U.S. Markets closed

Edited Transcript of SSE.L earnings conference call or presentation 22-May-19 8:00am GMT

Full Year 2019 SSE PLC Earnings Call

Tayside May 23, 2019 (Thomson StreetEvents) -- Edited Transcript of SSE PLC earnings conference call or presentation Wednesday, May 22, 2019 at 8:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Alistair Phillips-Davies

SSE plc - CEO & Executive Director

* Gregor Alexander

SSE plc - Finance Director & Executive Director

* Martin Pibworth

SSE plc - Wholesale Director & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Ajay Patel

Goldman Sachs Group Inc., Research Division - Executive Director

* Alex Leng

UBS Investment Bank, Research Division - Associate Analyst

* Christopher Robert Laybutt

JP Morgan Chase & Co, Research Division - Research Analyst

* Deepa Venkateswaran

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Dominic Charles Nash

Barclays Bank PLC, Research Division - Head of Utilities Research

* Fraser Andrew McLaren

BofA Merrill Lynch, Research Division - Director

* Iain Stewart Turner

Exane BNP Paribas, Research Division - Analyst of Utilities

* John Musk

RBC Capital Markets, LLC, Research Division - Analyst

* Mark Freshney

Crédit Suisse AG, Research Division - Research Analyst

* Martin Young

================================================================================

Presentation

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [1]

--------------------------------------------------------------------------------

Good morning, and welcome everyone. The results we're presenting this morning are in line with our Q3 pre-close statements, but clearly disappointing. So today, we'll set out how we're taking forward our strategic focus on regulating networks and renewables, enabling SSE's key businesses to fulfill their huge opportunities, creating value through the low-carbon transition and delivering our 5-year dividend plan. And in doing all this, we're making a major contribution to the U.K. economy, including GBP 8.9 billion in the last year alone.

Our strategic priority is to trade value from developing and operating as well as owning energy assets and businesses. And we're making significant progress to delivering the GBP 1 billion Caithness-Moray link on time and on budget, finishing the Stronelairg wind farm 6 months early and on budget; commissioning of all the turbines offshore at Beatrice, which is on time and under budget; creating SSE Renewables as part of a wider refocusing of our business; making progress on the new approach to hedging commodity; client exposures; disposing of a stake in telecoms and preparing to dispose of gas production; appointing Katie Bickerstaffe with a mandate to secure the best feature for any of these services; and adopting 4 business goals for 2030 to tackle climate change and support sustainable development.

Most importantly of all, we're making progress with our first priority, safety. In the year to March, we achieved our best-ever safety performance with our total recordable injury rate down to 0.16 for 100,000 hours work. But our ultimate goal remains injury-free working. And the license we give to everyone who works for SSE remains, if it's not safe, we don't do it.

I'll now hand over to Gregor to take you through the main financial points.

--------------------------------------------------------------------------------

Gregor Alexander, SSE plc - Finance Director & Executive Director [2]

--------------------------------------------------------------------------------

Thank you, Alistair, and good morning, everyone. Our financial results mainly reflects the EPM loss highlighted last September. Excluding Energy Services, which remain held for sale, adjusted PBT is down 38%, and adjusted operating profit for the group is down 27%.

Adjusted net finance costs for the year have increased by around 10% to GBP 411.9 million, reflecting higher net debt during the year and higher joint venture interest costs. The lower corporation tax charge for the year on SSE's underlying profits was more than eliminated by tax credits from earlier years, resulting in a net current tax credit of GBP 6.8 million. At 67.1p, adjusted EPS is within the range set out in our quarter 3 and pre-close statements.

Gains on sales and fair value uplift totaling over GBP 1 billion demonstrate our ability to create and unlock value from developing and operating as well as owning assets and may help deliver a 59% increase in reported profit before tax to just over GBP 1.37 billion. And we've delivered on a full year dividend of 97.5p per share, the first year in our 5-year dividend plan.

Exceptional items include the GBP 1 billion gains from the sales of stakes in renewable and telecom assets and fair value uplift. This reflects our capability in developing and operating quality assets. In addition, there were net exceptional charges of GBP 57 million, including contract impairments and transaction costs in Energy Services.

