
SSE’s Brokers
External Auditor
To inform corporate governance and stewardship
• Hallmarks of SSE’s Governance Framework, Board and Committee
Group Company Secretary and Director of Investor Relations
Chief Sustainability Officer
operations and shareholder perspectives.
• SSE’s key stakeholder groups, engagement strategy and sustainability
and ESG approach including agreed goals and accreditations.
To understand sectoral trends
• Decarbonisation of the sector, energy markets and long-term pricing,
the role of carbon, SSE’s asset portfolio and approach to hedging.
• The operating context, horizon scanning, advocacy priorities and
corporate communications.
To allow assessment of SSE’s risk profile
• Applicable legal and regulatory frameworks relevant to the listed
context and each of SSE’s Business Units, and the role of internal
compliance and assurance functions.
• Management of current and emerging Group Principal Risks.
•
IT and information security.
Group Energy and Commercial Director
Energy Economics Team
Group Corporate Affairs
General Counsel
SSE’s Legal Advisors
Director of Regulation
Group Risk
Group Chief Information Officer
To introduce culture
• People priorities including latest employee views and the approach to
Director of HR
Group Safety, Health and Environment Manager
remuneration and reward.
• Safety, health and environment values and targets.
SSE plc Annual Report 2021
125
COMPOSITION, SUCCESSION AND EVALUATION CONTINUED
NOMINATION COMMITTEE REPORT CONTINUED
Talent capability, development
and future ways of working
Group HR works with the Committee in
proposing strategy to support succession
within senior leadership roles and the
development of talent to build capability for
the future. Talent development is an area
which has continued to progress following
the implementation of SSE’s seven Business
Units, whereby an increase in the number
of senior roles has supported broader
development of critical leadership skills.
The latest position was considered through
annual review of the progression plans
and contingency arrangements for: the
Executive Directors; the Group Executive
Committee; and MD-level positions.
In line with SSE’s strategy and the review of
changes in the operating context, a suite of
new capabilities has been further identified
and prioritised. Options for developing
these include mobilisation of the current
talent pool and external recruitment.
This builds upon the work which has seen
external hires fulfil a significant proportion
of senior roles in the last 12 months.
Through constructive discussion of the
anticipated investment and timeline for
continued delivery of capability, a formal
plan to allow reporting and measuring
of progress is under development for
Committee review.
Committee oversight of the engagement
in, and impact of, core talent programmes
has continued, despite the inability to
attend supporting events in person
following a necessary move to a virtual
training environment. Notwithstanding,
engagement with future leaders has been
facilitated virtually through presentations
at Board meetings, and business-led
sessions and conferences which the
Directors have attended. The open two-
way dialogue between the Board and all
levels of the organisation is seen as a key
tool for observing and informally coaching
emerging talent. See pages 114 to 116 for
the approach to employee engagement.
As the UK and Ireland look to move out of
the coronavirus pandemic, consideration
is being given to the ways in which SSE
can continue to build on its flexible
working approach and retain and attract
talent. Specific focus will be provided to
performance enablement and the tools
required under any agreed future ways
of working scenario.
Inclusion and diversity
SSE’s Group-wide approach to inclusion
and diversity is explained across pages 49
to 50 , with the role of the Committee
being to confirm the adequacy of plans,
targets and progress, and to consider
insights and findings from the initiatives
which are in place.
Board Inclusion and
Diversity Policy
The Board operates under a standalone
inclusion and diversity policy, the objective
of which is to ensure that Board membership
remains appropriately balanced and relevant
to SSE’s purpose, strategy and values. As
highlighted below, it sets out measures
that the Committee and Board will take
in order to achieve this. During the year,
the Committee reviewed and confirmed
the Policy’s ongoing application within
the context of its work. The Policy can be
viewed in full on sse.com .
Board Inclusion and Diversity Policy measures, implementation and progress
Policy measures
Implementation and progress
Identify the needs of the Board and its
Committees, and in doing so consider the
balance of: skills; knowledge; perspectives;
experience; gender; ethnicity; and length
of membership.
Adopt a formal, rigorous, transparent and
inclusive Director appointment process.
Recruit based on an objective and
shared understanding of merit, with due
consideration of any agreed criteria such
as SSE’s needs.
Work with executive search firms that are
best placed to deliver a diverse pool of
candidates aligned to the Board’s needs.
Nurture an inclusive Board and Committee
culture.
Oversee work to promote and progress
inclusion and diversity within the
talent pipeline.
Support diversity through relevant initiatives
and ambitions where appropriate.
126
SSE plc Annual Report 2021
See page 122 Composition and succession and page 124 Appointment of Chair of
the Board.
SSE’s Board Inclusion and Diversity Policy is a key input into the selection of external
recruitment firms and the methodology and principles they go on to apply. The
Committee will stipulate where diversity criteria forms a primary objective of a search
process, and as a minimum sets expectations surrounding the diversity of candidate
pools. To support transparency, details will be reported where possible for each
recruitment process carried out, however GDPR-based limitations continue to exist.
In line with Board Policy, Sam Allen Associates and Spencer Stuart, both of whom were
engaged in the year, are accredited for the FTSE 350 category under the standard and
enhanced voluntary code of conduct for Executive search firms respectively.
See page 112 Focusing on culture and page 118 Assessing Board effectiveness.
See page 127 Ambitions and initiatives.
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Ambitions and initiatives
Board ambitions. The Board has agreed
ambitions surrounding its own gender
and ethnicity which are used to monitor
progress and inform the Committee’s
approach to succession planning and
Board appointments. These are to maintain
a level of female membership of at least
33% over a rolling three year period
and to have at least one Board member
who represents an ethnic minority. It is
recognised that ambitions are sensitive to
changes in both the size and composition
of the Board, and the Committee’s aim is to
maintain an enduring position which drives
change and achieves a Board that remains
balanced over time. The diversity of the
Board is set out on page 121 .
Senior leadership ambitions. The
Committee supports the Hampton-
Alexander recommendations to improve
gender diversity across the Group Executive
Committee and its direct reports. Aligning
with SSE’s strategy centred on accountable
Business Units, and to allow clearer tracking
of diversity within the talent pipeline, further
self-led ambitions supplement this position.
These measures look at the diversity of the
Group Executive Committee and its sub-
Committees and the gender split of roles
earning in excess of £70k. Progress against
these ambitions and the gender split of
senior leadership is reported on page 49 .
Supporting initiatives. Comprehensive
updates in the year covered the evolution
of SSE’s inclusion and diversity approach
and the factors influencing the choice of
targeted initiatives. Diversity scorecards
detailed the split of diversity criteria
including gender, ethnicity and disability
within recruitment processes for
apprentices through to senior leaders,
and also across the overall employee,
new entrant and leaver populations. This
was accompanied by completion rates
of training interventions and employee
feedback on inclusion. Full details of the
underlying strategic approach and progress
are set out on pages 49 to 50 .
BOARD PRINCIPAL DECISION
FOCUS ON INCLUSION AND DIVERSITY
Key
Build
Operate
Invest
Develop
Background
Board and
Nomination
Committee
discussion
Board and
Nomination
Committee
stakeholder
considerations
and impacts
The Nomination Committee provides focus to the workstreams which form part of an enduring strategy to be more
inclusive to difference and in turn increase diversity across the Group. Further consideration was given in 2020/21 as
to how the Nomination Committee and Board could further promote and support progress in this area, including
across the identified talent pipelines.
The targeted action needed to increase gender, ethnic minority and disability workforce representation in the
energy sector is well understood by the Nomination Committee and senior leadership. However limitations
exist to understanding the true picture and therefore also the ability to report transparently surrounding progress,
with a contributor being the need for diversity data to be provided voluntarily by individuals due to its protected
characteristic. Employee sentiment is easier to read and inclusive practices and behaviours can nonetheless be
embedded. Through the annual evaluation process and a review of diversity progress, the Nomination Committee
expressed a want for increased involvement in reinforcing the prime importance of inclusion and diversity to SSE,
and its commitment to enact change.
• Supporting employees. Providing an inclusive and diverse workplace is a material issue to employees and the
Board strives to ensure that appropriate actions are in place to deliver equal opportunities and a fair working
environment for everyone in SSE.
• Sustainable practices. A diverse workforce means there is breadth of difference, a matter that supports SSE’s
ability to better reflect the customers it serves and the stakeholders it depends on to achieve its business
objectives. This includes its 2030 business goal based on providing decent work and providing economic growth.
• A just transition. The energy transition provides an opportunity to actively deliver a diverse mix of people from
every kind of background working in the sector, and supports development of an inclusive working environment
where they can thrive. This greater diversity, at all levels, is key to forming the pathway to net zero, with different
views bringing broader debate, improved decisions and ultimately better business.
Outcome, next
steps and related
decisions
The Board confirmed that the profile of, and focus provided by the Nomination Committee to people matters should
be raised. This was to ensure the cultural importance of inclusion and diversity was apparent to and understood by
colleagues and prospective new entrants. A supporting plan setting out current and future priority areas would be
developed by Group HR, with opportunities for Board and Nomination Committee support identified.
Strategic link:
Link to Principal Risk:
People and culture
See also:
Pages 49 to 50 .
SSE plc Annual Report 2021
127
AUDIT, RISK AND INTERNAL CONTROL
AUDIT
COMMITTEE REPORT
many organisations, including our External
Auditor, EY. This has meant that the
financial reporting and audit process has
had to adapt. Last year we decided to defer
the Full-Year Results announcement by one
month to give the Finance teams and the
External Auditor adequate time to ensure
that a robust audit process was delivered.
Following completion of the audit for
2019/20 and using the feedback obtained
from the review of the effectiveness of
external audit process, EY held a series
of de-brief sessions with senior Finance
management across the Group to agree
a package of measures to enhance the
working relationship and drive efficiency
in the audit process. At its meeting in
September, the Committee assessed the
potential impact of the pandemic on the
financial reporting and audit timetable
for 2020/21 and agreed to build a further
week into the process for both the half year
review and full year audit to help mitigate
potential delivery delays. I received regular
updates from the Finance Director and the
Lead Audit Partner to ensure progress was
tracking to plan and issues were being dealt
with in a timely manner. I’m pleased to
report that a robust audit process has
again been delivered remotely.
During the year, the Committee was briefed
on the status of regulatory change so as to
assess the likely impact this may have on
the future work of the Audit Committee
and to enable areas of focus to be planned
accordingly. In anticipation of significant
change, the Committee stood up a project
team in 2020 to assess the anticipated
introduction of a UK SOX style framework for
the financial reporting control environment.
Planning to ensure SSE is prepared for
the output of the audit and corporate
governance consultation and developing
an assurance framework for reporting on
climate related risks and opportunities will
be key areas of focus for the year ahead.
I hope that you find this Report informative
and take assurance from the work
undertaken by the Committee during
the year.
Peter Lynas
Chair of the Audit Committee
25 May 2021
Dear Shareholder,
On behalf of the Board, I am pleased to
present the Audit Committee Report for the
financial year ending 31 March 2021. This
report is intended to provide shareholders
with an insight into key areas considered,
together with how the Audit Committee has
discharged its responsibilities and provided
assurance on the integrity of the 2020/21
Annual Report and Financial Statements.
The coronavirus created an abrupt shift to
working from home with almost all within
Finance having now worked from home
for over a year. The same has been true for
Role of the Committee
The Committee’s role is to support the Board in relation to the responsibilities set out below. The Committee’s Terms of Reference are
regularly reviewed and updated as required and are available on sse.com .
Financial reporting
External audit
• Review the integrity of the interim and annual Financial
Statements.
• Review the appropriateness of accounting policies and practices.
• Review the significant financial judgements and estimates
• Review and monitor the objectivity and independence of the
External Auditor, including the policy to govern the provision
of Non-Audit Services.
• Review and monitor the effectiveness of the external audit process
considered in relation to the Financial Statements, including
how each was addressed.
and the ongoing relationship with the External Auditor.
• Review and make recommendations to the Board on the
• Review the content of the Annual Report and Accounts and
advise the Board on whether taken as a whole, it is fair, balanced
and understandable.
tendering of the external audit contract, and the appointment,
remuneration and terms of engagement of the External Auditor.
Internal audit
Internal control and risk management
• Review and approve the Internal Audit Plan and monitor its
implementation.
• Review and monitor the effectiveness of the Internal Audit
function, including the adequacy of the overall Internal
Audit resource.
• Review and monitor the effectiveness of the management
of risk and overall System of Internal Control.
• Review the framework and analysis to support both the
Going Concern and the long-term Viability Statement.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Committee membership
and attendance
The composition of the Committee is
compliant with the Code and currently
comprises three independent non-
Executive Directors as Committee
members. Crawford Gillies stepped down
from the Board on 30 September 2020
and ceased to be a member of the Audit
Committee. Peter Lynas has chaired the
Committee since 2014 and is considered
by the Board to have recent and relevant
financial experience. He was Group Finance
Director of BAE Systems plc until 31 March
2020 and is a Fellow of the Chartered
Association of Certified Accountants. The
Board considers the Audit Committee as
a whole has competence relevant to the
sector, with two members having had
significant executive roles in the energy
sector, and all members possessing an
appropriate level of experience in corporate
financial matters. Biographical details of
the Audit Committee members can be
found on pages 98 to 101 and details of
meeting attendance are set out on page
102 .
The Committee meetings are routinely
attended by: the Chair of the Board;
the Finance Director; the Director of
Group Risk and Audit; Partners from
the External Auditor; and the Deputy
Company Secretary (who is Secretary
to the Committee). The Committee also
invites other senior finance and business
managers to attend certain meetings to
gain a deeper level of insight on particular
items of business. The Committee meets
with the External Auditor privately at least
twice each year in line with the financial
reporting calendar and also with the
Director of Group Risk and Audit.
Committee evaluation
The actions identified from the evaluation of the Audit Committee in 2019/20 covering the level of resource in SSE’s Finance teams,
the working relationship with External Auditor and culture temperature checks of the risk management and internal control at
Business Unit level were monitored through to completion. The evaluation of the Audit Committee during 2020/21 was facilitated
by an internally-led questionnaire, in addition to a self-assessment against best practice which was carried out by the Chair and
Committee Secretary. The output of both the evaluation and self-assessment was considered at the Committee meeting in
February 2021, and an update was provided to the next Board meeting. The Board confirmed the effective operation of the
Audit Committee in discharging its responsibilities.
Evaluation
themes in
2020/21
• Meetings have been held virtually during the year as a result of the coronavirus restrictions and they continued
to be effectively chaired with a good level of challenge and debate on the key issues.
• The relationship between the Audit Committee and Internal Audit, Group Risk, Finance and Company Secretarial
was recognised as being open and constructive. In response to feedback from the previous evaluation, the
bench strength in Finance and Internal Audit has improved during the year with two senior appointments,
both of whom regularly attend Committee meetings.
• The actions from the post audit de-brief sessions held between the External Auditor and management has
helped to enhance the efficiency of the audit process and strengthen the audit relationship.
• The External Auditor have continued to provide fresh perspective and rigorous challenge to the management
team and the deliberations of the Audit Committee.
Actions to
progress
during
2021/22
• Whilst the membership of the Committee remains compliant with the Code, a recommendation was made to
the Nomination Committee and Board to consider the appointment of a new member of the Audit Committee
with recent and relevant financial/accounting experience following the departure of Crawford Gillies.
• Other members of the Finance team will be invited to attend certain future meetings to give the Committee
•
greater visibility on talent and succession.
In the absence of physical meetings, a debrief session will be scheduled following any future virtually held
Committee meetings to provide a further opportunity for the members to share reflections.
• The Committee requested a review of the overall assurance model covering audit, compliance and assurance
and would consider the development of an Audit and Assurance Policy.
Meetings and focus
areas in 2020/21
The Committee met on five occasions
during the year and has met once since
the end of the financial year. All meetings
were held virtually in advance of the
Board meeting to allow the Committee
Chair to provide a report on the key
matters discussed and consider any
recommendations. A forward plan of
agenda items informs the business
considered at each meeting and is
regularly reviewed and updated to reflect
areas identified for additional focus. The
practice of effective governance and
quality reporting underpin all aspects
of the work of the Committee.
In addition to the scheduled meetings, the
Committee Chair meets separately with
the Finance Director, Director of Group
Risk and Audit and the External Auditor
to ensure the work of the Committee
is focused on key and emerging issues.
Before each meeting, the Committee
Chair meets with the Finance Director
and External Auditor to ensure there is
a shared understanding of the key issues
to be discussed.
An additional meeting in June 2020 was
held primarily to consider the Preliminary
Results following SSE’s decision to move
the publication date from 20 May 2020 to
17 June 2020. The decision to change the
publication date followed a review of the
practical impacts on the audit process as a
result of the coronavirus pandemic.
The Committee, in consultation with the
External Auditor, concluded in line with
FCA guidance that it would take longer to
prepare and audit SSE’s Financial Statements
for 2019/20 and that postponement to the
publication date was in the best interests of
the Company and its stakeholders.
The Committee considered the coronavirus
impact on the half year review to
30 September 2020 and audit for the full
year to 31 March 2021. In consultation
with both management and the External
Auditor, the Committee agreed to include
an extra week in the half year and full year
timetable to reflect the change to working
practices and to ensure there was sufficient
time for the audit process to be completed.
SSE plc Annual Report 2021
129
AUDIT, RISK AND INTERNAL CONTROL CONTINUED
AUDIT COMMITTEE REPORT CONTINUED
Key matters considered during the year
Audit Committee meeting held on 18 May 2020
Financial
reporting
• Reviewed a report on the Group’s tax position covering adjusted underlying tax rate, areas of potential tax
exposure and provisioning, Fair Tax Mark accreditation, and priorities for the coming year.
External audit
• Received an update on the external audit process.
Internal audit
• Received an update on delivery of the 2019/20 Internal Audit Plan, progress with the 2020/21 Internal Audit Plan
and the initial scope of a three-year Internal Audit Plan.
• Reviewed and confirmed the effectiveness of the Internal Audit function.
Internal
control and risk
management
• Reviewed the effectiveness of the System of Internal Control prior to Board approval.
• Considered audit reports on cyber security threats in regard to Operational IT and subsequently requested
enhanced reporting to the Board.
Audit Committee meeting held on 15 June 2020
Financial
reporting
• Considered the appropriateness of the accounting in relation to the significant financial judgements, estimates
and exceptional items in 2019/20.
• Considered those items highlighted by the External Auditor as requiring prior year adjustment.
• Considered the impact of coronavirus on the Financial Statements for 2019/20.
• Reviewed the Preliminary Results and 2020 Annual Report, including alternative performance measures, Viability
Statement and going concern prior to Board approval.
• Reviewed letters of representation issued to the External Auditor prior to Board approval.
External audit
• Considered the accounting, financial control and audit issues from the External Auditor’s report on the 2019/20
audit.
• Reviewed the effectiveness of the external audit process using an enhanced framework.
• Reviewed the independence and objectivity of the External Auditor, including the level of non-audit fees.
Internal audit
• Reviewed a gap analysis of the Internal Audit function against the Internal Audit Code of Practice.
Internal
control and risk
management
• Reviewed Treasury operations, including the funding plan, liquidity, going concern, hedging and credit ratings and
approved a range of treasury related transactions.
• Reviewed the analysis to support the Viability Statement prior to Board approval.
• Approved the narrative of the 2019/20 Audit Committee Report and Principal Risk related disclosures.
Governance
• Received a report on the disclosure of information to the External Auditor.
Audit Committee meeting held on 16 September 2020
Financial
reporting
External audit
• Received a progress update on the work being carried out as part of the Making Tax Digital agenda.
• Reviewed the external audit strategy, including the coronavirus impact on the audit approach, significant risks and
areas of audit focus, scope and materiality for 2020/21 and agreed the external audit engagement and audit fee for
2020/21.
• Considered the safeguards relating to the integrity, objectivity and independence of the External Auditor, including
the level of non-audit fees and any new non-audit engagements.
• Received an update on key regulatory developments likely to have an impact on the work of the Committee.
Internal audit
• Received an update on the work undertaken by Internal Audit, including progress with the 2020/21 Internal Audit
Plan, significant findings and audit actions.
Internal
control and risk
management
• Received an update on the work undertaken by Group Compliance, including resource and progress with the
compliance review programme and resulting actions.
• Received an update on the project to enhance the accessibility and coverage of the Group Financial Polices
Manual.
• Approved the initial design and scope of a project to develop a SOX-lite framework in line with expected
regulatory developments in this area.
• Received an update on the cultural aspects of the risk management and internal control framework within the SSE
Enterprise Business Unit, and noted the progress achieved during the last three years.
• Received an update on Cyber Risk and Information Security audit actions and approved a reporting framework for
further updates covering Information and Operational Technology.
Governance
• Reviewed a roadmap of all the governance related activity carried out during the year to support the work of the
Audit Committee.
• Considered the status of audit reform and other related governance developments.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Audit Committee meeting held on 16 November 2020
Financial
reporting
• Considered the key accounting judgements applied in the preparation of the Interim Financial Results.
• Reviewed letters of representation issued to the External Auditor prior to Board approval.
External audit
• Considered the accounting, financial control and audit issues from the External Auditor’s report on the 2020/21
half year review.
• Reviewed the independence and objectivity of the External Auditor, including the level of non-audit fees.
• Received an update on progress with the audit plan and approved refinements to the audit strategy for 2020/21.
Internal audit
• Received an update on the work undertaken by Internal Audit, including audit resource, progress with the 2020/21
Internal Audit Plan, significant findings and audit actions, in addition to areas of focus included in the three-year
Internal Audit Plan.
Internal
control and risk
management
• Reviewed Treasury operations, including the funding plan, liquidity, going concern, hedging and credit ratings and
approved a range of treasury related transactions.
• Received an update on progress with the Group Risk programme covering the assessment of Principal Risks and
assurance frameworks to assess the effectiveness of the System of Internal Control.
• Received an update on Cyber Risk and Information Security across the Group and Operational Technology in the
SSEN Distribution Business Unit.
Governance
• Approved the Committee business planner and areas of focus for 2021.
Audit Committee meeting held on 24 February 2021
External audit
• Considered the findings from the External Auditor’s controls report and reviewed progress on delivery of the audit
strategy.
• Reviewed the independence and objectivity of the External Auditor, including the level of non-audit fees.
Internal audit
• Received an update on the work undertaken by Internal Audit, including progress with the 2020/21 Internal Audit
Plan, significant findings and audit actions and approved the 2021/22 Internal Audit Plan.
Internal
control and risk
management
• Received an update on the work undertaken by Group Compliance, including resource and progress with the
compliance review programme and resulting actions.
• Received an update on Group-level fraud risks, corruption and anti-financial crime governance.
• Considered scenarios aligned to the Group’s Principal Risks to stress test the viability assessment.
• Received an update on progress with the pilot project to assess the development of a SOX framework.
Governance
• Considered a governance update covering: the output of the evaluation of the performance of the Audit
Committee; proposals on the evaluation of the External Auditor, audit process and Internal Audit; reporting
themes for the 2021 Audit Committee Report; and an update on the status of audit reform.
• Received a report on the qualifying companies in the Group required to publish reports on their payment
practices, policies and payments, and sought assurances that improvement plans were in place for the qualifying
companies not meeting the Prompt Payment Code requirements.
Audit Committee meeting held on 21 May 2021
Financial
reporting
• Considered the appropriateness of the accounting in relation to the significant financial judgements, estimates
and exceptional items in 2020/21.
• Considered those items highlighted by the External Auditor as requiring prior year adjustment.
• Reviewed the Preliminary Results and 2021 Annual Report, including alternative performance measures, Viability
Statement and going concern prior to Board approval.
• Reviewed letters of representation issued to the External Auditor prior to Board approval.
• Reviewed a report on the Group’s tax position covering adjusted underlying tax rate, areas of potential tax
exposure and provisioning, Fair Tax Mark accreditation, and priorities for the coming year.
External audit
• Considered the accounting, financial control and audit issues from the External Auditor’s report on the 2020/21
audit.
• Reviewed the effectiveness of the External Auditor and audit process.
• Reviewed the independence and objectivity of the External Auditor, including the level of non-audit fees.
Internal audit
• Received an update on delivery of the 2020/21 Internal Audit Plan, progress with the 2021/22 Internal Audit Plan
and approved the three-year Internal Audit Plan.
• Reviewed and confirmed the effectiveness of the Internal Audit function.
Internal
control and risk
management
• Reviewed the effectiveness of the System of Internal Control prior to Board approval.
• Reviewed Treasury operations, including the funding plan, liquidity, going concern, hedging and credit ratings and
approved a range of treasury related transactions.
• Reviewed the analysis to support the Viability Statement prior to Board approval.
• Received an update on progress with the pilot project to assess the development of a UK SOX style framework.
Governance
• Approved the narrative of the 2020/21 Audit Committee Report and Principal Risk related disclosures.
• Received a report on the disclosure of information to the External Auditor.
• Considered an update on the BEIS audit and corporate governance consultation and reviewed the Company’s
readiness and future areas of focus required to address areas of change.
SSE plc Annual Report 2021
131
AUDIT, RISK AND INTERNAL CONTROL CONTINUED
AUDIT COMMITTEE REPORT CONTINUED
Financial reporting
The Annual Report and Accounts seek
to provide the information necessary to
enable an assessment of SSE’s position and
performance, business model and strategy.
In preparing the Financial Statements for
2021 there are several areas requiring the
exercise of judgement or a high degree
of estimation. Throughout the year, the
Finance team worked closely with the
External Auditor to ensure SSE provides the
required level of disclosure, including the
appropriateness of alternative performance
measures (APMs) and their consistency
with IFRS financial information. This
section outlines the significant areas of
judgement that have been considered by
the Committee – through discussion and
detailed reporting by both management
and the External Auditor – to ensure
appropriate rigour has been applied. Other
key accounting judgements and areas
of estimation uncertainty applied in the
preparation of the Financial Statements for
2021 are provided in Notes 4.2 and 4.3. The
Independent Auditor’s Report on pages
296 to 306 sets out the audit approach
and highlights the other key audit matters
that EY drew to the attention of the Audit
Committee. These areas of audit focus
include: going concern; decommissioning
provisions; provisions and claims; customer
debtor recoverability; carrying value of
tangible and intangible assets; depreciation
policy; taxation judgements; recovery of
the £100m OVO loan note; exceptional
items; and APMs.
Significant financial
judgements and estimates
In the process of applying the Group’s
accounting policies, management
necessarily makes judgements and
estimates that have a significant effect on
the amounts recognised in the Financial
Statements. In consultation with the
External Auditor, the Committee reviewed
the significant financial judgement areas
and identified four specific areas for
2021/22. Whilst the overall number of
significant financial judgement areas
remained consistent with the prior year,
accounting for the impacts of coronavirus
was no longer considered by the
Committee to be a significant financial
judgement with the impact on the Group’s
adjusted operating profit in the year out-
turning at the lower end of the anticipated
range. Due to the individual and collective
materiality of the £2bn disposal programme
announced during the year and the
potential complexity of these transactions,
the Committee agreed to include the
accounting for the SSE disposal programme
as a significant financial judgement.
The Group’s most significant financial
judgement areas, some of which are
also areas of estimation uncertainty, are
explained below. For each of these areas
the Committee considered the key facts
and judgements outlined by management.
The Committee specifically discussed with
the External Auditor how management’s
judgement and assertions were challenged
and how professional scepticism was
demonstrated during their audit of these
areas. This also included the adequacy
of the disclosures within the Financial
Statements for each matter presented
in the table below.
Significant financial judgements and estimates for the year ended 31 March 2021
How those were addressed by the Audit Committee
Impairment testing and valuation of certain non-current assets
(Estimation Uncertainty)
The Group reviews the carrying amounts of its goodwill, other
intangible assets and specific property, plant and equipment assets
to determine whether any impairment of the carrying value of those
assets requires to be recorded. The specific assets under review in
the year ended 31 March 2021 are intangible development assets
and specific property, plant and equipment assets related to thermal
power generation. In conducting its reviews, the Group makes
judgements and estimates in considering both the level of cash
generating unit (CGU) at which common assets such as goodwill are
assessed against, as well as the estimates and assumptions behind the
calculation of recoverable amount of the respective assets or CGUs.
Changes to the estimates and assumptions arising from factors such
as regulation, legislation, power, gas, carbon and other commodity
prices, volatility of gas prices, plant running regimes and load
factors, discount rates and other inputs could impact the assessed
recoverable value of assets and CGUs and consequently impact the
Group’s income statement and balance sheet.
Retirement benefit obligations (Estimation Uncertainty)
The assumptions in relation to the cost of providing post-retirement
benefits during the period are based on the Group’s best estimates
and are set after consultation with qualified actuaries. While these
assumptions are believed to be appropriate, a change in these
assumptions would impact the level of the retirement benefit
obligation recorded and the cost to the Group of administering
the schemes.
An annual valuation/impairment exercise is carried out and the
basis and outcome of this review is presented to the Committee
by management and includes a description of the assumptions
applied in deriving the recoverable values. The Committee
reviewed and challenged the assumptions and projections
presented in the management paper and considered the detailed
reporting from, and findings by, the External Auditor. Further
detail of the calculation basis and key assumptions used in the
impairment review, the resulting impairment charges and the
sensitivity of this assessment to key assumptions is disclosed at
Note 15. Detail on the accounting policies applied is included in
the Accompanying Information section A1. Following this review,
the Committee supported the recommendation to recognise an
impairment of £58.1m in the financial year in relation to the
Great Island CCGT plant in Ireland.
The assets and liabilities of the Group’s defined benefit retirement
schemes are regularly reviewed. Advice is taken from independent
actuaries on the IAS 19R valuation of the schemes. The Committee
was updated on the schemes’ valuation and considered the
findings of the External Auditor in relation to the scheme’s key
assumptions relative to market practice. Following this review,
the Committee supported the judgements made. Further detail
of the calculation basis and key assumptions used, the resulting
movements in obligations and the sensitivity of key assumptions
to the obligation is disclosed at Note 23.
132
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Revenue recognition – Customers unbilled supply of energy
(Estimation uncertainty)
Revenue from energy supply activities undertaken by the Business
Energy and Airtricity businesses includes an estimate of the value
of electricity or gas supplied to customers between the date of
the last meter reading and the year end. This estimation comprises
both billed revenue (disclosed as trade receivables) and unbilled
revenue (disclosed as accrued income) and is calculated based on
applying the tariffs and contract rates applicable to customers against
estimated customer consumption and taking account of various
factors including usage patterns, weather trends and externally
notified aggregated volumes supplied to customers from national
settlements bodies. A change in the assumptions underpinning
the calculation would have an impact on the amount of revenue
recognised in any given period.
Accounting for SSE disposal programme
(Accounting judgement and estimation uncertainty)
SSE announced a £2bn disposal programme during the year.
Due to both the collective and individual materiality of the planned
disposals, there is a significant risk around the accounting for the
complexity of these transactions. In particular, complexity arises in
the final negotiated deal around the terms of the share and purchase
agreements, non-cash consideration elements and transitional
services arrangements.
This estimation is subject to a process which compares calculated
unbilled volumes to a theoretical ‘perfect billing’ benchmark
measure of unbilled volumes (in GWh and millions of therms)
derived from historical weather-adjusted consumption patterns
and aggregated metering data used in industry reconciliation
processes. Furthermore, actual meter readings and billings
continue to be compared to unbilled estimates between the
balance sheet date and the finalisation of the Financial Statements.
The Committee reviewed the practical process issues and
assumptions applied in determining the estimation uncertainty
and considered the findings of the External Auditor. Following
this review, the Committee supported the estimate for revenue
recognition from energy supply activities. Further details of the
sensitivity associated with this judgement is disclosed at Note 18.
The risk focused on the accounting treatment of six disposals
completed by 31 March 2021 and also covered the assessment
of businesses being classified as held for sale at the balance
sheet date. The Committee were briefed on the audit procedures
performed in relation to each transaction, all of which had been
executed in line with the External Audit Plan. The Committee
challenged both management and the External Auditor on the
accounting treatment for the disposals and sought assurance that
they had been appropriately addressed and disclosed. Following
consideration, the Committee supported the exceptional gain on
disposal of £976.0m and a non-exceptional gain on disposal of
£246.5m. Further details of the disposals and held for sale assets
are disclosed at Note 12.
Going Concern and
Viability Statement
The Committee reviewed the information
to support the assessment and disclosure
of the going concern statetment prior to
Board approval (see A6.3 Accompanying
Information to the Financial Statements).
Given the cash surplus of £1.6bn at
31 March 2021; the undrawn committed
borrowing facilities of £1.5bn maintained by
the Group; the current commercial paper
market conditions; and the assumption the
Group will be able to refinance maturing
debt, the Directors have concluded that
both the Group and SSE plc as Parent
Company have sufficient headroom to
continue as a going concern. In coming
to this conclusion, the Directors have
considered sensitivities on future cashflow
projections resulting from the coronavirus
pandemic; the Group’s credit rating; the
success of the Group’s disposal programme
through 2020/21; and the successful
issuance of £2.5bn of medium to long term
debt and Hybrid equity during the year. In
the very unlikely event of not being able
to access the revolving credit facility or
otherwise refinance as may be required,
the Group’s options include not calling
the £1.0bn Hybrid debt instruments due in
September 2022, deferring uncommitted
capex and implementing further cost
reductions. The Financial Statements
are therefore prepared on a going
concern basis.
The Committee agreed the parameters
and reviewed the supporting report for the
Board’s assessment of the prospects of the
Company which is covered in the Viability
Statement on page 56 . In doing so, the
Committee considered the potential impacts
arising from coronavirus and reviewed the
period covered by the Viability Statement
and remains of the view that a three-year
period is the most appropriate timespan.
Fair, balanced and
understandable assurance
framework
The assurance framework used in the
preparation of the Annual Report and
Accounts 2021 to assist the Directors
in the discharge of their requirement
to state that, taken as a whole, it is fair,
balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s
performance, business model and
strategy is as follows:
• a verification process dealing with
the factual content;
• comprehensive reviews
undertaken independently by
senior management to consider
messaging and balance;
• comprehensive reviews undertaken
by the Company’s Brokers to
ensure consistency and balance;
• reporting by the External Auditor of
any material inconsistencies; and
• comprehensive review by
the Directors and the senior
management team.
The Committee and Board received
confirmation from management that
the assurance framework had been
adhered to for the preparation of the
Annual Report 2021.
SSE plc Annual Report 2021
133
AUDIT, RISK AND INTERNAL CONTROL CONTINUED
AUDIT COMMITTEE REPORT CONTINUED
External audit
External Auditor
Following a competitive tender process,
EY were appointed by shareholders as
SSE’s External Auditor for the financial year
commencing 1 April 2019 and continues
to be SSE’s External Auditor. During the
year, Hywel Ball became the Senior
Advisory Partner for the SSE plc audit and
Annie Graham, supporting partner in the
prior year, became the lead audit partner
assuming responsibility for signing the
SSE plc Audit Opinion on behalf of EY.
Annie Graham leads the engagement
team and has been in post since EY were
appointed and will be required to rotate
after five years. The external audit contract
will be put out to tender at least every 10
years. As such, the external audit tender
will be conducted by no later than 2029
and any future tenders will be carried out
in line with prevailing best practice. The
Committee confirms ongoing compliance
with the Statutory Audit Services Order.
The FRC’s Audit Quality Review (AQR) team
completed a review of the EY audit of the
Financial Statements of SSE plc for the year
ended 31 March 2020. The report from the
FRC set out the scope of the review, the
assessment of the quality of the audit work
reviewed, any key findings, and examples
of good practice. The Committee reviewed
the contents of the inspection report
and provided positive feedback to the
External Auditor on delivery of the first-year
audit which had been largely carried out
remotely under coronavirus restrictions.
External Auditor and audit
process effectiveness
An important part of the Committee’s
work consists of overseeing the Group’s
relationship with the External Auditor to
ensure the independence, quality, rigour
and challenge of the external audit process
is maintained. The Committee reviews the
effectiveness of the audit throughout the
year taking into account:
• the detailed audit strategy for the year
and coverage of the highlighted risks,
scope, and level of fees for the audit;
• the quality, knowledge and expertise
•
of the engagement team;
insight around the key accounting and
audit judgements and the competence
with which the External Auditor has
applied constructive challenge and
professional scepticism in dealing with
management; and
• the outcome of the review of
effectiveness of the External Auditor
and audit process discussed below.
The Committee enhanced the
arrangements for the review of the
effectiveness of the External Auditor and
the audit process in the previous year and
has adopted an integrated framework in the
current year to help provide assurance that
a high-quality audit has been performed.
The key elements set out below were
delivered individually and were considered
collectively in the Committee’s review
of effectiveness. The importance of
management engagement in the external
audit process is recognised and the practice
of briefing management on their obligations
in relation to the provision of information to
the External Auditor has continued.
Independence and objectivity
In addition to the annual review of
effectiveness, the Committee considered
the independence and objectivity of the
External Auditor through: a combination of
assurances provided by the External Auditor
on the safeguards in place to maintain
independence; oversight of the Non-Audit
Services Policy and fees paid; and oversight
of SSE’s policy on employing former
auditors. The External Auditor confirmed
that all its partners and staff complied with
their ethics and independence policies
and procedures including that none of its
employees working on the audit hold any
shares in SSE plc.
Feedback to inform the review of the effectiveness of External Auditor and audit process
External
Management
External Auditor
Audit Committee
• Assurance from EY
covering the matters
raised in the FRC’s Annual
Quality Review inspection
reports and remedial
actions (if any) taken
by the audit firm.
• Assess output from survey
of those subject to the
external audit process.
• Assurance on the
disclosure process for the
provision of information
to the auditors has been
adhered to.
• Assess delivery of the audit
strategy and Independent
Auditors’ Report.
• Assess output from survey
of Audit Partners on the
external audit process.
• Assurance on the
operation of audit quality
process at audit firm.
• Assess output from
annual Audit Committee
evaluation.
• Assess output from
survey of Audit Committee
members, regular
attendees and Group
Finance.
Outcome
Following consideration of all elements of the audit effectiveness review process, in addition to taking account of the
engagement and communication between the Audit Committee, management and External Auditor, the Committee confirmed
it was satisfied that the external audit process provided by EY had been delivered effectively. The Committee requested that
debrief sessions be held between the External Auditor and finance management team to consider any areas to enhance the
audit process control environment going forward.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Non-Audit Services Policy
The process for approving certain Non-
Audit Services provided by the External
Auditor is governed by the Non-Audit
Services Policy which is overseen by the
Committee. The Policy was reviewed by the
Committee and updated during the year to
ensure that it remained fit for purpose and
aligned to the FRC’s whitelist of Permitted
Audit-Related and Non-Audit Services. Any
Audit-Related Service or Non-Audit Service
which is not on the list can not be provided
by the External Auditor. In addition, SSE
is required to cap the level of non-audit
fees paid to its External Auditor at 70% of
the average audit fees paid in the previous
three consecutive financial years. Services
provided by the External Auditor are split
into two categories for the purposes of
approval:
• Audit-Related Services. These services
are largely carried out by members of
the audit engagement team. The work
involved is closely related to the work
performed in the audit and the threats
to auditor independence are ‘clearly
insignificant’. Such engagements are
routinely pre-approved by the Audit
Committee as part of their approval of the
total annual audit fee. Before engaging in
any work of this type, approval is required
from the Finance Director.
• Non-Audit Services. These are services
other than ‘Audit-Related Services’
for which the External Auditor is an
appropriate provider. The threats
to independence arising from such
services are not necessarily ‘clearly
insignificant’ and the Committee and
External Auditor must consider the
threats to independence and whether
any safeguards should be applied. In
the absence of any apparent threat to
auditor independence, approval for the
provision of any Non-Audit Service must
be obtained from the Audit Committee.
The Audit Committee has pre-approved
the use of the External Auditor for
whitelist Non-Audit Services subject
to the following limits: The Finance
Director up to £50,000 and Audit
Committee Chair up to £100,000.
External Auditor fees
The Committee keeps under review the
services provided by the External Auditor
by reviewing a report at each meeting.
Fees for Audit and Audit-Related Services
incurred during the year amounted to
£2.5m and £0.2m for Non-Audit Services.
Audit fees in the current year include
scope changes and overruns of £0.4m
related to the prior year audit which arose
due to coronavirus and the first year
transition to EY. Fees paid to EY during the
year are made in Note 6 to the Financial
Statements. Non-Audit Services principally
related to regulatory accounts and returns
required by Ofgem and comfort letters in
connection with funding and debt issuance.
The Committee was satisfied that the work
was best handled by the External Auditor
because of its knowledge of the Group
and the services provided did not give rise
to threats to independence. All Non-Audit
Services were approved in accordance with
the Non-Audit Services Policy and adhere
to the FRC Ethical Standard.
Re-appointment of
the External Auditor
The Committee concluded that it
is satisfied with the objectivity and
independence of the External Auditor,
and that the effectiveness of the external
audit process delivered by EY was robust.
The Committee proposed to the Board
that it seek shareholder approval for the
re-appointment of EY for the financial year
ending 31 March 2022.
2018/19 AUDITOR FEES (PAID TO KPMG)
2019/20 AUDITOR FEES (PAID TO EY)
2020/21 AUDITOR FEES (PAID TO EY)
Audit and Audit-Related Services – £1.4m (56%)
Permitted Non-Audit Services – £1.1m (44%)
Audit and Audit-Related Services – £1.9m (86%)
Permitted Non-Audit Services – £0.28m (14%)
Audit and Audit-Related Services –£2.5m (93%)
Permitted Non-Audit Services – £0.2m (7%)
SSE plc Annual Report 2021
135
AUDIT, RISK AND INTERNAL CONTROL CONTINUED
AUDIT COMMITTEE REPORT CONTINUED
Internal audit
Role of Internal Audit
Internal Audit plays an important role in
SSE, helping the organisation to deliver
its objectives by bringing a risk-based,
independent and objective approach to
evaluating and improving the effectiveness
of risk management, internal control and
governance processes. During the year,
SSE’s Director of Group Risk, Audit and
Insurance retired. Following a recruitment
process led jointly between the Audit
Committee Chair and Finance Director,
the position of Director of Group Risk
and Audit was filled with an experienced
external appointment which has brought
a fresh perspective to the work on the
Internal Audit and Group Risk functions. In
addition to the normal corporate reporting
structure, the Director of Group Risk and
Audit has the right of direct access to
the Chief Executive, the Committee and
the Company Chair. At each Committee
meeting, an update on Internal Audit is
provided covering an overview of the work
undertaken in the period, actions arising
from audits conducted, the tracking of
remedial actions, and progress against
the Internal Audit Plan. The Committee
routinely meet independently with the
Director of Group Risk and Audit to discuss
the results of the audits performed and
any additional insights obtained on the risk
management and control environment
across the organisation.
Internal Audit Plan
The Internal Audit Plan is structured
to align with SSE’s operating model,
risk profile, control environment and
assurance arrangements. An integrated
assurance mapping and planning process
is undertaken to ensure that Internal Audit
work is appropriately aligned to, and
coordinated with, the activities of other
relevant assurance providers across the
Group. The Plan includes audits of key
transformational programmes, financial
control and areas relating to responsible
behaviour and non-financial risk. During
the year, the full Internal Audit programme
was briefly paused to allow the organisation
to focus on its initial coronavirus response.
The Committee adjusted the full Plan to
ensure that priority areas received adequate
focus. During the year, the Committee has
supported the development of a three year
plan of activity to provide an indicative
view of future Internal Audit focus. In
recognition of Internal Audit’s responsibility
to retain agility to appropriately recognise
organisational change and related changes
in SSE’s risk profile, the three year Internal
Audit plans will remain subject to ongoing
review and revision.
Internal Audit effectiveness
The Committee keeps under review
and assesses the independence and
effectiveness of Internal Audit by
adopting the process outlined below.
The assessment considered Internal Audit’s
positioning within the organisation and
the quality of its planning and operational
procedures. The assessment incorporated
a survey of Internal Audit’s stakeholders
across the Group, along with a review of
outputs from a number of recent internal
audits. During the year, the Committee
also considered SSE’s current Internal Audit
arrangements against the guidelines set out
in the Chartered Institute of Internal Auditors’
Internal Audit Code of Practice. Following
consideration, no significant changes were
made to the Internal Audit arrangements.
A follow-up review of the Internal Audit
function is being carried out by the recently
appointed Director of Group Risk and Audit
and the findings will be evaluated by the
Committee in the year ahead.
Internal control and
risk management
Internal control
The Board has delegated to the
Committee responsibility for reviewing
the effectiveness of SSE’s System of
Internal Control. This covers all material
controls including financial and compliance
controls, in addition to the financial
reporting process. Internal control and
risk management in relation to SSE’s
energy market related exposures are
overseen by the Energy Markets Risk
Committee and further information
can be found on pages 138 to 139 .
Feedback to inform the review of the effectiveness of Internal Audit
Internal Audit
Management
External
Audit Committee
• Assess delivery of the
Internal Audit Plan.
• Assess audit resource
and expertise.
• Assess output from
survey of Group Executive
Committee and other
key members of senior
management.
• Assess feedback provided
from the External Auditor.
• Assess progress against the
actions identified during
the previous evaluation.
• Views from members of
the Audit Committee.
Outcome
Following consideration of all elements of the review, the Committee recognised the progress made during the year, and
confirmed it was satisfied with the overall performance of the Internal Audit function. The key areas of focus for 2021/22 included:
reviewing the resource and skills requirement of the function; refreshing the audit methodology; and developing the use of
technology for analytics and audit management.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE During the year, the Committee stood
up a project team to assess the financial
reporting control environment in
anticipation of a SOX style framework being
introduced in the UK. The Committee
will continue to monitor regulatory
developments and will receive regular
updates from the project team.
To assist the Committee’s review of the
System of Internal Control, the different
elements are evaluated by relevant key
stakeholders. These evaluations are
assessed by the Finance Director and
a letter is provided to the Committee
summarising the work conducted in the
year to improve the control environment
and making a recommendation on
the overall effectiveness of the System
of Internal Control. In addition, when
undertaking the review of the effectiveness
of the System of Internal Control, the
Committee considers the assurance
evaluations undertaken annually by the
Managing Directors of each of SSE’s
seven Business Units. These assurance
evaluations consider 10 key management
control areas and include any planned
improvements to enhance controls. These
improvements are tracked, with updates
reported to the executive-level Group Risk
Committee on a regular basis.
Risk management
The Group’s Risk Management Framework
is designed to manage rather than eliminate
the risk of failure to achieve business
objectives. It can only therefore provide
reasonable and not absolute assurance
against material misstatement or loss.
In addition to the ongoing review of
emerging risks, the Board carried out a
robust assessment of the Principal Risks
facing the Group, being those that have the
potential to threaten its business model,
future performance, solvency or liquidity.
Further details of the Group Principal Risks
are set out on pages 54 to 63 .
Internal control and risk
management effectiveness
An investigation into an incident of external
fraud against SSE Renewables that was
discovered in April 2020 concluded that
all reasonable steps had been taken to
avoid this. The Group received financial
recompense through a successful
insurance claim.
Following the Committee’s review and
recommendation, the Board agreed that
SSE’s System of Internal Control (including
risk management) continues to be
effective. This was in accordance with the
requirements of the FRC Guidance on Risk
Management, Internal Control and related
Financial and Business Reporting. Taking
into account continuous improvement
actions, the Board also confirms that no
significant failings or weaknesses have
been identified during the financial year.
Processes are in place to ensure that
necessary action is taken and progress is
monitored where areas for improvement
have been identified.
System of Internal Control
The elements that make up the System
of Internal Control are:
• Governance Framework. Designed to
ensure focus on the key components
of high quality and effective decision
making – clarity, accountability,
transparency and efficiency. For further
details please see page 102 of the
Directors’ Report.
• Strategic Framework. This includes
Group’s strategic objectives, financial
objective and sustainability goals and
forms the basis for all activity within the
Risk Management Framework.
For further details please see pages
8 to 13 of the Strategic Report.
• Risk Management Framework. This
framework supports each Business Unit
in managing its risks and helps to ensure
that the Board can meet its obligations.
The framework is underpinned by the
fundamental principle that everyone at
SSE is responsible for the management
of risk.
• Assurance Framework. An integrated
programme of audit and assurance
activity that is independent of the day to
day operations of the Business
Units and corporate functions. It is
made up of Internal Audit, Group
Compliance, Large Capital Projects
Services and Group Safety, Health
and Environment.
• Standards and Quality Framework.
Sets out the expected standards
and guidelines to be followed in the
delivery of the Group’s core purpose.
Governance
Framework
Strategic
Framework
Risk Management
Framework
Assurance
Framework
Standards and
Quality Framework
Board and
Board Committees
Group Executive
Committee and
Executive
sub-Committees
Business Unit
Executive
Committees and
Corporate Support
Functions
Strategic
Objectives
Financial
Objective
Sustainability
Goals
Group Risk Management
and Internal Control
Policy
Review of the
Effectiveness
of the System of
Internal Control
Principal Risk
Self-Assessment
Risk Appetite Statement
Viability Assessment
Key Risk Indicators
Business Unit Principal
Risk Self-Assessment
Assurance Evaluation
Risk Blueprint
External Audit
Internal Audit
Group Policies
Group Compliance
Group Safety, Health
and Environment
Large Capital
Projects Services
Governance
Manuals
Business
Assurance
Business Unit, Policies,
Procedures, Processes
and Systems
SSE plc Annual Report 2021
137
AUDIT, RISK AND INTERNAL CONTROL CONTINUED
ENERGY MARKETS RISK
COMMITTEE REPORT
its approach to forward hedging of its
thermal generation output for periods
beyond March 2021.
As a committee, we will continue to
monitor SSE’s management of commodity
price exposures and, should circumstances
lead to any change in approach being
required, these will be fully discussed,
challenged and appropriately reported.
Details of SSE’s latest hedging approach
and hedging position at 31 March 2021
are set out on page 71 or can be found
on sse.com .
In light of the coronavirus pandemic,
we received regular updates on its energy
market related impacts and monitored
the developments of its economic
consequences. For example, to allow us
to monitor the impact to the Customers
Business Unit, we reviewed regular reports
and received the minutes from the Group-
level Demand Management Committee
(set up to monitor the impact of the
coronavirus on the Customer Business
Unit demand profile).
Furthermore, to maintain awareness and
oversight of emerging energy market risks
and other areas within the EMRC’s remit, a
dynamic agenda is operated. Each meeting
is used to consider a range of recurring
items as well as other items that are more
ad hoc and/or forward-looking in nature.
These have included:
• reviews of emerging energy market risks;
• conducting relevant deep-dive sessions;
and
• reviews of risk management and internal
controls concerning energy markets.
These focus areas, along with the reports
on energy market exposures, allowed us to
have visibility of current material issues and
provided a strong foundation for debate and
challenge regarding SSE’s energy market
exposures and related assurance activities.
In line with our commitment to good
governance and continual improvement,
the EMRC’s performance was assessed
as part of the annual Board evaluation
during the year. Despite the impact of the
coronavirus pandemic on the ability to have
physical meetings, I am pleased to confirm
through the performance evaluation
that the EMRC has continued to operate
SSE’s approach to hedging
SSE has committed to delivering
a transparent approach to how it
manages commodity price exposures.
Central to this transparency is
SSE’s established hedging approach,
through which it generally seeks
to reduce its broad exposure to
commodity price variation in relation
to electricity generation and supply at
least 12 months in advance of delivery.
As market conditions change, SSE may
require to vary its hedging approach
to take account of any resultant new
or additional exposures. SSE will
continue to provide a summary of its
current hedging approach, including
details of any changes in the period,
within its Interim and Full-Year Results
Statements which can be found on
sse.com .
effectively, by providing an open forum that
allows the appropriate level of challenge
and oversight of the areas within its remit.
Looking ahead, the main priority for
the EMRC in 2021/22 is to continue our
oversight role on SSE’s energy markets
risks and exposures. Particularly, given the
ever-changing external environment, we
will focus on the impact, management
and mitigation of relevant macroeconomic
and geopolitical events. This will include
the influence on SSE’s energy market
exposures relating to:
• the continued impact of the coronavirus
pandemic;
• the regulatory landscape; and
• the UK’s exit from the European Union,
particularly in relation to a mechanism
for the long-term carbon pricing.
I hope that you find this report informative
and representative of the activities
undertaken by the EMRC.
Tony Cocker
Chair of the EMRC
25 May 2021
Dear Shareholder,
As Chair of the Energy Markets Risk
Committee (EMRC), I am pleased to
present the EMRC report for the year
ended 31 March 2021. This report intends
to provide an overview of how we operate,
give an insight into our activities, and
outline the role we play to oversee SSE’s
energy markets risk exposures and ensure
the effectiveness of its risk management
controls and related processes relevant to
energy market risks.
In alignment with SSE’s approach to
hedging, our main responsibility is to
oversee governance arrangements, which
provide transparency of SSE’s approach
to managing commodity price exposures.
Reports of these exposures are reviewed
and discussed at each EMRC meeting,
and when required, actions will be
recommended to the Board for approval
of any changes to SSE’s hedging approach.
During the year, we have continued to
monitor and oversee these exposures,
with the following examples of hedging
related activities reviewed:
•
In response to the market turbulence
triggered by the first coronavirus
pandemic national lock down in March
2020, SSE Renewables elected to suspend
its hedging activity in line with policy to
avoid the highly volatile market activity
caused by falling demand. The circa two-
month suspension avoided coronavirus
related impacts on future wholesale
market prices; and
In November, in response to the
uncertainty of long-term carbon pricing
due to the UK’s exit from the European
Union, SSE Thermal temporarily adjusted
•
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Meetings and focus
areas in 2020/21
The EMRC held four meetings during the
year and reports to the Board on its work
following each meeting. Each meeting
agenda is informed by a forward plan of
business, which is designed to ensure that
the EMRC carries out its responsibilities in
line with its Terms of Reference. In addition
to the scheduled meetings, the EMRC
Chair meets with the Group Energy and
Commercial Director, Managing Director
of Energy Portfolio Management, and the
Committee Secretary to review papers in
advance of the meeting and ensure that
key and emerging issues are brought to
the EMRC’s attention as appropriate.
The EMRC will continue to develop and
to regularly review the forward plan of
business to accommodate any emerging
issues and risks to the Group concerning
energy markets.
Details of the key focus areas and action
taken by the EMRC in the year are set out
in the table below.
Role of the Committee
The EMRC’s purpose is to oversee SSE’s
energy markets risk exposures. In doing
so, it assists the Board in the effective
discharge of its responsibilities in relation
to risk management and internal control
in this area. The EMRC’s full Terms of
Reference can be found on sse.com .
Committee membership
and attendance
The EMRC comprises three non-Executive
Directors and two Executive Directors.
Full details of membership and meeting
attendance are set out on page 102 .
The Chief Executive and the Managing
Director of Energy Portfolio Management
also routinely attend meetings, with an
Assistant Company Secretary acting as
Secretary to the EMRC. To assist the EMRC
in carrying out its responsibilities, relevant
senior managers can be invited to attend
to present certain items of business and
provide additional levels of insight.
The EMRC membership is approved by the
Board following recommendation of the
Nomination Committee. The membership
was reviewed twice during the year due to
changes on the Board, with the following
changes made:
• Melanie Smith was appointed from
1 October 2020, replacing Crawford
Gillies who stepped down from the
Board on 30 September 2020; and
Key EMRC focus areas in 2020/21
Areas of focus
Actions taken
• Sir John Manzoni was appointed
from 1 April 2021 to replace Richard
Gillingwater, who stepped down from
the Board on 31 March 2021. Sir John
Manzoni had been a regular attendee
at the EMRC since September 2020.
These changes to membership ensured
that the EMRC continues to have sufficient
skills and expertise to discharge its duties.
The new members were provided with
inductions by senior managers on the key
focus areas of the EMRC.
The composition of the EMRC further
facilitates the sharing of relevant experience
held by the non-Executive Directors.
As EMRC Chair, Tony Cocker brings
extensive knowledge from his career in
the energy industry, Melanie Smith and
Sir John Manzoni, both provide invaluable
insights and a wealth of knowledge from
various senior roles in the private and
public sectors. Biographical information
of the EMRC members’ backgrounds and
experience is contained on pages 98 to
101 .
Committee evaluation
The EMRC performance was assessed as
part of the internal annual Board evaluation
(see pages 118 to 119 ). The results of
the evaluation indicated that the EMRC
is operating effectively, and continues to
provide an appropriate level of challenge
and oversight of the areas within its remit.
No specific actions were identified.
Overseeing
SSE’s approach
to hedging
• As part of a quarterly report on energy markets risks, monitored:
– hedging arrangements;
– risk control metrics;
– Energy Portfolio Management’s counterparty credit risk exposures; and
– the liquidity of energy markets.
• Reviewed and endorsed the hedging approach and position at 31 March 2021 included in the Full-Year Preliminary
Statement and Annual Report 2021.
Energy
markets risks
• Received reports on emerging energy market issues/risks (for example arrangements in relation to the UK’s exit from
the EU and impact of the coronavirus pandemic) and recommended relevant matters to the Board on changes to risk
management arrangements in line with SSE’s hedging approach.
• Considered a report on key energy market risks, risk appetites and risk management controls and governance.
• Received reports on reviews of GB and ROI energy markets.
Internal control
and risk
management
relating to energy
market exposures
• Considered reports on the key risks and controls arising from operations within Energy Portfolio Management.
• Reviewed the Energy Portfolio Management MD Letter of Assurance.
• Received quarterly reports from Internal Audit and details of resulting action plans related to the Energy Portfolio
Management business.
• Reviewed minutes from the Group-level Demand Management Committee, which provided updates on activities
as a result of alterations to customer demand profile due to the coronavirus pandemic.
Governance
and other
• Approved the narrative of the 2021 EMRC Report.
• Regularly reviewed the forward business planner.
• Considered the results of the annual committee performance evaluation.
SSE plc Annual Report 2021
139
AUDIT, RISK AND INTERNAL CONTROL CONTINUED
SAFETY, HEALTH AND
ENVIRONMENT ADVISORY
COMMITTEE REPORT
The above represents just some of the key
focus areas for the SHEAC in 2021/22.
The output from the performance
evaluation of the Board and its Committees
identified a need to evolve the scope and
coverage of the SHEAC in 2021/22 to assist
the Board in its oversight of sustainability
governance and assurance on a range of
ESG topics. In support of this, the Board
agreed a series of recommendations at its
meeting in May 2021 to enhance the role
of the renamed Safety, Sustainability, Health
and Environment Advisory Committee on
the governance and assurance of a range
of ESG matters.
Finally, Melanie Smith stood down from
the Committee as a member on 31 March
2021. On behalf of the Committee, I would
like to thank Melanie for her valuable
contribution and insight to the work
of the Committee
I hope that you find the following report
a useful explanation of our work and of
SHE performance during the year.
Helen Mahy CBE
Chair of the SHEAC
25 May 2021
and years ahead. A key focus for the SHEAC
going forward will be to help navigate
the Group as it recalibrates its working
arrangements to a new sustainable normal.
SSE’s strategy is to create value for
shareholders and society in a sustainable
way by developing, building, operating and
investing in the electricity infrastructure and
businesses needed in the transition to net
zero. In practical terms, this strategy sees
us operate in a hazardous industry ranging
from working at height on the high-voltage
electricity transmission network in the North
of Scotland to the installation of offshore
wind turbines in the North Sea. Above all, the
safety, health and wellbeing of the people
that work for SSE directly or on its behalf is
the Company’s first and foremost priority.
We have a responsibility to make sure
everyone gets home safe and promote a
culture where all employees are empowered
to do the right thing. As a SHEAC, we must
provide leadership, support and challenge
to ensure the evolving safety, health
and environmental risks are understood
and appropriately mitigated. During the
year, safety, health and environmental
performance has continued to be strong,
and we remain restless to achieve better.
Our sustained focus on this will be at the
heart of SHEAC activities in the year ahead.
On the environmental side, SSE has a
proud history of developing low-carbon
infrastructure from the hydro power
revolution in the 1940s, to building some
of the world’s biggest offshore wind farms
and electricity networks to support net zero
today. SSE is a Principal Partner to the UK
Government on COP26 and is committed
to helping drive climate action. In May 2020,
SSE published its greenprint for a cleaner,
more resilient recovery from the economic
impact of coronavirus. The five-point action
plan was submitted to the UK Government
to meet the twin objectives of helping the
economy rebound from the coronavirus
whilst taking climate action to meet net zero
targets. To support ongoing engagement
with shareholders on climate-related issues,
we have proposed an enabling resolution,
within the business of the Annual General
Meeting (AGM) 2021, that establishes a
framework for an annual advisory vote on
SSE’s Net Zero Transition report at future
AGMs.
Dear Shareholder,
I am delighted to present the Safety, Health
and Environment Advisory Committee
(SHEAC) Report for the year ended
31 March 2021. The report explains the
work of the SHEAC during the year, the
Company’s response to coronavirus and
the significant progress that has been
made in relation to safety, health and the
environment. A more in-depth review of
these areas, together with a range of other
Environmental, Social and Governance
(ESG) reporting can be found on pages 32
to 53 and in our Sustainability Report
available from sse.com .
Our Safety Family licence, ‘If it’s not
safe, we don’t do it’ is at the very heart
of our safety culture and part of our
DNA. Over the years, the work we’ve done
on safety, health and the environment has
put us in a very strong position to deal with
the unprecedented challenges arising from
the coronavirus pandemic. The burden on
people and society has been overwhelming
with daily life disrupted beyond recognition.
Despite this, I’ve been humbled by the
resilience, commitment and dedication of
our employees who have worked to provide
a safe and reliable supply of electricity that
is critical in enabling the national response
to the pandemic. On behalf of the SHEAC,
I would like to thank all employees and
those that work for SSE for your sustained
effort and hard-work. From operatives in
the field to office-based staff now working
remotely, the shift in working arrangements
has been sudden and significant. As the
pandemic continues to threaten health,
much uncertainty remains in the months
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Role of the Committee
The Committee’s role is to support the
Board and provide assurance in matters
relating to safety, health, environment (SHE)
and sustainability. The SHEAC provides
a leadership forum for non-Executive
Directors to work with senior management
and shape policy, targets and strategy to
improve SHE performance and culture, in
addition to supporting SSE’s commitment
to being a sustainable company that
makes a positive contribution. The SHEAC
reviews and oversees four significant Group
policies: Safety and Health Policy; Climate
Change Policy; Environment Policy; and
Sustainability Policy. The SHEAC Terms of
Reference are regularly updated and are
available on sse.com . Following the
performance evaluation of the SHEAC
(see below), further updates to the Terms
of Reference will be made to include
additional responsibilities covering a
range of ESG matters.
Committee membership
and attendance
The membership of the SHEAC comprises
three non-Executive Directors; the Chair
of the Board; the Chief Sustainability
Officer; the Managing Director, SSEN
Distribution; the Managing Director, SSE
Renewables; the Managing Director, SSE
Enterprise Utilities; and the Director of
Group Safety, Health and Environment. The
Deputy Company Secretary is Secretary
to the Committee and the Chief Executive
routinely attends meetings. The Committee
invites operational managers and specialists
to attend certain meetings to gain a deeper
level of insight on particular items of
business. Biographical details of the
non-Executive members can be found
on pages 98 to 101 and details of
non-Executive meeting attendance are
set out on page 102 . During the year,
a number of changes to the Board and
executive membership of the Committee
were considered by the Nomination
Committee and subsequently agreed by
the Board. The detail of these changes are
set out on page 125 .
Committee evaluation
The evaluation of SHEAC during 2020/21 was facilitated by an internally-led questionnaire. The output of the evaluation, together
with insights from discussions held between the Chair Designate and Committee Chair on the scope and coverage of the SHEAC,
were considered at its meeting in March 2021. Following this, the Board confirmed the SHEAC continued to effectively discharge
its responsibilities and endorsed the recommendation to recalibrate the coverage of the SHEAC on certain ESG matters and the
sustainability agenda. The key themes and actions for 2021/22 are summarised below.
Evaluation
themes
• The knowledge and experience of the SHEAC membership is broad and each member is able to bring a different and
valuable perspective.
• Whilst the virtual site visits worked well in the circumstances, physical site visits are invaluable and help bring the
SHE-culture to life, particularly for the non-Executive members of the SHEAC.
• A significant number of individuals from all levels of the Group were able to attend SHEAC meetings and their insight
was highly valued.
Actions for
2021/22
• With the significant increase in focus on ESG matters in recent years, a detailed review to clarify the governance and
oversight arrangements for ESG topics will be carried out to improve the overall cohesion and coordination of ESG
matters between the Board, Board Committees and management.
• The SHEAC’s Terms of Reference and plan of agenda items will be updated in line with the outcome of the review
described above.
• The programme of site visits will be resumed when safe to do so and in line with government restrictions.
Meetings and focus
areas in 2020/21
The SHEAC met four times in 2020/21.
Working closely with the Group Safety,
Health and Environment Committee
(which reports into the Group Executive
Committee), the SHEAC has an annual
work plan to: review SHE performance at
Group-level and in each of SSE’s seven
business areas; consider in-depth reviews
of certain key topics such as contractor and
process safety; and review a range of SHE
governance and assurance requirements.
The comprehensive programme of site
visits which routinely complement the
formal SHEAC meetings were unable
to take place this year as a result of the
coronavirus restrictions. A series of virtual
site visits for member of the SHEAC to
engage with management on the work
being delivered across the Group in relation
to the environment, contractor safety,
occupational health and wellbeing and the
Safety Family programme were arranged
in September 2020. A large part of the
meeting in October 2020 was dedicated
to receiving feedback from the virtual site
visits and agreeing next steps in the process
of continual improvement.
Response to coronavirus
SSE’s over-riding priority through the
coronavirus pandemic has been to provide
the safe and reliable supply of electricity,
at local, regional and national level, on
which the people and organisations whose
work is critical to the coronavirus response
depends. SSE published a statement which
sets out the support provided to customers,
employees, suppliers and contractors
and communities. SSE also joined forces
with a host of businesses and signed the
C-19 Business Pledge to support the UK
through the coronavirus pandemic and
the recovery efforts. Further details are
available at sse.com/coronavirus .
SSE’s business continuity framework
was deployed in early 2020 and has been
used to manage the Group’s response
to the coronavirus pandemic. An update
on the evolving position, including key
and emerging issues is presented to
each meeting of the SHEAC and is also
considered at each Board meeting.
To ensure people across the Group
continue to work safely, a range of new
processes, procedures and guidance
have been established and have been
widely communicated. Having invested
significantly in the technology for agile
working in recent years, everyone who
could work from home has done so in
line with government restrictions. For
those employees who were unable to
work remotely as their attendance on site
was critical to continued operations, PPE,
hygiene and social distancing measures
were established to ensure safe working
conditions were maintained.
SSE plc Annual Report 2021
141
AUDIT, RISK AND INTERNAL CONTROL CONTINUED
SAFETY, HEALTH AND ENVIRONMENT ADVISORY COMMITTEE REPORT CONTINUED
relating to minor environmental incidents.
Most breaches were self-reported to the
relevant environmental agencies and all
incidents were dealt with quickly when
identified. During the year, SSE’s carbon
footprint benefited by having reduced
travel, with most colleagues predominantly
working from home for the last year.
Sustainability
SSE’s approach to the disclosure of its
sustainability impacts seeks to bring about
continuous improvement in both the
quality of information disclosed and the
stakeholder engagement that results. It
is understood that stakeholder scrutiny
is a powerful agent for performance
improvement and, therefore, SSE seeks to
work with stakeholders and shareholders
to understand their needs.
SSE’s Sustainability Report aims to
demonstrate the way SSE creates value for
shareholders and society in a sustainable
way and provides detailed information
on the policies, practices, performance
and governance of a range of economic,
social and environmental matters. The
SHEAC oversees the development of the
Sustainability Report which is available at
sse.com/sustainability . Complementary
information can also be found in pages 32
to 53 .
The UN’s Sustainable Development
Goals (SDGs) are the blueprint for
addressing global challenges, including
climate change, and therefore SSE’s four
2030 business goals are aligned to the
SDGs most material to the Group. The
Sustainability Report also details progress
against the four 2020 business goals.
Recognising the increasing significance
of a company’s ESG performance,
the SHEAC will adapt in financial year
2021/22 to encompass further scrutiny
and oversight of particular ESG topics,
identified as being material.
More information
A sustainable approach:
pages 32 to 53
At an early stage, SSE introduced
coronavirus testing when needed for its
critical workers and has worked closely
with trade unions partners throughout
to extend flexible working practices,
particularly for those with caring
responsibilities. SSE has not used the
UK Government Job Retention Scheme.
During the year, SSE has sought the views of
employees in the Group’s response to the
coronavirus, emotional wellbeing and post-
lockdown working practices. The results of
the surveys have provided invaluable insight
that is being used to inform how SSE plans
future ways of working.
SHE performance
Safety
Building on the commitment to use clear
and simple language for engaging with
employees on SHE performance, the
SHEAC endorsed the concept of ‘Safe
Days’ as a new way to monitor and track
its safety progress and performance. On
a ‘Safe Day’, there are no minor, serious
or major SSE or contractor safety or
environmental incidents or any incident
with high potential for harm to people or
the environment. During 2020/21, 271 Safe
Days were achieved, compared to 247 in the
previous year. In addition to Safe Days, SSE
continues to measure safety performance
using the rolling Total Recordable Injury
Rate (TRIR) for employees and contractors.
This measure is used for benchmarking
and trend analysis and in 2020/21 it fell to
0.15 per 100,000 hours worked, compared
to 0.16 in the previous year. Despite the
improving trend in SHE performance the
Committee remains mindful that incidents
and accidents still occur. The focus on
ensuring everyone gets home safe remains
central to everyone in SSE and the work of
the SHEAC.
Health and wellbeing
The coronavirus pandemic presents
challenges for employees around
maintaining good mental health in times of
uncertainty and social distancing. Building
on the progress and measures implemented
to enhance the awareness of mental health
issues, SSE has used its partnership with
Nuffield Health to give employees access
to a range of resources to help take care
of themselves while at home, including
an emotional care guide, advice from
physiotherapists and free access to the
‘My Wellbeing’ app which provides home
workout videos and tailored programmes.
SSE’s Back to Health programme
supported by Nuffield Health is available
to all employees in Great Britain. The
programme has helped line managers start
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SSE plc Annual Report 2021
conversations with colleagues who they
were concerned for, by having the ability to
offer Nuffield Health as support for stress,
anxiety, depression and musculoskeletal
conditions. Employees also have the option
to self-refer. SSE’s priority for 2021/22 will
be to continue to support employees adapt
to new working conditions and look after
their mental and physical health. A follow-
up review of the plans being implemented
across the business to assist with fatigue
management has also been scheduled for
the year ahead.
Environment
SSE seeks to actively manage its
environmental footprint, whilst maximising
positive and minimising negative impacts.
The environmental strategy is designed
to drive progress and has been developed
around three priority areas covering climate
action, responsible consumption and
production and the natural environment.
The strategy provides a framework for
each business area in the Group to
develop their own environmental plan
with its implementation supported by
policies, procedures and targets to guide
interactions with the environment. During
the year, the SHEAC received presentations
on the work being undertaken across
the Group covering matters such as net
zero, biodiversity, climate adaptation,
greenhouse gas emissions and waste
management.
In the year ahead, the world will gather
in Glasgow this November for the United
Nations Climate Change conference. SSE is
proud to be a Principal Partner on COP26
and is supporting efforts to a agree a more
ambitious global climate deal committing
countries to action. SSE is playing its part to
make net zero emissions a reality through
a range of activities, including building the
largest offshore wind farm in the world,
developing the first hydro pump storage
project in over 30 years, pioneering carbon
capture and storage technologies, investing
in the transmission network for net zero
and laying the distribution infrastructure
for the electrification of transport and heat.
Further details of these projects
are included in the Strategic Report.
In 2020/21, the number of environment
incidents as a result of SSE’s activities
totalled 44 compared to 53 in the
previous year. Of these, there were no
major environmental incidents. SSE’s
environmental permit breaches decreased
to four in 2020/21 from 10 the previous
year. Both the number of breaches and
the severity decreased, with the majority
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Our SHE performance
1 April 2020 – 31 March 2021 (365 days in total)
This year 2020/21
Last year 2019/20
SAFE DAYS ACHIEVED
NOT ACHIEVED
SAFE DAYS ACHIEVED
NOT ACHIEVED
271
94
247
119
TOTAL INCIDENTS (SSE)
TOTAL INCIDENTS (SSE)
17
20
TOTAL INCIDENTS (CONTRACTOR)
TOTAL INCIDENTS (CONTRACTOR)
30
35
Reportable injury
Lost time injury or medical treatment injury
Detailed incident comparison
HIGH POTENTIAL INCIDENT
REPORTABLE INCIDENT
LOST TIME INJURY (1-7 DAYS)
2020/21
2019/20
20
25
2020/21
2019/20
18
18
2020/21
2019/20
9
12
MEDICAL TREATMENT INJURY
SERIOUS ENVIRONMENTAL PERMIT BREACH
2019
2020/21
2019/20
2019
20
2020/21
0
25
2019/20
2
RTC CLASS 1
MINOR ENVIRONMENTAL PERMIT BREACH
2019
2020/21
2019/20
2019
14
20
2020/21
2019/20
4
8
SERIOUS ENVIRONMENTAL INCIDENT
(EXCLUDING PERMIT BREACHES)
2019
2020/21
2019/20
11
10
MINOR ENVIRONMENTAL INCIDENT
(EXCLUDING PERMIT BREACHES)
2019
2020/21
2019/20
0
0
29
33
2019
On a ‘Safe Day’
2019
We don’t have a minor, serious or major incident for either SSE
employees or contractors:
• • Reportable, Lost Time or Medical Treatment injury
• • Major/Serious/Minor Environmental Incident/Permit Breach
• • RTC Class 1
• • HIPOS (High Potential to harm People/Environment)
•
For information on safe days visit www.sse.com
2020/21 Target and rolling TRIR
2019
0
0
COMBINED TRIR: TARGET <0.15
0.15
SSE plc Annual Report 2021
143
REMUNERATION COMMITTEE CHAIR’S STATEMENT
FAIRNESS AND BALANCE
IN A YEAR OF CHALLENGE
At the same time, SSE has delivered solid
operational performance and strong
strategic execution which has created
value for all our stakeholders. The
resilience and strength of the Group is
demonstrated by our ability to deliver our
dividend plan. We have not accessed any
of the UK Government’s programmes to
support businesses. SSE engaged with
trade unions to agree measures to prevent
the need to furlough employees, consistent
with its long-term commitment of being a
responsible employer. The business created
hundreds of new jobs during the period.
SSE also announced in May a payment
to all employees of £400/€450 as a
thank you for their contribution during the
pandemic. Being able to achieve this in the
current environment is testament to the
hard work of our team and the leadership
demonstrated by our executives.
Linking remuneration with
SSE’s purpose and strategy
Our current Directors’ Remuneration Policy
was approved by shareholders at the 2019
AGM, with over 99% support. The policy is
built on our core reward principles which
endure even though the business model
continues to evolve. These are:
• Sustainability, reinforcing SSE’s
commitment to being a responsible
employer.
• Simplicity, maximising transparency
and avoiding unnecessary complexity.
• Stewardship, encouraging good
decision-making for the long term.
• Stakeholders, reflecting SSE’s goal
of creating value for shareholders
and society.
Our Directors’ Remuneration Policy is
designed to be sustainable and simple
and to facilitate diligent and effective
stewardship that is vital to achieving SSE’s
core purpose of providing energy needed
today while building a better world of
energy for tomorrow, and delivering
on our strategy.
