TIDMSSE
RNS Number : 3704I
SSE PLC
16 June 2017
Annual Financial Report
Following the Preliminary Results announcement on 17 May 2017,
SSE plc confirms that it has published its Annual Report and
Accounts for the year ended 31 March 2017.
The Annual General Meeting (AGM) will be held at the Perth
Concert Hall, Mill Street, Perth PH1 5HZ on Thursday, 20 July 2017
at 12 noon. The mailing to shareholders of the AGM documentation
has commenced, and copies of the Annual Report and Accounts and the
Notice of Annual General Meeting for 2017 are available to view on
the Company's website: www.sse.com.
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 2017 have been submitted to the UK Listing Authority and
will shortly be available for inspection from the National Storage
Mechanism, which can be accessed at: www.hemscott.com/nsm.do
The information that follows in Sections 1 to 3 is extracted in
unedited full text from the 2017 Annual Report and Accounts and is
included in this announcement for the purpose of compliance with
Disclosure Guidance and Transparency Rule 6.3.5. The information
reproduced should be read in conjunction with the Preliminary
Results announcement issued on 17 May 2017. Together these
constitute the material required by Disclosure Guidance and
Transparency Rule 6.3.5 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 2017 Annual Report and
Accounts. Page numbers and cross-references in the extracted
information attached refer to page numbers and cross-references in
the 2017 Annual Report and Accounts.
Section 1 - Principal Risks and Uncertainties: The following
information is extracted from pages 24 to 27 of the 2017 Annual
Report and Accounts.
Risk Management Framework
Supporting the achievement of SSE's strategic objectives
The Group's objectives are set through the Strategic Framework.
To support the achievement of these over the past 12 months the
Board has sought to further mature and embed the Risk Management
Framework (as detailed below) that has been developed over the past
three years. For further information on how SSE manages risk,
please see the supplementary Group Risk Report.
The Executive Committee and its subcommittees have
responsibility for overseeing SSE's Principal Risks. During the
third quarter of SSE's financial year, a self assessment is
completed for each of SSE's Principal Risks by an assigned
oversight committee. This assessment requires committee members to
provide commentary on contextual changes in the risk and whether
they consider it to have become more or less material during the
course of the year. These individual responses are consolidated
into a report, one for each Principal Risk. The end reports are
then presented back to the committees, along with the results of
provisional viability testing and analysis of relevant and current
Management Information.
Following presentation of the assessment information, the
committees discuss and reach a consensus regarding risk trend
(more, less or equally material), overall effectiveness of the risk
control and monitoring environment, and whether any additional
actions are required to improve the control environment. The
outputs from the committee assessments are then presented to the
Executive Committee for full review, with any material changes
resulting from this being proposed to the Board for approval.
Following the 2016/17 review process, the number of Principal
Risks to the Group was increased from nine to ten with the
pre-existing "Cyber and Networks Failure" risk being split into two
separate risks - Cyber Security and Resilience and Energy
Infrastructure Failure. In addition, the "Human and Relationship
Capital" risk has been expanded and renamed, becoming People and
Culture.
System of internal control
The diagram below [set out on page 24 and 25 of the 2017 Annual
Report and Accounts] details SSE's wider System of Internal Control
and how the Risk Management Framework is aligned with the other
elements of it.
There are five related frameworks which, combined, comprise
SSE's system of internal control.
The Corporate Governance Framework is 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 58 of the Directors' report.
The Strategic Framework comprises the Group's strategic
objectives, financial objective and our responsibility framework.
For further details please see page 12 to 23 of the Strategic
Report. The strategic framework forms the basis for all activity
within the Risk Management Framework.
The Risk Management Framework is underpinned by the fundamental
principle that everyone at SSE is responsible for the management of
risk. The Risk Management Framework supports each Division in
managing its risks and helps to ensure that the
Board is able to meet its obligations.
The Assurance Framework. Group Audit, Group Compliance, Group
SHE and LCP Services work together to provide an integrated
programme of audit and assurance activity that is independent of
the day to day operations of the Divisions and Corporate
Functions.
The Standards and Quality Framework sets out the expected
standards and guidelines to be followed in the delivery of the
Group's core purpose - providing the energy people.
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 appropriate, well understood,
can be effectively managed and offers commensurate reward.
The markets in which SSE operates are inherently subject to a
high degree of political, regulatory and legislative risk.
Furthermore each of SSE's business divisions has differing levels
of exposure to additional risks. For example, the Networks business
is largely regulated and is characterised by stable, inflation
linked cashflows whereas the Wholesale and Retail businesses are
heavily exposed to energy market and commodity risk. Affordability
and industry transformation also particularly affect the Retail
business while Enterprise is exposed to the risks that come with
growth in a highly competitive market place.