The adverse IFRS 9 operating derivatives movement of GBP 328.2 million was mainly from a deterioration in the fair value of forward gas contracts. As we've said before, this may be indicative of a direction of travel and there are limitations to IFRS 9 if using it to assess SSE's commodity exposure. That's why it's consistently excluded from our adjusted financial measures. The negative IFRS 9 financial derivatives movement of GBP 44.8 million in the year reflects the net impact of rate movements and cross-currency and interest rate swaps.

Energy Services remains held for disposal, as adjusted operating profit of GBP 89.6 million reflects, amongst other things, the impact of government-mandated price caps and lower customer numbers.

In GB household supply, the adjusted operating profit margin was 2.5% compared to 6.8% the year before. Profit margins are expected to fall below 2% this year, and the business is expected to remain cash flow positive before working capital.

I'll now look at the Retail businesses remaining within SSE. Business Energy is an important route-to-market for low carbon energy, Airtricity complements generation in Ireland and Enterprise is our vehicle for new energy businesses.

Across these businesses, adjusted operating profit was similar to last year of GBP 122 million. Business Energy operating profit was down almost 20% due to a combination of lower volumes and higher costs, including supply of last resort mutualization charges. There was, however, better performance in Airtricity and another encouraging year in Enterprise.

Across the Wholesale businesses, adjusted operating profit fell by 71% mainly reflecting the impact of the losses in EPM. At GBP 284.9 million, the adjusted loss for EPM was lower than first forecast following action taken since September. In the current year, we still expect EPM to report an adjusted operating loss of around GBP 115 million, but with the potential variation around this now reduced to plus or minus GBP 15 million. Large majority of this loss is likely to be apparent in our half year results in November. For 2020, EPM should earn a small profit through service revision.

Renewables contributed GBP 455.9 million, down 4% on the back of a lower achieved price. Based on normal weather and plant performance, Renewables should contribute around GBP 525 million in this new financial year, including GBP 26 million we hope to secure in suspended capacity market income.

Thermal generation made an adjusted operating loss of GBP 22.3 million mainly due to in the money power purchase agreements coming to an end. It's well known that the economics of coal-fired generation are challenged. And within the thermal results, losses at Fiddler's Ferry was GBP 40 million.

Looking ahead to this new financial year, we hope to secure suspended capacity market income of GBP 122 million, which, with good plant performance, should help thermal generation to contribute around GBP 150 million.

Across our Generation portfolio, carbon intensity per kilowatt hour of power reduced -- fell to 284 grams equivalent. Our goal is to reduce it to around 150 grams by 2030.

Gas production adjusted operating profit was up almost 44%, mostly due to lower depreciation, higher achieved price and no exploratory write-offs, partially offset by lower volumes in the year.

The Glendronach gas discovery was still the good news, but this business is not consistent with our focus on decarbonization, and we're actively preparing for the disposal of our gas production investments. At GBP 5.7 million, the adjusting operating loss for gas storage was slightly less than the year before.

We summarize the significant progress in implementing our new hedging approach in the statement published on our website this morning. In this, we've had the support of Tony Cocker in his role as Chair of the new Board level Energy Markets Committee, and Tony is with us here this morning.

In terms of our hedging position, at 31 March 2019, the main point is that across hydro and wind in GB, we're 100% hedged for the 2 years to March 2021. For this year, the contracted hedge price is GBP 39 per megawatt hour for wind and GBP 43 for hydro. For the next year, we've increased to GBP 46 and GBP per 48 megawatt hour, respectively, for the next financial year. Our goal is to provide more transparency and increased visibility for investors, and we believe that this morning's statement is an important step forward to doing that.

Across the 3 Networks businesses, adjusted operating profit increased almost 9% to GBP 830.2 million. In Transmission, phasing of income recovery helped deliver a 29% increase to GBP 252.1 million. In this new financial year, Transmission's contribution is likely to be just over GBP 200 million due to phasing of expenditure and costs.

In Distribution, adjusted operating profit was similar to the previous year at GBP 401.3 million with lower distributed volumes offset by lower noncontrollable costs. It's likely to be around GBP 400 million again this year.

