SSE : Full-year Results Statement 2021/22

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Preliminary Results for the year to 31 March 2022

Disclaimer

This financial report contains forward-looking statements about financial and operational matters. These statements are based on the current views, expectations, assumptions and information of the management, and are based on information available to the management as at the date of this financial report. Because they relate to future events and are subject to future circumstances, these forward-looking statements are subject to unknown risks, uncertainties and other factors which may not been in contemplation as at the date of the financial report. As a result, actual financial results, operational performance and other future developments could differ materially from those envisaged by the forward-looking statements. Neither SSE plc nor its affiliates assumes any obligations to update any forward-looking statements.

SSE plc gives no express or implied warranty, representation, assurance or undertaking as to the impartiality, accuracy, completeness, reasonableness or correctness of the information, opinions or statements expressed in the presentation or any other information (whether written or oral) supplied as part of it. Neither SSE plc, its affiliates nor its officers, employees or agents will accept any responsibility or liability of any kind for any damage or loss arising from any use of this presentation or its contents. All and any such responsibility and liability is expressly disclaimed. In particular, but without prejudice to the generality of the foregoing, no representation, warranty, assurance or undertaking is given as to the achievement or reasonableness of any future projections, forward-looking statements about financial and operational matters, or management estimates contained in the financial report.

This financial report does not constitute an offer or invitation to underwrite, subscribe for, or otherwise acquire or dispose of any SSE plc shares or other securities, or of any of the businesses or assets described in the financial report, and the information contained herein cannot be relied upon as a guide to future performance.

Definitions

The financial information set out in these consolidated financial results for the year ended 31 March 2022 have been prepared in conformity with the requirements of the Companies Act 2006 and in accordance with UK adopted International Financial Reporting Standards ('UK IFRS').

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 explained in the Alternative Performance Measures section before the Summary Financial Statements. SSE continues to prioritise the monitoring of developing practice in the use of Alternative Performance Measures, ensuring the financial information in its results statements is clear, consistent, and relevant to the users of those statements.

For the purpose of calculating the 'Net Debt to EBITDA' metric, 'adjusted EBITDA' is further adjusted to remove the proportion of adjusted EBITDA from equity-accounted joint ventures relating to project financed debt (see note 6.3 of the Summary Financial Statements).

Important note: Discontinued Operations - Gas Production and Scotia Gas Networks

On 14 October 2021 the Group completed the sale of its Gas Production business and on 22 March 2022 the Group completed the sale of its 33.3% investment in Scotia Gas Networks ('SGN') (see note 12.2 of the Summary Financial Statements). Both businesses have been classified as discontinued operations. The Group's adjusted measures therefore exclude the contribution from both of these businesses in all periods presented.

Important note: Other disposals

On 30 June 2021, the Group completed the sale of its Contracting and Rail business and on 10 February 2022 the Group competed the sale of a 10% stake in the Dogger Bank C offshore wind farm development (see note 12.2 of the Summary Financial Statements). Furthermore, in the prior year to 31 March 2021, the Group completed the sale of a 50% stake in Slough Multifuel on 2 April 2020, a 51% stake in Seagreen Wind Farm on 3 June 2020, its investment in Walney offshore wind farm on 2 September 2020 and its investment in MapleCo smart-metering on 23 September 2020.

As these businesses do not individually constitute a separate major line of business for SSE, they have not been classified as discontinued operations, and their result continues to be included within the Group's adjusted profit-based measures to the point of disposal.

Important note: Presentation of Reporting Segments

Following the Group's sale of its Contracting and Rail business during the year, the primary retained activities of the Enterprise business is Distributed Energy which will develop and provide the Group's solar and battery storage operations and focus on distributed generation, heat and cooling networks, smart buildings and EV charging. Accordingly, the result from the Group's out of areas networks business and Neos Networks Limited joint venture will now be reported within SSEN Distribution and Corporate Unallocated respectively. Comparative information has been re-presented to reflect the change to these segments (see note 2.3 of the Summary Financial Statements).

Impact of discontinued operations on the Group's Alternative Performance Measures ('APM')

The following Alternative Performance Measures have been adjusted in all periods presented to exclude the contribution of the Group's Gas Production operations and Scotia Gas Networks Limited which have been presented as discontinued operations as at 31 March 2022:

• 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', 'adjusted investment and capital expenditure' and the new metric 'adjusted investment, capital and acquisition expenditure', have not been amended as the Group continued to fund the discontinued operations until the date of disposal.

