Annual Financial Report 2019
Following the Preliminary Results announcement on 22 May 2019, SSE plc confirms that it has published its Annual Report and Accounts for the year ended 31 March 2019.
The Annual General Meeting (AGM) will be held at the Perth Concert Hall, Mill Street, Perth PH1 5HZ on Thursday, 18 July 2019 at 12.30pm. 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 2019 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 2019 have been submitted to the UK Listing Authority and will shortly be available for inspection via the National Storage Mechanism, which can be accessed at: http://www.morningstar.co.uk/uk/NSM
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 Results announcement issued on 22 May 2019. That information, together with the information set out in Sections 1 to 3 below, which is extracted from the 2019 Annual Report and Accounts, 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 2019 Annual Report and Accounts. Page numbers and cross-references in the extracted information refer to page numbers and cross-references in the 2019 Annual Report and Accounts.
Section 1. Principal Risks and Uncertainties
The following information is extracted from pages 66 to 71 of the 2019 Annual Report and Accounts.
Managing SSE's risks
The successful delivery of SSE's strategic objectives depends on effective identification, understanding and mitigation of its Principal Risks. SSE has an established Risk Management Framework and wider system of internal control (as described on page 110 of the Directors' Report) to inform its decision-making in support of creating value in a sustainable way; and to assist in the management of significant issues relating to Principal Risks that arise during any financial year.
The information provided on pages 89 and 92 of the Governance Section of the Directors' Report and within the strategic overview provide full details of the chain of events and the decisions taken relating to both the operating loss in Energy Portfolio Management and the previously proposed merger of SSE Energy Services with npower.
When setting strategic objectives the Board considers all material influencing factors, including those relating to climate change, technological developments, security of supply and stakeholder expectations. These material influencing factors also impact 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 impact of SSE's Group Principal Risks are continuously assessed with appropriate mitigations implemented where necessary. In response to the events that arose throughout the course of the year, SSE introduced and published a number of changes to the way in which it manages exposures relating to the Commodity Price Group Principal 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. 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 interconnecting risks. These reports form the basis for the Committees to discuss and confirm 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 these 10 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 for approval.
Following the 2018/19 annual review process, SSE's 10 existing Group Principal Risks remain unchanged. Important revisions have however been made to the descriptions of each to take account of key developments and corresponding mitigations, such as the revised approach to hedging, that were introduced during the year. Full Principal Risk descriptions can be found overleaf [pages 68 to 71 of the 2019 Annual Report and Accounts].
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; 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 and stakeholders' evolving expectations.
Furthermore, each of SSE's business divisions has differing levels of exposure to additional risks. For example, the Networks 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. The Wholesale businesses are also exposed to significant energy market and commodity risks in operational and investment decision-making, and significant changes to the way these risks are managed were announced in November 2018.
The key elements of SSE's Strategic Framework - including the focus on regulated energy networks and renewable sources of energy, 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 from developing, operating and owning energy and related infrastructure and services in a sustainable way. 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 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.
Group 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 strategic objectives.
The Board and Executive Committee look for as complete a perspective as possible when assessing the Principal Risks that face the Group. This graphic [set out on page 67 of the 2019 Annual Report and Accounts] illustrates SSE's 10 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 current prevalence of each risk) and potential impact on Group Viability based on critical risks scenarios developed in conjunction 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. No Principal Risk was deemed to have reduced in materiality during the year.
Viability Statement
SSE aims to be a leading energy provider in a low-carbon world. The pursuit of that vision is guided by a collective purpose, which is to provide the energy needed today while building a better world of energy for tomorrow. The primary duty of the SSE Board is to act in accordance with this purpose and to promote the long-term sustainable success of the Company.
SSE is a Company undergoing rapid evolution. A keener focus has been placed on SSE's core, low-carbon businesses and greater visibility has been given to the assets that create sustainable value. This shift in focus and the commitment to greater visibility of assets and earnings are leading to significant change in the way SSE's businesses are structured and managed.
As required within provision C.2.2 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 2022. 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 the strong balance sheet, and total committed lending facilities of £1.5bn which could be drawn down in most circumstances. In the event of an extreme but low probability combination of events, the Group could also take more severe mitigating actions through changes to capital allocation.
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 was demonstrated in the successful sale of stakes in Dunmaglass and Stronelairg onshore wind farms during the year.