The key elements of SSE's strategic framework - including the
diversity of energy businesses within the SSE Group described
above, as well as its financial objective - are fully reflective of
its risk appetite:
-- SSE seeks to avoid over-exposure to any single part of the
energy sector and therefore maintains a balanced range of
economically regulated and market based energy businesses;
-- production, storage, transmission, distribution, supply and
related services provide a balanced portfolio of business
activities whilst keeping the depth of focus on a single sector -
energy; and
-- Great Britain and Ireland gives SSE a geographic markets
focus and a clear understanding of the risks and opportunities in
those markets.
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 strategy, financial
objective and core values - safety is SSE's number one value and it
has no appetite for risks brought on by unsafe actions;
2. Risks should only be accepted where appropriate reward is
achievable on the basis of objective evidence; and
3. Risks should be actively controlled and monitored through the
appropriate allocation of management and other resources.
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.
Group Principal Risks
Commodity Prices Cyber Security and Resilience
Oversight: Wholesale Risk Oversight: Information
Committee Security and Privacy Committee
The risk associated with The risk that key infrastructure,
the Group's exposure to networks or core systems
fluctuations in both the are compromised or are
physical volumes and price otherwise rendered unavailable.
of key commodities, including Key mitigations include
electricity, gas, CO2 permits, significant longer term
oil and related foreign Security Programme investment
exchange values. Key mitigations and ensuring staff awareness
include the use of VaR of security issues and
monitoring measures and their importance.
daily assessments of commodity -- Highly interconnected
positions by a risk management with SSE's other Principal
team which is independent Risks.
of the trading teams.
-- Limited level of interconnection
with SSE's other Principal
Risks.
------------------------------------- -------------------------------------
Development and Change Energy Affordability
Oversight: Executive Committee Oversight: Retail Risk
The risk of failing to Committee
recognise and react appropriately The risk that the combination
to competition, technological of the cost of providing
advancements and changes reliable and sustainable
in customer expectations energy and the level of
within the energy industry. customers' incomes means
Key mitigations include that energy becomes unaffordable
the implementation of various to a significant number
strategic change programmes of SSE's customers. This
which are governed by SSE's risk is directly connected
Transformation and Large to political interventions
Capital Projects and Governance and commodity price exposure.
Frameworks. Key mitigations include
-- Moderately interconnected maintenance of a diverse
with SSE's other Principal generation fleet limiting
Risks. exposure to a single commodity,
as well as public policy
lobbying to try to ensure
the fair allocation of
non-commodity costs related
to energy provision.
-- Limited level of interconnection
with SSE's other Principal
Risks.
------------------------------------- -------------------------------------
Energy Infrastructure Failure Financial Liabilities
Oversight: Executive Committee Oversight: Tax and Treasury
The risk of national energy Committee
infrastructure failure, The risk that funding is
whether in respect of assets not available to meet SSE's
owned by SSE or those owned financial liabilities,
by others which SSE relies including those to its
on, that prevents the Group defined benefit pension
from meeting its obligations. schemes, as these fall
Key due under both normal and
mitigations include wide-ranging stressed conditions without
asset management strategies, incurring unacceptable
and membership and participation costs or risking damage
in national security forums to its reputation. Key
such as the Centre for mitigations include the
the Protection of National mandatory maintenance of
Infrastructure (CPNI). minimum borrowings and
-- Moderately interconnected committed facilities to
with SSE's other Principal support forecast debt requirements,
Risks. plus the ongoing de-risking
of SSE's defined benefit
pension schemes.
-- Limited level of interconnection
with SSE's other Principal
Risks.
------------------------------------- -------------------------------------
Major Projects Quality People and Culture
Oversight: Group Large Oversight: Group Governance,
Capital Projects Committee Culture and Controls Committee
The risk that major assets The risk that SSE is unable
that SSE builds do not to attract, develop and
meet the quality standards retain an appropriately
required to support economic skilled, diverse and responsible
lives of typically 15 to workforce and leadership
30 years. Key mitigations team, and maintain a healthy
include the Large Capital business culture which
Project Governance Framework encourages and supports
which ensures that all ethical behaviours and
material capital investment decision-making. Key mitigations
projects across the Group include clear expectations
are governed, developed, relating to conduct and
approved and executed in accountability, the SSE
a consistent and effective SET of values, well developed
manner. succession and diversity
-- Moderately interconnected plans, and comprehensive
with SSE's other Principal training and learning management
Risks. across the organisation.
-- Highly interconnected
with SSE's other Principal
Risks.