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CONTENTS
PRELIMINARY RESULTS ...........................................................................................................................	4
KEY PERFORMANCE INDICATORS .........................................................................................................	6
FURTHER INFORMATION ..........................................................................................................................	8
STRATEGIC OVERVIEW ............................................................................................................................	9
GROUP FINANCIAL REVIEW...................................................................................................................	11
IMPACT FROM MARKET VOLATILITY ....................................................................................................	11
OPERATING PROFIT PERFORMANCE 2021/22 ....................................................................................	13
ADJUSTED EARNINGS PER SHARE......................................................................................................	16
GROUP FINANCIAL OUTLOOK - 2022/23 AND BEYOND ...................................................................	17
KEY POINTS FOR 2022/23 ......................................................................................................................	17
UPDATE TO NET ZERO ACCELERATION PROGRAMME ....................................................................	17
DISPOSAL OF MINORITY STAKE IN NETWORKS ................................................................................	17
SUPPLEMENTAL FINANCIAL INFORMATION .......................................................................................	19
PROGRESS IN SSE'S CAPITAL EXPENDITURE PROGRAMME ..........................................................	19
SSE'S HEDGING POSITION AT 18 MAY 2022 .......................................................................................	20
SUMMARISING MOVEMENTS ON EXCEPTIONAL ITEMS AND CERTAIN REMEASUREMENTS ....	22
REPORTED PROFIT BEFORE TAX AND EARNINGS PER SHARE ......................................................	23
FINANCIAL MANAGEMENT AND BALANCE SHEET .............................................................................	24
SSE'S PRINCIPAL JOINT VENTURES AND ASSOCIATES ...................................................................	28
TAXATION.................................................................................................................................................	28
PENSIONS ................................................................................................................................................	29
BUSINESS OPERATING REVIEW...........................................................................................................	31
SSEN TRANSMISSION .............................................................................................................................	32
SSEN DISTRIBUTION ...............................................................................................................................	35
SSE RENEWABLES..................................................................................................................................	37
SSE THERMAL ..........................................................................................................................................	42
GAS STORAGE.........................................................................................................................................	45
SSE BUSINESS ENERGY.........................................................................................................................	46
SSE AIRTRICITY .......................................................................................................................................	48
SSE DISTRIBUTED ENERGY ...................................................................................................................	49
ENERGY PORTFOLIO MANAGEMENT (EPM)........................................................................................	50
INVESTMENT IN SGN (SCOTIA GAS NETWORKS - DISCONTINUED OPERATION)........................	51
SUMMARY FINANCIAL STATEMENTS ...................................................................................................	61

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PRELIMINARY RESULTS

FOR THE YEAR ENDED 31 MARCH 2022

25 MAY 2022

STRONG PERFORMANCE, STRATEGIC PROGRESS AND RECORD INVESTMENT IN VOLATILE MACROECONOMIC CONDITIONS

• Adjusted earnings per share of 95.4p, within pre-close guidance, reflects the resilience of the Group's integrated and balanced business model in volatile market conditions.
• £12.5bn strategic capital investment plan to FY26 on track with record investment of £2.1bn reported for the year.
• Total Recordable Injury Rate of 0.17, an increase from 0.14, reflecting growing construction activity.
• Progressing well on flagship SSE Renewables projects, with 2.4GW under construction.
• Over 1GW pipeline additions through ScotWind wins and site optimisation, with up to 4.9GW future additions through Southern Europe acquisition expected to complete by September 2022.
• Advancing major infrastructure projects in Transmission and greater clarity on asset base growth with gross RAV now expected to reach £6.5-7bnby FY26, and over £12bn by FY31.
• Guiding to adjusted EPS of at least 120p for 2022/23 and updating to an adjusted EPS CAGR of between 7-10% over the five year period to 2025/26.
• Net investment into vital UK and Ireland infrastructure could exceed £25bn this decade, creating thousands of jobs and directly addressing the energy crisis in the longer term.
• Contributed over £5.8bn to UK GDP, supporting over 45,000 UK jobs, and €438m contribution to Ireland GDP and over 1,800 Irish jobs supported.

Financial Summary		Adjusted			Reported
(continuing operations)	Mar 2022	Mar 2021	% mvmt	Mar 2022	Mar 2021	% mvmt
Operating profit (£m)	1,536.8	1,333.5	15%	3,755.4	2,654.9	41%
Profit before tax (£m)	1,164.0	948.9	23%	3,482.2	2,418.0	44%
Earnings per share (p)	95.4	78.4	22%	241.6	206.3	17%
Investment, capital and	2,073.7	912.0	127%	2,319.8	1,803.8	29%
acquisitions (£m)**
Net Debt and Hybrid Capital (£bn)	8,598.2	8,898.9	(3%)	8,015.4	7,810.4	3%

• Comparative information has been re-presented to reflect the classification of Scotia Gas Networks as a discontinued operation and the changes to segmental disclosures made in the period (see note 2.3 of the Summary Financial Statements). ** includes discontinued operations and is net of refund proceeds from project financing.