Sustainability is at the heart of our
business and is reflected in the four
fundamental business goals we have
set for 2030 (explained in more detail in
the Sustainability Report ) which are
linked to the United Nations Sustainable
Development Goals (SDGs).
They are to:
• Cut our carbon intensity by 60%.
• Treble renewable energy output.
• Help accommodate 10m electric
vehicles.
• Champion Fair Tax and a real Living Wage.
Progress against these SDGs is a key
component of our strategy and we reward
performance against them through the
Annual Incentive Plan. We will be assessing
the possibility of measuring SDG progress as
part of the long-term incentive arrangement
before our policy review in 2022. SSE’s
2030 business goals are important interim
milestones on the road to net zero in 2050.
The 2030 goals and progress made against
them in 2020/21 are set out in more detail on
pages 14, 15 and 22, 23 .
Fairness is a central pillar of the policy
– fairness to Executive Directors in
recognition of the extent of their
responsibilities, and fairness relative to
the rest of the SSE team whose shared
talent, skills and values are essential to SSE’s
success and have been evidenced more
than ever in the last year. The extent of their
responsibilities means Executive Directors
are well paid, but the remuneration policy
is designed, among other things, to ensure
they are not overpaid.
The Remuneration Committee is regularly
informed of pay and employment conditions
throughout the Company. I am also the
designated Non-Executive Director for
Employee Engagement and during the year
was able to virtually contact a wide range
of employees (and their representatives) to
listen to their thoughts on business matters
including executive pay. On page 147
we have provided a snapshot of pay more
generally throughout the Company and
how this links into the matters we consider
when deciding on executive remuneration.
The Board takes time to consider the
interests of stakeholders in all its decision
making (see pages 28 to 31 . It has taken
a particularly balanced and thoughtful
approach in respect of all the remuneration
decisions regarding Directors this year.
Dear Shareholder,
This Directors’ Remuneration Report aims
to set out simply and clearly how SSE pays
its Executive and non-Executive Directors;
the decisions made on their pay in 2020/21;
and how much they received in relation to
the financial year ended 31 March 2021.
The impact of coronavirus on the
business and key developments
SSE has continued to prioritise the safe
and reliable supply of electricity during
the coronavirus pandemic. This has been
achieved because of the steps taken early
in the pandemic to establish safe ways of
working for employees who have been
unable to work from home. This has limited
the impact of lockdowns on SSE’s day-to-
day operations and construction activity.
Most office-based employees continue
to work from home. The wellbeing (both
mental and physical) of all SSE’s employees,
contractors and agency workers has been
a key consideration for us over the last year.
Some of the actions taken by the Group are
set out on page 45 .
Despite the challenges presented by
coronavirus, the business has demonstrated
its resilience and made good progress in
terms of its strategic delivery. Our five-year,
£7.5bn investment and capital expenditure
plan has progressed well. The Group has
also made strong progress towards its
£2bn disposals programme over the year.
This further simplifies and streamlines our
business model. SSE is resolutely focused
on a net zero world and our leadership and
advocacy is demonstrated by our COP26
partnership and Race to Zero campaign
which are explained in more detail on
pages 24 and 36 .
144
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Annual Incentive Plan
Payments under the Annual Incentive Plan
(AIP) are determined against a broad range of
financial, operational, strategic and personal
performance targets collectively designed to
reflect business performance each year. The
measures used for 2020/21 were chosen to
support our strategic delivery and longer-
term goals, notwithstanding the uncertainty
surrounding the coronavirus pandemic.
When setting the relevant target ranges the
Committee reserved discretion to exercise
its judgement after year-end once the true
impact of coronavirus was understood, with
the intention that this would mean reducing
the AIP outcome in line with any reduction
in earnings.
Performance in the year has been strong
which resulted in the overall assessment
of the 2020/21 award being 74% of the
maximum. In view of the reduction in
earnings, as a result of coronavirus, the
Committee, considered it appropriate
to reduce the adjusted EPS component
formulaic outcome by 18.5% in line with
the coronavirus-related impact on budget,
believing that this results in a fair overall
outcome for the Executive Directors at
69%. This will be the third time in the last
five years that the Committee has used
discretion in relation to the AIP outcome.
A detailed AIP scorecard can be seen on
pages 150 to 153 .
Performance Share Plan
The Executive Directors are the only three
participants in the Performance Share Plan.
The Performance Share Plan (PSP) awards
granted in 2018 are due to vest following
the 2020/21 financial year, subject to
financial, operational and value-creation
performance measures over the three-
year period. These have been objectively
assessed, resulting in an outturn of 28% of
the maximum opportunity. More details
on the performance measures used, the
targets set, and the actual performance
assessed is set out on page 153 .
The Committee confirmed that the
formulaic outcome for these awards should
stand. The performance targets were
stretching when originally set and became
even more challenging given the impact of
coronavirus, so no adjustment is required.
Board changes
As announced on 15 October 2020,
Martin Pibworth’s role was expanded
and he became the Group Energy and
Commercial Director. At the time I
engaged with our major shareholders
and explained the changes we had made
to his remuneration as a result. From
1 November 2020 Martin assumed Group-
wide responsibility for all commercial and
associated risk management activities
for all the non-networks businesses. In
addition to his previous responsibilities for
SSE Renewables, SSE Thermal, EPMI and
Energy Customer Solutions, he now leads
SSE distributed energy including solar and
storage as part of SSE Enterprise. He is also
accountable for identifying opportunities
for and driving growth across all of SSE’s
non-networks businesses. In short, he now
leads a key growth engine of the Group
and the importance of his extended role
is therefore significant.
The expansion of Martin Pibworth’s
responsibilities do not lead to a
fundamental change of his role but rather
to a considerable increase in accountability
which warranted an increase in his base
salary of 19% from £529,000 to £630,000.
This is 69% of the Chief Executive’s salary.
We decided not to phase the salary increase
on the basis that it is not our usual practice
to do so in SEE on promotion. We expect
subsequent increases to be line with typical
increases. The Committee is acutely aware
that this is a significant increase when
compared to average SSE pay increases
and across the economy generally. We took
the view that Martin’s new remuneration
package is a longer-term investment in SSE’s
future and is also fair and reasonable in light
of his considerable additional responsibilities.
This follows his strong contribution to
the Group over many years including the
success of developing the off-shore wind
portfolio, and the value created by the
recent sale of Multifuel Energy and takes
into account the Board’s plan for talent
management and succession planning.
As part of the review, the Committee also
looked afresh at the phased reduction of
Martin’s pension allowance over five years (as
set out in last year’s Directors’ Remuneration
Report) and concluded the transition
process should be accelerated by two years.
This means that his pension allowance will
be in line with the employer contribution
for the majority of SSE’s employees taking
into account length of service of 15% of
salary by 1 April 2023. In taking this decision,
the Remuneration Committee took into
account the ‘flow through’ effects of the
increase to other elements of Martin’s
pay and was satisfied that his new level
of total remuneration is not excessive.
The Committee was also sensitive to the
fact that Martin only last year agreed to
a reduction in his contractual pension
entitlement. It took the view that bringing
forward the reduction by two years struck
the best balance between shareholders’
interests and Martin’s own position. Martin’s
incentive arrangements are unchanged.
On 1 April 2021, Sir John Manzoni
succeeded Richard Gillingwater as Chair
of the SSE Board. His fee on appointment
is the same as that of his predecessor,
recognising his wealth of experience
in the energy industry and the expected
time commitments of the role.
Implementation for 2021/22
The Committee reviewed Executive
Directors’ base salaries and concluded that
in light of continued strong performance
and leadership throughout the year, an
increase of 1% was awarded which is in line
with the average base pay increase across
the Group’s employees with effect from
1 April 2021.
The structure and quantum of the AIP
remain unchanged. Performance measures
are targeted on the delivery of our strategic
objectives and in particular our SDGs
are designed to tackle climate change
and support global goals for sustainable
development. The measures and weightings
for 2021/22 are set out on page 150 .
There are no changes planned to the
structure, quantum or performance
measures for 2021/22 in relation to PSP.
The performance measures, weightings
and targets are set out on page 150 .
Policy review ahead of 2022 AGM
The current Directors’ Remuneration Policy
will expire at the end of its normal three-
year life at next year’s AGM. The Committee
will spend time this year reviewing the policy
and deciding if any changes are required to
better support the Group strategy.
As part of the review, the Committee will
consider developments in market practice,
corporate governance and changes
within our own business. One area for
consideration will be the current difference
in long-term incentive approach between
the Executive Directors who participate in
the PSP and the next tiers of management
who currently participate in the Leadership
Share Plan which has features which are
more similar to those of a deferred bonus
or a restricted share plan. I look forward to
engaging with our major shareholders and
their representatives to understand their
views on any potential changes in approach.
Summary
Looking ahead, we will continue to apply
our core principles with transparency in
both decision-making and reporting and
to do so in a way that is fully cognisant of
the perspectives of SSE’s stakeholders. In
line with that, I welcome any feedback or
comments on remuneration matters and
can be reached via our Company Secretary,
Sally Fairbairn, at sally.fairbairn@sse.com.
Dame Sue Bruce DBE
Chair of the Remuneration Committee
25 May 2021
SSE plc Annual Report 2021
145
REMUNERATION AT A GLANCE
Directors’ Remuneration Policy in 2021/22
The illustration below shows how SSE intends to operate its Directors’ Remuneration Policy in 2021/22. SSE’s core reward principles
remain unchanged and therefore the policy will remain unchanged from the previous year.
Element
Max
2021/22
2022/23
2023/24
2024/25
2025/26
2026/27
Fixed pay
Salary
Benefits
Pension
Variable pay
– at risk
Annual
Incentive Plan
(AIP)
Additional
governance
Performance
Share Plan
(PSP)
Share
ownership
requirement
Recovery and
withholding
Post-
employment
Salary paid
Benefits paid
Pension
accrual/
allowance
paid
Performance
period
AIP cash paid
AIP career
share awards
granted
Vesting
period
Awards vest
Career
holding
PSP awards
granted
Performance/vesting
period
PSP awards
vests
Holding
period
Holding
period ends
Set with
reference to
pay increases
for the wider
employee
base
Market
competitive
Final salary
and top up/
pension
allowance
CEO 150%
of salary. FD
and ED 130%
of salary
67% cash/33%
career shares
CEO 200%
of salary. FD
and ED 175%
of salary
2-year holding
period
200% of salary Share ownership requirement
All incentives Clawback: misstatement, serious misconduct, error in calculation
Malus: misstatement, misconduct, serious reputational damage, error in calculation
Career shares Holding requirement for career shares until two years after cessation of employment
Strategic performance
Executive Directors’ remuneration is strongly linked to strategic performance. Some of SSE’s strategic performance measures are
detailed below, with an indication of how they link to remuneration. SSE has delivered against its dividend target and performed well
against a range of financial and non-financial measures. Full details can be seen on pages 150 to 153 .
ADJUSTED EARNINGS PER SHARE
TOTAL SHAREHOLDER RETURN
(FTSE 100)
EMPLOYEE ENGAGEMENT
CARBON INTENSITY OF
ELECTRICITY GENERATED
87.5p
AIP and PSP
Rank 22
of 94 PSP
(43.1%)
82%
Engagement index score
AIP (Stakeholders)
255
gCO2e per kWh
AIP (Sustainable
Development Goals)
DIVIDENDS PER SHARE
TOTAL SHAREHOLDER RETURN
(MSCI)
TOTAL RECORDABLE
INJURY RATE
TOTAL RENEWABLE GENERATION
OUTPUT*
81p
AIP and PSP
Rank 12
of 22 PSP
(43.1%)
0.15
per 100,000 hours
worked
AIP (Stakeholders)
10,242
GWh
AIP (Sustainable
Development Goals)
* Includes pumped storage, biomass
and GB constrained off output.
146
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE
Performance related pay outturns for 2020/21
The charts below summarise the performance outturn of the AIP and PSP for the financial year ended 31 March 2021.
ANNUAL INCENTIVE PLAN PERFORMANCE
PERFORMANCE SHARE PLAN PERFORMANCE
100%
69%1
10%
10%
5%
0%
15%
14%
15%
13%
20%
17%
20%
20%
20%
20%
20%
20%
0%
0%
0%
100%
28%
8%
Cashflow
DPS
Personal
Stakeholders
Sustainable
development
goals
Total
(% of
maximum)
TSR v
FTSE100
TSR v
MSCI
Europe
EPS
growth
DPS
growth
Customer
Total
(% of
maximum)
30%
24%
Adjusted
EPS
Maximum
Actual
1 After 5% downward adjustment for coronavirus impact.
Remuneration across the Company
The Remuneration Committee considers a range of factors when deciding upon the remuneration for Executive Directors, one of
which is the alignment with pay practices across the wider workforce.
Base Salary
Benefits
Pension
Short-Term Incentive
Long-Term Incentive
Executive Directors
Group Executive
Committee
Senior Management
Wider Workforce
Base salary is typically
set with reference
to the market and
wider workforce
considerations.
A range of voluntary
benefits in line with
the wider workforce
plus contractual car
and private medical
benefits.
Annual increases are
typically in line with
or less than the wider
employee population.
Base salary levels are
subject to negotiation
with recognised trade
unions and/or are set
in line with market
requirements.
Annual increases
are subject to
negotiation.
A range of voluntary
benefits are available
to all employees, such
as a cycle to work
scheme, a holiday
purchase scheme,
health benefits, and
enhanced maternity,
paternity and
adoption leave.
All employees are
a member of the
SHEPS or SEPS
defined benefit
pension scheme, or
the Pension+ defined
contribution scheme
unless they have
opted or cashed out.
The arrangements
are diverse and
the employer cost
typically ranges from
3% to 38% of salary
when both defined
contribution and
defined benefits
schemes are taken
into account.
Annual Incentive
Plan linked directly
to business
performance –
50% financial,
50% non-financial.
33% of the total
award is deferred
as career shares.
The Performance
Share Plan is a
share award with
performance
linked to strategic
performance
measures.
Annual Incentive
Plan considering
performance of the
Group (directly linked
to the above), the
business area and
the individual. 25%
of the total award is
deferred as shares
for three years.
The Leadership
Share Plan is also
linked to strategic
performance
measures over the
longer-term and
those with direct
impact on strategic
output are eligible.
Depending on
role, a proportion
of employees will
participate in the
Annual Incentive
Plan (as above).
100% of the award
is paid in cash.
All employees may
participate in the
Share Incentive
Plan (SSE matches
three shares for
every three bought)
and the Sharesave
(SAYE) plan.
SSE plc Annual Report 2021
147
ANNUAL REPORT ON REMUNERATION
1. Single total figure of remuneration (audited)
The table below shows the single total figure of remuneration for each Director for the financial year ending 31 March 2021 relative to
the previous year.
Fixed Pay
Base Salary1
Benefits2
Pension3
Total Fixed Pay
Variable Pay
AIP4
PSP5
Total Variable Pay
Alistair Phillips-Davies
Gregor Alexander
Martin Pibworth7
Total
2020/21
£000s
2019/20
£000s
2020/21
£000s
2019/20
£000s
2020/21
£000s
2019/20
£000s
2020/21
£000s
2019/20
£000s
915
25
458
890
25
141
707
22
344
1,398
1,056
1,073
947
666
788
534
634
450
1,613
1,322
1,084
688
22
56
766
528
361
889
571
18
171
760
512
337
849
515
17
155
687
395
–
395
2,193
65
973
2,093
64
352
3,231
2,509
2,093
1,453
1,711
895
3,546
2,606
Total6
3,011
2,378
2,157
1,655
1,609
1,082
6,777
5,115
1 SSE offers all employees a range of voluntary benefits some of which operate under a salary sacrifice arrangement. The salaries shown above are reported before
any such adjustments are made.
2 Benefits relate to company car, Share Incentive Plan company contributions and medical benefits. These benefits are non-pensionable.
3 The pension values for Alistair Phillips-Davies and Gregor Alexander represent the increase in capital value of pension accrued over one-year times a multiple
of 20 (net of CPI and Directors’ contributions) in line with statutory reporting requirements.
4 The AIP figures above show the value of the award including the portion deferred as shares.
5 The PSP figures for 2019/20 have been readjusted in line with statutory reporting requirements, following last year’s report to show the actual value upon vesting.
The estimated value shown in the table for 2020/21 is based on the average share price in the three months to 31 March 2021 of £14.495p, as required by the
reporting regulations. The award remains subject to service until May 2021 and so the prior year comparative will be restated in next year’s report to show the
actual value on vesting, as is required by the regulations. There was no share price appreciation.
6 Directors have not received any other items in the nature of remuneration other than as disclosed in the table.
7 Martin Pibworth was appointed to the Board on 1 September 2017 and therefore, was not granted an award under the 2017 PSP which vested in 2020. Instead,
he received an award under the below-Board long-term incentive plan of £400,915.
Rationale for 2020/21 single total figure of remuneration
There has been a year-on-year increase in the single total figure of remuneration. For the Chief Executive and Finance Director, remuneration
has increased by 27% and 30% respectively. This change is attributable to an increase in base salary aligned to the wider workforce, an
increase in AIP outcome following a year of strong financial and strategic performance. For the Chief Executive and the Finance Director
there is also an increase in the pension service cost which is a function of the valuation regulations rather than any change in approach.
From 1 November 2021, the Energy Director took on the expanded role of Energy and Commercial Director. At this time, he received a
base salary increase commensurate with his new responsibilities. His AIP award (as percentage of salary) remained unchanged and was
based on his base salary earned across the financial year. This year is also the first year that a grant under the PSP has reached maturity
following his appointment as an Executive Director during 2017/18. He had previously participated in a below-Board long term incentive
which has up to this point been disclosed as a footnote to the table. The resultant year-on year increase is 49%.
The Remuneration Committee is satisfied that the total single figure of remuneration for each Executive Director is appropriate.
Base salary
In line with the average base salary increase for the wider employee population, Executive Directors’ salaries were increased on 1 April
2020 by 2.75% from £890,293 to £914,776 for the Chief Executive, from £688,124 to £707,047 for the Finance Director and from £515,000
to £529,163 for the Energy Director. In addition, the Energy Director’s salary was further increased to £630,000 on 1 November 2020
when his role was expanded to become Energy and Commercial Director.
Benefits
Benefits are provided at an appropriate level taking into account market practice at similar sized companies and the level of benefits provided
for other employees in the Company. Core benefits include car allowance, private medical insurance and health screening. The Executive
Directors also participate in the Company’s all-employee share schemes on the same terms as other employees.
Pension
The Chief Executive and Finance Director are members of the Southern Electric Pension Scheme and the Scottish Hydro Electric Pension
Scheme respectively, and their plan membership predates their Board appointments. They participate in the same defined benefit pension
arrangements that were available to all employees recruited at that time. The schemes were closed in 1999 and the service costs range
from 32.5% to 37.5% of salary. These are both funded final salary pension schemes and the terms of these schemes apply equally to all
members. The Executive Directors’ service contracts provide for a possible maximum pension of two thirds final salary from the age of 60.
148
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE
In relation to Executive Directors who are subject to the scheme-specific salary cap (which mirrors the provisions of the previous HMRC cap
arrangements) the Company provides top-up (unfunded) arrangements which are designed to provide an equivalent pension on retirement
from the age of 60 to that which they would have earned had they not been subject to the salary cap. From 1 April 2017 pensionable
earnings increases were capped at RPI +1%. These are legacy arrangements and would not be used for any new external appointments.
The Chief Executive and Finance Director, in common with all other employees who joined at the same time (24 and 30 years ago
respectively), have the following pension provisions relating to leaving the Company:
• for retirement through ill-health an unreduced pension based on service to expected retirement is paid;
•
in the event of any reorganisation or redundancy an unreduced accrued pension is paid to a member who is aged 50 or above,
with at least five years’ service or, for a member who has not yet reached that age, it will be payable with effect from 50;
• and from the age of 55, a scheme member is entitled to leave the Company and receive a pension, reduced for early payment, unless
the Company gives consent and funds this pension on an unreduced basis.
Dependent on the circumstances surrounding the departure of the Executive Director and financial health of the Company at the time,
the Committee’s policy is to give consideration to a cash commutation of the unfunded unapproved retirement benefit (UURB) pension
at the time of leaving. Any cash commutation will limit SSE’s liability, taking into account valuations provided by independent actuarial
advisors, and will be calculated on what was judged to be a cost neutral basis to SSE.
The Energy and Commercial Director, who has been with SSE since 1998, was already in receipt of a pension allowance of 30% of salary
prior to his appointment as an Executive Director. While the arrangement was consistent with the approach used for all other members
who have elected to receive a cash allowance in lieu of accruing future pension benefits, the Committee agreed that his future pension
arrangements would be aligned with the wider workforce at 15% of salary on a phased basis over five years. Following confirmation of his
expanded role from 1 November 2020, it was agreed that the phased reduction would be accelerated by two years. This means that his
pension allowance will be in line with the employer contribution for the majority of SSE’s employees taking into account length of service
of 15% of salary by 1 April 2023.
The table below details pension accrued for each of the Executive Directors as at 31 March 2021 and 2020.
Alistair Phillips-Davies
Gregor Alexander
Martin Pibworth 1
1 Martin Pibworth received an allowance in lieu of a pension contribution of 30% of salary.
Accrued pension
as at 31 March
2021
£000s
Accrued pension
as at 31 March
2020
£000s
489
443
0
457
418
0
SSE plc Annual Report 2021
149
ANNUAL REPORT ON REMUNERATION CONTINUED
Annual Incentive Plan and Performance Share Plan
In setting targets and assessing performance, the following process is used for both the AIP and PSP:
1. Set performance
measures aligned
with strategy
2. Set stretching
performance
targets
3. Assess
performance
4. Take account
5. Apply discretion
of wider
environment
if required
2020/21 Annual Incentive Plan
1. Set performance measures aligned with strategy
AIP requires broad performance across a number of financial metrics (Adjusted EPS, DPS Growth and Cashflow) and strategic metrics
(Personal, Stakeholders and Sustainable Development Goals). These reflect a review of performance measures in 2019/20 which resulted
in some strategic measures being updated to reflect SSE’s evolving business. The Stakeholders and Sustainable Development Goals
performance measures replaced the former Customer and Teamwork measures. The performance measures and their weightings are
shown below.
Financial
(50%)
Adjusted
EPS
(30%)
Cashflow
(10%)
DPS
(10%)
Personal
(15%)
Individual
Objectives
(15%)
Stakeholders
(15%)
Sustainable Development Goals
(20%)
Customers
(5%)
Employees
(5%)
Suppliers
(5%)
Carbon
Intensity
(5%)
Renewable
Output
(5%)
Elective
Vehicle
Infrastructure
(5%)
Fair Tax &
Living Wage
(5%)
2. Set stretching performance targets
The financial performance targets were set at the start of the financial year taking into account internal financial plans, external consensus
where it exists and the expected impact of identified opportunities and threats to the business in the context of wider economic conditions.
The performance target range is set on a realistic basis but requires true outperformance for Executive Directors to achieve the maximum.
The Remuneration Committee has a history of setting challenging targets, evidenced by the average AIP payout of 48% since 2012 as
shown on page 157 .
3. Assess performance
The table below shows how performance measures are linked to strategy and how performance was ultimately delivered.
AIP
Adjusted EPS
Cashflow 1
Cashflow 2
DPS
Personal
Stakeholders
Sustainable
development goals
Total
Link to
strategy
Simple
Stewardship
Stakeholders
Simple
Sustainable
Stakeholders
Simple
Sustainable
Stakeholders
Simple
Sustainable
Stakeholders
Simple
Sustainable
Stewardship
Stakeholders
Simple
Sustainable
Stewardship
Stakeholders
Simple
Sustainable
Stewardship
Stakeholders
Performance measure
Rationale
Underlying
measure
of financial
performance
Retained
cashflow
to net debt
Funds from
operations
to net debt
Return on
investment
through
payment of
dividends
To reflect those
activities which
go beyond
the normal
responsibilities
of the role
Customers,
employees
and suppliers
Contribution
to the four UN
SDGs for 2030
Weighting
30%
Threshold
78.6p
Max
Outcome
91.0p
87.5p
Performance 83%
Outturn
(% of max)
25%
5%
10.5%
11.5%
5%
18%
20%
Below
threshold
Below
threshold
0%
0%
0%
0%
10%
81.0p
82.6p
81.0p
50%
5%
15%
15%
20%
See next section
92%
14%
86%
13%
85%
17%
74%
The Committee generally sets non-financial measures and targets that are specific, measurable, attainable, relevant and timely (‘SMART’
objectives) but also recognises that important measures and targets in support of the Company’s vision, purpose and strategy may
require some subjective assessment, and this is done by the Committee following the input from the wider Board and other Board
Committees as appropriate. The Committee is dedicated to providing as much retrospective detail of the measures as possible, setting
out clearly the decision-making process and the levels of attainment achieved, but mindful that any information which could be
considered commercially sensitive cannot be disclosed.
150
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE The tables below and on the following pages provide detail on each of the non-financial measures and the assessment of performance
against each one.
High-level
measure
Personal
15%
Detailed
measure
Chief
Executive
Assessment
Outcome
(% of max)
3 3 3
92%
Factors to be assessed
Summary performance
Culture and the SSESET,
Financial, People
Development, Succession,
Stakeholder Management,
Strategy and Growth
Effective management of the group through coronavirus
pandemic with strong underlying performance. Best
ever safety performance during a time of change.
Employee engagement scores high, and a strong
commitment to keeping employees well informed.
Excellent stakeholder engagement and leading positively
with the SSE Greenprint and net zero strategy. Strong
progress made with re-shaping of the Group with good
growth opportunities across the business areas. Team
strengthened with a combination of external talent hiring
and focused internal development moves.
Finance
Director
Culture and the SSESET,
Financial, People
Development, Succession,
Stakeholder Management,
Strategy and Growth
Energy
Director
Culture and the SSESET,
Financial, People
Development, Succession,
Stakeholder Management,
Strategy and Growth
92%
3 3 3
Effective management of the group through coronavirus
pandemic with strong underlying performance. Best
ever safety performance during a time of change. Good
engagement on regulation, especially on Transmission.
Finances well managed with credit rating maintained,
reduced debt, effective cash management. Significant
progress made on transactions and disposals. Strong
performance in procurement and progress made with
re-shaping IT and digital strategy. Good ongoing progress
with Group re-structuring with continued focus in 21/22.
Effective stakeholder engagement across key areas.
Strengthened team with selective external talent hires and
planned internal moves.
3 3 3
92%
Effective management of the group through coronavirus
pandemic with strong underlying performance. Best ever
safety performance during a time of change. Engaged
and active on key regulatory and advocacy issues. Strong
operational and financial performance delivered across
the energy businesses. Excellent progress made with key
projects such as Dogger Bank and Seagreen. Very active
in business development with a number of opportunities
moved forward including in Renewables and Thermal.
Effective contribution as a leader across the Group.
Continued to strengthen his team and leadership group
with a combination of targeted external talent
hires and internal development moves.
x= Below expectation
3= Met expectation
33= Exceeded expectation
High-level
measure
Detailed measure
Factors to be assessed
Summary performance
333= Far exceeded expectation
Outcome
(% of max)
Assessment
Stakeholders
15%
Customers
2.5%
2.5%
Business Energy – A range of
measures including customer
complaints and satisfaction.
Gateway for threshold performance
at median performance of Citizens
Advice league table.
Electricity Networks – A range
of measures including customer
interruptions and customer
minutes lost.
Employees
2.5%
Safety – Total Recordable Injury
Rate (TRIR) and Accident Frequency
Rate (AFR) for direct employees.
TRIR target of <0.15.
Rank 3 against 17 business energy
providers by Citizens Advice.
3 3 3
93%
Improved performance on previous
year across a range of metrics as other
DNOs have improved too. There is tight
clustering in the league tables where
a single percentage point can be the
difference between below median and
first. The out-turn reflects particularly
strong performance in the North and in
the Connections business.
TRIR at 0.15 reduced compared with last
year and AFR has been maintained at the
same low level as 2019/20. Significantly
more ‘safe days’ than previous year. See
page 143 .
3
40%
3 3 3
95%
SSE plc Annual Report 2021
151
ANNUAL REPORT ON REMUNERATION CONTINUED
High-level
measure
Detailed measure
Factors to be assessed
Summary performance
Stakeholders
15% (cont)
2.5%
Engagement – A range of measures
including employee engagement
survey score, employee uptake of
share plans and retention rate.
Board and leadership engagement
with employees.
Significantly increased employee
engagement score relative to
previous year and against external
benchmarks. A programme of employee
engagement activity has been delivered.
See page 48 .
Assessment
Outcome
(% of max)
3 3 3
95%
2.5%
Suppliers
2.5%
Inclusion and diversity – progress
made closing SSE’s median UK gender
pay gap and progress made against
SSE’s Inclusion Strategy including
progress on Return on Inclusion.
Safety – Total Recordable Injury Rate
(TRIR) and Accident Frequency Rate
(AFR) for contractors.
Improved Return on Inclusion with
‘champion’ status reached. Decreased
gender pay gap. Employee Difference
groups established. See page 49 .
3 3 3
85%
3 3 3
92%
12-month rolling combined TRIR and AFR
rate remained similar to the previous year.
The number of contractors injured (30) in
2021/22 was significantly fewer than the
35 injured in 2019/20. In a challenging
year the contractor safety performance
exceeded expectations.
See page 143 .
x= Below expectation
3= Met expectation
33= Exceeded expectation
333= Far exceeded expectation
High-level
measure
Contribution
to the UN
Sustainable
Development
Goals
20%
(see the
Sustainability
Report )
Detailed measure
Factors to be assessed
Summary performance
Climate action (5%):
Take urgent action
to combat climate
change and its
impacts
Reduce the carbon intensity
of electricity generated by
60% by 2030, compared to
2017/18 levels, to around
120gCO2e/kWh.
Affordable and
clean energy (5%):
Affordable, reliable
and sustainable
energy for all
Develop and build by 2030
more renewable energy to
contribute renewable output
of 30TWh a year.
Build electricity network
flexibility and infrastructure that
helps accommodate 10 million
electric vehicles in GB by 2030.
Be the leading company in the
UK and Ireland championing
Fair Tax and a real Living Wage.
Industry, innovation
and infrastructure
(5%): Build resilient
infrastructure,
promote inclusive
and sustainable
industrialisation and
foster innovation
Decent work and
economic growth
(5%): Promote
sustained, inclusive
and sustainable
economic growth,
full and productive
employment and
decent work for all
Carbon intensity of electricity generated
decreased by 11% compared to the
previous year and was the lowest since
SSE’s records began. No coal output
following closure of last coal-powered
station in March 2020. Keadby 3
progressing through planning as part
of Zero Carbon Humber. Progress in
development of Peterhead CCUS.
SSE’s renewable generation output
decreased over the year due to poor
weather conditions across wind and
hydro. However, excellent progress
was made over the year to develop
and construct the assets which will
enable SSE to meet its 2030 Goal.
Project LEO and a partnership
between Government and network
owners in Scotland represent two of
the most significant projects in the
UK that will help accelerate transport
electrification. RIIO-ED2 business plan is
nearing completion, which will inform the
investment needed in ED2 and beyond to
meet the net zero decarbonisation goal.
Launched a new low emission company
car scheme to deliver a focus on the
benefits of low emission cars.
SSE achieved ongoing accreditation of
both the Fair Tax Mark and the Living
Wage, supporting both campaigns to
attract more companies to become
accredited. Furthermore, SSE published
its Talking Tax reports offering transparent
disclosure of its tax approach. SSE has
become one of the first companies to
gain Living Hours accreditation.
Assessment
Outcome
(% of max)
3 3
80%
3 3 3
85%
3 3 3
85%
3 3 3
90%
x= Below expectation
3= Met expectation
33= Exceeded expectation
333= Far exceeded expectation
152
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE 4. Take account of wider environment
The Remuneration Committee believes that the range of measures used in the AIP ensures that performance is assessed using a balanced
approach, without undue focus on a single metric which could be achieved at the expense of wider initiatives. When reviewing outcomes
the Committee considered performance against the full range of individual objectives and, after considering the strong teamwork displayed,
agreed that the same outturn for all was appropriate. AIP outturns for the wider employee population were also taken into account by the
Committee. In addition, they also considered the impact of the coronavirus pandemic, which has been enduring throughout the year, and its
effect on stakeholders.
5. Apply discretion if required
In last year’s Remuneration Report, it was explained that the “Committee intends to exercise judgement at year-end once the true impact
of coronavirus is understood, to reduce the AIP opportunity in line with any reduction in earnings”. With this in mind, the Committee
agreed to make a downward adjustment to the adjusted EPS component outcome of the plan in line with the coronavirus related impact
on budget. The budget impact is a reduction of 18.5% which reduces the adjusted EPS out-turn from 25% to 20%, leading to a revised
overall AIP outturn of 69% of maximum.
AIP earned for each of the Executive Directors is shown in the table below. The total award is made up of 67% cash and 33% which is
deferred into shares for three years which are then retained until two years after stepping down from the Board.
Alistair Phillips-Davies
Gregor Alexander
Martin Pibworth
Maximum
(% of salary)
150%
130%
130%
AIP earned1
AIP cash
AIP deferred
946,793
634,221
512,347
643,351
424,928
343,272
312,442
209,293
169,074
1 Both the cash and deferred element are subject to clawback provisions.
2018 – 2021 Performance Share Plan
1. Set performance measures aligned with strategy
PSP performance measures are designed to encourage sustainable value creation, consistent with effective stewardship, encouraging
good decision-making for the long term. The measures and their weightings are shown below:
Value Creation
(40%)
Financial
(40%)
Total Shareholder Return
relative to FTSE 100
(20%)
Total Shareholder Return
relative to MSCI Europe Index
(20%)
Adjusted EPS growth
(20%)
DPS growth
(20%)
Operational
(20%)
Customer:
Distribution
(10%)
Customer:
Business
Energy
(10%)
2. Set stretching performance targets
The performance target ranges for PSP are set each year to ensure they are stretching and represent value creation for shareholders.
3. Assess performance
The vesting of shares under the PSP is subject to the performance measures and targets shown in the table below which also details the
actual outturn for the 2018 PSP award vesting this year.
PSP
TSR v FTSE 100
TSR v MSCI Europe
EPS growth
DPS growth
Performance measure
Link to
strategy
Rationale
Simple
Stewardship
Stakeholders
Relative
measure of
performance
Simple
Stewardship
Stakeholders
Relative
measure of
performance
Simple
Stewardship
Stakeholders
Underlying
measure
of financial
performance
Weighting
20%
20%
20%
Threshold
50th percentile 50th percentile
RPI
Max
75th percentile 75th percentile
RPI +10%
Outcome
Rank 22 of 94
(above 75th
percentile)
Rank 12 of 22
(below 50th
percentile)
Below RPI
Simple
Sustainable
Stakeholders
Customer
(Distribution)
Simple
Stewardship
Stakeholders
Customer
(Business Energy)
Total
Simple
Stewardship
Stakeholders
Return on
investment
through payment
of dividends
Meeting
customers needs
is at core of our
business
Meeting
customers needs
is at core of our
business
20%
RPI
RPI +5%
Below RPI
10%
10%
Median ranking
Median ranking
Rank 1
Rank 1
Below median
Average Rank 3
of 15
Performance 100%
Outturn
(% of max)
20%
0
0
0
0
0
0
0%
0%
83%
8%
28%
SSE plc Annual Report 2021
153
ANNUAL REPORT ON REMUNERATION CONTINUED
4. Take account of wider environment
SSE’s TSR has performed at the maximum level relative to the FTSE 100, and performance in relation to Business Energy customer
service ranking is also above median. Conversely, the threshold level was not met for TSR performance relative to the MSCI European
Utilities Index. While SSE’s dividend commitment has been met over the three-year period, threshold performance at RPI has not been
achieved following the resetting of the dividend policy.
While the PSP applies to Executive Directors only, the Committee is mindful of the outturns of the long-term incentive arrangement
which applies to senior managers. On average, the below-Board incentive award has paid out at a higher level than the PSP outturn.
5. Apply discretion if required
The Committee believes that the formulaic outcome is a fair reflection of wider performance over this three-year period.
The table below shows the maximum number of shares available, the dividends accrued over the three-year performance period,
the total number of shares vesting based on the performance outturn and the estimated value of these shares.
Alistair Phillips-Davies
Gregor Alexander
Martin Pibworth
Awards available
(% of salary)
Awards available
(number of
shares)
200%
175%
175%
132,287
89,466
66,957
Additional
awards in
respect of
accrued
dividends
31,826
21,523
16,108
Total number of
shares vesting
Estimated
value of awards
vesting1
45,952
31,077
23,258
£666,069
£450,460
£337,128
1 The estimated value of the awards vesting has been calculated on the same basis as the PSP value in the single figure table on page 148 .
Other remuneration disclosures
Fees paid to non-Executive Directors during 2020/21 were as follows:
Non-Executive Directors
Dame Sue Bruce
Tony Cocker1
Crawford Gillies2
Richard Gillingwater CBE
Peter Lynas
Helen Mahy CBE
Sir John Manzoni3
Melanie Smith
Dame Angela Strank4
Total
1 Tony Cocker became Senior Independent Director on 1 October 2020.
2 Crawford Gillies left the Board on 30 September 2020.
3 Sir John Manzoni joined the Board as a non-Executive Director on 1 September 2020.
4 Dame Angela Strank joined the Board as a non-Executive Director on 1 May 2020.
Fees £000s
2020/21
2019/20
100
95
45
400
90
86
42
72
66
996
98
84
88
389
88
84
0
70
0
900
154
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Share interests and share awards (audited)
Directors’ share interests
The table below shows the share interests of the Executive and non-Executive Directors at 31 March 2021.
Director
*Shareholding
requirement as a % of
salary (Actual/% met)
Shares owned
outright at
31 March 2021
Number of shares
Interests in
shares, awarded
without
performance
conditions at
31 March 2021
(DBS & Retention
Awards)
Interests in
shares, awarded
subject to
performance
conditions at
31 March 2021
(PSP & LSP)
Number of options
Interests in
share options,
awarded without
performance
conditions at
31 March 2021
Interests in
share options,
awarded subject
to performance
conditions at
31 March 2021
Gregor Alexander
450% (200% – met)
220,782
29,134
282,218
1,967
Sue Bruce
Tony Cocker
Crawford Gillies
(Resigned 30/09/20)
Richard Gillingwater
(Resigned 31/03/21)
Peter Lynas
Helen Mahy
John Manzoni
2,484
5,000
6,950
2,523
5,000
2,027
2,311
–
–
–
–
–
–
–
–
–
–
–
–
Alistair Phillips-Davies
399% (200% – met)
253,462
Martin Pibworth
Melanie Smith
Angela Strank
180% (below 200%
requirement)
78,557
2,000
388
43,493
19,748
417,294
211,215
–
–
–
–
* Shareholding requirement:
Executive Directors – 200% of salary.
Non-Executive Directors – minimum 2,000 shares.
Price used to calculate shareholding requirement as % of salary as at 31/03/21 £14.55.
Directors’ Long-term Incentive Plan interests
Deferred Bonus awards granted in 2020
The table below shows the deferred bonus awards granted to Executive Directors in 2020.
–
–
–
–
–
–
1,997
2,662
–
–
–
–
–
–
–
–
–
–
–
–
–
Shares owned
outright at
31 March 2020
197,564
2,484
5,000
6,950
2,383
5,000
2,027
–
219,814
43,054
2,000
–
Recipient
Gregor Alexander
Alistair Phillips-Davies
Martin Pibworth
Award
Date of grant
Shares granted
Market value on
date of award
Conditional award
Conditional award
Conditional award
26/06/2020
26/06/2020
26/06/2020
12,494
18,652
9,350
£13.6350
£13.6350
£13.6350
Face value
£170,355.69
£254,320.02
£127,487.25
£552,162.96
PSP awards granted in 2020
The table below shows the PSP awards granted to Executive Directors in 2020.
Recipient
Gregor Alexander
Award
Date of grant
Shares granted
Market value on
date of award
Face value
Conditional award
26/06/2020
88,761
£13.6350 £1,210,256.24
£1,210,256.24
Alistair Phillips-Davies
Conditional award
26/06/2020
131,244
£13.6350 £1,789,511.94
£1,789,511.94
Martin Pibworth
Conditional award
26/06/2020
66,430
£13.6350
£905,773.05
£905,773.05
SSE plc Annual Report 2021
155
No. of shares
realised
during the
year
13,4425
No. of shares
under award at
31 March 2021
ANNUAL REPORT ON REMUNERATION CONTINUED
Directors’ Long-term Incentive Plan interests
The table below details the Executive Directors’ Long-term Incentive Plan interests.
Normal
exercise period
(or vesting
date)
No. of shares
under award as
at 1 April 2020
Option
exercise
price
Additional
shares
awarded
during the
year
No. of shares
lapsed during
the year
Share plan
Date of award
Gregor
Alexander
Alistair Phillips-
Davies
Martin
Pibworth
DBP 20162
26/06/2017 26/06/2020
DBP 20162
28/06/2018 28/06/2021
DBP 20162
28/06/2019 28/06/2022
DBP 20162 26/06/2020 26/06/2023
PSP1
26/06/2017 26/06/2020
PSP1
28/06/2018 28/06/2021
PSP1
28/06/2019 28/06/2022
PSP1 26/06/2020 26/06/2023
01/10/20 -
31/03/21
01/10/22 -
31/03/23
01/10/23 -
31/03/24
21/07/2020
03/07/2015
12/07/2019
Sharesave
Sharesave
Sharesave
DBP 20162
26/06/2017 26/06/2020
DBP 20162
28/06/2018 28/06/2021
DBP 20162
28/06/2019 28/06/2022
DBP 20162 26/06/2020 26/06/2023
PSP1
26/06/2017 26/06/2020
PSP1
28/06/2018 28/06/2021
PSP1
28/06/2019 28/06/2022
PSP1 26/06/2020 26/06/2023
01/10/22 -
31/03/23
12/07/2019
Sharesave
DBP 20062
26/06/2017 26/06/2020
DBP 20162
28/06/2018 28/06/2021
DBP 20162
28/06/2019 28/06/2022
DBP 20162 26/06/2020 26/06/2023
PSP1
28/06/2018 28/06/2021
PSP1
28/06/2019 28/06/2022
PSP1 26/06/2020 26/06/2023
LSP3
26/06/2017 26/06/2020
Retention
Award3
12/01/2017
Sharesave
12/07/2019
Sharesave
12/07/2019
12/07/2020
01/10/22 -
31/03/23
01/10/24 -
31/03/25
13,442
16,640
0
78,099
89,466
103,991
51,826
26,2735
12,4944
88,7614
186
1,288p
1,837
901p
1,107p
1304,6
18,6524
131,2444
9,3504
66,4304
20,068
24,841
0
115,479
132,287
153,763
1,997
901p
5,715
10,398
0
66,957
77,828
23,411
25,000
998
901p
1,664
901p
186
20,0685
76,631
38,8485
5,7155
23,4115
25,0007
16,640
0
12,494
89,466
103,991
88,761
1,837
130
24,841
0
18,652
132,287
153,763
131,244
1,997
10,398
0
9,350
66,957
77,828
66,430
998
1,664
Shares which are released under the DBP 2006,PSP, LSP and Retention Awards attract additional shares in respect of the notional reinvestment of dividends.
In addition to the shares released under these schemes, as indicated in the table above, the following shares were realised arising from such notional reinvestment
of dividends:
Gregor Alexander received 8,491 shares, Alistair Phillips-Davies received 12,601 shares and Martin Pibworth received 13,871 shares.
1 The performance conditions applicable to awards under the PSP are described on page 153 . The 2017 award under the PSP vested at 27%.
2 33% of the annual bonus payable to Executive Directors is satisfied as a conditional award of shares under the DBP 2016. Vesting of shares under the DBP 2016
is dependent on continued service over a three-year period.
3 The award granted as a Retention Share Award was prior to Martin Pibworth’s appointment as an Executive Director.
4 The market value of a share on the date on which these awards were made was 1,363.5p.
5 The market value of a share on the date on which these awards were realised was 1,363.5p.
6 The market value of a share on the date on which these awards were made was 1,249.5p.
7 The market value of a share on the date on which these awards were realised was 1,249.5p.
The closing market price of shares at 31 March 2021 was 1,455p and the range for the year was 1,073p to 1,612p. Awards granted during the year were granted
under the PSP. The aggregate amount of gains made by the Directors on the exercise of share options and realisation of awards during the year was £2,392,187
(2020 – £1,108,680).
156
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE 2. Historical remuneration disclosures
Change in Chief Executive total remuneration
The graph below shows SSE TSR performance over the last ten years relative to FTSE 100 performance.
SSE
FTSE 100
The table below shows the Chief Executive’s annual remuneration over the same period.
Directors
2020/21 (Alistair Phillips-Davies)
2019/20 (Alistair Phillips-Davies)
2018/19 (Alistair Phillips-Davies)
2017/18 (Alistair Phillips-Davies)
2016/17 (Alistair Phillips-Davies)
2015/16 (Alistair Phillips-Davies)
2014/15 (Alistair Phillips-Davies)
2013/14 (Alistair Phillips-Davies and Ian Marchant)4
2012/13 (Ian Marchant)
2011/12 (Ian Marchant)
Single total figure
of remuneration1
(£’000)
Annual variable
element award2
(% of maximum)
Long-term
incentive vesting3
(% of maximum) Application of discretion
3,011
2,418
1,639
2,693
2,917
1,696
2,311
2,546
2,241
1,214
69
59
0
78
72
54
64
63
0
25
28 Downward discretion applied to AIP
27
26 Downward discretion applied to AIP
30
46 Downward discretion applied to AIP
0
0
22
53 Chief Executive waived AIP
0 Downward discretion applied to AIP
1 The single total figure of remuneration is calculated on the same basis as the ‘single total figure of remuneration’ table on page 148 .
2 The annual variable element award (AIP) is the figure shown on page 153 and reflected in the ‘single total figure of remuneration table’ on page 148 .
3 The long-term incentive (PSP) vesting is the figure shown on page 153 , and reflected in the ‘single total figure of remuneration table’ on page 148 .
4 For 2013/14, an aggregate number has been applied by combining pro-rata values for each CEO based upon their time in role.
Alignment of Directors’ Remuneration Policy with pay across the wider employee population
In setting Executive Directors’ pay, a number of factors are taken into account including importantly, relativity to the wider workforce.
For a number of years, a Chief Executive pay ratio has been disclosed voluntarily. In 2018/19, the methodology was revised to meet
the new reporting requirements. The methodology used is a hybrid approach combining Gender Pay Gap data (as disclosed in the
Sustainability Report ) with additional elements of pay which are important components of SSE employees’ pay such as overtime,
employer’s contribution to pension and excluding salary sacrifice arrangements. This is believed to allow the most appropriate and
consistent comparison.
As shown in the table below, the pay ratio has increased from 59:1 at median in 2019/20 to 71:1 in 2020/21. While the median
remuneration for all employees has increased by 3.4%, the Chief Executive’s remuneration has increased by 26.6%. This is due mainly to
increased variable pay for the Chief Executive following a strong performance year and the formulaic increase in pension value from
a pay freeze in 2019.
SSE’s is committed to being a responsible employer, and the remuneration policy is designed with fairness in mind – fairness to Executive
Directors in recognition of the extent of their responsibilities and, fairness relative to the rest of the SSE team. More information on SSE’s
responsible employer ethos can be found within the Sustainability Report which includes information on the commitment to being a
real Living Wage employer, and other initiatives which help to ensure value is created and retained for employees and the organisation.
SSE plc Annual Report 2021
157
March 2011March 2012March 2013March 2014March 2016March 2015March 2017March 2021March 2020March 2019March 201880100120140160180200220240260280TSR (rebased to 100)
ANNUAL REPORT ON REMUNERATION CONTINUED
Year
2020/21
2019/20
2018/19
Calculation
Methodology
C
C
C
25th percentile
Median
75th percentile
Total Remuneration
Ratio
Total Remuneration
Ratio
Total Remuneration
Ratio
Total employee
earnings (m)
£32,268
£29,234
£28,611
93:1
83:1
57:1
£42,295
£40,908
£39,010
71:1
59:1
41:1
£59,454
£54,863
£54,066
51:1
44:1
30:1
£543.1
£510.0
£495.3
Annual percentage change in remuneration of the Directors
Each year, when the Remuneration Committee is considering salary increases, incentive awards and benefits for Executive Directors, it is
mindful of the treatment of the wider workforce. The table below shows how the Chief Executive’s change in remuneration in 2020/21
compares to that of the wider workforce. In 2020/21, the Chief Executive’s salary was increased by 2.75% in line with the wider employee
population, and his AIP outturn at 69% was lower than the average all employee AIP outturn.
Non-Executive Directors
Executive Directors
Dame
Sue Bruce
Tony
Cocker
Richard
Gillingwater
CBE
Peter
Lynas
Helen
Mahey
CBE
Melanie
Smith
Energy and
Commercial
Director
Finance
Director
Chief
Executive
All
Employees
Base Salary/
Fee
Benefits1
Bonus
2.0%
13.1%
2.8%
2.3%
2.4%
2.9%
10.9%
5.9%
29.6%
2.8%
0.0%
21.9%
2.8%
0.0%
20.2%
6.2%
8.0%
10.3%
1 All employee benefits include car benefits, Share Incentive Plan Company contributions and medical benefits in alignment with the benefits reported for the
Executive Directors in the single total figure of remuneration on page 148 .
Non-Executive Directors do not earn benefits or bonus.
Three Non-Executive Directors (Crawford Gillies, Sir John Manzoni and Dame Angela Strank) are excluded from this table as they have not been in post for a full two
years to make a viable comparison.
Relative importance of the spend on pay
The table below indicates how the earnings of Executive Directors compare with SSE’s other financial dispersals. The movement in
Executive Directors’ earnings in 2021 is explained on page 148 .
Executive Directors’ earnings 1
Dividends to shareholders
Capital and investment expenditure
Total UK taxes paid (profits, property, environment
and employment taxes) 2
Staff costs 3
2016/17
£m
5.1
906.6
1,726.2
385.0
679.4
2017/18
£m
5.3
926.1
1,503.0
484.1
665.6
2018/19
£m
3.6
973.0
1,422.9
403.7
653.5
2019/20
£m
5.1
948.5
1,371.9
421.6
684.7
2020/21
£m
6.8
836.4
912.0
379.0
700.4
1 Calculated on the same basis as the ‘single total figure of remuneration’ table on page 148 .
2
Includes corporation tax, employers’ National Insurance contributions and business rates.
3 Staff costs for all employees, as per Note 8.1 of the accounts, excluding Executive Directors.
For every £1 spent on Executive Directors’ earnings by SSE in 2020/21, £56 was paid in tax, £103 was spent on employee costs and £134
was spent on capital and investment expenditure. In addition, £123 was made in dividend payments to shareholders for every £1 spent
on Executive Directors’ earnings.
3. Governance
External appointments
Executive Directors are able to accept a non-Executive appointment outside the Company with the consent of the Board, as such
appointments can enhance their experience and value to the Company. Any fees received are retained by the Director. Gregor Alexander
was a non-Executive Director of Stagecoach Group plc during 2020 and received £58,000 in fees. Gregor Alexander is also Chairman of
Scotia Gas Networks but receives no additional fees for this.
Payments for loss of office and payments to past Directors
There were no payments for loss of office or to former Directors during the year.
Advice to the Remuneration Committee
The Chief Executive, the Director of Human Resources and Head of Reward advised the Committee on certain remuneration matters
for the Executive Directors and senior executives although they were not present for any discussions related to their own remuneration.
The Director of Human Resources and Head of Reward advised on HR strategy and the application of HR policies across the wider
organisation.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE
FIT Remuneration Consultants LLP (FIT) provided a range of information to the Committee which included market data drawn from
published surveys, governance developments and their application to the Company, advice on remuneration disclosures and regulations
and comparator group pay. FIT received fees of £64,000 in relation to their work for the Committee, calculated on a time and materials
basis. FIT are founding members of, and adhere to, the Remuneration Consultants’ Group Code of Conduct. The Code defines the
roles of consultants, including the requirement to have due regard to the organisation’s strategy, financial situation, pay philosophy, the
Board’s statutory duties and the views of investors and other stakeholders. The Committee reviews the advisers’ performance annually
to determine that it is satisfied with the quality, relevance, objectivity and independence of advice being provided. FIT provides no other
services and has no other connection to the Company or individual Directors.
Freshfields LLP also provided advice on legal matters, such as share plan rules, during the year.
Evaluation
Through the internal Board evaluation process which was carried out during the year, it was confirmed that the Remuneration
Committee continued to operate effectively. Details of the wider annual evaluation process are set out on pages 118 and 119 .
Risk assessment
The Remuneration Committee typically carries out a remuneration risk assessment on an annual basis to identify and evaluate the risks
inherent in our Directors’ Remuneration Policy. Important risk mitigators identified included the broad balance of clear financial and
non-financial performance measures, targets which are set in line with SSE’s business plans and an overall approach to pay design which
rewards the delivery of strong, yet sustainable, performance. This year’s risk assessment is deferred to an additional committee meeting
in August 2021 which will discuss all aspects the forthcoming policy review in 2022.
Shareholder voting in 2020
On 12 August 2020, shareholders approved the Annual Report on Remuneration for the year ended 31 March 2020 and the result is
shown below. Also shown below is the result of shareholder voting on the current Directors’ Remuneration Policy which was approved
at the AGM on 18 July 2019.
ANNUAL REPORT ON REMUNERATION – SHAREHOLDING VOTING IN 2020
DIRECTORS’ REMUNERATION POLICY – SHAREHOLDER VOTING IN 2019
For – 96.61%
Against – 3.39%
Total votes cast: 688,684,169
Votes withheld: 10,479,337
For – 99.13%
Against – 0.87%
Total votes cast: 680,814,523
Votes withheld: 8,425,369
Remuneration Committee
The Terms of Reference for the Committee were reviewed during 2020/21 and are available on the Company’s website (sse.com ).
In summary, the Committee determines and agrees with the Board, the Company’s framework and policy for executive remuneration
including setting remuneration for all Executive Directors, the Company Chair, the Group Executive Committee and Company Secretary.
During the year, a minor amendment was made relating to the approval of Non-executive Directors’ remuneration.
The members of the Committee and the meetings attended are set out on page 102 . The following agenda items were considered:
Meeting date
May 2020
Agenda items
Market and governance update, Executive Directors’ pensions, base salary and fee review, AIP and PSP year-end
performance, below-Board remuneration, 2020 Directors’ Remuneration Report, review of executive shareplan
leavers, 2020-22 Remuneration Committee Plan.
November 2020
Market and governance update, AIP and PSP mid-year performance update, shareholder consultation in relation
to the Energy and Commercial Director’s increased responsibilities, 2020-22 Remuneration Committee plan.
March 2021
Market and governance update, AIP and PSP performance update, Executive Directors’ salaries and the Chair’s fee,
below-Board remuneration, 2020 Directors’ Remuneration Report, Remuneration Committee terms of reference
review, 2012-22 Remuneration Committee plan, 2022 Remuneration Policy review planning, Remuneration
Committee evaluation.
SSE plc Annual Report 2021
159
ANNUAL REPORT ON REMUNERATION CONTINUED
4. Implementation for 2021/22
The table below sets out how the Remuneration Committee intends to operate the remuneration policy for the year ending
31 March 2022:
Element of pay
Base salary
Benefits
Pension
Annual Incentive Plan
Performance Share Plan
Implementation for 2021/22
Comment
1% increase to £923,924 for the Chief
Executive, £714,117 for the Finance
Director and £636,300 for the
Energy Director.
In line with the salary increases for the wider employee population.
No changes proposed.
In line with the wider employee population.
Reduction in the Energy and Commercial
Director’s pension allowance from 30%
to 15% accelerated to a take place over
a period of three years rather than five.
No change in quantum.
No changes proposed to performance
measures which are shown in detail
on the following page.
No change in quantum.
No changes proposed to performance
measures which are shown in detail
on the following page.
This brings the Energy Director’s pension in line with the majority
of SSE employees by 1 April 2023 (see below).
Current measures are considered appropriate.
Current measures are considered appropriate however a review
will take place during 2021/22 as part of the wider policy review.
Pension alignment
When the Energy and Commercial Director took on additional responsibility in his existing role, it was agreed that the reduction in his
pension allowance from 30% to 15% which was due to take place over five years, should be accelerated to three years. The Committee
views this as a change in contractual entitlement which brings his pension into alignment with the wider employee population, taking
service into account, by 1 April 2023. The previous and revised phased reductions are shown in the table below:
Pension allowance (% of salary)
Previous phased reduction
Revised phased reduction
1 April 2021
1 April 2022
1 April 2023
1 April 2024
1 April 2025
25%
25%
23%
20%
21%
15%
19%
15%
15%
15%
AIP performance measures 2021/22
The AIP scorecard will remain unchanged from the previous year. The performance measures are shown below.
Performance measure Dividends per Share
Cashflow
Adjusted Earnings
per Share
Weighting
10%
10%
30%
Description
Return on
investment
through payment
of dividends
Retained cashflow
and funds from
operations to
net debt
Underlying
measure
of financial
performance
Stakeholders
15%
Customers,
employees
and suppliers
Personal
15%
To reflect those
activities which
go beyond
the normal
responsibilities
of the role
Sustainable
Development Goals
20%
Contribution to the
four SDGs for 2030
For more
information see
the Sustainability
Report .
It is expected that the performance measures will be assessed on a similar basis as the 2020/21 award as set out on page 150 , with
the same level of stretch. The Committee will continue to exercise its judgement to reduce AIP awards when it believes the formulaic
assessment is not appropriate, as it has done in three of the last five years.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE PSP performance measures 2021/22
The PSP performance measures are unchanged from 2020/21 and are set out in the following table:
Performance measure
Total Shareholder
Return relative to
FTSE 100
Total Shareholder
Return relative to
MSCI Europe
Adjusted Earnings
per Share growth
Dividends per
Share growth
Networks customer
Business Energy
customer
Weighting
20%
20%
20%
20%
10%
10%
Minimum
performance
50th percentile
(25% outturn)
50th percentile
(25% outturn)
RPI (25% outturn) RPI (50% outturn) Median ranking
(25% outturn)
Median ranking
(25% outturn)
Maximum
performance
75th percentile
(100% outturn)
75th percentile
(100% outturn)
RPI +5% (80%
outturn)
RPI + 10% (100%)
outturn)
RPI +5% (100%
outturn)
1st place ranking
(100% outturn)
1st place ranking
(100% outturn)
Ahead of the Remuneration Policy review in 2022, the Committee will consider developments in market practice, corporate governance
and changes within SSE. The Committee is conscious of the differing approach to long-term incentives between the Executive Directors
who participate in the PSP and the next tiers of management who currently participate in the Leadership Share Plan which has features
which are more similar to those of a deferred bonus or a restricted share plan.
Chair’s and non-Executive Directors’ fees
Richard Gillingwater CBE stepped down from the Board on 31 March 2020. During 2020/21, he was paid a fee of £399,518. From 1 April
2021, Sir John Manzoni will take up the position of Chair of the Board with a fee of £400,000.
Last year, non-Executive Directors’ fees were increased by 2.75% in line with the wider employee population. For 2021/22, it was agreed
that fees are increased by 1% which is also in line with the wider employee population.
Chair and non-Executive Director fee levels for 2021/22 are shown in the table below. Non-Executive Directors receive a base fee plus
an additional fee for chairing a Committee or for performing the role of Non-Executive Director for Employee Engagement.
Fee
Chair
Base fee
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
SHEAC Chair
Energy Markets Risk Committee Chair
Non-Executive Director for Employee Engagement
2021/22
£400,000
£72,686
£18,172
£18,172
£18,172
£14,529
£14,529
£10,378
SSE plc Annual Report 2021
161
DIRECTORS’ REMUNERATION POLICY – A SUMMARY
The SSE’s Directors’ Remuneration Policy (the ‘Policy’) was approved with over 99% of shareholder support at the AGM on 18 July 2019.
The full Policy is provided in the 2019 Annual Report . We believe that SSE’s directors’ remuneration policy, practice and engagement
with employees and shareholders complies fully with the UK Corporate Governance Code.
At the time the Policy was approved some of the provisions of the new UK Corporate Governance Code were not directly relevant given
the financial year, but nonetheless did feature in the Committee’s thinking when determining the Policy and how it would be operated.
For completeness, we have noted below how the Committee has address the six factors as set out in the Code:
Clarity
Simplicity
• Our arrangements include a market standard annual incentive
and long-term share plan, each of which is explained in detail
in our Policy.
• No complex or artificial structures are required to operate
the plans.
• Our directors’ remuneration policy is designed to be sustainable
and simple and to facilitate diligent and effective stewardship
that is vital to the delivery of SSE’s core purpose of providing
energy needed today while building a better world of energy for
tomorrow, and our strategy of creating value for shareholders
and all stakeholders.
• The Policy is an update of the previous Policy, with minimal
structural changes so is already embedded into the business
and is well understood by participants and shareholders alike.
• The Policy clearly sets out the terms under which it can be
operated including appropriate limits in terms of quantum,
the measures which can be used and discretions which could
be applied if appropriate.
• Transparency in approach has been a cornerstone of our Policy.
Detailed disclosure of the relevant performance assessments
and outcomes is provided for shareholders to consider.
Risk
Predictability
• Appropriate limits are stipulated in the Policy and within the
• The possible reward outcomes can be easily quantified, and
respective plan rules.
these are reviewed by the Committee.
• The Committee also has appropriate discretions to override
formulaic outturns under the assessment of the variable
incentive plans.
• The graphical illustrations provided in the Policy, clearly show
the potential scenarios of performance and pay outcomes
which would result.
• The Committee undertakes an annual risk review of the
• Performance is reviewed regularly so there are no surprises at
Policy and its operation. Identified risks are considered with
appropriate mitigation strategies or tolerance levels agreed.
• Regular interaction with the Audit Committee and the SHEA
Committee ensures relevant risk factors are considered when
setting or assessing performance targets.
• Clawback and malus provisions are in place across all incentive
plans.
Proportionality
the end of period assessment.
Alignment to culture
• Variable incentive pay outcomes are clearly dependent on
• At the heart of the Policy is a focus on the long-term
delivering the Company’s strategy.
• Performance is assessed on a broad basis, including a
combination of financial, operational and ESG which ensures
there is no undue focus on a single metric which may be at the
detriment of other stakeholders.
• The Committee also has the discretion to override formulaic
outcomes if they are deemed inappropriate in light of the wider
performance of the Company and considering the experience
of stakeholders.
sustainability of the business. This reflects the whole business
culture which is aligned to effective stewardship which creates
value for all stakeholders.
• Our incentive plans and, in particular the performance
measures used, reflect our values which means doing the right
thing, promoting fairness at work and paying our fair share.
The Remuneration Committee believes that SSE’s remuneration principles are enduring and that the existing policy sufficiently addresses
current legislation whilst maintaining adequate flexibility to withstand any recent business changes. For these reasons, it is proposed
that the policy remains unchanged in 2021/22 with the exception of the current Energy Director’s pension reduction which is to be
accelerated by two years as explained on the previous page.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE The policy is summarised below.
Base Salary
Purpose and
link to strategy
Operation
and maximum
opportunity
Performance
measures
Pension
Supports the retention and recruitment of Executive Directors of the calibre required to develop the Company’s strategy.
Base salary is normally reviewed annually with changes effective from 1 April.
Salary increases will normally be capped at the typical level of increases awarded to other employees in the Company,
although increases may be above this level in certain circumstances.
Broad review of performance is included in the annual review process.
Purpose and
link to strategy
Pension planning is an important part of SSE’s remuneration strategy because it is consistent with the long-term goals
of the business.
Operation
and maximum
opportunity
Performance
measures
Benefits
Purpose and
link to strategy
Operation
and maximum
opportunity
For the CEO and FD, funded final salary and top-up unfunded arrangements up to the maximum two-thirds of final
salary at age 60. From 1 April 2017, future pensionable pay increases are capped at RPI + 1%.
For the Energy Director a pension contribution or cash allowance of up to 30% of salary reducing to 15% on a phased basis
over three years (by 1 April 2023) which reflects the wider employee population taking length of service into account.
For new appointments, employer’s pension contributions are capped at 12% of base salary in line with arrangements
for SSE employees.
Not applicable.
To provide a market-competitive level of benefits for Executive Directors.
Core benefits – currently include car allowance, private medical insurance and health screening.
Participation in the Company’s all-employee share plans on the same terms as UK colleagues.
Relocation assistance if required.
Reimbursement of travel and business-related expenses incurred.
The cost will depend on the cost to the Company of providing individual items and the individual’s circumstances
and there is no maximum benefit level.
Performance
measures
Not applicable.
SSE plc Annual Report 2021
163
DIRECTORS’ REMUNERATION POLICY – A SUMMARY CONTINUED
Annual Incentive Plan (AIP)
Purpose and
link to strategy
Operation
and maximum
opportunity
Reward Executive Directors for achievement of performance targets linked to SSE’s strategy and core purpose.
Maximum annual incentive opportunity is 150% of base salary for the Chief Executive and 130% of base salary for the
Finance and Energy Directors.
The award will normally be delivered:
• 67% in cash; and
• 33% in deferred shares, which will be granted as a career share award.
Career share awards will normally vest three years from the award date subject to continued employment with accrual
of dividends over that period.
The career share award will be held until the second anniversary of the cessation of the Executive Director’s
employment with the Company (irrespective of the circumstances of such cessation).
Subject to malus and/or claw back provisions.
Performance
measures
The annual incentive is normally based on a mix of financial measures and measures related to the strategic
performance of the business.
A minimum of 50% of the annual incentive will be based on financial performance.
Performance Share Plan (PSP)
Purpose and
link to strategy
Reward Executive Directors for their part in delivering the sustained success of SSE and to ensure that their interests
are aligned with those of the shareholders.
Operation
and maximum
opportunity
Performance
measures
Maximum value of award is 200% of base salary for the Chief Executive and 175% of base salary for the Finance and
Energy Directors.
Shares are awarded which normally vest based on performance over a period of three years with an additional two-year
post-vesting holding period during which time the Executive must retain the post-tax number of shares vesting under
the award.
Subject to malus and/or claw back provisions.
Awards vest based on relative total shareholder return, financial based measures and customer satisfaction.
At least 70% of the award will be based on financial and relative total shareholder return measures.
Share Ownership Policy
Purpose and
link to strategy
Operation
and maximum
opportunity
Align the interests of Executive Directors with those of shareholders who invest in the Company.
Executive Directors are expected to maintain a shareholding equivalent to two times base salary built up within a
reasonable timescale.
Normally built up via shares vesting through the PSP, deferred shares from the AIP and all employee share schemes and
Executive Directors may also choose to buy shares.
Vested career shares (which must be retained for two years post-cessation of employment) may also count towards the
Executive Director’s shareholding.
Performance
measures
Not applicable.
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Chair and non-Executive Directors’ Fees
Purpose and
link to strategy
Reward for undertaking the role and are sufficient to attract and retain individuals with the calibre and experience to
contribute effectively at Board level.
Operation
and maximum
opportunity
The aggregate level of non-Executive Director fees shall not exceed the maximum limit set out in the Articles of
Association.
Fees are reviewed at appropriate intervals against companies of a similar size and complexity. Fees are set in a way
that is consistent with the wider remuneration policy.
The fee structure may be made up of:
• a basic Board fee or Chair fee;
• an additional fee for any committee chairship or membership; and
• an additional fee for further responsibilities e.g. Senior Independent Director, Non-Executive Director for Employee
Engagement or periods of increased activity.
Reasonable travelling and other expenses for costs incurred in the course of the non-Executive Directors undertaking
their duties are reimbursed (including any tax due on the expenses).
It is also expected that all non-Executive Directors should build up a minimum of 2,000 shares in the Company.
There are no direct performance measures relating to Chair and non-Executive Director fees.
Performance
measures
The full Policy also includes further information on:
• Performance measures and targets.
• Committee discretion.
• Legacy commitments.
• Directors’ service contracts and non-Executive Directors’ letters of appointment.
• Loss of office policy.
• Recovery provisions.
• Recruitment policy.
• Shareholders’ views.
• Remuneration engagement across the Group.
•
Illustration of the Policy.
Dame Sue Bruce DBE
Chair of the Remuneration Committee
25 May 2021
SSE plc Annual Report 2021
165
OTHER STATUTORY INFORMATION
The Directors submit their Annual Report and Accounts for SSE plc, together with the consolidated Financial Statements of the SSE
Group of companies, for the year ended 31 March 2021.
The Strategic Report is set out on pages 1 to 93 and the Directors’ Report is set out on pages 94 to 169 . The Strategic Report
and the Directors’ Report together constitute the management report as required under Rule 4.1.8R of the Disclosure Guidance and
Transparency Rules.
As permitted by section 414C(11) of Companies Act 2006 the below matters have been disclosed in the Strategic Report:
An indication of likely future developments in the business of the Company
Particulars of important events affecting the Company since the financial year end
Greenhouse gas emissions
Energy consumption
Energy efficiency action
Employee engagement and involvement
Engagement with suppliers, customers and others in a business relationship with the Company
A summary of the principal risks facing the Company
Information required to be disclosed under Listing Rule 9.8.4R is contained on the pages detailed below.
Statement of amount of interest capitalised by the Group during the financial year
Details of any long-term incentive schemes
Page reference
pages 1 to 93
page 249
pages 38 to 43
pages 38 to 43
pages 38 to 43
pages 28 to 31 and 45 to 50
pages 28 to 31 and 50 to 53
pages 54 to 63
Page reference
pages 211 to 212
pages 144 to 165
Results and dividends
The Group’s results and performance highlights for the year are set out on pages 22 to 23 and 64 to 77 . An interim dividend of
24.4p per Ordinary Share was paid on 11 March 2021. The Directors propose a final dividend of 56.6p per Ordinary Share. Subject to
approval at the AGM 2021, the final dividend will be paid on 23 September 2021 to shareholders on the Register of Members at close
of business on 30 July 2021.
Board of Directors
Director appointment and retirement
The Company’s Directors who served during the financial year ending 31 March 2021 are provided on pages 98 to 101 .
The rules governing the appointment and retirement of Directors are set out in the Company’s Articles of Association, the UK Corporate
Governance Code, the Companies Act 2006 and other related legislation.
Indemnification of Directors and insurance
The Directors have the benefit of an indemnity provision contained in the Company’s Articles of Association. In addition, the Directors
have been granted a qualifying third-party indemnity provision which was in force throughout the financial year and remains in force.
Also, throughout the financial year, the Company purchased and maintained Directors’ and Officers’ liability insurance in respect of itself
and for its Directors and Officers.
Political donations and expenditure
SSE operates on a politically neutral basis and does not make any donations to political parties, political organisations or independent
election candidates. During the year, no political expenditure was incurred and no political donations were made by the Group.
Accounting policies, financial instruments and risk
Details of the Group’s accounting policies, together with details of financial instruments and risk, are provided in Note 24 to the Financial
Statements and Notes A6 to A8 of the Accompanying Information.
Research and development
SSE is involved in a range of innovative projects and programmes which are designed to progressively transform the energy system.
A number of these projects and programmes are referred to in the Strategic Report in pages 1 to 93 .
Employment of disabled people
SSE has a range of employment policies which clearly detail the standards, processes, expectations and responsibilities of its people and
the organisation. These policies are designed to ensure that everyone, including those with existing or new disabilities and people of all
backgrounds, are dealt with in an inclusive and fair way from the recruiting process on through their career at SSE, whether that means
access to appropriate training, development opportunities or job progression. Further details of this approach can be found on pages 45
to 50 .
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SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE Shares
Share capital
The Company has a single share class which is divided into Ordinary Shares of 50 pence each. The issued share capital of the Company
as at 31 March 2021, together with details of any changes during the year, is set out in Note 22 to the Financial Statements.
As at 25 May 2021, the issued share capital of the Company consisted of 1,049,144,208 Ordinary Shares. This figure includes 6,037,617
ordinary shares which are held in treasury (representing 0.58% of the Company’s issued share capital), with these shares voting and
dividend rights automatically suspended.
The Company was authorised at the AGM 2020 to allot shares or grant rights over shares up to an aggregate nominal amount equal to
£173,240,508 (representing 346,481,016 Ordinary Shares of 50 pence each excluding Treasury Shares), representing one-third of its
issued share capital. A renewal of this authority will be proposed at the AGM 2021.
The Company was authorised at the AGM 2020 to allot up to an aggregate nominal amount of £25,986,075 (representing 51,972,151
Ordinary Shares of 50 pence each and 5% of issued share capital) for cash without first offering them to existing shareholders in
proportion to their holding. A renewal of this authority will be proposed at the AGM 2021.
Transfer of Ordinary Shares
There are no restrictions on the transfer of Ordinary Shares in the Company other than certain restrictions which may from time-to-time
be imposed by law. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of
securities and/or voting rights.
Substantial shareholdings
At 31 March 2021, the following percentage interests in the Ordinary Share capital of the Company, had been notified under Rule 5 of the
Disclosure Guidance and Transparency Rules, (‘DTR 5’). The Company is not aware of any changes in the interests disclosed under DTR 5
between 31 March 2021 and 25 May 2021.
Shareholder
Voting rights
attached to shares*
Voting rights through
financial instruments*
Total of both in %
Nature of holding
BlackRock, Inc.
69,555,800
6.67%
3,031,628
The Capital Group
Companies, Inc.
50,981,817
4.90%
–
0.29%
–
6.96%
4.90%
Indirect, Securities Lending, CFD
Indirect, ADR
UBS Investment Bank
49,558,763
4.93%
2,444,392
0.23%
5.17%
Indirect, Equity Options, Equity
Swaps
Invesco Limited
Caisse de dépôt et
placement du Québec
45,775,918
41,492,159
4.69%
3.98%
–
–
–
–
4.69%
3.98%
Indirect
Direct
* At date of disclosure by relevant entity.
Authority to purchase shares
At the AGM 2020, the Company obtained shareholder approval to purchase up to 103,944,305 of its own Ordinary Shares (representing
10% of its issued share capital) up until the earlier of the conclusion of the AGM 2021 and close of business on 30 September 2021.
The Company did not undertake any share repurchase programmes during the financial year ending 31 March 2021.
During the financial year, and up until 25 May 2021, the Company used 909,995 of the treasury shares acquired under the 2016/17 share
repurchase programme to satisfy the requirements of the all-employee Sharesave scheme.
The Directors will, again, seek renewal of their authority to purchase in the market the Company’s own shares at the AGM 2021.
Voting
Each Ordinary Share of the Company carries one vote at general meetings of the Company. Any Ordinary Shares held in treasury have
no voting rights.
A shareholder entitled to attend, speak and vote at a general meeting may exercise their right to vote in person, by proxy, or in relation
to corporate members, by corporate representatives. To be valid, notification of the appointment of a proxy must be received not less
than 48 hours before the general meeting at which the person named in the proxy notice proposes to vote. The Directors may in their
discretion determine that in calculating the 48-hour period, no account be taken of any part of a day which is not a working day.
Employees who participate in the Share Incentive Plan whose shares remain in the schemes’ trust give directions to the trustees to vote
on their behalf by way of a Form of Direction. SSE also has a Share Plan Account service with Computershare available to employees
with shares arising from a SAYE option maturity, which are voted through the nominee.