To support this Statement, 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. In addition to considering these in isolation, the Directors also consider the cumulative impact of combinations of scenarios having the highest impact. This year, as options regarding the future of SSE Energy Services remain under consideration, two assessments have been carried out for the Group - one on the assumption that SSE Energy Services remains part of the Group and the other assuming it does not.
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 2022.
Group Principal Risks
| Commodity Prices | Key developments in 2018/19 | Key mitigations |
| 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 which in turn, may or may not be associated with climate change both in GB and globally. Further detail is available on page 65 of the Strategic Report. - Fluctuations in foreign exchange markets. - Fluctuations in the global supply and demand of fuel. - Generation technology advancements. - Geopolitical events. - Global and domestic political change. - Global economic growth. - European generation outputs and availability. - International and national agreements on climate change. - International inflows of fuel.
Link to strategic pillar: Focusing on the core | - Managing the impact of higher than expected gas prices, lower than expected renewable energy outputs, extreme weather and the financial consequences of these. - Managing continued increased market volatility related to geopolitical events including the impact of Brexit. - Development and implementation of a new energy hedging approach for the Group.
SSE's hedging approach can be read in full on sse.com
| - An asset-by-asset approach to hedging ensuring that trading positions cannot have a material impact on SSE Group earnings, will be fully implemented by April 2020. For full details of this please see sse.com - The Energy Markets Risk Committee has been established to oversee and ensure effective implementation of the revised hedging arrangements. - SSE uses VaR 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 this Annual Report.
Oversight Wholesale Risk Committee |
| Cyber Security and Resilience | Key developments in 2018/19 | Key mitigations |
| 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. - Malicious cyber-attack. - 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. - Geopolitical events such as Brexit.
Link to strategic pillar: Focusing on the core | - The global profile, prevalence and sophistication of malicious cyber-attack continues to increase. - Preparation to ensure continued compliance with GDPR regulations following changes that will materialise as a result of Brexit. - Continuously evolving technological environment. | - 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. - Further strengthening and embedding of the cyber risk and controls framework which seeks 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 in place and are regularly tested and reviewed.
Oversight Information Security and Privacy Committee |
| Development and Change | Key developments in 2018/19 | Key mitigations |
| What is the risk? The risk of failing to recognise and react appropriately to competition, technological advancements and stakeholders' evolving expectations.
Material influencing factors: - Fast developing customer needs in relation to efficient, innovative and flexible products and services. - Climate change and the necessity to generate the energy required in modern society in a responsible and sustainable way, which includes ensuring that value is shared with those impacted by SSE's operations. - The size, scale and number of change programmes underway, including those relating to regulatory or legislative requirements. - Longer term capital investment plans and budgets. - Geopolitical events. - Governance and decision-making frameworks within the Group.
Link to strategic pillar: Developing, operating, owning | - SSE has adopted four fundamental business goals for 2030 which are directly aligned to the United Nations' Sustainable Development Goals (further detail can be found in the Sustainability Report). - SSE is continuing to build on the significant work done to date to separate SSE Energy Services as an independent, self-sufficient entity within the Group, but believes that its best future lies outside the SSE Group. In line with that, future options for SSE Energy Services are being actively assessed. | - 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. - A review of the Group operating model has been undertaken in order to allow decision-making to be as effective and efficient as possible. - The Group Executive Committee is responsible for ensuring that divisional strategies are consistent and compatible with the overarching Group strategy.
Oversight Group Executive Committee |
| Energy Affordability | Key developments in 2018/19 | Key mitigations |
| What is the risk? The risk that the combination of the cost of providing reliable and sustainable energy and the level of customers' incomes means that energy becomes unaffordable to a significant number of SSE's customers. This risk is directly connected to political interventions and commodity price exposure.
Material influencing factors: - Fluctuations in the cost of fuels. - Generation technology changes. - Macro-economic impacts on household and business incomes. - Supply chain cost management. - Public policies, including those aimed at reducing carbon emissions and energy consumption. - Political interventions, such as renationalisation of any part of the UK's energy infrastructure. - Required investment in the upgrading of the UK's energy infrastructure.
Link to strategic pillar: Being sustainable | - Continued uncertainty surrounding Brexit and its longer-term economic impact, including on households and businesses. - Managing the implementation of the price cap on standard variable energy tariffs which came into effect on 1 January 2019. - Managing the impact of costs imposed on network operators and energy retailers as a result of an increased number of supplier failures. | - SSE's Customer Charter sets out the steps it takes to support customers who are having difficulty paying their bills, encouraging early engagement to work together on arrangements that allow payments to be appropriately managed. - In February 2018, SSEN achieved the British Standard for inclusive service provision having met the requirements of the Standard for the previous two years. It was one of the first companies to be assessed since the inclusive service provision standard assessment has been formally recognised as a verification scheme. - SSE has a series of programmes, partnerships, funds and schemes in place to support vulnerable customers, including identifying and referring customers for benefits entitlement checks. - 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.
