Value for customers and value for investors

Alistair Phillips-Davies Chief Executive

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Topics for today Simplifying our business and securing efficiencies through a value programme GA Focusing on value in investment decision-making, including offshore wind GA Easing the burden on bill-payers through our price freeze to 2016 APD Demonstrating our appetite for reform and our commitment to having a voice in the debate around UK energy markets and policy APD

Today is about all of SSE’s stakeholders

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•Provide energy people need in a reliable and sustainable way

Core purpose

•Deliver efficient operation of, and investment in, a balanced range of businesses

Strategy

• Increase annually the dividend by at least RPI inflation

Financial objective

Customers

Politicians Regulators

Investors Employees

Setting a positive agenda

Addressing concerns

The GB energy debate has changed

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2008 2014 Carbon

reduction

Carbon reduction

Affordability

Affordability Security of

supply Security of

supply

Constructive engagement - SSE is part of the solution

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Gregor Alexander Finance Director


2013/14 results set to be in line with expectations*

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2013/14 outlook *

Dividend up by around 3% (nominal)

Adjusted EPS up by between 2-4%

Adjusted PBT up around 9%

Capex over £1.5bn

Net Debt to increase to £7.8bn

Retail operating profit *

Down by around 25%

Higher wholesale costs and lower energy consumption

Wholesale operating profit *

Up by around 20% Mainly due to April 2013 E&P acquisition and higher renewables output

Networks operating profit *

Up by around 10%

Mainly due to capital investment in Transmission

* Forecast; comparisons with 2012/13

Building on SSE’s track record of efficiency

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99.3%

102.4% 102.4%

106.9%

113.7% 123.5%

*Based on Ofgem’s assessment of July 13 ED1 business plans. 100% being target efficiency

Networks * Retail**

**SSE assessment based on data published in Consolidated Segmental Statements year ended Dec 12 & Mar 13

£0

£50

£100

Gas Electricity

Industry Average SSE

SSE 21% lower

SSE 28% lower

Cost to serve domestic customers Efficiency assessment

Operational and financial discipline remain important

A value programme to ensure effective use of people and capital

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Identified businesses not core to future plans

Identified businesses which result in a disproportionate financial burden

Identified opportunities to recycle capital

Expected financial benefit £1bn (proceeds received/ debt reduction)

SIMPLIFICATION

Day to day benefits of simplification

Focus on what’s important

Reduction of around 500 jobs across the businesses on previous plan

Expected £100m annual saving in overheads by March 2016

EFFICIENCY

Focusing on value in capital expenditure: Offshore wind development

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• Limited support for offshore wind under Levy Control Framework

• Construction costs have not reduced proportionately

Cost and risks of development remain high

• Near term focus on up to 375MW at Beatrice

• Work with partners on other projects to secure value

Reduce offshore development portfolio

• 350MW offshore wind in operation

Assets in operation performing well

Focusing on value in capital expenditure: 2014/15

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Committed • Regulated networks

• Completion of wholesale projects in construction

• Wholesale maintenance

• Other committed spend

Expected • Caithness Moray project

Uncommitted • ROCable onshore wind

• Other discretionary spend

0

300

600

900

1200

1500

1800

Mar-2015

Forecast capex

Committed Expected Uncommitted

56% 30%

5% 9%

Forecast capex split

Networks Wholesale Retail Other

Focusing on value in capital expenditure: Future plans

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Average net capex in the three years to March 18 expected to comprise:

Committed • Regulated networks

• Completion of wholesale projects in construction

• Wholesale maintenance

• Other committed spend

Expected • Caithness Moray project

Uncommitted • ROCable onshore wind

• Other discretionary spend

Disposals • Non-core assets and businesses

• ‘Re-cycling ‘ onshore wind

Net capex up to £1.3bn per annum

0

300

600

900

1200

1500

1800

Gross capex Disposals Net capex

Average net capex * 3 years to March 18

Committed Expected Uncommitted

Disposals Net capex

* Forecast

Focusing on value in capital expenditure: ‘Recycling’ and sale of non-core assets

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Sale of non-core assets

Street-lighting

SSE Pipelines

Target £1bn proceeds and net debt reduction from disposal of assets and businesses

Discipline around the balance sheet and capital constraint

Over 1,800 MW* of wind in operation

390 MW** in construction & pre-

construction

Over 300 MW** consented

SSE’s Wind Portfolio

• Disposals of street lighting PFI contracts will reduce debt

SSE has:

• Expertise in developing and building onshore wind

• Portfolio of ROCable developments

• Demonstrated value through Greencoat transaction

Disposals

*on and offshore ** onshore only

Financial discipline for strong foundations

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Four key steps

• Reduction in net capex

• Reduction in offshore wind development

• Renewed focus on operational efficiencies

• Drive to simplify and streamline the business

36%

53%

6%

4%

Last 4 years capex

Networks

Wholesale

Retail

Other

61% 25%

7%

7%

Next 4 years capex*

Networks

Wholesale

Retail

Other

* Forecast net capex

Lower risk investments and re-balancing the business

Alistair Phillips-Davies Chief Executive

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Easing the burden on energy bill payers Making a difference to customers and creating opportunity to influence the energy debate

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Government can help

Move environmental and social costs to tax

Price freeze could be extended

Helps customers

Price freeze

Price freeze until 2016

Lower Retail margins

Working with politicians and regulators

Demonstrating SSE’s appetite for reform

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Energy industry is complex

Reform that is in the interest of customers

Trade all electricity on

external exchange

Free credit commitment for small suppliers

Customer Service Guarantee

End of cold calling

Wholesale/Retail legal separation

A strong business with the essential features

SSE has:

•a balanced range of businesses;

• clear geographical focus in GB and Ireland;

•operational and investment efficiency; and

• strong financial management.

Our job:

•deliver the best possible service for customers;

•maintain and build the right assets for the future energy needs of the country; and

•pay dividends to the shareholders who invest in SSE.

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0

200

400

600

800

1000

1200

1400

1600

1800

2000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Economically-regulated Market-based

Balanced operating profit £m (FY)

What this means for SSE’s financial outlook

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•EPS 14/15 expected to be around or slightly higher than 13/14 •Higher risk to dividend cover range in 16/17

113.1 113.2 112.9

118.5

+ 2%- 4%

2010 2011 2012 2013 2014**

Adjusted EPS FY (p) *

* Restated **Forecast

Potential future impacts

Market conditions and geopolitical developments

Legislative, constitutional and regulatory change

Continue to earn the right to make a profit

Deliver dividend growth over the long term

• Acting in the best interest of all stakeholders for the long term

The energy debate has changed

• Annual dividend increases of at least RPI inflation targeted

Giving shareholders a return on their investment

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66.0 70.0 75.0

80.1 84.2

2009 2010 2011 2012 2013 2014*

RPI

1.57 1.57 1.5 1.41 1.4

2009 2010 2011 2012 2013

Dividend cover FY

Dividend per share FY (p)

84.2p + 3%

* Forecast

A positive practical approach to deliver dividend growth

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25.7 27.5 30.0

32.4 35.0

37.7 42.5

46.5

55.0

60.5

66.0 70.0

75.0 80.1

84.2

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

RPI +

*forecast

84.2p + 3%

Still targeting dividend growth

Dividend Per Share FY (p)

Value for customers and value for investors

Q and A

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Value for customers and value for investors - SSE...

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