Interim Results 2006/07 15 November 2006

1
Interim Results2006/0715 November 2006
This presentation should be viewed alongside the
Interim Results Statement published on 15
November 2006
2
Sir Robert SmithChairman
3
Dividend per Share

• Our first responsibility to shareholders
• Interim dividend per share 15.1p 9.4 increase
• Strong position to enhance and create further
  value
• Good outlook for sustained real dividend growth

4
Adjusted Profit Before Tax

• Strong financial performance PBT up 35.4 to
  455.4m
• - Ongoing focus on operational issues
• - Continuing returns from investments
• Well positioned for the future
• UKs best balanced and broadest-based energy
  company

5
Gregor AlexanderFinance Director
6
Financial Principles

• Delivering sustained real dividend growth
• Effective management of core businesses
• Well-founded and innovative investments
• Maintaining a strong balance sheet
• Selective and disciplined approach to
  acquisitions
• Share buy-backs are the benchmark

7
Adjusted Profit Before Tax
m
500.0
450.0
400.0
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
2002
2003
2004
2005
2006
Six months to 30 September
8
Profit Before Tax
Six months to 30 September
2005
2006
m
m
Published profit before tax
484.5
386.4
(25.1)
(46.6)
Exceptional items
4.8
3.1
Fair value re-measurements
(1.9)
0.3
Tax on JVs and Associates
1.8
2.0
Interest on convertible debt
342.8
466.5
PBT (inc IAS19)
(57.5)
(64.5)
Return on pension assets
51.0
53.4
Interest on pension liabilities
336.3
455.4
Adjusted Profit Before Tax
9
Energy Systems Operating Profit
m
200
180
160
140
120
100
80
60
40
20
0
2002
2003
2004
2005
2006
Six months to 30 September
10
Energy Systems

• Operating profit up 7.5 to 184.5m
• Fall in electricity units distributed
• Underlying demand for electricity stopped growing
• Positive changes in price of units distributed
• Share of SGNs operating profit 22m
• Improved performance in non-regulated activities
• Warm weather impact on SGN revenue
• Shrinkage gas impact on SGN
• Underlying demand for gas down

11
Generation Supply Operating Profit
m
350
300
250
200
150
100
50
0
2002
2003
2004
2005
2006
Six Months to 30 September
12
Generation Supply

• Operating profit up 56.8 to 298.0m
• Better performance from thermal power stations
• Additional wind output Hadyard Hill
• BETTA benefits of Scottish generation
• Policy of responsible pricing for domestic
  customers
• Investment in larger, long-term customer
  franchise

13
Other Businesses Operating Profit
m
70
60
50
40
30
20
10
0
2002
2003
2004
2005
2006
Six months to 30 September
14
Other Businesses
Six months to 30 September
Change
2005
2006

m
m
Contracting Connections and Metering
24.2
21.4
13.1
Gas Storage
29.0
13.6
113.3
Telecoms
6.6
6.1
8.2
Corporate and property
2.4
(31.4)
3.5
Thermal Transfer
-
-
1.9
33.8
62.2
46.5
Excludes Thermal Transfer operating profit of
1.9m in 2005/06 business sold on 31 March 2006
15
Capital Expenditure
m
350
300
250
200
150
100
50
0
2002
2003
2004
2005
2006
Six months to 30 September
16
Capital Expenditure
Six months to 30 September
2005
2006
m
m
Generation
87.4
Coal
36.9
Gas
9.7
22.6

19.9
44.1
Hydro
37.2
8.9
Wind
116.6
150.1
84.5
100.5
Power Systems
22.1
23.0
Gas Storage
15.3
19.9
Telecoms and other
244.0
288.0
43m increase in RAV
17
Cash Flow
Six months to 30 September
2005
2006
m
m
421.8
725.9
Underlying cash generated from ops
76.3
24.5
TXU and Atlantic
498.1
750.4
Cash from operating activities
(247.1)
(289.6)
Capital expenditure
(260.0)
(281.3)
Dividends paid
(540.0)
(15.0)
Acquisitions disposals
8.3
17.9
Other
Decrease/(Increase) in net debt
182.4
(540.7)
Only TXU dividend in 2006
18
Pensions IAS 19
March 06
Sept 06

m
(Deficit)/Surplus
m
(284.0)
Southern (Including FFF)
(294.1)
90.2
Hydro
75.4
Net deficit
(218.7)
(193.8)