SSE plc Annual Report 2021
167
OTHER STATUTORY INFORMATION CONTINUED
Annual General Meeting (AGM)
The AGM of the Company will be held at and broadcast from the Perth Concert Hall, Mill Street, Perth PH1 5HZ on Thursday 22 July 2021
at 12.30 pm. With continued uncertainty around the status of the pandemic and restrictions in place the Board strongly recommends that
shareholders do not attend the AGM in person, but instead make use of the electronic facilities on offer to join remotely. Details of the full
arrangements for the AGM, resolutions to be proposed, how to vote and ask questions are set out in the Notice of Annual General Meeting
2021 which accompanies this report for shareholders receiving hard copy documents, and which is available at sse.com for those who
elected to receive documents electronically.
Articles of Association changes
A Special Resolution will be proposed at the AGM to adopt new Articles of Association of the Company (New Articles). In adopting
the New Articles, the opportunity has been taken to update the Company’s existing Articles of Association (Existing Articles) to reflect
changes to the Companies Act 2006 and the UK Corporate Governance Code requirements and developments in market and industry
practice since the Existing Articles were adopted on 22 July 2010. Full details of changes can be found in the Notice of the Annual
General Meeting 2021 which accompanies this report for shareholders receiving hard copy documents, and which is available at
sse.com for those who elected to receive documents electronically.
Change of control
The Company is party to several agreements that take effect, alter or terminate upon a change of control of the Company following
a takeover. At 31 March 2021, change of control provisions were included in agreements for committed credit facilities, EIB debt, US
Private Placements, Senior Bonds and Hybrid instruments. The Company is not aware of any other agreements with change of control
provisions that are significant in terms of their potential impact to the business.
Disclosure of information to the auditor
Each of the Directors who held office at the date of approval of this Directors’ Report confirms that, so far as each Director is aware,
there is no relevant audit information of which the Company’s Auditors are unaware and each Director has taken all the steps that ought
to have been taken in his or her duty as a Director to make himself or herself aware of any relevant audit information and to establish that
the Company’s Auditors are aware of that information.
Related party transactions
Related party transactions are set out in Note A5 of the Accompanying Information.
The Directors’ Report set out on pages 94 to 169 has been approved by the Board of Directors in accordance with the Companies Act
2006.
By order of the Board
Sally Fairbairn
Company Secretary
25 May 2021
168
SSE plc Annual Report 2021
DIRECTORS’ REPORT – CORPORATE GOVERNANCE STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law
they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies to the European Union and applicable United Kingdom law, and have elected to
prepare the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law) including Financial Reporting Standard 101, ‘Reduced Disclosure Framework’.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent
Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and reliable;
• state whether they have been prepared in accordance with applicable accounting standards;
• assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease
• operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure
that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and
have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial report
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a
whole; and
• the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that
they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and performance, business model and strategy.
Alistair Phillips-Davies
Chief Executive
25 May 2021
Gregor Alexander
Finance Director
SSE plc Annual Report 2021
169
A STABLE PLATFORM
FOR FUTURE GROWTH
In the face of the wider economic challenges posed by a
global pandemic in 2020/21, the financial cost of coronavirus
to SSE was limited and underlying performance was strong.
The Financial Statements on the following pages, combined
with a healthy balance sheet, world-class assets and a resilient
business model, provide the foundations for future growth in
the transition to net zero.
Financial Statements
Alternative Performance Measures
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
172
179
180
181
Consolidated statement of changes in equity 182
Consolidated cash flow statement
Notes to the consolidated
financial statements
Accompanying information
Company balance sheet
Company statement of changes in equity
183
184
250
283
284
Notes to the Company financial statements 285
Independent Auditor’s report
Consolidated segmental statement
CSS audit opinion
Shareholder information
296
307
313
315
SSEN Transmission is the critical link between
the abundance of renewable energy in the remote
North of Scotland the large urban centres of demand
in the south.
170
170
SSE plc Annual Report 2021
SSE plc Annual Report 2021
FINANCIAL STATEMENTS SSE plc Annual Report 2021
SSE plc Annual Report 2021
171
171
ALTERNATIVE PERFORMANCE MEASURES
When assessing, discussing and measuring the Group’s financial performance, management refer to measures used for internal
performance management. These measures are not defined or specified under International Financial Reporting Standards (IFRS)
and as such are considered to be Alternative Performance Measures (‘APMs’).
By their nature, APMs are not uniformly applied by all preparers including other participants in the Group’s industry. Accordingly,
APMs used by the Group may not be comparable to other companies within the Group’s industry.
Purpose
APMs are used by management to aid comparison and assess historical performance against internal performance benchmarks and
across reporting periods. These measures provide an ongoing and consistent basis to assess performance by excluding items that are
materially non-recurring, uncontrollable or exceptional. These measures can be classified in terms of their key financial characteristics:
• Profit measures allow management to assess and benchmark underlying business performance during the year. They are primarily
used by operational management to measure operating profit contribution and are also used by the Board to assess performance
against business plan.
• Capital measures allow management to track and assess the progress of the Group’s significant ongoing investment in capital assets
and projects against their investment cases, including the expected timing of their operational deployment.
• Debt measures allow management to record and monitor both operating cash generation and the Group’s ongoing financing and
liquidity position.
Changes to APMs in the period
In the year the Group changed its adjusted investment and capital expenditure metric to adjust for proceeds received in the year ended
31 March 2021 from the refinancing of joint venture capital projects. The rationale for including this adjustment to these APMs is set out
in adjustment number 20 on page 175 .
Impact of coronavirus on the Group’s APMs
The Group has not adjusted its APMs for the impact of coronavirus. The Group has assessed that it incurred a reduction in underlying
operating profit as a result of coronavirus estimated at £168.7m for the year ended 31 March 2021 (2020: £18.2m). The adjusted results
of the Group set out in the tables below have not been adjusted to remove this impact.
While the Group has not adjusted its APMs for the impact of coronavirus, £33.7m of coronavirus related bad debt costs were classified
as exceptional in the year ended 31 March 2020. In the year ended 31 March 2021, £26.1m of the exceptional provision recognised in the
prior year has been released. The initial outbreak of the pandemic in the Group’s markets happened late in the prior financial year; it was
noted at that point that the exceptional provision was made based on the best estimates available and that the Group would continue to
monitor the situation. Subsequently, the impact of government support schemes, lockdowns and other factors have contributed to better
than expected debt recovery in the current year giving rise to the exceptional release. Further information on the judgement applied in
relation to coronavirus in the current and prior year is included in Note 4.2(i).
The following table explains the key APMs applied by the Group and referred to in these statements:
Purpose
Profit
measure
Group APM
Adjusted EBITDA
(earnings before
interest, tax,
depreciation and
amortisation)
Adjusted operating
profit
Profit
measure
Closest equivalent
IFRS measure
Adjustments to reconcile to primary financial statements
Operating profit
• Movement on operating and joint venture financing derivatives
(‘certain re-measurements’)
• Exceptional items
• Share of joint ventures and associates’ interest and tax
• Depreciation and amortisation before exceptional charges (including
depreciation and amortisation expense on fair value uplifts)
• Share of joint venture and associates’ depreciation and amortisation
• Release of deferred income
Operating profit
• Movement on operating and joint venture financing derivatives
(‘certain re-measurements’)
• Exceptional items
• Depreciation and amortisation expense on fair value uplifts
• Share of joint ventures and associates’ interest and tax
Adjusted profit
before tax
Profit
measure
Profit before tax
• Movement on operating and financing derivatives (‘certain re-measurements’)
• Exceptional items
• Depreciation and amortisation expense on fair value uplifts
•
• Share of non-recurring joint venture refinancing costs (prior year only)
• Share of joint ventures and associates’ tax
Interest on net pension assets/liabilities (IAS 19)
172
SSE plc Annual Report 2021
FINANCIAL STATEMENTS Group APM
Adjusted net
finance costs
Purpose
Profit
measure
Closest equivalent
IFRS measure
Net finance costs
Adjusted current
tax charge
Profit
measure
Tax charge
Adjustments to reconcile to primary financial statements
• Exceptional items
• Movement on financing derivatives
• Share of joint ventures and associates’ interest
• Share of non-recurring joint venture refinancing costs (prior year only)
•
Interest on net pension assets/liabilities (IAS 19)
• Share of joint ventures and associates’ tax
• Deferred tax including share of joint ventures and associates
• Tax on exceptional items and certain re-measurements
• Reclassification of tax liabilities
Adjusted earnings
per share
Profit
measure
Earnings per share • Exceptional items
• Movements on operating and financing derivatives (‘certain re-measurements’)
• Depreciation and amortisation expense on fair value uplifts
•
• Share of non-recurring joint venture refinancing costs (prior year only)
• Deferred tax including share of joint ventures and associates
Interest on net pension assets/liabilities (IAS 19)
Adjusted net debt
and hybrid capital
Debt
measure
Unadjusted net
debt
• Hybrid equity
• Outstanding liquid funds
• Lease obligations
• Cash presented as held for sale
Adjusted investment
and capital
expenditure
Capital
measure
Capital additions
to Intangible
Assets and
Property, Plant and
Equipment
• Other expenditure
• Customer funded additions
• Allowances and certificates
• Disposed additions
• Joint ventures and associate additions
• Refinancing proceeds
Rationale for adjustments
Adjustments to profit measure
1 Movement on operating and financing derivatives (‘certain re-measurements’)
This adjustment can be designated between operating and financing derivatives.
Operating derivatives are contracts where the Group’s Energy Portfolio Management (‘EPM’) function enters into forward commitments
or options to buy or sell electricity, gas and other commodities to meet the future demand requirements of the Group’s Business Energy
and Airtricity operating units, or to optimise the value of its SSE Renewables, Thermal or discontinued Gas Production assets. Certain of
these contracts are determined to be derivative financial instruments under IFRS 9 and as such are required to be recorded at their fair
value. Changes in the fair value of those commodity contracts designated as IFRS 9 financial instruments are reflected in the income
statement (as part of ‘certain re-measurements’). The Group shows the change in the fair value of these forward contracts separately
as this mark-to-market movement is not relevant to the underlying performance of its operating segments due to the volatility that can
arise on revaluation. The Group will recognise the underlying value of these contracts as the relevant commodity is delivered, which will
predominantly be within the subsequent 12 to 24 months. Conversely, commodity contracts that are not financial instruments under
IFRS 9 are accounted for as ‘own use’ contracts and are consequently not recorded until the commodity is delivered and the contract is
settled. In addition, gas purchased by the Group’s Gas Storage business for secondary trading opportunities is also held at fair value with
gains and losses on re-measurement recognised as part of ‘certain re-measurements’.
Financing derivatives include all fair value and cash flow interest rate hedges, non-hedge accounted (mark-to-market) interest rate
derivatives, cash flow foreign exchange hedges and non-hedge accounted foreign exchange contracts entered into by the Group to
manage its banking and liquidity requirements as well as risk management relating to interest rate and foreign exchange exposures.
Changes in the fair value of those financing derivatives are reflected in the income statement (as part of ‘certain re-measurements’).
The Group shows the change in the fair value of these forward contracts separately as this mark-to-market movement is not relevant
to the underlying performance of its operating segments.
The re-measurements arising from operating and financing derivatives, and the tax effects thereof, are disclosed separately to aid
understanding of the underlying performance of the Group.
2 Exceptional Items
Exceptional charges or credits, and the tax effects thereof, are considered unusual by nature or scale and of such significance that
separate disclosure is required for the underlying performance of the Group to be properly understood. Further explanation for the
classification of an item as exceptional is included in Note 3.2.
SSE plc Annual Report 2021
173
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
Rationale for adjustments continued
Adjustments to profit measure continued
3 Share of joint ventures and associates’ interest and tax
This adjustment can be split between the Group’s share of interest and the Group’s share of tax arising from its investments in equity
accounted joint ventures and associates.
The Group is required to report profit before interest and tax (‘operating profit’) including its share of the profit after tax of its equity
accounted joint ventures and associates. However, for internal performance management purposes and for consistency of treatment,
SSE reports its relevant adjusted profit measures before its share of the interest and/or tax on joint ventures and associates.
4 Share of joint ventures and associates’ depreciation and amortisation
For management purposes, the Group considers EBITDA (earnings before interest, tax, depreciation and amortisation) based on a
sum-of-the-parts derived metric which includes a share of the EBITDA from equity accounted investments. While this is not equal to
adjusted cash generated from operating activities, it is considered useful by management in assessing a proxy for such a measure, given
the complexity of the Group structure and the range of investment structures utilised. For the purpose of calculating the ‘Net Debt to
EBITDA’ metric referred at page 73 , ‘adjusted EBITDA’ is further adjusted to remove the proportion of adjusted EBITDA from equity-
accounted joint ventures relating to off-balance sheet debt (see Note 5.1(v)).
5 Depreciation and amortisation expense on fair value uplifts
The Group’s operating strategy includes securing value creation from divestments of stakes in certain assets and businesses namely
its offshore and (future) international SSE Renewables developments. In addition, for strategic purposes the Group may also decide to
bring in equity partners in other businesses and assets. Where SSE’s interest in such vehicles changes from full to joint control, and the
subsequent arrangement is classified as an equity accounted joint venture, SSE will recognise a fair value uplift on the remeasurement
of its retained equity investment. Those uplifts will be treated as exceptional (and non-cash) gains in the year of the relevant transactions
completing. These uplifts create assets which are depreciated or amortised over the remaining life of the underlying assets or contracts
in those businesses with the charge being included in the Group’s adjusted depreciation and amortisation expense. The Group’s adjusted
operating profit, adjusted profit before tax and adjusted earnings per share have therefore been adjusted to exclude this depreciation and
amortisation expense from the fair value uplift given the charges derived from significant one-off gains which are treated as exceptional
when initially recognised.
6 Release of deferred income
The Group deducts the release of deferred income in the year from its adjusted EBITDA metric as it principally relates to grants or
customer contributions against depreciating assets. As the metric adds back depreciation, the income is also deducted.
7 Non-recurring joint venture refinancing costs
The Group’s joint venture investment, Beatrice Offshore Winds Limited (‘BOWL’), completed a refinancing of its debt in the year ended
31 March 2020, which resulted in transaction costs from the original debt of £27.2m being expensed to the income statement of the joint
venture. In addition, £3.5m of costs related to the repayment of the original instrument were incurred. The Group’s 40% share of the
£30.7m expense is £12.3m, which has been adjusted from the Group’s adjusted profit before tax and the Group’s adjusted finance costs as
refinancing of this scale is non-recurring, considered to be specific to this instance and therefore not representative of normal operations.
8 Interest on net pension assets/liabilities (IAS 19)
The Group’s interest charges relating to defined benefit pension schemes are derived from the net assets/liabilities of the schemes as
valued under IAS 19. This will mean that the charge recognised in any given year will be dependent on the impact of actuarial assumptions
such as inflation and discount rates. To avoid income statement volatility derived from this basis of measurement and reflecting the
non-cash nature of these charges, the Group excludes these from its adjusted profit measures.
9 Deferred tax
The Group adjusts for deferred tax when arriving at adjusted profit after tax, adjusted earnings per share and its adjusted effective rate of
tax. Deferred tax arises as a result of differences in accounting and tax bases that give rise to potential future accounting credits or charges.
As the Group remains committed to its ongoing capital programme, the liabilities associated are not expected to reverse and accordingly
the Group excludes these from its adjusted profit measures.
Adjustments to debt measure
10 Hybrid equity
The characteristics of certain hybrid capital securities mean they qualify for recognition as equity rather than debt under IFRS. Consequently,
their coupon payments are presented within dividends rather than within finance costs. As a result, the coupon payments are not included in
SSE’s adjusted profit before tax measure. In order to present total funding provided from sources other than ordinary shareholders, SSE
presents its adjusted net debt measure inclusive of hybrid capital to better reflect the Group’s funding position.
11 Outstanding liquid funds
Outstanding liquid funds are SSE cash balances held by counterparties as collateral at the year end. SSE includes these as cash until they
are utilised for the purposes of calculating adjusted net debt. Loans with a maturity of less than three months are also included in this
adjustment. The Group includes this adjustment in order to better reflect the immediate cash resources to which it has access, which
in turn better reflects the Group’s funding position.
174
SSE plc Annual Report 2021
FINANCIAL STATEMENTS 12 Leases
SSE’s reported loans and borrowings include lease liabilities on contracts under the scope of IFRS 16, which are not directly related to the
external financing of the Group. The Group excludes these liabilities from its adjusted net debt and hybrid capital measure to better reflect
the Group’s underlying funding position with its primary sources of capital.
13 Cash presented as held for sale
Where the Group holds cash balances as part of a disposal group, as was the case at 31 March 2019, those balances will be excluded
from the Group’s debt measure. As the Group will continue to fund such held for sale businesses through intercompany loans and
borrowings, any cash held by the business will be an adjustment in the Group adjusted net debt measure.
Adjustments to capex measure
14 Other expenditure
Other expenditure primarily represents subsequently derecognised development expenditure which is excluded to better reflect the
Group’s ongoing capital position.
15 Customer funded additions
Customer funded additions represents additions to electricity and other networks funded by customer contributions. Given these are
directly funded by customers, these have been excluded to better reflect the Group’s underlying investment position.
16 Allowances and certificates
Allowances and certificates consist of purchased carbon emissions allowances and generated or purchased renewable obligations
certificates (ROCs) and are not included in the Group’s ‘capital expenditure and investment’ APM to better reflect the Group’s investment
in enduring operational assets.
17 Additions through business combinations
In the year ended 31 March 2020, the Group took a controlling interest in the Viking partnership and acquired a windfarm portfolio in
Wexford in Ireland, resulting in an addition to intangible assets on consolidation of £26.4m. In the year ended 31 March 2019, the Group
acquired 50% interest in Seagreen Wind Energy Limited (‘Seagreen’). On consolidation of Seagreen, £143.4m of development asset
was included in the Group’s consolidated intangible assets. These additions have been removed from ‘adjusted investment and capital
expenditure’ as they were not direct capital expenditure by the Group.
18 Additions subsequently disposed/impaired
In the year the Group funded £19.7m of capex additions in relation to the Seagreen windfarm prior to disposal. On 3 June 2020, the
Group disposed of a 51% stake in Seagreen 1 (see Note 12.1), therefore the capex incurred prior to that date has been excluded from
the Group’s net adjusted investment and capital expenditure metric. In the year ended 31 March 2020, there were additions of £44.6m
in the Group’s Gas Production segment which were subsequently impaired following the annual impairment assessment. Additions
subsequently disposed in the year ended 31 March 2019 represent capital additions related to Stronelairg and Dunmaglass windfarms
and SSE Telecommunications prior to their disposal and subsequent recognition as part of SSE’s investment in joint ventures.
19 Joint ventures and associates’ additions
Joint ventures and associates’ additions represent direct funding provided to joint venture and associate arrangements in relation to
capital expenditure projects. This has been included to better reflect the Group’s use of directly funded equity accounted vehicles to
grow the Group’s asset base. Asset additions funded by project finance raised within the Group’s joint ventures and associates is not
included in this adjustment.
20 Refinancing proceeds/refunds
The Group’s model for developing large scale capital projects within joint ventures and associates involves project finance being raised
within those entities. Where the Group funds early stage capex which is then subsequently reimbursed to SSE following the receipt of
project finance within the vehicle, the refinance proceeds are included in the Group’s net adjusted investment and capital expenditure
metric. In the year ended 31 March 2021, the Group received reimbursed capex of £246.1m in relation to Seagreen windfarm and
£182.5m in relation to Doggerbank windfarm. These receipts have been deducted from the Group’s adjusted investment and capital
expenditure metric.
Impact of discontinued operations on the Group’s APMs
The following metrics have been adjusted in all periods presented to exclude the contribution of the Group’s Gas Production operations
which is held for sale at 31 March 2021 (see Note 12.3) and SSE Energy Services which was disposed on 15 January 2020:
• Adjusted EBITDA;
• Adjusted operating profit;
• Adjusted net finance costs;
• Adjusted profit before tax;
• Adjusted current tax charge; and
• Adjusted earnings per share.
‘Adjusted net debt and hybrid capital’, and ‘investment and capital expenditure’ have not been adjusted as the Group continues to fund
the discontinued operations until the date of disposal.
SSE plc Annual Report 2021
175
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
Rationale for adjustments continued
Impact of discontinued operations on the Group’s APMs continued
The table below reconciles the adjusted performance measures to the reported measure of the Group.
March 2021
March 2020
March 2019
Adjusted operating profit
Adjusted net finance costs
Adjusted profit before tax (PBT)
Adjusted current tax charge
Adjusted profit after tax
Hybrid coupon paid
Adjusted profit after tax attributable to ordinary shareholders for EPS
Number of shares for EPS
Adjusted earnings per share
Adjusted EBITDA
Depreciation, impairment and amortisation, before exceptional charges
Depreciation and amortisation expense on fair value uplifts
Release of deferred income
Share of joint ventures and associates’ depreciation and amortisation
Adjusted operating profit
Adjusted operating profit
Movement on operating and joint venture financing derivatives
Exceptional items
Depreciation and amortisation expense on fair value uplifts
Share of joint ventures and associates’ interest and tax
Reported operating profit
Adjusted profit before tax PBT
Movement on operating and financing derivatives
Exceptional items
Depreciation and amortisation expense on fair value uplifts
Interest on net pension assets/(liabilities)
Share of joint ventures and associates’ tax
Share of non-recurring joint venture refinancing costs
Reported profit before tax
Adjusted net finance costs
Exceptional items
Movement on financing derivatives
Share of joint ventures and associates’ interest
Interest on net pension assets
Share of non-recurring joint venture refinancing costs
Reported net finance costs
Adjusted current tax charge
Share of joint ventures and associates’ tax
Deferred tax including share of joint ventures and associates
Tax on exceptional items and certain re-measurement
Reported tax charge/(credit)
Adjusted net debt and hybrid capital
Hybrid equity
Adjusted net debt
Outstanding liquid funds
Lease obligations
Cash presented as held for sale
Unadjusted net debt
176
SSE plc Annual Report 2021
1,506.5
(441.6)
1,064.9
(107.8)
957.1
(46.6)
910.5
1,040.9
87.5
2,229.9
(556.2)
20.6
17.7
(205.5)
1,506.5
1,506.5
599.7
848.9
(20.6)
(191.0)
2,743.5
1,064.9
655.3
850.3
(20.6)
11.0
(44.5)
–
2,516.4
441.6
(1.4)
(55.6)
(146.5)
(11.0)
–
227.1
107.8
(44.5)
38.2
122.8
224.3
1,488.4
(465.0)
1,023.4
(114.2)
909.2
(46.5)
862.7
1,032.5
83.6
2,191.4
(530.1)
20.6
14.7
(208.2)
1,488.4
1,488.4
(36.2)
(212.1)
(20.6)
(256.1)
963.4
1,023.4
(119.2)
(209.7)
(20.6)
8.3
(82.3)
(12.3)
587.6
465.0
(2.4)
83.0
(173.8)
(8.3)
12.3
375.8
114.2
(82.3)
91.9
(2.3)
121.5
(8,898.9)
1,472.4
(7,426.5)
37.1
(421.0)
–
(10,465.9)
1,169.7
(9,296.2)
(256.4)
(455.2)
–
1,088.7
(403.6)
685.1
(7.1)
678.0
(46.6)
631.4
1,021.7
61.8
1,718.1
(519.0)
2.9
10.2
(123.5)
1,088.7
1,088.7
(327.0)
1,010.2
(2.9)
(155.4)
1,613.6
685.1
(371.8)
1,010.2
(2.9)
11.4
(31.7)
–
1,300.3
403.6
–
44.8
(123.7)
(11.4)
–
313.3
7.1
(31.7)
87.6
(72.9)
(9.9)
(9,437.0)
1,169.7
(8,267.3)
(344.2)
(229.3)
(95.2)
(7,810.4)
(10,007.8)
(8,936.0)
FINANCIAL STATEMENTS Rationale for adjustments continued
Impact of discontinued operations on the Group’s APMs continued
Investment and capital expenditure (adjusted)
Refinancing proceeds/refunds
Customer funded additions
Allowances and certificates
Additions through business combinations
Disposed/impaired additions
Joint ventures and associates’ additions
IFRS 16 right of use asset additions
Capital additions to intangible assets and property, plant and equipment
Capital additions to intangible assets
Capital additions to property, plant and equipment
Capital additions to intangible assets and property, plant and equipment
March 2021
March 2020
March 2019
912.0
428.6
61.8
509.0
–
19.7
(172.7)
45.4
1,803.8
701.3
1,102.5
1,803.8
1,357.4
1,422.9
110.7
652.7
26.4
44.6
(167.1)
46.5
2,071.2
973.6
1,097.6
2,071.2
224.7
954.0
143.4
195.3
(292.5)
–
2,647.8
1,333.3
1,314.5
2,647.8
The following table summarises the impact of excluding discontinued operations from the continuing activities of the Group in current
and prior years:
March 2021
£m
March 2020
£m
March 2019
£m
Adjusted EBITDA of SSE Group (including discontinued operations)
Less: SSE Energy Services
Less: Gas Production
Adjusted EBITDA of continuing operations
Adjusted operating profit of SSE Group (including discontinued operations)
Less: SSE Energy Services
Less: Gas Production
Adjusted operating profit of continuing operations
Adjusted net finance costs of SSE Group (including discontinued operations)
Less: SSE Energy Services
Less: Gas Production
Adjusted net finance costs of continuing operations
Adjusted profit before tax of SSE Group (including discontinued operations)
Less: SSE Energy Services
Less: Gas Production
Adjusted profit before tax of continuing operations
Adjusted current tax of SSE Group (including discontinued operations)
Less: SSE Energy Services
Less: Gas Production
Adjusted current tax of continuing operations
Adjusted earnings per share of SSE Group (including discontinued operations)
Less: SSE Energy Services
Less: Gas Production
Adjusted earnings per share of continuing operations
2,262.9
–
(33.0)
2,229.9
1,539.5
–
(33.0)
1,506.5
443.9
–
(2.3)
441.6
1,095.6
–
(30.7)
1,064.9
107.8
–
–
107.8
90.5
–
(3.0)
87.5
2,281.0
(32.7)
(56.9)
2,191.4
1,546.9
(32.7)
(25.8)
1,488.4
471.6
–
(6.6)
465.0
1,075.3
(32.7)
(19.2)
1,023.4
110.3
3.9
–
114.2
89.0
(3.6)
(1.8)
83.6
2,008.6
(140.0)
(150.5)
1,718.1
1,227.2
(89.6)
(48.9)
1,088.7
411.9
–
(8.3)
403.6
815.3
(89.6)
(40.6)
685.1
11.3
(18.1)
13.9
7.1
74.1
(7.0)
(5.3)
61.8
The remaining APMs presented by the Group are unchanged in all periods presented by the discontinued operations.
SSE plc Annual Report 2021
177
FINANCIAL STATEMENTS
Primary Statements
Consolidated Income Statement
Accompanying Information
179
A1. Basis of consolidation and significant accounting policies
Consolidated Statement of Comprehensive Income
180
A2. Taxation
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
181
A3. Related undertakings
182
A4. Joint ventures and associates
183
A5. Related party transactions
Notes to the Consolidated Financial Statements
1. General information and basis of preparation
2. New accounting policies and reporting changes
3. Adjusted accounting measures
184
184
185
A6. Financial risk management
A7. Fair value of financial instruments
A8. Hedge accounting
Company Financial Statements
4. Accounting judgements and estimation uncertainty
186
Balance sheet
5.
Segmental information
6. Other operating income and cost
7.
Exceptional items and certain re-measurements
8. Directors and employees
9.
Finance income and costs
10. Taxation
11. Dividends and earnings per share
12. Acquisitions, disposals and held for sale assets
13.
Intangible assets
14. Property, plant and equipment
15.
Impairment testing
16.
Investments
17.
Inventories
18. Trade and other receivables
19. Trade and other payables
20. Provisions
21. Sources of finance
22. Equity
23. Retirement benefit obligations
24. Financial instruments
25. Commitments and contingencies
26. Post balance sheet events
189
Statement of changes in equity
Notes to the Company Financial Statements
1. Principal accounting policies
2.
3.
Supplementary financial information
Investments in associates and joint ventures
4. Subsidiary undertakings
5. Trade and other receivables
6. Trade and other payables
7.
8.
Taxation
Loans and borrowings
9. Equity
10. Retirement benefit obligations
11. Financial instruments
12. Commitments and contingencies
13. Provisions
202
203
209
211
212
215
217
220
223
225
230
232
233
233
234
234
240
242
248
249
249
250
260
262
267
271
271
280
282
283
284
285
286
286
286
287
287
287
288
290
291
294
294
295
178
SSE plc Annual Report 2021
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2021
2021
Before
exceptional
items and certain
remeasurements
£m
Exceptional
items and certain
remeasurements
(Note 7)
£m
Note
Continuing operations
Revenue
Cost of sales
Gross profit
Operating costs
Other operating income
Operating profit before joint
ventures and associates
Joint ventures and associates:
Share of operating profit
Share of interest
Share of movement on derivatives
Share of tax
Share of profit on joint ventures
and associates
Operating profit from continuing
operations
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year from continuing
operations
Discontinued operations
Profit/(loss) from discontinued
operation, net of tax
Profit/(loss) for the year
Attributable to:
Ordinary shareholders of the parent
Other equity holders
Earnings/(loss) per share
Basic (pence)
Diluted (pence)
Earnings per share – continuing
operations
Basic (pence)
Diluted (pence)
5
6
6
6
16
5
9
9
10
12
11
11
11
11
11
2020
Before
exceptional
items and certain
remeasurements
£m
Exceptional
items and certain
remeasurements
(Note 7)
£m
6,800.6
(4,745.0)
2,055.6
(1,019.1)
24.4
–
(39.3)
(39.3)
(240.3)
28.2
Total
£m
6,826.4
(4,134.1)
2,692.3
(1,325.5)
1,244.7
Total
£m
6,800.6
(4,784.3)
2,016.3
(1,259.4)
52.6
6,826.4
(4,732.7)
2,093.7
(1,198.4)
268.7
–
598.6
598.6
(127.1)
976.0
1,164.0
1,447.5
2,611.5
1,060.9
(251.4)
809.5
322.0
(146.5)
–
(44.3)
–
–
1.0
(0.2)
322.0
(146.5)
1.0
(44.5)
406.8
(173.8)
–
(81.7)
131.2
0.8
132.0
151.3
1,295.2
88.0
(372.1)
1,011.1
(101.5)
1,448.3
57.0
–
1,505.3
(122.8)
2,743.5
145.0
(372.1)
2,516.4
(224.3)
1,212.2
79.2
(374.4)
917.0
(123.8)
–
–
3.2
(0.6)
2.6
(248.8)
2.4
(83.0)
(329.4)
2.3
406.8
(173.8)
3.2
(82.3)
153.9
963.4
81.6
(457.4)
587.6
(121.5)
909.6
1,382.5
2,292.1
793.2
(327.1)
466.1
30.7
940.3
–
30.7
1,382.5
2,322.8
893.7
46.6
1,382.5
–
2,276.2
46.6
44.2
837.4
790.9
46.5
(522.8)
(849.9)
(849.9)
–
218.7
218.3
215.7
215.4
(478.6)
(12.5)
(59.0)
46.5
(5.7)
(5.7)
40.6
40.6
The accompanying notes are an integral part of these financial statements.
SSE plc Annual Report 2021
179
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2021
Profit/(loss) for the year
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss:
Net (losses)/gains on cash flow hedges
Transferred to assets and liabilities on cash flow hedges
Taxation on cashflow hedges
Share of other comprehensive gain/(loss) of joint ventures and associates, net of taxation
Exchange difference on translation of foreign operations
Gain/(loss) on net investment hedge
Items that will not be reclassified to profit or loss:
Actuarial (loss)/gain on retirement benefit schemes, net of taxation
Share of other comprehensive (loss)/income of joint ventures and associates, net of taxation
Gains/(losses) on revaluation of investments in equity instruments, net of taxation
Other comprehensive (loss)/gain, net of taxation
Total comprehensive income for the period
Attributable to:
Ordinary shareholders of the parent
Other equity holders
The accompanying notes are an integral part of these financial statements.
2021
£m
2,322.8
(44.7)
(5.1)
8.5
(41.3)
25.0
(43.3)
37.3
(22.3)
(12.8)
(23.3)
1.1
(35.0)
2020
£m
(12.5)
38.0
3.7
(7.2)
34.5
(40.3)
33.0
(28.7)
(1.5)
97.8
36.6
(1.3)
133.1
(57.3)
131.6
2,265.5
119.1
2,218.9
46.6
2,265.5
72.6
46.5
119.1
180
SSE plc Annual Report 2021
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2021
Assets
Property, plant and equipment
Goodwill and other intangible assets
Equity investments in joint ventures and associates
Loans to joint ventures and associates
Other investments
Other receivables
Derivative financial assets
Retirement benefit assets
Non-current assets
Intangible assets
Inventories
Trade and other receivables
Current tax asset
Cash and cash equivalents
Derivative financial assets
Assets held for sale
Current assets
Total assets
Liabilities
Loans and other borrowings
Trade and other payables
Current tax liabilities
Provisions
Derivative financial liabilities
Liabilities held for sale
Current liabilities
Loans and other borrowings
Deferred tax liabilities
Trade and other payables
Provisions
Retirement benefit obligations
Derivative financial liabilities
Non-current liabilities
Total liabilities
Net assets
Equity:
Share capital
Share premium
Capital redemption reserve
Hedge reserve
Translation reserve
Retained earnings
Equity attributable to ordinary shareholders of the parent
Hybrid equity
Total equity
The accompanying notes are an integral part of the financial statements.
Note
2021
£m
2020
£m
14
13
16
16
16
18
24
23
13
17
18
10
21
24
12
21
19
10
20
24
12
21
10
19
20
23
24
22
22
13,254.3
841.3
1,643.5
554.3
3.6
115.9
114.7
543.1
17,070.7
374.9
234.9
1,488.2
12.7
1,600.2
470.9
339.1
4,520.9
12,814.7
1,101.4
1,849.4
847.5
0.2
100.0
308.2
534.2
17,555.6
503.2
174.0
1,761.2
15.1
164.6
631.2
226.8
3,476.1
21,591.6
21,031.7
937.6
1,987.3
12.8
79.3
238.7
253.5
3,509.2
8,473.0
774.3
722.5
793.3
186.1
452.1
11,401.3
14,910.5
6,681.1
524.5
847.1
49.2
(133.6)
0.4
3,921.1
5,208.7
1,472.4
6,681.1
1,966.9
1,995.4
–
61.4
785.8
398.7
5,208.2
8,205.5
645.8
639.5
600.1
192.5
620.0
10,903.4
16,111.6
4,920.1
523.1
875.6
49.2
(111.1)
6.4
2,407.2
3,750.4
1,169.7
4,920.1
These financial statements were approved by the Board of Directors on 25 May 2021 and signed on their behalf by:
Gregor Alexander
Finance Director
Sir John Manzoni
Chairman
SSE plc
Registered No: SC117119
SSE plc Annual Report 2021
181
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2021
–
–
–
–
–
–
–
–
At 1 April 2020
Profit for the year
Other comprehensive loss
Total comprehensive income
for the year
Dividends to shareholders
Scrip dividend related share
Share
capital
£m
523.1
–
–
–
–
issue
1.4
(1.4)
Distributions to Hybrid equity
holders
Issue of Hybrid equity
Redemption of Hybrid Equity
Credit in respect of employee
share awards
Investment in own shares (ii)
Adjustment in relation to
historic remeasurement of
financial instruments, net of
tax (i)
–
–
–
–
–
–
–
–
–
–
(27.1)
–
Share
premium
£m
Capital
redemption
reserve
£m
Hedge
reserve
£m
Translation
reserve
£m
Retained
earnings
£m
Total
attributable
to ordinary
shareholders
£m
Total equity
attributable
to equity
holders of
the parent
£m
Hybrid
equity
£m
875.6
49.2
(111.1)
6.4
2,407.2
3,750.4
1,169.7
4,920.1
–
–
–
–
–
–
–
–
–
–
–
–
(16.3)
(16.3)
–
–
–
–
–
–
–
(6.2)
–
(6.0)
(6.0)
–
–
–
–
–
–
–
–
0.4
2,276.2
(35.0)
2,276.2
(57.3)
2,241.2
(836.4)
2,218.9
(836.4)
46.6
–
46.6
–
2,322.8
(57.3)
2,265.5
(836.4)
39.0
39.0
–
39.0
–
–
(1.7)
19.7
24.6
–
–
(1.7)
19.7
(2.5)
27.5
21.3
(46.6)
1,051.0
(748.3)
(46.6)
1,051.0
(750.0)
–
–
–
19.7
(2.5)
21.3
3,921.1
5,208.7
1,472.4
6,681.1
At 31 March 2021
524.5
847.1
49.2
(133.6)
(i) Following review of the recognition of certain derivative financial instruments at inception, a revision to Retained Earnings, Loans and Borrowings and the Hedge
Reserve has been recorded during the period. This revision arose through review of the Group’s contractual exposure on certain swap arrangements, as well as
mark-to-market charges on inception previously recognised through the Income Statement. The cumulative effect on opening reserves on 1 April 2020 is an
increase of £21.3m, and the single largest line item impacted was Loans and Borrowings which decreased by £58.8m. It has been assessed that the cumulative
effect of this revision does not materially impact the prior year financial statements.
(ii) Investment in own shares is the purchase of own shares less the settlement of treasury shares for sharesave schemes. This includes a reclassification between
share premium and retained earnings of £27.1m for previous treasury share issuances to employees.
Share
premium
£m
Capital
redemption
reserve
£m
Hedge
reserve
£m
Translation
reserve
£m
Retained
earnings
£m
Total
attributable
to ordinary
shareholders
£m
Total equity
attributable
to equity
holders of
the parent
£m
Hybrid
equity
£m
879.6
34.8
(105.3)
2.1
3,250.9
4,585.5
1,169.7
5,755.2
At 1 April 2019
Loss for the year
Other comprehensive income/
(loss)
Total comprehensive income
for the year
Dividends to shareholders
Scrip dividend related share
Share
capital
£m
523.4
–
–
–
–
issue
14.1
(14.1)
Distributions to Hybrid equity
holders
Issue of shares
Share repurchase
Credit in respect of employee
share awards
Investment in own shares
Adjustment in relation to
historic depreciation rates,
net of tax
–
–
(14.4)
–
–
–
–
10.1
–
–
–
–
At 31 March 2020
523.1
875.6
49.2
(111.1)
182
SSE plc Annual Report 2021
–
–
–
–
–
–
–
14.4
–
–
–
–
(5.8)
(5.8)
–
–
–
–
–
–
–
–
–
4.3
4.3
–
–
–
–
–
–
–
–
6.4
(59.0)
(59.0)
46.5
(12.5)
133.1
131.6
–
131.6
74.1
(948.5)
72.6
(948.5)
46.5
–
119.1
(948.5)
345.5
345.5
–
345.5
–
–
(352.0)
24.5
(14.6)
–
10.1
(352.0)
24.5
(14.6)
27.3
27.3
(46.5)
–
–
–
–
–
(46.5)
10.1
(352.0)
24.5
(14.6)
27.3
2,407.2
3,750.4
1,169.7
4,920.1
FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2021
Operating profit – continuing operations
Operating profit – discontinued operations
Operating profit – total operations
Less share of profit of joint ventures and associates
Operating profit before jointly controlled entities and associates
Pension service charges less contributions paid
Movement on operating derivatives
Depreciation, amortisation, write downs and impairments
Charge in respect of employee share awards (before tax)
Profit on disposal of assets and businesses
Release of provisions
Release of deferred income
Cash generated from operations before working capital movements
(Increase)/decrease in inventories
Decrease in receivables
Increase/(decrease) in payables
Increase/(decrease) in provisions
Cash generated from operations
Dividends received from investments
Interest paid
Taxes paid
Net cash from operating activities
Purchase of property, plant and equipment
Purchase of other intangible assets
Deferred income received
Proceeds from disposals
Cash disposed from disposals
Joint venture development expenditure refunds
Loans and equity provided to joint ventures and associates
Purchase of businesses and subsidiaries
Loans and equity repaid by joint ventures
Net cash from investing activities
Proceeds from issue of share capital
Dividends paid to company’s equity holders
Hybrid equity dividend payments
Employee share awards share purchase
Issue of hybrid instruments
Redemption of hybrid instruments
New borrowings
Seagreen development expenditure refinancing proceeds
Repayment of borrowings
Settlement of cashflow hedges
Repurchase of own shares
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the start of year
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the end of year
The accompanying notes are an integral part of these financial statements.
Note
12
23
24
7, 12
20
5
16
5
5
12
12
16
12
16
22
11
22
22
22
22
21
21
21
21
2021
£m
2,743.5
33.0
2,776.5
(132.0)
2,644.5
(22.8)
(590.1)
637.9
18.1
(1,227.9)
(4.1)
(17.7)
1,437.9
(71.7)
155.3
420.0
36.1
1,977.6
191.1
(288.7)
(62.8)
2020
£m
963.4
(243.6)
719.8
(153.9)
565.9
(25.2)
34.2
947.2
24.5
(60.5)
(21.2)
(14.7)
1,450.2
122.5
155.0
(269.2)
(3.0)
1,455.5
213.4
(272.9)
(95.8)
1,817.2
1,300.2
(985.0)
(192.3)
11.2
1,734.8
(172.8)
182.5
(188.9)
–
54.2
(814.1)
(396.8)
11.8
413.9
(235.6)
–
(175.7)
(29.0)
213.3
443.7
(1,012.2)
10.4
(797.4)
(46.6)
(12.9)
1,051.0
(750.0)
1,668.5
246.1
(2,189.3)
(5.1)
–
(825.3)
10.1
(603.0)
(46.5)
(14.6)
–
–
1,122.4
–
(770.3)
3.7
(352.0)
(650.2)
1,435.6
(362.2)
164.6
1,435.6
1,600.2
526.8
(362.2)
164.6
SSE plc Annual Report 2021
183
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
1. General information and basis of preparation
1.1 General information
SSE plc (the Company) is a company domiciled in Scotland. The address of the registered office is given on the back cover. The Group’s
operations and its principal activities are set out in the Strategic Report. The consolidated financial statements for the year ended 31 March
2021 comprise those of the Company and its subsidiaries (together referred to as the Group). The Company financial statements present
information about the Company as a separate entity and not about the Group, these can be seen on pages 283 to 295 .
1.2 Basis of preparation
Statement of compliance
The financial statements were authorised for issue by the directors on 25 May 2021. The financial statements have been prepared in
accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and in accordance
with International Financial Reporting Standards pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union (‘adopted
IFRS’).
Going concern
The Directors consider that the Group has adequate resources to continue in operational existence for the period to 31 December 2022.
The financial statements are therefore prepared on a going concern basis. In assessing the Group’s ability to continue as a going concern,
the ongoing impact of the coronavirus pandemic was considered and has been included as an other accounting judgement (see Note 4.2 (i)).
In addition, further details of the Group’s liquidity position and going concern review, including the potential economic impacts of
coronavirus, are provided in A6 Accompanying Information to the Financial Statements on page 272 .
Basis of measurement
The financial statements of the Group are prepared on the historical cost basis except for certain gas inventory, derivative financial
instruments, financial instruments designated at fair value through profit or loss or other comprehensive income on initial recognition,
assets of the Group pension schemes which are measured at their fair value, and liabilities of the Group pension schemes which are
measured using the projected unit credit method. The directors believe the financial statements present a true and fair view. The financial
statements of the Group are presented in pounds sterling. The basis for including operations and transactions conducted in currencies
other than pounds sterling is provided in A1 Accompanying Information to the Financial Statements on page 250 .
Use of estimates and judgements
The preparation of financial statements conforming with adopted IFRS requires the use of certain accounting estimates. It also requires
management to exercise judgement in the process of applying the accounting policies. The areas involving a higher level of judgement
or estimation are summarised at pages 186 to 188 .
Changes to presentation
There have been no changes to presentation during the current year.
During the prior year, the Group assessed that its Gas Production business met the criteria to be presented as held for sale and a
discontinued operation. The business remains held for sale at 31 March 2021 and continues to be classified as a discontinued operation
(see Note 4.2.1). The results of the business are therefore presented as discontinued operations in the income statement, cash flow
statement and related notes, in line with the requirements of IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’.
Changes to estimates
There have been no changes to the basis of accounting estimates during the current year.
During the prior year the Group performed a detailed technical review of the operating lives of its onshore and offshore windfarms and
changed the estimated useful life of the majority of its onshore windfarms from 20 to 25 years. The change to this estimate resulted in an
increase to adjusted and reported profit before tax of £30.2m in the prior year.
2. New accounting policies and reporting changes
The principal accounting policies applied in the preparation of these financial statements are set out below and in the A1 Accompanying
Information to the Financial Statements on pages 250 to 260 .
2.1 New standards, amendments and interpretations effective or adopted by the Group
The accounting policies applied are consistent with those of the prior year. From 1 January 2020 (thus 1 April 2020 for the Group),
amendments to IFRS 3: Business Combinations; Interest Rate Benchmark Reform; amendments to IAS 1 and IAS 8; and the conceptual
framework for financial reporting became effective. None have had a material impact on the Group. From 1 June 2020 an amendment
to IFRS 16 for coronavirus related rent concessions became effective. The Group has not received any rent concessions and so has not
early adopted the amendment as it would have no impact on the presentation of these Financial Statements.
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FINANCIAL STATEMENTS 2. New accounting policies and reporting changes continued
2.2 New standards, amendments and interpretations issued, but not yet adopted by the Group
The following standard has been issued but not yet adopted by the Group within these financial statements, because application is not
yet mandatory or because adoption by the UK remains outstanding at this point in time:
IFRS 17 ‘Insurance Contracts’ is effective from 1 January 2023 (and thus 1 April 2023 to the Group) and is subject to endorsement
IFRS 17 ‘Insurance contracts’ was originally issued in May 2017, then reissued in June 2020, and replaces IFRS 4 ‘Insurance Contracts’
and sets out the requirements that a company should apply in reporting information about insurance contracts it issues and reinsurance
contracts it holds.
Whilst the Group operates a captive insurance company, SSE Insurance Limited, its primary purpose is to provide greater control over SSE’s
management of specific risks, with minor annual premium payments made. It is therefore not expected that adoption of this standard will
have a material impact on the Group’s consolidated financial statements.
Other interpretations and amendments
In addition to these issued standards, there are a number of other interpretations, amendments and annual improvement project
recommendations that have been issued but not yet adopted by the Group because application is not yet mandatory or because
adoption by the UK remains outstanding at this point in time. These are not anticipated to have a material impact on the Group’s
consolidated financial statements.
3. Adjusted accounting measures
The Group applies the use of adjusted accounting measures throughout the Annual Report and Financial Statements. These measures
enable the Directors to present the underlying performance of the Group and its segments to the users of the statements in a consistent
and meaningful manner. The adjustments applied and certain terms such as ‘adjusted operating profit’, ‘adjusted EPS’, ‘adjusted EBITDA’,
‘adjusted investment and capital expenditure’ and ‘adjusted net debt and Hybrid equity’ that are not defined under IFRS and are explained
in more detail below. In addition, the section ‘Alternative Performance Measures’ at page 172 provides further context and explanation
of these terms.
3.1 Adjusted measures
The Directors assess the performance of the Group and its reportable segments based on ‘adjusted measures’. These measures are used
for internal performance management and are believed to be appropriate for explaining underlying performance to users of the accounts.
These measures are also deemed the most useful for the ordinary shareholders of the Company and for other stakeholders.
The performance of the reportable segments is reported based on adjusted profit before interest and tax (‘adjusted operating profit’).
This is reconciled to reported profit before interest and tax by adding back exceptional items and certain re-measurements (see Note 3.2
below), depreciation on fair value uplifts and after the removal of interest and taxation on profits from equity-accounted joint ventures
and associates.
The performance of the Group is reported based on adjusted profit before tax which excludes exceptional items and certain re-
measurements (see Note 3.2 below), depreciation on fair value uplifts, non-recurring financing costs in joint ventures, the net interest
costs associated with defined benefit schemes and taxation on profits from equity-accounted joint ventures and associates. The interest
charges or credits on defined benefit schemes removed are non-cash and are subject to variation based on actuarial valuations of
scheme liabilities.
The Group also uses adjusted earnings before interest, taxation, depreciation and amortisation (‘adjusted EBITDA’) as an alternative
operating performance measure which acts as a management proxy for cash generated from operating activities. This does not take into
account the rights and obligations that SSE has in relation to its equity-accounted joint ventures and associates. This measure excludes
exceptional items and certain re-measurements (see Note 3.2 below), the depreciation charged on fair value uplifts, non-recurring
financing costs in joint ventures, the net interest costs associated with defined benefit schemes, depreciation and amortisation from
equity-accounted joint ventures and associates and interest and taxation on profits from equity-accounted joint ventures and associates.
For the purpose of calculating the ‘Net Debt to EBITDA’ metric referred at page 73 , ‘adjusted EBITDA’ is further adjusted to remove the
proportion of adjusted EBITDA from equity-accounted joint ventures relating to off-balance sheet debt (see Note 5.1(v)).
The Group’s key performance measure is adjusted earnings per share (EPS), which is based on basic earnings per share before exceptional
items and certain re-measurements (see Note 3.2 below), depreciation on fair value uplifts, non-recurring financing costs in joint ventures,
the net interest costs associated with defined benefit schemes and after the removal of deferred taxation and other taxation items.
Deferred taxation is excluded from the Group’s adjusted EPS because of the Group’s significant ongoing capital investment programme,
which means that the deferred tax is unlikely to reverse. Adjusted profit after tax is presented on a basis consistent with adjusted EPS
except for the non-inclusion of payments to holders of hybrid equity.
The financial statements also include an ‘adjusted net debt and Hybrid equity’ measure. This presents financing information on the basis used
for internal liquidity risk management. This measure excludes obligations due under lease arrangements and includes cash held as collateral
on commodity trading exchanges, cash presented as held for sale and other short term loans. The measure represents the capital owed to
investors, lenders and equity holders other than the ordinary shareholders. As with ‘adjusted earnings per share’, this measure is considered to
be of particular relevance to the ordinary shareholders of the Group as well as other stakeholders and interested parties.
SSE plc Annual Report 2021
185
3. Adjusted accounting measures continued
3.1 Adjusted measures continued
Finally, the financial statements include an ’adjusted investment and capital expenditure’ measure. This metric represents the capital
invested by the Group in projects that are anticipated to provide a return on investment over future years or which otherwise support
Group operations and is consistent with internally applied metrics. This therefore includes capital additions to Property, Plant and
Equipment and Intangible Assets and also the Group’s direct funding of joint venture and associates capital projects. The Group has
considered it appropriate to report these values both internally and externally in this manner due to its use of equity-accounted investment
vehicles to grow the Group’s asset base, where the Group is providing a source of funding to the vehicle through either loans or equity.
The Group does not include project funded capital additions in this metric, nor does it include other capital invested in joint ventures and
associates. Where initial capital funding of an equity accounted joint venture is refunded, these refunds are deducted from the metric in
the year the refund is received. In addition, the Group excludes from this metric additions to its Property, Plant and Equipment funded by
Customer Contributions and additions to Intangible Assets associated with Allowances and Certificates. As with ‘adjusted earnings per
share’, this measure is considered to be of particular relevance to the ordinary shareholders of the Group as well as other stakeholders
and interested parties.
Reconciliations from reported measures to adjusted measures along with further description of the rationale for those adjustments are
included in the ‘Adjusted Performance Measures’ section at pages 172 to 177 .
Where the Group have referred to an adjusted performance measure in the financial statements the following sign is presented to denote
this.
3.2 Exceptional items and certain re-measurements
Exceptional items are those charges or credits that are considered unusual by nature and/or scale and of such significance that separate
disclosure is required for the financial statements to be properly understood. The trigger points for recognition of items as exceptional
will tend to be non-recurring although exceptional charges may impact the same asset class or segment over time.
Market conditions that have deteriorated significantly over time will only be captured to the extent observable at the balance sheet
date. Examples of items that may be considered exceptional include material asset or business impairment charges, reversals of historic
impairments, business restructuring costs and reorganisation costs, significant realised gains or losses on disposal, unrealised fair value
adjustments on part disposal of a subsidiary and provisions in relation to contractual settlements associated with significant disputes
and claims.
The Group operates a framework for estimating whether items are considered to be exceptional. This framework, which is reviewed
annually, estimates the materiality of each broad set of potentially exceptional circumstances, after consideration of strategic impact and
likelihood of recurrence, by reference to the Group’s key performance measure of Adjusted Earnings per Share. This framework estimates
that any item greater than £30.0m will be considered exceptional, with lower thresholds applied to circumstances that are considered
to have a greater strategic impact and are less likely to recur. The only exception to this threshold is for gains or losses on disposal or
divestment of international or offshore wind farm projects which will be considered non-exceptional in line with the Group’s expressed
strategy to generate recurring gains in these businesses. Finally, in response to the impact of the coronavirus pandemic on the Group’s
financial position at March 2020, a specific category of exceptional charge was identified and defined relating to impairment of current
assets assessed as being a direct consequence of the outbreak. Further detail is noted at 4.2(i) below.
Certain re-measurements are re-measurements arising on certain commodity, interest rate and currency contracts which are accounted
for as held for trading or as fair value hedges in accordance with the Group’s policy for such financial instruments, or remeasurements on
stocks of commodities held at the balance sheet date. The amount shown in the before exceptional items and certain re-measurements
results for these contracts is the amount settled in the year as disclosed in Note 24.1.
This excludes commodity contracts not treated as financial instruments under IFRS 9 where held for the Group’s own use requirements
which are not recorded until the underlying commodity is delivered.
The impact of changes in Corporation Tax rates on deferred tax balances are also included within certain remeasurements.
3.3 Other additional disclosures
As permitted by IAS 1 ‘Presentation of financial statements’, the Group’s income statement discloses additional information in respect of
joint ventures and associates, exceptional items and certain re-measurements to aid understanding of the Group’s financial performance
and to present results clearly and consistently.
4. Accounting judgements and estimation uncertainty
In the process of applying the Group’s accounting policies, management necessarily makes judgements and estimates that have a
significant effect on the amounts recognised in the financial statements. Changes in the assumptions underlying the estimates could
result in a significant impact to the financial statements. The Group’s key accounting judgement and estimation areas are noted with
the most significant financial judgement areas as specifically discussed by the Audit Committee being highlighted separately.
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SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021
4. Accounting judgements and estimation uncertainty continued
4.1 Significant financial judgements
The preparation of these financial statements has specifically considered the following significant financial judgements, some of which
are also areas of estimation uncertainty as noted below.
(i) Impairment testing and valuation of certain non-current assets – estimation uncertainty
The Group reviews the carrying amounts of its goodwill, other intangible assets and specific property, plant and equipment assets to
determine whether any impairment of the carrying value of those assets requires to be recorded. The specific assets under review in the
year ended 31 March 2021 are intangible development assets and specific property, plant and equipment assets related to thermal power
generation and the carrying value of the held for sale gas production business. In conducting its reviews, the Group makes judgements
and estimates in considering both the level of cash generating unit (CGU) at which common assets such as goodwill are assessed
against, as well as the estimates and assumptions behind the calculation of recoverable amount of the respective assets or CGUs.
Changes to the estimates and assumptions on factors such as regulation and legislation changes, power, gas, carbon and other commodity
prices, volatility of gas prices, plant running regimes and load factors, expected proven and probable reserves, discount rates and other
inputs could impact the assessed recoverable value of assets and CGUs and consequently impact the Group’s income statement and
balance sheet.
Further detail of the calculation basis and key assumptions used in the impairment review, the resulting impairment charges and the
sensitivity of this assessment to key assumptions is disclosed at Note 15. Detail on the accounting policies applied is included in the
Accompanying Information section A1.
(ii) Retirement benefit obligations – estimation uncertainty
The assumptions in relation to the cost of providing post-retirement benefits during the period are based on the Group’s best estimates
and are set after consultation with qualified actuaries. While these assumptions are believed to be appropriate, a change in these
assumptions would impact the level of the retirement benefit obligation recorded and the cost to the Group of administering the
schemes.
Further detail of the calculation basis and key assumptions used, the resulting movements in obligations and the sensitivity of key
assumptions to the obligation is disclosed at Note 23.
(iii) Revenue recognition – Customers unbilled supply of energy – estimation uncertainty
Revenue from energy supply activities undertaken by the Business Energy and Airtricity businesses includes an estimate of the value of
electricity or gas supplied to customers between the date of the last meter reading and the year end. This estimation comprises both
billed revenue (disclosed as trade receivables) and unbilled revenue (disclosed as accrued income) and is calculated based on applying
the tariffs and contract rates applicable to customers against estimated customer consumption and taking account of various factors
including usage patterns, weather trends and externally notified aggregated volumes supplied to customers from national settlements
bodies. A change in the assumptions underpinning the calculation would have an impact on the amount of revenue recognised in any
given period. The sensitivity associated with this judgement factor is disclosed at Note 18.
This estimation is subject to an internal corroboration process which compares of calculated unbilled volumes to a theoretical ‘perfect
billing’ benchmark measure of unbilled volumes (in GWh and millions of therms) derived from historical weather-adjusted consumption
patterns and aggregated metering data used in industry reconciliation processes. Furthermore, actual meter readings and billings continue
to be compared to unbilled estimates between the balance sheet date and the finalisation of the accounts.
4.2 Other accounting judgements
(i) Accounting for the impacts of coronavirus – accounting judgement and estimation uncertainty
At 31 March 2020, the UK had entered a first period of lockdown caused by the coronavirus pandemic, which had been implemented
late in the Group’s financial year. The Group assessed at that time that due to the expected impact to credit risk, specifically the recovery
of current and aged debt balances in its Business Energy and Airtricity businesses, an additional exceptional provision of £33.7m should
be recognised in its Business Energy (£27.7m) and Airtricity (£6.0m) businesses specifically associated with the change in circumstances
resulting from the pandemic.
In the subsequent financial year, the UK economy was significantly affected by the pandemic. The Group has seen reduced electricity
demand impact its use of system revenue in its SSEN Distribution business; reduced consumption from business customers; and reduced
activity in its Enterprise business as direct impacts from the pandemic. These impacts are estimated at £168.7m. However, the impact
on recovery of customer debt balances at 31 March 2020 has been better than expected, largely due to support provided to customers
through government support schemes. Accordingly, the Group has reversed £26.1m of the exceptional provision recognised in the prior
year (see Note 7.1). The basis of determining the provisions for bad and doubtful debts is explained within the Accompanying Information
section A6 at pages 271 to 279 . While the provisions are considered to be appropriate, changes in estimation basis or in economic
conditions could lead to a change in the level of provisions recorded, and consequently on the charge or credit to the income statement.
SSE plc Annual Report 2021
187
4. Accounting judgements and estimation uncertainty continued
4.2 Other accounting judgements continued
The analysis of the ageing of trade receivables, movement in the provision for bad and doubtful debts and the net trade receivables
expected to be recoverable is detailed within the Accompanying Information section A6 at pages 271 to 279 .
During the year the Group has successfully accessed capital markets and has managed to refinance maturing debt through a market
impacted by coronavirus. The impact of coronavirus on the financial position and going concern basis of the Group is set out in the
Group’s going concern commentary at A6.3 and in the Viability Statement on page 56 .
4.2.1 Other accounting judgements – changes from prior year
Held for sale classification of the Group’s investment in Gas Production
At 31 March 2020, the Group classified its investment in Gas Production assets as held for sale. At that date, the Group was engaged in
discussions with potential buyers for the business but a transaction had not been agreed, and, due to economic conditions prevailing
at the time, classifying the business as held for sale was judgemental. On 22 December 2020, the Group announced it had reached an
agreement with Viaro Energy through its subsidiary RockRose Energy Limited to purchase the business for initial consideration of £120m.
At 31 March 2021 the business remains held for sale awaiting regulatory approval and partner consent. It is expected the transaction will
complete in Q1 of the 2021/22 financial year.
4.3 Other areas of estimation uncertainty
(i) Tax provisioning
The Group has a number of open tax issues with the tax authorities in the UK and Republic of Ireland, the two jurisdictions in which the
Group operates. Where management makes a judgement that an outflow of funds is probable, and a reliable estimate of the dispute can
be made, provision is made for the best estimate of the most likely liability.
In estimating any such liability, the Group applies a risk-based approach, taking into account the specific circumstances of each dispute
based on management’s interpretation of tax law and supported, where appropriate, by discussion and analysis by external tax advisors.
These estimates are inherently judgemental and could change substantially over time as each dispute progresses and new facts emerge.
Provisions are reviewed on an ongoing basis, however the resolution of tax issues can take a considerable period of time to conclude
and it is possible that amounts ultimately paid will be different from the amounts provided. Provisions for uncertain tax positions are
included in current tax liabilities, and total £37.6m at 31 March 2021 (2020: £39.4m). The Group estimates that a reasonably possible
range of settlement outcomes for the uncertain tax provisions given their binary nature is between nil and the full value of the provision.
(ii) Decommissioning costs
The estimated cost of decommissioning at the end of the useful lives of certain property, plant and equipment assets is reviewed periodically,
with a full reassessment by an independent decommissioning consultant performed in the year to 31 March 2019. Decommissioning costs in
relation to gas exploration and production assets are periodically agreed with the field operators and reflect the latest expected economic
production lives of the fields. At 31 March 2021 the Group’s Gas Production assets are held for sale. Under the agreed terms of the disposal
the Group will retain 60% of the decommissioning obligation. Provision is made for the estimated discounted cost of decommissioning at the
balance sheet date. The Group’s next formal reassessment by independent decommissioning experts will be performed in the financial year
to March 2022.
The dates for settlement of future decommissioning costs are uncertain, particularly for gas exploration and production assets where
reassessment of gas and liquids reserves and fluctuations in commodity prices can lengthen or shorten the field life. The Group is
currently incurring decommissioning costs related to the Ferrybridge and Fiddlers Ferry power stations, with the remaining provision
expected to being increasingly utilised over the next ten years and continue out to 2040.
Further detail on the assumptions made and movement in decommissioning costs during the year are disclosed at Note 20.
188
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 5. Segmental information
There have been no changes to the Group’s core operating segments during the year. These segments are used internally by the Board
to run the business and make strategic decisions. The Group’s ‘Corporate unallocated’ segment is the Group’s residual corporate central
costs which cannot be allocated to individual segments.
The following describes the types of products and services from which each reportable segment generates its revenue:
Business Area
Reported Segments Description
Continuing operations
Transmission
SSEN
Transmission
Distribution
SSEN
Distribution
SGN
Renewables
SSE
Renewables
Thermal
Thermal
Generation
Gas Storage
The economically regulated high voltage transmission of electricity from generating plant to the
distribution network in the North of Scotland. Revenue earned from constructing, maintaining and
renovating our transmission network is determined in accordance with the regulatory licence, based on
an Ofgem approved revenue model and is recognised as charged to National Grid. The revenue earned
from other transmission services such as generator plant connections is recognised in line with delivery
of that service over the expected contractual period and at the contracted rate.
The economically regulated lower voltage distribution of electricity to customer premises in the North
of Scotland and the South of England. Revenue earned from delivery of electricity supply to customers
is recognised based on the volume of electricity distributed to those customers and the set customer
tariff. The revenue earned from other distribution services such as domestic customer connections
is recognised in line with delivery of that service over the expected contractual period and at the
contracted rate.
SSE’s share of Scotia Gas Networks, which operates two economically regulated gas distribution
networks in Scotland and the South of England. The revenue earned from transportation of natural
gas to customers is recognised based on the volume of gas distributed to those customers and the set
customer tariff.
The generation of electricity from renewable sources, such as onshore and offshore windfarms and run
of river and pumped storage hydro assets in the UK and Ireland. Revenue from physical generation of
electricity sold to SSE EPM is recognised as generated, based on the spot price at the time of delivery.
Revenue from national support schemes (such as Renewable Obligation Certificates or the Capacity
Market) may either be recognised in line with electricity being physically generated or over the contractual
period, depending on the underlying performance obligation.
The generation of electricity from thermal plant and the Group’s interests in multifuel assets in the UK
and Ireland. Revenue from physical generation of electricity to SSE EPM is recognised as generated, based
on the spot price at the time of delivery. Revenue from national support schemes (such as the Capacity
Market) and ancillary generation services may either be recognised in line with electricity being physically
generated or over the contractual period, depending on the underlying performance obligation.
The operation of gas storage facilities in the UK, providing a mix of capacity products to the external gas
market with excess capacity used to develop secondary trading opportunities. For capacity products,
revenue from the injection and withdrawal of gas is recognised when provided, with revenue from the
provision of storage services is recognised based on the number of days utilised at the contractual rate.
Revenue arising on secondary trading activities is recognised as gas is injected into the network, based
on the spot price at the time of delivery.
Customers
Business Energy The supply of electricity and gas to business customers in GB. Revenue earned from the supply of energy
is recognised in line with the volume delivered to the customer, based on actual and estimated volumes,
and reflecting the applicable customer tariff after deductions or discounts.
Airtricity
Enterprise
Enterprise
The supply of electricity, gas and energy related services to domestic and business customers in the
Republic of Ireland and Northern Ireland. Revenue earned from the supply of energy is recognised in line
with the volume delivered to the customer, based on actual and estimated volumes, and reflecting the
applicable customer tariff after deductions or discounts. Revenue earned from energy related services
may either be recognised over the expected contractual period or following performance of the service,
depending on the underlying performance obligation.
The integrated provision of services in competitive markets for industrial and commercial customers
including distributed energy, electrical contracting, heat and private energy networks, lighting services
and SSE’s share of telecoms capacity and bandwidth. Revenue is recognised by reference to the progress
towards completion of the contractual performance obligation, based on the proportion of costs
incurred to date relative to total expected costs, provided the contract outcome can be assessed
with reasonable certainty.
EPM & I
Energy Portfolio
Management
(EPM)
The optimisation of SSE’s electricity, gas and other commodity requirements. Revenue from physical sales
of electricity, gas and other commodities produced by SSE is recognised as supplied to either the national
settlements body or the customer, based on either the spot price at the time of delivery or trade price
where that trade is eligible for ‘own use’ designation. The sale of commodity optimisation trades are
presented net in cost of sales alongside purchase commodity optimisation trades.
SSE plc Annual Report 2021
189
5. Segmental information continued
Business Area
Reported Segments Description
Discontinued operations
SSE Energy
Services
SSE Energy
Services
EPM & I
Gas Production
The supply of electricity and gas and the provision of energy related goods and services to domestic
customers in GB. Revenue earned from the supply of energy is recognised in line with the volume
delivered to the customer, based on actual and estimated volumes, and reflecting the applicable
customer tariff after deductions or discounts. Revenue earned from energy related services may
either be recognised over the expected contractual period or following performance of the service,
depending on the underlying performance obligation. This business was disposed on 15 January 2020.
The production and processing of gas and oil from North Sea fields. Revenue is recognised based on
the production that has been delivered to the customer at the specified delivery point, at the applicable
contractual market price.
As referred to in Note 3, the internal measure of profit used by the Board is ‘adjusted profit before interest and tax’ or ‘adjusted operating profit’
which is arrived at before exceptional items, the impact of financial instruments measured under IFRS 9, the net interest costs associated with
defined benefit pension schemes and after the removal of taxation and interest on profits from joint ventures and associates.
Analysis of revenue, operating profit, assets and other items by segment is provided on the following pages. All revenue and profit before
taxation arise from operations within the UK and Ireland.
5.1 Segmental information disclosure
(i) Revenue by segment
Reported
revenue
2021
£m
Inter-segment
revenue (i)
2021
£m
Segment
revenue
2021
£m
404.9
878.6
826.1
1,203.0
773.1
1,965.0
1,134.2
Reported
revenue
2020
£m
Inter-segment
revenue (i)
2020
£m
378.6
784.7
252.2
416.9
8.4
2,431.0
1,134.5
–
159.4
595.9
790.0
586.0
26.4
57.4
75.2
Segment
revenue
2020
£m
378.6
944.1
848.1
1,206.9
594.4
2,457.4
1,191.9
413.7
393.1
338.5
–
69.1
544.2
699.0
766.0
30.5
61.5
33.6
2,699.3
(155.8)
2,543.5
189.4
4,936.8
11,511.2
(7,605.0)
3,906.2
279.0
12,814.5
(11,826.8)
987.7
68.1
11,763.2
6,800.6
4,072.4
(826.5)
3,245.9
213.9
5,750.1
16,886.9
(12,653.3)
4,233.6
282.0
12,550.7
404.9
809.5
281.9
504.0
7.1
1,934.5
1,072.7
359.5
8,811.9
(7,449.2)
1,362.7
89.6
6,826.4
Continuing operations
SSEN Transmission
SSEN Distribution
SSE Renewables
Thermal Generation
Gas storage
Business Energy
Airtricity
Enterprise
EPM:
Gross trading
Optimisation trades
EPM (ii)
Corporate unallocated
Total continuing operations
Discontinued operations
SSE Energy Services
Gas Production
Total discontinued operations
Total SSE Group
6,840.6
5,027.6
11,868.2
–
14.2
14.2
–
90.8
90.8
–
105.0
105.0
2,711.1
20.9
2,732.0
9,532.6
136.5
203.3
339.8
2,847.6
224.2
3,071.8
6,089.9
15,622.5
(i) Significant inter-segment revenue is derived from the sale of power and stored gas from SSE Renewables, Thermal Generation and Gas Storage to EPM; use of
system income received by SSEN Distribution from Business Energy and, in the prior year, SSE Energy Services (discontinued); Business Energy provides internal
heat and light power supplies to other Group companies; Enterprise provides electrical contracting and other services to other Group companies; EPM provides
power, gas and other commodities to Business Energy and Airtricity and, in the prior year, SSE Energy Services (discontinued); Gas Production (discontinued) sells
gas from producing upstream fields to EPM; in the prior year SSE Energy Services (discontinued) provided metering and other services to other Group companies;
and Corporate unallocated provides corporate and infrastructure services to all segments as well as third parties. All are provided at arm’s length.
(ii) Up to the date of disposal of SSE Energy Services in the prior year, the Group’s EPM business procured power, gas and other commodities for SSE Energy Services and
generated internal revenue of £908m in the period to 15 January 2020. Following the disposal SSE Energy Services procured its power, gas and other commodities
from other sources.
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SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 5. Segmental information continued
5.1 Segmental information disclosure continued
(i) Revenue by segment continued
Revenue from the Group’s Joint Venture investment in Scotia Gas Networks Limited, SSE’s share being £411.8m (2020: £423.9m), is not
recorded in the revenue line in the income statement.
Disaggregation of revenue
Revenue from contracts with customers can be disaggregated by reported segment, by major service lines and by timing of revenue
recognition as follows:
Goods or services transferred over time
Goods or services transferred at a point in time
Revenue from contracts with customers
Use of
electricity
networks
2021
£m
Supply of
energy
2021
£m
Construction
related
services
2021
£m
Other
contracted
services
2021
£m
Physical
energy
2021
£m
Gas
storage
2021
£m
Other
revenue
2021
£m
Total
revenue
from
contracts
with
customers
2021
£m
Other
contract
revenue
2021
£m
Continuing operations
SSEN Transmission
SSEN Distribution
373.8
762.1
SSE Renewables
Thermal Generation
Gas Storage
Business Energy
Airtricity
–
–
–
–
–
–
–
159.9
484.3
–
1,934.5
1,055.2
–
–
–
–
–
–
–
26.4
9.1
–
–
–
–
17.5
–
–
122.0
–
–
–
–
Enterprise
37.8
15.4
265.4
33.3
1.2
–
–
–
–
–
–
–
–
988.9
–
Total
2021
£m
404.9
809.5
281.9
504.0
7.1
–
–
–
–
7.1
–
–
–
–
–
4.7
16.2
404.9
787.4
–
22.1
–
281.9
19.7
–
504.0
7.1
–
–
–
–
–
1,934.5
1,072.7
– 1,934.5
– 1,072.7
0.5
353.6
5.9
359.5
373.8
1,362.7
– 1,362.7
89.6
89.6
–
89.6
EPM
Corporate unallocated
Total continuing
operations
Discontinued
operations
Gas Production
Total discontinued
operations
1,173.7
3,649.3
265.4
86.3
1,112.1
7.1
504.5
6,798.4
28.0 6,826.4
–
–
–
–
–
–
–
–
–
–
–
–
14.2
14.2
–
–
–
–
14.2
–
Total SSE Group
1,173.7
3,649.3
265.4
86.3
1,112.1
7.1
518.7
6,812.6
28.0 6,840.6
SSE plc Annual Report 2021
191
EPM
Corporate unallocated
Total continuing
operations
Discontinued
operations
SSE Energy Services
Gas Production
Total discontinued
operations
5. Segmental information continued
5.1 Segmental information disclosure continued
(i) Revenue by segment continued
Goods or services transferred over time
Goods or services transferred at a point in time
Revenue from contracts with customers
Use of
electricity
networks
2020
£m
Supply of
energy
2020
£m
Construction
related
services
2020
£m
Other
contracted
services
2020
£m
Physical
energy
2020
£m
Gas
storage
2020
£m
Other
revenue
2020
£m
Continuing operations
SSEN Transmission
SSEN Distribution
349.9
719.7
SSE Renewables
Thermal Generation
Gas Storage
–
–
–
–
–
252.2
413.7
–
Business Energy
Airtricity
– 2,431.0
1,118.3
–
–
–
–
–
–
–
–
Enterprise
36.0
19.0
233.4
–
–
–
–
–
–
25.7
7.7
–
–
–
–
16.2
25.0
–
–
–
–
–
–
–
–
–
–
977.9
–
–
–
–
–
8.4
–
–
–
–
–
Total
revenue
from
contracts
with
customers
2020
£m
Other
contract
revenue
2020
£m
378.6
784.7
252.2
416.9
8.4
–
–
–
–
–
Total
2020
£m
378.6
784.7
252.2
416.9
8.4
2,431.0
1,134.5
– 2,431.0
1,134.5
–
3.0
57.3
–
3.2
–
–
–
18.1
331.5
7.0
338.5
9.8
987.7
68.1
68.1
–
–
987.7
68.1
1,105.6
4,234.2
233.4
74.6
977.9
8.4
159.5
6,793.6
7.0 6,800.6
– 2,539.6
–
–
– 2,539.6
–
–
–
90.8
–
90.8
165.4
–
–
–
–
–
–
977.9
8.4
80.7
20.9
2,711.1
20.9
–
–
2,711.1
20.9
101.6
261.1
2,732.0
9,525.6
– 2,732.0
7.0
9,532.6
Total SSE Group
1,105.6
6,773.8
233.4
Included within Trade and other receivables (Note 18) is £325.0m (2020: £370.7m) of unbilled energy income and £12.8m (2020: £25.6m)
of contract related assets. Included within Trade and other payables (Note 19) is £240.6m (2020: £262.9m) of contract related liabilities.
Contract related assets reflect the Group’s right to consideration in exchange for goods or services that have transferred to the customer,
and contract related liabilities reflect the Group’s obligation to transfer future goods or services for which the Group has already received
consideration. Contract related assets and liabilities principally arise in the Enterprise reporting segment with changes during the periods
reflecting ongoing contract progress, offset by cash receipts or customer invoicing.
The Group has not disclosed information related to the transaction price allocated to remaining performance obligations on the basis that
the Group’s contracts either have an original expected duration of less than one year, or permit the Group to recognise revenue as invoiced.
