SSE : Trading Statement

SSE plc

TRADING STATEMENT

SSE plc completed the third quarter of its financial year on 31 December 2016. This trading statement:

· confirms that for 2016/17 SSE remains on target to achieve a return to growth and deliver adjusted earnings per share* of at least 120 pence;

· confirms that for 2016/17 SSE still expects to report an annual increase in the full-year dividend that at least keeps pace with RPI inflation, with annual increases that at least keep pace with RPI inflation also being targeted for the subsequent years; and

· provides an update on SSE's operational performance and on progress with its capital investment programme for 2016/17, which is now expected to be around £1.75bn.

*As defined in SSE's interim results statement on 9 November 2016

Alistair Phillips-Davies, Chief Executive of SSE, said:

'SSE is a business designed for the long-term. In a changing and challenging energy sector we continue to focus on operational efficiency, disciplined investment and maintaining a balanced range of energy businesses. Throughout this financial year, we have sought to continue to deliver the best possible service for our Networks and Retail customers.

'As we acknowledged in our interim results in November, the operating environment presents some challenges. The period since our interim results has featured volatile wholesale energy market conditions and, during November and December in particular, a period of relatively dry and still weather leading to low output of renewable energy. This did, however, allow good progress with our large construction projects. Political and regulatory scrutiny of the sector has also continued.

'Despite these issues, and several persistent uncertainties in aspects of the operating environment, SSE is well placed. Our fundamental strengths and opportunities for growth mean SSE is on target to meet its first financial objective of an increase in the full-year dividend, at least in line with RPI inflation.'

Focusing on operations

Safety: SSE's Total Recordable Injury Rate for employees and employees of other companies working on SSE sites was 0.25 per 100,000 hours worked in the 12 month period ending 31 December 2016, compared with 0.21 over the same period to December 2015. Sadly, an employee of BAM Nuttall died at the Blackhillock substation construction site on 28 October in an incident which is the subject of an investigation by the Health and Safety Executive.

While the average temperature in the UK in the nine months to 31 December 2016 was broadly similar to the same period in 2015, energy consumption was higher mainly reflecting cooler weather conditions in the last three months of 2016. At the same time, weather conditions were less wet and windy in the nine months to 31 December 2016, leading to renewable output being around 20% lower than a normal year.

Key developments since 9 November 2016

Since SSE published its interim results on 9 November 2016, there have been important developments in:

· Wholesale: SSE secured agreements to provide a total of 3,239MW of de-rated electricity generation capacity from October 2020 to September 2021 in the GB Capacity Market Auction. The auction cleared at a price of £22.50/kW. The supplementary Capacity Market Auction for delivery in 2017/18 starts today (31 January); based on the parameters issued by the UK Government in October 2016, SSE has prequalified 5,908MW of its electricity generation portfolio. This includes all of its thermal power stations.

· Networks: Scottish and Southern Electricity Networks (SSEN) has now submitted its final 2017/18 tariff position to National Grid. The tariff submission reflects the regulatory mechanism for determining allowed revenues in Transmission. It is in line with numbers published by Ofgem as part of its Annual Iteration Process in November 2016 and confirms that the Base Revenue in SSE's Electricity Transmission business in 2017/18 will decrease by around £40m compared with the current year (2016/17). Thereafter, revenue in Transmission is expected to return to 2016/17 levels for the final three years of the RIIO-T1 price control period; at the same time, RAV growth is expected to continue, including around £300m in 2017/18 alone.

· Retail: Ofgem monitors the trends in some of the costs that make up the average household energy dual fuel bill. It reported on 19 January 2017 that its Supplier Cost Index showed an increase in the forecast cost of supplying the average GB household energy customer over the period January to December 2017. This is caused by 'a significant rise in wholesale gas and electricity prices' and 'upwards pressure as a result of increases in the expected costs of government programmes for electricity customers'. To give customers peace of mind, in November 2016, SSE was the first major energy supplier in the Great Britain market to announce that it would not increase standard household energy prices this winter, capping them at their current level until at least April 2017. SSE remains focused on securing operational efficiencies to offset as far as possible the upward pressures on electricity and gas prices.

Creating long-term value from investment

In its Interim Results on 9 November 2016 SSE announced that the decision to proceed with the 225MW Stronelairg onshore wind farm meant that its investment and capital expenditure was expected to be around £6bn over the period 2016-20. Around £5bn of this is already committed to economically-regulated electricity networks and government-mandated renewable energy projects.

For 2016/17, SSE now expects that its capital and investment expenditure will total around £1.75bn (gross), which would still be the highest annual investment and capital expenditure by the company to date. Capital spend in the nine months since 1 April 2016 has included:

· Wholesale: just under £250m to progress SSE's 1GW of new wind capacity in construction or pre-construction. This includes six projects qualifying for the GB and NI Renewables Obligation (RO) totaling 429MW in construction and 225MW in pre-construction. In addition, the 588MW Beatrice offshore wind farm, in which SSE has a 40% stake, has a Contract for Difference (CfD) and remains on course for completion in 2019. The completion of these and other wind farms is expected to take SSE's total wind farm capacity in operation to 2.8GW(net) and the benefit of the returns earned from this investment will be reflected in adjusted earnings per share* and the dividend towards the end of this decade.

· Networks: over £550m in Distribution and Transmission investment, including progress with the Caithness-Moray transmission link, the largest capital project undertaken by SSE, which is scheduled for completion in 2018, and investing to improve service quality for customers in Electricity and Gas Distribution. The completion of the Caithness-Moray link and other projects is expected to take the total net Regulated Asset Value of all of SSE's economically-regulated networks businesses to close to £9bn by 2020.

· Retail: investment totaling over £125m in energy supply and related services, including work associated with the roll-out of smart meters. Although any programme of the scale and complexity of Britain's smart meter roll-out presents obvious challenges, particularly in terms of driving customer take-up, SSE believes fundamentally that the roll-out has the potential to transform the relationship between customers, their energy usage and their supplier, and it remains focused on maximizing these benefits for customers. SSE does not intend to take a decision to replace its existing energy supply customer billing system in the foreseeable future, focusing instead on continuing improvements in its front-end digital services and delivery of smart meters for customers.

Returning value to shareholders

As outlined in the Interim Results published on 9 November 2016, SSE intends to use around £500m of the proceeds from the 16.7% equity stake divestment in Scotia Gas Networks Limited ('SGN') to return value to shareholders by way of an on-market share buy-back. The buy-back has started and as at 30 January 2017 SSE had completed £87m of the buy-back and the process should be concluded by 31 December 2017.

Financial outlook SSE believes that its strategic framework and opportunities for growth mean it can deliver a full-year dividend increase that at least keeps pace with RPI inflation in 2016/17 and in the subsequent years. Itremains on target to deliver adjusted earnings per share* for 2016/17 of at least 120 pence.

As stated in its Interim Results statement on 9 November 2016, over the three years to 2018/19 SSE expects its dividend cover to range from around 1.2 times to around 1.4 times, based on dividend increases that at least keep pace with RPI inflation.

SSE will publish its preliminary results for the financial year ending 31 March 2017 on 17 May 2017, and in advance of that will publish its Notification of Close Period on 30 March 2017.

Enquiries

SSE believes quarterly trading statements are a timely communication to investors, market analysts and other stakeholders, ensuring appropriate operational and financial updates.