• 24.9m increase in deficit from March 2006

All numbers are gross of deferred tax
19
Taxation

• Effective current tax rate down from 27.5 to
  26.0
• Reflects additional capital expenditure and
  pension deficit payments
• Headline tax charge 28.0 down from 31.3

Based on adjusted profit before tax
20
Financial Management

• Strong balance sheet with A rating
• Underlying interest cover 9.8 times inc SGN 6.4
  times

Six months to 30 September
Net of loan stock interest
21
Financial Summary

• Adjusted PBT up 35.4 to 455.4m
• Adjusted EPS up 37.7 to 39.1p
• Interim dividend up 9.4 to 15.1p per share
• - Compound annual growth of 9.0 since 2000/01
• Financial principles designed to deliver future
  dividend growth

22
Ian MarchantChief Executive
23
SSE Now

• Supply 3rd largest (7.5m customers)
• Generation 2nd largest (gt10,000MW)
• Transmission one of three
• Electricity distribution 2nd largest
• Gas distribution (SGN) 2nd largest
• Electrical contracting top three player
• Gas storage 2nd largest

24
SSE Next

• UK Government Energy Review
• Delivering reliable energy supplies
• Reducing carbon emissions
• Growing scale and scope of SSEs activities

25
Whats Next - Coal and Biomass

• New direct injection burners for biomass
• Installation of FGD in 2008
• Investment in improved thermal efficiency
• First Supercritical Boiler in the UK
• Lifespan well beyond 2015
• First ash separation plant in the UK
• Minimising stations environmental impact

26
Progress of FGD Installation
27
Whats Next - Coal and Biomass

• New direct injection burners for biomass
• Installation of FGD in 2008
• Investment in improved thermal efficiency
• First Supercritical Boiler in the UK
• Lifespan well beyond 2015
• First ash separation plant in the UK
• Minimising stations environmental impact

28
Whats Next - Gas Generation

• Investment in 850MW plant at Marchwood
• Total equity investment will be 40m
• 50 of debt facility requirements
• Supplying all fuel taking all power
• High thermal efficiency
• Ready by Winter 2009/10
• Planned 400MW extension at Barking
• - Reinforces value of additional stake
• Almost 5,000MW of gas-fired capacity
• Investment in gas preserves diversity and
  optionality

29
Marchwood Development
Artists impression
30
Whats Next - Gas Generation

• Investment in 850MW plant at Marchwood
• SSE investment of 200m
• Supplying all fuel taking all power
• High thermal efficiency
• Ready by Winter 2009/10
• Planned 400MW extension at Barking
• - Reinforces value of additional stake
• Almost 5,000MW of gas-fired capacity
• Investment in gas preserves diversity and
  optionality

31
Whats Next - Renewables

• Banding must not undermine investments
• Planning an especially difficult process
• Drumderg (32MW) consented
• Committed to investment in renewables
• Construction of Glendoe going well
• Aim for 1,000MW of ROC-qualifying capacity by
  2009/10
• Over 700MW already consented, under construction
  or in operation

Source UK government
32
Tunnel Boring Machine at Glendoe
Eliza-Jane in action
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Whats Next - Renewables

• Banding must not undermine investments
• Planning an especially difficult process
• Drumderg (32MW) consented
• Committed to investment in renewables
• Construction of Glendoe going well
• Aim for 1,000MW of ROC-qualifying capacity by
  2009/10
• Over 700MW already consented, under construction
  or in operation

Source UK government
34
Whats Next - Emissions Trading

• Phase II NAP with EC in August
• SSE allocation 16.3m tonnes per annum
• Equates to 83.2 of Phase 1 allocation (81.2
  across sector)
• Allocation based on benchmarking principle
• Differential load factor confirmed for opted-in
  plant
• Reinforcing benefit of LCPD opt-in

35
Whats Next - Low Carbon

• Operating at the leading edge
• - Phase two of Ferrybridge
• - Deep water wind turbine demonstration
• De-carbonised electricity generation at
  Peterhead
• Need to reduce CO2 per MWh of electricity
  generated
• - Partner in Energy Technologies Institute

