Transcript Preliminary Results 2003/04

Interim Results
2006/07
15 November 2006
This presentation should be viewed alongside the Interim Results
Statement published on 15 November 2006
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Sir Robert Smith
Chairman
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Dividend per Share
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Our first responsibility to shareholders
Interim dividend per share 15.1p – 9.4% increase
Strong position to enhance and create further value
Good outlook for sustained real dividend growth
Adjusted Profit Before Tax
• Strong financial performance – PBT up 35.4% to
£455.4m
- Ongoing focus on operational issues
- Continuing returns from investments
• Well positioned for the future
• UK’s best balanced and broadest-based energy
company
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Gregor Alexander
Finance Director
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Financial Principles
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Delivering sustained real dividend growth
Effective management of core businesses
Well-founded and innovative investments
Maintaining a strong balance sheet
Selective and disciplined approach to acquisitions
Share buy-backs are the benchmark
Adjusted Profit Before Tax
£m
500.0
450.0
400.0
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
2002
2003
2004
2005
Six months to 30 September
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2006
Profit Before Tax
Published profit before tax
Exceptional items
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Six months to 30 September
2006
£m
2005
£m
484.5
(25.1)
386.4
(46.6)
Fair value re-measurements
4.8
3.1
Tax on JVs and Associates
0.3
(1.9)
Interest on convertible debt
2.0
1.8
PBT (inc IAS19)
466.5
342.8
Return on pension assets
(64.5)
(57.5)
Interest on pension liabilities
53.4
51.0
Adjusted Profit Before Tax
455.4
336.3
Energy Systems – Operating Profit
£m
200
180
160
140
120
100
80
60
40
20
0
2002
2003
2004
Six months to 30 September
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2005
2006
Energy Systems
• Operating profit up 7.5% to £184.5m
• Fall in electricity units distributed
- Underlying demand for electricity stopped growing
• Positive changes in price of units distributed
• Share of SGN’s operating profit: £22m
- Improved performance in non-regulated activities
- Warm weather impact on SGN revenue
- Shrinkage gas impact on SGN
• Underlying demand for gas down
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Generation & Supply – Operating
Profit
£m
350
300
250
200
150
100
50
0
2002
2003
2004
Six Months to 30 September
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2005
2006
Generation & Supply
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Operating profit up 56.8% to £298.0m
Better performance from thermal power stations
Additional wind output – Hadyard Hill
BETTA benefits of Scottish generation
Policy of responsible pricing for domestic
customers
• Investment in larger, long-term customer franchise
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Other Businesses – Operating Profit
£m
70
60
50
40
30
20
10
0
2002
2003
2004
Six months to 30 September
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2005
2006
Other Businesses
Six months to 30 September
Contracting Connections and
Metering *
Gas Storage
Telecoms
Corporate and property
Thermal Transfer *
2006
£m
2005
£m
Change
%
24.2
21.4
13.1
29.0
13.6
113.3
6.6
2.4
6.1
3.5
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1.9
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62.2
46.5
33.8
8.2
(31.4)
* Excludes Thermal Transfer operating profit of £1.9m in 2005/06; business sold on 31 March 2006
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Capital Expenditure
£m
350
300
250
200
150
100
50
0
2002
2003
2004
2005
Six months to 30 September
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2006
Capital Expenditure
Six months to 30 September
2006
£m
2005
£m
Coal
87.4
36.9
Gas
9.7
22.6
Hydro
44.1
19.9
Wind
8.9
150.1
37.2
116.6
100.5
22.1
15.3
288.0
84.5
23.0
19.9
244.0
Generation
Power Systems *
Gas Storage
Telecoms and other
* £43m increase in RAV
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Cash Flow
2006
£m
2005
£m
Underlying cash generated from ops
725.9
421.8
TXU and Atlantic *
Cash from operating activities
24.5
750.4
76.3
498.1
Capital expenditure
(289.6)
(247.1)
Dividends paid
(281.3)
(260.0)
(15.0)
(540.0)
Acquisitions & disposals
Other
Decrease/(Increase) in net debt
* Only TXU dividend in 2006
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Six months to 30 September
17.9
182.4
8.3
(540.7)
Pensions – IAS 19 *
(Deficit)/Surplus
Sept 06
£m
March 06
£m
Southern (Including FFF)
(294.1)
(284.0)
75.4
90.2
(218.7)
(193.8)
Hydro
Net deficit
• £24.9m increase in deficit from March 2006
* All numbers are gross of deferred tax
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Taxation
• Effective current tax rate * down from 27.5% to
26.0%