Revenue by geographical location on continuing operations is as follows:
UK
Ireland
192
SSE plc Annual Report 2021
2021
£m
5,834.4
992.0
6,826.4
2020
£m
5,804.3
996.3
6,800.6
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 5. Segmental information continued
5.1 Segmental information disclosure continued
(ii) Operating profit/(loss) by segment
Adjusted
operating profit
reported to the
Board
£m
Depreciation on
fair value uplifts
£m
JV/Associate
share of interest
and tax (i)
£m
Before
exceptional
items and certain
remeasurements
£m
Exceptional
items and certain
remeasurements
£m
2021
Continuing operations
SSEN Transmission
SSEN Distribution
SGN
SSE Renewables
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
EPM
Corporate unallocated
Total continuing operations
Discontinued operations
SSE Energy Services
Gas Production
Total discontinued operations
220.9
267.3
173.0
731.8
160.5
(5.7)
(24.0)
44.0
(21.3)
18.4
(58.4)
1,506.5
–
33.0
33.0
Total
£m
220.9
267.3
88.6
856.0
775.3
2.8
(3.9)
50.0
–
–
1.6
214.4
634.4
8.5
20.1
6.0
–
–
–
(18.8)
–
–
–
–
–
–
(86.0)
(71.4)
(19.6)
–
–
–
(1.8)
(11.3)
220.9
267.3
87.0
641.6
140.9
(5.7)
(24.0)
44.0
(34.4)
18.4
–
–
–
(2.4)
(60.8)
(72.3)
(106.7)
590.1
45.5
608.5
(15.3)
(20.6)
(190.7)
1,295.2
1,448.3
2,743.5
–
–
–
–
–
–
–
33.0
33.0
–
–
–
–
33.0
33.0
Total SSE Group
1,539.5
(20.6)
(190.7)
1,328.2
1,448.3
2,776.5
SSE plc Annual Report 2021
193
5. Segmental information continued
5.1 Segmental information disclosure continued
(ii) Operating profit/(loss) by segment continued
2020
Adjusted
operating profit
reported to the
Board
£m
Depreciation on
fair value uplifts
£m
JV/Associate
share of interest
and tax (i)
£m
Before
exceptional
items and
certain
remeasurements
£m
Exceptional
items and
certain
remeasurements
£m
Continuing operations
SSEN Transmission
SSEN Distribution
SGN
SSEN Renewables
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
EPM
Corporate unallocated
218.1
356.3
202.3
567.3
152.7
3.7
9.2
48.8
8.1
(60.3)
(17.8)
–
–
–
(18.8)
–
–
–
–
(1.8)
–
–
Total continuing operations
1,488.4
(20.6)
Discontinued operations
SSE Energy Services
Gas Production
Total discontinued operations
32.7
25.8
58.5
–
–
–
–
–
(125.3)
(93.4)
(24.9)
–
–
–
(8.3)
–
(3.7)
(255.6)
–
–
–
218.1
356.3
77.0
455.1
127.8
3.7
9.2
48.8
(2.0)
(60.3)
(21.5)
1,212.2
32.7
25.8
58.5
Total
£m
218.1
351.9
80.8
459.9
15.5
(1.4)
(18.5)
42.8
(2.0)
–
(4.4)
3.8
4.8
(112.3)
(5.1)
(27.7)
(6.0)
–
(34.2)
(94.5)
(67.7)
(248.8)
(237.7)
(291.3)
(529.0)
(89.2)
963.4
(205.0)
(265.5)
(470.5)
Total SSE Group
1,546.9
(20.6)
(255.6)
1,270.7
(777.8)
492.9
The adjusted operating profit of the Group is reported after removal of the Group’s share of interest, fair value movements on financing
derivatives, the depreciation charged on fair value uplifts and tax from joint ventures and associates and after adjusting for exceptional
items (see Note 7). The share of Scotia Gas Networks Limited interest includes loan stock interest payable to the consortium shareholders
(included in SGN). The Group has accounted for its 33% share of this, £9.8m (2020: £9.4m), as finance income (Note 9).
The Group’s share of operating profit from joint ventures and associates has been recognised in the SSE Renewables, Thermal
Generation, Enterprise and SGN segments.
194
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 5. Segmental information continued
5.1 Segmental information disclosure continued
(iii) Capital expenditure by segment
Continuing operations
SSEN Transmission
SSEN Distribution
SSE Renewables
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
EPM
Corporate unallocated
Total continuing operations
Discontinued operations
Gas Production
Total discontinued operations
Total SSE Group
Decrease/increase in prepayments related to capital expenditure
Decrease/(increase) in trade payables related to capital expenditure
Settlement through assets
IFRS 15 adjustment
Lease asset additions
Less: Other non-cash additions
Net cash outflow
Capital
additions to
Intangible
Assets
2021
£m
Capital
additions
to Property,
Plant and
Equipment
2021
£m
Capital additions
to Intangible
Assets
2020
£m
Capital additions
to Property,
Plant and
Equipment
2020
£m
6.3
12.5
112.7
3.4
–
–
–
2.6
509.0
53.9
700.4
–
–
700.4
–
–
–
–
–
(201.6)
498.8
429.9
400.1
111.2
76.7
1.9
25.6
5.6
21.9
2.1
1.6
1,076.6
25.9
25.9
1,102.5
0.5
(10.8)
–
(61.8)
(45.4)
–
985.0
2.5
–
220.6
11.4
–
–
–
1.3
652.7
70.3
958.8
14.8
14.8
973.6
–
–
–
–
–
(287.2)
686.4
333.2
447.5
62.5
134.6
0.2
–
0.6
49.7
–
39.5
1,067.8
29.8
29.8
1,097.6
(2.2)
(127.9)
5.0
(111.9)
(46.5)
–
814.1
Capital additions do not include assets acquired in acquisitions or assets acquired under leases. Capital additions to Intangible Assets
includes the cash purchase of emissions allowances and certificates (2021: 307.4m; 2020: £365.5m). Other non-cash additions comprise
self-generated renewable obligation certificates.
No segmental analysis of assets requires to be disclosed as this information is not presented to the Board.
SSE plc Annual Report 2021
195
5. Segmental information continued
5.1 Segmental information disclosure continued
(iii) Capital expenditure by segment continued
Capital
additions to
Intangible
Assets
2021
£m
Capital
additions to
Property,
Plant and
Equipment
2021
£m
Capital
Investment
relating to
Joint
Ventures
and
Associates
(i)
Allowances
and
certificates
(ii)
Customer
funded
additions
(iii)
Lease asset
additions
(iv)
Refinancing
proceeds
(v)
Additions
subsequently
disposed
(vi)
Adjusted
Investment
and Capital
Expenditure
2021
£m
6.3
12.5
429.9
400.1
–
(61.8)
(1.0)
–
–
–
–
–
435.2
350.8
At 31 March 2021
Continuing operations
SSEN Transmission
SSEN Distribution
SSE Renewables
112.7
111.2
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
EPM
Corporate unallocated
3.4
–
–
–
2.6
509.0
53.9
76.7
1.9
25.6
5.6
21.9
2.1
1.6
–
–
97.9
26.4
–
–
–
48.4
–
–
–
–
–
–
–
–
–
–
(509.0)
–
Total continuing operations
700.4
1,076.6
172.7
(509.0)
(61.8)
–
–
–
–
–
–
–
–
(7.8)
(428.6)
(19.7)
(134.3)
–
–
–
–
(6.9)
–
(29.7)
(45.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
106.5
1.9
25.6
5.6
66.0
2.1
25.8
(428.6)
(19.7)
885.2
Discontinued operations
Gas Production
Total discontinued operations
0.9
0.9
25.9
25.9
–
–
–
–
–
–
–
–
–
–
–
–
26.8
26.8
Total SSE Group
701.3
1,102.5
172.7
(509.0)
(61.8)
(45.5)
(428.6)
(19.7)
912.0
(i) Represents funding provided to joint venture arrangements and associates in relation to capital expenditure projects.
(ii) Allowances and Certificates consist of purchased carbon emissions allowances and generated or purchased renewable obligations certificates (ROCs) and are not
included in the Group’s Capital Expenditure and Investment alternative performance measure.
(iii) Represents additions to electricity and other networks funded by customer contributions.
(iv) Represents right of use assets recognised on the commencement date of a lease arrangement, and may be subject to adjustments for certain re-measurements
of the corresponding lease liability.
(v) The Group funds early stage capex in its development projects which is included in its adjusted capex measure. In the year ended 31 March 2021, Seagreen
windfarm and Doggerbank windfarm raised project funding within the joint venture vehicles to fund the construction of their development assets. In the year,
the Group received reimbursed capex of £246.1m in relation to Seagreen windfarm and £182.5m in relation to Doggerbank windfarm following the receipt of
project finance within the vehicle, which has been deducted from the Group’s net adjusted investment and capital expenditure metric.
(vi) In the year the Group funded £19.7m of capex additions in relation to the Seagreen windfarm prior to disposal. On 3 June 2020, the Group disposed of a 51%
stake in Seagreen 1 (see Note 12), therefore the capex incurred prior to that date has been excluded from the Group’s net adjusted investment and capital
expenditure metric.
196
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021
5. Segmental information continued
5.1 Segmental information disclosure continued
(iii) Capital expenditure by segment continued
Capital
additions to
Intangible
Assets
2020
£m
Capital
additions to
Property,
Plant and
Equipment
2020
£m
Capital
Investment
relating to
Joint
Ventures
and
Associates
(i)
2.5
–
333.2
447.5
–
–
At 31 March 2020
Continuing operations
SSEN Transmission
SSEN Distribution
SSE Renewables
220.6
62.5
101.6
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
EPM
11.4
–
–
–
1.3
134.6
0.2
–
0.6
31.0
–
–
–
49.7
34.5
652.7
–
Allowances
and
certificates
(ii)
Customer
funded
additions
(iii)
Acquired
through
business
combinations
(iv)
Lease asset
additions
(v)
Impaired
additions
(vi)
Adjusted
Investment
and Capital
Expenditure
2020
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
(28.1)
–
–
–
–
(652.7)
–
–
(82.6)
–
–
(6.7)
–
(26.4)
(15.6)
–
–
–
–
–
–
–
–
–
–
–
329.0
364.9
342.7
177.0
0.2
–
0.3
57.4
–
85.9
1,357.4
–
–
–
–
–
–
–
–
–
–
(0.3)
–
–
(23.9)
(46.5)
Corporate unallocated
70.3
39.5
Total continuing operations
958.8
1,067.8
167.1
(652.7)
(110.7)
(26.4)
Discontinued operations
SSE Energy Services
Gas Production
Total discontinued operations
–
14.8
14.8
–
29.8
29.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(44.6)
(44.6)
–
44.6
44.6
Total SSE Group
973.6
1,097.6
167.1
(652.7)
(110.7)
(26.4)
(46.5)
(44.6)
1,357.4
(i) Represents funding provided to joint venture arrangements and associates in relation to capital expenditure projects.
(ii) Allowances and Certificates consist of purchased carbon emissions allowances and generated or purchased renewable obligations certificates (ROCs) and are not
included in the Group’s Capital Expenditure and Investment alternative performance measure.
(iii) Represents additions to electricity and other networks funded by customer contributions.
(iv) Additions through business combinations primarily represents the Group’s capital additions through the acquisition and consolidation of Greenwind Energy
(Wexford) Limited and the consolidation of the Viking Partnerships.
(v) Represents right of use assets recognised on the commencement date of a lease arrangement, and may be subject to adjustments for certain re-measurements
of the corresponding lease liability.
(vi) Additions to Gas Production assets, subsequently impaired following the annual impairment assessment.
SSE plc Annual Report 2021
197
5. Segmental information continued
5.1 Segmental information disclosure continued
(iv) Items included in operating profit/(loss) by segment
Depreciation/Impairment on Property, Plant and
Equipment
Amortisation/Impairment of Intangible Assets
Before
exceptional
charges
2021
£m
Impairment
charges
2021
£m
85.1
154.3
157.7
54.3
0.8
4.6
6.0
12.2
0.3
48.0
523.3
–
–
–
–
0.5
58.1
–
–
–
(1.9)
–
15.1
71.8
–
–
Total
2021
£m
85.1
154.3
158.2
112.4
0.8
4.6
6.0
10.3
0.3
63.1
595.1
–
–
Before
exceptional
charges
2021
£m
Impairment
charges
2021
£m
2.0
8.9
0.5
–
–
0.5
1.5
2.1
3.9
13.5
32.9
–
–
–
–
4.7
–
–
–
–
–
–
5.2
9.9
–
–
Total
2021
£m
2.0
8.9
5.2
–
–
0.5
1.5
2.1
3.9
18.7
42.8
–
–
Continuing operations
SSEN Transmission
SSEN Distribution
SSE Renewables
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
EPM
Corporate unallocated
Total continuing operations
Discontinued operations
Gas Production
Total discontinued operations
Total SSE Group
523.3
71.8
595.1
32.9
9.9
42.8
198
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 5. Segmental information continued
5.1 Segmental information disclosure continued
(iv) Items included in operating profit/(loss) by segment continued
Depreciation/Impairment on Property, Plant and
Equipment
Amortisation/Impairment of Intangible Assets
Before
exceptional
charges
2020
£m
Impairment
charges
2020
£m
77.5
154.9
156.7
50.3
0.8
0.3
5.1
8.8
–
48.7
503.1
–
31.1
31.1
534.2
–
–
–
–
–
–
–
–
–
–
–
–
231.1
231.1
231.1
Before
exceptional
charges
2020
£m
Impairment
charges
2020
£m
1.5
–
–
–
–
–
1.5
0.7
–
23.3
27.0
–
–
–
27.0
–
–
–
–
–
–
–
–
–
45.9
45.9
48.8
60.2
109.0
154.9
Total
2020
£m
77.5
154.9
156.7
50.3
0.8
0.3
5.1
8.8
–
48.7
503.1
–
262.2
262.2
765.3
Total
2020
£m
1.5
–
–
–
–
–
1.5
0.7
–
69.2
72.9
48.8
60.2
109.0
181.9
Continuing operations
SSEN Transmission
SSEN Distribution
SSE Renewables
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
EPM
Corporate unallocated
Total continuing operations
Discontinued operations
SSE Energy Services – Energy Supply
Gas Production
Total discontinued operations
Total SSE Group
The Group’s share of Scotia Gas Networks Limited depreciation (2021: £57.4m; 2020: £52.3m) and amortisation (2021: £4.2m; 2020:
£4.5m) is not included within operating costs.
SSE plc Annual Report 2021
199
5. Segmental information continued
5.1 Segmental information disclosure continued
(v) Earnings before interest, taxation, depreciation and amortisation (‘EBITDA’)
Adjusted
operating profit
reported to the
Board (Note 5.1
(ii))
2021
£m
Depreciation on
fair value uplifts
2021
£m
Depreciation/
Impairment/
amortisation
before
exceptional
charges
(Note 5.1 (iv))
2021
£m
JV/Associate
share of
depreciation
and
amortisation
(Note 16.4)
2021
£m
Release of
Deferred income
(Note 6)
2021
£m
Adjusted
EBITDA
2021
£m
220.9
267.3
173.0
731.8
160.5
(5.7)
(24.0)
44.0
(21.3)
18.4
(58.4)
1,506.5
33.0
33.0
–
–
–
(18.8)
–
–
–
–
(1.8)
–
–
(20.6)
–
–
87.1
163.2
–
158.0
54.3
0.8
4.6
7.5
13.8
5.3
61.6
556.2
–
–
–
–
61.6
90.1
15.8
–
–
–
35.3
–
2.7
205.5
–
–
(2.6)
(7.6)
–
–
(1.0)
–
–
–
(5.4)
–
(1.1)
(17.7)
–
–
305.4
422.9
234.6
961.1
229.6
(4.9)
(19.4)
51.5
20.6
23.7
4.8
2,229.9
33.0
33.0
Continuing operations
SSEN Transmission
SSEN Distribution
SGN
SSE Renewables
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
EPM
Corporate unallocated
Total continuing operations
Discontinued operations
Gas Production
Total discontinued operations
Total SSE Group
1,539.5
(20.6)
556.2
205.5
(17.7)
2,262.9
Note that the Group’s ‘Net Debt to EBITDA’ metric is derived after removing the proportionate EBITDA from the following debt-financed
JVs: SGN, Beatrice and Cloosh. This adjustment is £311.8m; 2020: £340.1m resulting in EBITDA on continuing operations for inclusion in
the Debt to EBITDA metric of £1,918.1m (2020: £1,851.3m).
200
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 5. Segmental information continued
5.1 Segmental information disclosure continued
(v) Earnings before interest, taxation, depreciation and amortisation (‘EBITDA’) continued
Adjusted
operating profit
reported to the
Board (Note 5.1
(ii))
2020
£m
Depreciation on
fair value uplifts
2020
£m
Depreciation/
Impairment/
amortisation
before
exceptional
charges
(Note 5.1 (iv))
2020
£m
JV/Associate
share of
depreciation and
amortisation
(Note 16.5)
2020
£m
Release of
Deferred income
(Note 6)
2020
£m
Adjusted
EBITDA
2020
£m
218.1
356.3
202.3
567.3
152.7
3.7
9.2
48.8
8.1
(60.3)
(17.8)
–
–
–
(18.8)
–
–
–
–
(1.8)
–
–
1,488.4
(20.6)
32.7
25.8
58.5
–
–
–
79.0
154.9
–
156.7
50.3
0.8
0.3
6.6
9.5
–
72.0
530.1
–
31.1
31.1
–
–
56.8
98.1
17.3
–
–
–
29.4
–
6.6
208.2
–
–
–
(1.5)
(7.9)
–
–
(0.2)
–
–
–
(4.1)
–
(1.0)
(14.7)
–
–
–
295.6
503.3
259.1
803.3
220.1
4.5
9.5
55.4
41.1
(60.3)
59.8
2,191.4
32.7
56.9
89.6
Continuing operations
SSEN Transmission
SSEN Distribution
SGN
SSE Renewables
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
EPM
Corporate unallocated
Total
Discontinued operations
SSE Energy Services – Energy Supply
Gas Production
Total discontinued operations
Total SSE Group
1,546.9
(20.6)
561.2
208.2
(14.7)
2,281.0
SSE plc Annual Report 2021
201
6. Other operating income and cost
Group operating profit on continuing operations is stated after charging/(crediting) the following items:
Depreciation of property, plant and equipment on continuing operations (i)
Net exceptional (gains) on disposal (Note 7)
Exceptional charges (continuing operations) (Note 7)
Research costs
Lease charges (ii)
Release of deferred income in relation to capital grants and historic customer contributions
Gain on disposals (non-exceptional) (Note 12)
Amortisation of other intangible assets
2021
£m
523.3
(976.0)
125.7
12.0
11.6
(17.7)
(251.9)
2.7
2020
£m
503.1
(28.2)
240.3
3.4
16.7
(14.7)
(28.2)
2.4
(i) Does not include exceptional impairment charges.
(ii) Represents the expense of leases with a duration of 12 months or less and leases for assets which are deemed ‘low value’ under the principles of IFRS 16.
In addition, variable lease payments, which are not included within the measurement of lease liabilities as they do not depend on an index or rate, of £4.1m
(2020: £6.4m) were charged in the current year.
Auditor’s remuneration
Audit of these financial statements
Amounts receivable by the Company’s auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company
Audit related assurance services
Other services fees
Total remuneration paid to Auditor
2021
£m
0.4
1.9
0.2
0.2
2.3
2.7
2020
£m
0.3
1.6
0.2
0.1
1.9
2.2
Audit fees in the current year include scope changes and overruns of £0.4m related to the prior year audit, which arose due to
coronavirus and the first year transition to EY. Assurance and Tax service fees incurred in the year were £0.4m (2020: £0.3m). Audit
related assurance services include fees incurred in relation to regulatory accounts and returns required by Ofgem. A description of the
work of the Audit Committee is set out on pages 128 to 137 and includes an explanation of how auditor objectivity and independence is
safeguarded when non-audit services are provided by the auditors.
202
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 7. Exceptional items and certain re-measurements
Continuing operations
Exceptional items (Note 7.1)
Asset impairments and related (charges) and credits
Provisions for restructuring and other liabilities
Net gains on disposals of businesses and other assets
Total Exceptional items
Certain re-measurements
Movement on operating derivatives (Note 24)
Movement in fair value of commodity stocks
Movement on financing derivatives (Note 24)
Share of movement on derivatives in jointly controlled entities (net of tax)
Total certain re-measurements
2021
£m
2020
£m
(50.4)
(75.3)
(125.7)
976.0
850.3
590.1
8.5
55.6
0.8
655.0
(158.6)
(81.7)
(240.3)
30.6
(209.7)
(34.2)
(5.1)
(83.0)
2.6
(119.7)
Exceptional items after certain re-measurements and before taxation
1,505.3
(329.4)
Taxation
Taxation on other exceptional items
Taxation on certain re-measurements
Effect of deferred tax rate change
Taxation
3.1
(125.9)
–
(122.8)
46.0
20.9
(64.6)
2.3
Exceptional items after certain re-measurements and after taxation
1,382.5
(327.1)
Discontinued operations
Exceptional items (Note 7.1)
Asset impairments and related (charges) and credits
SSE Energy Services
Taxation
Exceptional items on discontinued operations after taxation
–
–
–
–
(291.3)
(237.7)
6.2
(522.8)
SSE plc Annual Report 2021
203
7. Exceptional items and certain re-measurements continued
Exceptional items and certain remeasurements are disclosed across the following categories within the
income statement:
2021
£m
2020
£m
Continuing operations
Cost of sales:
Movement on operating derivatives (Note 24)
Movement in fair value of commodity stocks
Operating costs:
Asset impairments and reversals
SSE Energy Services related restructuring costs and asset impairments
Other exceptional provisions and charges
Operating income:
Net (losses)/gains on disposals of businesses and other assets
Joint ventures and associates:
Share of movement on derivatives in jointly controlled entities (net of tax)
590.1
8.5
598.6
(30.1)
(24.2)
(72.8)
(127.1)
976.0
976.0
0.8
0.8
(34.2)
(5.1)
(39.3)
(158.7)
–
(81.6)
(240.3)
28.2
28.2
2.6
2.6
Operating profit/(loss)
1,448.3
(248.8)
Finance costs/(income)
Movement on financing derivatives (Note 24)
Interest income on deferred consideration receipt
Profit/(loss) before tax on continuing operations
Discontinued operations
SSE Energy Services
Gas Production (E&P) related credit/(charges)
Loss before tax on discontinued operations
55.6
1.4
57.0
1,505.3
–
–
–
(83.0)
2.4
(80.6)
(329.4)
(237.7)
(291.3)
(529.0)
204
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 7. Exceptional items and certain re-measurements continued
7.1 Exceptional items
In the year to 31 March 2021, the Group recognised a net exceptional credit of £850.3m in its continuing operations. The net exceptional
credit is primarily due to gains on disposal of the Group’s stakes in Ferrybridge Multifuel (£669.9m), Walney offshore windfarm (£188.7m)
and Maple SmartMeterCo (£70.4m). In addition, the Group reversed £26.1m of prior year exceptional provisions for bad debt arising from
coronavirus and recorded exceptional gains following the fair value uplift of its retained stakes in SSE Slough Multifuel Limited (£21.3m)
and Seagreen Holdco 1 Limited (£25.7m). These exceptional credits are offset by an impairment to the Group’s Great Island Thermal CCGT
plant of £58.1m and a write down to fair value less costs to sell SSE Contracting, which is held for sale at the balance sheet date, of £51.2m.
Finally, the Group incurred £24.2m of further charges related to the disposal of SSE Energy Services which was completed in the prior year
and has reduced the overall gain on disposal, completed in the year ended 31 March 2019, of SSE Telecommunications Limited by £21.8m.
The net exceptional charges/(credits) recognised can be summarised as follows:
Property, Plant &
Equipment
(Note 14)
£m
Intangible
assets
(Note 13)
£m
Provisions &
other charges
£m
Trade
receivables
£m
Other
receivables
£m
Total charges/
(credits)
£m
Thermal Electricity Generation (i)
Customer bad debt provisioning (ii)
SSE Contracting (iii)
SSE Energy Services disposal costs (iv)
Neos Networks (v)
Other charges (vi)
Disposal gains (vii)
Total exceptional items
58.1
–
15.1
–
(1.9)
–
71.3
–
–
5.2
–
–
–
5.2
–
–
51.2
3.9
20.2
–
–
75.3
–
(26.1)
–
–
–
–
(26.1)
–
–
–
1.6
(1.6)
(976.0)
(976.0)
58.1
(26.1)
51.2
24.2
21.8
(3.5)
(976.0)
(850.3)
(i) Thermal Electricity Generation – impairment charges
At 31 March 2021, the Group has carried out a formal impairment review in order to assess the carrying value of its CCGT plant at Great
Island (see Note 15.2). As a result of the assessment, the Group has recognised an exceptional impairment of £58.1m to the carrying value
of the asset, which has arisen following reductions in forward price curves and forecast electricity demand in Ireland.
(ii) Customer bad debt provisioning
In the prior year, the Group recognised an exceptional provision for exposure to bad debts of £33.7m specifically related to the coronavirus
pandemic within its Business Energy (£27.7m) and Airtricity (£6.0m) businesses. The initial outbreak of the pandemic happened late the
prior year and the UK remained in lockdown at the date of approval of the Annual Report on 16 June 2020, which meant that significant
uncertainty surrounded the judgement at that date. The provision reflected the Group’s best estimate at that date and was treated as an
adjusting post balance sheet event. During the year to 31 March 2021, the Group has achieved higher cash collections in recovery of
its debt than was expected, largely due to government support schemes and other factors. As a result, an exceptional reversal of the
provision of £20.1m in its Business Energy and £6.0m in its Airtricity businesses has been recognised. See Note 4.2(i) for further detail
on the judgement applied related to coronavirus in the current and prior year.
(iii) SSE Contracting – impairment charges
On 1 April 2021, subsequent to the balance sheet date, the Group announced the sale of its Contracting & Rail business to Aurelius
Group. The transaction is for initial consideration of £17.5m, plus a loan note receivable of £5m, and a further £5m of contingent
consideration based upon future financial performance of the business. At 31 March 2021, the Group has classified its interest in the
business as held for sale (see Note 12.3) and has impaired the carrying amount of the held for sale asset to its net realisable value,
resulting in an impairment of £51.2m. The transaction is expected to complete by the end of June 2021.
(iv) SSE Energy Services disposal costs
In the prior year, the Group disposed of its SSE Energy Services business to Ovo Energy Limited, incurring an exceptional loss of £237.7m.
The calculation of the loss included estimates for costs of disposal and separation which have been subsequently re-estimated in the
year to 31 March 2021. These additional costs of disposal, which total £24.2m, include increased estimates of the cost of IT separation
and decommissioning and the impairment of SSE properties which are wholly (or substantially) leased to the disposal group.
(v) Neos Networks adjustment to consideration
In the financial year to 31 March 2019, the Group disposed of 50% of its stake in Neos Networks Limited (formerly SSE
Telecommunications Limited) to Infracapital Partners III, ‘Infracap’, for initial consideration of £215.0m and the potential for a further
£165m of contingent consideration dependent on achievement of certain targets. In the current financial year, the Group received
further cash proceeds of £44m relating to previously accrued deferred consideration but has also reassessed its position relating to the
retained contingent elements and its contractual position with Infracap, with the net impact being the recognition of an exceptional
charge of £20.2m.
SSE plc Annual Report 2021
205
7. Exceptional items and certain re-measurements continued
7.1 Exceptional items continued
(vi) Other charges
At 31 March 2021 the Group reassessed its impairment provision recognised in 2017/18 related to its Enterprise Utilities business following
improvements in the performance of the Heat Networks assets. The impairment review has resulted in a reversal in impairment of £2.2m
in the year. While this reversal is not exceptional, it has been classified as exceptional to align to the classification of the initial impairment.
In 2017/18 the Group recognised an exceptional impairment related to its Barkip anaerobic digestion plant following operational issues
at the site. In the year ended 31 March 2021, the Group disposed of the site for consideration of £1.3m, resulting in a £1.3m reversal of
the exceptional impairment recognised in 2017/18. While this reversal is not exceptional, it has been classified as exceptional to align to
the classification of the initial impairment.
(vii) Disposal gains
During the year the Group progressed with its disposal plan for non-core assets announced in June 2020, which has resulted in
exceptional gains on disposal. The exceptional gains on disposal totalling £976.0m are summarised below. Further detail on the disposals
in the year is provided in Note 12.
On 13 October 2020, the Group announced it had reached an agreement to dispose of its 50% investment in Multifuel Energy Limited
and Multifuel Energy 2 Limited (together ‘MEL’) to European Diversified Infrastructure Fund III for headline consideration of £995m.
The agreement was subject to antitrust approval by the European Commission, which was granted on the 7 January 2021 when the
transaction completed. The Group recorded an exceptional gain on disposal of £669.9m.
On 2 September 2020, the Group agreed to sell its subsidiary, SSE Renewables Walney Limited, to Greencoat UK Wind Plc for consideration
of £350m, resulting in an exceptional gain on sale of £188.7m. SSE Renewables Walney Limited was the holding company of the Group’s
non-operated 25.1% stake in Walney Offshore Wind Farm. As essentially a financial investment and as Walney Offshore Wind Farm Limited
has been operational for several years, the disposal is not considered to be aligned to the Group’s strategic objective of gaining value from
divestment of stakes in offshore or international wind developments, therefore the gain on disposal has been recognised as exceptional.
On 23 September 2020, the Group disposed of its 33% investment in Maple Topco Limited, the smart meter services provider, for
proceeds of £95.3m, recognising an exceptional gain on disposal of £70.4m.
On 3 June 2020, the Group disposed of a 51% stake in its wholly owned subsidiary, Seagreen Holdco 1 Ltd (‘Seagreen 1’), to Total. The
transaction was for initial cash proceeds of £70m, plus contingent consideration of up to £60m dependent upon future criteria being met.
The Group has assessed that control of the company was lost on that date, and that the investment in Seagreen 1 should be accounted for
as an equity accounted joint venture under the principles of IFRS 11 ‘Joint Arrangements’. The Group acquired the joint venture investment
at fair value under the principles of IFRS 10 ‘Consolidated Financial Statements’, resulting in a total gain of £49.0m. Of that gain, £25.7m has
been recognised as exceptional, as it represents the fair value gain on acquisition of the joint venture investment retained by the Group. The
remaining £23.3m of the gain has been included in underlying operations, in line with the Group’s stated exceptional policy (see Note 3.2).
On 2 April 2020, the Group disposed of a 50% stake in its wholly owned subsidiary, SSE Slough Multifuel Ltd, to Copenhagen Infrastructure
Partners. The transaction was for initial cash proceeds of £10m, plus contingent consideration of up to £59.1m dependent upon future
criteria being met. The Group has assessed that control of the company was lost on that date, and that the investment in Slough Multifuel
should be accounted for as an equity accounted joint venture under the principles of IFRS 11 ‘Joint Arrangements’. The Group acquired the
joint venture investment at fair value under the principles of IFRS 10 ‘Consolidated Financial Statements’, resulting in a total gain of £41.7m.
Of that gain, £21.3m has been recognised as exceptional, as it represents the fair value gain on acquisition of the joint venture investment
retained by the Group. The remaining £20.4m of the gain has been included in underlying operations, in line with the Group’s stated
exceptional policy (see Note 3.2).
31 March 2020
In the year to 31 March 2020, the Group recognised a net exceptional charge of £209.7m in its continuing operations and a charge of
£529.0m in its discontinued operations. The net exceptional charge in continuing operations was primarily due to the closure of Fiddler’s
Ferry coal fired power station (£112.3m), provisions for bad debts as a result of coronavirus of £33.7m, impairments to SSE assets as a
result of the disposal of SSE Energy Services (£48.8m) and other asset impairments and restructuring costs of £45.6m. These exceptional
charges were offset by gains on disposal of £30.6m in total related to recognition of additional contingent consideration, offset by
related costs and including £2.4m of discount unwind, in relation to the 31 March 2019 disposal of SSE Telecommunications and a
completion accounts adjustment to the gain on sale of Stronelairg and Dunmaglass windfarms, also from 31 March 2019 financial year.
In the discontinued operations, the Group incurred an exceptional impairment on its Gas Production assets of £291.3m to adjust the
carrying value of the assets to their expected fair value on disposal, a loss on disposal of SSE Energy Services of £226.9m and restructuring
costs of £10.8m within SSE Energy Services.
206
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 7. Exceptional items and certain re-measurements continued
7.1 Exceptional items continued
The net exceptional items recognised can be summarised as follows:
Property, Plant &
Equipment
(Note 14)
£m
Intangible
assets
(Note 13)
£m
Inventories
(Note 17)
£m
Provisions &
other charges
£m
Trade
receivables
£m
Other
receivables
£m
Total charges/
(credits)
£m
Thermal Electricity
Generation (i)
Other charges (ii)
Other income (iii)
Total continuing operations
SSE Energy Services (iv)
Gas Production (v)
Total SSE Group
–
–
–
–
–
231.1
231.1
–
83.0
1.9
84.9
–
60.2
145.1
75.6
–
–
75.6
–
–
75.6
35.0
11.3
5.3
51.6
237.7
–
289.3
–
33.7
–
33.7
–
–
33.7
1.7
–
(37.8)
(36.1)
–
–
(36.1)
112.3
128.0
(30.6)
209.7
237.7
291.3
738.7
(i) Thermal Electricity Generation
On 17 March 2020 the Group ceased electricity generation at Fiddler’s Ferry power station. As a result of the closure, the Group incurred a
total exceptional charge of £112.3m, comprising an impairment of the coal and oil inventory and related tax credits of £77.5m; a redundancy
provision of £20.5m; and operating losses at the plant since closure announcement of £14.3m.
(ii) Other charges
The Group recognised an exceptional provision for exposure to bad debts of £33.7m specifically related to the coronavirus pandemic
within its Business Energy (£27.7m) and Airtricity (£6.0m) businesses. The provision reflected the Group’s best estimate at the date of
approval of the financial statements of charges that would be incurred on the Group’s debt book and was treated as an adjusting post
balance sheet event. See Note 7.1 (ii) for impact in the year to 31 March 2021.
The Group committed to an investment plan in IT software, operations and infrastructure to transform the Group’s IT systems to drive
growth and profitability. As a result, new agreements with software providers were entered into to allow employees to benefit from cloud
based IT arrangements, which resulted in the impairment of legacy software contracts of £34.2m. The Group also incurred redundancy
costs of £6.9m following an agreement to outsource certain IT support roles and recognised a charge of £4.4m related to restructuring
costs incurred by its SSEN Distribution business.
(iii) Other income
On 29 March 2019, the Group disposed of 50% of SSE Telecommunications to Infracapital Partners III for initial consideration of
£215.0m, with the potential for a further £165m of consideration contingent upon achievement of future profitability targets and
securing certain key customer contracts. In the 31 March 2019 results, the Group assessed that a total of £230.5m should be recognised
in the initial transaction, which resulted in a £235.4m gain on disposal. At 31 March 2020, the Group reassessed the components of
contingent consideration recognised based on updated forecasts of business performance and current status of key customer contract
negotiations and related costs and recognised a further £33.1m of consideration, including interest unwind of £2.4m which was treated
as exceptional finance income. Incremental exceptional costs of disposal of the business totalling £7.2m have also been recognised,
which predominantly related to the expected cost of full IT separation for this business.
The Group disposed a 49.9% stake in the Stronelairg and Dunmaglass windfarms in the year ended 31 March 2019, recognising a gain on
disposal of £733.0m, including a fair value uplift of £369.2m. Following the completion of the sale, an adjustment to the consideration of
£6.4m was received in the year ended 31 March 2020, offset by a tax adjustment of £1.6m. The adjustment to the gain on sale has been
treated as exceptional to align with the treatment of the original disposal in the year ended 31 March 2019.
Charges within discontinued operations
(iv) SSE Energy Services – loss on disposal and related charges
On 15 January 2020 the Group disposed of its household energy and services business in Great Britain (‘SSE Energy Services’) to Ovo
Group Limited (‘Ovo’). The Group recognised an exceptional loss on disposal of £226.9m (recognised within discontinued operations)
and incurred impairment charges on Group IT assets connected to the transaction totalling £48.8m (recognised within continuing
operations). Within the business there were also redundancy costs of £10.8m incurred in the year.
(v) Gas Production – impairment charges
The Group recorded an exceptional impairment charge of £291.3m related to the carrying value of assets and liabilities held for sale. The
impairment was calculated based on the fair value of the business following negotiations with potential buyers and reflected the reduction
in gas prices through the year.
SSE plc Annual Report 2021
207
7. Exceptional items and certain re-measurements continued
7.1 Exceptional items continued
31 March 2019
In the year to 31 March 2019, the Group recognised a net exceptional credit of £1,010.2m in its continuing operations and a charge of
£24.6m in its discontinued operation. The gain in the continuing operations is primarily due to gains on disposal of businesses and assets
totalling £1,096.9m. These gains on disposal were offset by net asset impairments of £49.9m, reorganisation costs of £27.5m and an
exceptional charge for GMP equalisation of £9.3m.
The net exceptional charges excluding gains on disposal (see Note 12) recognised can be summarised as follows:
Electricity Generation (i)
Disposal costs – SSE Energy Services (ii)
Pensions GMP equalisation (iii)
Discontinued operations
Total SSE Group
Property, Plant &
Equipment
(Note 14)
£m
Intangible assets
(Note 13)
£m
Investments
(Note 16)
£m
Provisions &
other charges
£m
Total charges
£m
2.7
41.0
–
43.7
(29.7)
14.0
–
–
–
–
54.3
54.3
(13.3)
–
–
(13.3)
–
(13.3)
(0.9)
47.9
9.3
56.3
–
56.3
(11.5)
88.9
9.3
86.7
24.6
111.3
(i) Electricity Generation
On 24 September 2018, the Group purchased the remaining 50% stake in Seagreen Wind Energy Limited (‘Seagreen’) taking its ownership
to 100% and bringing Seagreen under full control of the Group. As part of the acquisition, the Group reversed a previous impairment
charge of £14.2m based on its renewed commitment to developing the prospect. The reversal of the impairment was included as an
exceptional credit due to the original impairment of the Group’s offshore wind portfolio being treated as exceptional in 2013/14.
In the year to 31 March 2019, the Group recognised an exceptional impairment of £30.5m on the Keadby gas fired power station due to
a market shift in energy prices achievable from its thermal fleet. The movement in clean spark spreads was adverse for Keadby, however
the same shift is considered favourable to the Group’s newer and more efficient plant at Marchwood. As a result, the Group reversed
prior impairments of £27.8m against Marchwood power station, which is classified as a right of use asset.
(ii) Disposal costs – SSE Energy Services
At 31 March 2019 the Group’s UK domestic supply business was presented as held for disposal and as a result the Group incurred
restructuring costs and recognised provisions for costs that will be incurred on completion of the disposal. In the year the Group
incurred non-cash impairment charges of £41.0m on certain properties that have subsequently been sub-let to SSE Energy Services at a
rate of rent that will not support the current carrying value of the assets. In addition, the Group incurred a further £47.9m of professional
advisor fees and IT and physical separation costs related to the disposal.
(iii) Pensions GMP equalisation
On 26 October 2018, the High Court finalised a judgement in the case of Lloyds Banking Group Pensions Trustees Limited vs. Lloyds
Bank plc. As a result, the Group has recognised an exceptional past service cost of £9.0m in the 31 March 2019 income statement for
guaranteed minimum pension (GMP) equalisation across the schemes. The exceptional charge is 0.22% of the Group’s pension liabilities
as at 31 March 2019. In addition, the Group’s joint venture SGN recognised an exceptional past service charge of £0.8m, of which the
Group recognised its share of £0.3m as exceptional.
Charges within discontinued operations
Within its discontinued SSE Energy Services segment, the Group recorded an exceptional impairment charge of £54.3m related to
discontinued marketing and customer data management software assets. The Group also recognised a net impairment reversal of
£29.7m related to its Gas Production assets following an increase in independently assessed hydrocarbon reserves and an increase
to long term gas price forecasts. The impairment reversals were recognised on the Bacton (£15.8m) and Sean (£13.9m) fields due to
the revision of reserves. Following these impairment reversals, the residual value in the Group’s gas production assets at 31 March 2019
was £488.6m.
208
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 7. Exceptional items and certain re-measurements continued
7.2 Certain re-measurements
The Group, through its EPM business, enters into forward commodity purchase (and sales) contracts to meet the future demand
requirements of its Business Energy and Airtricity supply businesses and to optimise the value of its Renewable, Thermal Generation,
and (discontinued) Gas Production assets. Certain of these contracts are determined to be derivative financial instruments under IFRS 9
‘Financial Instruments’ and as such are required to be recorded at their fair value. Conversely, commodity contracts that are not financial
instruments under IFRS 9 are accounted for as ‘own use’ contracts. In addition, inventory purchased to utilise excess capacity ahead of
an optimised sale in the market by the Gas Storage business is held as trading inventory at fair value.
Changes in the fair value through the profit and loss statement of those commodity contracts designated as financial instruments
and trading inventory are therefore reflected in the income statement. The Group shows the change in the fair value of these forward
contracts and trading inventory separately – as ‘certain re-measurements’ – as the Group does not believe this mark-to-market
movement is relevant to the underlying performance of its operating segments.
The Group will recognise the underlying value of these contracts and inventory as the relevant commodity is delivered, which will
predominately be within the subsequent 12 to 24 months. The re-measurements arising from IFRS 9 are disclosed separately to aid
understanding of the underlying performance of the Group.
This category also includes the income statement movement on financing derivatives (and hedged items) as described in Note 24.
7.3 Change in UK corporation tax rates
The Government announced in the Budget on 3 March 2021 that the main rate of corporation tax will increase to 25% for the financial
year beginning 1 April 2023. Prior to this date, the rate of corporation tax will remain at 19%. The increase to 25% rate was not substantively
enacted at 31 March 2021, therefore the Group has continued to measure deferred tax balances at 19%. The Group has estimated that the
increase to 25% would increase the Group’s deferred tax liabilities by £229.4m.
Finance Bill 2021 also included draft legislation in respect of Capital Allowance ‘Super-deductions’ of 130% in respect of General Pool
plant and machinery, alongside First Year Allowances of 50% for Special Rate Pool plant and machinery for the two years commencing
1 April 2021. The Group expects these changes, which have not yet been enacted, to significantly increase the deduction for Capital
Allowances in the financial years ending 31 March 2022 and 31 March 2023. It is not yet possible to quantify the financial impact of these
changes as guidance has yet to be issued by HMRC as to how they will apply.
Taxation
The Group has separately recognised the tax effect of the exceptional items and certain re-measurements summarised above.
8. Directors and employees
8.1 Staff costs
Continuing operations
Staff costs:
Wages and salaries
Social security costs
Share-based remuneration
Pension costs (Note 23)
Less: capitalised as property, plant and equipment
2021
£m
2020
£m
526.8
58.7
18.2
96.7
700.4
(144.8)
555.6
522.3
57.3
17.0
88.1
684.7
(140.0)
544.7
The figures in the table above include £83.3m of staff costs related to the Group’s Contracting and Rail business which is held for sale at
31 March 2021 (see Note 12.3).
8.2 Employee numbers
Numbers employed at 31 March in continuing operations
Numbers employed at 31 March in discontinued operations
2021
Number
12,512
1
12,513
2020
Number
11,676
6
11,682
SSE plc Annual Report 2021
209
8. Directors and employees continued
The average number of people employed by the Group (including Executive Directors) during the year was:
Continuing operations
SSEN Transmission
SSEN Distribution
SSE Renewables
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
Energy Portfolio Management
Corporate
Total from continuing operations
Discontinued operations
Gas Production
Total from discontinued operations
Total SSE Group
2021
Number
2020
Number
572
3,704
1,084
466
80
832
688
2,558
158
1,547
499
3,800
957
569
82
793
588
2,667
152
1,607
11,689
11,714
2
2
6
6
11,691
11,720
8.3 Remuneration of key management personnel
The remuneration of the key management personnel of the Group (excluding amounts equivalent to pension value increases as set out
in the Remuneration Report), is set out below in aggregate.
Salaries and short term employee benefits
Social security costs
Post-employment benefits
Share based benefits
Executive
committee
members
£m
1.9
0.3
0.4
1.2
3.8
2021
Executive
directors
£m
3.7
0.5
1.0
2.1
7.3
Executive
committee
members
£m
1.5
0.3
0.1
0.8
2.7
Total
£m
5.6
0.8
1.4
3.3
11.1
2020
Executive
directors
£m
3.9
0.5
0.4
1.1
5.9
Total
£m
5.4
0.8
0.5
1.9
8.6
Key management personnel are responsible for planning, directing and controlling the operations of the Group and are designated
Persons Discharging Management Responsibilities (‘PDMRs’) in line with the market abuse regulation definition. The Group has three
(2020: 3) Executive directors. Executive committee members included in the table above at 31 March 2021 are the Managing Director
of Networks; the Managing Director of SSEN Transmission; the Managing Director of SSE Renewables and the Group’s General Counsel.
Further information about the remuneration of individual directors is provided in the audited part of the Remuneration Report.
Information regarding transactions with post-retirement benefit plans is included in Note 23.
Non-executive directors were paid fees of £1.0m during the current year (2020: £0.9m).
210
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 9. Finance income and costs
Recognised in income statement
2021
2020
Before
Exceptional
items and certain
remeasurements
£m
Exceptional
items and certain
remeasurements
£m
Finance income:
Interest income from short term deposits
Interest on pension scheme assets (i)
Foreign exchange translation of monetary
assets and liabilities
Other interest receivable:
Scotia Gas Networks loan stock
Other joint ventures and associates
Other receivable
Total finance income
Finance costs:
Bank loans and overdrafts
Other loans and charges
Notional interest arising on discounted
provisions
Lease charges
Less: interest capitalised (ii)
Total finance costs
Changes in fair value of financing derivative
assets or liabilities at fair value through
profit or loss
Net finance costs
Presented as:
Finance income
Finance costs
Net finance costs
1.9
8.3
1.3
9.8
43.9
22.8
76.5
88.0
(24.0)
(323.2)
(3.8)
(35.3)
14.2
(372.1)
–
(284.1)
88.0
(372.1)
(284.1)
–
–
–
–
–
1.4
1.4
1.4
–
–
–
–
–
–
55.6
57.0
57.0
–
57.0
Before
Exceptional
items and
certain
remeasurements
£m
Exceptional
items and
certain
remeasurements
£m
Total
£m
1.9
8.3
1.3
9.8
43.9
24.2
77.9
89.4
(24.0)
(323.2)
(3.8)
(35.3)
14.2
1.6
6.6
0.9
9.4
52.5
8.2
70.1
79.2
(34.5)
(304.1)
(9.2)
(37.8)
11.2
(372.1)
(374.4)
55.6
(227.1)
145.0
(372.1)
(227.1)
–
(295.2)
79.2
(374.4)
(295.2)
Total
£m
1.6
6.6
0.9
9.4
52.5
10.6
72.5
81.6
(34.5)
(304.1)
(9.2)
(37.8)
11.2
(374.4)
(83.0)
(375.8)
81.6
(457.4)
(375.8)
–
–
–
–
–
2.4
2.4
2.4
–
–
–
–
–
–
(83.0)
(80.6)
2.4
(83.0)
(80.6)
(i) The interest income on net pension assets for the year ended 31 March 2021 of £8.3m (2020: £6.6m) represents the interest earned under IAS 19.
(ii) The capitalisation rate applied in determining the amount of borrowing costs to capitalise in the period was 3.61% (2020: 3.65%).
SSE plc Annual Report 2021
211
9. Finance income and costs continued
Recognised in income statement continued
Adjusted net finance costs are arrived at after the following adjustments:
Net finance costs
(add)/less:
Share of interest from joint ventures and associates:
Scotia Gas Networks loan stock
Other joint ventures and associates
Share of non-recurring joint venture refinancing costs (i)
Interest on pension scheme (assets)/liabilities
Share of interest on net pension liabilities in joint ventures
Movement on financing derivatives (Note 24)
Exceptional item
Adjusted net finance costs
Notional interest arising on discounted provisions
Lease charges
Hybrid coupon payment (Note 22.5(iii))
Adjusted net finance costs for interest cover calculations
2021
£m
(227.1)
(9.8)
(136.7)
(146.5)
–
(146.5)
(8.3)
(2.7)
(55.6)
(1.4)
(441.6)
3.8
35.3
(46.6)
449.1
2020
£m
(375.8)
(9.4)
(164.4)
(173.8)
12.3
(161.5)
(6.6)
(1.7)
83.0
(2.4)
(465.0)
9.2
37.6
(46.5)
(464.7)
(i) The Group’s joint venture investment, Beatrice Offshore Winds Limited (‘BOWL’), completed a refinancing of its debt in the year ended 31 March 2020, which resulted in
the Group incurring its share of one-off finance costs of £12.3m. These are deemed to be non-recurring and have not been incurred as part of normal operations.
Recognised in other comprehensive income
Loss on effective portion of cash flow hedges (before tax)
Share of joint venture/associate loss on effective portion of cash flow hedges (before tax)
Total recognised in other comprehensive income
10. Taxation
10.1 Analysis of charge recognised in the income statement
2021
£m
(44.7)
30.6
(14.1)
2021
2020
Before
Exceptional
items and certain
remeasurements
£m
Exceptional
items and certain
remeasurements
£m
84.1
(11.4)
72.7
34.0
–
(5.2)
28.8
6.2
–
6.2
113.3
–
3.3
116.6
Before
Exceptional
items and
certain
remeasurements
£m
Exceptional
items and
certain
remeasurements
£m
107.6
(28.6)
79.0
34.2
–
10.6
44.8
(24.9)
–
(24.9)
(42.0)
64.6
–
22.6
Total
£m
90.3
(11.4)
78.9
147.3
–
(1.9)
145.4
Current tax
UK corporation tax
Adjustments in respect of previous years
Total current tax
Deferred tax
Current year
Effect of change in tax rate
Adjustments in respect of previous years
Total deferred tax
2020
£m
38.0
(49.6)
(11.6)
Total
£m
82.7
(28.6)
54.1
(7.8)
64.6
10.6
67.4
Total taxation charge/(credit)
101.5
122.8
224.3
123.8
(2.3)
121.5
212
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 10. Taxation continued
10.1 Analysis of charge recognised in the income statement continued
The Group has separately recognised the tax effect of the exceptional items and certain re-measurements summarised above. The rate
change to 25% in respect of periods commencing after 1 April 2023 included in Finance Bill 2021 has not been included in the closing
balance, as it has not been substantively enacted by the balance sheet date.
SSE continues to be accredited with the Fair Tax Mark. As a consequence, these financial statements include a number of areas of
enhanced disclosure which have been provided in order to develop stakeholder understanding of the tax the Group pays and the
reported total taxation charge along with additional commentary on the main reconciling items.
These can be seen at section A2 .
The majority of the Group’s profits are earned in the UK, with the standard rate of UK corporation tax being 19% for the year to 31 March
2021 (2020: 19%). The Group’s Gas Production business, which is included within discontinued operations for the year ended 31 March
2021 (and 31 March 2020), is taxed at a UK corporation tax rate of 30% plus a supplementary charge of 10% (combined 40%). Profits
earned by the Group in the Republic of Ireland are taxable at either 12.5% or 25%, depending upon the nature of the income.
The ‘adjusted current tax charge’ and the ‘adjusted effective rate of tax’, which are presented in order to best represent underlying
performance by making similar adjustments to the ‘adjusted profit before tax’ measure, are arrived at after the following adjustments:
Continuing operations
Group tax charge and effective rate
Add: reported deferred tax charge and effective rate
Reported current tax charge and effective rate
Effect of adjusting items
Reported current tax charge on adjusted basis
add:
Share of current tax from joint ventures and associates
less:
Current tax credit on exceptional items
Adjusted current tax charge and effective rate
Tax charge/(credit) recognised in other comprehensive income/(loss):
Relating to:
Pension scheme actuarial movements
Cash flow and net investment hedge movements
Other
Deferred tax charge related to historic depreciation adjustment
All tax recognised through other comprehensive income is deferred tax.
See further Taxation disclosures at A2 .
2021
£m
224.3
(145.4)
78.9
78.9
36.8
(7.9)
107.8
2021
%
9.4
(6.1)
3.3
4.1
7.4
3.5
(0.8)
10.1
2020
£m
121.5
(67.4)
54.1
54.1
36.7
23.4
114.2
2021
£m
(3.1)
(9.9)
(1.7)
–
(14.7)
2020
%
28.0
(15.5)
12.5
(7.2)
5.3
3.6
2.3
11.2
2020
£m
(89.5)
7.3
–
6.4
(75.8)
SSE plc Annual Report 2021
213
10. Taxation continued
10.2 Current tax liabilities
Corporation tax liability/(asset)
2021
£m
0.1
2020
£m
(15.1)
Uncertain tax positions
The Group invests heavily in infrastructure, on which significant amounts of capital allowances are potentially available. The extent to
which capital allowances are available on any single asset is, however, very much dependent upon the fact pattern for the asset involved,
and there will often be an element of uncertainty as to how capital allowances legislation applies in those circumstances. Reaching
agreement with tax authorities as to the amount of capital allowances available can take a number of years, and sometimes can only
be resolved through a formal legal process.
The calculation of the Group’s total tax charge therefore necessarily involves a degree of estimation and judgement in relation to certain
items for which the tax treatment cannot be finally determined until resolution has been reached with the tax authorities or, if required,
through a formal legal process. At 31 March 2021, the Group has recognised provisions totalling £37.6m in respect of uncertain tax
positions, primarily in relation to the availability of capital allowances (2020: £39.4m). The Group estimates that a reasonably possible
range of settlement outcomes for the uncertain tax positions could be in the range from nil to the full value of the provision, due to
the binary nature of the decision as to whether capital allowances are available or not.
Due to the uncertainty associated with such tax positions, it is possible that at a future date, and on conclusion of these open tax
positions, the final outcomes may vary significantly. While a range of outcomes is reasonably possible, the Group continues to believe
that it has made appropriate provision for periods which are open and not yet agreed with the tax authorities.
In December 2020, the Group’s case concerning the availability of capital allowances on Glendoe Hydro Electric Station was heard at
the Court of Appeal. A decision was released in February 2021, which was largely in the Group’s favour. HMRC have sought permission
to have an appeal heard against the decision by the Supreme Court, with the Supreme Court being expected to decide whether they are
prepared to hear an appeal by mid-2021. Any movement in the amounts carried for other uncertain tax positions during the next twelve
months will be driven by tax litigation the Group is not directly involved in and is unable to predict the outcome of.
10.3 Deferred taxation
The following are the deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
reporting periods:
At 31 March 2019
Opening balance sheet adjustment on IFRS 16 adoption
(Credit)/charge to Income Statement on continuing
operations
(Credit)/charge to Income Statement on discontinued
operations
(Credit)/charge to equity
(Credit)/charge recognised on disposal
Transferred to held for sale
At 31 March 2020
(Credit)/charge to Income Statement on continuing
operations
(Credit)/Charge to equity
(Credit)/charge recognised on disposal
Transfers
Transferred to held for sale
Exchange adjustments
At 31 March 2021
Accelerated
capital
allowances
£m
Fair value gains/
(losses) on
derivatives
£m
Retirement
benefit
obligations
£m
771.9
(4.8)
86.6
(96.4)
6.4
(9.4)
(49.8)
704.5
13.5
–
(0.2)
15.8
–
–
733.8
(161.3)
–
(21.3)
–
7.2
34.8
–
(140.6)
119.0
(3.7)
–
–
–
–
(25.3)
145.7
–
6.0
2.8
(89.5)
–
–
65.0
5.9
(3.1)
–
–
–
–
67.8
Other
£m
(144.7)
–
(3.8)
102.5
0.1
(1.5)
64.3
16.9
7.0
(1.7)
(5.7)
(15.8)
–
(2.7)
(2.0)
Total
£m
611.6
(4.8)
67.5
8.9
(75.8)
23.9
14.5
645.8
145.4
(8.5)
(5.9)
–
0.2
(2.7)
774.3
214
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 10. Taxation continued
10.3 Deferred taxation continued
Certain deferred tax assets and liabilities have been offset, including the asset balances analysed in the tables above. The following is an
analysis of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
Net deferred tax liabilities/(assets)
2021
£m
801.6
(27.3)
774.3
2020
£m
786.4
(140.6)
645.8
The deferred tax assets disclosed include the deferred tax relating to the Group’s net pension scheme asset.
In total there are £103.5m (2020: £96.6m) of unrecognised deferred tax assets. The Group has not recognised an asset of £51.6m (2020:
£47.7m) in respect of £171.8m (2020: £159.0m) of losses under Ring Fence Corporation Tax and has not recognised an asset of £10.3m
(2020: £8.2m) in respect of £103.0m (2020: £81.7m) of Supplementary Corporation Tax losses. Further, the Group has not recognised
£35.4m (2020: £35.1m) on activated investment allowances of £354.0m (2020: £351.3m) primarily in respect of the Greater Laggan Area
fields and an asset of £6.2m (2020: £5.6m) on trading losses of £49.6m (2020: £44.6m) in the Republic of Ireland. These assets have not
been recognised as the Group is uncertain that there will be sufficient future profits against which to utilise the assets. There is no time
limit for expiry of the losses or allowances to which they relate.
No deferred tax is recognised on the unremitted earnings of overseas subsidiaries, associates and joint ventures. As the earnings are
continually reinvested by the group, no tax is expected to be payable on them in the foreseeable future. Total unremitted earnings at
31 March 2021 were £281.5m (2020: £381.4m).
11. Dividends and earnings per share
11.1 Ordinary dividends
Interim – year ended 31 March 2021
Final – year ended 31 March 2020
Interim – year ended 31 March 2020
Final – year ended 31 March 2019
2021
Total
£m
254.3
582.1
–
–
836.4
Settled
via scrip
£m
Pence per
ordinary share
13.5
25.5
–
–
39.0
24.4
56.0
–
–
2020
Total
£m
–
–
248.2
700.3
948.5
Settled
via scrip
£m
–
–
136.3
209.2
345.5
Pence per
ordinary share
–
–
24.0
68.2
The final dividend of 56.0p per ordinary share declared in respect of the financial year ended 31 March 2020 (2019: 68.2p) was approved
at the Annual General Meeting on 12 August 2020 and was paid to shareholders on 18 September 2020. Shareholders were able to elect
to receive ordinary shares credited as fully paid instead of the cash dividend under the terms of the Company’s scrip dividend scheme.
The Group had previously stated that where the take-up of the scrip dividend scheme exceeded 20% of the total dividend payment, the
Group would repurchase shares to reduce the scrip’s dilutive effects. In order to maintain capital reserves following the occurrence of
the coronavirus pandemic, the Group will no longer repurchase shares when the scrip take-up exceeds 20%.
An interim dividend of 24.4p per ordinary share (2020: 24.0p) was declared and paid on 11 March 2021 to those shareholders on the
SSE plc share register on 15 January 2021. Shareholders were able to elect to receive ordinary shares credited as fully paid instead of
the interim cash dividend under the terms of the Company’s scrip dividend scheme.
The proposed final dividend of 56.6p per ordinary share based on the number of issued ordinary shares at 31 March 2021 is subject to
approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. Based on
shares in issue at 31 March 2021, this would equate to a final dividend of £590.4m.
SSE plc Annual Report 2021
215
11. Dividends and earnings per share continued
11.2 Basic and adjusted earnings per share
The calculation of basic earnings per ordinary share at 31 March 2021 is based on the net profit attributable to ordinary shareholders and
a weighted average number of ordinary shares outstanding during the year ended 31 March 2021.
Adjusted earnings per share has been calculated by excluding the charge for deferred tax, interest on net pension liabilities under IAS 19,
the depreciation charged on fair value uplifts and the impact of exceptional items and certain re-measurements (Note 7).
Continuing operations
Earnings/(loss) attributable to ordinary shareholders
Less: earnings attributable to discontinued operations
Basic earnings on continuing operations used to calculate adjusted EPS
Exceptional items and certain re-measurements (Note 7)
Basic excluding exceptional items and certain re-measurements
Adjusted for:
Share of non-recurring joint venture refinancing costs
Depreciation charge on fair value uplifts
Interest on net pension scheme assets (Note 9)
Share of interest on net pension scheme liabilities in joint venture (Note 9)
Deferred tax
Deferred tax from share of joint ventures and associates
Adjusted
Basic
Dilutive effect of outstanding share options
Diluted
Reported earnings per share
Basic
Earnings per share on continuing operations
Earnings per share on discontinued operations
Earnings per share attributable to ordinary shareholders
Dilutive effect of outstanding share options
Diluted
The weighted average number of shares used in each calculation is as follows:
For basic and adjusted earnings per share
Effect of exercise of share options
For diluted earnings per share
2021
Earnings
£m
2,276.2
(30.7)
2,245.5
(1,382.5)
863.0
–
20.6
(8.3)
(2.7)
32.2
5.7
910.5
2,245.5
–
2,245.5
2021
Earnings
£m
2,245.5
30.7
2,276.2
–
2,276.2
2021
Earnings per
share
pence
2020
Earnings
£m
2020
Earnings per
share
pence
218.7
(3.0)
215.7
(132.8)
82.9
–
2.0
(0.8)
(0.3)
3.1
0.6
87.5
215.7
(0.3)
215.4
(59.0)
478.6
419.6
327.1
746.7
12.3
20.6
(6.6)
(1.7)
44.8
46.6
862.7
419.6
–
419.6
(5.7)
46.3
40.6
31.7
72.3
1.2
2.0
(0.6)
(0.2)
4.4
4.5
83.6
40.6
–
40.6
2021
Earnings per
share
pence
215.7
3.0
218.7
(0.4)
218.3
2020
Earnings
£m
419.6
(478.6)
(59.0)
–
(59.0)
2020
Earnings per
share
pence
40.6
(46.3)
(5.7)
–
(5.7)
31 March 2021
Number of
shares
(millions)
31 March 2020
Number of
shares
(millions)
1,040.9
1.6
1,042.5
1,032.5
1.5
1,034.0
11.3 Dividend cover
The Group’s adjusted dividend cover metric is calculated by comparing adjusted earnings per share on continuing operations to the
projected dividend per share payable to ordinary shareholders.
Reported earnings per share on continuing
operations
Adjusted earnings per share (continuing
operations)
216
SSE plc Annual Report 2021
2021
Earnings per
share
(pence)
2021
Dividend per
share
(pence)
2021
Dividend Cover
(times)
2020
Earnings per
share
(pence)
2020
Dividend per
share
(pence)
2020
Dividend Cover
(times)
215.7
87.5
81.0
81.0
2.66
1.08
40.6
83.6
80.0
80.0
0.51
1.05
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 12. Acquisitions, disposals and held for sale assets
12.1 Acquisitions
There have been no significant acquisitions in the current or prior year.
12.2 Disposals
(i) Significant disposals
Current year disposals
During the year the Group progressed with its disposal plan for non-core assets announced in June 2020, and continued its programme
of strategic partnering generating developer gains. As a result, it recognised an exceptional gain on disposal of £976.0m (see Note 7)
and a non-exceptional gain on disposal of £251.9m. The disposals below primarily comprise sales of stakes in non-operated investment
assets, or the sale of a stake in early stage offshore windfarm developments, which aligns to the Group’s stated policy to realise value
from these assets.
Sale of investment in Ferrybridge Multifuel: On 13 October 2020, the Group announced it had reached an agreement to dispose of
its 50% joint venture investment in Multifuel Energy Limited and Multifuel Energy 2 Limited (together ‘MEL’), to European Diversified
Infrastructure Fund III for headline consideration of £995m. The agreement was subject to antitrust approval by the European
Commission, which was granted on 7 January 2021 when the transaction completed. The Group recorded an exceptional gain
on disposal of £669.9m on completion.
Sale of investment in Walney Windfarm: On 2 September 2020, the Group agreed to sell its subsidiary, SSE Renewables Walney Limited,
to Greencoat UK Wind Plc for consideration of £350m, resulting in an exceptional gain on sale of £188.7m. SSE Renewables Walney
Limited was the holding company of the Group’s non-operated 25.1% joint venture stake in Walney Offshore Windfarm. As essentially a
financial investment and as Walney Offshore Wind Farm Limited has been operational for several years, the disposal is not considered to
be aligned to the Group’s strategic objective of gaining value from divestment of stakes in offshore or international wind developments,
therefore the gain on disposal has been recognised as exceptional.
Sale of investment in Maple Smart Meter Assets: On 23 September 2020, the Group disposed of its 33% joint venture investment in
Maple Topco Limited, the smart meter services provider, for proceeds of £95.3m, recognising an exceptional gain on disposal of £70.4m.
Sale of stake in Doggerbank A&B Windfarms: On 4 December 2020, the Group announced it had agreed to sell a 10% stake in
Doggerbank A and Doggerbank B windfarms to Eni for equity consideration of £206.3m, including an interest adjustment of £3.8m,
resulting in a non-exceptional gain on disposal of £202.8m. The gain has been recognised within the adjusted profit of the Group in line
with the Group’s stated exceptional policy for gains on disposal of divestments in offshore windfarms (see Note 3.2).
On the same date, Eni entered into an agreement with Equinor to purchase a further 10% stake in the development. Following these
transactions, SSE and Equinor each hold a 40% equity stake and Eni a 20% stake. Doggerbank C remains a 50:50 joint venture between
SSE and Equinor.
Sale of stake in Seagreen 1 Windfarm: On 3 June 2020, the Group disposed of a 51% stake in its wholly owned subsidiary, Seagreen
Holdco 1 Ltd (‘Seagreen 1’), to Total. The transaction was for initial cash proceeds of £70m, plus contingent consideration of up to £60m
dependent upon future criteria being met. The Group has assessed that control of the company was lost on that date, and that the
investment in Seagreen 1 should be accounted for as an equity accounted joint venture under the principles of IFRS 11 ‘Joint Arrangements’.
The Group acquired the joint venture investment at fair value under the principles of IFRS 10 ‘Consolidated Financial Statements’, resulting in
a total gain of £49.0m. Of that gain, £25.7m has been recognised as exceptional, as it represents the fair value gain on acquisition of the joint
venture investment retained by the Group. The remaining £23.3m of the gain has been included in underlying operations, in line with the
Group’s stated exceptional policy (see Note 3.2).
Sale of stake in Slough Multifuel: On 2 April 2020, the Group disposed of a 50% stake in its wholly owned subsidiary, SSE Slough Multifuel
Ltd, to Copenhagen Infrastructure Partners. The transaction was for initial cash proceeds of £10m, plus contingent consideration of up
to £59.1m dependent upon future criteria being met. The Group has assessed that control of the company was lost on that date, and
that the investment in Slough Multifuel should be accounted for as an equity accounted joint venture under the principles of IFRS 11
‘Joint Arrangements’. The Group acquired the joint venture investment at fair value under the principles of IFRS 10 ‘Consolidated Financial
Statements’, resulting in a total gain of £41.7m. Of that gain, £21.3m has been recognised as exceptional, as it represents the fair value gain
on acquisition of the joint venture investment retained by the Group. The remaining £20.4m of the gain has been included in underlying
operations, in line with the Group’s stated exceptional policy (see Note 3.2).
Prior year disposals
SSE Energy Services: On 15 January 2020 the Group completed the disposal of its household energy and services business in Great Britain
(‘SSE Energy Services’) to Ovo Group Limited (‘Ovo’). The agreement, which was announced on 13 September 2019, was based on a ‘locked
box’ transaction mechanism with an effective economic date of 30 June 2019. The enterprise value agreed was £500m, comprising £400m
cash and £100m in 13.25% unsecured Loan Notes due 2029, less an adjustment for debt-like items of £59.9m. The Group first classified SSE
Energy Services as held for disposal in its 30 September 2018 Interim Statement.
SSE plc Annual Report 2021
217
12. Acquisitions, disposals and held for sale assets continued
12.2 Disposals continued
The carrying value of assets disposed at completion, which includes asset and liability movements subsequent to the ‘locked box’
date of 30 June 2019, resulted in an exceptional loss on disposal of £226.9m being recognised.
Slieve Divena II windfarm: On 30 March 2020 the Group disposed of its subsidiary Slieve Divena Wind Farm No. 2 Limited for
consideration of £51.0m to Greencoat UK Wind Holdco Limited, recognising a non-exceptional gain on disposal of £25.2m.
(ii) Disposal reconciliation
The following table summarises disposals of subsidiaries, businesses and assets during the financial year, including other assets and
investments disposed of as part of the normal course of business but before recognition of impairment charges in the year, which are
noted in the relevant respective notes to the financial statements.
Total
2021
£m
25.7
348.4
490.3
0.6
–
29.2
172.8
(23.8)
(0.2)
(3.1)
–
(438.7)
–
601.2
1,753.6
47.0
51.5
-
(23.0)
1,829.1
1,227.9
Total
2020
£m
74.5
812.8
11.8
23.9
0.9
1,052.2
235.6
(1,307.3)
(1.8)
(231.0)
(5.3)
(37.8)
6.9
635.4
513.9
–
–
(36.6)
(40.6)
436.7
(198.7)
976.0
251.9
(226.9)
28.2
Net assets disposed:
Property, plant and equipment
Intangible and biological assets
Investments and loans – joint ventures
Deferred tax asset
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liability
Derivative financial liabilities
Provisions
Loans and borrowings
Retirement benefit obligations
Net assets
Proceeds of disposal:
Consideration
Fair value uplift
Recognition of investment on loss of control
Debt reduction
Costs of disposal
Net proceeds
(Loss)/Gain on disposal
Presentation:
Continuing operations
Income statement exceptional credit/(debit)
Income statement non-exceptional credit
218
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 12. Acquisitions, disposals and held for sale assets continued
12.2 Disposals continued
Net proceeds of disposal
Fair value uplift
Debt reduction
Recognition of investment on loss of control
Costs of disposal
Deferred consideration
2029 13.25% unsecured Loan Notes
Total cash proceeds
Less: cash disposed
Net cash proceeds
2021
£m
1,829.1
(47.0)
–
(51.5)
23.0
(18.8)
–
1,734.8
(172.8)
1,562.0
2020
£m
436.7
–
36.6
–
40.3
–
(100.0)
413.6
(235.6)
178.0
12.3 Held for sale assets and liabilities
The Group’s Gas Production assets and liabilities are deemed available for immediate sale (see Note 4.2.1) and have been separately
presented on the face of the balance sheet at 31 March 2021. The assets have been written down to their fair value less costs to sell in
accordance with IFRS 5, excluding the deferred tax asset which continues to be measured under IAS 12 (see Note 15). In addition, the
Group announced the sale of its Enterprise Contracting and Rail business on 1 April 2021, subsequent to the balance sheet date (see
Note 26.(ii)). Accordingly, the net assets of this business are also presented as held for sale at 31 March 2021.
The assets and liabilities classified as held for sale, and the comparative balances at 31 March 2020, are as follows:
Property, plant and equipment
Goodwill and other intangible assets
Deferred tax asset
Inventories
Trade and other receivables
Total assets
Trade and other payables
Current tax liabilities
Derivative financial liabilities
Provisions
Loans and other borrowings
Total liabilities
Gas Production
£m
SSE Contracting
£m
167.5
49.6
14.7
2.6
7.7
242.1
(9.1)
–
–
(149.3)
–
(158.4)
–
–
0.2
2.1
94.7
97.0
(46.3)
(0.1)
–
(46.5)
(2.2)
(95.1)
Total
2021
£m
167.5
49.6
14.9
4.7
102.4
339.1
(55.4)
(0.1)
–
(195.8)
(2.2)
(253.5)
2020
£m
168.3
40.7
14.9
2.4
0.5
226.8
(17.0)
–
(1.6)
(380.1)
–
(398.7)
Net (liabilities)/assets
83.7
1.9
85.6
(171.9)
The aggregated pre-tax profit contribution of the held for sale businesses in the year to 31 March 2021 was a profit of £18.5m, (2020: loss of
£250.2m) including exceptional charges of £302.1m, but excluding the loss on disposal of SSE Energy Services. There are no accumulated
gains or losses recognised in other comprehensive income related to assets and liabilities held for sale.
Prior year assets and liabilities held for sale
The assets and liabilities classified as held for sale at 31 March 2021 were the Group’s Gas Production assets and liabilities, which remain
held for sale at 31 March 2021, and 50% of the Group’s subsidiary SSE Slough Multifuel Limited, which was sold to Copenhagen
Infrastructure Partners on 2 April 2020.
SSE plc Annual Report 2021
219
12. Acquisitions, disposals and held for sale assets continued
12.4 Discontinued operations
The discontinued operations at 31 March 2021 represent the Group’s investment in Gas Production assets which remains held for sale at the
balance sheet date. In the prior year comparative, the discontinued operations also includes the SSE Energy Services which was disposed on
15 January 2020 (see Note 12.2). The profit/(loss) of the discontinued operation, after elimination of intercompany transactions, is as follows:
2021
2020
Before
exceptional
items and certain
remeasurements
£m
Exceptional
items and certain
remeasurements
£m
105.0
(68.9)
36.1
(3.1)
33.0
(2.3)
30.7
–
30.7
–
30.7
–
–
–
–
–
–
–
–
–
–
–
Before
exceptional
items and certain
remeasurements
£m
Exceptional
items and certain
remeasurements
£m
Total
£m
2,732.0
(2,169.6)
562.4
(503.9)
58.5
(6.6)
51.9
(7.7)
44.2
–
44.2
–
–
2,732.0
(2,169.6)
–
(302.1)
(302.1)
562.4
(806.0)
(243.6)
–
(6.6)
(302.1)
(250.2)
6.2
(1.5)
(295.9)
(251.7)
(226.9)
(226.9)
(522.8)
(478.6)
Total
£m
105.0
(68.9)
36.1
(3.1)
33.0
(2.3)
30.7
–
30.7
–
30.7
Revenue (i)
Cost of sales (i)
Gross profit
Operating costs
Operating profit
Finance costs
Profit before taxation
Taxation
Profit/(loss) for the period
Loss on disposal of discontinued operations,
after tax
Profit from discontinued operations, net of tax
Cashflows from discontinued operations
Cashflows from operating activities
Cashflows from investing activities
Net (decrease)/increase in cash and cash equivalents in discontinued operations
13. Intangible assets
Goodwill
£m
Allowances &
Certificates
£m
Development
Assets
£m
Other
intangibles
£m
Software
Assets
£m
Cost:
At 31 March 2019
Additions
Transfer to Property Plant and Equipment (Note 14)
Disposals/utilised
Transferred to held for sale (Note 12)
Exchange adjustments
At 31 March 2020
Additions
Transfer (to)/from Property Plant and Equipment (Note 14)
Disposals/utilised
Transferred to held for sale (Note 12)
Exchange adjustments
At 31 March 2021
573.7
–
–
–
(39.9)
–
533.8
–
–
(5.9)
(1.0)
(4.8)
522.1
1,027.8
652.7
–
(949.9)
–
0.1
730.7
509.0
–
(637.3)
–
–
602.4
509.1
246.8
(21.5)
(1.7)
(152.2)
0.2
580.7
116.1
(43.1)
(348.7)
–
(1.5)
303.5
220
SSE plc Annual Report 2021
2021
£m
26.8
(26.8)
–
2020
£m
(15.9)
(79.3)
(95.2)
Total
£m
2,862.8
973.6
49.8
(951.6)
(192.1)
0.3
2,742.8
700.4
(43.1)
(999.6)
(4.4)
(7.9)
114.7
0.1
–
–
–
–
114.8
2.3
–
–
(1.2)
–
637.5
74.0
71.3
–
–
–
782.8
73.0
–
(7.7)
(2.2)
(1.6)
115.9
844.3
2,388.2
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 13. Intangible assets continued
Aggregate amortisation and impairment:
At 31 March 2019
Charge for the year
Transfer (to) Property Plant and Equipment (Note 14)
Exceptional impairment credits/(charges) (Note 7)
Non-exceptional impairment charge (i)
Transferred to held for sale (Note 12)
Exchange adjustments
At 31 March 2020
Charge for the year
Exceptional impairment credits/(charges) (Note 7)
Non-exceptional impairment (charges) (i)
Disposals/utilised
Transferred to held for sale (Note 12)
Exchange adjustments
At 31 March 2021
Carrying amount:
At 31 March 2021
At 31 March 2020
At 1 April 2019
Goodwill
£m
Allowances &
Certificates
£m
Development
Assets
£m
Other
intangibles
£m
Software
Assets
£m
(235.3)
(0.1)
–
–
–
39.9
2.6
(192.9)
–
–
–
–
–
–
(227.5)
–
–
–
–
–
–
(227.5)
–
–
–
–
–
–
(205.2)
–
–
(60.2)
–
111.5
(0.1)
(154.0)
–
–
(4.7)
–
–
0.3
(109.6)
(1.5)
–
–
–
–
–
(111.1)
(2.7)
–
–
–
0.7
–
Total
£m
(1,102.4)
(27.0)
(7.8)
(145.1)
(9.8)
151.4
2.5
(324.8)
(25.4)
(7.8)
(84.9)
(9.8)
–
–
(452.7)
(1,138.2)
(30.2)
(5.2)
–
7.7
0.5
(0.2)
(32.9)
(5.2)
(4.7)
7.7
1.2
0.1
(192.9)
(227.5)
(158.4)
(113.1)
(480.1)
(1,172.0)
329.2
340.9
338.4
374.9
503.2
800.3
145.1
426.7
303.9
2.8
3.7
5.1
364.2
330.1
312.7
1,216.2
1,604.6
1,760.4
(i) The non-exceptional impairments in both years relate to early stage Renewable development assets which have been impaired as future development of these
specific assets became uncertain in the period.