In SGN, operating profit was up 7% to GBP 176.8 million mainly due to an expected increase in regulatory income. This year, it's likely to be closer to GBP 200 million.

In our Electricity Distribution, we continue to target good performance across the various incentives. At GBP 11 million for the year, estimating incentive income was disappointing due to the impact of the heatwave and other high-impact weather events. The income itself will be received in the financial year starting next April.

We believe that the public interest is best served by private ownership and independent regulation of energy networks, but last week's paper for the Labour Party sparked off a lot of speculation about the value of the shareholders we secure in the Networks nationalization scenario.

The first thing to say is nationalization is exactly that, a possible scenario.

In dealing with a scenario, we have 4 clear priorities: first, getting on with the decarbonization through connecting Renewables and Transmission and advancing the DSO agenda in Distribution; second, focusing on continuous improvement across customer service; third, engaging extensively with Labour Party stakeholders; and fourth, keeping on top of all practical options to safeguard shareholder value.

I'll also say more about Transmission and Distribution later, but it's clear why SSE's strategy is centered on its low-carbon regulated Networks and Renewables businesses.

We have an excellent portfolio of assets, and in the year to March, total adjusted operating profit for these businesses was just under GBP 1.3 billion. And that was despite lower-than-expected [out moves] from Renewables over the summer.

This gives us a strong base from which to take forward our strategic focus on developing, operating and owning assets in regulated Networks and Renewables.

This strategic focus is delivering results. In the 5 years to March 2019, we've actively disposed of over GBP 3 billion of assets with gains on sale, including fair value uplift, of around GBP 1.8 billion. This is a considered response to changing capital markets and to the increased appetite that potential financial partners have for working with leading developers and operators like SSE.

Looking ahead, we expect to see new partners for the Seagreen offshore wind farm development should it be successful in securing a CfD.

When it comes to future proceeds, we'll continue to look at several options or combinations of options, including debt management, returning value to shareholders through share buybacks and creating value through future investment.

We plan to return a total of around GBP 200 million to shareholders by way of a non-market share buyback. As a result of the program announced in 28th of March, we've now completed GBP 50 million of this and expect to complete the remainder in this financial year. In addition, as announced in May 2018, we'll now be buying back shares as strict takeup when full year dividend exceeds 20%.

In the year to March, we invested over GBP 1.4 billion across the SSE Group. This excludes investment in assets that were subsequently sold. Over 70% of the total was on regulated Networks and Renewables with a further 13% on thermal generation, including multifuel. Our construction teams continue to do a fantastic job in turning this investment into world-class assets, which will support the low-carbon transition, value creation and a dividend for many years to come.

We're still expecting capital investment spend to total around GBP 6 billion across the 5 years to March 2023, including around GBP 1.5 billion in this financial year, concentrated predominantly in our core Networks and Renewables business.

SSE has raised GBP 5.8 billion of funding over the past 5 years, including hybrid capital and long-term loans. This includes our second our Green Bond issued in August with an all-in funding cost of around 2.6% and with a 9-year maturity. In March, we also refinanced GBP our 1.3 billion revolving credit facility with an extended maturity date and a positive link to our environmental, social and governance performance.

Between 2020 and 2024, we have around GBP 6 billion to refinance, starting with a GBP 600 million Eurobond maturity in June next year.

At 31 March, our adjusted net debt and hybrid capital stood at GBP 9.4 billion, benefiting from the substantial proceeds of the sales mentioned earlier. Excluding hybrids, our average debt maturity is now 7 years, which reflects where value in fundraising is now best secured.

Our average cost of debt is now 3.7%. Net finance cost will go up in this financial year due to joint venture interest costs from Beatrice and lower capitalized interest.

Adjusted net debt is currently expected to reach GBP 10 billion at March 2020. Proceeds from asset and business sell-downs and disposals will continue to be used as one of the options for debt management. We will, however, also continue to take opportunities for investments and acquisitions. So although we will manage debt carefully, levels may shift at times to support value creation.

In December, both Moody's and Standard & Poor's decided to downgrade SSE's credit rating one notch. We believe our new credit ratings are still amongst the strongest held by private sector utilities across Europe.