Alistair Phillips-Davies, Chief Executive, said:

"This was a year in which our resilient business mix and balanced portfolio of assets helped us navigate volatile markets and meet our financial objectives whilst making record investments in the critical UK infrastructure needed to tackle climate change and deliver more secure, independent energy supplies.

"We set out in November our Net Zero Acceleration Programme, which acts as a floor, not a ceiling, to our ambitions and we are delivering on that plan at pace. In the context of a global energy crisis and intense pressure on the cost of living, we are helping to drive the build-out of vital electricity infrastructure that will reduce dependency on imported gas and help protect consumers from future price spikes, and in doing so we are investing significantly more than we are making in profits.

"We are delivering major projects, building pipelines, and have made inroads in Southern Europe and Japan as we export our renewables capabilities internationally to fulfil SSE's considerable potential. Strategically, operationally and financially, SSE is well-placed to continue to create value for all of our stakeholders and wider society as we create the infrastructure needed to deliver net zero, secure energy supplies and ultimately drive consumer prices down."

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STRATEGIC HIGHLIGHTS

• Execution of fully-funded Net Zero Acceleration Programme continues, with investment accelerating across a number of low-carbon opportunities, offering the optimal pathway for SSE to grow.
• Completed final disposal of Scotia Gas Networks for £1.3bn, representing the final divestment in SSE's non-core asset disposal programme with total headline consideration exceeding £2.8bn.
• Increasingly supportive UK policy environment following publication of Government's British Energy
  Security Strategy, with increased commitment to accelerate delivery of offshore wind and associated network infrastructure and flexible technologies for the second half of the decade.
• Published Net Zero Transition Plan setting out the actions to meet SSE's net zero targets for emissions by 2050.

FINANCIAL SUMMARY FOR THE YEAR TO MARCH 2022

• Adjusted earnings per share up 22% to 95.4p, or up 9% against the 87.5p Net Zero Acceleration Programme baseline, within the expected 92p - 97p range.
• Adjusted operating profit up 15% to £1.5bn / Reported operating profit up 41% to £3.8bn
• Adjusted profit before tax up 23% to £1.2bn / Reported profit before tax up 44% to £3.5bn
• Reported earnings per share increased to 241.6p, including c.£2.1bn fair value remeasurements
• Adjusted investment, capital and acquisition expenditure of £2.1bn, in line with pre-close guidance.
• Adjusted net debt and hybrid capital at £8.6bn, better than pre-close guidance of below £9bn.

• Comparative information has been re-presented to reflect the classification of Scotia Gas Networks as a discontinued operation and the changes to segmental disclosures made in the period (see note 2.3 of the Summary Financial Statements).

FINAL DIVIDEND IN LINE WITH DIVIDEND PLAN TO 2026

• Intention to recommend a final dividend of 60.2p for payment on 22 September 2022, representing a weighted average annual RPI rate of 5.8%, making a full-year dividend of 85.7p per share.
• Continue to target RPI increase for FY23 followed by rebase to 60p in FY24, with attractive annual growth of at least 5% to FY26.
• Scrip uptake capped at 25% on FY22 full-year dividend and thereafter as previously announced.

FINANCIAL OUTLOOK FOR 2022/23 AND BEYOND

• SSE's focus continues to be on long-term, sustainable financial performance. With high levels of investment expected in Transmission, a step up in earnings expected in Thermal generation and an expected return to normal weather for Renewables, the Group is confident about delivering strong earnings growth for this financial year.
• SSE currently expects to report full year adjusted earnings per share of at least 120p.
• Capital expenditure and investment is expected to total in excess of £2.5bn in 2022/23 (including acquisitions but net of project finance development expenditure refunds) assuming the recent Southern European acquisition successfully completes as planned.
• Over the five-year period to March 2026, SSE now expects to deliver an adjusted EPS CAGR of between 7-10% on the 87.5 p Net Zero Acceleration Programme baseline as a result of: confidence derived from strong delivery in 2021/22; higher RPI forecasts; higher and more volatile energy commodity prices; and evidence of increased value creation potential from flexibility provided by
  SSE's Thermal and Hydro generation, and gas storage assets as they continue to perform a vital role for the system.
• In line with the plan for disposal of a minority stake, SSE has recently initiated a sales process for a 25% share of the SSEN Transmission business which is expected to formally commence in Summer 2022. Given the SSEN Distribution business is currently progressing its ED2 price control negotiations, a decision on the timing of a similar stake sale will be made later in the financial year.

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