Intangible assets have been analysed as current and non-current as follows:
Current
Non-current
2021
£m
374.9
841.3
1,216.2
2020
£m
503.2
1,101.4
1,604.6
(i) Goodwill
At inception, goodwill arising from business combinations is allocated to cash-generating units (CGUs) for impairment testing purposes.
Certain goodwill valuations have changed in the current year following retranslation. Commentary on the impairment testing of the
related CGUs, with the exception of two historic balances totalling £8.2m, is included in Note 15.
A summary of the goodwill allocated to CGUs and the Group’s operating segments is presented below:
Cash-generating unit
Onshore windfarms
Offshore windfarms
Energy Solutions1
Ireland Supply2
Operating Segment
SSE Renewables
SSE Renewables
Business Energy & Enterprise
Airtricity
2021
£m
73.7
214.9
32.4
8.2
329.2
2020
£m
79.5
214.9
38.3
8.2
340.9
1 Enterprise Energy Solutions includes goodwill balances arising from the historic acquisitions of The Energy Solutions Group (TESGL) of £37.6m and a further £0.7m
in relation to the acquisition of Fusion Heating Limited. The amount of goodwill associated with the historic businesses is not significant in context of the aggregate
carrying value of the business units or the aggregate value of goodwill held by the Group.
2 The value associated with the Ireland supply goodwill represents the difference between the fair value attributed to the Northern Ireland based Phoenix Energy
business acquired in 2012 and the book value of those assets. No impairment has been recognised during the year on this balance.
(ii) Allowances and certificates
Allowances and Certificates consist of purchased carbon emissions allowances and generated or purchased renewable obligations
certificates (ROCs). These allowances and certificates will be utilised in settlement of environmental obligations incurred by the Group’s
Generation and Business Energy supply business, and are therefore distinct from allowances and certificates in excess of the Group’s
environmental obligations which are recorded within inventories.
SSE plc Annual Report 2021
221
13. Intangible assets continued
(iii) Development assets
Development costs relate to the design, construction and testing of Thermal and Renewable generation sites, which the Group believes
will generate probable future economic benefits. Costs capitalised as development intangibles include options over land rights, planning
application costs, environmental impact studies and other costs incurred in bringing windfarms and other Renewable and Thermal
generation and network development projects to the consented stage. These may be costs incurred directly or at a cost as part of
the fair value attribution on acquisition.
At the point the development reaches the consent stage and is approved for construction, the carrying value is transferred to Property,
Plant and Equipment (Note 14). At the point a project is no longer expected to reach the consented stage, the carrying amount of the
project is impaired.
(iv) Other intangible assets
Included within other intangible assets are brands, customer lists and contracts.
No exceptional or non-exceptional impairment charges have been recognised in the year (2020: £nil).
(v) Software assets
Software assets include application software license fees, software development work, software upgrades and purchased PC software
packages.
Exceptional charges of £5.2m (2020: £48.8m) have been recognised in relation to the disposal of SSE Energy Services (recognised
within continuing operations) (Note 7). In the prior year non-exceptional charges of £9.8m were recognised due to the identification
of obsolete software assets.
222
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 14. Property, plant and equipment
Power
Generation
Assets (i)
£m
Gas Production
and storage
Assets (ii)
£m
Land and
Buildings
£m
Network
Assets
£m
Other assets
£m
Assets Under
Construction
£m
Total
£m
Cost:
At 31 March 2019
Right of use asset addition
on adoption of IFRS 16
Revised opening balance
at 1 April 2019
Additions
Settlement through assets
Adjustment to
decommissioning asset
Transfer from (to)/from
Intangible Assets
(Note 13)
Transfer from Assets
Under Construction
Disposals (iii)
Transfer to Assets Held
for sale
Exchange rate adjustments
At 31 March 2020
Additions
Adjustment to
decommissioning
asset (i)
Transfer from Intangible
Assets
(Note 13); (iv)
Transfer from Assets
Under Construction
Disposals (iii)
Transfer to Assets Held
for sale
Exchange rate adjustments
8,408.7
2,179.7
360.8
12,092.8
–
–
148.2
5.5
8,408.7
0.5
(5.0)
2,179.7
–
–
509.0
15.6
–
12,098.3
108.7
–
12.4
(4.5)
(0.6)
31.6
(142.3)
(24.6)
37.7
8,318.4
3.6
–
29.8
–
(1,528.8)
–
676.2
–
–
–
7.6
(3.4)
–
0.6
529.4
14.7
(7.3)
(5.3)
–
–
62.6
(0.6)
–
(59.3)
–
–
–
–
1.9
8.7
(9.3)
(2.3)
(1.0)
–
–
660.1
(8.6)
–
–
12,858.5
58.0
–
–
762.2
(4.6)
–
–
At 31 March 2021
8,317.4
670.9
542.1
13,674.1
582.4
57.3
639.7
25.1
–
–
(71.6)
46.4
(3.2)
–
1.5
637.9
31.6
–
–
42.2
(21.1)
(0.7)
(2.2)
687.7
361.4
23,985.8
–
211.0
361.4
947.7
–
21.8
22.4
(775.5)
–
–
0.6
578.4
968.7
24,196.8
1,097.6
(5.0)
29.7
(49.8)
–
(157.5)
(1,553.4)
40.4
23,598.8
1,076.6
–
(12.6)
41.2
(875.7)
(22.8)
–
(1.4)
43.1
–
(58.4)
(3.0)
(63.9)
688.4
24,580.6
SSE plc Annual Report 2021
223
14. Property, plant and equipment continued
Power
Generation
Assets (i)
£m
Gas Production
and storage
Assets (ii)
£m
Land and
Buildings
£m
Network
Assets
£m
Other assets
£m
Assets Under
Construction
£m
Total
£m
(4,729.9)
(1,675.0)
(139.2)
(4,526.4)
(451.5)
(34.4)
(11,556.4)
–
–
–
–
9.9
–
9.9
Depreciation:
At 31 March 2019
Adjustments on adoption
of IFRS 16
Revised opening balance at
1 April 2019
(4,729.9)
(1,675.0)
(139.2)
(4,526.4)
(441.6)
(34.4)
(11,546.5)
Adjustment in relation to
historic depreciation rates
Charge for the year
Transfers (to)/from
intangible assets
Transfers in the year
Disposals (iii)
Transfer to Assets held
for sale
Exchange rate adjustments
At 31 March 2020
Charge for the year
Impairments (charges)/
reversals (Note 7); (v)
Transfers in the year
Disposals (iii)
Transfer to Assets held
for sale
Exchange rate adjustments
–
(199.6)
–
3.6
113.8
–
(15.5)
(4,827.6)
(207.8)
(58.6)
–
–
–
28.9
–
(31.9)
–
–
–
1,154.0
–
(552.9)
(0.8)
–
–
–
–
–
(27.2)
–
0.1
0.3
–
(0.2)
(166.2)
(27.2)
(15.1)
(0.1)
1.5
0.5
–
33.7
(214.3)
–
(3.8)
1.8
–
–
(4,709.0)
(229.5)
–
(0.1)
0.6
–
–
–
(61.2)
7.8
0.1
1.9
–
(1.0)
(494.0)
(58.0)
–
0.2
20.5
0.3
0.6
–
–
–
–
–
–
–
33.7
(534.2)
7.8
–
117.8
1,154.0
(16.7)
(34.4)
(10,784.1)
–
1.9
–
–
–
–
(523.3)
(71.8)
–
22.6
0.8
29.5
At 31 March 2021
(5,065.1)
(553.7)
(206.6)
(4,938.0)
(530.4)
(32.5)
(11,326.3)
Net book value
At 31 March 2021
At 31 March 2020
At 1 April 2019
3,252.3
3,490.8
3,678.8
117.2
123.3
504.7
335.5
363.2
369.8
8,736.1
8,149.5
7,571.9
157.3
143.9
198.1
655.9
544.0
327.0
13,254.3
12,814.7
12,650.3
(i) Power generation assets comprise Thermal and Renewable generation plant, related buildings, plant and machinery and include all hydro power generation and
wind farm assets. The net book value of power generation assets includes decommissioning costs with a net book value of £204.9m (2020: £207.7m).
(ii) Gas storage and production assets include decommissioning costs with a net book value of £93.7m (2020: £103.3m).
(iii) Assets disposed includes £24.4m in respect of the Group’s assets relating to the disposal of Slough Multifuel (2020: £28.9m in respect of the Group’s assets relating
to the disposal of Slieve Divena Wind Farm No. 2 Limited). Details of disposals related to assets held for sale at 31 March 2020 are provided in Note 12.
(iv) Represents the carrying value of development assets transferred from intangible assets (Note 13) which have reached the consent stage and have been approved
for construction.
(v) Impairment charges relate to exceptional impairments of £71.3m (see Note 7) and non-exceptional impairments of £0.5m. (2020: exceptional impairments of £231.1m).
224
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 14. Property, plant and equipment continued
Included within property, plant and equipment are the following right of use assets for leased assets:
Power
Generation
Assets
£m
Land and
Buildings
£m
Network
Assets
£m
Metering assets
and other
equipment
£m
Cost
At 31 March 2019
Recognised on adoption of IFRS 16 on 1 April 2019
Derecognised on adoption of IFRS 16 on 1 April 2019
Additions
Disposals
Exchange rate adjustments
At 31 March 2020
Additions
Disposals
Exchange rate adjustments
At 31 March 2021
Depreciation
At 31 March 2019
Derecognised on adoption of IFRS 16 on 1 April 2019
Charge for the year
Disposals
At 31 March 2020
Charge for the year
Disposals
Exchange rate adjustments
At 31 March 2021
Net book value
At 31 March 2021
At 31 March 2020
At 1 April 2019
369.6
–
–
–
–
–
369.6
–
–
–
369.6
(242.0)
–
(18.4)
–
(260.4)
(12.1)
–
–
(272.5)
97.1
109.2
127.6
4.4
148.2
–
15.6
(2.5)
(0.6)
165.1
15.6
(8.0)
(1.5)
171.2
(0.1)
–
(11.8)
(0.2)
(11. 7)
(11.7)
1.5
0.3
(21.6
149.6
153.4
4.3
–
5.5
–
6.7
–
–
12.2
–
–
–
14.8
72.1
(14.8)
24.2
(3.1)
–
93.2
29.8
(4.2)
(0.4)
12.2
118.4
–
–
(0.4)
–
(0.4)
(2.2)
–
–
(2.6)
9.6
11.8
–
(9.9)
(9.9)
(28.9)
(1.8)
(27.1)
(26.3)
4.0
0.3
(49.1)
69.3
66.1
4.9
Total
£m
388.8
225.8
(14.8)
46.5
(5.6)
(0.6)
640.1
45.4
(12.2)
(1.9)
671.4
(252.0)
(9.9)
(59.5)
(2.0)
(299.6)
(52.3)
5.5
0.6
(345.8)
325.6
340.5
136.8
15. Impairment testing
Goodwill and intangibles that are not amortised are reviewed at least annually for impairment and PPE and other intangibles are assessed
annually for impairment triggers.
The Group’s accounting policies and methodologies for impairment testing are described at Accompanying Information sections A1.2 .
The key operating and valuation assumptions, specific considerations and outcome of tests for all impairment reviews are noted in the
following sections. The discount rates used are pre-tax real, except where noted, and reflect specific risks attributable to the relevant
operating segments. The discount rates applied in both 2021 and 2020 remain consistent across all CGUs, except where noted, reflecting
the Group’s view of cost of capital and risk. The recoverable amounts derived from the VIU or FVLCS calculations are compared to the
carrying amount of each asset or CGU to determine whether an impairment charge requires to be recognised. The reviews carried out for
the 2021 financial statements were carried out in the fourth quarter of the year, which is consistent with previous reviews. Note that the
actual outcomes may differ from the assumptions included in the assessments at the balance sheet date.
SSE plc Annual Report 2021
225
15. Impairment testing continued
15.1 Goodwill impairment reviews – CGUs testing
The recoverable amounts of the Onshore Windfarm, the Offshore Windfarm and Enterprise Energy Solutions CGUs are determined by
reference to value-in-use (‘VIU’) calculations. The VIU calculations use, as a starting point, pre-tax cash flow projections based both on
the Group’s five year Corporate Model as approved by the Board. The Group’s Corporate Model is based both on past experience and
reflects the Group’s forward view of markets, prices, risks and its strategic objectives. Commodity prices used are based on observable
market data and, where this is not available, on internal estimates.
Assets/CGUs
Onshore
Windfarm
Cash flow period
assumption
Period to
end of life
of portfolio
assets
Operating and other valuation assumptions
Commentary and impairment conclusions
Impairment conclusion – Onshore
The recoverable amount of the Onshore windfarm CGU
continues to significantly exceed the carrying value of
the CGU based on the impairment test, therefore no
impairment has been recognised.
Sensitivity analysis – Onshore
While cash flow projections are subject to inherent
uncertainty, a 10% power price decrease was modelled,
which indicated significant headroom on the carrying
value of the assets. Similarly, a 0.5% increase in the
pre-tax real discount rate to between 5.6% - 6.1% also
indicated significant headroom.
This view is supported by the Group’s prior year profit on
disposal of Slieve Divena II windfarm which, as FVLCS,
is secondary corroboration of the VIU assessment.
Onshore
The VIU assessment is used to test the carrying
value of £73.7m of goodwill related to the Group’s
onshore windfarms for impairment. The assessment
is based on the discounted pre-tax cash flows
expected to be generated by the specific wind
farm assets included in the CGU across the
remaining useful lives of those assets. This
includes over 50 operating assets in both
the UK and Republic of Ireland.
Cash inflows for the CGUs are based on the
expected average annual generation GWh output
based on technical assessment and past experience
and are valued based on forward power prices.
These factors are subject to management review
on an annual basis. The prices applied to projected
outputs are based either on observable market
information during that period, which is deemed
to be 3 years, or on internal estimations beyond
the observable market period (a Level 3 basis as
defined by IFRS 13 Fair Value Measurement). The
projections are also dependent on the UK and
Irish government’s continuing support for existing
qualifying wind assets through ROCs or REFIT.
Cash outflows are based on planned and expected
maintenance profiles and other capital or
replacement costs.
The Onshore Windfarm CGU includes cashflows
for operational assets only, being over 50 individual
windfarms across UK and Republic of Ireland, given
risk and uncertainty associated with projects in the
development stage.
The cash flow projections are based on UK power
prices between £44-£53 per MWh over the next
three years and have been discounted applying
a pre-tax real discount rate between 5.1% and
5.6% (2020: between 5.6% and 6.3%) based on
technology and market risks.
226
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 15. Impairment testing continued
15.1 Goodwill impairment reviews – CGUs testing continued
Assets/CGUs
Offshore
Wind Farms
Cash flow period
assumption
Period to
end of life
of portfolio
assets
5 years
Enterprise
Energy
Solutions
Operating and other valuation assumptions
Commentary and impairment conclusions
Offshore
The VIU assessment is used to test the carrying
value of £214.9m of goodwill related to the Group’s
offshore windfarms for impairment. The assessment
is based on the discounted pre-tax cash flows
expected to be generated by the specific wind
farm assets included in the CGU across the
remaining useful lives of those assets.
The Offshore Windfarm CGU includes cashflows
for operational assets only, being Beatrice and
Greater Gabbard wind farms, given the risk and
uncertainty associated with projects in the
development stage. Seagreen and Doggerbank
are currently under construction and have been
excluded from the analysis.
Cash inflows for the CGUs are based on the
expected average annual generation GWh output
based on technical assessment and past experience
and are valued based on forward power prices.
These factors are subject to management review
on an annual basis. The prices applied to projected
outputs are based either on observable market
information during that period, which is deemed
to be 3 years, or on internal estimations beyond the
observable market period (a Level 3 basis as defined
by IFRS 13 Fair Value Measurement). The projections
are also dependent on the UK government’s
continuing support for existing qualifying wind
assets through CFD subsidies. Cash outflows are
based on planned and expected maintenance
profiles and other capital or replacement costs.
The cash flow projections are based on UK power
prices between £49-£55 per MWh over the next
three years and have been discounted applying
a pre-tax real discount rate of 5.6% (2020: 6.3%)
based on technology and market risks.
The Group has capitalised goodwill of £31.7m in
relation to the acquisition of the Energy Solutions
Group in 2016. The business designs, installs and
optimises building management technologies
which deliver efficient operating environments
for its customers.
The VIU of the business CGU has been based on
a 5.6% (2020: 6.3%) pre-tax real discount rate.
Impairment conclusion – Offshore
The recoverable amount of the Onshore windfarm
CGU significantly exceeds the carrying value of the
CGU based on the impairment test, therefore no
impairment has been recognised.
Sensitivity analysis – Offshore
While cash flow projections are subject to inherent
uncertainty, a 10% power price decrease was modelled,
which indicated significant headroom on the carrying
value of the assets. Similarly, an increase in the pre-tax
real discount rate of 0.5% to 6.1% also indicated
significant headroom.
This view is supported by the Group’s current year profit
on disposal of its stake in Walney Offshore windfarm
which, as FVLCS, is secondary corroboration of the
VIU assessment.
At 31 March 2021, the impairment review indicates
headroom on the carrying value. A decrease in forecast
cashflows of 20% would result in a £0.5m impairment.
An increase in the discount rate of 4% would result in an
impairment of £2.0m.
SSE plc Annual Report 2021
227
15. Impairment testing continued
15.2 PP&E, other intangibles and investment impairment reviews – asset testing
Where an indicator of impairment exists, the recoverable amounts of the Group’s PP&E, other intangible assets and interests in joint
ventures and associates are determined by reference to VIU calculations. The calculations use, as their starting point, pre-tax cash flow
projections based on the Group’s five year Corporate Model as approved by the Board. The Group’s Corporate Model is based on past
experience and reflects the Group’s forward view of markets, prices, risks and its strategic objectives. Commodity prices used are based
on observable market data and, where this is not available, on internal estimates.
Changes from prior year
In the prior year the Group assessed that its Great Island CCGT plant did not display indicators of impairment following good operational
performance from the asset and limited uncertainty following the implementation of the Isle of Ireland Integrated Single Electricity
Market (‘I-SEM’) in October 2018. During the current year the asset has performed slightly below expectation. However, in the year to
31 March 2021, valuation of the asset has noted lower demand forecasts and a projection of lower infra-marginal rent from the asset in
future years. These factors have been considered a trigger for an impairment review and the asset has been included in the 31 March
2021 impairment assessment below.
Assets
GB CCGTs
(Keadby,
Medway,
Peterhead
and
Marchwood
(PPA Right
of use lease
asset) power
stations
Cash flow period
assumption
Operating and other
valuation assumptions
Commentary and impairment conclusions
Period to
end of life
Modelling methodology and
assumptions
The VIU of the Group’s GB
combined cycle gas turbine
(‘CCGT’) power stations were
based on pre-tax discounted
cash flows expected to be
generated by each plant, based on
management’s view of operating
prospects and operational
flexibility within the GB wholesale
market, including capacity market
clearing prices. Cash flows are
subject to a pre-tax real discount
rate between 8.9% and 19.9%
(2020: between 7.7% and 12.6%).
Changes from prior year
Certain assets within the Group’s
GB CCGT fleet are nearing the
end of their operational life
and are therefore more sensitive
to fluctuations in market
assumptions. During the year
the observable peak load spark
price assumed for the assets has
increased and there has been
strong operational performance of
the assets during the year. Due to
historic impairments of each asset,
these factors were considered an
indicator of a potential change in
carrying value for the GB CCGT
assets at 31 March 2021.
Conclusion
At 31 March 2021 no impairment, or impairment reversal, has been
recognised on each of the GB CCGT assets.
The impairment assessment returned individually non-significant
impairments to Peterhead (£3.1m) and Marchwood (£1.5m), and
individually non-significant impairment reversals to Keadby (£4.6m)
and Medway (£4.7m). The Group judged that it was appropriate not to
recognise any discrete impairment charges or reversals, as reasonably
possible scenarios modelled through the sensitivity analysis included
outcomes of impairments and impairment reversals on each asset.
Sensitivity analysis
A 20% decrease in gross margin would result in impairments to each asset.
Medway would be impaired by £6.2m; Keadby by £3.9m; Marchwood PPA
lease asset by £36.8m; and Peterhead by £31.1m.
A 20% increase in gross margin would result in impairment reversals to
each asset. The Medway impairment reversal would be £15.6m; Keadby
£13.0m; Marchwood PPA lease asset £33.7m; and Peterhead £25.0m.
A £10/KW decrease in non-contracted capacity market price would
result in impairments of £24.0m on Marchwood PPA lease asset and
£16.5m on Peterhead. Medway and Keadby would be within a range
that an impairment would not be recognised.
A £10/KW increase in non-contracted capacity market price would
result in an impairment reversal of £10.3m to Peterhead and £20.9m
to Marchwood PPA lease asset. Medway and Keadby would be within
a range that an impairment reversal would not be recognised.
228
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 15. Impairment testing continued
15.2 PP&E, other intangibles and investment impairment reviews – asset testing continued
Assets/CGUs
Cash flow period
assumption
Great Island
CCGT
Period to
end of life
Operating and other valuation assumptions
Commentary and impairment conclusions
The VIU of the Group’s Great Island
CCGT Power station was based on
pre-tax discounted cash flows expected
to be generated by the plant based on
management’s view of the plant’s operating
prospects. Cash flows are subject to a pre-tax
real discount rate of 10.8% reflecting the
specific risks in the Irish market.
During the year the plant performed slightly
below budget. This has been considered a
discrete non-recurring event by management,
which in isolation would not have triggered
an impairment review. However, lower future
demand forecasts published by EIRGRID are
expected to result in lower revenue for the
plant and internal price forecasts indicate
infra-marginal rent generated by the plant
may be lower than previously assumed.
Both of these factors have been considered
impairment triggers necessitating an
impairment review at 31 March 2021.
The VIU assessment performed on the asset indicated
an exceptional impairment of £58.1m, which has been
recognised at 31 March 2021.
The carrying value of the asset following the impairment
is £232.4m.
Sensitivity analysis
A 0.5% increase in the discount rate would increase the
impairment to £65m and a 0.5% decrease in the discount
rate would decrease the impairment to £49.7m.
A 20% decrease in gross margin would increase the
impairment to £139.7m, and a 20% increase in gross margin
would result in headroom of £24.4m and no impairment
being recognised.
A €10/KW decrease in non-contracted capacity market price
would increase the impairment to £75.7m and a €10/KW
increase would decrease the impairment to £39.6m.
Discontinued operations – assessment of carrying value of held for sale assets & liabilities
Assets/CGUs
Gas
Production
Operating and other valuation assumptions
Commentary and impairment conclusions
At 31 March 2021, no adjustment to the carrying value of the
held for sale asset has been recognised. The carrying value of
the held for sale asset is £83.8m (Note 12.3), which is equal to
the assessed fair value less costs to sell from the transaction.
Under the terms of the transaction SSE will retain 60% of
the decommissioning liability (Note 20), which has been
excluded from the carrying value of the held for sale asset.
The transaction has been agreed on a ‘locked box’ basis
effective from 1 April 2019 resulting in cashflows generated
since that date being due to the buyer.
At 31 March 2020 the Group’s Gas Production
assets were held for sale and were impaired
to their fair value less costs to sell based on
a formal offer received for the business. At
31 March 2021 the business remains classified
as held for sale, with the Group announcing
an agreement to sell the business on
22 December 2020. Completion of the sale
is expected to occur by 30 September 2021
subject to regulatory and partner approval.
In the prior year the carrying value of the
held for sale asset was impaired by £291.3m
to its fair value less costs to sell in accordance
with IFRS 5. At 31 March 2021 an assessment
has been performed to test the recoverability
of the held for sale asset against the agreed
sale value.
SSE plc Annual Report 2021
229
16. Investments
16.1 Joint Ventures and associates
2021
2020
Share of net assets/cost
At 1 April
IFRS 16 opening balance adjustment
Additions
Recognition of investment on loss of
control (i)
Repayment of shareholder loans
Dividends received
Share of profit/(loss) after tax (ii)
Share of other reserves adjustments
Disposals
Transfer – Loans to Equity
Transfers – Other Investments
Impairments
Exchange rate adjustments
At 31 March
Equity
£m
1,849.4
–
1,849.4
9.0
88.5
–
(191.1)
134.1
1.5
(226.1)
(18.4)
(2.0)
(0.1)
(1.3)
1,643.5
Loans
£m
847.5
–
847.5
179.9
10.0
(236.7)
–
–
–
(264.6)
18.4
–
–
(0.2)
554.3
Total
£m
2,696.9
–
2,696.9
188.9
98.5
(236.7)
(191.1)
134.1
1.5
(490.7)
–
(2.0)
(0.1)
(1.5)
Equity
£m
1,899.0
(9.5)
1,889.5
36.2
–
–
(213.1)
155.9
(3.4)
(23.9)
8.9
–
(1.7)
1.0
2,197.8
1,849.4
Loans
£m
935.4
–
935.4
139.5
–
(218.5)
–
–
–
–
(8.9)
–
–
–
847.5
Total
£m
2,834.4
(9.5)
2,824.9
175.7
–
(218.5)
(213.1)
155.9
(3.4)
(23.9)
–
–
(1.7)
1.0
2,696.9
(i)
In the current year the Group assessed that the equity stakes retained following the disposals of its wholly owned subsidiaries, Seagreen Holdco 1 Ltd and SSE
Slough Multifuel Ltd will be accounted for as equity accounted joint ventures. In the table above an equity investment of £88.6m (including a fair value uplift of
£47.0m on acquisition of the joint venture (see Note 12.2)) and loans of £10.0m were recognised on deconsolidation.
(ii) Of the £134.1m share of profits, only £132.0m is recognised through the Income Statement. The £2.1m difference relates to profits earned from SSE Group
companies where the costs have been capitalised. This profit has been eliminated on consolidation.
16.2 Additions and disposals of equity in the current year
During the current year the Group progressed with its plan to dispose of equity stakes in non-core or non-operated assets, including
equity stakes in investments. Further detail on the Group’s disposals in the year is provided in Note 12.2 and is summarised below.
Additions in the year arising on loss on control
Sale of Slough Multifuel subsidiary and acquisition of joint venture investment: On 2 April 2020, the Group disposed of a 50% stake in
its wholly owned subsidiary, SSE Slough Multifuel Ltd, to Copenhagen Infrastructure Partners (see Note 12.2). The Group has assessed
that control of the company was lost on that date, and that the remaining 50% investment in Slough Multifuel should be accounted for as
an equity accounted joint venture under the principles of IFRS 11 ‘Joint Arrangements’. The Group acquired the joint venture investment
at fair value of £31.3m under the principles of IFRS 10 ‘Consolidated Financial Statements’ on that date.
Sale of Seagreen 1 subsidiary and acquisition of investment: On 3 June 2020, the Group disposed of a 51% stake in its wholly owned
subsidiary, Seagreen Holdco 1 Ltd (‘Seagreen 1’), to Total (see Note 12.2). The Group has assessed that control of the company was lost
on that date, and that the remaining 49% investment in Seagreen 1 should be accounted for as an equity accounted joint venture under
the principles of IFRS 11 ‘Joint Arrangements’. The Group acquired the joint venture investment at fair value of £67.2m under the
principles of IFRS 10 ‘Consolidated Financial Statements’ on that date.
Disposals of equity in the year
Sale of investment in Ferrybridge Multifuel: On 13 October 2020, the Group announced it had reached an agreement to dispose of its 50%
joint venture investment in Multifuel Energy Limited and Multifuel Energy 2 Limited (together ‘MEL’), to European Diversified Infrastructure
Fund III for headline consideration of £995m. The agreement was subject to antitrust approval by the European Commission, which was
granted on 7 January 2021 when the transaction completed. The Group recorded an exceptional gain on disposal of £669.9m on
completion.
Sale of investment in Walney Windfarm: On 2 September 2020, the Group agreed to sell its subsidiary, SSE Renewables Walney Limited,
to Greencoat UK Wind Plc for consideration of £350m, resulting in an exceptional gain on sale of £188.7m. SSE Renewables Walney
Limited was the holding company of the Group’s non-operated 25.1% joint venture stake in Walney Offshore Windfarm.
Sale of investment in Maple Smart Meter Assets: On 23 September 2020, the Group disposed of its 33% joint venture investment in
Maple Topco Limited, the smart meter services provider, for proceeds of £95.3m, recognising an exceptional gain on disposal of £70.4m.
Sale of stake in Doggerbank A&B Windfarms: On 4 December 2020, the Group announced it had agreed to sell a 10% stake in
Doggerbank A and Doggerbank B windfarms to Eni for equity consideration of £206.3m, including an interest adjustment of £3.8m,
resulting in a non-exceptional gain on disposal of £202.8m. The gain has been recognised within the adjusted profit of the Group in line
with the Group’s stated exceptional policy for gains on disposal of divestments in offshore windfarms (see Note 3).
On the same date, Eni entered into an agreement with Equinor to purchase a further 10% stake in the development. Following these
transactions, SSE and Equinor each hold a 40% equity stake and Eni a 20% stake. Doggerbank C remains a 50:50 joint venture between
SSE and Equinor.
230
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 16. Investments continued
16.3 Acquisitions and disposals of equity in the previous year
There were no significant additions or disposals of equity in the prior year.
16.4 Principal joint ventures and associates
Under IFRS 12 Disclosure of Interests in Other Entities, the Group has evaluated the key joint ventures and associates it holds with the
purpose of disclosing any which are materially significant in order to identify the impact on the Group’s financial position, performance
and cash flows, whilst identifying the nature of the risks associated with these interests. A full listing of the Group’s incorporated joint
ventures, joint operations, associates and investments are included in the Accompanying Information (A3 ).
Share of results of joint ventures and associates
Revenue
Other Income
Depreciation and amortisation
Other operating costs
Operating profit
Interest expense
Changes in fair value of derivatives
Corporation tax
Share of post taxation results
Recognised in other comprehensive
income
Actuarial (loss)/gain on retirement
benefit schemes
Taxation
Cashflow hedges
Taxation
Total comprehensive income
2021
SGN
£m
411.8
–
(61.6)
(177.2)
173.0
(64.1)
1.0
(21.3)
88.6
(22.7)
4.4
5.8
(1.1)
75.0
2021
Windfarms
£m
2021
Thermal
Generation
£m
169.5
102.5
(90.1)
(71.2)
110.7
(54.4)
–
(17.0)
39.3
–
–
30.6
(5.6)
64.3
143.1
–
(15.8)
(86.2)
41.1
(13.4)
–
(6.1)
21.6
–
–
(5.8)
1.1
16.9
2021
Other (i)
£m
77.3
–
(38.0)
(40.0)
(0.7)
(14.6)
–
(0.1)
(15.4)
–
–
–
–
(15.4)
2021
Total
£m
801.7
102.5
(205.5)
(374.6)
324.1
(146.5)
1.0
(44.5)
134.1
(22.7)
4.4
30.6
(5.6)
140.8
2020
Total
£m
854.4
112.5
(208.2)
(349.9)
408.8
(173.8)
3.2
(82.3)
155.9
45.3
(8.8)
(49.6)
9.4
152.2
(i) Other comprises the investments the Group holds in Neos Networks Limited, Maple Topco Limited (disposed 23 September 2020) and Marron Activ8 Energies
Limited.
Share of joint ventures and associates’ assets and liabilities
Non-current assets
Current assets
Cash & cash equivalents
Current liabilities
Non-current liabilities
Other adjustments
Share of net assets of joint ventures and
associates
Shareholder loans
Interest in joint venture and associate
2021
SGN
£m
2,633.8
71.8
94.5
(147.3)
(2,038.3)
614.5
11.0
625.5
118.8
744.3
2021
Windfarms
£m
2,587.4
255.2
122.2
(295.1)
(2,445.0)
224.7
486.7
711.4
299.9
1,011.3
2021
Thermal
Generation
£m
200.9
70.3
16.7
(50.5)
(116.7)
120.7
4.6
125.3
74.7
200.0
2021
Other (i)
£m
273.1
34.4
10.8
(72.4)
(108.0)
137.9
43.4
181.3
60.9
242.2
2021
Total
£m
5,695.2
431.7
244.2
(565.3)
(4,708.0)
1,097.8
545.7
1,643.5
554.3
2,197.8
2020
Total
£m
5,335.8
1,050.1
176.4
(1,271.7)
(3,998.0)
1,292.6
556.8
1,849.4
847.5
2,696.9
Information on Group’s investments in joint ventures and associates is provided at A3, A4 and A5 .
SSE plc Annual Report 2021
231
16. Investments continued
16.5 Joint operations
Listed are the incorporated joint operations that have a material impact on the financial position and financial results of the Group.
Greater Gabbard
Offshore Winds
Limited
Principal activity
Offshore
Wind Farm
Country of
incorporation
UK
Class of shares held
Proportion of shares
held (%)
Group Interest (%)
Year end
Ordinary
50
50
31 March
The Group’s interest in Greater Gabbard Offshore Winds Limited is that of a joint operation designed to provide output to the parties
sharing control. The liabilities of the arrangement are principally met by the parties through the contracts for the output of the windfarm.
The Group also has an unincorporated arrangement with Equinor under which it accounts for its 66.7% share of the Aldbrough gas
storage facility owned by SSE Hornsea Limited. The Group also has a similar arrangement for its North Sea Gas Production assets at
Greater Laggan, Sean, ECA and Bacton, all of which are owned by SSE E&P UK Limited and are held for sale at 31 March 2021.
16.6 Other investments held at fair value through other comprehensive income
At 31 March 2019
Dividends received in the year
At 31 March 2020
Additions in year
Dividends received in the year
Transfers – joint ventures and associates
Fair value adjustment through other comprehensive income
At 31 March 2021
17. Inventories
Fuel and consumables
Renewables Obligation Certificates
Gas stocks
Less: provisions held
Total
£m
0.5
(0.3)
0.2
0.2
0.1
2.0
1.1
3.6
2020
£m
111.4
82.6
11.0
(31.0)
174.0
2021
£m
104.2
147.2
17.4
(33.9)
234.9
Where Renewables Obligation Certificates (‘ROCs’) are self-generated or purchased to fulfil the Group’s environmental obligations, they
are recorded within intangible assets. ROCs held in excess of the Group’s environmental obligations are recorded within inventories. In the
prior year the Group held excess ROCs following the disposal of SSE Energy Services on 15 January 2020 and the balance of ROCs held has
increased in the year as a result of demand reductions due to coronavirus imposed lockdowns on the Group’s Business Energy customers.
The Group has recognised £376.7m within cost of sales in the year (2020: £127.5m).
232
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 18. Trade and other receivables
Non-current assets
Loan note receivable
Current assets
Trade receivables
Unbilled energy income
Contract related assets
Other receivables
Cash held as collateral
Other prepayments and accrued income
Total trade and other receivables
2021
£m
2020
£m
115.9
100.0
832.2
325.0
12.8
127.5
2.7
188.0
913.8
370.7
25.6
78.1
256.4
116.6
1,488.2
1,761.2
1,604.1
1,861.2
The non-current loan note receivable was recognised on the disposal of SSE Energy Services on 15 January and is payable by Ovo
by 2029. The loan note carries interest of 13.25% and is presented cumulative of accrued interest repayments, discounted at 13.25%.
Unbilled energy income represents an estimate of the value of electricity or gas supplied to customers between the date of the last
meter reading and the year end. Detail of the calculation applied to estimate this balance is included at Note 4.1(iii). The Group estimates
the value of residual electricity consumption uncertainty at the year end is plus or minus £4m (2020: plus or minus £4m).
Contract related assets comprise amounts for goods or services provided under customer contracts, where the right to consideration
is contingent on a performance obligation other than the passage of time. The Group has therefore recognised a contract asset for any
work performed where payment is not yet due. The Group has assessed that the disclosures required under IFRS 15 to reconcile and
explain opening and closing contract assets are immaterial for the Group financial statements.
Other receivables include financial assets totalling £3.8m (2020: £6.3m). Cash held as collateral relates to amounts deposited on
commodity trading exchanges of £2.7m (2020: £256.4m).
Trade receivables and other financial assets are part of the Group’s financial exposure to credit risk as explained in accompanying
information Note A6.
19. Trade and other payables
Current liabilities
Trade payables
Contract related liabilities (i)
Other creditors
Other accruals (ii)
Non-current liabilities
Contract related liabilities (i)
Other accruals (ii)
2021
£m
2020
£m
433.3
38.8
269.7
1,245.5
1,987.3
201.8
520.7
722.5
413.2
55.9
251.4
1,274.9
1,995.4
207.0
432.5
639.5
Total trade and other payables
2,709.8
2,634.9
(i) Current contract related liabilities includes customer contributions of £55.4m (2020: £15.6m) and non-current contract related liabilities includes customer
contributions of £201.8m (2020: £207.0m).
(ii) Current other accruals includes government grants of £0.1m (2020: £0.1m) and non-current other accruals includes government grants of £1.9m (2020: £2.1m).
SSE plc Annual Report 2021
233
20. Provisions
At 1 April 2019
Charged in the year
Increase in decommissioning provision
Unwind of discount
Released during the year
Disposed during the year
Utilised during the year
Transfer to held for sale
Exchange rate adjustments
At 31 March 2020
Charged in the year
(Decrease) in decommissioning provision
Unwind of discount
Released during the year
Utilised during the year
Transfer (to)/from held for sale
Transfer
Exchange rate adjustments
At 31 March 2021
At 31 March 2021
Non-current
Current
At 31 March 2020
Non-current
Current
Decommissioning
(i)
£m
Contracting
Provisions (ii)
£m
Restructuring (iii)
£m
Other (iv)
£m
966.4
–
18.1
15.7
(15.0)
–
(36.3)
(380.1)
2.4
571.2
9.0
(11.1)
3.8
(1.2)
(24.8)
224.0
7.3
(1.4)
776.8
755.4
21.4
776.8
544.0
27.2
571.2
17.8
4.8
–
–
(7.1)
–
–
–
–
15.5
4.3
–
–
–
(9.2)
(9.4)
–
–
1.2
1.2
–
1.2
12.2
3.3
15.5
0.1
18.5
–
–
–
–
–
–
–
18.6
42.3
–
–
(1.4)
(9.1)
(42.3)
–
–
8.1
–
8.1
8.1
–
18.6
18.6
45.6
22.4
–
–
1.0
–
(13.0)
–
0.2
56.2
64.1
–
–
(1.5)
(25.0)
–
(7.3)
–
86.5
36.7
49.8
86.5
43.9
12.3
56.2
Total
£m
1,029.9
45.7
18.1
15.7
(21.1)
–
(49.3)
(380.1)
2.6
661.5
119.7
(11.1)
3.8
(4.1)
(68.1)
172.3
–
(1.4)
872.6
793.3
79.3
872.6
600.1
61.4
661.5
(i) Provision has been made for the estimated net present value of decommissioning the Group’s Gas Production assets, Thermal and Renewable power generation
assets and Gas Storage facilities. Estimates are based on the forecast remediation or clean-up costs at the projected date of decommissioning and are discounted
for the time value of money. During the year the Group reached an agreement to dispose of its Gas Production assets to Viaro Energy (see Note 12). As part of the
transaction, the Group agreed to retain 60% (£224.0m) of the decommissioning provision within the business, which was previously classified as held for sale and
has been included as a transfer in current year. It is expected that the costs associated with decommissioning of these Gas Production assets will be incurred
between 2021 and 2040.
(ii) The Group holds provisions in relation to certain long-term construction contracts. This includes the Group’s retained sub-contracts with the various street-
lighting PFI companies that were disposed in prior years. On 1 April 2021, subsequent to the balance sheet date, the Group agreed to dispose of its Contracting
and Rail business, therefore these provisions were classified as held for sale at 31 March 2021.
(iii) Restructuring includes provisions related to the closure and exit of operations, such as the Group’s Ferrybridge power station and the sale of SSE Contracting
(see Note 7).
(iv) Other provisions relate to costs associated with claims and disputes and the employer financed retirement benefit provision for certain directors and former
directors and employees, which is valued in accordance with IAS 19.
21. Sources of finance
21.1 Capital management
The Board’s policy is to maintain a strong balance sheet and credit rating to support investor, counterparty and market confidence in the
Group and to underpin future development of the business. The Group’s credit ratings are also important in maintaining an efficient cost
of capital and in determining collateral requirements throughout the Group. As at 31 March 2021, the Group’s long-term credit rating was
BBB+ stable outlook for Standard & Poor’s and Baa1 negative outlook for Moody’s.
The maintenance of a medium-term corporate model is a key control in monitoring the development of the Group’s capital structure
and allows for detailed scenarios and sensitivity testing. Key ratios drawn from this analysis underpin regular updates to the Board and
include the ratios used by the rating agencies in assessing the Group’s credit ratings.
The Group’s debt requirements are principally met through issuing bonds denominated in Sterling and Euros as well as private placements
and medium term bank loans including those with the European Investment Bank. During the year to 31 March 2021, the SSE Group
successfully accessed the debt capital markets on three occasions, taking £2.5bn out the market over four senior debt tranches and two
Hybrid debt securities tranches.
234
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 21. Sources of finance continued
21.1 Capital management continued
•
•
•
In April 2020 SSE plc successfully launched a €1.1bn 5-year and 10-year dual tranche Eurobond with €600m maturing April 2025 and
€500m maturing April 2030, with coupons of 1.25% and 1.75% respectively. Both tranches have been swapped to Sterling resulting in
a funding cost of 2.4% for the five year and 2.9% for the 10 year.
In July 2020, SSE plc issued a dual tranche equity accounted hybrid bond to replace the hybrids issued in 2015 (at an all-in rate of
4.02%), which had issuer first call dates of 10 September 2020 (£750m) and 1 April 2021 (€600m). This dual tranche issue comprises a
perpetual non-call 5.75-year note at £600m with a coupon of 3.74%; and a perpetual non-call 7.0-year note at €500m with a coupon
of 3.125%. The €500m tranche has been partly swapped back to Sterling, resulting in an all-in funding cost for both tranches to SSE
of just under 3.8% per annum.
In March 2021, SSEN Transmission issued a new £500m dual tranche green bond being a 7-year bond with a coupon of 1.50% and
a 15-year bond with a coupon of 2.125%. This was our fourth green bond in five years and reaffirmed our status as the largest issuer
of green bonds in the FTSE 100. At the same time, we set out a new framework for issuing innovative sustainability-linked bonds in
the future.
SSE has £1.5bn of committed bank facilities in place to ensure the Group has sufficient liquidity to allow day-to -day operations and
investment programmes to continue in the event of disruption to capital markets preventing SSE from issuing new debt for a period
of time. These facilities are a £1.3bn revolving credit facility with a March 2026 maturity and a £200m bilateral facility with an October
2025 maturity and an option to extend for a further year to October 2026. The facilities can also be utilised to cover short-term funding
requirements; however, they remain undrawn for most of the time and at 31 March 2021 they were both undrawn. Both facilities
are classified as sustainable facilities with interest rate and fees paid dependant on SSE’s performance in environmental, social and
governance matters, as assessed independently by Vigeo Eiris.
The Group capital comprises:
Total borrowings (excluding lease obligations)
Less: Cash and cash equivalents
Net debt (excluding hybrid equity)
Hybrid equity
Cash held as collateral and other short-term loans
Adjusted Net Debt and Hybrid Equity
Equity attributable to shareholders of the parent
Total capital excluding lease obligations
2021
£m
8,989.6
(1,600.2)
7,389.4
1,472.4
37.1
8,898.9
5,208.7
14,107.6
2020
£m
9,717.2
(164.6)
9,552.6
1,169.7
(256.4)
10,465.9
3,750.4
14,216.3
Under the terms of its major borrowing facilities, the Group is required to comply with the following financial covenant:
• Interest Cover Ratio: The Group shall procure that the ratio of Operating Profit to Net Interest Payable for any relevant period is not
less than 2.5 to 1.
The following definitions apply in the calculation of these financial covenants:
•
‘Operating Profit’ means, in relation to a relevant period, the profit on ordinary activities before taxation (after adding back Net
Interest Payable) of the Group for that relevant period but after adjusting this amount to exclude any exceptional profits (or losses)
and, for the avoidance of doubt, before taking account of any exceptional profits (or losses) and excluding the effect of IFRS 9
remeasurements.
‘Net Interest Payable’ means, in respect of any relevant period, interest payable during that relevant period less interest receivable
during that relevant period.
•
In summary, the Group’s intent is to balance returns to shareholders between current returns through dividends and long-term capital
investment for growth. In doing so, the Group will maintain its capital discipline and will continue to operate within the current economic
environment prudently. There were no changes to the Group’s capital management approach during the year.
SSE plc Annual Report 2021
235
21. Sources of finance continued
21.2 Loans and other borrowings
Current
Short-term loans
Lease obligations
Non-current
Loans
Lease obligations
Total loans and borrowings
Cash and cash equivalents
Unadjusted net debt
Add/(less):
Hybrid equity
Lease obligations
Cash held as collateral and other short term loans
Adjusted net debt and hybrid capital
2021
£m
864.7
72.9
937.6
8,124.9
348.1
8,473.0
2020
£m
1,893.8
73.1
1,966.9
7,823.4
382.1
8,205.5
9,410.6
10,172.4
(1,600.2)
(164.6)
7,810.4
10,007.8
1,472.4
(421.0)
37.1
1,169.7
(455.2)
(256.4)
8,898.9
10,465.9
Cash and cash equivalents comprise cash at bank and short term highly liquid investments with a maturity of six months or less. The
cash and cash equivalents are higher year on year due to a higher surplus cash position at March 2021 as a result of disposal proceeds
and proceeds from the £500m debt issue in March 2021.
21.3 Borrowing facilities
The Group has an established €1.5bn Euro commercial paper programme and as at 31 March 2021 there was no commercial paper
outstanding (2020: £672.4m). The Group also has £1.5bn of revolving credit facilities (see Note 21.1). These facilities continue to provide
back-up to the commercial paper programme and, as at 31 March 2021 these facilities were undrawn.
During the year to 31 March 2021, as referred at Note 21.1, the SSE Group successfully accessed the debt markets on three occasions
raising £2.5bn from the market over four senior debt tranches and two hybrid equity securities tranches.
236
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 21. Sources of finance continued
21.3 Borrowing facilities continued
Analysis of borrowings
Current
Bank Loans – non-amortising (i)
Other Short term loans – non-amortising (ii)
2.00% 600m Eurobond repayable 17 June 2020
4.25% Eurobond repayable 14 September 2021
2.375% €500m Eurobond repayable 10 February
2022 (v)
Total current borrowings
Non-current
Bank loans – non-amortising (i)
4.25% Eurobond repayable 14 September 2021
2.375% €500m Eurobond repayable 10 February
2022 (v)
US Private Placement 16 April 2022
5.875% Eurobond repayable 22 September 2022
US Private Placement 28 April 2023
US Private Placement 6 September 2023
1.75% €700m Eurobond repayable 8 September
2023 (vi)
US Private Placement 16 April 2024
1.250% Eurobond repayable 16 April 2025 (ix)
0.875% €600m Eurobond repayable 8 September
2021
Weighted
average
interest rate
(iv)
2021
Face value
£m
2021
Fair value
£m
2021
Carrying
amount
£m
2020
Weighted
average
interest rate
(iii)
2020
Face value
£m
2020
Fair value
£m
2020
Carrying
amount
£m
0.8%
–
–
4.3%
2.4%
2.9%
–
–
4.3%
5.9%
2.8%
2.9%
1.8%
4.4%
1.3%
150.0
–
–
300.0
415.0
865.0
200.0
–
–
162.7
300.0
35.0
120.0
514.6
204.1
531.4
150.6
–
–
305.0
424.6
880.2
209.0
–
–
193.5
323.5
36.3
124.0
538.5
253.8
557.1
150.0
–
–
299.8
414.9
864.7
200.0
–
–
162.6
299.6
34.7
119.2
514.1
203.9
531.4
1.7%
1.1%
2.7%
–
574.9
776.2
546.8
–
577.8
778.4
548.8
–
574.8
772.4
546.6
–
–
–
–
–
1,897.9
1,905.0
1,893.8
2.3%
4.3%
2.4%
4.3%
5.9%
2.8%
2.9%
1.8%
4.4%
–
350.0
300.0
415.0
162.7
300.0
35.0
120.0
514.6
204.1
–
362.2
309.8
428.2
211.4
327.5
34.4
116.6
532.1
267.1
–
350.0
299.4
414.8
162.6
299.3
34.6
118.5
513.9
203.9
–
2025
0.9%
510.9
527.0
508.4
–
–
–
–
4.75% $900m NC5.5 Hybrid debt maturing
16 September 2077 (viii)
3.625% NC5.5 Hybrid maturing 16 September
4.8%
730.0
752.2
729.0
4.8%
749.2
729.7
747.5
2077 (viii)
3.6%
300.0
307.3
299.6
3.6%
300.0
293.2
299.3
Between two and five years
3,608.7
3,822.2
3,602.5
3,450.6
3,612.2
3,443.8
Bank loans – non-amortising (i)
US Private Placement 8 June 2026
US Private Placement 6 September 2026
US Private Placement 6 September 2027
0.875% €600m Eurobond repayable 8 September
1.6%
3.1%
3.2%
3.2%
500.0
64.0
247.1
35.0
513.4
67.7
265.8
37.2
499.8
62.9
243.7
34.5
1.8%
3.1%
3.2%
3.2%
500.0
64.0
247.1
35.0
519.1
63.7
265.6
34.5
499.8
63.0
243.1
34.4
2025
–
–
–
–
0.9%
530.9
526.4
527.9
1.375% €650m Eurobond repayable 4 September
2027 (vii)
1.50% Eurobond repayable 24 March 2028
8.375% Eurobond repayable on 20 November
2028
1.750% Eurobond repayable 16 April 2030 (x)
5.50% Eurobond repayable on 7 June 2032
2.25% Eurobond repayable 27 September 2035
2.125% Eurobond repayable 24 March 2036
4.625% Eurobond repayable on 20 February 2037
6.25% Eurobond repayable on 27 August 2038
4.454% Index linked loan repayable on
27 February 2044
1.429% Index linked bond repayable on
20 October 2056
Over five years
Fair value adjustment (iii)
Total non-current borrowings
Total borrowings
1.4%
1.5%
8.4%
1.8%
5.5%
2.3%
2.1%
4.6%
6.3%
591.4
250.0
500.0
442.9
350.0
350.0
250.0
325.0
350.0
631.8
248.0
732.1
485.3
476.5
350.1
246.1
425.3
539.5
590.0
248.8
496.8
442.9
350.1
347.0
248.2
324.2
347.3
1.4%
–
8.4%
–
5.5%
2.3%
–
4.6%
6.3%
591.4
–
500.0
–
350.0
350.0
–
325.0
350.0
600.9
–
712.6
–
451.2
331.3
–
397.3
501.2
589.8
496.4
–
350.1
346.8
–
324.0
347.1
4.5%
135.9
241.7
135.4
4.5%
135.5
287.1
134.2
2.0%
147.6
252.1
147.6
2.0%
146.2
199.7
146.2
4,538.9
5,512.6
4,519.2
4,125.1
4,890.6
4,102.8
3.2
276.8
8,147.6
9,334.8
8,124.9
7,575.7
8,502.8
7,823.4
9,012.6 10,215.0
8,989.6
9,473.6
10,407.8
9,717.2
SSE plc Annual Report 2021
237
21. Sources of finance continued
21.3 Borrowing facilities continued
Analysis of borrowings continued
Note: The Sterling-equivalent fair value reflects the fair value of non-Sterling denominated borrowings, post the impact of the hedges noted below.
(i) Balances include term loans and EIB debt and is a mixture of fixed and floating rate debt.
(ii) Balances include Commercial Paper and facility advances.
(iii) The fair value adjustment relates to the change in the carrying amount of the borrowings as a result of fair value hedges that are in place. The movement in the fair
value adjustment is recognised in the income statement with a corresponding movement on the hedging instrument also being recognised in the income statement.
(iv) The weighted average interest rates (including the effect of interest rate swaps) for the year ended 31 March 2021 was 3.12% (2020 – 3.18%).
(v) The 2.375% €500m Eurobond maturing 10 February 2022 has been swapped to Sterling giving an effective interest rate of 3.53%.
(vi) The 1.75% €700m Eurobond maturing 8 September 2023 has been swapped to Sterling giving an effective interest rate of 3.16%.
(vii) The 1.375% €650m Eurobond maturing 4 September 2027 has been swapped to Sterling giving an effective interest rate of 2.56%.
(viii) The 4.75% $900m NC5.5 Hybrid maturing 16 September 2077 has been swapped to Euros ($605m) and Sterling ($295m) giving an effective interest rate of 2.25%
and 3.29% respectively. This and the 3.625% NC5.5 Hybrid maturing 16 September 2077 are the Group’s debt-accounted Hybrids, see (ii) below.
(ix) The 1.250% €600m eurobond maturing 16 April 2025 has been swapped to Sterling giving an effective interest rate of 2.43%.
(x) The 1.750% €500m eurobond maturing 16 April 2030 has been swapped to Sterling giving an effective interest rate of 2.89%.
(i) Lease liabilities
IFRS 16 was adopted in the prior year under the Modified Retrospective approach, whereby the cumulative effect of adopting the
standard was recognised as an adjustment to the opening lease liability on 1 April 2019. The opening balance below at 1 April 2019
includes this transition adjustment.
Amounts charged under lease arrangements are detailed within Note 6, and right of use assets recognised under lease arrangements are
detailed within Note 14.
At 1 April 2019
Additions during the year
Disposals during the year
Unwind of discount
Repayment in the year
At 31 March 2020
Additions during the year
Disposals during the year
Unwind of discount
Repayment in the year
Transfer to liabilities held for sale
At 31 March 2021
£m
482.6
46.6
(7.5)
36.8
(103.3)
455.2
43.6
(7.9)
33.1
(100.8)
(2.2)
421.0
The weighted average incremental borrowing rate applied to lease liabilities during the year was 4.84% (2020: 4.56%). Incremental
borrowing rates applied to individual lease additions in the year ranged between 4.01% to 5.06% (2020: 4.06% to 5.06%).
The Group has additional committed payments under short term and low value leases at 31 March 2021 of £35.0m (2020: £36.2m).
The maturity of future lease liabilities are as follows:
Within one year
Between one and five years
After five years
Less: future finance charge
Present value of lease obligations
2021
£m
92.7
262.1
267.2
622.0
(201.0)
421.0
2020
£m
96.5
303.4
284.7
684.6
(229.4)
455.2
(ii) Hybrid debt
On 16 March 2017, the Group issued £1.0bn of hybrid debt securities. The securities have an issuer first call date on 16 September 2022
and are able to be redeemed at the Group’s discretion. This dual tranche issue comprises £300m with a coupon of 3.625% and $900m
with a coupon of 4.75%. The $900m tranche was swapped back to both Euros and Sterling, bringing the all-in rate down to 2.72%
and resulting in an all-in funding cost for both tranches to SSE of 3.02% per annum. Due to these hybrid instruments having a fixed
redemption date, they are accounted for as a debt item and are included within Loans and Other Borrowings in Note 21.2. This is in
contrast to the Hybrid instruments issued in 2015 and 2020 which have no fixed redemption date and are accounted for as Equity,
see Note 22.5.
238
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 21. Sources of finance continued
21.4 reconciliation of net increase in cash and cash equivalents to movement in adjusted net debt and
hybrid equity
2021
£m
2020
£m
Increase/(decrease) in cash and cash equivalents
Add/(less):
Cash presented as held for sale
New borrowing proceeds
New hybrid equity proceeds
Repayment of borrowings
Disposal of borrowings
Repayment of hybrid equity
Non-cash movement on borrowings
(Decrease) in cash held as collateral and other short term loans
1,435.6
(267.0)
–
(1,912.9)
(1,051.0)
1,895.9
438.6
748.3
306.0
(293.5)
(95.2)
(1,122.4)
–
668.4
–
–
(124.9)
(87.8)
Decrease/(increase) in adjusted net debt and hybrids
1,567.0
(1,028.9)
Cash held as collateral refers to amounts deposited on commodity trading exchanges and loans provided with a less than three month
maturity which are reported within trade and other receivables on the face of the balance sheet.
21.5 Reconciliation of movements in financing liabilities
Financing cash flows
Non-cash movements
At
31 March
2020
£m
New
Borrowings
£m
Disposal of
borrowings
£m
Repayment
of
Borrowings
£m
Repayment
of lease
creditor
£m
Fair Value
movements
£m
Foreign
exchange
Movements
£m
Lease
liabilities
£m
Reclassification
£m
Other
£m
At
31 March
2021
£m
–
–
–
–
–
–
Financing
Liabilities
Bank loans
US Private
849.7
438.6
(438.6)
Placement
1,040.4
–
4,625.2
1,474.3
280.4
1,023.5
–
–
–
–
–
–
7,819.2
1,912.9
(438.6)
Fixed rate
Eurobonds
Index Linked
Loans
Hybrid Debt
Total long term
borrowings
Bank loans
Fixed rate
Eurobonds
Other short
term loans
– non-
amortising
US Private
placement
576.7
548.9
772.4
–
Total short term
borrowings
1,898.0
–
–
–
–
–
–
–
–
–
–
(574.8)
(548.7)
(772.4)
–
(1,895.9)
9,717.2
1,912.9
(438.6)
(1,895.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
(126.0)
–
–
(86.3)
(20.1)
–
(54.5)
–
(19.2)
(266.8)
(39.3)
(1.9)
(5.0)
–
–
–
1.9
–
–
(6.9)
1.9
(273.7)
(37.4)
–
–
–
–
–
–
–
–
–
–
–
–
Lease liabilities
455.2
–
–
–
(100.8)
–
–
66.6
Total loans and
borrowings
Assets held to
hedge long
term
borrowings
10,172.4
1,912.9
(438.6)
(1,895.9)
(100.8)
(273.7)
(37.4)
66.6
(84.8)
1.6
–
–
–
(232.2)
–
–
10,087.6
1,914.5
(438.6)
(1,895.9)
(100.8)
(505.9)
(37.4)
66.6
(150.0)
– 699.7
–
1.5
915.9
(714.2)
(0.8) 5,278.1
–
–
2.6
1.0
283.0
950.8
(864.2)
4.3 8,127.5
150.0
150.0
714.2
0.8
712.1
–
–
–
–
–
–
864.2
0.8
862.1
–
–
–
–
–
5.1 8,989.6
– 421.0
5.1 9,410.6
– (315.4)
5.1 9,095.2
SSE plc Annual Report 2021
239
21. Sources of finance continued
21.5 Reconciliation of movements in financing liabilities continued
At 31 March
2019
£m
New
Borrowings
£m
Financing cash flows
Repayment
of
Borrowings
£m
Repayment
of lease
creditor
£m
Fair Value
movements
£m
Foreign
exchange
Movements
£m
Non-cash movements
Lease
liabilities
£m
Reclassification
£m
Other
£m
At 31 March
2020
£m
Financing
Liabilities
Bank loans
US Private
Placement
Fixed rate
Eurobonds
Index Linked
Loans
Hybrid Debt
Total long term
borrowings
Bank loans
Fixed rate
Eurobonds
Other short term
loans – non-
amortising
US Private
placement
Total short term
borrowings
1,421.6
999.5
–
–
4,762.6
350.0
273.7
989.3
–
–
8,446.7
350.0
–
–
–
–
–
–
115.3
–
–
–
(107.7)
–
493.7
772.4
(493.7)
82.6
–
(67.0)
691.6
772.4
9,138.3
1,122.4
(668.4)
(668.4)
–
–
–
–
–
–
–
–
–
–
–
–
Lease liabilities
229.3
–
–
(103.3)
3.0
39.3
44.3
–
21.0
107.6
(5.8)
–
–
(15.6)
(21.4)
86.2
–
–
–
12.8
–
12.2
25.0
–
4.3
–
–
4.3
29.3
–
–
–
–
–
–
–
–
–
–
–
–
–
329.2
Total loans and
borrowings
Assets held to
hedge
long-term
borrowings
9,367.6
1,122.4
(668.4)
(103.3)
86.2
29.3
329.2
(126.1)
(51.5)
–
–
9,241.5
1,070.9
(668.4)
(103.3)
92.8
179.0
–
29.3
–
329.2
22. Equity
22.1 Share capital
Allotted, called up and fully paid:
At 1 April 2019
Issue of shares (i)
Shares repurchased (ii)
At 31 March 2020
Issue of shares (i)
Shares repurchased (ii)
At 31 March 2021
(574.9)
–
849.7
–
1.6
1,040.4
(543.8)
(0.7)
4,625.2
–
–
(1,118.7)
574.9
543.8
–
–
1,118.7
–
–
–
–
–
6.7
1.0
8.6
–
0.8
–
–
0.8
9.4
–
280.4
1,023.5
7,819.2
576.7
548.9
772.4
–
1,898.0
9,717.2
455.2
9.4
10,172.4
–
(84.8)
9.4
10,087.6
Number
(millions)
1,046.9
28.2
(28.8)
1,046.3
2.8
–
1,049.1
£m
523.4
14.1
(14.4)
523.1
1.4
–
524.5
The Company has one class of ordinary share which carries no right to fixed income. The holders of ordinary shares are entitled to
receive dividends as declared and are entitled to one vote per share at meetings of the Company.
(i) Shareholders were able to elect to receive ordinary shares in place of the final dividend of 56.0p per ordinary share (in relation to year ended 31 March 2020) and
the interim dividend of 24.4p (in relation to the current year) under the terms of the Company’s scrip dividend scheme. This resulted in the issue of 1,918,977 and
883,408 new fully paid ordinary shares respectively (2020: 19,086,291 and 9,136,089). In addition, the Company issued 0.9m (2020: 0.8m) shares during the year
under the savings-related share option schemes (all of which were settled by shares held in Treasury) for a consideration of £10.4m (2020: £10.1m).
240
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 22. Equity continued
22.1 Share capital continued
(ii) No shares were purchased in the year to 31 March 2021. (2020: Under the share buyback programme announced on 1 February 2019, 28.8m shares were repurchased
and cancelled in the current year for a total of £352.0m (including stamp duty and commission)). The nominal value of share capital repurchased and cancelled is
transferred out of share capital and into the capital redemption reserve.
Of the 1,049.1m shares in issue, 6.1m are held as treasury shares. These shares will be held by the Group and used to award shares to employees under the
Sharesave scheme in the UK.
During the year, on behalf of the Company, the employee share trust purchased 0.9m shares for a total consideration of £12.9m (2020:
1.1m shares, consideration of £14.6m) to be held in trust for the benefit of employee share schemes. At 31 March 2021, the trust held
7.7m shares (2020: 7.6m) which had a market value of £112.5m (2020: £99.3m).
22.2 Capital redemption reserve
The capital redemption reserve comprises the value of shares redeemed or purchased by the Company from distributable profits.
22.3 Hedge reserve
The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedge derivative
instruments related to hedged transactions that have not yet occurred.
22.4 Translation reserve
Comprises exchange translation differences on foreign currency net investments offset by exchange translation differences on
borrowings and derivatives classified as net investment hedges under IAS 39.
22.5 Hybrid Equity
GBP 750m 3.875% perpetual subordinated capital securities (i)
EUR 600m 2.375% perpetual subordinated capital securities (i)
GBP 600m 3.74% perpetual subordinated capital securities (ii)
EUR 500m 3.125% perpetual subordinated capital securities (ii)
2021
£m
–
421.4
598.0
453.0
2020
£m
748.3
421.4
–
–
1,472.4
1,169.7
(i) 10 March 2015 £750m and €600m Hybrid Capital Bonds
The March 2015 hybrid equity bonds have no fixed redemption date, but the Company may, at its sole discretion, redeem all, but not part,
of the capital securities at their principal amount. The date for the first potential discretionary redemption of the £750m hybrid equity
bond was executed and this hybrid bond was redeemed on 10 September 2020. The date for the first discretionary redemption of the
€600m hybrid equity bond is 1 April 2021 and then every 5 years thereafter.
(ii) 2 July 2020 £600m and €500m Hybrid Capital Bonds
The new hybrid capital bonds issued in July 2020 have no fixed redemption date, but the Company may, at its sole discretion, redeem all
but not part of the capital securities at their principal amount. The date for the first potential discretionary redemption of the £600m hybrid
bond is 14 April 2026 and then every 5 years thereafter. The date for the first potential discretionary redemption of the €500m hybrid capital
bond is 14 July 2027 and then every 5 years thereafter. For the £600m Hybrid the coupon payments are made annually on 14 April and for
the €500m Hybrid the coupon payments are made annually on 14 July.
(iii) Coupon Payments
In relation to the €600m hybrid equity bond a coupon payment of £17.5m (2020: £17.4m) was made on 1 April 2020 and for the £750m
hybrid equity bond the final coupon payment of £29.1m (2020: £29.1m) was made on 10 September 2020. No coupon payments have
been made on the new Hybrids issued in July 2020 with the first coupon payments not due until the 21/22 financial year.
The coupon payments in the year to 31 March 2021 consequently totalled £46.6m (2020: £46.5m).
The Company has the option to defer coupon payments on the bonds on any relevant payment date, as long as a dividend on the ordinary
shares has not been declared. Deferred coupons shall be satisfied only in the following circumstances, all of which occur at the sole
option of the Company:
• redemption; or
• dividend payment on ordinary shares.
Interest will accrue on any deferred coupon.
SSE plc Annual Report 2021
241
23. Retirement benefit obligations
Defined benefit schemes
The Group has two funded final salary pension schemes which provide defined benefits based on final pensionable pay. The schemes
are subject to independent valuations at least every three years. The future benefit obligations are valued by actuarial methods on the
basis of an appropriate assessment of the relevant parameters.
The Group also has an Employer Financed Retirement Benefit scheme and a defined contribution scheme, SSE Pensions+ under a
master trust with Aviva. The Group matches employee contributions up to a specified limit, in most circumstances this is set at 6%.
The Group may also provide additional contributions of 3% after five years and a further 3% after ten year’s continuous Group service.
The Group presents its pension scheme valuations under two different measurement bases, an actuarial valuation and an IAS 19
valuation as required by accounting standards. The IAS 19 valuation is used to determine the assets and obligations recognised in the
Group’s consolidated balance sheet and is calculated annually by scheme actuaries, whereas the formal actuarial valuation is used to
determine the contributions the Group make to the scheme. The actuarial valuation is recalculated for each scheme every three years.
Actuarial valuations
The individual pension scheme details based on the latest formal actuarial valuations are as follows:
Latest formal actuarial valuation
Valuation carried out by
Value of assets based on valuation
Value of liabilities based on valuation
Valuation method adopted
Average salary increase
Average pension increase
Value of fund assets/accrued benefits
Scottish Hydro Electric
Southern Electric
31 March 2018
Hymans Robertson
31 March 2019
Aon Hewitt
£2,059.0m
£1,902.3m
Projected Unit
RPI+1%
RPI
108.2%
£2,257.8m
£2,544.4m
Projected Unit
RPI+0.5%
RPI
88.7%
Future contributions
Scottish Hydro Electric Scheme
The last actuarial valuation of the scheme was carried out at 31 March 2018 and showed a surplus of £156.7m on a projected unit basis.
Following this valuation, the Group agreed to cease contributions to the scheme during the year ended 31 March 2020 for a period until
the actuarial valuation of the scheme is in deficit for two consecutive quarterly valuations. Consequently, the Group is not expected
to make contributions to the scheme in the year ending 31 March 2022. The next triennial funding valuation will be carried out as at
31 March 2021. This process began during the year and is expected to be finalised by 30 September 2021. As part of that process the
Trustee and Company will agree future contributions to the scheme based on the valuation.
Southern Electric Pension Scheme
The last actuarial valuation of the Scheme was finalised in the prior year and showed a deficit of £286.6m as at 31 March 2019 on
a projected unit basis. The Group continues to pay deficit contributions which, along with investment returns from return-seeking
assets, is expected to make good this shortfall by 31 March 2027. The next funding valuation will be carried out as at 31 March 2022. The
Company also pays contributions in respect of current accrual, with some active members also paying contributions. Total contributions
of approximately £54.7m are expected to be paid by the Company during the year ending on 31 March 2022, including deficit repair
contributions of £40.9m.
Pension summary as measured under IAS 19:
Scottish Hydro Electric
Southern Electric
Net actuarial gain/(loss)
Scheme type
Net actuarial gain/(loss) recognised in
respect of the pension asset in the
Statement of Comprehensive Income
Net pension asset/(liability)
Defined benefit
Defined benefit
2021
£m
8.6
(24.4)
(15.8)
2020
£m
(2.8)
11.1
8.3
2021
£m
543.1
(186.1)
357.0
2020
£m
534.2
(192.5)
341.7
IFRC 14 surplus restrictions
The value of Scottish Hydro Electric Pension Scheme assets recognised was previously impacted by the asset ceiling test which restricts
the surplus that can be recognised to assets that can be recovered through future refunds or reductions in future contributions to the
schemes, and may increase the value of scheme liabilities where there are minimum funding liabilities in relation to agreed contributions.
IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’ clarifies that future
refunds may be recognised if the sponsoring entity has an unconditional right to a refund in certain circumstances.
242
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021
23. Retirement benefit obligations continued
Future contributions continued
In 2016/17 the Group agreed with the trustees to the Scottish Hydro Electric pensions scheme an amendment to the scheme rules to
clarify that the Company has a clear right to any surplus upon final winding up of the scheme. This amendment removes the previous
restriction on recognition of any surplus and as such the previously applied restriction is no longer recognised. The net pension asset of
the Scottish Hydro Electric Scheme at 31 March 2021 was equal to £543.1m (2020: £534.2m).
At 31 March 2021, the Southern Electric Pension Scheme has a net deficit of £186.1m, and unrecognised future contributions of £224.9m,
which when paid, will result in a notional surplus of £38.8m. The Group has assessed that it has the right to recognise any future surpluses
on the scheme, therefore has not recognised a liability for future unrecoverable contributions.
23.1 pension scheme assumptions
Both schemes have been updated to 31 March 2021 by qualified independent actuaries. The valuations have been prepared for the
purposes of meeting the requirements of IAS 19. The major assumptions used by the actuaries in both schemes were:
Rate of increase in pensionable salaries
Rate of increase in pension payments
Discount rate
Inflation rate
At
31 March
2021
3.7%
3.2%
2.0%
3.2%
At
31 March
2020
3.2%
2.7%
2.3%
2.7%
The assumptions relating to longevity underlying the pension liabilities at 31 March 2021 are based on standard actuarial mortality tables,
and include an allowance for future improvements in longevity. The assumptions, equivalent to future longevity for members in normal
health at age 65, are as follows:
Scottish Hydro Electric
Currently aged 65
Currently aged 45
Southern Electric
Currently aged 65
Currently aged 45
At 31 March 2021
At 31 March 2020
Male
23
25
Female
24
27
Male
23
24
At 31 March 2021
At 31 March 2020
Male
23
24
Female
25
26
Male
23
24
Female
24
26
Female
25
26
23.2 sensitivity analysis
The impact on the schemes’ liabilities of changing certain of the major assumptions is as follows:
Scottish Hydro Electric
Rate of increase in pensionable salaries
Rate of increase in pension payments
Discount rate
Longevity
At 31 March 2021
At 31 March 2020
Increase/
decrease in
assumption
0.1%
0.1%
0.1%
1 year
Effect on
scheme’s
liabilities
+/-0.1%
+/-1.0%
+/-0.9%
+/-1.8%
Increase/
decrease in
assumption
0.1%
0.1%
0.1%
1 year
Effect on
scheme’s
liabilities
+/-0.2%
+/-0.9%
+/-0.9%
+/-1.8%
During the prior year a longevity swap contract in the Scottish Hydro Electric Scheme was converted to a ‘buy-in’ contract, reducing the
Group’s exposure to fluctuations in the calculation of the obligation (see Note 23.6).
Southern Electric
Rate of increase in pensionable salaries
Rate of increase in pension payments
Discount rate
Longevity
At 31 March 2021
At 31 March 2020
Increase/
decrease in
assumption
0.1%
0.1%
0.1%
1 year
Effect on
scheme’s
liabilities
+/-0.2%
+/-1.5%
+/-1.6%
+/-6.0%
Increase/
decrease in
assumption
0.1%
0.1%
0.1%
1 year
Effect on
scheme’s
liabilities
+/-0.2%
+/-1.6%
+/-1.7%
+/-4.4%
SSE plc Annual Report 2021
243
23. Retirement benefit obligations continued
23.3 valuation of combined pension schemes
Equities
Government bonds
Corporate bonds
Insurance Contracts (i)
Other investments
Total fair value of plan assets
Present value of defined benefit obligation
Surplus/(deficit) in the schemes
Deferred tax thereon (ii)
Net pension asset
Quoted
£m
626.8
1,139.9
176.7
–
1,588.4
Unquoted
£m
–
–
–
780.3
–
Quoted
£m
500.6
857.8
145.1
–
1,694.0
Unquoted
£m
–
–
–
725.4
–
Value at
31 March
2021
£m
626.8
1,139.9
176.7
780.3
1,588.4
4,312.1
(3,955.1)
357.0
(67.8)
289.2
(i) See details of valuations of insurance contracts in Note 23.6 (iv).
(ii) Deferred tax rate of 19% applied to net pension surplus position (2020: 19%).