As a long-term business, we believe SSE should maintain a strong balance sheet with its high-quality portfolio of assets and increasing focus on regulated energy networks and renewable sources of energy, as new credit rating metrics are sustainable, consistent with an ability to secure funding from debt investors at competitive rates.

In a complex operating environment, we're clearly focused on creating value from the development and operation as well as ownership of world-class assets in order to deliver a 5-year dividend plan to 2023. So after meeting year 1 of our 5-year dividend plan, we expect to recommend a full year dividend of 80p per share in 2020. That 80p will not be affected for the position regarding Energy Services, and it will be followed by 3 years of annual RPI growth through to 2023. This should deliver a total payout of at least GBP 4.25 per share over the 5-year period to March 2023.

I'll now hand you back to Alistair.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [3]

--------------------------------------------------------------------------------

Thanks, Gregor. I'll start with a few words about Energy Services. Since November, we've explored all available ownership options for this business, and we've announced this morning that Katie Bickerstaffe will become its Executive Chair and Gordon Boyd as Finance Director with a mandate to deliver a new future for it outside the SSE Group. This is likely to take the form of a listing by the second half of 2020 or alternative new ownership.

Taking account of the interest of customers, employees and shareholders, we continue to believe the best future for Energy Services business is outside SSE. We're delighted that Katie is going to lead the work to deliver it. In doing social work with existing management team, led by Stephen Forbes and Tony Keeling, they've already begun to transform the business to reduce operating costs and stabilize customer numbers to help facilitate longer-term growth.

I'll now look at the strategy and opportunities for the remaining SSE Group. Last November, we called for the U.K. to aim for net 0 emissions by 2050. And in its report 3 weeks ago, the Committee on Climate Change agreed. The committee said the foundations are in place throughout the U.K. and policies required to deliver a net 0 economy are already active or in development. Amongst other things, the committee pointed to the need for a quadrupling of low-carbon electricity, low-carbon heating and a complete adoption of electric vehicles.

At SSE, we've adopted 4 clear goals to 2030 linked with the UN Sustainable Development Goals and supporting the objective of a net 0 economy: These are cutting our generation carbon intensity in half compared to 2018 levels, helping accommodate 10 million electric vehicles on our electricity networks, developing and building renewables to triple annual output to over 30 terawatts hours and leading the way on fair tax and the real living wage.

These goals reflect our strategic focus on developing, operating and owning regulated Networks and Renewables and show we're very well placed to create value through the carbon -- low-carbon transition and deliver our 5-year dividend plan. The reality is that the opportunities for an electricity company focused on low carbon have never been greater, and that starts with Renewables.

Significant global reductions in the cost and deployment make renewable energy the primary route to driving low-carbon electricity in much of the world and a key part of our growth story. We have a strong heritage and track record in Renewables as we create a specialized and focused SSE Renewables business, led by Jim Smith, who's starting from a very strong position.

We're expert developers. In the last 5 years, excluding Beatrice, we've developed over 1 gigawatt of renewable capacity and generated proceeds of around GBP 1.4 billion from onshore wind sales. To put this in context, our total Renewables CapEx, including maintenance and development expenditure, was GBP 1.5 billion over the same period.

And we're proven constructors with successful construction of Stronelairg 6 months ahead of schedule, and the fact Beatrice as coming in under budget demonstrates our expertise here.

These project development and construction capabilities may be transferable to other markets and we're actively looking at opportunities. There's a large addressable market for growth in other developed economies and renewable energy markets. But we're not rushing into this and strict capital discipline will be a feature of any decisions.

And there's no doubt that our focus is the wealth of opportunities we have in the U.K. and Ireland. The Climate Change Committee (sic) [Committee on Climate Change] has emphasized the importance of 0 carbon electricity, and we're now entering a new phase of development and commercial focus.

We have an on and offshore wind development pipeline of over 8 gigawatts with a potential for it to lead to new assets from as early as 2022. This includes an onshore wind pipeline of over 1 gigawatt of potential newbuild projects, including Viking. We're keen to create value from our development and construction skills in onshore wind to exploring merchant opportunities and power purchase agreement options to unlock the potential for our pipeline and create value, and we believe we've demonstrated the development and restructuring capabilities to realize that potential.