36
Whats Next Energy Supply

• 49 fall in complaints lowest in sector
• Best overall customer service
• Performance improvement
• - Commitment-based approach to customers
• Dealing with enquiries at first point of contact
• Broader role for customer advisers
• More accurate opening bills

Source uSwitch.com and JD Power
37
Supply Customer Numbers
Customers (m)
7.5m
6.7m
6.1m
5.5m
4.8m
4.7m
4.5m
38
Whats Next Energy Supply

• 49 fall in complaints lowest in sector
• Best overall customer service
• Performance improvement
• - Commitment-based approach to customers
• Dealing with enquiries at first point of contact
• Broader role for customer advisers
• More accurate opening bills

Source uSwitch.com and JD Power
39
Whats Next - Supply

• Policy of responsible pricing
• Gas and dual fuel prices still lowest after Jan
  2007 increase
• Commitment to reduce prices if conditions allow
• Abolition of PPM surcharge
• Holding on to customers is key
• Development of energy services
• - Launch of gas boiler business Shield going
  well

40
SSE Home Services in Action
41
Whats Next - Gas Storage

• Investment in gas storage key to future UK energy
  security
• First storage capacity at Aldbrough to be
  commissioned next year
• Plan for additional nine caverns at extended
  Aldbrough
• Could provide enough gas for six million homes
  per day
• Would give SSE ownership of over 800mcm of gas
  storage capacity

42
New Development at Aldbrough
43
Whats Next - Gas Storage

• Investment in gas storage key to future UK energy
  security
• First storage capacity at Aldbrough to be
  commissioned next year
• Plan for additional nine caverns at extended
  Aldbrough
• Could provide enough gas for six million homes
  per day
• Would give SSE ownership of over 800mcm of gas
  storage capacity

44
Whats Next - Electricity Networks

• Sustaining increased capex to 2010
• Delivering projects to meet demand for power
• Improving reliability of electricity supplies
• Significant increases in RAV
• 500m (120m real) by 2010

45
Whats Next - Electricity Networks

• Good performance in Ofgem incentive schemes
• CMLs and CIs continue to be ahead of incentive
  targets
• Beauly-Denny Public Inquiry to start in February
  2007
• Consent in 2007/08 at very earliest
• Delay doesnt jeopardise plans for growth
• TPCR statement on 4 Dec

46
Whats Next - Gas Networks

• GDPCR key issues
• A year of progress in SGN
• Three-year pay and productivity deal
• New customer-facing structure
• Introduction of new systems on course
• SGN to create the new frontier for safety,
  customer service and efficiency
• Major investment leading to RAV growth

47
Whats Next - Connections

• Gas an extension of electricity capability
• Review of multi-utility services
• - Limited to self-lay in water
• Application to Ofwat for inset appointments
• Complements existing activity
• Approach based on precedent of evolution

48
Whats Next is Making Energy Better..

• 3bn programme of investment in next five years
• Generation, gas storage and networks
• Making UK energy more reliable and less dependent
  on carbon
• 2bn programme of investment after 2010
• Subject to decisions still to be taken
• Key at this stage is to have opportunities

49
Through a Wealth of Opportunities
Coal FGD at Triple F New high pressure turbines and blades Supercritical 500MW boiler Carbon capture - Ferrybridge Ash recycling - Fiddlers Ferry Renewables Seven wind farms Glendoe hydro scheme Viking Energy JV Beatrice deep-water wind farm
Gas Marchwood Barking extension Peterhead decarbonised electricity Networks RAV growth Capex Transmission upgrades SGN efficiency and Investment
Supply Customer growth Telecoms customers Loyalty tariffs Home Services business Connections Water inset appointment National networks Energy connections
Gas Storage Aldbrough Aldbrough 2 Telecoms Ethernet upgrade
50
. . . And Delivering Dividend Growth

• Increased scale and scope investment led
• Founded on strong financial principles
• Growth is outcome of financial discipline and
  operational excellence
• Continued commitment to sustained real growth in
  the dividend

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Interim Results2006/0715 November 2006