23.4 Movements in the combined defined benefit asset obligations and assets during the year
At 1 April
Included in Income Statement
Current service cost
Past service cost (i)
Settlements and curtailments
Interest income/(cost)
Included in Other Comprehensive Income
Actuarial (loss)/gain arising from:
Demographic assumptions
Financial assumptions
Experience assumptions
(Loss)/Return on plan assets excluding
interest income
Other
Contributions paid by the employer
Scheme participant’s contributions
Benefits Paid
2021
Assets
£m
Obligations (i)
£m
3,922.9
(3,581.2)
–
–
(7.7)
88.5
80.8
–
–
–
447.0
447.0
56.3
0.1
(195.0)
(138.6)
(29.3)
(5.8)
9.3
(80.2)
(106.0)
(23.1)
(461.5)
21.8
–
(462.8)
–
(0.1)
195.0
194.9
2020
Assets
£m
Obligations (i)
£m
4,329.6
(4,042.5)
–
–
(69.4)
99.8
30.4
–
–
–
(319.3)
(319.3)
72.3
0.2
(190.3)
(117.8)
(39.0)
(8.1)
83.9
(93.2)
(56.4)
6.6
284.4
36.6
–
327.6
–
(0.2)
190.3
190.1
Total
341.7
(29.3)
(5.8)
1.6
8.3
(25.2)
(23.1)
(461.5)
21.8
447.0
(15.8)
56.3
–
–
56.3
Balance at 31 March
4,312.1
(3,955.1)
357.0
3,922.9
(3,581.2)
Value at
31 March
2020
£m
500.6
857.8
145.1
725.4
1,694.0
3,922.9
(3,581.2)
341.7
(64.9)
276.8
Total
£m
287.1
(39.0)
(8.1)
14.5
6.6
(26.0)
6.6
284.4
36.6
(319.3)
8.3
72.3
–
–
72.3
341.7
244
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 23. Retirement benefit obligations continued
23.4 Movements in the combined defined benefit asset obligations and assets during the year continued
Pension scheme contributions and costs
Charges/(credits) recognised:
2021
£m
2020
£m
Service costs (charged to operating profit)
Settlements and curtailment (gains) (i)
(Credited)/charged to finance costs:
Interest from pension scheme assets
Interest on pension scheme liabilities
35.1
(1.6)
33.5
(88.5)
80.2
(8.3)
47.1
(14.5)
32.6
(99.8)
93.2
(6.6)
(i) During the prior year the Group disposed of SSE Energy Services, which resulted in an exceptional gain of £14.5m being recognised in the pension schemes on the
transfer values of assets and liabilities transferred from the schemes to a new Ovo defined benefit scheme. In the current year there was a further £1.6m gain related
to settlements to Ovo employees who remained within the scheme following the disposal of the business. These gains have been treated as exceptional in both
periods and offset against the overall loss on disposal of the business.
The return on pension scheme assets is as follows:
(Loss)/return on pension scheme assets
2021
£m
535.5
2020
£m
(219.5)
Guaranteed minimum pension (‘GMP’) equalisation charge
Following the High Court ruling on GMP equalisation on 26 October 2018, the Group recognised an exceptional past service cost of
£9.0m in its 31 March 2019 financial statements. The equalisation is a point estimate calculated under the C2 method of equalisation
with no limit on the period of arrears. During the current year, a further court case was heard which ruled that all transfers with GMPs
built up between 17 May 1990 and 5 April 1997 would also need to be equalised. Following this ruling, the Group has recognised a
non-exceptional past service cost of £1.5m across both schemes in the current year.
Defined contribution scheme
The total contribution paid by the Group to defined contribution pension schemes was £61.6m (2020: £67.1m).
Employer financed retirement benefit (EFRB) pension costs
The increase in the year in relation to EFRB was £5.8m (2020: decrease of £2.4m). This is included in other provisions (Note 20).
Staff costs analysis
The pension costs in Note 8 can be analysed thus;
Service costs
Defined contribution scheme payments
Less: pension costs of employees in discontinued operations
2021
£m
35.1
61.6
–
96.7
2020
£m
47.1
67.1
(26.1)
88.1
SSE plc Annual Report 2021
245
23. Retirement benefit obligations continued
23.5 Pension scheme risk assessment and mitigation
Risks to which the Pension Schemes exposes the Group
The nature of the Group’s defined benefit pension schemes expose the Group to the risk of paying unanticipated additional contributions
to the schemes in times of adverse experience. The most financially significant risks are likely to be:
(i) Asset volatility
The liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, this will
create a deficit. The schemes hold a significant proportion of growth assets (equities, diversified growth fund and global absolute return
fund) which, though expected to outperform corporate bonds in the long-term, create volatility and risk in the short-term. The allocation
to growth assets is monitored to ensure it remains appropriate given the schemes’ long term objectives.
(ii) Changes in bond yields
A decrease in corporate bond yields will increase the value placed on the schemes’ liabilities for accounting purposes. However, this will
be partially offset by an increase in the value of the schemes’ bond holdings and its interest rate hedging.
(iii) Inflation Risk
The majority of the schemes’ benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most
cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets are either
unaffected by or only loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit.
(iv) Life Expectancy
The majority of the schemes’ obligations are to provide benefits for the life of the members, so an increase in the life expectancy will
result in an increase in the liabilities. The sensitivity analysis disclosed is intended to provide an indication of the impact on the value of
the schemes’ liabilities of the risks highlighted.
(v) Liability vs asset risk
The risk that movement in the value of the schemes’ liabilities are not met by corresponding movements in the value of the schemes’
assets will expose the Group to movements in the overall funding surplus.
23.6 Risk mitigation
(i) De-risking
The Trustees have taken a number of steps to control the level of investment risk including reducing the Schemes’ exposures to higher
risk assets and increasing the level of protection against adverse movements in interest rates and inflation. The Trustees of both schemes
continue to review the risk exposures in light of the longer term objectives of the respective schemes. Detailed below are further details
on the hedging of pensioner longevity risk.
(ii) Asset buy-in
On 1 October 2019, the Scottish Hydro Electric Pension Scheme entered into an asset buy-in, transferring the risk of volatility in the
assumptions used to calculate the obligation for 1,800 pensioners and 567 dependents (covering c£800m of the scheme’s liabilities) to
a third party. The asset buy-in is valued under the accounting principles of IFRS 13 and is considered a Level 3 instrument in the fair value
hierarchy. This is in addition to a previous buy-in completed during the year ended 31 March 2018 when c£250m of the scheme’s assets
and liabilities related to 617 pensioners and 190 dependents were transferred to a third party. The Group has now insured against volatility
in obligations related to all pensioners to third parties (insurer PIC) and is now only exposed to valuation fluctuations related to active and
deferred members.
(iii) Asset-liability matching strategies used by the Scheme
The Company and trustees of the schemes have agreed a long term investment strategy that seeks to reduce investment risk as and when
appropriate. The asset-liability matching strategy is part of this approach which aims to reduce the volatility of the funding level of the
pension schemes by investing in assets which perform in line with the liabilities of the schemes so as to protect against inflation being
higher than expected. This has been adopted for a proportion of the schemes’ assets, which is designed to provide partial protection
against adverse movements in interest rates and inflation. The trustees of the respective schemes review the schemes’ asset allocation
on an ongoing basis in light of changes in the funding position and market opportunities.
246
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 23. Retirement benefit obligations continued
23.7 Risk assessment
(i) Maturity profile of the defined benefit obligations
The weighted average duration of the defined benefit obligation is 18 years (2020: 17 years) for the Scottish Hydro Electric Pension
Scheme and 17 years (2020: 17 years) for the Southern Electric Pension Scheme.
(ii) Information about the defined benefit obligations
Status of members is weighted by the liabilities of each scheme.
Active members
Deferred members
Pensioners
Scottish Hydro
Electric
%
Southern Electric
Scheme
%
28
11
61
100
29
9
62
100
23.8 Pension scheme policies
(i) Recognition of gains and losses
The Group recognises actuarial gains and losses in the Statement of Other Comprehensive Income following the re-measurement of the
net defined benefit liabilities of the schemes.
(ii) Methods and assumptions used in preparing the sensitivity analyses
The sensitivities disclosed are calculated using approximate methods taking into account the duration of the schemes’ liabilities. While these
have been calculated consistently with the previous financial year, the method applied may change over time with financial conditions and
assumptions.
(iii) Asset recognition
The Group has recognised net pension assets in relation to the Scottish Hydro Electric pension scheme due to a surplus existing under IAS 19
accounting. The Group will only recognise a surplus should it have rights to that surplus under the rules of the pension scheme. The company
no longer applies the ‘asset ceiling’ restriction mandated by IFRIC 14. Details on this key accounting consideration are provided above.
(iv) Fair value assessment of scheme assets
The Group seeks to assess whether there is a quotable market value (referenced as ‘quotable’ above) in relation to pension scheme
assets held. This assessment is based on regular reviews conducted in conjunction with the trustees of the schemes. For assets where no
quotable market value exists, these assets will be valued based on a set methodology agreed by trustees and scheme advisors and then
regularly assessed.
Currently only one unquotable value exists within the two pension schemes of the Group, this being insurance contracts (or ‘buy-in’)
held by the Scottish Hydro Electric Scheme. These assets are currently valued consistently with the scheme’s liabilities with the expected
return on these assets being set equal to the discount rate.
SSE plc Annual Report 2021
247
24. Financial instruments
For financial reporting purposes, the Group has classified derivative financial instruments into two categories, operating derivatives and
financing derivatives. Operating derivatives include all qualifying commodity contracts including those for electricity, gas, oil, and carbon.
Financing derivatives include all fair value and cash flow interest rate hedges, non-hedge accounted (mark-to-market) interest rate
derivatives, cash flow foreign exchange hedges and non-hedge accounted foreign exchange contracts. Non-hedge accounted contracts
are treated as held for trading.
24.1 Financial instruments – income statement
Operating derivatives
Total result on operating derivatives (i)
Less: Amounts settled (ii)
Novation of derivatives held by discontinued operation (Note 12)
Movement in unrealised derivatives
Financing derivatives (and hedged items)
Total result on financing derivatives (i)
Less: Amounts settled (ii)
Movement in unrealised derivatives
2021
£m
429.1
161.0
590.1
–
590.1
35.2
20.4
55.6
2020
£m
(526.4)
723.2
196.8
(231.0)
(34.2)
(74.4)
(8.6)
(83.0)
Net income statement impact
645.7
(117.2)
(i) Total result on derivatives in the income statement represents the total amounts (charged) or credited to the income statement in respect of operating and
financial derivatives.
(ii) Amounts settled in the year represent the result on derivatives transacted which have matured or been delivered and have been included within the total result on
derivatives.
24.2 Financial instruments – balance sheet
The derivative financial assets and (liabilities) are represented as follows:
Derivative financial assets
Non-current
Current
Total derivative assets
Derivative liabilities
Non-current
Current (i)
Total derivative liabilities
Net liability
2021
£m
114.7
470.9
585.6
(452.1)
(238.7)
(690.8)
(105.2)
2020
£m
308.2
631.2
939.4
(620.0)
(785.8)
(1,405.8)
(466.4)
(i) £1.6m transferred to held for sale liabilities in the prior year (see Note 12.3).
Information on the Group’s financial risk management and the fair value of financial instruments is available at A6 and A7 .
248
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 25. Commitments and contingencies
25.1 Capital commitments
Capital expenditure:
Contracted for but not provided
2021
£m
2020
£m
1,189.5
596.7
Contracted for but not provided capital commitments include the fixed contracted costs of the Group’s major capital projects. In practice
contractual variations may arise on the final settlement of these contractual costs. The increase in commitments year on year is mainly
attributable to the contracted commitments for the Viking Windfarm and the Shetland HVDC transmission link.
25.2 Contingent assets and liabilities
The Group has no unrecognised contingent assets at 31 March 2021 (2020: nil).
Contingent liabilities for the Group solely relate to SSE plc, and have been disclosed within Note 12 to the Company Financial
Statements.
26. Post balance sheet events
(i) Sale of SSE Contracting
On 1 April 2021, subsequent to the balance sheet date, the Group agreed to sell its Enterprise Contracting and Rail and business to Aurelius
Group for initial consideration of £17.5m; plus a £5m loan note bearing interest of 6% per annum repayable in 2026; and £5m of contingent
consideration based on earnings targets within the business. The transaction is expected to complete in June 2021.
At 31 March 2021 the assets and liabilities being disposed have been classified as held for sale and impaired to their recoverable amount,
which has been calculated as their fair value less costs to sell. This resulted in an exceptional impairment of £51.2m (see Note 7).
(ii) Redemption of hybrid equity bond
On 1 April 2021, subsequent to the balance sheet date, the Group exercised its option to redeem its €600m hybrid equity bond. The bond
had no fixed redemption date, but the Group had the option to redeem all of the bond on 1 April 2021 or every 5 years thereafter. The
redemption was funded through the issuance of hybrid capital bonds in July 2020.
SSE plc Annual Report 2021
249
ACCOMPANYING INFORMATION
A1. Basis of consolidation and significant accounting policies
A1.1 Basis of consolidation
The financial statements consolidate the results of the Company and its subsidiaries together with the Group’s share of the results and
net assets of its interests in joint arrangements and associates. Where necessary to ensure consistency, the accounting policies of the
subsidiaries, joint arrangements or associates have been adjusted to align to the accounting policies of the Group. Intra-Group balances
and any unrealised gains and losses or income and expenses arising from Intra-Group transactions are eliminated in preparing the
consolidated financial statements. Unrealised gains and losses arising from transactions with joint arrangements and associates are
eliminated to the extent of the Group’s interest in the entity. Non-controlling interests represent the equity in subsidiaries that is not
attributable, either directly or indirectly, to SSE plc shareholders.
Subsidiaries (Accompanying Information A3)
Subsidiaries are those entities controlled by the Group or the Company. Control exists when the Group has the power, directly or
indirectly, to govern the financial and operating policies of an entity in order to obtain variable returns from its activities. In assessing
control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries
acquired are consolidated in the financial statements of the Group from the date that control commences until the date control ceases.
Transactions with non-controlling interests that relate to their ownership interests and do not result in a loss of control are accounted for
as equity transactions.
Interests in joint arrangements and associates (Note 16 and Accompanying Information A3)
Joint arrangements, as defined by IFRS 11 ‘Joint Arrangements’, are those arrangements that convey to two or more parties ‘joint control’.
Joint control exists when decisions about the ‘relevant activities’, being the financial, operational or strategic policies of the arrangement,
are made with the unanimous consent of the parties sharing control. Whilst this assessment is principally focused on any ‘Reserved
Matters’, being the material activities that typically require all significant shareholders to approve, other contractual agreements such as
Power Purchase Agreements and Management Services Agreements are also considered. The Group’s investments in joint arrangements
are classified as either joint operations or joint ventures depending on the investee’s legal form and the investor’s contractual rights and
obligations over the assets and liabilities of the investee.
Associates are those investments over which the Group has significant influence but neither control nor joint control.
The Group’s interests in its joint operations are accounted for by recognising its share of the assets, liabilities, revenue and expenses
of the operation. In these arrangements, the Group’s share of the revenue will be eliminated as it relates to its purchased share of the
output from the arrangement.
The Group’s joint ventures and associates are accounted for using the equity method of accounting where the joint venture and
associate net investments (comprising both equity and long term loans) are carried at historical cost plus the Group’s share of post-
acquisition results, less any impairment in value. For those investments that were formerly subsidiaries of the Group, this will also include
any fair value uplift arising from loss of control. The Group recognises its share of the results of these equity-accounted operations after
tax and interest in the income statement.
Foreign currencies
The consolidated financial statements are presented in pounds sterling, which is the functional currency of the parent. Each entity in the
Group determines its own functional currency and items included in the financial statements of each entity are measured accordingly.
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Any gain or loss arising on the restatement
of such items is taken to the income statement as a Finance Cost, with the exception of exchange gains or losses on foreign currency
borrowings that provide a hedge against a net investment in a foreign entity or exchange gains or losses incurred as part of a qualifying cash
flow hedge. These exchange gains or losses are transferred to the translation reserve to the extent the hedge is effective. Non-monetary
assets that are measured in terms of historical cost in a foreign currency are translated at the historic rate at the date of transaction.
For the purpose of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are
translated into pounds sterling at the balance sheet closing rate. The results of these operations are translated at the average rate in the
relevant period. Exchange differences on retranslation of the opening net assets and the results of foreign operations are transferred to
the translation reserve and are reported in the consolidated statement of comprehensive income.
The average and spot rates for the principal functional currencies that the Group’s foreign operations are denominated in are shown in
the table below
EUR v GBP
Year end spot rate
Average spot rate
250
SSE plc Annual Report 2021
2021
1.1745
1.1249
2020
1.1301
1.1372
Change
3.9%
(1.1)%
FINANCIAL STATEMENTS A1. Basis of consolidation and significant accounting policies continued
A1.2 Significant accounting policies
Revenue (Notes 2 & 5)
Revenue from contracts with customers is recognised to the extent that it reflects the expected consideration for goods or services
provided to the customer under contract, over the performance obligations they are being provided. For each separable performance
obligation identified, the Group determines whether it is satisfied at a ‘point in time’ or ‘over time’ based upon an evaluation of the receipt
and consumption of benefits, control of assets and enforceable payment rights associated with that obligation. If the criteria required for
‘over time’ recognition are not met, the performance obligation is deemed to be satisfied at a ‘point in time’.
Revenue principally arises as a result of the Group’s activities in energy production, storage, transmission, distribution, supply and related
services in the energy markets in Great Britain and Ireland. The key policies applied by each Business Area are as follows:
Transmission
Use of electricity transmission networks
Revenue from use of electricity transmission networks is derived from the allowed revenue as defined by the parameters in the relevant
electricity transmission licence, which informs the tariffs we set.
Electricity transmission revenue is determined in accordance with the regulatory licence, based on an Ofgem approved revenue model
and is recognised ‘over time’ as charged to National Grid. Where this revenue differs from the allowed revenue, there may be an over-
or under-recovery of revenue which will be reflected in future financial year’s allowed revenue as set out in the regulatory licence. No
accounting adjustments are therefore made for over- or under-recoveries in the year that they arise.
Transmission network contracted services
Where the Group has an ongoing obligation to provide contracted services (transmission network connections), revenues are recognised
‘over time’ consistent with the customer receiving and consuming the benefits of that service across the expected contractual service
period. Any assets constructed in order to deliver the service are capitalised and depreciated over their useful life. Payments from customers
are typically received from customers in advance of providing the contracted service and are deferred on balance sheet. No extended
warranty periods are offered.
Distribution
Use of electricity distribution networks
Revenue from use of electricity distribution networks is derived from the allowed revenue as defined by the parameters in the relevant
electricity distribution licence, which informs the tariffs we set.
Electricity distribution revenue recognised is based on the volume of electricity distributed ‘over time’, as use of distribution service is
determined by the customer, and the set customer tariff. As with electricity transmission revenue, any over- or under-recovery of revenue
is reflected in future financial year’s allowed revenue as set out in the regulatory licence. No accounting adjustments are therefore made
for over- or under-recoveries in the year that they arise.
Distribution network contracted services
Where the Group has an ongoing obligation to provide contracted services (such as for distribution network connections), revenues are
recognised ‘over time’ consistent with the customer receiving and consuming the benefits of that service across the expected contractual
service period. Any assets constructed in order to deliver the service are capitalised and depreciated over their useful life. Payments from
customers are typically received from customers in advance of providing the contracted service and are deferred on balance sheet. No
extended warranty periods are offered.
Renewables
Electricity generation
Revenue from the physical generation of electricity is recognised ‘point in time’ as generated and supplied to the national settlements body.
Revenue is measured at either the spot price at the time of delivery, or trade price where that trade is eligible for ‘own use’ designation.
Renewables contracted services
Revenue from national support schemes, such as Renewable Obligation Certificates, is recognised at the point the performance
obligation has been met. This is typically considered to be either at the point electricity has been physically generated or over the
contractual period, depending on the underlying performance obligation. Revenue is measured either at the market rate at the point
of generation, or at the fixed contractual consideration, depending on the individual scheme mechanic.
Revenue from other ancillary generation services is recognised ‘over time’ consistent with the customer receiving and consuming the
benefits of those services across the expected contractual service period, and at the contracted consideration.
Thermal
Electricity generation
Revenue from the physical generation of electricity is recognised ‘point in time’ as generated and supplied to the national settlements body.
Revenue is measured at either the spot price at the time of delivery, or trade price where that trade is eligible for ‘own use’ designation.
SSE plc Annual Report 2021
251
A1. Basis of consolidation and significant accounting policies continued
A1.2 Significant accounting policies continued
Thermal continued
Gas storage
Revenue from gas storage capacity related services is recognised ‘point in time’ based on the number of days the storage service has
been provided at the applicable contractual rate. Revenue for the injection and withdrawal of gas is recognised at the point of gas
flowing into or out of the storage facilities at the applicable contractual rate.
Revenue from gas storage secondary trading opportunities is recognised ‘point in time’ as injected back into the network. Revenue is
measured at either the spot price at the time of delivery, or trade price where that trade is eligible for ‘own use’ designation.
Thermal Generation contracted services
Revenue from national support schemes, such as the Capacity Market, is recognised at the point the performance obligation has been met.
This is typically considered to be either at the point electricity has been physically generated or over the contractual period, depending on
the underlying performance obligation. Revenue is measured either at the market rate at the point of generation, or at the fixed contractual
consideration, depending on the individual scheme mechanic.
Revenue from other ancillary generation services is recognised ‘over time’ consistent with the customer receiving and consuming the
benefits of those services across the expected contractual service period, and at the contracted consideration.
Customers
Supply of energy
Revenue on the supply of energy comprises sales to domestic and business end-user customers based on actual energy consumption
including an estimate of the value of electricity and gas supplied to customers between the date of the last meter reading and the year end.
Revenue is recognised ‘over time’ consistent with the delivery of energy to the customer as we consider the receipt and consumption of
the benefits of the energy to be simultaneous. Revenue is measured based on the applicable customer tariff rate and after deduction of
any applicable contractual discounts.
Details of the estimation process for the value of electricity and gas supplied to customers is given within Note 4.1(iv).
Payments from customers may be received in advance of providing the contracted service and are deferred on balance sheet. Amounts
received from customers in relation to energy management services provided by Third Party Intermediaries (’TPIs’) are offset against
payments to those TPIs, reflecting the responsibility for providing the energy management service.
Energy related services
Where the Group has an ongoing obligation to provide contracted energy related services, revenues are recognised ‘over time’
consistent with the customer receiving and consuming the benefits of that service across the expected contractual service period at the
fixed contracted rate. Where the Group has an obligation to perform a specific service, revenues are recognised ‘point in time’, following
performance of the service at the fixed contracted consideration. No extended warranty periods are offered.
Enterprise
Construction related services
For construction related services, revenue is recognised for each identified performance obligation ‘over time’ by applying an input
method to determine the proportion of total contract revenue (being fixed price consideration plus the latest estimate of variable
consideration) that should be recognised. The input method applied is calculated by reference to the costs incurred to date on that
performance obligation, relative to the total expected costs to satisfy that performance obligation, provided the contract outcome can
be assessed with reasonable certainty. Revenue from non-contracted agreements or variations to contracted work is only recognised to
the extent there is additional supporting evidence to their recoverability and may be subject to constraints on recognition. Revenue on
contracts in customer dispute is recognised only to the extent it is considered to be highly probable that the revenue will be recovered.
Commissions in relation to acquisition of construction related contracts are expensed as incurred. No extended warranty periods are
offered. Payments from customers are based on agreed billing schedules, with payment milestones typically aligned with delivery of
performance obligations.
EPM & I
Commodity optimisation and other services
Income from sales commodity optimisation trading occurring in any business unit is presented net in cost of sales alongside purchase
commodity optimisation trades.
Revenue arising on commodities purchased in excess of the Group’s requirements and recorded as inventory assets, such as Renewables
Obligation Certificates, is recognised ‘point in time’ on disposal of these inventory assets to third parties.
Revenue from other ancillary services is recognised ‘over time’ consistent with the customer receiving and consuming the benefits of
those services across the expected contractual service period, and at the contracted consideration.
252
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A1. Basis of consolidation and significant accounting policies continued
A1.2 Significant accounting policies continued
EPM & I continued
Physical energy production
Revenue from the physical production of natural gas, crude oil and condensates arises from the Group’s interest in various joint ventures
and associates and is based on the entitlement method; whereby the Group’s share of interest and production sharing terms are used to
determine the allocation of production to each party in the arrangement. Revenue is recognised ‘point in time’ based on the production
that has been delivered to the customer at the specified delivery point and measured based on the applicable market price as specified in
the customer contracts.
Aside from where specifically noted above, consideration is due when the performance obligation has been satisfied. As the period
between satisfaction of the performance obligation and receipt of consideration from the customer is expected to be less than a year,
the Group has applied the practical expedient not to adjust revenue for the effect of any financing components.
Revenue from sources other than the Group’s contracts with customers principally comprise meter rental income within the Enterprise
business, and Contract for Difference income within certain Joint Venture arrangements.
Income on meter rental agreements, which are classified as operating leases, are presented as revenue where they relate to the core
operating activities of that business. Lease payments are recognised as income on a straight-line basis over the lease term.
Contract for Differences are agreements between a low carbon electricity generator and the Low Carbon Contracts Company (‘LCCC’),
a UK Government owned entity responsible for delivering support mechanisms for low-carbon electricity generation. These agreements
are not considered to be contracts with a customer, as the LCCC does not receive any goods or services from the generator. These
arrangements are instead considered to be Government Grants, with income arising from these grants recognised in the income
statement in the period in which generation takes place. This income is presented as revenue where they relate to the core operating
activities of that business.
Cost of sales (Note 6)
Cost of sales includes fuel and energy purchases, direct employee benefits, and depreciation of property, plant and equipment.
The net result from sales and purchases of commodity optimisation trades – comprising both realised and unrealised gains and losses
arising from optimisation trading activities – is also presented within cost of sales, reflecting the underlying economic purpose of this
trading activity.
Finance income and costs (Note 9)
Interest income and costs are recognised in the income statement as they accrue, on an effective interest method. The issue costs
and interest payable on bonds and all other interest payable and receivable is reflected in the income statement on the same basis.
Interest on the funding attributable to major capital projects is capitalised during the period of construction and depreciated as part
of the total cost over the useful life of the asset.
The accounting policy for foreign exchange translation of monetary assets and liabilities is described on page 250 and for lease
liability charges on page 257 .
Taxation (Note 10)
Taxation on the profit for the year comprises current and deferred tax. Taxation is recognised in the income statement unless it relates to
items recognised directly in equity, in which case it is recognised in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is calculated using the balance sheet liability method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are
not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities other than in business combinations
that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably
not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of
the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
Deferred tax assets and liabilities are offset where there is a legally enforceable right of offset within the same tax authority and where
the Group intends to either settle them on a net basis, or to realise the asset and settle the liability simultaneously. A deferred tax asset
is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Business Combinations (Note 12)
The acquisition of subsidiaries, and joint operations that meet the definition of a business, is accounted for under the acquisition method
as defined by IFRS 3 ‘Business Combinations’.
SSE plc Annual Report 2021
253
A1. Basis of consolidation and significant accounting policies continued
A1.2 Significant accounting policies continued
Business Combinations (Note 12) continued
The cost of acquisition is measured as being the aggregate fair value of consideration to be transferred at the date control is obtained.
Contingent consideration is classified as a liability and subsequently re-measured through the income statement. Acquisition costs are
expensed as incurred.
Held for sale assets and liabilities and discontinued operations (Note 12)
Non-current assets are classified as held for sale if their recoverable value is likely to be recovered via a sale or distribution as opposed to
continued use by the Group. In order to be classified as assets held for sale, assets must meet all of the following conditions; the disposal is
highly probable, it is available for immediate disposal, it is being actively marketed and the disposal is likely to occur within one year.
Assets that qualify as held for sale and related liabilities are disclosed separately from other assets and liabilities in the balance sheet
prospectively from the date of classification. Non-current assets determined as held for sale are measured at the lower of carrying value
and fair value less costs to sell, no depreciation is charged in respect of these assets after classification as held for sale.
Assets or groups of assets and related liabilities that qualify as held for sale are classified as discontinued operations when they represent
a separate major line of business or geographical area, are part of a single plan to dispose of a separate major line of business or
geographical area or are acquired exclusively with a view to resale. Income and expenses relating to these discontinued operations are
disclosed in a single net amount after taxes in the income statement, with comparative amounts re-presented accordingly.
Intra-Group balances and any unrealised gains and losses or income and expenses arising from trading between continuing and
discontinued operations continue to be eliminated in preparing the consolidated financial statements.
Intangible assets (Note 13)
Goodwill and impairment testing
Goodwill arising on a business combination represents the excess of the cost of acquisition over the Group’s interest in the fair value of
the identifiable assets, liabilities and contingent liabilities of a subsidiary, associate or joint venture at the date of acquisition. Following
initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least on
an annual basis.
For the purpose of impairment testing, goodwill is allocated on initial recognition to those cash-generating units (CGUs) expected to
benefit from the combination’s synergies. The cash-generating units used for goodwill impairment testing purposes will represent how
goodwill was attributed but may not represent reportable business segments.
Goodwill may also arise upon investments in joint arrangements and associates. Goodwill arising on a joint operation is recorded
as a separate asset and any impairment loss is recognised in the income statement. Goodwill arising on a joint venture or associate is
recorded within the carrying amount of the Group’s investment and any impairment loss is included within the share of result from joint
ventures and associates. On disposal or closure of a previously acquired investment or business, any attributed goodwill will be included
in determining the profit or loss on disposal.
Allowances and certificates
Allowances and certificates consist of purchased carbon emissions allowances and generated or purchased obligations certificates.
These allowances and certificates will be utilised in settlement of environmental obligations incurred by the Group’s Generation and
Business and Domestic Energy Supply businesses.
The EU Emissions Trading Scheme (EU ETS) has been in operation since 1 January 2005, with the Group operating under the established
EU ETS carbon pricing system since that date. Since 1 January 2021, following Brexit, the UK Government has established a UK Emissions
Trading Scheme (UK ETS) to replace the EU ETS with the Group’s UK generation assets now operating under the UK ETS carbon pricing
system. Carbon allowances purchased are recorded at cost within intangible assets. Forward carbon contracts are measured at fair value with
gains or losses arising on re-measurement being recognised in the income statement. A liability is recognised based on the level of emissions
recorded. Up to the level of allowances held, including forward carbon contracts, the liability is measured at the cost of purchase. When
the carbon emission liability exceeds the carbon allowances held, the difference is measured at market value selling price. Subsequent
movements in market value are prospectively recognised in operating profit.
The carbon allowance intangible asset is surrendered at the end of the compliance period to the extent requested reflecting the
consumption of the economic benefit and is recorded as being utilised. As a result, no amortisation is booked but an impairment
charge may be recognised should the carrying value of allowances exceed market or fair value.
Under the Renewable Obligations Certificates (ROCs) scheme, certificates obtained from own generation are awarded by a third party,
Ofgem. ROCs can be traded with third parties and are ultimately used by suppliers to demonstrate to Ofgem that they have met their
obligation to source a set proportion of the electricity they supply from renewable sources. The value of a ROC to a supplier comprises
two elements: the ‘buy-out’ price which is set annually in advance of the compliance period by Ofgem; and the ‘recycle’ price which
is determined after the compliance period by Ofgem. The recycle price element is estimated at the balance sheet date based on
assumptions at that point in time around likely levels of renewable generation and supply over the remaining compliance period,
and is therefore subject to possible future variation.
254
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A1. Basis of consolidation and significant accounting policies continued
A1.2 Significant accounting policies continued
Intangible assets (Note 13) continued
Where ROCs are self-generated or purchased to fulfil the Group’s liability under the renewables obligation, they are recorded at market
value at the point of generation or purchased within intangible assets. Following disposal of the Group’s Energy Services business in
January 2020 – as discussed in Note 12.2 (i) – the Group now holds ROCs in excess of the Group’s renewables obligation. Due to limited
evidence of liquidity or net settlement for ROC trades, we have determined that any purchased ROCs in excess of the Group’s renewables
obligation are recorded at the lower of cost or net realisable value within inventories. Similarly, the fair value of any forward contracts
entered into at the balance sheet date for the purchase or sale of ROCs in future periods are not recognised, as there is insufficient liquidity
for net settlement. The Group’s liability under the renewables obligation is recognised based on electricity supplied to customers, the
obligation level set by Ofgem and the prevailing market price.
The intangible assets are surrendered at the end of the compliance period reflecting the consumption of economic benefit and release
of the associated liability. As a result, no amortisation is recorded during the period.
Research and development
Expenditure on research activities is charged to the income statement as incurred.
Expenditure on development activities is capitalised as intangible assets if the project or process is considered to be technically and
commercially feasible and the Group intends to complete the project or process for use or for sale. Development projects include wind
farm developments, thermal generation and gas storage projects, prospective gas production assets and other developments relating to
proven technologies. Costs incurred in bringing these projects to the consent stage include options over land rights, planning application
costs and environmental impact studies and may be costs incurred directly or part of the fair value exercise on acquisition of an interest
in a project. At the point that the project reaches the consent stage and is approved by the Board, the carrying value of the project is
transferred to property, plant and equipment as assets under construction. Once in operation, depreciation will be charged over the
expected useful life of the asset. The asset is derecognised on disposal, or when no future economic benefits are expected to arise.
Other intangible assets
Other intangible assets that have been acquired separately by the Group are stated at cost less accumulated amortisation and impairment
losses. Expenditure on internally generated brands or customer lists are expensed as incurred. Expenditure on internally developed software
assets and application software licences includes contractors’ fees and directly attributable labour and overheads. Amortisation is charged to
the income statement on a straight-line basis over the estimated useful life of these assets. The amortisation periods utilised are as follows:
Brands
Customer lists
Developed software assets and application software licences
Years
10
Contract term
3-15
The useful lives of all the intangible assets are reviewed annually and amended, as required, on a prospective basis. Intangible assets are
derecognised on disposal, or when no future economic benefits are expected from their use.
Property, plant and equipment (Note 14)
Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairments. The cost of self-constructed
assets includes the cost of materials, direct labour and other directly attributable costs. Where the asset is a qualifying asset, for which a
considerable period of time is required to prepare the asset for use or sale, borrowing costs will be capitalised as part of the asset’s cost.
Where an item of property, plant and equipment comprises major components having different useful lives, the components are accounted
for as separate items of property, plant and equipment, and depreciated accordingly. An item of property, plant and equipment is
derecognised on disposal or when no future economic benefits are expected to arise from the continued use of the asset.
Right of use assets
Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement
of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease
payments made at or before the commencement date less any lease incentives received. Where a modification to a lease agreement
decreases the scope of the lease, the carrying amount of the right of use asset is adjusted and a gain or loss is recognised in proportion
to the decrease in scope of the lease. All other modifications to lease agreements are accounted for as a reassessment of the lease liability
with a corresponding adjustment to the right of use asset.
Hydro civil assets
The Group is obliged under the Reservoirs Act 1975 to maintain its hydro infrastructure network, including its dams, tunnels and other
hydro civil engineering structures (hydro civil assets). All items of property, plant and equipment within hydro civil assets, with the
exception of land, are subject to depreciation.
SSE plc Annual Report 2021
255
A1. Basis of consolidation and significant accounting policies continued
A1.2 Significant accounting policies continued
Property, plant and equipment (Note 14) continued
In accordance with the transition provisions of IFRS 1 ‘First-time Adoption of IFRS’, the Group identified the carrying value of these assets
at privatisation and has treated this value as deemed cost. Following this assessment, the assets, and all subsequent enhancement and
replacement expenditure, has been subject to depreciation over a useful economic life of 75 years. All subsequent maintenance
expenditure is chargeable directly to the income statement.
Depreciation
Depreciation is charged to the income statement to write off cost, less residual values, on a straight line basis over their estimated useful
lives with the exception of Gas Production Assets which are depreciated on the Units of Production basis. Heritable and freehold land
is not depreciated. Depreciation policy, useful lives and residual values are reviewed at least annually, for all asset classes to ensure that
the current method is the most appropriate. Depreciation commences following the asset commissioning period and when the asset is
available for commercial operation. The estimated useful lives for assets depreciated on a straight line basis are as follows:
Wholesale specific assets
Hydro civil assets
Thermal and hydro power stations including electrical and mechanical assets
Onshore wind farms
Offshore wind farms
Gas storage facilities
E&P common infrastructure assets
Networks specific assets
Overhead lines, underground cables and other network assets
Non-operational assets, fixtures, equipment, plant and machinery, vehicles and mobile plant
Group wide assets
Office buildings
Fixtures, IT assets, vehicles and mobile plant
Years
75 to 100
20 to 60
20 to 25
20 to 25
25 to 50
25 to 50
5 to 80
5 to 10
30 to 40
3 to 15
Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the
term of the relevant lease agreement.
Subsequent expenditure
It is the Group policy to capitalise qualifying replacement expenditure and depreciate it over the expected useful life of the replaced
asset. Replaced assets are derecognised at this point and the costs recorded as costs of disposal. Where an item of property, plant
and equipment is replaced and it is not practicable to determine the carrying amount of the replaced part, the cost of the replacement
adjusted for inflation will be used as an approximation of the cost of the replaced part at the time it was acquired or constructed.
Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately is capitalised.
Other subsequent expenditure is capitalised only when it increases the future economic benefits of the item of property, plant and
equipment to which it relates. Maintenance and repair costs are expensed as incurred.
Derecognition
An item of property, plant or equipment is derecognised upon disposal or when no future economic benefits are expected to arise from
the continued use of the asset. Gains and losses on disposals are determined by comparing the proceeds received with the carrying
amount of the asset and are included in the income statement. Any gain or loss on derecognition of the asset is included in the income
statement in the period of derecognition.
Exploration, evaluation and production assets (Notes 13 and 14)
The Group uses the successful efforts method of accounting for exploration and evaluation expenditure associated with exploration wells
or ‘prospects’. This expenditure will be capitalised initially within intangible assets and will include licence acquisition costs associated
with the prospects. Upon recognition of proved and probable reserves and internal approval for development, the relevant expenditure
will be transferred to property, plant and equipment and depreciated on a unit of production basis. If the prospects are determined to be
unsuccessful, and no future activity is planned, the intangible asset will be expensed in the period in which that determination is made.
All field development costs, including rights and concessions related to production activities, are capitalised as property, plant and
equipment. Capitalised costs relate to the acquisition and installation of production assets and facilities and include specialist engineering,
drilling and technical services costs. These property, plant and equipment assets are depreciated from the commencement of production
in the fields concerned, using the unit of production method, based on the estimated proven and probable reserves of those fields.
Changes in these estimates are dealt with prospectively.
All common infrastructure costs, such as production facilities or pipelines that are common to more than one field, are depreciated
on a straight line basis, reflecting their shared usage unrelated to the production of any one field.
256
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A1. Basis of consolidation and significant accounting policies continued
A1.2 Significant accounting policies continued
Exploration, evaluation and production assets (Notes 13 and 14) continued
All exploration and production assets are reviewed annually for indicators of impairment. Where indicators of impairment are identified,
the carrying value of the field assets are compared with the expected discounted future net cashflows associated with the remaining
estimated commercial reserves. An impairment loss will be recognised where it is considered that recorded amounts are unlikely to
be fully recovered from the net present value of future net cashflows. Note that the Gas Production business, in which all exploration,
evaluation and production assets are recorded, is classified as ‘held for sale’ in the financial statements to 31 March 2020 and 31 March 2021.
Lease arrangements (Note 21)
Lease arrangements are separately distinguished from service contracts on the basis of whether the contract conveys the right to control
the use of an identified asset for a period of time in exchange for consideration. If the Group is deemed to control the use of an identified
asset, a right of use asset and a corresponding lease liability are recognised on the balance sheet.
Right of use assets are capitalised and held as part of property, plant and equipment. The accounting policy for such arrangements is
described on page 255 .
Lease liabilities are initially measured at the present value of the future lease payments discounted using the rate implicit in the lease if
that can be readily determined. If the interest rate implicit in the lease cannot be readily determined the incremental borrowing rate is
used. Where the interest rate implicit in the lease is not readily determinable, the Group has applied the intercompany borrowing rate
which is based on the Group’s external medium-term borrowing rates with premia adjustments for any subsidiary specific risk factors.
In determining whether any break and/or extension clauses should be included within the lease term, the Group has considered that
where an internal decision has been made to break or extend the lease agreement, that decision shall be applied in determining the
appropriate lease term. Where an internal decision has not been made, and where the non-cancellable element of the lease term has
longer than five years remaining, it is considered that any clauses will not be triggered as any decision beyond that date is not reasonably
certain. For all leases with less than five years remaining, an assessment is made at each reporting period on a lease-by-lease basis on
whether the clause is reasonably certain to be triggered. Reassessment of break and/or extension judgements made in prior periods
could result in recalculation of the lease liability and adjustments to associated balances.
The lease liability is subsequently adjusted for unwind of discounting, repayments and other modifications to the underlying agreement.
Lease modifications are accounted for as a separate lease where the scope of the lease increases through the right to use one or more
underlying assets and where the consideration of the lease increases by an amount that is equivalent to the standalone price of the
increase in scope. Where a modification decreases the scope of the lease, the carrying amount of the right of use asset is adjusted and a
gain or loss is recognised in proportion to the decrease in scope of the lease. All other modifications are accounted for as a reassessment
of the lease liability with a corresponding adjustment to the right of use asset.
Leases with a duration of 12 months or less and leases for assets which are deemed ‘low value’ are expensed to the income statement on
a straight-line basis over the lease term.
Impairment review (Note 15)
The carrying amounts of the Group’s PP&E and other intangible assets and the Group’s investments in joint ventures and associates,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable,
or where there are indications that a previously recognised impairment loss has reduced. For PP&E assets that have previously been
identified as exhibiting indications of impairment, the review of impairment will be performed annually until there is sufficient evidence
to confirm that any potential impairment loss has been appropriately recognised, or until previously recognised impairment losses have
been fully written back. For goodwill and other intangible assets with an indefinite life or which are not yet ready for use, the test for
impairment is carried out annually. In addition, financial assets measured at amortised cost are also reviewed for impairment annually.
For assets subject to impairment testing, the asset’s carrying value is compared to the asset’s (or cash-generating unit (CGU)’s, in the
case of goodwill), recoverable amount. The recoverable amount is determined to be the higher of the fair value less costs to sell (FVLCS)
and the value-in-use (VIU) of the asset or CGU. For financial assets measured at amortised cost the impairment is measured as the
difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s
original effective interest rate.
If the carrying amount of the asset or CGU exceeds its recoverable amount, an impairment charge will be recognised immediately in the
income statement. Reversals of previous impairment charges are recognised if the recoverable amount of the asset or CGU significantly
exceeds the carrying amount. Previous impairments of goodwill are not reversed.
Value in use (VIU) calculations require the estimation of future cash flows to be derived from the respective assets (or CGUs) and the selection
of an appropriate discount rate in order to calculate their present value. The VIU methodology is consistent with the approach taken by
management to evaluate economic value and is deemed to be the most appropriate for reviews of PP&E asset and the Group’s identified
goodwill-related CGUs. The methodology is based on the pre-tax cash flows arising from the specific assets, underlying assets or CGUs, and
discounted using a pre-tax discount rate based on the Group’s cost of funding and adjusted for any specific risks. The estimation of the timing
and value of underlying projected cash flows and the selection of appropriate discount rates involves management judgement. Subsequent
changes to these estimates or judgements may impact the carrying value of the assets.
SSE plc Annual Report 2021
257
A1. Basis of consolidation and significant accounting policies continued
A1.2 Significant accounting policies continued
Impairment review (Note 15) continued
The fair value less costs to sell methodology also uses a present value technique, unless there is a quoted price in an active market for that
asset. The methodology is based on the post-tax cash flows arising from the specific assets, underlying assets or CGUs, and discounted using
a post-tax discount rate determined in the same manner as the rates used in the VIU calculations, adjusted for the relevant taxation rate.
Any impairment charge identified will initially be adjusted against the goodwill allocated to the cash-generating unit. Any excess charge will
be allocated against the remaining assets of the cash-generating unit. Reversals of previous impairment charges are allocated against the
carrying value of assets previously subject to an impairment charge.
Inventories (Note 17)
Inventories – aside from inventory purchased by the Gas Storage business for secondary trading opportunities – are valued at the lower
of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and selling expenses.
Gas inventory purchased by the Gas Storage business for secondary trading opportunities is held at fair value with reference to the
forward month market price. Gains and losses on remeasurement at fair value are recognised within the Income Statement, as a ‘certain
remeasurement’ item.
Provisions (Note 20)
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and
it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined
by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability.
Decommissioning
The estimated cost of decommissioning at the end of the useful lives of certain assets is reviewed periodically. Provision is made for the net
present value of the estimated cost of decommissioning gas production facilities at the end of the producing lives of fields, and gas storage
facilities, offshore wind farms and power stations at the end of the useful life of the facilities. The estimates are based on technology and prices
at the balance sheet date and excludes any salvage value related to those assets. A corresponding decommissioning asset is recognised and is
included within property, plant and equipment when the provision gives access to future economic benefits. Changes in these provisions are
recognised prospectively. The unwinding of the discount on the provision is included in finance costs and the depreciation for the asset is
straight-line over the expected useful life of the asset or, for gas production facilities, is amortised on the unit of production method.
Retirement benefit obligations (Note 23)
Defined benefit pension schemes
The Group operates two defined benefit pension schemes, one of which is operated by the Company. Pension scheme assets are
measured using bid market values. Pension scheme liabilities are measured using the projected unit credit actuarial method and are
discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability.
Any increase in the present value of liabilities within the Group’s defined benefit pension schemes expected to arise from employee
service in the year is charged as service costs to operating profit.
Net interest costs are based on net schemes’ liabilities adjusted for minimum funding requirement and pension surplus restrictions under
IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’. Actuarial gains and losses
are recognised in full in the consolidated statement of comprehensive income. Pension scheme surpluses, to the extent that they are
considered recoverable, or deficits are recognised in full and presented on the face of the balance sheet.
Defined contribution pension schemes
The Group also operates a number of defined contribution pension schemes. The assets of the schemes are held separately from those
of the Group in independently administered funds. The amounts charged represent the contributions payable to the schemes in the year
and are charged directly to the income statement.
Equity and equity-related compensation benefits
The Group operates a number of employee share schemes as described in the Remuneration Report. These schemes enable Group
employees to acquire shares of the Company.
The exercise prices of the sharesave scheme are set at a discount to market price at the date of the grant. The fair value of the sharesave
scheme option granted is measured at the grant date by use of a Black-Scholes model. The fair value of the options granted is recognised
as an expense on a straight-line basis over the period that the scheme vests. Estimates are updated for non-market conditions at each
balance sheet date with any adjustment in respect of the current and prior years being recognised in the income statement. The costs
associated with the other main employee schemes are recognised over the period to which they relate. The charge related to the equity
shares in the Company awarded under the share schemes is treated as an increase in the cost of investment held by the Company in the
subsidiary companies of the Group. The disclosures on equity and equity-related compensation benefits have been removed on the
grounds of materiality in relation to the Group.
258
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A1. Basis of consolidation and significant accounting policies continued
A1.2 Significant accounting policies continued
Financial instruments (Note 24)
The Group uses a range of financial instruments to hedge exposures to financial risks, such as interest rate, foreign exchange and energy
price fluctuations in its normal course of business and in accordance with the Group’s risk management policies. The Group’s risk
management policies are further explained in A6.
As previously noted in the 31 March 2018 Annual Report, the Group’s review of the IFRS 9 hedge accounting model concluded that
whilst adoption would not change the treatment of existing hedging arrangements, the changes made would not result in any additional
hedge designations either. As such, the existing hedge accounting model under IAS 39 appropriately reflects our risk management
activities in the financial statements. Therefore, as permitted by IFRS 9, the Group has elected to continue to apply the hedge accounting
requirements of IAS 39. This policy choice will be periodically reviewed to consider any changes in our risk management activities.
Interest rate and foreign exchange derivatives
Financial derivative instruments are used by the Group to hedge interest rate and currency exposures. All such derivatives are recognised
at fair value and are re-measured to fair value each reporting period. Certain derivative financial instruments are designated as being held
for hedging purposes. The designation of the hedge relationship is established at the inception of the hedge and procedures are applied
to ensure the derivative is highly effective in achieving its objective and that the effectiveness of the hedge can be reliably measured. The
treatment of gains and losses on re-measurement is dependent on the classification of the hedge and whether the hedge relationship is
designated as either a ‘fair value’ or ‘cash flow’ hedge. Derivatives that are not designated as hedges are treated as if held for trading, with
all fair value movements being recorded through the income statement.
A derivative classified as a ‘fair value’ hedge recognises gains and losses from re-measurement immediately in the income statement. Loans
and borrowings are measured at cost except where they form the underlying transaction in an effective fair value hedge relationship. In
such cases, the carrying value of the loan or borrowing is adjusted to reflect fair value movements with the gain or loss being reported in
the income statement.
A derivative classified as a ‘cash flow’ hedge recognises the portion of gains or losses on the derivative which are deemed to be effective
directly in equity in the hedge reserve. Any ineffective portion of the gains or losses is recognised in the consolidated income statement.
When hedged cash flows result in the recognition of a non-financial asset or liability, the associated gains or losses previously recognised in
equity are included in the initial measurement of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised
in equity are transferred to the income statement in the same period in which the hedged cash flows affect the income statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for
hedge accounting. At the point of discontinuation, any cumulative gain or loss on the hedging instrument recognised in equity remains
in equity until the forecast transaction affects profit or loss. On settlement, the cumulative gain or loss recognised in equity is recognised
in the income statement.
Commodity derivatives
Within its regular course of business, the Group routinely enters into sale and purchase derivative contracts for commodities such as
electricity, gas, coal, carbon allowances and oil. Where the contract was entered into and continues to be held for the purpose of receipt
or delivery in accordance with the Group’s expected sale, purchase or usage requirements, the contracts are designated as ‘own use’
contracts and are measured at cost. These contracts are not within the scope of IFRS 9.
Derivative commodity contracts which are not designated as own use contracts are accounted for as trading derivatives and are recognised
in the balance sheet at fair value. Where a hedge accounting relationship is designated and is proven to be effective, the changes in fair
value will be recognised in accordance with the rules noted above. There are currently no designated hedge relationships in relation to
commodity contracts.
Other commodity contracts, where own use is not established and a hedge accounting relationship is not designated, are measured at
fair value with gains and losses on re-measurement being recognised in the income statement in cost of sales.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives where the characteristics
of the derivatives are not closely related to those of the host contracts.
Net investment hedges
Hedges of net investments in foreign operations are accounted in a manner similar to effective cash flow hedges. Any gain or loss on
the effective portion of the hedge is recognised in equity, in the translation reserve, and any gain or loss on the ineffective portion of the
hedge is recognised in the income statement. On disposal of the foreign operation, the cumulative value of any gains or losses recognised
directly in equity is transferred to the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part
of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
SSE plc Annual Report 2021
259
A1. Basis of consolidation and significant accounting policies continued
A1.2 Significant accounting policies continued
Financial instruments (Note 24) continued
Trade receivables
Trade receivables do not carry any interest and are measured at cost less an appropriate allowance for lifetime expected credit losses.
Interest-bearing loans and borrowings
All such loans and borrowings are initially recognised at fair value including transaction costs and are subsequently measured at
amortised cost, except where the loan or borrowing is the hedged item in an effective fair value hedge relationship.
Share capital
Ordinary shares are accounted for as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a
deduction from the proceeds received. Own equity instruments that are reacquired are deducted from equity. No gain or loss is recognised
in the Group Income Statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments.
Hybrid equity
Hybrid equity comprises issued bonds that qualify for recognition as equity. Accordingly, any coupon payments are accounted for as
dividends and are recognised directly in equity at the time the payment obligation arises. This is because the coupon payments are
discretionary and relate to equity. Coupon payments consequently do not have any impact on the income statement. Coupon payments
are recognised in the cash flow statement in the same way as dividends to ordinary shareholders. Tax credits in relation to the coupon
payments are linked to the past transactions or events that support the coupon payments and consequently the tax credits are reported
in the income statement.
Hybrid Debt
Hybrid debt comprises issued bonds that have a fixed redemption date and are accounted within Loans and Borrowings. Coupon
payments are recognised within the income statement as a finance cost.
A2. Taxation
The Group’s primary tax disclosures are included at Note 10. The following tables represent enhanced disclosures adopted in order to assist
stakeholder understanding of the Group’s tax position and policies as part of the Group’s commitment to its Fair Tax Mark accredited status.
Reconciliation of tax charge to adjusted underlying current tax
Group profit before tax
Less: share of results of associates and jointly controlled entities
Profit before tax
Tax on profit on ordinary activities at standard UK corporation tax rate of 19% (2018: 19%)
Tax effect of:
Capital allowances less than depreciation
Increase in restructuring and settlement provisions
Non-taxable gain on sale of assets
Fair value movements on derivatives
Pension movements
Relief for capitalised interest and revenue costs
Hybrid equity coupon payments
Expenses not deductible for tax purposes
Utilisation of tax losses brought forward
Other items
Adjustments to tax charge in respect of previous years
Reported current tax charge and effective rate
Depreciation in excess of capital allowances
Increase in provisions
Fair value movements on derivatives
Pension movements
Relief for capitalised interest and revenue costs
Impact of higher deferred tax rates on Gas Production profits
Adjustments to tax charge in respect of previous years
Change in rate of UK corporation tax
Tax losses utilised
Other items
Reported deferred tax credit and effective rate
Group tax charge and effective rate
260
SSE plc Annual Report 2021
2021
£m
2021
%
2,516.2
(132.0)
2,384.2
453.0
10.8
(5.6)
(229.1)
(116.1)
(5.9)
(19.3)
(8.9)
9.7
(2.1)
3.8
(11.4)
78.9
(2.8)
5.6
116.1
5.9
19.3
1.2
(1.9)
–
2.1
(0.1)
145.4
224.3
19.0
0.4
(0.2)
(9.6)
(4.9)
(0.2)
(0.8)
(0.4)
0.4
(0.1)
0.2
(0.5)
3.3
(0.1)
0.2
4.9
0.2
0.8
0.1
(0.1)
–
0.1
–
6.1
9.4
2020
£m
587.6
(153.9)
433.7
82.4
13.4
0.5
(11.6)
18.3
(6.0)
(16.3)
(8.8)
13.5
(4.1)
1.4
(28.6)
54.1
(7.6)
(0.5)
(18.3)
6.0
16.3
(4.0)
10.6
64.6
2.1
(1.8)
67.4
121.5
2020
%
19.0
3.1
0.1
(2.7)
4.2
(1.4)
(3.8)
(2.0)
3.1
(0.9)
0.3
(6.6)
12.5
(1.8)
(0.1)
(4.2)
1.4
3.8
(0.9)
2.4
14.9
0.5
(0.4)
15.5
28.0
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A2. Taxation continued
Reconciliation of tax charge to adjusted underlying current tax continued
As noted at Note 3 to the accounts, the Group’s results are reported on an ‘adjusted’ basis in order to allow focus on underlying business
performance. The following table explains the adjustments that are made in order to arrive at adjusted profit before tax. This is the measure
utilised in calculation of the Group’s ‘adjusted effective rate of tax’.
Profit before tax
Add/(less):
Exceptional items and certain re-measurements
Share of tax from jointly controlled entities and associates before exceptional items and certain
re-measurements
Share of non-recurring joint venture refinancing costs
Depreciation charge on fair value uplifts
Interest income/(charge) on pension scheme assets/(liabilities)
Share of interest on net pension liabilities in jointly controlled entities and associates
2021
£m
2,516.4
(1,505.6)
44.5
–
20.6
(8.3)
(2.7)
2020
£m
587.6
328.9
82.3
12.3
20.6
(6.6)
(1.7)
Adjusted profit before tax
1,064.9
1,023.4
The adjusted current tax charge can therefore be reconciled to the adjusted profit before tax as follows:
Adjusted profit before tax
Tax on profit on ordinary activities at standard UK corporation tax rate
Tax effect of:
Capital allowances in excess of depreciation
Non-taxable gain on sale of assets
Non-qualifying depreciation
Adjustment for profit on internal trading
Increase in restructuring and settlement provisions
Pension movements
Relief for capitalised interest and revenue costs
Hybrid equity coupon payments
Expenses not deductible for tax purposes
Losses carried back to earlier years
Adjustments to tax charge in respect of previous years
Other
Adjusted current tax charge and effective rate
2021
£m
1,064.9
202.3
(31.4)
(47.7)
10.6
1.9
(2.7)
(6.8)
(4.8)
(8.9)
4.4
1.7
(12.0)
1.2
107.8
2021
%
19.0
(2.9)
(4.6)
1.0
0.2
(0.3
(0.6)
(0.5)
(0.8)
0.4
0.2
(1.1)
0.1
10.1
2020
£m
1,023.4
194.5
(33.3)
(5.1)
7.8
1.9
(5.5)
(7.2)
(5.3)
(8.8)
10.8
(5.7)
(29.8)
(0.1)
114.2
2020
%
19.0
(3.3)
(0.5)
0.8
0.2
(0.5)
(0.7)
(0.5)
(0.9)
1.1
(0.6)
(2.9)
–
11.2
The above reconciling adjustments differ from those analysed in the Group tax charge reconciliation above because they include SSE’s
share of associates and joint ventures, and are based on adjusted profit before tax.
The majority of the Group’s profits are earned in the UK, with the standard rate of UK corporation tax being 19% for the year to 31 March
2021 (2020: 19%). The Group’s Gas Production business, which is presented as a discontinued operation in the current and prior year, is
taxed at a UK corporation tax rate of 30% plus a supplementary charge of 10% (combined 40%). Profits earned by the Group in the Republic
of Ireland are taxable at either 12.5% or 25%, depending upon the nature of the income.
Capital allowances are tax reliefs provided in law for the expenditure the Group makes on property, plant and equipment. The rates are
determined by Parliament annually and spread the tax relief due over a number of years. This contrasts with the accounting treatment for
such spending, where the expenditure on property, plant and equipment is treated as an asset with the cost being depreciated over the
useful life of the asset, or impaired if the value of such assets is considered to have reduced materially.
The different accounting treatment of property, plant and equipment for tax and accounting purposes means that the taxable income of
the Group is not the same as the profit reported in the financial statements. The substantial impairments undertaken in previous years in
relation to certain property, plant and equipment assets, result in the depreciation or impairment charge to profit for the year differing to
the amount of capital allowances due to the Group.
Short term temporary differences arise on items such as provisions for restructuring costs and onerous contracts, and retirement benefit
obligations, because the treatment of such items is different for tax and accounting purposes. These differences usually reverse in the year
following that in which they arise, as is reflected in the deferred tax charge in these financial statements. Where interest charges or other costs
are capitalised in the accounts, tax relief is either given as the charges are incurred or when the costs are taken to the income statement.
SSE plc Annual Report 2021
261
A2. Taxation continued
Reconciliation of tax charge to adjusted underlying current tax continued
As explained at Accompanying Information A1 and A6, the Group measures its operating and financing derivatives at fair value under IFRS
9. As a result of the Group’s subsidiaries applying the HMRC’s ‘disregard regulations’, the re-measurement movements have no current
tax effect impacting only the deferred tax position.
As detailed at Note 22 and explained in the Accompanying Information A1, the Group has issued Hybrid equity securities which are
treated as a component of equity. While the coupon payments relating to these securities are treated as distributions to the holders of
the equity instruments, tax relief is allowed on the amount paid in the year. These tax credits are linked to the past transactions or events
that support the coupon payments and consequently the tax credits are reported in the income statement.
A3. Related undertakings
A3.1.1. Subsidiary undertakings
Details of the Group’s subsidiary undertakings at 31 March are as follows:
Registered
Address (Key)
2021
Holding
%
2020
Holding
%
Company
Country of Incorporation
Abernedd Power Company Limited
Airtricity Windfarm Finance Limited
Arklow Offshore Phase II Company Limited
Beithe (HK) Limited
Beithe AG
Berwick Bank Wind Holdings Limited (formerly
England and Wales
Ireland
Ireland
Hong Kong
Switzerland
England and Wales
Seagreen Charlie Wind Energy Limited)
Berwick Bank Wind Limited (formerly
England and Wales
Seagreen Foxtrot Wind Energy Limited)
Bhlaraidh Wind Farm Limited
Bindoo Windfarm (ROI) Limited
Brickmount Limited
Building Automation Solutions Limited
Coire Glas Hydro Pumped Storage Limited
Comhlacht Gaoithe Teoranta
Coomacheo Wind Farm Limited
Coomatallin Windfarm (ROI) Limited
Curragh Mountain Windfarm Limited
Dedondo Limited
Dromada Windfarm (ROI) Limited
Drumnahough Wind Farm Designated
Activity Company
Fibre Fuel Limited
Fibre Power (Slough) Limited
Forbury Assets Limited
Fusion Heating Limited
Galway Wind Park Phase 3 Designated
Ganderoy Limited
Gartnaneane Limited
Green Wind Energy (Wexford) Limited
Griffin Wind Farm Limited
Hadyard Hill Wind Farm Limited
Hydro Electric Pension Scheme Trustees
Limited
Keadby Developments Limited
Keadby Generation Limited
Keadby Wind Farm Limited
Leanamore Wind Farm Limited (formerly
Ahalia Holdings Limited)
Scotland
Ireland
Ireland
England and Wales
Scotland
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
England and Wales
England and Wales
England and Wales
Northern Ireland
Ireland
Ireland
Ireland
Ireland
Scotland
Scotland
Scotland
England and Wales
England and Wales
England and Wales
Ireland
Lenalea Wind Farm Designated Activity
Ireland
Company
Limerick West Windfarm Limited
March Winds Limited
Marr Bank Wind Holdings Limited (formerly
Ireland
Ireland
England and Wales
Seagreen Golf Wind Energy Limited)
Marr Bank Wind Limited (formerly Seagreen
England and Wales
Delta Wind Energy Limited)
262
SSE plc Annual Report 2021
B
C
C
AF
Z
B
B
A
C
C
D
A
C
C
C
C
C
C
C
B
B
B
W
C
C
C
C
A
A
A
E
E
B
C
C
C
C
B
B
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
–
100.0
100.0
Principal Activity
Holding Company
Holding Company
Dormant
Holding Company
Holding Company
Holding Company
100.0
100.0
Power Generation
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
–
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
–
100.0
100.0
100.0
100.0
100.0
Power Generation
Power Generation
Power Generation
Dormant
Power Generation
Power Generation
Power Generation
Power Generation
Power Generation
Power Generation
Power Generation
Power Generation
Dormant
Power Generation
Construction
of utility projects
Energy Related Services
Renewable Development
Power Generation
Power Generation
Renewable Development
Power Generation
Power Generation
Dormant
Dormant
Power Generation
Power Generation
Power Generation
100.0
100.0
Renewable Development
100.0
100.0
100.0
100.0
100.0
100.0
Power Generation
Power Generation
Holding Company
100.0
100.0
Power Generation
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A3. Related undertakings continued
A3.1.1. Subsidiary undertakings continued
Company
Country of Incorporation
Registered
Address (Key)
2021
Holding
%
2020
Holding
%
Medway Power Limited
Meentycat Limited
Milane Holdings Limited
Mullananalt Wind Farm (ROI) Limited
Platin Power Limited
Power from Waste Limited
Richfield Windfarm (ROI) Limited
Scottish and Southern Energy Power
Distribution Limited
England and Wales
Ireland
Ireland
Ireland
Ireland
England and Wales
Ireland
Scotland
Scottish Hydro Electric Power Distribution plc Scotland
Scotland
Scottish Hydro Electric Transmission plc
England and Wales
Slough Domestic Electricity Limited
England and Wales
Slough Electricity Contracts Limited
England and Wales
Slough Energy Supplies Limited
England and Wales
Slough Heat & Power Limited
England and Wales
Slough Utility Services Limited
England and Wales
Southern Electric Power Distribution plc
Ireland
SSE Airtricity Limited
Ireland
SSE Airtricity Distributed Energy Limited
Northern Ireland
SSE Airtricity Energy Services (NI) Limited
Ireland
SSE Airtricity Energy Services Limited
Northern Ireland
SSE Airtricity Energy Supply (NI) Limited
Ireland
SSE Airtricity Gas Limited
Northern Ireland
SSE Airtricity Gas Supply (NI) Limited
Ireland
SSE Airtricity Utility Solutions Limited
Scotland
SSE Beatrice Offshore Windfarm Holdings
Limited
SSE Contracting Group Limited
SSE Contracting Limited
SSE Cumarsáid Teoranta
SSE E&P UK Limited
SSE Energy Supply Limited
SSE Enterprise Limited
SSE EPM Limited
SSE Galloper Offshore Windfarm Holdings
Limited
SSE Generation Ireland Limited
SSE Generation Limited
SSE Group Limited
SSE Heat Networks (Battersea) Limited
SSE Heat Networks Limited
SSE Hornsea Limited
SSE Insurance Limited
SSE Maple Limited
SSE Medway Operations Limited
SSE Micro Renewables Limited
SSE Multifuel Generation Holdings Limited
SSE OWS Glasgow Limited
SSE Production Services Limited
SSE Renewables (Ireland) Limited
SSE Renewables Developments (Germany)
GmbH
England and Wales
England and Wales
Ireland
Scotland
England and Wales
England and Wales
England and Wales
England and Wales
Ireland
England and Wales
Scotland
England and Wales
Scotland
England and Wales
Isle of Man
England and Wales
England and Wales
Scotland
England and Wales
Scotland
England and Wales
Ireland
Germany
SSE Renewables Generation Ireland Limited
SSE Renewables Holdings (Europe) Limited
SSE Renewables Holdings (UK) Limited
SSE Renewables Holdings Germany GmbH
SSE Renewables Holdings Limited
SSE Renewables International Holdings
SSE Renewables Limited
SSE Renewables Off Shore Limited
Ireland
Ireland
Northern Ireland
Germany
Ireland
Scotland
Scotland
Ireland
B
C
C
C
C
B
C
A
A
A
B
B
B
B
B
B
C
C
F
C
F
C
F
C
A
B
B
C
A
B
B
B
B
C
B
A
B
A
B
G
B
B
A
B
A
B
C
AA
C
C
F
H
C
A
A
C
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
–
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
–
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Principal Activity
Power Generation
Power Generation
Dormant
Power Generation
Dormant
Dormant
Power Generation
Holding Company
Power Distribution
Power Transmission
Power Generation
Electricity Contracting
Dormant
Power Generation
Utility Services
Power Distribution
Energy Supply
Power Distribution
Energy Supply
Energy Supply
Energy Supply
Energy Supply
Energy Supply
Utility Contracting
Holding Company
Holding Company
Contracting
Telecommunications
Gas Production
Energy Supply
Corporate Services
Energy Trading
Holding Company
Power Generation
Power Generation
Dormant
Dormant
Utility Services
Gas Storage
Insurance
Investment Holding
Holding Company
Energy Related Services
Holding Company
Property Holding
Maintenance Services
Holding Company
Renewable Development
Power Generation
Holding Company
Holding Company
Dormant
Holding Company
Holding Company
Holding Company
Holding Company
SSE plc Annual Report 2021
263
A3. Related undertakings continued
A3.1.1. Subsidiary undertakings continued
Company
Country of Incorporation
SSE Renewables Offshore Windfarm Holdings
Scotland
Limited
SSE Renewables Onshore Windfarm Holdings
Northern Ireland
Limited
SSE Renewables UK Limited
SSE Renewables Services (UK) Limited
Northern Ireland
Northern Ireland
(formerly SSE Renewables Developments
(UK) Limited)
SSE Renewables Walney (UK) Limited
SSE Renewables Wind (Ireland) Holdings
England and Wales
Ireland
Limited
SSE Renewables Wind Farms (Ireland) Limited
Ireland
(formerly Airtiricity Europe Windfarm
Holdings Limited)
SSE Renewables Wind Farms (UK) Limited
SSE Retail Limited
SSE Seabank Investments Limited
SSE Seabank Land Investments Limited
SSE Services plc
SSE Slough Multifuel Holdco Limited
SSE Southern Group Trustee Limited
(Previously Southern Electric Group
Trustee Limited)
SSE Stock Limited
SSE Thermal Energy Holdings Limited
SSE Thermal Energy Operations Limited
SSE Thermal Generation (Scotland) Limited
SSE Thermal Generation Holdings Limited
SSE Toddleburn Limited
SSE Trading Limited
SSE Trustees Limited
SSE Utility Services Limited
SSE Utility Solutions Limited
SSE Venture Capital Limited
SSE Viking Limited
SSE(SE) Quest Trustee Limited (Previously
Southern Electric Quest Trustee Limited)
SSEPG (Operations) Limited
Strathy Wind Farm Limited
Sure Partners Limited
Tealing Solar Park Limited
TESGL Limited
The Energy Solutions Group Bidco Limited
The Energy Solutions Group Midco Limited
The Energy Solutions Group Topco Limited
Tournafulla Windfarm (ROI) Limited
Viking Energy (Scottish Partnership)
Viking Energy Wind Farm LLP
Scotland
Scotland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Scotland
England and Wales
England and Wales
Scotland
England and Wales
Scotland
England and Wales
England and Wales
England and Wales
England and Wales
Scotland
England and Wales
England and Wales
England and Wales
Scotland
Ireland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Ireland
Scotland
Scotland
Registered
Address (Key)
2021
Holding
%
2020
Holding
%
Principal Activity
A
F
F
F
B
C
C
A
A
B
B
B
B
B
A
B
B
A
B
A
B
B
B
B
A
B
B
B
A
C
B
D
D
D
D
C
I
I
100.0
100.0
Holding Company
100.0
100.0
Holding Company
100.0
100.0
100.0
100.0
Power Generation
Renewable Development
–
100.0
100.0
–
Holding Company
Holding Company
100.0
100.0
Power Generation
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
–
–
–
–
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Power Generation
Energy Related Services
Dormant
Dormant
Corporate Services
Power Generation
Dormant
Stock Holding
Holding Company
Power Generation
Power Generation
Holding Company
Power Generation
Energy Trading
Dormant
Dormant
Utility Services
Investment Holding
Renewable Development
Dormant
Power Generation
100.0
Power Generation
–
Renewable Development
100.0
100.0 Construction of utility project
100.0 Building Energy Management
Dormant
100.0
Dormant
100.0
Dormant
100.0
100.0
Power Generation
Renewable Development
100.0
Renewable Development
100.0
All shares in subsidiary companies are ordinary share capital, unless otherwise stated.