Opportunities are even greater offshore, where we have a development pipeline of over 7 gigawatts. Offshore Wind has blown away nuclear on cost and the government is committed to a chain of CfD auctions over the next decade. So after next year if the auctions is important, we will not sacrifice our discipline.

The likes of Seagreen, Dogger Bank and the Greater Gabbard extension add up to the best seabed auctions in the U.K., and we're keen to add to them. We're continuing to engage with The Crown Estate and Crown Estate Scotland on a set of processes for leasing seabed for new offshore wind developments.

In short, we have the biggest pipeline of offshore wind farm developments in what is currently the biggest offshore wind market in the world, and we are creating more options. And on top of this, we're encouraged by the improving prospects for offshore wind in Ireland with the Arklow Bank development receiving encouragement -- encouraging endorsement from a wide range of stakeholders.

Overall, we believe our 8-gigawatt wind energy pipeline means we could double renewable energy output for over 20 terawatt hours by 2025, which will be a huge step towards our goal of tripling it by 2023.

SSE's flexible gas-fired power stations will play a key part in the transition to a low-carbon economy. The National Grid's balancing mechanism -- they've also earned annual operating profit of between GBP 30 million and GBP 60 million in each of the past 3 years, demonstrating that flexibility is an important complementary earnings stream.

Work is now well underway on the first-of-a-kind fire efficiency gas-fired generation plant at Keadby 2. In return for an investment of GBP 350 million we'll get 840 megawatt of state-of-the-art thermal capacity expected to be delivered in 2022.

Ferrybridge Multifuel 2 is nearing completion, and we'll take a final investment decision on new a multifuel plant in Slough this financial year.

If the transition to a low-carbon economy is to be completed, it will require efficient, flexible thermal generation plant with a company who has advocated net 0 emissions in the U.K. by 2050. For this reason, we remain very interested in the long-term potential in carbon capture.

Business Energy is in a good position to price and hedge most customer requirements at a time when there is a clear trend towards end users seeking these sorts of solutions. It's clearly linked to the core business of our electricity generation and is an important part of SSE.

In Ireland, Airtricity continues to perform well in competitive markets, where our vertically integrated business remains optimal in the context of I-SEM. Irish markets differ from those in Great Britain and Airtricity plays a positive role in our portfolio.

Enterprise is our vehicle for new businesses to create platforms for growth and value. I'm encouraged by the prospects for distributed energy and telecom. The distributed energy business mainly focusing on electric vehicle and low (inaudible) heat in our electricity networks is an important option for us in a fast-changing market.

The sale of a 50% stake in our telecom business to Intercapital showed the value held in the business that we've grown over the past few years from the U.K.'s leading connectivity suppliers, and the deal infra capital should help drive more growth.

As Gregor said, our Transmission and Distribution businesses are clearly under scrutiny to the latest policy to nationalize the country's energy networks. We have to respond to this in a responsible, objective and aggressive way. And in our Electricity Distribution, we have a progressive business that's central to delivering an electrified low-carbon economy. With electrification likely to be a key mode for decarbonizing heat and transport,

decarbonization focused on electric vehicles has a clear potential for RAV growth over the long term.

And we're leading the transformation shown by our central role in the Local Energy Oxfordshire, or LEO project. It's exploring how the growth in small-scale renewables, electric vehicles, battery storage and demand-side response can be supported by local, flexible electricity grids, thereby creating opportunities for communities and market providers.

LEO is a glimpse of the future, a future in which we believe our Distribution businesses can play a very significant role.

Within Distribution, our overriding business priority is to move to the performance frontier by delivering significant change and modernization of our operations, infrastructure and work practices to meet the needs of customers. To do this, we've implemented a new internal operating model focused on delivering under RIIO 1, but also ready for RIIO 2; targeted the regulatory incentives, especially on customer supply interruptions, customer satisfaction and stakeholder engagement; delivered our major program of capital investment as efficiently as possible; and built increased capability for the transition to a smart, flexible electricity system through trialing innovative technologies and alternative network solutions. These will remain the priority for the rest of RIIO 1 alongside preparing for RIIO 2.

Through critical network upgrades and customer connections, our growing Transmission business provides infrastructure needed to connect renewable energy and transport it across the electricity system. In the last 12 months, the capacity of renewables connected to our network grew to over 6 gigawatts.