------------------------------------- -------------------------------------
Politics, Regulation and Safety and the Environment
Compliance Oversight: Group Safety,
Oversight: Group Governance, Health and Environment
Culture and Controls Committee Committee
The risk from changes in The risk of harm to people,
obligations arising from property or the environment
operating in markets which from SSE's operations.
are subject to a high degree Key mitigations include
of regulatory, legislative crisis management and business
and political intervention continuity plans that are
and uncertainty. Key mitigations in place and regularly
include the maintenance tested, which are designed
of dedicated Corporate for the management of,
Affairs, Regulation, Legal and recovery from, significant
and Compliance functions safety and environmental
that provide advice and events.
guidance regarding the -- Moderately interconnected
interpretation of political, with SSE's other Principal
regulatory and legislative Risks.
changes to SSE's operating
divisions.
-- Highly interconnected
with SSE's other Principal
Risks.
------------------------------------- -------------------------------------
SSE operates in fast moving markets that are 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 core objectives.
The Board and Executive Committee look to assess the Principal
Risks that face the Group from a number of different perspectives,
including both individually and collectively. This graphic [set out
on page 27 of the 2017 Annual Report and Accounts] illustrates
SSE's ten Group Principal Risks positioned on a relative basis
against two important metrics - interconnectivity (a highly
interconnected risk has more ways to manifest than a less
interconnected risk), and potential impact on Group viability based
on selected critical risk scenarios developed in conjunction with
business experts.
In addition, the Principal Risks that were considered by their
oversight Committees to have increased in materiality during the
year are shown in red, with those whose materiality has not
significantly changed are shown in blue. No Principal Risk was
deemed to have decreased in materiality.
Viability Statement
As required within provision C.2.2 of the UK Corporate
Governance Code, the Board has assessed the prospects of the
Company over the next 3 financial years to the period ending 31
March 2020. 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 Principal Risks facing the Group and the control measures in
place to mitigate each of them. In particular the Directors
recognise the significance of SSE's strong balance sheet, and
committed lending facilities of GBP1.5bn which could be drawn down
in most circumstances.
The Group also 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 was
demonstrated in the successful sale during the 16/17 financial year
of a 16.7% share of Scotia Gas Networks Ltd.
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 persistently low commodity prices (for "Commodity
Prices"); changes to key government energy policies (for "Politics,
Regulation & Compliance"); and, a major incident that results
in the loss of a significant volume of customer data (for "Cyber
Security and Resilience").
A formal assessment is carried out to stress test the scenarios
that most have the potential to adversely affect SSE's ability to
deliver its core purpose of "providing the energy people need in a
reliable and sustainable way" against forecast available financial
headroom.
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 and those that are most heavily interconnected with SSE's
other Principal Risks.
Upon the basis of the analysis undertaken, 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 31 March
2020.
Long Term Climate Change Risk Exposure
In response to the 2015 Paris Agreement on Climate Change, and
out with the scope of the Viability Assessment, a number of
scenarios have been assessed to consider SSE's long-term resilience
to carbon reductions that would be required to prevent global
average temperatures rising by 1.5 degC or 2 degC. Further detail
is disclosed in SSE's Sustainability Report.
Section 2 - Directors' Responsibility Statement: The following
information is extracted from page 100 of the 2017 Annual Report
and Accounts
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 IFRSs as adopted by the EU and applicable law and
have elected to prepare the parent company financial statements in
accordance with UK Accounting Standards, including FRS 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 and prudent;
-- for the group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the EU;
-- for the parent company financial statements, state whether
applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the parent
company financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and the parent
company will continue in business.
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 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
16 May 2017
Section 3 - Related Party Transactions: The following
information is extracted from Accompanying Information A.5 on page
176 of the 2017 Annual Report and Accounts. A condensed version of
this extract was published as Note 16 in the Preliminary Results
Statement for the year ended 31 March 2017.
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.
2017 2016
------------------------------------------ ------------------------------------------
Sale Purchase Sale Purchase
of of of of
goods goods Amounts Amounts goods goods Amounts Amounts
and and owed owed and and owed owed
services services from to services services from to
Joint ventures GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------- ---------- -------- -------- ---------- ---------- -------- --------
Seabank Power
Ltd 11.0 (134.0) 0.1 17.0 13.7 (125.8) - 18.2
Marchwood
Power Ltd 16.8 (144.5) 0.5 12.6 12.7 (108.7) 0.1 15.5
Scotia Gas
Networks Ltd 45.5 (158.0) 0.9 0.9 46.3 (155.8) 15.9 0.9
Clyde Windfarm
(Scotland)
Ltd 5.7 (0.1) - 11.1 - - - -
Other Joint
Ventures 10.4 - 2.3 - 8.1 (1.2) 8.4 -
Associates 1.4 (53.4) 3.6 3.9 0.5 (59.7) 2.4 3.9
---------------- ---------- ---------- -------- -------- ---------- ---------- -------- --------
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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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