A3.1.2. Partnerships
Company
The Glasa LLP
Country of Incorporation
Registered
Address (Key)
2021
Holding
%
2020
Holding
%
Principal Activity
Scotland
A
90.0
90.0
Renewable Development
264
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A3. Related undertakings continued
A3.1.3 Joint arrangements (incorporated)
Company
Country of Incorporation
3SE (Barnsley, Doncaster & Rotherham)
England and Wales
Holdings Limited
3SE (Barnsley, Doncaster & Rotherham) Limited England and Wales
AtlasConnect Limited
Baglan Pipeline Limited
Beatrice Offshore Windfarm Holdco Limited
Beatrice Offshore Windfarm Limited
Brims Tidal Array Limited
Cloosh Valley Wind Farm Designated
Scotland
England and Wales
Scotland
Scotland
Scotland
Ireland
Activity Company
Cloosh Valley Wind Farm Holdings
Designated Activity Company
Clyde Windfarm (Scotland) Limited
DB Operational Base Limited
Ireland
Scotland
England and Wales
Doggerbank Offshore Windfarm Project 1
England and Wales
Holdco Limited
Doggerbank Offshore Windfarm Project 1
England and Wales
Projco Limited
Doggerbank Offshore Windfarm Project 2
England and Wales
Holdco Limited
Doggerbank Offshore Windfarm Project 2
England and Wales
Projco Limited
Doggerbank Offshore Windfarm Project 3
England and Wales
Holdco Limited
Doggerbank Offshore Windfarm Project 3
England and Wales
Projco Limited
Dunmaglass Wind Farm Limited
Everwind Limited
Ferrybridge MFE 2 Limited
Ferrybridge MFE Ltd
Greater Gabbard Offshore Winds Limited
Green Energy Company Limited
Green Way Energy Limited
Kerry Power Limited
Maple HoldCo 1 Limited
MapleCo1 Ltd
Maple HoldCo 2 Limited
MapleCo2 Ltd
Maple HoldCo 3 Limited
MapleCo3 Ltd
Maple Topco Limited
Marchwood Power Limited
Marron Activ8 Energies Limited
Midas Energy Limited
Multifuel Energy 2 Limited
Multifuel Energy Limited
Neos Networks Limited (formerly SSE
Telecommunications Limited)
NNXYZ Limited (formerly Neos
Networks Limited)
Scotland
Ireland
England and Wales
England and Wales
England and Wales
Ireland
Ireland
Ireland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England & Wales
England and Wales
Ireland
Ireland
Scotland
Scotland
England and Wales
England and Wales
North Falls Offshore Wind Farm
England and Wales
Holdco Limited
North Falls Offshore Wind Farm Limited
PriDE (Serp) Ltd
England and Wales
England and Wales
J
J
A
L
A
A
M
N
N
A
K
B
B
B
B
B
B
A
Y
B
B
B
O
O
O
R
R
R
R
R
R
R
P
X
O
A
A
B
B
B
B
Q
Scotia Gas Networks Limited
Scotland Gas Networks plc
Seabank Power Limited
Seagreen 1A (Holdco) Limited
England and Wales
Scotland
England and Wales
England and Wales
R
AC
S
B
Registered
Address
(Key)
2021
Holding %
2020
Holding %
25.0
25.0
50.0
50.0
40.0
40.0
50.0
25.0
25.0
50.1
40.0
40.0
40.0
40.0
40.0
50.0
50.0
50.1
49.0
–
–
50.0
47.5
50.0
49.0
–
–
–
–
–
–
–
50.0
45.0
49.0
–
–
50.0
50.0
50.0
50.0
50.0
33.3
33.3
50.0
49.0
25.0
25.0
50.0
50.0
40.0
40.0
50.0
25.0
25.0
50.1
–
50.0
Principal Activity
Holding Company
Waste Management
Dormant
Dormant
Holding Company
Power Generation
Renewable Development
Power Generation
Holding Company
Power Generation
Warehousing and storage
facilities
Holding Company
50.0
Renewable Development
50.0
Holding Company
50.0
Renewable Development
50.0
Holding Company
50.0
Renewable Development
50.1
49.0
50.0
50.0
50.0
47.5
50.0
49.0
33.3
33.3
33.3
33.3
33.3
33.3
33.3
50.0
45.0
49.0
50.0
50.0
50.0
50.0
–
–
50.0
33.3
33.3
50.0
100.0
Power Generation
Power Generation
Development Company
Power Generation
Power Generation
Dormant
Holding Company
Power Generation
Energy Related Services
Energy Related Services
Energy Related Services
Energy Related Services
Energy Related Services
Energy Related Services
Holding Company
Power Generation
Energy Related Services
Power Generation
Power Generation
Power Generation
Telecommunications
Telecommunications
Holding company
Renewable Development
Estate Maintenance and
Improvement
Gas Distribution
Gas Distribution
Power Generation
Renewable Development
SSE plc Annual Report 2021
265
Principal Activity
Renewable Development
Renewable Development
Renewable Development
Renewable Development
Renewable Development
Power Generation
Property
Property
Energy Related Services
Gas Distribution
Energy Related Services
Property
Property
Property
Holding company
Holding company
Property
Gas Distribution
Property
Holding company
Holding company
Property
Property
Property
Gas Distribution
Property
Property
Holding Company
Waste Disposal
Gas Distribution
Power Generation
Principal Activity
Holding Company
Development Company
Utilities Software
Power Generation
A3. Related undertakings continued
A3.1.3 Joint arrangements (incorporated) continued
Company
Country of Incorporation
Registered
Address
(Key)
2021
Holding %
2020
Holding %
Seagreen 1A Limited
Seagreen Alpha Wind Energy Limited
Seagreen Bravo Wind Energy Limited
Seagreen Holdco 1 Limited
Seagreen Wind Energy Limited
SSE Slough Multifuel Limited
SGN Belvedere Limited
SGN Brighton Limited
SGN Commercial Services Limited
SGN Connections Limited
SGN Contracting Limited
SGN Epsom Limited
SGN Greenwich Limited
SGN Kennington Limited
SGN Lessona Limited
SGN MidCo Limited
SGN Motspur Park Limited
SGN Natural Gas Limited
SGN Old Kent Road Limited
SGN Place Limited
SGN PledgeCo Limited
SGN Property Holdings Limited
SGN Property Services Limited
SGN Rotherhithe Limited
SGN Smart Limited
SGN Southampton Limited
SGN Wandsworth Limited
Skelton Grange EFW Holdings Limited
Skelton Grange EFW Limited
Southern Gas Networks plc
Stronelairg Wind Farm Limited
A3.1.4 Associates
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Scotland
B
B
B
B
B
B
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
AD
AD
R
A
49.0
49.0
49.0
49.0
49.0
50.0
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
–
–
–
33.3
50.1
100.0
100.0
100.0
100.0
100.0
100.0
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
50.0
50.0
33.3
50.1
Registered
Address
(Key (i))
2021
Holding
%
2020
Holding
%
Company
Country of Incorporation
Murphy Asset Services Limited
Shetland Land Lease Limited
St Clements Services Limited
Walney (UK) Offshore Windfarms Limited
England and Wales
England and Wales
England and Wales
England and Wales
AD
T
U
V
16.6
20.0
25.0
–
16.6
20.0
25.0
25.1
266
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A3. Related undertakings continued
A.3.1.5 Registered address key
Reference
Company registered address
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
AA
AB
AC
AD
AE
AF
AG
Inveralmond House, 200 Dunkeld Road, Perth PH1 3AQ
No 1 Forbury Place, 43 Forbury Road, Reading RG1 3JH
Red Oak South, South County Business Park, Leopardstown, Dublin 18
Ocean Court, Caspian Road, Atlantic Street, Altrincham, WA14 5HH
Keadby Power Station, Trentside, Keadby, Scunthorpe, North Lincs DN17 3AZ
3rd Floor, Millennium House, 17-25 Great Victoria Street, Belfast, BT2 7AQ
Tower House, Loch Promenade, Douglas, Isle of Man
Büro München, Elektrastrasse 6, 81925, München, Germany
The Gutters’ Hut, North Ness Business Park, Lerwick, Shetland ZE1 0LZ
Dunedin House Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU
City Point, 65 Haymarket Terrace, Edinburgh, EH12 5HD
16 Axis Way, Mallard Way, Swansea Vale, Swansea, SA7 OAJ
The Vision Building, 20 Greenmarket, Dundee, DD1 4QB
6th Floor, South Bank House, Barrow Street, Dublin 4
Lissarda Industrial Park, Lissarda, Macroom, County Cork
Oceanic Way, Marchwood Industrial Park, Marchwood, Southampton SO40 4BD
Capital Tower, 91 Waterloo Road, London, SE1 8RT
St Lawrence House, Station Approach, Horley, Surrey RH6 9HJ
Severn Road, Hallen, Bristol, BS10 7SP
18th Floor, 10 Upper Bank Street, Canary Wharf, London, E14 5BF
4 -6 Church Walk, Daventry, NN11 4BL
5 Horwick Place, London, England, SWIP 1WG
Unit 14 Maryland Industrial Estate, Ballygowan Road, Belfast
Dunoge, Carrickmacross, Co. Monaghan, Ireland
Gorthleahy, Macroom, Co. Cork, Ireland
c/o Fiduservice SA, Route de Beaumont 20, 1701 Freiburg, Switzerland
c/o CMS Hasche Sigle, Stadthausbrücke 1-3, 20355 Hamburg
Windmill Hill Business Park, Whitehill Way, Swindon, Wiltshire SN5 6PB
Axis House 5 Lonehead Drive, Newbridge, Edinburgh, Scotland, EH28 8TG
Hiview House, Highgate Road, London, United Kingdom, NW5 1TN
CMS Edinburgh, Saltire Court, 20 Castle Terrace, Edinburgh EH1 2EN
Rm 1901, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong
Hiview House, Highgate Road, London, NW5 1TN
A4. Joint ventures and associates
The Directors have assessed that the investments in the following equity accounted joint ventures and associates are of a sufficiently
material impact to warrant additional disclosure on an individual basis. Details of on the financial position and financial results of the
Group:
Principal activity
Country of
incorporation
Class of
shares held
Proportion
of shares
held %
Group
Interest
% Year end date
Consolidation
basis
Company
Scotia Gas Networks Limited
Seabank Power Limited
Marchwood Power Limited
Multifuel Energy Limited
Clyde Windfarm (Scotland) Limited
Walney (UK) Offshore Windfarms Limited
Beatrice Offshore Windfarm Limited
Dunmaglass Wind Farm Limited
Stronelairg Wind Farm Limited
Neos Networks Limited (formerly SSE
Gas Distribution
UK
Power Generation UK
Power Generation UK
Power Generation UK
Power Generation UK
Power Generation UK
Power Generation UK
Power Generation UK
Power Generation UK
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Telecommunications Limited)
Telecoms
UK
Ordinary
33.3
50.0
50.0
–
50.1
–
40.0
50.1
50.1
50.0
33.3 31 March
Equity
50.0 31 December Equity
50.0 31 December Equity
Equity
50.0 31 March
Equity
50.1 31 March
25.1 31 December Equity
Equity
40.0 31 March
Equity
50.1 31 March
Equity
50.1 31 March
50.0 31 March
Equity
SSE plc Annual Report 2021
267
A4. Joint ventures and associates continued
Summary information for material joint ventures and associates from unaudited financial statements is as follows:
Seabank
Power
Limited
2021
£m
Marchwood
Power
Limited
2021
£m
Multifuel
Energy
Limited
2021
£m
SGN
2021
£m
Clyde
Windfarm
(Scotland)
Limited
2021
£m
Walney
(UK)
Offshore
Windfarms
Limited
2021
£m
Beatrice
Offshore
Windfarm
Limited
2021
£m
Dunmaglass
Wind Farm
Limited
2021
£m
Stronelairg
Wind Farm
Limited
2021
£m
Neos
Networks
Limited*
2021
£m
Revenue
Other income
1,235.4
–
144.6
–
88.0
–
53.7
–
135.7
–
57.8
–
87.5
256.2
26.7
–
51.0
–
133.2
–
Other
2021
£m
65.5
–
Total
2021
£m
2,079.1
256.2
Depreciation
and
amortisation
Other operating
(184.7)
(11.6)
(2.2)
(17.9)
(29.4)
(22.9)
(89.0)
(7.8)
(13.9)
(70.6)
(38.7)
(488.7)
costs
(531.7)
(115.9)
(47.6)
(9.0)
(37.5)
(27.5)
(74.6)
(6.4)
(18.6)
(71.8)
(16.6)
(957.2)
Operating
profit
519.0
17.1
38.2
26.8
Interest expense
(189.3)
(0.2)
(7.7)
(18.9)
Profit before tax
Corporation tax
329.7
(63.9)
16.9
(3.9)
Profit after tax
265.8
13.0
30.5
(6.8)
23.7
7.9
(1.6)
6.3
68.8
(17.9)
50.9
(11.5)
39.4
7.4
180.1
12.5
18.5
(9.2)
10.2
(889.4)
(1.1)
6.3
(1.2)
5.1
(75.2)
104.9
(23.2)
81.7
(6.1)
6.4
(1.6)
4.8
(12.3)
(22.6)
(24.1)
(375.4)
6.2
(1.8)
4.4
(31.8)
–
(13.9)
(1.3)
514.0
(116.8)
(31.8)
(15.2)
397.2
Recognised in
other
comprehensive
income
Actuarial gain on
retirement
benefit
schemes
Taxation
Cash flow
hedges
Taxation
Total
comprehensive
income/(loss)
SSE share of
profit (based
on % equity)
(68.1)
13.3
17.4
(3.3)
(40.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
75.1
(14.3)
60.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(13.7)
1.7
(12.0)
(68.1)
13.3
78.8
(15.9)
8.1
225.1
13.0
23.7
6.3
39.4
5.1
142.5
4.8
4.4
(31.8)
(27.2)
405.3
88.6
6.5
11.9
3.2
19.7
1.3
32.7
2.4
2.2
(15.9)
(18.5)
134.1
* Formerly SSE Telecommunications Limited.
268
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A4. Joint ventures and associates continued
Seabank
Power
Limited
2021
£m
Marchwood
Power
Limited
2021
£m
Multifuel
Energy
Limited
2021
£m
SGN
2021
£m
Clyde
Windfarm
(Scotland)
Limited
2021
£m
Walney
(UK)
Offshore
Windfarms
Limited
2021
£m
Beatrice
Offshore
Windfarm
Limited
2021
£m
Dunmaglass
Wind Farm
Limited
2021
£m
Stronelairg
Wind Farm
Limited
2021
£m
Neos
Networks
Limited*
2021
£m
Other
2021
£m
Total
2021
£m
66.1
–
56.4
15.8
28.9
4.4
–
243.5
Dividends paid to
shareholders
Non-current
assets
Current assets
Cash and cash
equivalents
Current liabilities
Non-current
liabilities
38.3
17.0
16.6
7,901.3
215.5
107.5
39.7
283.6
(441.8)
25.7
(5.7)
228.5
36.6
3.9
(26.5)
(6,114.9)
(37.3)
(128.7)
Net assets
1,843.7
129.9
113.8
Group equity
interest
Net assets
Group’s share of
ownership
interest
Other
33.3% 50.0%
1,843.7
129.9
50.0%
113.8
614.5
65.0
56.9
adjustments
11.0
(19.7)
1.9
–
–
–
–
–
–
–
–
–
–
–
612.0
53.6
35.5
(7.7)
(410.8)
282.6
50.1%
282.6
141.6
49.0
Carrying value of
group’s equity
interest
625.5
45.3
58.8
–
190.6
* Formerly SSE Telecommunications Limited.
– 1,994.1
478.7
–
191.4
9.8
353.9
20.7
535.1 2,885.8 14,809.6
1,034.1
111.6
67.9
–
–
95.2
(495.3)
5.1
(1.7)
22.7
(14.9)
18.5
(145.8)
123.8
(246.5)
614.0
(1,385.9)
– (2,111.0)
(132.0)
(244.9)
(216.0) (2,869.6) (12,265.2)
–
–
–
–
–
–
(38.3)
72.6
137.5
259.7
5.1
2,806.6
40.0%
50.1%
50.1%
50.0%
–
–
(38.3)
72.6
137.5
259.7
5.1
2,806.6
(15.3)
36.3
68.9
129.9
–
1,097.8
(6.3)
80.1
250.4
61.3
118.0
545.7
(21.6)
116.4
319.3
191.2
118.0
1,643.5
SSE plc Annual Report 2021
269
A4. Joint ventures and associates continued
Seabank
Power
Limited
2020
£m
Marchwood
Power
Limited
2020
£m
Multifuel
Energy
Limited
2020
£m
SGN
2020
£m
Clyde
Windfarm
(Scotland)
Limited
2020
£m
Walney (UK)
Offshore
Windfarms
Limited
2020
£m
Beatrice
Offshore
Windfarm
Limited
2020
£m
Dunmaglass
Wind Farm
Limited
2020
£m
Stronelairg
Wind Farm
Limited
2020
£m
Revenue
Other income
1,271.7
–
112.6
–
68.7
–
106.7
–
133.1
–
137.3
–
91.1
281.4
32.4
–
73.6
–
Neos
Networks
Limited*
2020
£m
136.5
–
Other
2020
£m
79.8
–
Total
2020
£m
2,243.5
281.4
(184.0)
(11.5)
(24.5)
(22.1)
(29.4)
(50.8)
(86.7)
(7.9)
(13.9)
(58.7)
(45.4)
(534.9)
(480.8)
(79.2)
(28.5)
(23.6)
(41.6)
(68.2)
(62.3)
(7.4)
(16.7)
(61.1)
(16.8)
(886.2)
21.9
(0.1)
21.8
(6.1)
15.7
15.7
61.0
(7.5)
(24.8)
8.2
(1.3)
6.9
36.2
(7.7)
28.5
62.1
(18.2)
43.9
(14.2)
29.7
18.3
223.5
(2.6)
15.7
(6.8)
8.9
(112.7)
110.8
(21.1)
89.7
17.1
(6.2)
10.9
(4.0)
6.9
43.0
(12.6)
30.4
(7.6)
22.8
16.7
17.6
1,103.8
(14.2)
(26.3)
(440.3)
2.5
(2.5)
(8.7)
(2.1)
663.5
(222.8)
0.0
(10.8)
440.7
Depreciation
and
amortisation
Other
operating
costs
Operating
profit
606.9
Interest expense
(215.1)
Profit before tax
Corporation tax
391.8
(149.4)
Profit after tax
242.4
Recognised in
other comprehensive
income
Actuarial gain on
retirement
benefit
schemes
Taxation
Cash flow
hedges
Taxation
Total
comprehensive
income/(loss)
SSE share of
profit (based on
% equity)
Dividends paid to
shareholders
Non-current
assets
Current assets
Cash and cash
equivalents
Current liabilities
Non-current
liabilities
(136.0)
26.3
16.9
(4.5)
(97.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(110.3)
21.0
(89.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(136.0)
26.3
0.7
(0.1)
(92.7)
16.4
0.6
(186.0)
145.1
15.7
6.9
28.5
29.7
8.9
0.4
6.9
22.8
–
(10.2)
254.7
80.8
7.9
3.4
14.3
14.9
2.2
35.9
3.5
11.4
50
6.0
9.7
–
72.8
75.3
252.7
18.7
45.9
–
–
(18.4)
155.9
4.5
535.6
8,081.8
449.6
118.7
23.6
257.5
36.1
626.4
34.3
646.1
53.2
639.9
12.3
2,071.9
455.0
199.9
8.4
369.0
21.2
461.0
1,219.1
842.9 14,315.1
2,350.3
37.5
8.8
(676.7)
41.4
(3.7)
10.7
(33.3)
28.5
(80.5)
28.6
(9.2)
15.5
(15.5)
128.2
(500.2)
8.2
(1.1)
30.8
(13.2)
0.6
(1,233.4)
113.4
(322.2)
414.7
(2,889.0)
(6,127.5)
(29.3)
(150.7)
(453.5)
(406.6)
(129.3)
(2,189.6)
(129.5)
(240.1)
(265.3)
(597.5) (10,718.9)
Net assets
1,736.0
150.7
120.3
155.2
312.1
522.9
(34.7)
85.9
167.7
182.0
74.1
3,472.2
Group equity
interest
Net assets
Group’s share of
ownership
interest
Other
33.3%
50%
50%
50%
1,736.0
150.7
120.3
155.2
50%
312.1
25.1%
522.9
40%
(34.7)
50%
85.9
50%
167.7
50%
–
–
182.0
74.1
3.472.2
578.7
75.3
60.2
77.6
156.4
131.2
(13.9)
43.0
83.8
91.0
8.0
1,291.3
adjustments
16.3
(19.6)
3.3
(19.7)
51.2
23.9
(8.0)
84.5
262.7
116.1
47.4
558.1
Carrying value of
group’s equity
interest
595.0
55.7
63.5
57.9
207.6
155.1
(21.9)
127.5
346.5
207.1
55.4
1,849.4
* Formerly SSE Telecommunications Limited.
270
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A4. Joint ventures and associates continued
In addition to the above at 31 March 2021, the Group was owed the following loans from its principal joint ventures: Scotia Gas Networks
Limited £118.8m (2020: £109.1m), Multifuel Energy Limited £nil (2020: £257.1m), Marchwood Power Limited £47.1m (2020: £59.2m);
Clyde Windfarm (Scotland) Ltd £127.1m (2020: £127.1m); Beatrice Offshore Windfarm Limited £nil (2020: £16.5m); Dunmaglass Wind
Farm Limited £46.5m (2020: £46.5m); Stronelairg Wind Farm Limited £88.2m (2020: £88.2m) and Neos Networks Limited £60.9m (2020:
£28.3m).
This represents 88.2% (2020: 86.2%) of the loans provided to equity-accounted joint ventures and associates.
A5. Related party transactions
The immediate parent and ultimate controlling party of the Group is SSE plc (incorporated in Scotland). Balances and transactions between
the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in
this note. Details of transactions between the Group and other related parties are disclosed below.
Trading transactions
The following transactions took place during the year between the Group and entities which are related to the Group, but which are not
members of the Group. Related parties are defined as those in which the Group has control, joint control or significant influence over.
Joint ventures:
Seabank Power Ltd
Marchwood Power Ltd
Scotia Gas Networks Ltd
Clyde Windfarm (Scotland) Ltd
Beatrice Offshore Windfarm Ltd
Stronelairg Windfarm Ltd
Dunmaglass Windfarm Ltd
Neos Networks Ltd
Other Joint Ventures
Associates
2021
Sale of
goods and
services
£m
2021
Purchase of
goods and
services
£m
2021
Amounts
owed from
£m
2021
Amounts
owed to
£m
2020
Sale of
goods and
services
£m
2020
Purchase of
goods and
services
£m
2020
Amounts
owed from
£m
2020
Amounts
owed to
£m
75.2
45.3
29.9
4.3
5.3
1.9
0.9
38.0
22.5
–
(86.7)
(142.3)
(13.1)
(116.1)
(43.7)
(44.7)
(22.2)
(26.3)
(193.8)
(16.2)
0.1
0.6
17.3
0.1
1.1
–
–
41.4
54.8
–
(16.8)
(11.2)
(1.1)
(38.2)
(5.3)
(17.1)
(6.6)
(1.4)
(1.9)
–
44.3
13.6
39.5
4.2
7.1
2.2
0.9
14.4
45.3
–
(66.1)
(96.2)
(113.7)
(118.0)
(40.8)
(55.4)
(24.5)
(59.5)
(205.5)
(36.7)
0.1
0.2
12.1
1.3
1.9
0.4
–
11.8
12.8
–
(5.8)
(6.8)
(16.4)
(41.3)
(3.3)
(16.3)
(6.7)
(11.6)
(60.5)
–
The transactions with Seabank Power Limited and Marchwood Power Limited relate to the contracts for the provision of energy or the
tolling of energy under power purchase arrangements. Scotia Gas Networks Limited has operated the gas distribution networks in Scotland
and the South of England from 1 June 2005. The Group’s gas supply activity incurs gas distribution charges while the Group also provides
services to Scotia Gas Networks in the form of a management service agreement for corporate services, stock procurement services and
the provision of the capital expenditure on the development of front office management information systems.
The amounts outstanding are trading balances, are unsecured and will be settled in cash. No guarantees have been given or received.
No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Aggregate capital loans to joint
ventures and associates are shown in Note 16.
A6. Financial risk management
This note presents information about the fair value of the Group’s financial instruments, the Group’s exposure to the risks associated with
those instruments, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of
capital. Further qualitative disclosures are included throughout these consolidated financial statements.
The Group has exposure to the following risks from its use of financial instruments:
• Credit risk
• Liquidity risk
• Commodity risk
• Currency risk
•
Interest rate risk
The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s
policies for risk management are established to identify the risks faced by the Group, to set appropriate risk limits and controls, and to
monitor risks and adherence to limits.
SSE has a Group-wide risk committee reporting to the Group Executive Committee, responsible for reviewing the strategic, market,
credit, operational and liquidity risks and exposures that arise from the Group’s operating activities. In addition, the Group has a Board
level sub-committee, the Energy Markets Risk Committee, chaired by Non-Executive Director Tony Cocker, which was established to
oversee the Group’s approach to hedging.
SSE plc Annual Report 2021
271
A6. Financial risk management continued
Exposure to the commodity, currency and interest rate risks noted arise in the normal course of the Group’s business and derivative
financial instruments are entered into to hedge exposure to these risks. The objectives and policies for holding or issuing financial
instruments and similar contracts, and the strategies for achieving those objectives that have been followed during the year are
explained below.
A6.1 Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty fails to meet its contractual obligations.
Credit risk arising from the Group’s normal commercial operations is controlled by individual business units operating in accordance with
Group policies and procedures. Generally, for significant contracts, individual business units enter into contracts or agreements with
counterparties having investment grade credit ratings only, or where suitable collateral or other security has been provided. Counterparty
credit validation is undertaken prior to contractual commitment.
Credit risk management for the Group’s SSEN Transmission and SSEN Distribution businesses is performed in accordance with industry
standards as set out by the Regulator and is financially controlled by the individual business units. The Group’s greatest credit risks lie with the
operations of the Customers business, the wholesale procurement activities conducted by Energy Portfolio Management (‘EPM’) under a
trust arrangement and the activities carried out by the Group’s Treasury function. In all cases, specific credit risk controls that match the risk
profile of those activities are applied. Exposure to credit risk in the retail supply of electricity and gas to end user customers arises from the
potential of a customer defaulting on their invoiced payables. Following the disposal of SSE Energy Services, the Group exposure to retail
supply customers is limited to customers of the Group’s Airtricity business. The creditworthiness of these customers is reviewed from a
variety of internal and external information. The financial strength and creditworthiness of business customers is assessed prior to
commencing, and for the duration of, their contract of supply.
Exposure to credit risk in the procurement of wholesale energy and fuel is managed by reference to agreed transaction credit limits
which are determined by whether the counterparty:
• holds an investment grade credit rating; or
• can be assessed as adequately creditworthy in accordance with internal credit rules using information from other external credit
agencies; or
• can provide a guarantee from an investment grade rated entity or post suitable collateral or provide other acceptable assurances
in accordance with group procedures where they have failed to meet the above conditions; or
• can be allocated a non-standard credit limit approved by the relevant Risk or Treasury Committee within its authorised limits as
delegated by the Group Board.
Credit support clauses or side agreements are typically included or entered into to protect the Group against counterparty failure or
non-delivery. As part of its normal activities, EPM transacts significant volumes of commodity derivative products through cleared
exchanges to mitigate credit risk. Such exchanges are subject to strict regulation by the UK Financial Conduct Authority (FCA) and
participants in these exchanges are obliged to meet rigorous capital adequacy requirements.
Individual counterparty credit exposures are monitored by category of credit risk and are subject to approved limits. At 31 March 2021,
EPM had pledged £201.8m (2020: £183.1m) of cash collateral and letters of credit and had received £80.1m (2020: £182.8m) of cash
collateral and letters of credit principally to reduce exposures on credit risk.
Bank credit exposures, which are monitored and reported on daily, are calculated on a mark-to-market basis and adjusted for future
volatility and probability of default. Any issues relating to these credit exposures are presented for discussion and review by the Tax and
Treasury Committee.
Cash and cash equivalents comprise cash in hand and deposits which are readily convertible to cash. These are subject to insignificant
risk of change in value or credit risk.
Derivative financial instruments are entered into to cover the Group’s market risks – commodity risk, interest rate risk, currency risk –
and are consequently covered elsewhere in this note.
Trade receivables represent the most significant exposure to credit risk and are stated after an allowance for impairment.
272
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A6. Financial risk management continued
A6.2 Concentrations of risk
Trade receivables recorded by reported segment held at the 31 March were:
Continuing operations
SSEN Transmission
SSEN Distribution
SSE Renewables
Thermal Generation
Gas Storage
Business Energy
Airtricity
Enterprise
EPM
Corporate Unallocated
Total continuing operations
Held for sale assets and discontinued operations
Gas Production
Contracting and Rail
Total discontinued operations
Total SSE Group
2021
£m
7.8
96.2
77.3
7.0
1.4
199.3
228.8
5.3
192.4
16.7
832.2
7.7
70.2
77.9
2020
£m
1.3
101.8
72.0
13.7
4.0
197.1
153.2
102.0
258.9
9.8
913.8
0.3
–
0.3
910.1
914.1
The Customers segment (Business Energy and Airtricity) accounts for 51.4% (2020: 38.3%) of the Group’s trade receivables from continuing
operations. Trade receivables associated with the Group’s 1.2 million electricity and gas customers (from continuing operations) are recorded
in this segment. The Group also has significant receivables associated with its EPM activities which are generally settled within two to four
weeks from invoicing. The Group’s exposure to credit risk is therefore subject to diversification with no exposure to individual retail customers
totalling >10% of trade receivables. The biggest customer balance, due from an EPM customer (also an EPM supplier), is 4% (2020: 13%) of the
total trade receivables.
The ageing of trade receivables at the reporting date was:
Not past due
Past due but not individually impaired:
0 – 30 days
31 – 90 days
Over 90 days
Less: allowance for impairment
Net Trade receivables
2021
£m
Continuing
operations
2021
£m
HFS Assets and
Discontinued
Operations
2021
£m
Total SSE Group
2020
£m
Total SSE Group
743.4
68.6
812.0
838.5
55.2
26.0
84.7
909.3
(77.1)
832.2
3.0
1.9
5.1
78.6
(0.7)
77.9
58.2
27.9
89.8
987.9
(77.8)
910.1
56.9
36.7
59.7
991.8
(77.7)
914.1
The Group has past due debt which has not had an impairment allowance set aside to cover potential credit losses. The Group has certain
procedures to pursue customers in significant arrears and believes its impairment policy in relation to such balances is appropriate.
The Group has other receivables which are financial assets totalling £3.8m (2020: £6.3m).
SSE plc Annual Report 2021
273
A6. Financial risk management continued
A6.2 Concentrations of risk continued
The movement in the allowance for impairment of trade receivables on continuing operations was:
Balance at 1 April
Increase in allowance for impairment
Impairment losses recognised
Transfer to held for sale
Balance at 31 March
2021
£m
77.7
17.6
(17.5)
(0.7)
77.1
2020
£m
41.9
39.2
(3.4)
–
77.7
At the end of each reporting period a review of the allowance for impairment of trade receivables is performed. Trade receivables do
not contain a significant financing element, and therefore expected credit losses are measured using the simplified approach permitted
by IFRS 9, which requires lifetime expected credit losses to be recognised on initial recognition. A provision matrix is utilised to estimate
the lifetime expected credit losses, based on the age, status and risk of each class of receivable, which is updated periodically to include
changes to both forward-looking and historical inputs such as the coronavirus pandemic.
A6.3 Liquidity risk and going concern
Liquidity risk, the risk that the Group will have insufficient funds to meet its liabilities, is managed by the Group’s Treasury function. The
Group can be exposed to significant movements in its liquidity position due to changes in commodity prices, working capital requirements,
the impact of the seasonal nature of the business and phasing of its capital investment and recycling programmes.
Treasury is responsible for managing the banking and liquidity requirements of the Group, risk management relating to interest rate and
foreign exchange exposures, and for managing the credit risk relating to the banking counterparties with which it transacts. Short term
liquidity is reviewed daily by Treasury, while the longer term liquidity position is reviewed on a regular basis by the Board. The department’s
operations are governed by policies determined by the Board and any breaches of these policies are reported to the Tax and Treasury
Committee and Audit Committee.
In relation to the Group’s liquidity risk, the Group’s policy is to ensure, as far as possible, that it will always have sufficient liquidity to
meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage
to the Group’s reputation.
During the year, the Group’s approach to managing liquidity was to seek to ensure that the Group had available committed borrowings
and facilities equal to at least 105% of forecast borrowings over a rolling 6 month period.
The Group uses cash flow forecasts to monitor its ongoing borrowing requirements. Typically, the Group will fund any short term
borrowing positions by issuing commercial paper or borrowing from committed and uncommitted bank lines and will invest in money
market funds when it has a cash surplus. Details of the Group’s borrowings are disclosed at Note 21. In addition to the borrowing facilities
listed at Note 21.3, the Group has £100m of uncommitted bank lines and a £15m overdraft facility.
The refinancing requirement in the period to 31 December 2022 is £2.5bn, including £1.0bn of voluntary calls on hybrid instruments. The
view of the Directors is that the Group’s 105% funding policy is currently met out to 31 December 2022, after the voluntary redemption of
hybrid instruments, through £1.6bn of surplus cash at 31 March 2021 and £1.5bn of undrawn committed facilities.
Given the cash surplus of £1.6bn at 31 March 2021; the undrawn committed borrowing facilities of £1.5bn maintained by the Group; the
current commercial paper market conditions; and the assumption the Group will be able to refinance maturing debt, the Directors have
concluded that both the Group and SSE plc as Parent Company have sufficient headroom to continue as a going concern. In coming to
this conclusion, the Directors have considered sensitivities on future cashflow projections resulting from the coronavirus pandemic; the
Group’s credit rating; the success of the Group’s disposal programme through 2020/21; and the successful issuance of £2.5bn of medium
to long term debt and Hybrid equity during the year. In the very unlikely event of not being able to access the revolving credit facility or
otherwise refinance as may be required, the Group’s options include not calling the £1.0bn Hybrid debt instruments due in September
2022, deferring uncommitted capex and implementing further cost reductions. The statement of going concern is included in the Audit
Committee Report on page 128 .
Treasury also manage the Group’s interaction with its relationship banks (defined as those banks that support the Group’s financing activities
through their ongoing participation in the committed lending facilities that are maintained by the Group). These are each allocated financial
limits, subject to the maintenance of a minimum credit rating of investment grade or better allocated by a recognised major ratings group.
In respect of short-term cash management, counterparties are subject to review and approval according to defined criteria.
As at 31 March 2021, due to the favourable mark-to-market position of the Group’s derivative financial instruments, the Group currently
holds £37.1m of third party cash deposits in respect of margin calls on exchange traded positions (2020: £256.4m deposited).
274
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A6. Financial risk management continued
A6.3 Liquidity risk and going concern continued
The contractual cash flows shown in the following tables are the contractual undiscounted cashflows under the relevant financial
instruments. Where the contractual cashflows are variable based on a price, foreign exchange rate or index in the future, the contractual
cashflows in the following tables have been determined with reference to the relevant price, foreign exchange rate, interest rate or index
as at the balance sheet date. In determining the interest element of contractual cashflows in cases where the Group has a choice as to
the length of interest calculation periods and the interest rate that applies varies with the period selected, the contractual cashflows have
been calculated assuming the Group selects the shortest available interest calculation periods. Where the holder of an instrument has a
choice of when to redeem, the amounts in the following tables are on the assumption the holder redeems at the earliest opportunity.
The numbers in the following tables have been included in the Group’s cashflow forecasts for the purposes of considering Liquidity Risk
as noted above.
The following are the undiscounted contractual maturities of financial liabilities, including interest and excluding the impact of netting
agreements:
Liquidity Risk
Financial Liabilities
Loans and Borrowings
Commercial paper and
cash advances
Loans – floating
Loans – fixed
Unsecured bonds –
fixed
Fair value adjustment
2021
Carrying
Value
£m
2021
Contractual
Cash Flows
£m
2021
0-12
months
£m
2021
1-2 years
£m
2021
2-5 years
£m
2021
> 5 years
£m
2020
Carrying
Value
£m
2020
Contractual
Cash Flows
£m
2020
0-12
months
£m
2020
1-2 years
£m
2020
2-5 years
£m
2020
> 5 years
£m
–
350.0
1,496.8
–
(362.0)
(1,937.3)
–
(152.2)
(47.9)
–
(1.6)
(359.0)
–
(4.9)
(519.2)
–
(203.3)
(1,011.2)
772.4
824.8
1,594.1
(776.3)
(855.9)
(1,977.1)
(776.3)
(485.9)
(149.5)
–
(153.8)
(49.5)
–
(8.1)
(656.6)
–
(208.1)
(1,121.5)
7,139.6
3.2
(9,344.5)
–
(956.3) (1,534.4)
–
–
(1,935.6)
–
(4,918.2)
–
6,249.1
276.8
(8,379.9)
–
(780.7)
–
(934.3)
–
(2,318.3)
–
(4,346.6)
–
Lease liabilities
8,989.6
421.0
(11,643.8)
(622.0)
(1,156.4) (1,895.0)
(86.2)
(92.7)
(2,459.7)
(175.9)
(6,132.7)
(267.2)
9,717.2
455.2
(11,989.2)
(684.5)
(2,192.4)
(96.5)
(1,137.6)
(83.7)
(2,983.0)
(219.7)
(5,676.2)
(284.6)
9,410.6
(12,265.8)
(1,249.1) (1,981.2)
(2,635.6)
(6,399.9) 10,172.4
(12,673.7)
(2,288.9)
(1,221.3)
(3,202.7)
(5,960.8)
Derivative Financial
Liabilities
Operating derivatives
designated at fair
value
Interest rate swaps used
138.1
(1,590.1)
(1,475.5)
(81.3)
(33.3)
–
844.7
(5,106.1)
(4,096.8)
(901.9)
(107.4)
–
for hedging
164.6
(165.3)
(63.3)
(38.1)
(42.9)
(21.0)
114.3
(113.7)
(30.1)
(14.7)
(32.8)
(36.1)
Interest rate swaps
designated at fair
value
Forward exchange
contracts held for
hedging
Forward exchange
contracts designated
at fair value
325.1
(328.1)
(20.0)
(20.0)
(57.1)
(231.0)
430.3
(436.4)
(28.4)
(28.4)
(70.3)
(309.3)
52.0
(890.1)
(292.7)
(430.7)
(166.7)
11.0
(274.7)
(262.8)
(11.4)
(0.5)
–
–
8.2
(288.5)
(121.2)
(167.3)
–
8.3
4.4
(28.2)
24.7
7.9
–
–
Other financial liabilities
690.8
(3,248.3)
(2,114.3)
(581.5)
(300.5)
(252.0)
1,405.8
(5,940.3)
(4,304.7)
(1,087.6)
(202.6)
(345.4)
Trade payables
433.3
433.3
(433.3)
(433.3)
(433.3)
(433.3)
–
–
–
–
–
–
413.2
413.2
(413.2)
(413.2)
(413.2)
(413.2)
–
–
–
–
–
–
Total
10,534.7
(15,947.4)
(3,796.7) (2,562.7)
(2,936.1)
(6,651.9) 11,991.4
(19,027.2)
(7,006.8)
(2,308.9)
(3,405.3)
(6,306.2)
Derivative Financial
Assets
Financing derivatives
Operating derivatives
designated at fair
value
(240.9)
697.7
581.0
85.8
30.7
0.2
(478.8)
(1,039.4)
(1,300.3)
124.8
119.0
17.1
(344.7)
2,250.6
1,932.8
213.5
104.3
–
(460.6)
4,780.5
4,003.4
(585.6)
2,948.3
2,513.8
299.3
135.0
0.2
(939.4)
3,741.1
2,703.1
726.6
851.4
50.5
169.5
–
17.1
Net total (i)
9,949.1
(12,999.1)
(1,282.9) (2,263.4)
(2,801.1)
(6,651.7) 11,052.0
(15286.1
(4,303.7)
(1,457.5)
(3,235.8)
(6,289.1)
(i) The Group believes the liquidity risk associated with out-of-the-money operating derivative contracts needs to be considered in conjunction with the profile of
payments or receipts arising from derivative financial assets. It should be noted that cash flows associated with future energy sales and commodity contracts
which are not IFRS 9 financial instruments are not included in this analysis, which is prepared in accordance with IFRS 7 ‘Financial Instruments: Disclosures’.
SSE plc Annual Report 2021
275
A6. Financial risk management continued
A6.4 Commodity risk
The Group’s Energy Portfolio Management (‘EPM’) business implements the hedging policy through trading in the commodity markets
and manages the requirement for the delivery of the Group’s physical commodity needs as part of its normal course of business. The risk
management activity carried out by EPM arises from the Group’s requirement to source gas, electricity or other commodities such as
renewable obligation certificates for Business Energy and Airtricity, and to procure fuel and other commodities and provide a route-to-
market for SSE Renewables, Thermal Generation, Gas Storage and the discontinued Gas Production business.
Current hedging approach
The Group has traded in four principal commodities during the year, as well as the spreads between two or more commodity prices:
power (baseload and other products); gas; carbon (emissions allowances); and oil. Trading in oil ceased during the year, as a result
of the agreement to dispose of the Group’s Gas Production business on an unhedged basis. Each commodity has different liquidity
characteristics, which impacts on the degree of hedging possible. Similarly, each of the Group’s assets carries different exposures to the
commodity market and thus requires a different approach to hedging. As such, the Group’s current hedging approach varies by each
class of asset as follows:
Asset class
GB Wind
Minimum Hedge Target
Target to hedge of less than 100% of anticipated wind energy output for the
coming 12 months. Historically this target was set at 85%, but will be at least 90%
going forward.
Hydro
85% of forecast generation 12 months in advance of delivery
GB Thermal
Gas Storage
100% of expected output 6 months in advance of delivery, progressively established
over the preceding 24 months.
The annual auction to offer gas storage capacity contracts from Atwick for
the 2020/21 (and 21/22) financial year resulted in no third party contracts being
secured. The assets were commercially operated throughout the year and the
business managed its exposure to changes in the spread between summer and
winter prices, market volatility and plant availability.
Gas
Principal Commodity Exposures
Power, Gas, Carbon
Power, Gas, Carbon
Power, Gas, Carbon
Business Energy
Sales to contract customers are 100% hedged: at point of sale for fixed, upon
instruction for flexi and on a rolling basis for tariff customers.
Power, Gas, Carbon
Gas Production
(discontinued
operation)
As the E&P business remains held for sale on an unhedged basis, the Group has
ceased forward hedge activity for the likely production profiles of the business.
Gas, Oil
However, there are three principal areas where significant variations in earnings cannot be fully mitigated through hedging:
• The impact of the weather on the volume of electricity produced from renewable sources;
• The impact of operational matters such as unplanned outages; and
• The ability of flexible thermal power stations to earn extrinsic income by providing services to the electricity system and by
responding to shorter-term electricity market conditions.
Hedging is carried out by each asset class trading internally with EPM to affect these hedges and EPM trading onwards with external
counterparties. EPM is only able to accept internal trades when there is sufficient liquidity to offset them in the external market or they
can be offset with internal trades from other asset classes. In this way, the commodity risks to which EPM is individually exposed are
minimised.
The volumetric extent to which assets are hedged are reported monthly, and to the EMRC on at least a quarterly basis. Variations to the
hedging approach above will be required as markets and other factors (such as asset disposals, Brexit or coronavirus) change. The EMRC
also receives reporting on credit risk, other risk measures, and market liquidity in assessing whether any variations to the hedging
approach are required.
In November 2020, SSE Thermal temporarily adjusted its approach to forward hedging of its thermal generation output for periods
beyond March 2021 in response to the uncertainty of long-term carbon pricing due to the UK’s exit from the European Union.
The Group measures and manages the Commodity Risk associated with the financial and non-financial commodity contracts it is
exposed to. However, only certain commodity contracts within the Group constitute financial instruments under IFRS 9. As a result,
it is only the fair value of IFRS 9 financial instruments which represents the exposure of the Group’s commodity price risk under IFRS 7.
276
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A6. Financial risk management continued
A6.4 Commodity risk continued
This is a consequence of the Group’s accounting policy which stipulates that commodity contracts which are designated as financial
instruments under IFRS 9 should be accounted for on a fair value basis with changes in fair value reflected in profit or equity. Conversely,
commodity contracts that are not designated as financial instruments under IFRS 9 will be accounted for as ‘own use’ contracts. As fair
value changes in own use contracts are not reflected through profit or equity, these do not represent the IFRS 7 commodity price risk.
Furthermore, other physical contracts can be treated as the hedging instrument in documented cash flow hedging relationships where
the hedged item is the forecast future purchase requirement to meet production or customer demand. The accounting policies
associated with financial instruments are explained in the Accompanying Information section A1.
Sensitivity analysis
The Group’s exposure to commodity price risk according to IFRS 7 is measured by reference to the Group’s IFRS 9 commodity contracts.
IFRS 7 requires disclosure of a sensitivity analysis for market risks that is intended to illustrate the sensitivity of the Group’s financial
position and performance to changes in market variables impacting upon the fair value or cash flows associated with the Group’s
financial instruments.
Therefore, the sensitivity analysis provided discloses the effect on profit or loss and equity at the balance sheet date assuming that a
reasonably possible change in the relevant commodity price had occurred and been applied to the risk exposures in existence at that
date. The reasonably possible changes in commodity prices used in the sensitivity analysis were determined based on calculated or
implied volatilities where available, or historical data.
The sensitivity analysis has been calculated on the basis that the proportion of commodity contracts that are IFRS 9 financial instruments
remains consistent with those at that point. Excluded from this analysis are all commodity contracts that are not financial instruments
under IFRS 9.
Commodity prices
UK gas (p/therm)
UK power (£/MWh)
UK coal (US$/tonne)
UK emissions (€/tonne)
UK oil (US$/bbl)
2021
2020
Reasonably
possible
increase/
decrease in
variable
+/-20
+/-24
+/-11
+/-11
+/-11
Base Price (i)
35
39
61
18
42
Reasonably
possible
increase/
decrease in
variable
+/-8
+/-9
+/-7
+/-6
+/-8
Base Price (i)
44
53
72
43
59
(i) The base price represents the average forward market price over the duration of the active market curve used to calculate the sensitivity analysis.
The impacts of reasonably possible changes in commodity prices on profit after taxation based on the rationale described are as follows:
Incremental profit/(loss)
Commodity prices combined – increase
Commodity prices combined – decrease
2021
Impact on profit
and equity
£m
2020
Impact on profit
and equity
£m
428.5
(428.5)
104.7
(104.7)
The sensitivity analysis provided is hypothetical and is based on the exposure to energy-related commodities, and their corresponding
valuation under IFRS 9, that the Group has at each period end. This analysis should be used with caution as the impacts disclosed are
not necessarily indicative of the actual impacts that would be experienced given it does not consider all interrelationships, consequences
and effects of such a change in those prices.
A6.5 Currency risk
The Group publishes its consolidated financial statements in Sterling but also conducts business in foreign currencies. As a result, it is
subject to foreign currency exchange risk arising from exchange rate movements which will be reflected in the Group’s transaction costs
or in the underlying foreign currency assets of its foreign operations.
The Group’s policy is to use forward contracts, swaps and options to manage its exposures to foreign exchange risk. All such exposures
are transactional in nature, and relate primarily to procurement contracts, commodity purchasing and related freight requirements,
commodity hedging, long term plant servicing and maintenance agreements, and the purchase and sale of carbon emission certificates.
The policy is to seek to hedge 100% of its currency requirements arising under all committed contracts excepting commodity hedge
transactions, the requirements for which are significantly less predictable. The policy for these latter transactions is to assess the Group’s
requirements on a rolling basis and to enter into cover contracts as appropriate.
SSE plc Annual Report 2021
277
A6. Financial risk management continued
A6.5 Currency risk continued
The Group has foreign subsidiary operations with significant Euro-denominated net assets. The Group’s policy is to hedge its net
investment in its foreign operations by ensuring the net assets whose functional currency cash flows are denominated in Euros are
matched by borrowings in Euros. For the acquired net assets whose functional cash flows are in Sterling, the Group will ensure Sterling
denominated borrowings are in place to minimise currency risk.
Significant exposures are reported to, and discussed by, the Tax and Treasury Committee on an ongoing basis and additionally form part
of the bi-annual Treasury report to the Audit Committee.
At the balance sheet date, the total nominal value of outstanding forward foreign exchange contracts that the Group has committed to
is:
Forward foreign exchange contracts
The Group’s exposure to foreign currency risk was as follows:
2021
£m
2020
£m
4,395.5
5,738.7
SEK
(million)
€m
$m
CNH
NOK
(million)
CHF
(million)
SEK
(million)
€m
$m
CNH
NOK
(million)
CHF
(million)
2021
2020
Loans and borrowings
Purchase and
commodity contract
commitments
– 4,125.0 1,719.0
2,383.4
518.1
27.9
Gross exposure
2,383.4 4,643.1 1,746.9
Forward exchange/
swap contracts
Net exposure (in
currency)
Net exposure (in £m)
2,383.4 3,443.0 1,746.9
– 1,200.1
– 1,021.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 4,615.0 1,719.0
–
–
–
12.6 2,001.1
(182.6) 3,035.7
647.8
12.6 6,616.1
1,536.4 3,035.7
647.8
70.6
70.6
12.6 4,796.7 1,254.9 1,816.5
388.7
70.6
– 1,819.4
– 1,610.0
281.5 1,219.2
138.6
227.1
259.1
19.9
–
–
This represents the net exposure to foreign currencies, reported in pounds Sterling, and arising from all Group activities. All sensitivity
analysis has been prepared on the basis of the relative proportions of instruments in foreign currencies being consistent as at the balance
sheet date. This includes only monetary assets and liabilities denominated in a currency other than Sterling and excludes the translation
of the net assets of foreign operations but not the corresponding impact of the net investment hedge.
The sensitivity analysis is indicative only and it should be noted that the Group’s exposure to such market rate changes is continually
changing. The calculations are based on linear extrapolations of rate changes which may not reflect the actual result which would
impact upon the Group.
A 10% change in foreign currency exchange rates would have had the following impact on profit after taxation, based on the
assumptions presented above:
US Dollars
Euro
CNH
NOK
Equity
Income Statement
At 31 March
2021
£m
At 31 March
2020
£m
At 31 March
2021
£m
At 31 March
2020
£m
–
90.0
–
–
90.0
–
109.5
–
–
109.5
–
1.9
–
–
1.9
(20.4)
35.4
(12.5)
(1.8)
0.7
The impact of a decrease in rates would be an identical reduction in the annual charge.
A6.6 Interest rate risk
Interest rate risk derives from the Group’s exposure to changes in the value of an asset or liability or future cash flows through changes in
interest rates.
278
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A6. Financial risk management continued
A6.6 Interest rate risk continued
The Group’s policy is to manage this risk by stipulating that a minimum of 50% of Group borrowings be subject to fixed rates of interest,
either directly through the debt instruments themselves or through the use of derivative financial instruments. The floating rate borrowings
are provided by banks including the European Investment Bank (EIB). Such instruments include interest rate swaps and options, forward rate
agreements and, in the case of debt raised in currencies other than Sterling, cross currency swaps. These practices serve to reduce the
volatility of the Group’s financial performance.
Although interest rate derivatives are primarily used to hedge risk relating to current borrowings, under certain circumstances they may
also be used to hedge future borrowings. Any such pre-hedging is unwound at the time of pricing the underlying debt, either through
cash settlement on a net present value basis or by transacting offsetting trades. The floating rate borrowings mainly comprise cash
advances from the European Investment Bank (EIB), however the Group is currently carrying a surplus cash position of £1.6bn.
The impact of a change in interest rates is dependent on the specific details of the financial asset or liability in question. Changes in fixed
rate financial assets and liabilities, which account for the majority of cash, loans and borrowings, are not measured at fair value through
the income statement. In addition to this, changes to fixed-to-floating hedging instruments which are recorded under cash flow hedge
accounting also do not impact the income statement. Changes in variable rate instruments and hedging instruments and hedged items
recorded under fair value hedge accounting are recorded through the income statement. The exposure measured is therefore based on
variable rate debt and instruments.
The net exposure to interest rates at the balance sheet date can be summarised thus:
Interest bearing/earning assets and liabilities:
– fixed
– floating
Represented by:
Cash and cash equivalents
Derivative financial liabilities
Loans and borrowings
Lease liabilities
2021
Carrying
Amount
£m
2020
Carrying
Amount
£m
(9,804.2)
1,721.7
(8,900.3)
(1,209.4)
(8,082.5)
(10,109.7)
1,600.2
(272.1)
(8,989.6)
(421.0)
164.6
(102.7)
(9,717.2)
(454.4)
(8,082.5)
(10,109.7)
Following from this, the table below represents the expected impact of a change of 100 basis points in short term interest rates at the
reporting date in relation to equity and income statement. The analysis assumes that all other variables, in particular foreign currency
rates, remain constant. An increase in exchange rates would be a change to either the income statement or equity. The assessment is
based on a revision of the fair value assumptions included in the calculated exposures in the previous table.
All sensitivity analysis has been prepared on the basis of the proportion of fixed to floating instruments being consistent as at the balance
sheet date and is stated after the effect of taxation.
The sensitivity analysis is indicative only and it should be noted that the Group’s exposure to such market rate changes is continually
changing. The calculations are based on linear extrapolations of rate changes which may not reflect the actual result which would
impact upon the Group.
Income statement
2021
£m
(0.9)
2020
£m
11.0
The impact of a decrease in rates would be an equal reduction in the annual charge. There is no impact on equity as the analysis relates
to the Group’s net exposure at the balance sheet date. Contracts qualifying for hedge accounting are, by definition, part of the Group’s
covered position.
SSE plc Annual Report 2021
279
A7. Fair value of financial instruments
A7.1 Fair value of financial instruments within the Group
The fair values of the primary financial assets and liabilities of the Group together with their carrying values are as follows:
Financial Assets
Current
Trade receivables
Other receivables
Cash collateral and other short term loans
Cash and cash equivalents
Derivative financial assets
Non-current
Unquoted equity investments
Loan note receivable
Loans to associates and jointly controlled
entities
Derivative financial assets
Financial Liabilities
Current
Trade payables
Outstanding liquid funds
Loans and Borrowings
Lease liabilities
Derivative financial liabilities
Non-current
Loans and Borrowings
Lease liabilities
Derivative financial liabilities
2021
Amortised
Cost (i)
£m
2021
FVTPL/
FVTOCI (ii)
£m
2021
Total
Carrying
Value
£m
2021
Fair Value
£m
2020
Amortised
Cost (i)
£m
2020
FVTPL/
FVTOCI (ii)
£m
2020
Total
Carrying
Value
£m
2020
Fair Value
£m
832.2
3.8
2.7
1,600.2
–
2,438.9
–
115.9
554.3
–
670.2
–
–
–
–
470.9
832.2
3.8
2.7
1,600.2
470.9
832.2
3.8
2.7
1,600.2
470.9
913.8
6.3
256.4
164.6
–
470.9
2,909.8
2,909.8
1,341.1
3.6
–
–
114.7
118.3
3.6
115.9
554.3
114.7
788.5
3.6
115.9
554.3
114.7
788.5
–
100.0
847.5
–
947.5
–
–
–
–
631.2
631.2
0.2
–
–
308.2
308.4
913.8
6.3
256.4
164.6
631.2
913.8
6.3
256.4
164.6
631.2
1,972.3
1,972.3
0.2
100.0
847.5
308.2
0.2
100.0
847.5
308.2
1,255.9
1,255.9
3,109.1
589.2
3,698.3
3,698.3
2,288.6
939.6
3,228.2
3,228.2
(433.3)
(39.8)
(864.7)
(72.9)
–
–
–
–
–
(238.7)
(433.3)
(39.8)
(864.7)
(72.9)
(238.7)
(433.3)
(39.8)
(880.2)
(72.9)
(238.7)
(413.2)
–
(1,893.8)
(73.1)
–
–
–
–
–
(785.8)
(413.2)
–
(1,893.8)
(73.1)
(785.8)
(413.2)
–
(1,905.0)
(73.1)
(785.8)
(1,410.7)
(238.7)
(1,649.4)
(1,664.9)
(2,380.1)
(785.8)
(3,165.9)
(3,177.1)
(8,121.7)
(348.1)
–
(3.2)
–
(452.1)
(8,124.9)
(348.1)
(452.1)
(9,373.1)
(348.1)
(452.1)
(7,546.6)
(382.1)
–
(276.8)
–
(620.0)
(7,823.4)
(382.1)
(620.0)
(8,502.8)
(382.1)
(620.0)
(8,469.8)
(455.3)
(8,925.1)
(10,173.3)
(7,928.7)
(896.8)
(8,825.7)
(9,505.1)
(9,880.5)
(694.0)
(10,574.5)
(11,838.2)
(10,308.8)
(1,682.6)
(11,990.4)
(12,681.0)
Net financial liabilities
(6,771.4)
(104.8)
(6,876.2)
(8,139.9)
(8,020.2)
(743.0)
(8,762.2)
(9,452.8)
(i) Financial assets and liabilities that are measured at amortised cost.
(ii) Financial assets and liabilities that are measured at either Fair Value through Profit and Loss (Derivative Financial Assets and Liabilities) or Fair Value through Other
Comprehensive Income (Unquoted Equity Investments).
A7.1.1 Basis of determining fair value
Certain assets and liabilities have been classified and carried at amortised cost on inception in line with IFRS 9 criteria. The carrying value
of these assets are approximately equivalent to fair value due to short term maturity aside from loans and borrowings which are subject
to longer maturity dates.
All other financial assets and liabilities are measured at either Fair Value through Profit and Loss (‘FVTPL’) or Fair Value through Other
Comprehensive Income (‘FVTOCI’). Fair values for energy derivatives are based on unadjusted quoted market prices, where actively
traded. For energy derivatives that are not actively traded, interest rate instruments, foreign currency hedge contracts and cross currency
swap contracts associated with foreign currency denominated long-term fixed rate debt, the fair values are determined by reference to
closing rate market prices for similar instruments. Fair values for unquoted equity instruments are derived from venture capital or growth
equity firm valuation statements.
280
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED A7. Fair value of financial instruments continued
A7.1 Fair value of financial instruments within the Group continued
A7.1.1 Basis of determining fair value continued
The fair values are stated at a specific date and may be different from the amounts which will actually be paid or received on settlement
of the instruments. The fair value of items such as property, plant and equipment, internally generated brands or the Group’s customer
base are not included as these are not considered financial instruments.
A7.2 Fair value hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 based on the degree to which the fair value is observable.
• Level 1 fair value measurements are those derived from unadjusted quoted market prices for identical assets or liabilities.
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data.
Financial Assets
Energy derivatives
Interest rate derivatives
Foreign exchange derivatives
Loan note receivable
Unquoted equity investments
Financial Liabilities
Energy derivatives
Interest rate derivatives
Foreign exchange derivatives
Loans and borrowings
2021
Level 1
£m
68.8
–
–
–
–
68.8
–
–
–
–
–
2021
Level 2
£m
275.9
217.6
23.3
–
–
516.8
(138.1)
(489.7)
(63.0)
(3.2)
(694.0)
2021
Level 3
£m
–
–
–
115.9
3.6
119.5
–
–
–
–
–
There were no significant transfers out of level 1 into level 2 and out of level 2 into level 1 during the year ended 31 March 2021.
Financial Assets
Energy derivatives
Interest rate derivatives
Foreign exchange derivatives
Loan note receivable
Unquoted equity investments
Financial Liabilities
Energy derivatives
Interest rate derivatives
Foreign exchange derivatives
Loans and borrowings
2020
Level 1
£m
–
–
–
–
–
–
(230.6)
–
–
–
(230.6)
2020
Level 2
£m
460.6
441.9
36.9
–
–
939.4
(614.1)
(544.6)
(16.5)
(276.8)
(1,452.0)
2020
Level 3
£m
–
–
–
100.0
0.2
100.2
–
–
–
–
–
2021
Total
£m
344.7
217.6
23.3
115.9
3.6
705.1
(138.1)
(489.7)
(63.0)
(3.2)
(694.0)
2020
Total
£m
460.6
441.9
36.9
100.0
0.2
1,039.6
(844.7)
(544.6)
(16.5)
(276.8)
(1,682.6)
There were no significant transfers out of level 1 into level 2 and out of level 2 into level 1 during the year ended 31 March 2020. The level
3 movements during the year were related to the recognition of £100m of unquoted loan notes due from Ovo Group Limited following
the disposal of SSE Energy Services.
SSE plc Annual Report 2021
281
A8. Hedge accounting
A8.1 Cash flow hedges
The Group designates contracts which qualify as hedges for accounting purposes either as cash flow hedges or fair value hedges. Cash
flow hedges are contracts entered into to hedge a forecast transaction or cash flow risk generally arising from a change in interest rates
or foreign currency exchange rates and which meet the effectiveness criteria prescribed by IFRS 9. The Group’s accounting policy on
cash flow hedges is explained in the Accompanying Information section A1.
The following table indicates the contractual maturities of the expected transactions and the qualifying cash flow hedges associated.
Non-Sterling denominated contractual cash flows have been converted at the forward foreign exchange rate.
Cash flow hedges
Interest rate swaps:
Assets
Liabilities
Cross currency swaps:
Assets
Liabilities
Forward exchange
contracts:
Assets
Liabilities
2021
Carrying
amount
2021
Expected
cash
flows
2021
0-12
months
2021
1-2 years
2021
2-5 years
2021
> 5 years
2020
Carrying
amount
2020
Expected
cash
flows
2020
0-12
months
2020
1-2 years
2020
2-5 years
2020
> 5 years
0.1
(8.4)
(8.3)
0.2
(8.5)
(8.3)
–
–
–
(0.1)
(1.9)
(2.0)
–
(5.5)
(5.5)
0.3
(1.1)
334.0
(113.7)
334.0
(113.7)
101.1
(30.1)
(0.8)
220.3
220.3
71.0
99.0
(14.7)
84.3
116.8
(32.8)
84.0
17.1
(36.1)
(19.0)
137.1
(157.0)
142.3
(151.1)
(19.9)
(8.8)
4.5
(7.6)
(3.1)
17.0
(98.6)
123.0
(49.1)
(81.6)
73.9
(2.2)
4.2
2.0
–
–
–
–
–
–
–
–
–
–
–
–
11.7
(52.6)
169.6
(890.1)
169.6
(292.7)
–
(430.7)
–
(166.7)
(40.9)
(720.5)
(123.1)
(430.7)
(166.7)
–
–
–
28.3 (1,558.7) (1,556.4)
(121.2)
(288.5)
(8.2)
(2.3)
(167.3)
20.1 (1,847.2)
(1,677.6)
(169.6)
–
–
–
–
–
–
–
–
–
–
–
–
A8.2 Net investment hedge
The Group’s net investment hedge consists of debt issued in the same currency (€) as the net investment in foreign subsidiaries with
€ denominated functional currencies being the Airtricity Supply business and the thermal plants and wind farms in Ireland. The hedge
compares the element of the net assets whose functional cash flows are denominated in € to the matching portion of the € borrowings
held by the Group. This therefore provides protection against movements in foreign exchange rates.
Gains and losses in the hedge are recognised in equity and will be transferred to the income statement on disposal of the foreign
operation (2021: £37.3m gain, 2020: £28.7m loss). Gains and losses on the ineffective portion of the hedge are recognised immediately
in the income statement (2021: £nil, 2020: £0.7m).
282
SSE plc Annual Report 2021
FINANCIAL STATEMENTSACCOMPANYING INFORMATION CONTINUED COMPANY BALANCE SHEET
AS AT 31 MARCH 2021
Assets
Equity investments in joint ventures and associates
Loans to joint ventures and associates
Investments in subsidiaries
Trade and other receivables
Derivative financial assets
Retirement benefit assets
Non-current assets
Trade and other receivables
Current tax asset
Cash and cash equivalents
Derivative financial assets
Current assets
Total assets
Liabilities
Loans and other borrowings
Trade and other payables
Provisions
Derivative financial liabilities
Current liabilities
Loans and other borrowings
Deferred tax liabilities
Provisions
Derivative financial liabilities
Non-current liabilities
Total liabilities
Net assets
Equity:
Share capital
Share premium
Capital redemption reserve
Hedge reserve
Retained earnings
Equity attributable to ordinary shareholders of the parent
Hybrid equity
Total equity
Note
2021
£m
2020
£m
3
3
4
5
11
10
5
7
8
11
8
6
13
11
8
7
13
11
9
9
139.2
226.8
2,004.5
8,386.5
68.1
543.1
11,368.2
902.6
3.8
1,564.7
149.5
2,620.6
12.7
196.8
2,112.9
10,009.9
238.7
534.2
13,105.2
354.9
1.1
109.0
227.5
692.5
13,988.8
13,797.7
714.7
2,146.8
20.3
83.4
2,965.2
5,723.8
49.1
–
399.4
6,172.3
9,137.5
4,851.3
524.5
847.1
49.2
(14.2)
1,972.3
3,378.9
1,472.4
4,851.3
1,893.8
1,967.6
–
60.4
3,921.8
5,772.2
39.0
7.0
477.0
6,295.2
10,217.0
3,580.7
523.1
875.6
49.2
(3.6)
966.7
2,411.0
1,169.7
3,580.7
Result for the year
The profit for the year attributable to ordinary shareholders dealt with in the financial statements of the Company was £1,726.0m
(2020: loss of £639.4m, including an exceptional loss on disposal of SSE Energy Services Group of £1,408.2m).
These financial statements were approved by the Board of Directors on 25 May 2021 and signed on their behalf by
Gregor Alexander
Finance Director
Sir John Manzoni
Chairman
SSE plc
Registered No: SC117119
SSE plc Annual Report 2021
283
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2021
Statement of changes in equity
Share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Hedge
reserve
£m
Retained
earnings
£m
Total
attributable
to ordinary
shareholders
£m
At 1 April 2020
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Dividends to shareholders
Scrip dividend related share issue
Distributions to Hybrid equity holders
Issue of Hybrid equity
Redemption of Hybrid equity
Credit in respect of employee share awards
Investment in own shares (ii)
Adjustment in relation to historic
remeasurement of financial instruments,
net of tax (i)
At 31 March 2021
523.1
–
–
–
–
1.4
–
–
–
–
–
875.6
–
–
–
–
(1.4)
–
–
–
–
(27.1)
–
–
524.5
847.1
49.2
–
–
–
–
–
–
–
–
–
–
–
49.2
(3.6)
–
(4.4)
(4.4)
–
–
–
–
–
–
–
966.7
1,726.0
6.9
1,732.9
(836.4)
39.0
–
–
(1.7)
19.7
24.6
2,411.0
1,726.0
2.5
1,728.5
(836.4)
39.0
–
–
(1.7)
19.7
(2.5)
Hybrid
Capital
£m
1,169.7
46.6
–
46.6
–
–
(46.6)
1,051.0
(748.3)
–
–
Total
£m
3,580.7
1,772.6
2.5
1,775.1
(836.4)
39.0
(46.6)
1,051.0
(750.0)
19.7
(2.5)
(6.2)
27.5
21.3
–
21.3
(14.2)
1,972.3
3,378.9
1,472.4
4,851.3
(i) Following review of the recognition of certain derivative financial instruments at inception, a revision to the Retained Earnings, Loans and Borrowings and the
Hedge Reserve has been recorded during the period. This revision arose through review of the Company’s contractual exposure on certain swap arrangements, as
well as mark-to-market charges on inception previously recognised through the Income Statement. The cumulative effect on opening reserves on 1 April 2020 is
an increase of £21.3m, and the single largest line item impacted was Loans and Borrowings which decreased by £58.8m. It has been assessed that the cumulative
effect of this revision does not materially impact the prior year financial statements.
(ii) Investment in own shares is the purchase of own shares less the settlement of Treasury shares for sharesave schemes.
At 1 April 2019
Loss for the year
Other comprehensive income
Total comprehensive income for the year
Dividends to shareholders
Scrip dividend related share issue
Distributions to Hybrid equity holders
Issue of shares
Share repurchase
Credit in respect of employee share awards
Investment in own shares
At 31 March 2020
Share
capital
£m
523.4
–
–
–
–
14.1
–
–
(14.4)
–
–
523.1
Share
premium
account
£m
Capital
redemption
reserve
£m
879.6
–
–
–
–
(14.1)
–
10.1
–
–
–
875.6
34.8
–
–
–
–
–
–
–
14.4
–
–
49.2
Total
attributable
to ordinary
shareholders
£m
3,861.0
(639.4)
124.4
(515.0)
(948.5)
345.5
–
10.1
(352.0)
24.5
(14.6)
Retained
earnings
£m
2,467.4
(639.4)
83.8
(555.6)
(948.5)
345.5
–
–
(352.0)
24.5
(14.6)
Hedge
reserve
£m
(44.2)
–
40.6
40.6
–
–
–
–
–
–
–
Hybrid
Capital
£m
1,169.7
46.5
–
46.5
–
–
(46.5)
–
–
–
–
Total
£m
5,030.7
(592.9)
124.4
(468.5)
(948.5)
345.5
(46.5)
10.1
(352.0)
24.5
(14.6)
(3.6)
966.7
2,411.0
1,169.7
3,580.7
284
SSE plc Annual Report 2021
FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
1. Principal accounting policies
1.1 General information
SSE plc (the Company) is a company domiciled in Scotland. The address of the registered office is given on the back cover. The Company
financial statements present information about the Company as a separate entity and not about the Group.
1.2 Basis of preparation
The financial statements have been prepared in accordance with FRS 101 (Reduced Disclosures) (‘FRS 101’) and its interpretations as issued
by the International Accounting Standards Board (‘IASB’) and adopted by the European Union (‘adopted IFRS’).
Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own income statement and
related notes.
It has also taken advantage of the following disclosure exemptions available under FRS 101.
• A Cash flow statement and related notes;
• Related party disclosures;
• Disclosures in respect of capital management; and
• The effects of new but not yet effective IFRSs.
As the consolidated financial statements of SSE plc include the equivalent disclosure, the Company has also taken advantage of the
exemptions, under FRS 101, available in respect of the following disclosure:
• Certain disclosures required by IFRS 13 Fair value measurement and the disclosures required by IFRS 7 Financial instrument disclosures
The Company previously assessed that, on the basis of materiality, the disclosures required under IFRS 2 Share-based Payment should
be removed. The Company has assessed that at 31 March 2021 these disclosures continue to be immaterial to the Company’s financial
statements.
Going concern
The Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future (further
details are contained in A6 Accompanying Information of the consolidated financial statements). The financial statements are therefore
prepared on a going concern basis.
Basis of measurement
The financial statements of the Company are prepared on the historical cost basis except for derivative financial instruments, available-
for-sale financial assets and assets of the Company pension scheme which are stated at their fair value, and liabilities of the Company
pension scheme which are measured using the projected unit credit method. The directors believe the financial statements present a
true and fair view. The financial statements of the Company are presented in pounds sterling.
Critical accounting judgements and estimation uncertainty
In the process of applying the Company’s accounting policies, management necessarily makes judgements and estimates that have a
significant effect on the amounts recognised in the financial statements. Changes in the assumptions underlying the estimates could
result in a significant impact to the financial statements. The Group’s key accounting judgement and estimation areas are noted in Note
4.1 of the consolidated financial statements, with the most significant financial judgement areas as specifically discussed by the Audit
Committee being highlighted separately. In particular, Note 4.1(ii), Retirement Benefit Obligations, and the related disclosures in Note 23
of the consolidated financial statements are relevant to the Company.
Significant accounting policies
The significant accounting policies applied in the preparation of these individual financial statements are set out below. These policies
have been applied consistently to all the years presented, unless otherwise stated.
Investments
Investments in subsidiaries are carried at cost less any impairment charges.
Interests in joint arrangements and associates
Associates are those investments over which the Company has significant influence but neither control nor joint control.
The Company’s joint ventures and associates are accounted for using the equity method of accounting where the joint venture and
associate investments are carried at historical cost plus the Company’s share of post-acquisition results, less any impairment in value.
The Company recognises its share of the results of these equity-accounted operations after tax and interest in the income statement.
SSE plc Annual Report 2021
285
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 MARCH 2021
1. Principal accounting policies continued
1.2 Basis of preparation continued
Applicable Group accounting policies
The following significant accounting policies are consistent with those applied for the Group consolidated financial statements:
• Equity and equity-related compensation benefits (Supplementary information A1.2, page 258 ).
• Defined benefit pension scheme (Supplementary information A1.2, page 258 ).
• Taxation (Supplementary information A1.2, page 253 ).
• Financial instruments (Supplementary information A1 and A6, pages 259 and 271 ).
2. Supplementary financial information
2.1 Auditor remuneration
The amounts paid to the Company’s auditor in respect of the audit of these financial statements was £0.4m (2020: £0.3m).
Amounts paid to the Company’s auditor in respect of services to the Company other than the audit of the Company’s financial
statements have not been disclosed as the information is required instead to be disclosed on a consolidated basis.
2.2 Employee numbers
The average number of people employed by the Company (including Executive Directors) during the year was 3 (2020: 3).
The costs associated with the employees of the Company, who are the Executive Directors of the Group, are borne by Group
companies. No amounts are charged to the Company.
2.3 Directors’ remuneration and interests
Information concerning Directors’ remuneration, shareholdings, options, long term incentive schemes and pensions is shown in
the Remuneration Report on pages 144 to 165 . No Director had, during or at the end of the year, any material interest in any other
contract of significance in relation to the Group’s business.
3. Investments in associates and joint ventures
Share of net assets/cost
At 1 April
Additions
Repayment of shareholder loans
Transfer from/(to) subsidiary (i)
At 31 March
Equity
£m
12.7
–
–
126.5
139.2
2021
Loans
£m
196.8
42.0
(12.0)
–
226.8
Total
£m
209.5
42.0
(12.0)
126.5
366.0
Equity
£m
139.2
–
–
(126.5)
12.7
2020
Loans
£m
208.4
1.6
(13.2)
–
196.8
Total
£m
347.6
1.6
(13.2)
(126.5)
209.5
(i) The transfer of investment to/from subsidiary during the current and prior year relate to the Company’s disposal of investment in SGN to its wholly owned
subsidiary Beithe AG in the prior year and re-acquisition of the company in the current year.
4. Subsidiary undertakings
Details of the Company’s subsidiary undertakings are disclosed in the Accompanying Information section (A3) on page 262 .
Investment in subsidiaries
At 1 April
Decrease in existing investments (i)
At 31 March
2021
£m
2,112.9
(108.4)
2,004.5
2020
£m
2,679.6
(566.7)
2,112.9
(i) The overall decrease in investments held by the Company relates to the net of: the transfer of SGN from Beithe AG to SSE plc and the subsequent reduction in the
carrying value of Beithe AG (£126.5m); and the equity shares in the Company awarded to the employees of the subsidiaries of the Group under the Group’s share
schemes, which are recognised as an increase in the cost of investment in those subsidiaries as directed by IFRIC 11 (2021: £18.1m; 2020: £17.0m (both before tax)).
The decrease in the prior year also includes the acquisition of Beithe AG (£126.5m); less the disposal of SSE Energy Services (£593.5m) and the recognition of a
provision against the carrying value of the investment in SSE Services plc (£116.8m).
286
SSE plc Annual Report 2021
FINANCIAL STATEMENTS 5. Trade and other receivables
The balances of current and non-current trade and other receivables in the current and prior financial year predominantly consists of
amounts owed by subsidiary undertakings. At 31 March 2021 the Company assessed its exposure to expected credit losses on related
party receivables under IFRS 9 and held a provision against future losses of £61.0m (2020: £55.1m).
6. Trade and other payables
The balances of current trade and other payables in the current and prior financial year predominantly consists of amounts due to
subsidiary undertakings.
7. Taxation
Current tax asset
Corporation tax asset
2021
£m
3.8
2020
£m
1.1
Deferred taxation
The following are the deferred tax liabilities and assets recognised by the Company and movements thereon during the current and prior
reporting periods:
At 31 March 2019
Charge/(credit) to income statement
Charge/(credit) to equity
At 31 March 2020
Charge/(credit) to income statement
Charge/(credit) to equity
At 31 March 2021
Fair value gains/
(losses) on
derivatives
£m
Retirement
benefit
obligations
£m
(53.0)
(21.0)
7.2
(66.8)
9.9
5.2
(51.7)
188.2
(0.1)
(86.6)
101.5
0.1
1.6
103.2
Other
£m
12.2
0.5
(8.4)
4.3
(5.0)
(1.7)
(2.4)
Total
£m
147.4
(20.6)
(87.8)
39.0
5.0
5.1
49.1
Certain deferred tax assets and liabilities have been offset, including the asset balances analysed in the tables above. The following is an
analysis of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
Net deferred tax (asset)/liability
2021
£m
103.2
(54.1)
49.1
2020
£m
105.8
(66.8)
39.0
The deferred tax assets/liabilities disclosed include the deferred tax relating to the Company’s pension scheme liabilities.
SSE plc Annual Report 2021
287
8. Loans and borrowings
Current
Other short-term loans
Non-current
Loans
Total loans and borrowings
Cash and cash equivalents
Unadjusted Net Debt
Add/(less):
Hybrid equity (Note 9)
Adjusted Net Debt and Hybrids
2021
£m
714.7
714.7
5,723.8
5,723.8
2020
£m
1,893.8
1,893.8
5,772.2
5,772.2
6,438.5
7,666.0
(1,564.7)
4,873.8
1,472.4
6,346.2
(109.0)
7,557.0
1,169.7
8,726.7
Cash and cash equivalents (which are presented as a single class of assets in the face of the balance sheet) comprise cash at bank and
short term highly liquid investments with a maturity of three months or less.
8.1 Borrowing facilities
The Company has an established €1.5bn Euro commercial paper programme (paper can be issued in a range of currencies and swapped
into sterling) and as at 31 March 2021 there was no commercial paper outstanding (2020: £671.4m). The Company also has £1.5bn of
revolving credit facilities (see Note 21.1). These facilities continue to provide back-up to the commercial paper programme and, as at
31 March 2021 these facilities were undrawn.
During the year to 31 March 2021, the Company successfully accessed the debt capital markets on two occasions, taking £2.0bn out the
market over two senior debt tranches and two Hybrid debt securities tranches.
In April 2020 SSE plc successfully launched a €1.1bn 5 and 10 year dual tranche Eurobond with €600m maturing April 2025 and €500m
maturing April 2030, with coupons of 1.25% and 1.75% respectively. Both tranches have been swapped to Sterling resulting in a funding
cost of 2.4% for the five year and 2.9% for the 10 year.
In July 2020, SSE plc issued a dual tranche equity accounted hybrid bond to replace the hybrids issued in 2015 (at an all-in rate of 4.02%),
which have issuer first call dates of 10 September 2020 (£750m) and 1 April 2021 (€600m). This dual tranche issue comprises a perpetual
non-call 5.75-year note at £600m with a coupon of 3.74%; and a perpetual non-call 7.0-year note at €500m with a coupon of 3.125%.
The €500m tranche has been partly swapped back to Sterling, resulting in an all-in funding cost for both tranches to SSE of just under
3.8% per annum.