The completion of the new Caithness-Moray link on time and under budget has helped to take the RAV of Transmission to around GBP 3.3 billion.

The business has a pipeline of planned capital investment of over GBP 600 million, which, once depreciation is concluded, means it remains on track to increase its RAV to around GBP 3.6 billion by the end of the current price control in March '21.

We believe our RIIO 2 business plan will make a powerful case for an additional GBP 1.5 billion to GBP 3.5 billion of potential investment in new infrastructure, with the Northeast of Scotland a key focus of future development. We believe this powerful case for investment could ultimately contribute for Transmission RAV of around GBP 5 billion by the end of RIIO 2 in 2026.

Any new islands linked would be an addition to this. And our work to connect Scotland's main island groups is continuing. The Orkney, Western Isles and Shetland needs cases have all been submitted and are all being progressed. Together, the 3 links can provide an investment opportunity of around GBP 1.5 billion.

Regrettably, it appears that Ofgem's controversial competition proxy model is a preferred approach for financial delivery of these projects. We continue to engage on the issue and will take whatever steps we can to safeguard the interest of customers and investors.

With an enviable track record of major project delivery and a solid pipeline of further development, Transmission continues to be a valuable business with the capability to deliver what customers need and a clear potential for future growth.

In addition to finalizing our RIIO-T2 business plan, we're engaging constructively with Ofgem over the RIIO framework itself. The consultation on Ofgem's sector-specific methodology for RIIO-T2 is released in December 2018, and Ofgem is expected to issue its view on this shortly.

Consultation's low cost of equity has been widely criticized and so has the proposed narrowing of its incentives. But there's a long way to go in this process, and we're arguing for a balanced settlement that provides a sustainable cost of equity that better reflect the country's decarbonization ambitions, investment required and associated risks; an output incentive package that enables the outcome that our customers and stakeholders have asked for; and a strong Totex Incentive Mechanism particularly through the sharing factor that drives the continued focus on efficiency improvements.

We're confident that Ofgem can deliver an equitable outcome and we'll continue to engage constructively with them and our stakeholders as the RIIO 2 process moves forward, helping to ensure the evidence base is robust, the outcomes are clear and the views of customers, stakeholders and investors are fully considered.

This morning, we set out how we're creating value through the low-carbon transition from developing and operating as well as owning energy assets and businesses. As I said earlier, the opportunities from our electricity company focused on low carbon have never been greater.

We have on and offshore wind energy pipeline of over 8 gigawatts that can help the U.K. and Ireland achieve their decarbonization goals; efficient and flexible thermal generation that will support the transition to a low-carbon electricity system; an electricity distribution business that is central to delivering an electrified low-carbon economy; and a Transmission business with a powerful case to new investment to take this RAV to by GBP 5 billion by 2026.

This adds up to a wealth of future opportunities for what is an adaptable business with huge experience and the right capabilities.

We set ourselves up for success as a Networks and Renewables-focused business creating value through the transition to the low-carbon economy. It's our blend of opportunities and capabilities that will help create that value and deliver our 5-year dividend plan. Thank you.

Gregor, Martin and I will now take questions.Gentleman at the front.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Martin Young, [1]

--------------------------------------------------------------------------------

It's Martin Young from Investec. I have 2 questions, please. You mentioned your engagement with Ofgem on the RIIO 2 process, and you alluded to seeking a balanced settlement. Your friends at the National Grid perhaps have been a little bit more explicit as to what they see as a fair financial return for the cost equity. They've put 5.5% RPI in RIIO as their idea as to what represents fair. Have you put forward any number that you're willing to share? And/or do you think that the 5.5% that the grid has put forward is a realistic fair number in the environment that we find ourselves in at the moment? And then secondly, on the Retail business. You've obviously mentioned the possibility of other listings in the second half 2020, but also the exploration of alternative ownership options. Could you expand a little bit as to what you are looking at as far as alternative options are concerned? And is that a viable proposition against the backdrop of, one, as far as you can; and two, (inaudible) operating environment that might be a deterrent to people who would otherwise look to inject equity into the supplied businesses?