Oversight Retail Risk Committee |
| Energy Infrastructure Failure | Key developments in 2018/19 | Key mitigations |
| 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. - Appropriate asset management and necessary upgrading works of both generation and network assets. - Energy network balancing mechanisms. - Government policy regarding the operation of the energy network which relates to security of supply, including the implications of Labour Party proposals for a much greater role for the state in energy provision. - Failures in any aspect of the GB national critical infrastructure. - Malicious attack on the GB energy infrastructure. - Continuing access to the European energy markets and continued inclusion of Northern Ireland in the all-island Single Electricity Market.
Link to strategic pillar: Developing, operating, owning | - An increased investment appetite for low-carbon electricity assets which presents opportunities to form new financial partnerships and create value from successful development and operation of assets. - Completion of the £1.1bn Caithness-Moray transmission link project. | - SSE's dedicated Engineering Centre of Excellence reviews and develops plans to ensure the ongoing integrity of its generation assets is maintained. - 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).
Oversight Group Executive Committee |
| Financial Liabilities | Key developments in 2018/19 | Key mitigations |
| 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: - 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 investment and performance. - The impact of fluctuations in gilt yields on the value of defined benefits pension scheme liabilities. - Ongoing commitment to maintain credit rating criteria.
Link to strategic pillar: Creating value | - Ongoing uncertainty and volatility in financial markets due to potential macro-economic factors, such as the impact of Brexit. - Successful issuance of a second €650m Green Bond, an innovative approach to financing renewable energy infrastructure investment, in August 2018. - Successful refinancing of the £1.3bn Revolving Credit Facility (RCF) for a new five year period to March 2024, with options to extend further to March 2026. | - The Group approach is to ensure that 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.
Oversight Tax and Treasury Committee |
| Large Capital Projects Quality | Key developments in 2018/19 | Key mitigations |
| What is the risk? The risk that major assets that SSE builds do not meet the quality standards required to support economic lives of typically 15 to 30 years.
Material influencing factors: - Availability of competent contractors. - Appropriate contractual arrangements. - New or unproven technology. - Appropriate and effective budget management. - All aspects of supply chain management, including those relating to human rights and labour standards as well as the potential impacts of Brexit.
Link to strategic pillar: Developing, operating, owning | - An increased focus on developing, operating and owning the renewable generation and networks which are crucial to the low-carbon transition, along with a range of businesses which complement these. - Developing strategies for managing the complexities of auction bidding processes. | - SSE's Large Capital Project 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 provides common standards across the Group and incorporates continuous improvement practices. - The Large Capital Projects 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. - In line with SSE's vision and strategy, the Group is seeking to treble its renewable energy output by 2030.
Oversight Group Large Capital Projects Governance Committee |
| People and Culture | Key developments in 2018/19 | Key mitigations |
| 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 (see the Sustainability Report for further detail). - 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 SSESET of values. - A focus on ethical business conduct and creating a culture in which employees feel confident to speak up when they suspect wrongdoing.
Link to strategic pillar: Creating value | - One of the four 2030 Sustainable Development goals set by SSE includes to be the leading company in the UK and Ireland championing fair tax and a real Living Wage. - During the year, Sue Bruce was appointed non-Executive Director for Employee Engagement. One of the key purposes of this role is to provide a direct channel of communication to the Board for all employees. | - SSE has a detailed inclusion and diversity policy and plan which is sponsored by the Group Executive Committee. Progress and performance were reviewed by the Executive Committee on a quarterly basis and by the Nomination Committee twice per year in 2018/19. From 2019/20, SSE's Group Executive Committee will review progress on a monthly basis. - Group policies including "Doing the Right Thing, a guide to ethical business conduct", explicitly outline 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 and strategies to strengthen this.
Oversight Group Governance, Culture and Controls Committee |
| Politics, Regulation and Compliance | Key developments in 2018/19 | Key mitigations |
| 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 or uncertainty.
Material influencing factors: - Constitutional uncertainty relating to Brexit. - Changes in financial, employment, safety and consumer legislation and regulation and the impact of these changes on business as usual activities. - Government intervention into the structure of the energy sector including renationalisation of any aspect of the UK's energy infrastructure. - Changes to corporate governance requirements. - International and national agreements such as the 2015 Paris Agreement on Climate Change.