• Reflects additional capital expenditure and pension
deficit payments
• Headline tax charge 28.0% down from 31.3%
* Based on adjusted profit before tax
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Financial Management
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Strong balance sheet with ‘A+’ rating
Six months to 30 September
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Underlying interest cover 9.8 times; inc SGN 6.4 times
Within £85.7m SGN related interest is £31.8m *
* Net of loan stock interest
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Financial Summary
• Adjusted PBT up 35.4% to £455.4m
• Adjusted EPS up 37.7% to 39.1p
• Interim dividend up 9.4% to 15.1p per share
- Compound annual growth of 9.0% since 2000/01
• Financial principles designed to deliver future
dividend growth
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Ian Marchant
Chief Executive
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SSE Now
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Supply – 3rd largest (7.5m customers)
Generation – 2nd largest (>10,000MW)
Transmission – one of three
Electricity distribution – 2nd largest
Gas distribution (SGN) – 2nd largest
Electrical contracting – top three player
Gas storage – 2nd largest
SSE Next
• UK Government Energy Review
- Delivering reliable energy supplies
- Reducing carbon emissions
• Growing scale and scope of SSE’s activities
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What’s Next - Coal and Biomass
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New direct injection burners for biomass
Installation of FGD in 2008
Investment in improved thermal efficiency
First Supercritical Boiler in the UK
Lifespan well beyond 2015
First ash separation plant in the UK
Minimising stations’ environmental impact
Progress of FGD Installation
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What’s Next - Coal and Biomass
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New direct injection burners for biomass
Installation of FGD in 2008
Investment in improved thermal efficiency
First Supercritical Boiler in the UK
Lifespan well beyond 2015
First ash separation plant in the UK
Minimising stations’ environmental impact
What’s Next - Gas Generation
• Investment in 850MW plant at Marchwood
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Total equity investment will be £40m
50% of debt facility requirements
Supplying all fuel; taking all power
High thermal efficiency
Ready by Winter 2009/10
• Planned 400MW extension at Barking
- Reinforces value of additional stake
• Almost 5,000MW of gas-fired capacity
• Investment in gas preserves diversity and optionality
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Marchwood Development
Artist’s impression
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What’s Next - Gas Generation
• Investment in 850MW plant at Marchwood
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SSE investment of £200m
Supplying all fuel; taking all power
High thermal efficiency
Ready by Winter 2009/10
• Planned 400MW extension at Barking
- Reinforces value of additional stake
• Almost 5,000MW of gas-fired capacity
• Investment in gas preserves diversity and optionality
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What’s Next - Renewables
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‘Banding’ must not undermine investments
Planning ‘an especially difficult process’ *
Drumderg (32MW) consented
Committed to investment in renewables
Construction of Glendoe going well
Aim for 1,000MW of ROC-qualifying capacity by
2009/10
- Over 700MW already consented, under construction or in
operation
* Source: UK government
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Tunnel Boring Machine at Glendoe
Eliza-Jane in action
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What’s Next - Renewables
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‘Banding’ must not undermine investments
Planning ‘an especially difficult process’ *
Drumderg (32MW) consented
Committed to investment in renewables
Construction of Glendoe going well
Aim for 1,000MW of ROC-qualifying capacity by
2009/10
- Over 700MW already consented, under construction or in
operation
* Source: UK government
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What’s Next - Emissions Trading
• Phase II NAP with EC in August
- SSE allocation 16.3m tonnes per annum
- Equates to 83.2% of Phase 1 allocation (81.2% across
sector)
• Allocation based on benchmarking principle
• Differential load factor confirmed for opted-in plant
- Reinforcing benefit of LCPD opt-in
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What’s Next - Low Carbon
• Operating at the leading edge
- Phase two of Ferrybridge
- Deep water wind turbine demonstration
- ‘De-carbonised’ electricity generation at Peterhead
• Need to reduce CO2 per MWh of electricity
generated
- Partner in Energy Technologies Institute
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What’s Next – Energy Supply
• 49% fall in complaints; lowest in sector