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [2]

--------------------------------------------------------------------------------

Sure. I'll do Retail, and then probably Gregor can do the big reveal on what our numbers are, given that he's in charge of numbers. So the Retail business, we're obviously delighted that Katie's joined, and she'll join us from the 23rd of June to drive that business forward. We are looking at alternative transactions, and there are things that we are still working on around that. What we want to do is ultimately ensure that we do something that's in the interest of all the key stakeholders, customers, employees and shareholders, and we'll continue to work hard on that. And we'll obviously update you as and when we can. I think, [genuinely], on RIIO 2, I would say I think we've had a robust and hopefully positive engagement with Ofgem. And I think there are particularly some issues around decarbonization and looking at net 0 by 2050 that, that -- that what Ofgem have announced today is probably -- does not fully address, and particularly the ability to innovate and to get flexibility, which are key things that the government has flagged up from the Climate Change Committee (sic) [Committee on Climate Change], with flagging as well the need to be in that package. But also the needs to be a fair overall return in that package. And obviously, the underlying cost of equity is a part of that. So I'll probably let Gregor have a word on that.

--------------------------------------------------------------------------------

Gregor Alexander, SSE plc - Finance Director & Executive Director [3]

--------------------------------------------------------------------------------

Yes. All right. We have clear concentration at -- I think Ofgem have probably made them public, but there are quite a few out there, so. You may not have had a chance to look at ours. We were probably a bit slightly higher in grid on cost of equity on an RPI basis. Probably, we gave a range of, I would say, somewhere in the high-5s we'd be -- what we would be targeting. But clearly, this is a package. So cost of equity, the big component of that package at the moment. If Ofgem simplifies some of the processes, improve the sharing factor for customers versus company and incentives, then there may be more scope to do something on the cost of equity. But bear in mind that Ofgem's last document was at 3% on an RPI basis. I think moving them up towards our number is the aim.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [4]

--------------------------------------------------------------------------------

Ajay, go ahead.

--------------------------------------------------------------------------------

Ajay Patel, Goldman Sachs Group Inc., Research Division - Executive Director [5]

--------------------------------------------------------------------------------

Ajay Patel from Goldman Sachs. Three questions, if I may. Firstly, on net debt. You've given guidance kindly on full year 2020 of GBP 10 billion. I just remember from the strategy update, the sort of framework over the 5 years was more -- would peak at GBP 10 billion and be more towards the GBP 9 billion by the end of 2023. Just wanted to make sure or check, that, that still holds. Secondly, on the tax side, could you give us any guidance for 2020? Because it does move around. And then lastly, you mentioned that you outperformed on the CapEx delivery of Beatrice. Is there any kind of indication you can give to what degree, 5%, 10%? sort of -- just some sort of rough measure would be nice there.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [6]

--------------------------------------------------------------------------------

Sure, okay. I'll let Gregor, again, do the net debt and tax. On the outperformance on the CapEx, we've already returned GBP 58-odd million of money in respect of allowances that we had for that to customers, and there's probably another sum of money that will maybe equate to close to 10% overall that we may save. But Martin's probably closer with the detail...

--------------------------------------------------------------------------------

Martin Pibworth, SSE plc - Wholesale Director & Executive Director [7]

--------------------------------------------------------------------------------

Yes. So on Beatrice, the -- again, 2 recent project assumptions. We're probably about GBP 100 million better off as a project. The whole Beatrice project.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [8]

--------------------------------------------------------------------------------

So I'm sorry. I did Caithness-Moray, I'm sorry. I'm sorry. I did Caithness-Moray. I'm sorry. On net debt, last May, we talked about peaking at GBP 10 billion, coming back to GBP 9 billion. The GBP 10 billion is consistent with what we've said last May. But it will come back to GBP 9 billion; will partly depend on what we do on CapEx and whether we do something in disposals, et cetera. But I would expect it to trend back towards that number. Clearly, this year hasn't helped get to that number. On tax guidance, we're not giving specific guidance. But what we'd say is we'd expect that, that number to get back to close to where it was in previous years. This year was a kind of one-off. We benefited from some prior year adjustments and also the position with EPM (inaudible) losses and E&P business as well. And we'll give guidance on tax later in the year.