288
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 8. Loans and borrowings continued
8.1 Borrowing facilities continued
Analysis of borrowings
2021
Weighted
average
interest rate
2021
Face value
£m
2021
Fair value
£m
2021
Carrying
amount
£m
2020
Weighted
average
interest rate
2020
Face value
£m
2020
Fair value
£m
2020
Carrying
amount
£m
Current
Bank Loans – non-amortising (i)
Other short term loans – non-amortising
(ii)
2.00% €600m Eurobond Repayable
17 June 2020
4.25% Eurobond repayable 14 September
2021
2.375% €500m Eurobond repayable
10 February 2022 (iv)
Total current borrowings
Non-current
US Private Placement 16 April 2022
US Private Placement 28 April 2023
US Private Placement 6 September 2023
US Private Placement 16 April 2024
4.25% Eurobond repayable 14 September
2021
2.375% €500m Eurobond repayable
10 February 2022 (iv)
5.875% Eurobond repayable 22 September
2.4%
4.3%
2.8%
2.9%
4.4%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.7%
574.9
577.8
574.8
1.1%
776.2
778.4
772.4
2.7%
546.8
548.8
546.6
4.3%
300.0
305.0
299.8
415.0
715.0
424.6
729.6
414.9
714.7
–
–
–
–
–
–
–
–
1,897.9
1,905.0
1,893.8
162.7
35.0
120.0
204.1
–
–
193.5
36.3
124.0
253.8
–
–
162.6
34.7
119.2
203.9
–
–
4.3%
2.8%
2.9%
4.4%
162.7
35.0
120.0
204.1
211.4
34.4
116.6
267.1
162.6
34.6
118.5
203.9
4.3%
300.0
309.8
299.4
2.4%
415.0
428.2
414.8
2022
5.9%
300.0
323.5
299.6
5.9%
300.0
327.5
299.3
1.75% €700m Eurobond repayable
8 September 2023 (v)
1.25% Eurobond Repayable 16 April 2025
(vi)
0.875% €600m Eurobond Repayable
8 September 2025
4.75% $900m NC5.5 Hybrid maturing
16 September 2077 (vii)
3.625% NC5.5 Hybrid maturing
16 September 2077
Between two and five years
Bank Loans – non-amortising (i)
US Private Placement 8 June 2026
US Private Placement 6 September 2026
US Private Placement 6 September 2027
0.875% €600m Eurobond repayable
8 September 2025
1.375% €650m Eurobond repayable
4 September 2027 (viii)
8.375% Eurobond repayable on
20 November 2028
1.750% Eurobond Repayable 16 April 2030
1.8%
514.6
538.5
514.1
1.8%
514.6
532.1
513.9
1.3%
531.4
557.1
531.4
0.9%
510.9
527.0
508.4
–
–
–
–
–
–
–
–
4.8%
730.0
752.2
729.0
4.8%
749.2
729.7
747.5
3.6%
300.0
307.3
299.6
3.6%
300.0
293.2
299.3
3,408.7
3,613.2
3,402.5
3,100.6
3,250.0
3,093.8
0.8%
3.1%
3.2%
3.2%
100.0
64.0
247.1
35.0
100.4
67.7
265.8
37.2
100.0
62.9
243.7
34.5
1.2%
3.1%
3.2%
3.2%
100.0
64.0
247.1
35.0
100.5
63.7
265.6
34.5
99.9
63.0
243.1
34.4
–
–
–
–
0.9%
530.9
526.4
527.9
1.4%
591.4
631.8
590.0
1.4%
591.4
600.9
589.8
8.4%
500.0
732.1
496.8
8.4%
500.0
712.6
496.4
(ix)
1.8%
442.9
485.3
442.9
–
–
–
–
6.25% Eurobond repayable on 27 August
2038
Over five years
6.3%
350.0
539.5
347.3
6.3%
350.0
501.2
347.1
2,330.4
2,859.8
2,318.1
2,418.4
2,805.4
2,401.6
Fair value adjustment (iii)
–
–
3.2
–
–
276.8
Total non-current borrowings
5,739.1
6,473.0
5,723.8
5,519.0
6,055.4
5,772.2
Total borrowings
6,454.1
7,202.6
6,438.5
7,416.9
7,960.4
7,666.0
SSE plc Annual Report 2021
289
Balances include term loans and EIB debt and is a mixture of fixed and floating rate debt.
8. Loans and borrowings continued
8.1 Borrowing facilities continued
(i)
(ii) Balances include Commercial Paper and facility advances (none outstanding at 31 March 2021).
(iii) The fair value adjustment relates to the change in the carrying amount of the borrowings as a result of fair value hedges that are in place. The movement in the
fair value adjustment is recognised in the income statement with a corresponding movement on the hedging instrument also being recognised in the income
statement.
(iv) The 2.375% €500m Eurobond maturing 10 February 2022 has been swapped to Sterling giving an effective interest rate of 3.53%.
(v) The 1.75% €700m Eurobond maturing 8 September 2023 has been swapped to Sterling giving an effective interest rate of 3.16%.
(vi) The 1.250% €600m eurobond maturing 14 April 2025 has been swapped to Sterling giving an effective interest rate of 2.43%.
(vii) The 4.75% $900m NC5.5 Hybrid maturing 16 September 2077 has been swapped to Euros ($605m) and Sterling ($295m) giving an effective interest rate of 2.25%
and 3.29% respectively.
(viii) The 1.375% €650m eurobond maturing 4 September 2027 has been swapped to Sterling giving an effective interest rate of 2.56%.
(ix) The 1.750% €500m eurobond maturing 14 April 2030 has been swapped to Sterling giving an effective interest rate of 2.89%.
9. Equity
Share capital
Allotted, called up and fully paid:
At 1 April 2019
Issue of shares (i)
Share repurchases (ii)
At 31 March 2020
Issue of shares (i)
At 31 March 2021
Number
(millions)
1,046.9
28.2
(28.8)
1,046.3
2.8
1,049.1
£m
523.4
14.1
(14.4)
523.1
1.4
524.5
The Company has one class of ordinary share which carries no right to fixed income. The holders of ordinary shares are entitled to
receive dividends as declared and are entitled to one vote per share at meetings of the Company.
(i) Shareholders were able to elect to receive ordinary shares in place of the final dividend of 56.0p per ordinary share (in relation to year ended 31 March 2020) and
the interim dividend of 24.4p (in relation to the current year) under the terms of the Company’s scrip dividend scheme. This resulted in the issue of 1,918,977 and
883,408 new fully paid ordinary shares respectively (2020: 19,086,291 and 9,136,089). In addition, the Company issued 0.9m (2020: 0.8m) shares during the year
under the savings-related share option schemes (all of which were settled by shares held in Treasury) for a consideration of £10.4m (2020: £10.1m).
(ii) No shares were purchased in the year to 31 March 2021. (2020: Under the share buyback programme announced on 1 February 2019, 28.8m shares were repurchased
and cancelled in the current year for a total of £352.0m (including stamp duty and commission)). The nominal value of share capital repurchased and cancelled is
transferred out of share capital and into the capital redemption reserve.
Of the 1,049.1m shares in issue, 6.1m are held as treasury shares. These shares will be held by the Group and used to award shares to employees under the
Sharesave scheme in the UK.
During the year, on behalf of the Company, the employee share trust purchased 0.9m shares for a total consideration of £12.9m (2020:
1.1m shares, consideration of £14.6m) to be held in trust for the benefit of employee share schemes. At 31 March 2021, the trust held
7.7m shares (2020: 7.6m) which had a market value of £112.5m (2020: £99.3m).
Capital redemption reserve
The capital redemption reserve comprises the value of shares redeemed or purchased by the Company from distributable profits.
Hedge reserve
The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedge derivative
instruments related to hedged transactions that have not yet occurred.
Hybrid equity
GBP 750m 3.875% perpetual subordinated capital securities
EUR 600m 2.375% perpetual subordinated capital securities
GBP 600m 3.74% perpetual subordinated capital securities
EUR 500m 3.125% perpetual subordinated capital securities
290
SSE plc Annual Report 2021
2021
£m
–
421.4
598.0
453.0
2020
£m
748.3
421.4
–
–
1,472.4
1,169.7
FINANCIAL STATEMENTSNOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 10. Retirement benefit obligations
Defined benefit scheme
The Company has a funded final salary pension scheme (‘Scottish Hydro Electric Pension Scheme’) which provides defined benefits
based on final pensionable pay. The scheme is subject to an independent valuation at least every three years. The future benefit
obligations are valued by actuarial methods on the basis of an appropriate assessment of the relevant parameters.
Pension summary:
Scheme type
Net actuarial gain/(loss) recognised in
respect of the pension asset in the
Statement of Comprehensive Income
Net pension asset
Scottish Hydro Electric
Net actuarial gain/(loss)
Defined benefit
2021
£m
8.6
8.6
2020
£m
(2.8)
(2.8)
2021
£m
543.1
543.1
2020
£m
534.2
534.2
IFRIC 14 Surplus Restrictions
The value of Scottish Hydro Electric Pension Scheme assets recognised was previously impacted by the asset ceiling test which restricts
the surplus that can be recognised to assets that can be recovered through future refunds or reductions in future contributions to the
schemes, and may increase the value of scheme liabilities where there are minimum funding liabilities in relation to agreed contributions.
In 2016/17 the Group agreed with the trustees to the Scottish Hydro Electric pensions scheme an amendment to the scheme rules to
clarify that the Company has a clear right to any surplus upon final winding up of the scheme. This amendment removes the previous
restriction on recognition of any surplus. The net pension asset of the Scottish Hydro Electric Scheme at 31 March 2021 was equal to
£543.1m (2020: £534.2m).
The individual pension scheme details based on the latest formal actuarial valuations are as follows:
Latest formal actuarial valuation
Valuation carried out by
Value of assets based on valuation
Value of liabilities based on valuation
Valuation method adopted
Average salary increase
Average pension increase
Value of fund assets/accrued benefits
Scottish Hydro Electric
31 March 2018
Hymans Robertson
£2,059.0m
£1,902.3m
Projected Unit
RPI +1.%
RPI
108.2%
10.1 Pension scheme assumptions
The scheme has been updated to 31 March 2021 by qualified independent actuaries. The valuations have been prepared for the purposes
of meeting the requirements of IAS 19. The major assumptions used by the actuaries in the scheme were:
Rate of increase in pensionable salaries
Rate of increase in pension payments
Discount rate
Inflation rate
At
31 March
2021
3.7%
3.2%
2.0%
3.2%
At
31 March
2020
3.2%
2.7%
2.3%
2.7%
SSE plc Annual Report 2021
291
10. Retirement benefit obligations continued
10.1 Pension scheme assumptions continued
The assumptions relating to longevity underlying the pension liabilities at 31 March 2021 are based on standard actuarial mortality tables,
and include an allowance for future improvements in longevity. The assumptions, equivalent to future longevity for members in normal
health at age 65, are as follows:
Currently aged 65
Currently aged 45
At
31 March
2021
Male
23
25
At
31 March
2021
Female
24
27
At
31 March
2020
Male
23
24
At
31 March
2020
Female
24
26
The impact on the scheme’s liabilities of changing certain of the major assumptions is as follows:
Rate of increase in pensionable salaries
Rate of increase in pension payments
Discount rate
Longevity
At 31 March 2021
At 31 March 2020
Increase/
decrease in
assumption
0.1%
0.1%
0.1%
1 year
Effect on
scheme
liabilities
+/-0.1%
+/-1.0%
+/-0.9%
+/-1.8%
Increase/
decrease in
assumption
Effect on
scheme liabilities
0.1%
0.1%
0.1%
1 year
+/-0.2%
+/-0.9%
+/-0.9%
+/-1.8%
These assumptions are considered to have the most significant impact on the scheme valuations. The reduction in sensitivity is due to
the conversion of the longevity swap to buy-in during the year.
Asset buy-in
On 1 October 2019, the Scottish Hydro Electric Pension Scheme entered into an asset buy-in, transferring the risk of volatility in the
assumptions used to calculate the obligation for 1,800 pensioners and 567 dependents (covering c£800m of the scheme’s liabilities) to
a third party. The asset buy-in is valued under the accounting principles of IFRS 13 and is considered a Level 3 instrument in the fair value
hierarchy. This is in addition to a previous buy-in completed during the year ended 31 March 2018 when c£250m of the scheme’s assets
and liabilities related to 617 pensioners and 190 dependents were transferred to a third party. The Company has now insured against
volatility in obligations related to all pensioners to third parties (insurer PIC) and is now only exposed to valuation fluctuations related
to active and deferred members.
10.2 Valuation of Pension Scheme
Equities
Government bonds
Corporate bonds
Insurance contracts
Other investments
Total fair value of plan assets
Present value of defined benefit obligation
Surplus in the scheme
Deferred tax thereon (i)
Net pension asset
Quoted
£m
50.3
660.9
–
–
482.6
Unquoted
£m
–
–
–
780.3
–
Value at
31 March
2021
£m
50.3
660.9
–
780.3
482.6
1,974.1
(1,431.0)
543.1
(103.2)
439.9
(i) Deferred tax is recognised at 19% (2020: 19%) on the surplus.
Quoted
£m
107.1
482.9
–
–
530.2
Unquoted
£m
–
–
–
725.4
–
Value at
31 March
2020
£m
107.1
482.9
–
725.4
530.2
1,845.6
(1,311.4)
534.2
(101.5)
432.7
292
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021
10. Retirement benefit obligations continued
10.3 Movements in the defined benefit asset obligations and assets during the year:
At 1 April
Included in Income Statement
Current service cost
Past service cost
Settlements and curtailments
Interest income/(cost)
Included in Other Comprehensive Income
Actuarial gain/(loss) arising from:
Demographic assumptions
Financial assumptions
Experience assumptions
Return/(loss) on plan assets excluding
interest income
Other
Contributions paid by the employer
Benefits Paid
2021
Assets
£m
Obligations
£m
1,845.6
(1,311.4)
–
–
(0.6)
41.5
40.9
–
–
–
172.0
172.0
1.1
(85.5)
(84.4)
(11.4)
(1.7)
0.6
(29.2)
(41.7)
(8.1)
(161.1)
5.8
–
(163.4)
–
85.5
85.5
Total
£m
534.2
(11.4)
(1.7)
–
12.3
(0.8)
(8.1)
(161.1)
5.8
172.0
8.6
1.1
–
1.1
Assets
£m
2020
Obligations
£m
2,078.4
(1,540.7)
–
–
(21.8)
46.3
24.5
–
–
–
(174.4)
(174.4)
5.8
(88.7)
(82.9)
(16.8)
(0.3)
20.4
(34.3)
(31.0)
12.3
103.2
56.1
–
171.6
–
88.7
88.7
Total
£m
537.7
(16.8)
(0.3)
(1.4)
12.0
(6.5)
12.3
103.2
56.1
(174.4)
(2.8)
5.8
–
5.8
Balance at 31 March
1,974.1
(1,431.0)
543.1
1,845.6
(1,311.4)
534.2
10.4 Pension scheme contributions and costs
Charges/(credits) recognised:
Current service cost (charged to operating profit)
Past service cost
Settlement and curtailment losses (i)
Charged/(credited) to finance costs:
Interest from pension scheme assets
Interest on pension scheme liabilities
2021
£m
11.4
1.7
–
13.1
(41.5)
29.2
(12.3)
2020
£m
16.8
0.3
1.4
18.5
(46.3)
34.3
(12.0)
(i) During the prior year the Group disposed of SSE Energy Services which resulted in a loss of £1.4m being recognised in the pension scheme on the transfer values
of assets and liabilities transferred from the schemes to a new Ovo defined benefit scheme. The loss was treated as exceptional and included in the overall loss on
disposal of the business.
The return on Pension Scheme assets is as follows:
Return/(loss) on Pension Scheme assets
2021
£m
213.5
2020
£m
(128.1)
Employer financed retirement benefit (EFRB) pension costs
The increase in the year in relation EFRB was £5.8m (2020: decrease of £2.4m). This is included in other provisions.
Further discussion of the pension scheme assets, liabilities, polices, risk and strategy can be found on page 242 of the Group
consolidated financial statements.
SSE plc Annual Report 2021
293
11. Financial instruments
For financial reporting purposes, the Company has classified derivative financial instruments as financing derivatives. Financing derivatives
include all fair value and cash flow interest rate hedges, non-hedge accounted (mark-to-market) interest rate derivatives, cash flow foreign
exchange hedges and non-hedge accounted foreign exchange contracts. Non-hedge accounted contracts are treated as held for trading.
The derivative financial assets and (liabilities) are represented as follows:
Derivative Financial Assets
Non-current
Current
Derivative Liabilities
Non-current
Current
Total derivative liabilities
Net liability
2021
£m
68.1
149.5
217.6
(399.4)
(83.4)
(482.8)
(265.2)
2020
£m
238.7
227.5
466.2
(477.0)
(60.4)
(537.4)
(71.2)
Information on the Group’s Financial risk management and the fair value of financial instruments is available at A6 and A7 .
12. Commitments and contingencies
Guarantees, indemnities and other contingent liabilities
SSE plc has provided guarantees on behalf of subsidiary, joint venture and associated undertakings as follows:
Bank Borrowing
Performance of contracts (i)
2021
SSE on behalf of
Subsidiary
£m
SSE on behalf of
Joint Operations
and Ventures
£m
SSE on Behalf of
3rd parties
£m
754.6
3,462.5
–
579.7
–
157.0
2020
Total
£m
754.7
2,953.2
Total
£m
754.6
4,199.2
Subsidiaries have provided guarantees on behalf of the Company as follows:
Bank borrowing
2021
£m
2020
£m
1,494.7
1,687.1
(i)
Included within the performance contracts above are guarantees of £nil (2020: £nil) relating to discontinued operations.
During the year, two new unlimited guarantees were provided on behalf of SSE Renewables Developments (UK) Limited, a wholly owned
subsidiary of the Company, both in favour of Total Gas and Power Infrastructure Limited in respect of a Share Purchase Agreement and
payment obligations for Seagreen Wind Energy Limited. The unlimited guarantee (which was provided in the prior year) on behalf of
TESGL Limited, a wholly owned subsidiary of the Company, in favour of The Scottish Ministers in respect of the Scottish Non-Domestic
Energy Efficiency Framework expired during the course of the year.
Around £871m of guarantees have been provided during the year in connection with Seagreen Wind Energy Limited and an additional
£813m of guarantees have also been provided during the year in connection with the Doggerbank Offshore Windfarm Holdings Limited.
The £400m drawdown facility with the European Investment Bank, guaranteed by SSE Renewables Holdings Limited and SSE Generation
Limited on behalf of SSE plc was repaid.
In the prior year to 31 March 2020, in addition to the unlimited guarantee provided to TESGL Limited (as noted above), SSE plc provided
around £600m of guarantees in connection with the Doggerbank Offshore Wind Farm Joint Venture project.
In addition to the two new unlimited guarantees in favour of Total gas and Power Infrastructure Limited, the Company has previously
provided unlimited guarantees on behalf of subsidiary undertakings in relation to a further eight contracts in respect of performance
of work and any liabilities arising. SSE Services Plc, a wholly owned subsidiary of the Company, has provided a guarantee to Group
Trustee Independent Trustees in respect of Southern Electric Group of the Electricity Supply Pension Scheme in respect of funding
required by the Scheme. SSE Contracting Limited, a wholly owned subsidiary, has provided a guarantee to Tay Street Lighting (Leeds) Ltd,
Tay Valley Lighting (Newcastle & North Tayside) Ltd and Tay Valley Lighting (Stroke on Trent) Ltd in respect of provision and maintenance
of public street lighting and illuminated traffic signage. SSE E&P (UK) Limited, a wholly owned subsidiary of the Company, has provided a
guarantee to Hess Limited in respect of decommissioning liabilities. SSE E&P (UK) Limited has also provided a guarantee to Britoil Limited
and Arco British Limited in respect of the acquisition of the Sean Field.
294
SSE plc Annual Report 2021
FINANCIAL STATEMENTSNOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 MARCH 2021 12. Commitments and contingencies continued
Guarantees, indemnities and other contingent liabilities continued
SSE E&P (UK) Limited has also provided a guarantee to Perenco UK Limited in respect of a Sale and Purchase Agreement for the Minerva,
Apollo and Mercury Fields. Scottish Hydro Electric Transmission Plc, a wholly owned subsidiary of the Company, has provided a guarantee
to ABB Limited in connection with the use of HVDC Replica Control Panels for Caithness-Moray Project.
Where the Company enters into financial guarantee contracts to guarantee indebtedness of the other companies within its group,
the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the
guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make payment
under the guarantee.
13. Provisions
At 1 April 2019
Charged in the year
At 31 March 2020
Charged in the year
Released during the year
Utilised during the year
At 31 March 2021
At 31 March 2021
Non-current
Current
At 31 March 2020
Non-current
Current
Other
£m
–
7.0
7.0
20.4
(1.5)
(5.6)
20.3
–
20.3
20.3
7.0
–
7.0
Total
£m
–
7.0
7.0
20.4
(1.5)
(5.6)
20.3
–
20.3
20.3
7.0
–
7.0
SSE plc Annual Report 2021
295
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SSE PLC
Opinion
In our opinion:
• SSE plc’s group financial statements and parent company financial statements (the ‘financial statements’) give a true and fair view
of the state of the group’s and of the parent company’s affairs as at 31 March 2021 and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation
(EC) No. 1606/2002 as it applies in the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including FRS101 ‘Reduced Disclosure Framework’; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of SSE plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 March
2021 which comprise:
Group
Parent company
Consolidated income statement for the year ended 31 March 2021
Balance sheet as at 31 March 2021
Consolidated statement of comprehensive income for the year
then ended
Consolidated balance sheet as at 31 March 2021
Consolidated statement of changes in equity for the year
then ended
Consolidated cash flow statement for the year then ended
Statement of changes in equity for the year then ended
Related Notes 1 to 26 and A1 to A8 to the group financial statements,
including a summary of significant accounting policies
Related notes 1 to 13 to the company financial statements including
a summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law,
International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial
Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union. The financial reporting
framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom
Accounting Standards, including FRS 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in
the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s
ability to continue to adopt the going concern basis of accounting included:
• Confirming our understanding of management’s Going Concern process as well as the review controls in place over the preparation
of the group’s Going Concern model and the memoranda on going concern;
• Engaging early with management to ensure all key matters were considered in their assessment;
• Obtaining management’s board approved forecast cash flows, covenant forecasts and sensitivities prepared by management to
31 December 2022, ensuring the same forecasts are used elsewhere within the group for accounting estimates. We tested for
arithmetical accuracy of the models as well as checking the net debt position at the year-end date which is the starting point for
the model. We assessed the reasonableness of the cashflow forecast by analysing management’s historical forecasting accuracy
and understanding how any anticipated continued impact of coronavirus has been modelled. We performed reverse stress testing
to understand how plausible the severe downside scenarios would need be to result in negative liquidity or a covenant breach.
The EY assessment reflects all maturing debt through to 31 March 2023;
• Reviewing management’s assessment of mitigating options potentially available to the group to reduce cash flow spend in the Going
Concern period, to determine their plausibility and whether such actions could be effected by management. We have obtained analysis
to determine whether these were within the control of management and evaluated the impact of these mitigations in light of our
understanding of the business and its cost structures;
• Performing a detailed review of borrowing facilities to assess their continued availability to the group and to ensure completeness
of covenants identified by management;
• Reviewing market data for indicators of potential contradictory evidence to challenge the Going Concern assessment including
review of profit warnings within the sector and review of industry analyst reports. We held discussions with the Audit Committee
to confirm the Going Concern position prepared by management.
• We considered whether management’s disclosures in the financial statements sufficiently and appropriately reflect the going concern
assessment and outcomes.
296
SSE plc Annual Report 2021
FINANCIAL STATEMENTS Conclusions relating to going concern continued
The audit procedures performed in evaluating the director’s assessment were performed by the Group audit team, however we also
considered the financial and non-financial information communicated to us from our components teams as sources of potential
contrary indicators which may cast doubt over the Going Concern assessment.
Our key observations
The group is forecast to continue to be profitable and generate positive cashflows during the going concern period. The group is
forecast to maintain adequate liquidity and headroom within its covenants and the reverse stress test scenario suggests that the group
would need to be exposed to severe downside events impacting profitability and cash flows in order to breach liquidity or covenants. In
this remote scenario, management still consider that the impact can be mitigated by further cash and cost saving measures which are
within their control during the going concern period.
The group’s principal source of funding (the revolving credit facility) extends beyond the Going Concern period (to 2025/2026) and we
have not identified plausible scenarios where management would need to source additional or alternative sources of cash during the
going concern period.
Conclusion
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern for the period of to
31 December 2022.
In relation to the group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability
to continue as a going concern.
Overview of our audit approach
Audit scope
• We performed an audit of the complete financial information of 20 components, audit procedures on specific
balances for a further 17 components and specified procedures for 4 components.
• The components where we performed full or specific audit procedures accounted for 95% of adjusted profit
Key audit matters
before tax, 94% of Revenue and 93% of Total assets.
•
Impairment of certain power stations;
• Group and parent pension obligations;
• Accounting for estimated revenue recognised;
• Accounting for the SSE disposal programme.
Materiality
• Overall group materiality of £54.1m which represents 5% of adjusted Profit before tax.
An overview of the scope of the parent company and group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
for each company within the group. Taken together, this enables us to form an opinion on the group financial statements. We take into
account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment
and other factors such as recent Internal Audit results when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the 131 (2020: 141) reporting components of the group, we selected 37 components
(including the parent entity) covering entities within the UK and Ireland, which represent the principal business units within the group.
Of the 37 components selected, we performed an audit of the complete financial information of 20 (2020: 19) components (‘full scope
components’) which were selected based on their size or risk characteristics. For the remaining 17 (2020: 21) components selected (‘specific
scope components’), we performed audit procedures on specific accounts within that component that we considered had the potential for
the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 95% (2020: 94%) of the group’s adjusted Profit before
tax, 94% (2020: 92%) of the group’s Revenue and 93% (2020: 87%) of the group’s Total assets. For the current year, the full scope
components contributed 56% (2020: 62%) of the group’s adjusted Profit before tax, 92% (2020: 91%) of the group’s Revenue and 83%
(2020: 74%) of the group’s Total assets. The specific scope component contributed 39% (2020: 32%) of the group’s adjusted profit before
tax, 2% (2020: 1%) of the group’s Revenue and 10% (2020: 13%) of the group’s Total assets. The audit scope of these components may not
have included testing of all significant accounts of the component but will have contributed to the coverage of significant tested for the
group. We also instructed 4 location to perform specified procedures over certain aspects of cash and bank due to significant balances
held within that location.
SSE plc Annual Report 2021
297
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SSE PLC CONTINUED
An overview of the scope of the parent company and group audits continued
Tailoring the scope continued
Of the remaining 97 (2020: 102) components that together represent 5% (2020: 6%) of the group’s adjusted Profit before tax, none are
individually greater than 1% of the group’s Profit before tax. For these components, we performed other procedures, including analytical
review, intercompany eliminations and obtaining audit evidence to respond to any potential risks of material misstatement to the group
financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
ADJUSTED PROFIT BEFORE TAX
REVENUE
TOTAL ASSETS
56% Full scope components
39% Specific scope components
5% Other procedures
92% Full scope components
2% Specific scope components
6% Other procedures
83% Full scope components
10% Specific scope components
7% Other procedures
Changes from the prior year
There have been minimal changes in scoping from the prior year, with one new full scope entity included within the Airtricity division to
maintain overall coverage after disposals in the period.
Involvement with component teams
In establishing our overall approach to the group audit, we determined the type of work that needed to be undertaken at each of the
components by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating
under our instruction. Of the 20 full scope components, audit procedures were performed on 2 of these directly by the primary audit
team.
For the 18 full scope and 17 specific scope components, where the work was performed by component auditors, we determined the
appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on
the group as a whole. The majority of specific scope components were led by the lead audit engagement partner, Annie Graham. For the
remaining entities there were regular calls held between the lead audit engagement partner and component partners, with file reviews
performed by the primary team over audit documentation that has not been retained within the group canvas file.
Following the move to remote working during the year-end audit in the prior year, the current year audit was also required to be conducted
remotely due to coronavirus restrictions and social distancing requirements at both component and Group locations. This was supported
through remote access to the group’s financial systems and the use of EY software collaboration platforms for the secure and timely
delivery of requested audit evidence. Due to coronavirus, we have been unable to perform physical site visits due to travel restrictions. The
primary team interacted regularly with the component teams where appropriate during various stages of the audit, reviewed key working
papers, were responsible for the scope and direction of the audit process and virtually attended closing meetings. This, together with the
additional procedures performed at group level, gave us appropriate evidence for our opinion on the group financial statements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
298
SSE plc Annual Report 2021
FINANCIAL STATEMENTS Key audit matters continued
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Impairment of certain power stations
(Impairment charged 2021: £58.1m,
2020: £291.3m)
Refer to the Audit Committee Report
(page 128 ); Accounting policies
(page 251 ); and Note 15.2 of the group
financial statements (page 228 )
Forecast based estimate:
Certain power stations are at risk of
impairment or impairment reversal. This
is due to a number of global and national
factors reducing or increasing their value in
use or fair value less cost of sale, triggering
an impairment assessment. Our risk
focussed on the following power stations:
Great Island, Peterhead, Keadby, Medway
and Marchwood.
The key assumptions include future power
prices, forecast power demand, carbon
prices, discounting and operating
expenditure.
The estimated recoverable amount is
subjective due to the inherent uncertainty
involved in forecasting and discounting future
cash flows as a result of the above factors.
The key change in risk from the prior year is
the removal of the E&P impairment as this is
now classified as held for sale and is valued
per IFRS 5. As such the risk is now solely
focussed on specific power stations as
aforementioned.
Scoping:
Testing was performed over this risk area,
covering both full and specific scope
components (covering four components),
which represented 100% of the risk amount.
We confirmed that the impairment charge
of £58.1m recognised by management for
Great Island was appropriate and was driven
predominately by reduction market driven
demand and price assumptions.
All audit work in relation to this key audit
matter was undertaken by the component
audit teams, with oversight from the group
audit team.
For the remaining power plant assets
described in this section, we are satisfied
that it was appropriate for management
not to recognise any impairment charge.
We communicated that the pricing
assumptions applied were appropriate.
The assumptions were in line with
EY tracking of expected future price
movements and highlighted the minimal
headroom on the power station assets.
We also note that the disclosures made in
the accounts on page 228 reflect this.
We are satisfied that no events have
occurred that would result in previously
recorded impairments being reversed.
We are satisfied with the adequacy of
disclosure within the group financial
statements.
We obtained management’s assessment
of potential impairment indicators in
accordance with IAS 36 for powerplants.
Audit procedures included:
We have understood management’s
process and methodology for assessing
assets for indicators of impairment and,
where applicable, we have understood
management’s modelling of value in use
cash flows including the source of the key
input assumptions.
We checked the historical accuracy of
management’s forecasting and verified
that the assumptions are consistent with
those used in other areas.
We involved three EY specialists in our
assessment: a specialist with energy industry
experience; a discount rate specialist and
a specialist with experience of assessing
forward energy prices. Using our sector
experience and our specialists, we assessed
any unusual or unexpected trends identified
within the cashflows year on year and
assessed the impact on the overall
forecasted position.
We embedded modelling expertise within
the audit team to assess the appropriateness
of the model parameters and clerical
accuracy of the models used.
We applied sensitivities to management’s
models to evaluate headroom.
We considered prior period impairments
for indication of reversal.
Key assumptions:
Using our sector experience and our
specialists we benchmarked, where
appropriate, the directors’ judgement on
the key assumptions including, power
prices, forecast power demand, carbon
prices and, discount rates.
Disclosures:
We assessed the accuracy and adequacy of
the disclosures in line with IAS 36, ensuring
key assumptions are included and that the
disclosures adequately reflect the risks
inherent in the valuation of non-current
assets and the impact of changes in
assumptions on calculated headroom.
SSE plc Annual Report 2021
299
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SSE PLC CONTINUED
Key observations communicated
to the Audit Committee
We conclude that management’s actuarial
assumptions are appropriate and fall within
a central range or have been deemed an
appropriate assumption basis. We are
satisfied with the adequacy of disclosure
within the financial statements.
Key audit matters continued
Risk
Our response to the risk
Group and parent pension obligation
(2021: £357.0m, 2020: £341.7m)
Refer to the Audit Committee Report
(page 128 ); Accounting policies
(page 251 ); and Note 23 of the group
financial statements (page 242 )
Subjective valuation:
Small changes in the assumptions and
estimates used to value the group’s and
parent’s pension obligation (before
deducting scheme assets) would have
a significant effect on the carrying value
of those pension obligations.
The effect of these matters is that, as part
of our risk assessment, we determined that
the group’s and parent company’s pension
obligation has a high degree of estimation
uncertainty, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements
as a whole.
The financial statements (Note 4.1(ii))
disclose the estimation uncertainty
identified by the group and company.
There has been no change in this risk
from the prior year.
Scoping:
We performed audit procedures over
this risk area centrally by the group team,
which covered 100% of the risk amount.
Our procedures included:
Assessing management process:
We have understood management’s
process and methodology for calculating
the pension liability for each scheme,
including discussions with management’s
external actuaries, walkthrough of the
processes, understanding the key inputs
and the design and implementation of key
controls. We performed a fully substantive
audit approach rather than testing the
operating effectiveness of key controls.
Assessing management experts:
We have assessed the independence,
objectivity and competence of the group’s
external actuaries, which included
understanding of the scope of services being
provided and considering the appropriateness
of the qualifications of the external actuary.
Assessing source data:
We tested a sample of the membership data
used by the actuaries to the group’s records.
Benchmarking assumptions:
With the support of our pension actuarial
specialists, we assessed the appropriateness
of the assumptions adopted by the directors
by comparing them to the expectations of
our pension actuarial specialists which they
had derived from broader market data.
Disclosure:
We considered the adequacy of IAS 19
disclosures, including presentation of
commitments associated with deficit
recovery plans and in respect of sensitivity
of the obligation to the key assumptions.
300
SSE plc Annual Report 2021
FINANCIAL STATEMENTS Key audit matters continued
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Accounting for estimated revenue
recognition (2021: £325.0m, 2020:
£370.7m)
Refer to the Audit Committee Report
(page 128 ); Accounting policies
(page 251 ); and Note 18 of the group
financial statements (page 233 )
Subjective estimate:
73% of the unbilled revenue is recognised
within the Business Energy division and is
based on estimates of values and volumes
of electricity and gas supplied between last
meter date and year end date.
The method of estimating such revenues is
complex, judgemental and significant for UK
business customers and requires estimates
and assumptions in relation to:
1. the volumes of electricity and gas
supplied to the customers between
the meter reading and year-end;
2. the value attributed to those volumes
in the range of tariffs; and
3. embedded impairment risk over the
unbilled revenue.
As a result of the estimation uncertainty
this has been identified as a significant risk.
There has been no change in this risk from
the prior year.
Scope:
This balance relates to one component,
Business Energy. Testing was performed
covering 100% of the balance in Business
Energy which accounts for 73% of the
unbilled balance at 31 March 2021.
We have performed our procedures
over revenue within the Business
Energy business and we are satisfied
that the accrued revenue recognised
by management in relation to unbilled
revenue is appropriately recognised.
All audit work in relation to this key audit
matter was undertaken by the component
audit teams with oversight from the group
audit team.
Audit methodology:
Our response to the assessed risk included
understanding and testing selected IT
general and application key controls,
substantive audit procedures and revenue
data analytics.
Tests of detail:
We agreed the opening unbilled accrued
income to the closing 31 March 2020
balance sheet, agreed the volume data for
customer usage of energy in the year used
in the calculation to external settlement
systems and agreed the volume data in
relation to customer billings for the year
to SSE’s internal billing systems.
We have tested the unbilled unit pricing by
agreeing historical pricing to sample bills,
sensitising the pricing, testing a sample
of billing dates from the listing to confirm
billing frequency and agreeing to post year
end billing prices.
We have understood and tested the
historical accuracy of management’s
forecasting of unbilled revenue.
We assessed the impact of coronavirus on
demand and consumption volatility and
benchmarked assumptions in the underlying
unbilled calculations to external publications
from the industry.
Analytical review:
We set expectations as to the likely level of
total unbilled revenue, and compared this
with actual unbilled revenue, obtaining
explanation for significant variances.
We compared the unbilled revenue
estimation to benchmark expectation.
Benchmark was derived from the external
settlements data combined with billing
frequency at an MPAN (Meter Point
Administration Number) level, usage and
price movement from last billing date to
year end. We have analysed and assessed
explanations for variances arising from
benchmark and the appropriateness of
manual adjustments made by management.
Disclosure:
We assessed the adequacy of the group’s
disclosures about the degree of estimation
involved in arriving at the estimated revenue.
SSE plc Annual Report 2021
301
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SSE PLC CONTINUED
Key audit matters continued
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Scope:
Testing was performed across the primary
and component teams for 95% of the
disposal programme. The Maple divestment,
and all HFS considerations were audited by
the group audit team.
Where audit work in relation to this key audit
matter was undertaken by the component
audit teams, this was supported with
oversight from the group audit team.
We conclude that the accounting for the
current year disposals is appropriate.
We are satisfied that the contingent
consideration recognised is appropriate.
We are satisfied that the HFS classifications
at 31 March 2021 are appropriate.
We are satisfied that the group financial
statements appropriately disclose these
transactions.
Audit procedure performed:
Disposals in the current period
We obtained and read the signed Share
Purchase Agreements (SPA) and any
subsequent amendments in relation
to each of the disposals.
We identified key matters within these
agreements that could have a potential
impact on the calculation of the disposal
proceeds and the resulting gain/loss
on disposal.
We agreed the cash consideration received
to the SPA and traced cash receipts to bank
accounts.
Where disposed of in the current year,
we verified that the initial HFS date was
appropriate and appropriate accounting
commenced upon this date.
We verified that the balances that related
to the entity were deconsolidated from
the group financial statements at the date
of disposal.
This included verifying that the assets
and liabilities disposed of were adjusted
accordingly to reflect closing adjustments
in line with the SPA.
Where a change in control was identified we
have assessed this under IFRS 10 and IFRS 11
to ensure that appropriate classification and
accounting treatment has been applied.
We have assessed non-cash consideration
terms within the deals and assessed the
appropriateness of contingent consideration
recognised at 31 March 2021.
We have assessed the completion
obligations warranties and any assessments
for additional disposal costs within the gain/
loss on sale calculations.
Accounting for the SSE disposal
programme (2021: £976.0m, 2020:
£30.6m)
Refer to the Audit Committee Report
(page 128 ); Accounting policies
(page 251 ); and Note 12 of the group
financial statements (page 217 )
Subjective estimate:
SSE announced a £2bn disposal programme
in FY21. There is a significant risk in relation
to the appropriate accounting for the
disposals as a result of the complexity in the
final negotiated deal, specifically considering
any risk regarding complex terms per the
SPA or non-cash consideration elements
and any transitional services arrangements
arising. The risk also covered the assessment
of businesses being classified as held for sale
(HFS) at the balance sheet date and the IFRS
5 accounting considerations arising.
The risk is focussed on the following key
areas:
Disposals in the current period:
• Seagreen (divestment of 51% ownership)
• Slough Multifuel (divestment of 50%
ownership)
• Walney (divestment of remaining 25.1%
ownership)
• Maple (divestment of remaining 33.3%
ownership)
• Multifuel (divestment of 100%
ownership)
• Doggerbank (divestment of 10%
ownership)
HFS considerations:
• E&P (HFS at 30 September 2020 and
31 March 2021)
• Contracting (HFS at 30 September 2020
and 31 March 2021)
• SGN (not disclosed as HFS at 31 March
2021)
This is a new risk in the year reflecting the
divestment programme. This replaces the
prior year risk of ‘Accounting for the disposal
of Energy Services’.
302
SSE plc Annual Report 2021
FINANCIAL STATEMENTS Key audit matters continued
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
HFS considerations:
We have assessed whether the Contracting
and E&P businesses continues to meet the
IFRS 5 HFS classification.
We have considered the appropriateness
of the carrying value of the contracting and
E&P businesses against the expected Fair
Value less cost to Dispose and confirmed
this was accurate. We assessed the £51.2m
impairment recognised for Contracting
to the terms of the sale agreement
announced on 1 April 2021. We reviewed
correspondence and the final signed sale
and purchase agreement between SSE and
the buyer of the E&P assets to assess the
carrying value of the assets and to challenge
if further impairment or write back of
previous impairment was required.
Noting the previous announcement to
consider a disposal of the Groups
shareholding in SGN, we reviewed the group
board approved minutes to evidence the
most recent considerations to confirm that it
does not meet the held for sale classification
at 31 March 2021.
Disclosure:
We assessed the adequacy of the
disclosures within the financial statements.
In the prior year, our auditor’s report included a key audit matter in relation to ‘Accounting for the disposal of Energy Services’. In the
current year, this has been amended to cover the full disposal programme ‘Accounting for the SSE disposal programme’.
In the prior year, our auditor’s report also included a key audit matter in relation to ‘First year audit transition’, which was designed to
be a one-off key audit matter relating to the audit transition between KPMG and EY for the 31 March 2020 audit.
Our auditor’s report also included a key audit matter in relation to ‘Impact of coronavirus, including the group’s Going Concern Assessment’.
As a result of the continued resilience of SSE plc and accurate forecasting of the coronavirus impact on the performance to 31 March 2021,
this key audit matter has been removed. Please refer to page 298 for coronavirus considerations in relation to our audit procedures.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the
audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.
We determined materiality for the group to be £54.1 million (2020: £48.8 million), which is 5% (2020: 5%) of adjusted Profit before tax.
We believe that adjusted Profit before tax provides us with a consistent measure of underlying year-on-year performance as it excludes
the impact of non-recurring items as well as recurring items (namely movement on operating and financing derivatives) which can
significantly fluctuate year-on-year and do not provide a true picture of the profit benchmark that would affect the decisions of the
users of the financial statements.
SSE plc Annual Report 2021
303
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SSE PLC CONTINUED
Our application of materiality continued
Materiality continued
We determined materiality for the parent company to be £97.0 million (2020: £72.5 million), which is 2% (2020: 2%) of Net Assets.
The materiality has been capped at the group materiality of £54.1 million (2020: £48.8m).
Starting basis
Adjustments
• Profit Before Tax – £2,516.4m
• Movement on operating and financing derivatives – (£655.2m)
• Non-recurring exceptional items – (£824.1)m
• JV tax – £44.5m
Materiality
• Totals £1,081.6m adjusted Profit before tax
• Materiality of £54.1m (5% of materaility basis)
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement was that
performance materiality was 50% (2020: 50%) of our planning materiality, namely £27.0m (2020: £24.4m). We have set performance
materiality at this percentage due to the differences identified during the prior year audit.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken
based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale
and risk of the component to the group as a whole and our assessment of the risk of misstatement at that component. In the current year,
the range of performance materiality allocated to components was £3.9m to £7.9m (2020: £4.2m to £9.3m). The lower allocation was
driven through an expectation of coronavirus impact on the financial statements, lowering the initial materiality assessment. This was
subsequently revised during the year-end audit procedures after testing had been performed by component entities.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £2.7m (2020: £2.4m),
which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative
grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on pages 1 to 169 , including the strategic
report and the directors’ report set out on pages 2 to 93 and 94 to 169 respectively , other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the annual report on remuneration to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
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SSE plc Annual Report 2021
FINANCIAL STATEMENTS Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with
the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the group and company’s compliance with the provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
• Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 75 ;
• Directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period is
appropriate set out on page 56 ;
• Directors’ statement on fair, balanced and understandable set out on page 133 ;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 137 ;
• The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out
on page 137 ; and;
• The section describing the work of the audit committee set out on page 128 .
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 169 , the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the
company and management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most
significant are those that relate to the reporting framework (IFRS, FRS101, the Companies Act 2006 and UK Corporate Governance
Code) and relevant tax compliance regulations in the jurisdictions in which the group operates. We also considered non-compliance
of regulatory requirements, including the Office of Gas and Electricity Markets (Ofgem) and regulations levied by the UK Financial
Conduct Authority and Prudential Regulatory Authority. We have spoken with the SSE head of regulation to confirm our understanding.
• We understood how SSE plc is complying with those frameworks by making enquiries of management, internal audit, those responsible
for legal and compliance procedures and the company Secretary. We verified our enquiries through our review of board minutes and
papers provided to the Audit Committee.
SSE plc Annual Report 2021
305
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SSE PLC CONTINUED
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
continued
• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by
meeting with management from various parts of the business to understand where it considered there was susceptibility to fraud.
We also considered performance targets and their propensity to influence on efforts made by management to manage earnings.
We considered the programmes and controls that the group has established to address risks identified, or that otherwise prevent,
deter and detect fraud; and how senior management monitors those programmes and controls. Where the risk was considered
to be higher, we performed audit procedures to address each identified fraud risk.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our
procedures involved: journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual
transactions based on our understanding of the business; enquiries of legal counsel, group management, internal audit, business
area management at all full and specific scope management; and focused testing. In addition, we completed procedures to conclude
on the compliance of the disclosures in the annual report and accounts with all applicable requirements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
• Following the recommendation from the audit committee we were appointed by the company on 18 July 2019 to audit the financial
statements for the year ending 31 March 2020 and subsequent financial periods.
• The period of total uninterrupted engagement including previous renewals and reappointments is 2 years, covering the years ending
31 March 2020 to 31 March 2021.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we
remain independent of the group and the parent company in conducting the audit.
• The audit opinion is consistent with the additional report to the audit committee.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Annie Graham (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Glasgow
25 May 2021
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SSE plc Annual Report 2021
FINANCIAL STATEMENTS
CONSOLIDATED SEGMENTAL STATEMENT
FOR THE YEAR ENDED 31 MARCH 2021
SSE consolidated segmental statement for the year ended 31 March 2021
Electricity Generation
Thermal
Renewable
Aggregate
Generation
business
Electricity supply
Gas supply
Non-domestic
Non-domestic
Year ended 31 March 2021
Total revenue
Sales of electricity & gas
Other revenue
Total operating costs
Direct fuel costs
Transportation costs
Environmental & social obligation costs
Other direct costs
Indirect costs
EBITDA
Depreciation and Amortisation
EBIT
Volume
Unit
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
TWh/
mTherms
1,102.8
658.5
444.3
921.1
446.0
82.3
172.8
146.5
72.9
181.6
47.3
134.3
15.5
984.4
823.4
161.0
321.9
–
92.8
–
26.8
203.3
662.5
188.2
474.3
9.6
2,087.1
1,481.8
605.3
1,243.0
446.6
175.1
172.8
173.3
275.2
844.1
235.5
608.7
25.1
WACOF/E/G
Customer numbers
£/MWh/p/th
28.8
‘000s
1,793.5
1,789.8
3.7
1,793.6
687.1
437.5
571.3
10.3
87.3
(0.1)
3.9
(4.0)
13.1
52.6
425.0
Aggregate
Supply
business
1,965.0
1,961.3
3.7
1,964.3
791.5
482.3
571.9
12.5
106.1
0.7
4.6
(3.9)
171.5
171.5
–
170.7
104.3
44.8
0.6
2.3
18.8
0.8
0.7
0.1
216.6
229.7
48.2
71.8
496.8
Basis of preparation and disclosure notes
The Group’s operating segments are those used internally by the board to run the business and make strategic decisions. The types of
products and services from which each reportable segment derives its revenues are:
Business Area
Reported Segments Description
Continuing operations
Transmission Electricity
Transmission
Distribution
Electricity
Distribution
The economically regulated high voltage transmission of electricity from generating plant to the
distribution network in the North of Scotland. Revenue earned from constructing, maintaining and
renovating our transmission network is determined in accordance with the regulatory licence, based on
an Ofgem approved revenue model and is recognised as charged to National Grid. The revenue earned
from other transmission services such as generator plant connections is recognised in line with delivery
of that service over the expected contractual period and at the contracted rate.
The economically regulated lower voltage distribution of electricity to customer premises in the North
of Scotland and the South of England. Revenue earned from delivery of electricity supply to customers
is recognised based on the volume of electricity distributed to those customers and the set customer
tariff. The revenue earned from other distribution services such as domestic customer connections is
recognised in line with delivery of that service over the expected contractual period and at the
contracted rate.
Gas Distribution SSE’s share of Scotia Gas Networks, which operates two economically regulated gas distribution
Renewables
Renewables
(covered by CSS)
networks in Scotland and the South of England. The revenue earned from transportation of natural
gas to customers is recognised based on the volume of gas distributed to those customers and the set
customer tariff.
The generation of electricity from renewable sources, such as onshore and offshore windfarms and run
of river and pumped storage hydro assets in the UK and Ireland. Revenue from physical generation of
electricity sold to SSE EPM is recognised as generated, based on the spot price at the time of delivery.
Revenue from national support schemes (such as Renewable Obligation Certificates or the Capacity
Market) may either be recognised in line with electricity being physically generated or over the
contractual period, depending on the underlying performance obligation.
SSE plc Annual Report 2021
307
CONSOLIDATED SEGMENTAL STATEMENT CONTINUED
FOR THE YEAR ENDED 31 MARCH 2021
Basis of preparation and disclosure notes continued
Business Area
Reported Segments Description
Thermal
Thermal
Generation
(covered by CSS)
Gas Storage
The generation of electricity from thermal plant and the Group’s interests in multifuel assets in the UK
and Ireland. Revenue from physical generation of electricity to SSE EPM is recognised as generated,
based on the spot price at the time of delivery. Revenue from national support schemes (such as the
Capacity Market) and ancillary generation services may either be recognised in line with electricity being
physically generated or over the contractual period, depending on the underlying performance
obligation.
The operation of gas storage facilities in the UK, providing a mix of capacity products to the external gas
market with excess capacity used to develop secondary trading opportunities. For capacity products,
revenue from the injection and withdrawal of gas is recognised when provided, with revenue from the
provision of storage services is recognised based on the number of days utilised at the contractual rate.
Revenue arising on secondary trading activities is recognised as gas is injected into the network, based
on the spot price at the time of delivery.
Customers
Business Energy
(covered by CSS)
The supply of electricity and gas to business customers in GB. Revenue earned from the supply of
energy is recognised in line with the volume delivered to the customer, based on actual and estimated
volumes, and reflecting the applicable customer tariff after deductions or discounts.
Airtricity
Enterprise
Enterprise
EPM & I
Energy Portfolio
Management
(EPM)
Discontinued operations
EPM & I
Gas Production
The supply of electricity, gas and energy related services to domestic and business customers in the
Republic of Ireland and Northern Ireland. Revenue earned from the supply of energy is recognised in line
with the volume delivered to the customer, based on actual and estimated volumes, and reflecting the
applicable customer tariff after deductions or discounts. Revenue earned from energy related services
may either be recognised over the expected contractual period or following performance of the service,
depending on the underlying performance obligation.
The integrated provision of services in competitive markets for industrial and commercial customers
including distributed energy, electrical contracting, private heat and energy networks, lighting services
and SSE’s share of telecoms capacity and bandwidth. Revenue is recognised by reference to the progress
towards completion of the contractual performance obligation, based on the proportion of costs
incurred to date relative to total expected costs, provided the contract outcome can be assessed with
reasonable certainty.
The optimisation of SSE’s electricity, gas and other commodity requirements. Revenue from physical
sales of electricity, gas and other commodities produced by SSE is recognised as supplied to either the
national settlements body or the customer, based on either the spot price at the time of delivery or trade
price where that trade is eligible for ‘own use’ designation. The sale of commodity optimisation trades
are presented net in cost of sales alongside purchase commodity optimisation trades.
The production and processing of gas and oil from North Sea fields. Revenue is recognised based on
the production that has been delivered to the customer at the specified delivery point, at the applicable
contractual market price.
The Group’s reportable operating segments for ‘Renewables’, ‘Thermal Generation’ and ‘Business Energy’ are substantially aligned to the
business segments reported in the Consolidated Segmental Statement (CSS). However, it should be recognised that there are differences
between the two disclosures, primarily driven by the Licence requirements – these are described in the notes below and shown in the
table reconciling the CSS to the financial statements.
How the accounts are presented
The financial information presented in the CSS is based on operating activities of the Group’s electricity generation businesses
(‘Renewables’ and ‘Thermal Generation’ segments described above) and the non-domestic electricity and gas supply business (‘Business
Energy’ segment described above) in Great Britain. The paragraphs that follow describe how SSE’s Renewable and Thermal Generation
and Business Energy (non-domestic supply) businesses interact with Energy Portfolio Management (EPM), which is the Group’s energy
markets business. The basis of preparation defines the revenues, costs and profits of each business and describe in more detail the transfer
pricing arrangements in place for the financial year ended 31 March 2021. The CSS has been prepared on a going concern basis as set out
in Note A6.3 of SSE plc’s Annual Report.
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SSE plc Annual Report 2021
FINANCIAL STATEMENTS Summary
The Group’s ‘Renewables’ business sells electricity and Renewable Obligation Certificates (ROCs) from onshore and offshore windfarms
and qualifying hydro to the Group’s EPM business.
‘Thermal Generation’ sells electricity in respect of coal and gas generation to EPM. It also receives external income in respect of ancillary
services, balancing market participation and other contractual arrangements with third parties including government. It purchases its
requirement for gas, coal, oil and carbon from EPM.
‘Business Energy’ sells electricity and gas to circa 0.5m business customer accounts in Great Britain and procures electricity, gas and
ROCs from EPM.
EPM acts as a route to market for Renewables and Thermal Generation and as counterparty with the external market for the procurement
of electricity and gas for SSE Energy Services and Business Energy. EPM does not form part of the CSS as it is not within the scope defined
by Ofgem. The policies governing the forward hedging activity undertaken by EPM are overseen by Energy Markets Risk Committee,
whose responsibilities and roles are described on page 138 of SSE Annual Report for the year ended 31 March 2021.
Renewable Electricity Generation
The Renewables profit and loss account above is based on the Group’s electricity generation activity derived from sources where no fuel
is consumed to produce electricity and includes wind, hydro and pump storage powered generation.
Renewables as presented in the CSS includes revenue and operating profit for wholly owned renewable generation assets and also
a proportion of turnover and operating profit in respect of joint ventures, joint operations and associate generation companies1.
The principal Joint Ventures, Joint Operations and Associates included are Beatrice Offshore Windfarm Limited, Clyde Windfarm
(Scotland) Limited, Stronelairg Windfarm Limited, Dunmaglass Windfarm Limited, Walney (UK) Offshore Windfarms Ltd (disposed
1 September 2020 and excluded beyond this date) and Greater Gabbard Offshore Winds Ltd. A full list can be found in Note A3 of
SSE’s audited financial statements.
The Renewables profitability statement bears the risks and rewards for plant performance and renewable generation output, changes
in the power price achieved for renewable generation and the impact of weather.
Individual line items in the Renewables profit and loss account above are comprised of:
Revenue From Sales of Electricity – revenue is recognised as generated and supplied to the national settlements body. Revenue is sold
to the wholesale market through EPM at either the spot price at the time of delivery, or trade price where that trade is eligible for ‘own
use’ designation. Revenue includes the sale of ROCs generated from qualifying plant to EPM. Generation volumes are the volume of
power actually sold to the wholesale market.
Other Revenue – includes ancillary services, capacity income, balancing market participation and other miscellaneous income.
Transportation Costs – include Use of System charges and market participation costs.
Other Direct Costs – include power purchase agreement (‘PPA’) costs, site costs and management charges from EPM.
Indirect Costs – include salaries and other people costs, asset maintenance, rates, corporate costs and IT charges.
Depreciation and Amortisation – the depreciation shown in the CSS is the underlying charge based on the useful remaining life
of the assets.
Thermal Electricity Generation
The Thermal profit and loss account above is based on the Group’s conventional (thermal) electricity generation activity. Conventional
generation is considered to be any generation where fuel is consumed to produce electricity and includes gas and waste fuelled
generation. The Group closed its last remaining coal fired power station in March 2020 and no revenue was derived from this generation
source in the year ended 31 March 2021.
Thermal Generation as presented in the CSS includes revenue and operating profit for wholly owned thermal generation assets and also
a proportion of turnover and operating profit in respect of joint ventures2. The principal joint ventures included are Seabank Power Ltd,
Marchwood Power Ltd and Multifuel Energy Ltd (disposed 13 October 2020 and excluded beyond that date). A full list can be found in
Note A3 of SSE’s audited financial statements.
1 The Power Purchase Agreements (‘PPAs’) that SSE has with its joint venture companies Clyde Windfarm (Scotland) Limited, Stronelairg Windfarm Limited and
Dunmaglass Windfarm Limited provide SSE with contractual entitlement to 100% of the output of the windfarms. Accordingly, SSE has reported its rights to those
volumes within its Renewables statistics and has also, as mandated by Ofgem, included 50% of the JV revenue in the CSS.
2 The tolling arrangements that SSE has with its joint venture companies Seabank Power Ltd, Marchwood Power Ltd and Multifuel Energy Limited provide SSE with
contractual entitlement to 100% of the output of the power stations. Accordingly, SSE has reported its rights to those volumes within its Thermal Generation
statistics and has also, as mandated by Ofgem, included 50% of the JV revenue in the CSS.
SSE plc Annual Report 2021
309
CONSOLIDATED SEGMENTAL STATEMENT CONTINUED
FOR THE YEAR ENDED 31 MARCH 2021
Thermal Electricity Generation continued
The Thermal Generation profitability statement bears the risks and rewards for plant performance, changes in market ‘spark’
(the marginal profit for generating electricity by gas), changes in government and EU policy particularly surrounding emissions.
Individual line items in the Thermal profit and loss account above are comprised of:
Revenue From Sales of Electricity – revenue is recognised as generated and supplied to the national settlements body. Revenue is sold
to the wholesale market through EPM at either the spot price at the time of delivery, or trade price where that trade is eligible for ‘own
use’ designation. Generation volumes are the volume of power actually sold to the wholesale market.
Other Revenue – includes ancillary services, capacity income, balancing market participation and other miscellaneous income.
Direct Fuel Costs – Thermal Generation procures fuel and carbon from EPM at wholesale market prices. The cost of fuel also includes
the long term external purchase contracts and the impact of financial hedges. The WACOF (weighted average cost of fuel) calculation
includes the costs of carbon emissions (reported in the environmental and social obligations cost line in the CSS).
Transportation Costs – include Use of System charges and market participation costs.
Environmental and Social Costs – include carbon costs (EUETS and Carbon Price Floor).
Other Direct Costs – include power purchase agreement (‘PPA’) costs, site costs and management charges from EPM.
Indirect Costs – include salaries and other people costs, asset maintenance, rates, corporate costs and IT charges.
Depreciation and Amortisation – the depreciation shown in the CSS is the underlying charge based on the useful remaining life of the
assets and excludes exceptional asset impairments.
Business Energy (Non-domestic)
Revenue from Sales of Electricity and Gas – revenues are the value of electricity and gas supplied to business customers in Great Britain
during the year and includes an estimate of the value of units supplied between the date of the last meter reading and the year end.
Non-domestic volumes are expressed at customer meter point, net of transmission and distribution losses and are based on external
settlements data.
Direct Fuel Costs – Business Energy does not engage in the trading of electricity and gas and procures all of its electricity and gas from
EPM. The method by which EPM procures energy at an arm’s length arrangement on behalf of Business Energy is governed by Business
Energy’s forward hedging policy. The forward trades between Business Energy and EPM are priced at wholesale market prices at the
time of execution and any differences in volume and reconciliation at the time of delivery is marked to the spot price on the day. WACOG
(weighted average cost of gas) also includes the energy cost element of Reconciliation by Difference (RbD) and Unidentified Gas. The
WACOE and WACOG also consist of trades marked to wholesale prices when committed at the point of sale for fixed price customer
contracts or when a customer instructs SSE to purchase energy in respect of flexi-priced contracts. This transfer pricing methodology
reflects how Business Energy actually acquired its energy. There have been no material changes in the transfer pricing policy in respect
of Business Energy since the CSS for the financial year ending 31 March 2020.
Transportation Costs – these are network type costs and include: electricity transmission and distribution use of system costs; gas
transportation costs including the transportation element of RbD and market participation costs.
Environmental and Social Obligation Costs – relate to policies designed to modernise and decarbonise the energy system in Great
Britain and include ROCs, Feed in Tariff, charges under the Capacity Mechanism and CfD schemes and charges in relation to ‘assistance
for areas with high electricity distribution costs’ (AAHEDC).
Other Direct Costs – include: settlement costs, management charges from EPM and other miscellaneous costs.
Indirect Costs – include: sales and marketing, customer service, bad debts, commercial costs, central costs – including information
technology, property, corporate, telecoms costs, metering asset and meter reading costs and operational Smart Metering costs (net
of revenues). Where costs cannot be directly allocated to a fuel (electricity/gas), they have been allocated using costing models based
on activity, customer billing or customer numbers – whichever is the most appropriate.
Business Energy’s profit and loss account bears the risk and rewards arising from the volatility in demand for energy, caused by
the weather, consumption per customer and customer churn. It is also exposed to swings in wholesale costs and the uncertainty
surrounding government environmental and social schemes.
310
SSE plc Annual Report 2021
FINANCIAL STATEMENTS EPM
EPM is responsible for optimising the Group’s electricity, gas and other commodity requirements. The hedging activity undertaken by
EPM is governed by the Group’s Energy and Markets Risk Committee in accordance with the Statement on SSE’s Approach to Hedging
published in November 2018.
Business functions
The business functions in SSE have already been described in this document. The column headed ‘Not included in the CSS’ principally
relates to EPM.
Business function
Operates and maintains generation assets
Responsible for scheduling decisions
Responsible for interactions with the Balancing Market
Responsible for determining hedging policy
Responsible for implementing hedging policy/makes decisions to buy/sell energy
Interacts with wider market participants to buy/sell energy
Holds unhedged positions (either short or long)
Procures fuel for generation
Procures allowances for generation
Holds volume risk on positions sold (either internal or external)
Matches own generation with own supply
Forecasts total system demand
Forecasts wholesale price
Forecasts customer demand
Determines retail pricing and marketing strategies
Bears shape risk after initial hedge until market allows full hedge
Bears short term risk for variance between demand and forecast
Key:
✓
P/L
F
function and P&L impacting that area;
profit/losses of function recorded in that area;
function performed in that area.
Note
Generation
Supply
Not included
in CSS
✓
P/L
P/L
✓
P/L
✓
P/L
P/L
✓
P/L
P/L
P/L
1
2
3
4
5
3
6
7
8
9
10
✓
P/L
✓
✓
P/L
P/L
P/L
✓
P/L
✓
F
F
F
✓
✓
F
F
✓
F
F
F
F
‘Scheduling decisions’ means the decision to run individual power generation assets.
‘Responsible for interactions with the Balancing Market’ means interactions with the Balancing Mechanism in electricity.
Glossary and notes
1
2
3 Hedging policy was the responsibility of the Energy Markets Risk Committee which is a sub committee of the SSE Executive Committee.
4 SSE EPM implements the hedging policy determined by the Energy Markets Risk committee on behalf of Renewables, Thermal Generation, Business Energy and
5
6
7
8
9
SSE Energy Services.
‘Interacts with wider market participants to buy/sell energy’ means the business unit responsible for interacting with wider market participants to buy/sell energy,
not the entity responsible for the buy/sell decision itself, which falls under ‘Responsible for implementing hedging policy/makes decisions to buy/sell energy’.
‘Matches own generation with own supply’ means where there is some internal matching of generation and supply before either generation or supply interact with
the wider market. The total electricity demand for Business Energy and SSE Energy Services (expressed at NBP) was 25.8TWh and the total UK Generation output
was 22.8TWh (88%).
‘Forecasts total system demand’ means forecasting total system electricity demand or total system gas demand.
‘Forecasts customer demand’ means forecasting the total demand of own supply customers.
‘Bears shape risk after initial hedge until market allows full hedge’ means the business unit which bears financial risk associated with hedges made before the
market allows fully shaped hedging.
10 ‘Bears short term risk for variance between demand and forecast’ means the business unit which bears financial risk associated with too little or too much supply
for own customer demand.
SSE plc Annual Report 2021
311
CONSOLIDATED SEGMENTAL STATEMENT CONTINUED
FOR THE YEAR ENDED 31 MARCH 2021
Reconciliation of CSS to SSE Financial Statements 2020/21
The table below shows how the CSS reconciles with the adjusted earnings before tax in the SSE financial statements (Note 5 of SSE’s
financial statements):
Reconciliation of CSS to Financial Statements
Business Energy
CSS Supply – Business Energy
Exceptional items
Total Business Energy in SSE Financial Statements
Generation Business
Renewables
CSS Renewables Electricity Generation
Non-GB Generation
JVs/Associates revenue in CSS
Non-recurring disposal gains
Total Renewables in SSE Financial Statements
Thermal
CSS Thermal Electricity Generation
Non-GB Generation
JVs/Associates revenue in CSS
Total Thermal in SSE Financial Statements
Note
Revenue
£m
EBIT
£m
1
2
3
4
5
3
1,965.0
–
1,965.0
(3.9)
(20.1)
(24.0)
984.4
100.6
(258.9)
–
826.1
1,102.8
233.3
(133.1)
1,203.0
474.3
31.7
–
225.8
731.8
134.4
26.1
–
160.5
There are some differences between SSE’s financial statements and the CSS. There are items which are in the financial statements and
not in the CSS; and also there are items which Ofgem has requested be included in the CSS which are not in the financial statements.
Notes
1 Exceptional items relate to bad debt charges related to coronavirus, which have been classified as exceptional within SSE’s financial statements.
2 Non-GB Electricity Generation relates to SSE’s Renewables business in the Republic of Ireland and Northern Ireland.
3 SSE applies equity accounting for its investments in JVs and Associates (which means it only includes its share of the profits/losses), in accordance with
International Financial Reporting Standards (IFRS). The Ofgem mandated basis of preparation of the CSS requires that the proportionate share of revenue, costs
and profits are shown in the CSS. The revenue shown in the CSS for JVs and Associates is not present in the financial statements and is therefore a reconciling
item. The share of profits however are present in both CSS and financial statements, therefore no reconciliation is necessary.
4 During the year the Group disposed of a 10% stake in Doggerbank A & Doggerbank B windfarms, and a 51% stake in Seagreen 1A windfarm, recognising total
gain on disposal of £225.8m (see Note 12.2 of SSE’s Annual Report). The gain has been excluded from the regulated revenue and profit presented in the CSS,
but is included in the underlying operating profit within the financial statements in accordance with the Group’s accounting policy for such divestments.
5 Non-GB Electricity Generation relates to SSE’s Thermal business in the Republic of Ireland.
Adjustments to reported profit before tax
SSE focuses its internal and external reporting on ‘adjusted profit before tax’ which excludes exceptional items, re-measurements
arising from IFRS 9, depreciation on fair value uplifts and removes taxation on profits of joint ventures and associates, because this
reflects the underlying profits of SSE, reflects the basis on which it is managed and avoids the volatility that arises out of IFRS 9.
Therefore, these items have been excluded from the CSS.
312
SSE plc Annual Report 2021
FINANCIAL STATEMENTS CSS AUDIT OPINION
Opinion
We have audited the financial statements of SSE plc (the Company) for the year ended 31 March 2021, which comprise the Consolidated
Segmental Statement (CSS), Basis of preparation, Reconciliation of CSS to the Annual Report of SSE plc and the related disclosure notes. The
financial reporting framework that has been applied in their preparation is a special purpose framework comprising the financial reporting
provisions of Ofgem’s Standard condition 16B of Electricity Generation licences and Standard 19A of Electricity and Gas Supply Licences.
In our opinion, the accompanying CSS of the Company for the year ended 31 March 2021 is prepared, in all material respects, in accordance
with the requirements of Standard condition 16B of Electricity Generation licences and Standard 19A of Electricity and Gas Supply Licences
and the basis of preparation on pages 307 to 311 .
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) including ‘ISA (UK) 800 (Revised) Special
Considerations – Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks’. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We
are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in
the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of 19 months through to
31 December 2022.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability
to continue as a going concern.
Emphasis of matter – basis of accounting and restriction on distribution and use
We draw attention to pages 307 to 311 , which describes the basis of accounting. The CSS is prepared to assist the Company in complying
with the financial reporting provisions of the contract referred to above. As a result, the CSS may not be suitable for another purpose. Our
report is intended solely for the Company, in accordance with our engagement letter dated 23 March 2021, and should not be distributed
to or used by parties other than the Company. Our opinion is not modified in respect of this matter.
Other information
The other information comprises the information included in the annual report, other than the CSS and our auditor’s report thereon.
The directors are responsible for the other information contained within the annual report.
Our opinion on the CSS does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do
not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify
such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in
the CSS itself. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
Responsibilities of directors
Management is responsible for the preparation of the CSS in accordance with the financial reporting provisions of Ofgem’s Standard
condition 16B of Electricity Generation licences and Standard 19A of Electricity and Gas Supply Licences, and for such internal control
as management determines is necessary to enable the preparation of the CSS that is free from material misstatement, whether due to
fraud or error.
In preparing the CSS, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as
applicable, matters relating to going concern and using the going concern basis of accounting unless management either intends to
liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
SSE plc Annual Report 2021
313
CSS AUDIT OPINION CONTINUED
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including
fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with
governance of the entity and management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and determined that the
most significant for preparation of the CSS is compliance with Ofgem.
• We understood how SSE plc is complying with those frameworks by making enquiries of management and those charged with
governance to understand how the Company maintains and communicates its policies and procedures in these areas and corroborated
this by reviewing supporting documentation. We also reviewed correspondence with relevant authorities.
• We assessed the susceptibility of the Company’s CSS to material misstatement, including how fraud might occur by considering the
risk of manipulation of the CSS reconciliation. We vouched information back to supporting documentation and agreed to audited
numbers within the Annual Report.
• Based on this understanding we designed our audit procedures to identify noncompliance with such laws and regulations. Our
procedures involved making enquiries with the entity’s in-house legal counsel, and circulating enquiry letters to external legal counsel
to confirm our understanding of matters communicated by the Company.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matter
We have reported separately on the statutory financial statements of SSE plc.
Ernst & Young LLP
Glasgow
25 May 2021
314
SSE plc Annual Report 2021
FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Shareholder enquiries
The Company’s register of members is maintained by our
appointed Registrar, Link Group. Shareholders with queries relating
to their shareholdings should contact Link directly:
Link Group
10th Floor, Central Square
29 Wellington Street
Leeds
LS1 4DL
Telephone: 0345 143 4005
Email: SSE@linkgroup.co.uk
Financial calendar
Publication of Annual Report
Q1 Trading Statement
Ex-dividend date for final dividend
Record date for final dividend
AGM
Final date for Scrip elections
Payment date
Notification of Close Period by
18 June 2021
22 July 2021
29 July 2021
30 July 2021
22 July 2021
26 August 2021
23 September 2021
30 September 2021
Results for six months to 30 September
17 November 2021
Website
SSE maintains its website, www.sse.com , to provide ease of
shareholder access to information about the Company and its
performance. It includes a dedicated investors section where
you can find electronic copies of Company reports and further
information about shareholder services including:
• share price information;
• dividend history and trading graphs;
• the Scrip Dividend Scheme;
• telephone and internet share dealing; and
• downloadable shareholder forms.
Digital news
SSE uses a dedicated news and views website (available at
www.sse.com/news-and-views ) and Twitter (www.twitter.com/
sse ) to keep shareholders, investors, journalists, employees and
other interested parties up-to-date with news from the Company.
Sustainable communications
SSE is seeking to implement a sustainable communications
strategy which reduces the volume of paper being used in its
communications with shareholders and other stakeholders. This
is in line with SSE’s sustainability values and approach to providing
a more environmentally-friendly service. The first step in this
strategy was the move away from paper dividend cheques in
2019/20 and SSE continues to encourage shareholders to use
online services to manage their holding.
Through the dedicated Shareholder Portal provided by Link
Registrars at www.sse-shares.com/ shareholders can:
• Elect for electronic communications. By joining our
eCommunications Programme and choosing to receive
shareholder documents electronically. Shareholders are notified
by email that documents such as the Annual Report or Notice of
Annual General Meeting are available on our website.
• Update personal details.
• Buy and sell shares online using Link’s share dealing service.
• Vote in advance of company general meetings.
If you have not used this service before, you will require your Investor
Code (IVC) to register. You will find this on your share certificate.
Removal of dividend confirmations
As part of SSE’s commitment to a more environmentally friendly
service, following the removal of cheques in 2019/20, the
Company intends to take the next step in its paperless dividend
strategy. In 2022, dividend confirmations will only be available
online. If you are an ordinary shareholder and have not yet elected
to receive your dividend communication electronically please
register at www.sse-shares.com ;
Dividends
The Company typically pays dividends twice yearly. Interim
dividends are paid in March, and final dividends are paid in
September once approved by shareholders at the AGM. With
significant focus on payment methods for dividends in recent
years, in terms of efficiency, cost and security, SSE plc made
the decision that from September 2019, it would no longer be
paying dividends by cheque. All dividends are now credited to
a shareholder’s nominated UK bank/building society account.
If you haven’t already registered your UK bank/building society
account details with Link Registrar or would like to amend the
details on your account, you can do this by:
•
logging in to the dedicated Shareholder Portal at
www.sse-shares.com ; or
• calling Link on 0345 143 4005 and speaking to one of the team.
If you do not have a UK bank or building society account, your
dividends can be paid directly into a bank account outside of
the UK using the International Payment service. Please visit
http://ips.linkassetservices.com/ for further information.
Alternatively, shareholders may want to join the Scrip dividend
alternative and receive future dividends in the form of additional
new shares. Further details of the Scrip scheme can be found at
www.sse.com/investors/shareholder-services/dividends-and-
scrip-scheme/ . You should still complete a bank mandate to
enable future dividend payments should you ever withdraw from
the Scrip scheme.
Amalgamation of multiple share accounts
Many shareholders receive several copies of the Annual Report and
dividend documentation who could merge their shareholdings. If
you receive more than one copy of these documents you could
help SSE reduce its impact on the environment and save paper by
merging your accounts into one. Please contact Link Asset Services
to amalgamate your accounts or visit www.sse.com/investors/
shareholder-services/shareholder-forms/
SSE plc Annual Report 2021
315
SHAREHOLDER INFORMATION CONTINUED
Dissentient shareholders
Scottish and Southern Energy plc (now known as SSE plc) was
formed in 1998 following the merger of Scottish Hydro Electric plc
and Southern Electric plc. The terms of the offer through which
the merger was effected was that for every Southern Electric plc
ordinary share held, shareholders received one Scottish and
Southern Energy plc (now SSE plc) ordinary share. A number of
shareholders did not respond to the original merger offer, resulting
in subsequent tracing communications over the following years.
In 2017, more than 12 years after the formation of SSE, a complete
tracing programme was initiated through the asset reunification
company Capita Employee Benefits (Consulting) Limited (Capita
Tracing), to locate dissentient shareholders and reunite them with
their funds. The steps agreed were designed to enable the best
possible outcome for dissentient shareholders and provided clear
details of the actions required to claim their asset entitlement.
Following the completion of all reasonable steps over £2m (in a
combination of shares and accrued dividends) was returned to
dissentient shareholders. As required by the Companies Act 2006,
the remainder totalling over £9m was transferred to the Chancery
Division of the High Court of Justice. Unclaimed monies can still
be claimed through direct application to the Chancery Division
of the High Court of Justice. The process for making such an
application was provided to outstanding claimants and further
details are provided at www.sse.com/investors/shareholder-
services/useful-information/southern-electric-unclaimed-
dividends/ .
Keep us informed
Keep us informed of changes to your email address by visiting
www.sse.com/investors/shareholder-services/useful-
information/ecomms/ and follow the instructions under
‘how to register or update your email address’.
316
SSE plc Annual Report 2021
FINANCIAL STATEMENTS carbon
footprint
TM
The outer cover of this report has been laminated
with a biodegradable film. Around 20 months after
composting, an additive within the film will initiate
the process of oxidation.
For further information about SSE,
please contact:
SSE plc
Corporate Affairs
Inveralmond House
200 Dunkeld Road
Perth PH1 3AQ
UK
+44 (0)1738 456000
info@sse.com
Registered in Scotland No. 117119
sse.com
Follow the latest news from SSE
on Twitter at: twitter.com/sse
@SSE
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