Source - LSE Regulatory
RNS Number : 4029C
SSE PLC
18 June 2021
 

SSE plc

 

Publication of Annual Report and Accounts 2021

 

Following its Preliminary Full-Year Results announcement on 26 May 2021, SSE plc confirms that it has today published the following documents on the Company's website at https://www.sse.com/investors/reports-and-results/:

·    Annual Report and Accounts for the year ended 31 March 2021

·    Notice of Annual General Meeting 2021

·    Sustainability Report 2021

 

SSE's Annual General Meeting (AGM) will be held at Perth Concert Hall, Mill Street, Perth PH1 5HZ on Thursday 22 July 2021 at 12.30pm.

 

With continued uncertainty around the status of the coronavirus pandemic and prevailing restrictions, the Board strongly recommends that shareholders do not attend the AGM in person and are instead encouraged to join remotely via the live webcast provision which is detailed in the Notice of AGM 2021.

 

Shareholders that join the AGM remotely via the live webcast are able to participate in the meeting by voting by proxy ahead of the meeting and through asking questions either in advance or during the meeting. To the extent shareholders wish to attend in person and can do so safely and in accordance with the prevailing government guidance at the date of the meeting, the Board kindly requests that shareholders pre-register their intentions to attend.

 

Full details of how to join via the live webcast, vote by proxy, ask questions and pre-register any intention to attend the meeting are set out in the Notice of AGM 2021. Should any changes to the meeting arrangements be required in light of government guidelines, these will be communicated on the Company's website and announced via Regulatory News Service (RNS). All shareholders are therefore encouraged to monitor the Company's website for the most up to date information.

 

In accordance with Listing Rule 9.6.1, copies of the Annual Report and Accounts, Notice of Annual General Meeting, and Form of Proxy for 2021 have been submitted to the Financial Conduct Authority and will shortly be available for inspection via the National Storage Mechanism, which can be accessed at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism

 

A condensed set of SSE plc's Group financial statements, and information on important events that have occurred during the year and their impact on the financial statements, were included in SSE's Preliminary Full-Year Results announcement issued on 26 May 2021. That information, together with the information set out in Sections 1 to 3 below, which is extracted from the Annual Report and Accounts 2021, constitute the material required by Disclosure Guidance and Transparency Rule 6.3.5R to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Annual Report and Accounts 2021. Page numbers and cross-references in the extracted information refer to page numbers and cross-references in the Annual Report and Accounts 2021.

 

Section 1. Principal Risks and Uncertainties  

The following information is extracted from pages 54 to 63 of the Annual Report and Accounts 2021.

 

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.

 

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.

 

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 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.

 

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.

 

Group Principal Risks

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 [set out on page 55 of the Annual Report 2021] 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.

 

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. 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.

 

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:
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.

 

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:
Operate

 

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.

• Ineffective operational performance, for example, breach of information security rules or poor management of resilience expertise.

• Employee and contractor understanding and awareness of information security requirements.

 

Material influencing factors most impacted by coronavirus:

• Geopolitical events.

• Malicious cyber attack.

 

Strategic link:
Operate

Invest

Develop

 

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.

• Continued maintenance of secure onsite systems and facilities in preparation for the gradual return to the office environment of those staff currently working from home.

 

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.

 

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:
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.

 

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:
Build

Operate

Invest

Develop

 

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).

 

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:
Invest

 

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:
Build

Invest

Develop

 

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.

 

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:
Invest

 

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.

 

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:
Operate

 

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.

 

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:
Build

Operate

 

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.

 

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:
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.

Section 2. Directors' Responsibility Statement

 

The following information is extracted from page 169 of the Annual Report and Accounts 2021.

 

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            Gregor Alexander

Chief Executive                       Finance Director

25 May 2021

 

Section 3. Related Party Transactions

 

The following information is extracted from Accompanying Information A5. on page 271 of the Annual Report and Accounts 2021. A condensed version of this extract was published as Note 18 in the Preliminary Results Statement for the year ended 31 March 2021.

 

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.

 

 

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

Joint ventures:

 

 

 

 

 

 

 

 

Seabank Power Ltd

75.2

(86.7)

0.1

(16.8)

44.3

(66.1)

0.1

(5.8)

Marchwood Power Ltd

45.3

(142.3)

0.6

(11.2)

13.6

(96.2)

0.2

(6.8)

Scotia Gas Networks Ltd

29.9

(13.1)

17.3

(1.1)

39.5

(113.7)

12.1

(16.4)

Clyde Windfarm (Scotland) Ltd

4.3

(116.1)

0.1

(38.2)

4.2

(118.0)

1.3

(41.3)

Beatrice Offshore Windfarm Ltd

5.3

(43.7)

1.1

(5.3)

7.1

(40.8)

1.9

(3.3)

Stronelairg Windfarm Ltd

1.9

(44.7)

-

(17.1)

2.2

(55.4)

0.4

(16.3)

Dunmaglass Windfarm Ltd

0.9

(22.2)

-

(6.6)

0.9

(24.5)

-

(6.7)

Neos Networks Ltd

38.0

(26.3)

41.4

(1.4)

14.4

(59.5)

11.8

(11.6)

Other Joint Ventures

22.5

(193.8)

54.8

(1.9)

45.3

(205.5)

12.8

(60.5)

Associates

-

(16.2)

-

-

-

(36.7)

-

-

 

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.

 

ENDS

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
ACSSFUFSAEFSEDM
Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJBell logo

Related Charts

Sse PLC (SSE)

-8.00p (-0.48%)
delayed 18:28PM