• Best overall customer service *
• Performance improvement
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‘Commitment-based’ approach to customers
Dealing with enquiries at first point of contact
Broader role for customer advisers
More accurate opening bills
* Source: uSwitch.com and JD Power
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Supply – Customer Numbers
Customers
(m)
8
7.5m
7
6.7m
6.1m
6
5
5.5m
4.5m
4.7m
4.8m
2001
2002
2003
4
3
2
1
0
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2004
2005
2006 (Mar)
2006 (Nov)
What’s Next – Energy Supply
• 49% fall in complaints; lowest in sector
• Best overall customer service *
• Performance improvement
- ‘Commitment-based’ approach to customers
Dealing with enquiries at first point of contact
Broader role for customer advisers
More accurate opening bills
* Source: uSwitch.com and JD Power
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What’s Next - Supply
• Policy of responsible pricing
• Gas and dual fuel prices still lowest after Jan 2007
increase
• Commitment to reduce prices if conditions allow
• Abolition of PPM surcharge
• Holding on to customers is key
• Development of energy services
- Launch of gas boiler business ‘Shield’ going well
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SSE Home Services in Action
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What’s Next - Gas Storage
• Investment in gas storage key to future UK energy
security
• First storage capacity at Aldbrough to be
commissioned next year
• Plan for additional nine caverns at extended
Aldbrough
- Could provide enough gas for six million homes per day
- Would give SSE ownership of over 800mcm of gas
storage capacity
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New Development at Aldbrough
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What’s Next - Gas Storage
• Investment in gas storage key to future UK energy
security
• First storage capacity at Aldbrough to be
commissioned next year
• Plan for additional nine caverns at extended
Aldbrough
- Could provide enough gas for six million homes per day
- Would give SSE ownership of over 800mcm of gas
storage capacity
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What’s Next - Electricity Networks
• Sustaining increased capex to 2010
- Delivering projects to meet demand for power
- Improving reliability of electricity supplies
• Significant increases in RAV
- £500m (£120m real) by 2010
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What’s Next - Electricity Networks
• Good performance in Ofgem incentive schemes
• CMLs and CIs continue to be ahead of incentive
targets
• Beauly-Denny Public Inquiry to start in February
2007
- Consent in 2007/08 at very earliest
- Delay doesn’t jeopardise plans for growth
• TPCR statement on 4 Dec
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What’s Next - Gas Networks
• GDPCR key issues
• A year of progress in SGN
- Three-year pay and productivity deal
- New customer-facing structure
- Introduction of new systems on course
• SGN to create the new frontier for safety, customer
service and efficiency
• Major investment leading to RAV growth
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What’s Next - Connections
• Gas an extension of electricity capability
• Review of ‘multi-utility’ services
- Limited to ‘self-lay’ in water
• Application to Ofwat for inset appointments
- Complements existing activity
- Approach based on precedent of evolution
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What’s Next is Making Energy Better…..
• £3bn+ programme of investment in next five years
- Generation, gas storage and networks
- Making UK energy more reliable and less dependent on
carbon
• £2bn+ programme of investment after 2010
- Subject to decisions still to be taken
- Key at this stage is to have opportunities
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…Through a Wealth of Opportunities…
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Coal
• FGD at Triple F
• New high pressure turbines
and blades
• Supercritical 500MW boiler
• Carbon capture - Ferrybridge
• Ash recycling - Fiddler’s Ferry
Renewables
• Seven wind farms
• Glendoe hydro scheme
• Viking Energy JV
• Beatrice deep-water
wind farm
Gas
• Marchwood
• Barking extension
• Peterhead decarbonised
electricity
Networks
• RAV growth Capex
• Transmission upgrades
• SGN efficiency and
Investment
Supply
• Customer growth
• Telecoms customers
• Loyalty tariffs
• Home Services business
Connections
• Water inset appointment
• National networks
• Energy connections
Gas
Storage
• Aldbrough
• Aldbrough 2
Telecoms
• Ethernet upgrade
. . . And Delivering Dividend Growth
• Increased scale and scope – investment led
• Founded on strong financial principles
• Growth is outcome of financial discipline and
operational excellence
• Continued commitment to sustained real growth in
the dividend
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Interim Results
2006/07
15 November 2006
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