Link to strategic pillar: Being sustainable | - UK Government's continuing focus on energy supply markets including further potential interventions. - UK Government policy evolution in key areas such as carbon price support and the capacity market. - SSE continues to focus advocacy efforts on maintaining a long-term collaborative and cooperative UK-EU relationship relating to energy issues. | - The Group has dedicated Corporate Affairs, Regulation, Legal and Compliance departments that provide advice, guidance and assurance to each Division 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 has a dedicated project team to manage all aspects of the regulatory and legislative change impacts of Brexit. Further details are available on page 13. - There is regular engagement with the Board and Group Executive Committee on political and regulatory developments which may impact SSE's operations or strategy. - SSE has a long-term strategy to reduce the carbon intensity of the electricity it generates.
Oversight Group Governance, Culture and Controls Committee |
| Safety and the Environment | Key developments in 2018/19 | Key mitigations |
| 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. - Safety culture - "if it's not safe, we don't do it". - Clear, effective and regular communication of all relevant safety updates. - Competent employees and contractors. - Regular and documented training. - Adverse weather. - Challenging geographic locations. - Appropriate task and asset risk assessment.
Link to strategic pillar: Being sustainable | - Continued progress of the 50by20 Safety family initiative which targets a 50% reduction in injury rates and 50% of our people active on health by 2020. - One of the four Sustainability goals set by SSE is to reduce the carbon intensity of the electricity it generates by 50% by 2030, compared to 2018 levels, to around 150g/kWh. | - 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. - SSE's dedicated Engineering Centre of excellence reviews and develops plans to ensure that the integrity of its assets is maintained. - Full environmental impact assessments are carried out for all major projects, to ensure adverse environmental impacts are well understood and minimised.
Oversight Group Safety, Health and Environment Committee |
Section 2. Directors' Responsibility Statement
The following information is extracted from page 142 of the 2019 Annual Report and Accounts.
Statement of Directors' Responsibilities
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 as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements on the same basis.
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 IFRSs as adopted by the EU;
- 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
21 May 2019
Section 3. Related Party Transactions
The following information is extracted from Accompanying Information A5. on page 237 of the 2019 Annual Report and Accounts. A condensed version of this extract was published as Note 18 in the Preliminary Results Statement for the year ended 31 March 2019.
A5. Related party transactions
The immediate parent and ultimate controlling party of the Group is SSE plc (incorporated in Scotland). Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
Trading transactions
The following transactions took place during the year between the Group and entities which are related to the Group but which are not members of the Group. Related parties are defined as those in which the Group has control, joint control or significant influence over.
| Joint ventures: | 2019 Sale of goods and services £m | 2019 Purchase of goods and services £m | 2019 Amounts £m | 2019 Amounts £m | 2018 Sale of goods and services £m | 2018 Purchase of goods and services £m | 2018 Amounts £m | 2018 Amounts £m |
| Seabank Power Ltd | 45.9 | (60.5) | 0.1 | (10.2) | 14.4 | (155.0) | 0.1 | (16.2) |
| Marchwood Power Ltd | 15.4 | (116.2) | 0.4 | (14.6) | 8.5 | (132.3) | 0.2 | (10.6) |
| Scotia Gas Networks Ltd | 46.2 | (140.3) | 11.8 | (1.2) | 41.4 | (144.8) | 0.6 | (14.2) |
| Clyde Windfarm (Scotland) Ltd | 3.5 | (150.3) | 3.7 | (41.3) | 4.8 | (129.3) | 6.5 | (37.7) |
| Other Joint Ventures | 55.9 | (171.4) | 19.4 | (44.3) | 23.3 | (186.2) | 17.1 | (52.3) |
| Associates | - | (35.4) | - | - | - | (34.7) | 4.5 | - |
The transactions with Seabank Power Limited and Marchwood Power Limited relate to the contracts for the provision of energy or the tolling of energy under power purchase arrangements. Scotia Gas Networks Limited has operated the gas distribution networks in Scotland and the South of England from 1 June 2005. The Group's gas supply activity incurs gas distribution charges while the Group also provides services to Scotia Gas Networks in the form of a management service agreement for corporate services, stock procurement services and the provision of the capital expenditure on the development of front office management information systems.
The amounts outstanding are trading balances, are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Aggregate capital loans to joint ventures and associates are shown in note 16.