--------------------------------------------------------------------------------

Deepa Venkateswaran, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [9]

--------------------------------------------------------------------------------

Deepa Venkateswaran from Bernstein. Two questions from me. So on the Renewables business, you highlighted your pipeline for offshore wind, et cetera. I was wondering whether you've given further thought on how you are separating it internally, but are there any plans to consider a separate listing of the Renewables division or in such kind of restructuring to enhance some of the value in that business? And secondly, a question on the hedging. So on your chart where you sort of showed the hedge prices and compared to if you had hedged it in March '19, can I just check back? When your -- the reference price is that if you would in hedge in '19 is saying if we bought -- if we sold everything as bought? Or is it still using the new hedging strategy, which probably goes back at least 1 year?

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [10]

--------------------------------------------------------------------------------

Yes, okay. I'll let Martin deal with the hedging issue. The Renewables business, we've completed the separation of that. Jim who is the MD of that business is here, and we're running that business -- it's got a separate exco and everything internally. We're not considering a separate listing of it at the moment, but, obviously, we have a number of partnerships with other people. We do partner with people in particular projects. And on particular aspects of what we do in that business, and I think that partner is going to continue to be an important part of what we do.

--------------------------------------------------------------------------------

Martin Pibworth, SSE plc - Wholesale Director & Executive Director [11]

--------------------------------------------------------------------------------

On the hedging, the market reference price we're effectively quoting is the price if we'd hedged forward at the end of March against forward prices at that point.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [12]

--------------------------------------------------------------------------------

Gentleman in the front row here.

--------------------------------------------------------------------------------

Unidentified Analyst, [13]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [14]

--------------------------------------------------------------------------------

Okay. So customer churn. Well, May hasn't completed yet. I think what we'd say is that customer losses or churn figures, if you look to the train graph, will come down a little bit. Once or twice, it came in, but then as prices fell away in the wholesale market, you saw people willing to discount heavily against spot prices. You can see customer churn increase a little bit. We've obviously targeted getting back to much more of a balanced position during the course of this year. And we're delighted that Katie is joining us and that's one of the challenges that she'll have to deliver on when she just start at the end of June. And for the debt figure, Gregor?

--------------------------------------------------------------------------------

Gregor Alexander, SSE plc - Finance Director & Executive Director [15]

--------------------------------------------------------------------------------

Yes. Nothing significant in there.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [16]

--------------------------------------------------------------------------------

Two rows back.

--------------------------------------------------------------------------------

John Musk, RBC Capital Markets, LLC, Research Division - Analyst [17]

--------------------------------------------------------------------------------

It's John Musk from RBC. Just 2 questions. On the nationalization debate, you mentioned, your 4 priorities. I think the last one was options to preserve shareholder value, if I heard it right. Can you maybe just expand on what those options are that you're looking at on that? And then just the clarification on the capacity market expectations. I think it's about EUR 150 million you're assuming in your guidance across the Renewables and thermal business. Is that the payments that you've missed out on for last year as well as the payments that will start again or could start again this winter?

--------------------------------------------------------------------------------

Gregor Alexander, SSE plc - Finance Director & Executive Director [18]

--------------------------------------------------------------------------------

Yes. Last year's expected payments and this year's expected payments, yes, it's GBP 122 million in thermal and GBP 26 million in Renewables.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [19]

--------------------------------------------------------------------------------

Okay. Nationalization, I think there are a lot of very significant uncertainties about latest policy paper from last week and whether nationalization will ever happen. I think that means speculating on the final outcome of nationalization is -- if it ever happens, is potentially not going to get us very far. We are, however, taking the scenario seriously. I think we're looking at all the practical options to safeguard shareholder value. And I think central to that is making sure that we deliver for customers and that we're getting on with decarbonization. And that we have -- we obviously have clear strategies for both. I think this is a high-performing company in a well-performing industry that is delivering significant investments. So I think we're a significant hold, obviously, in the arguments put forward. And also, I don't think there's any real consensus within the Labour Party about what they want to do. So whatever may make into any manifesto, whenever a general election is called, I think there's considerable uncertainty overall there. So I think, ultimately, we'll keep on delivering. And I think we are focused on showing that the best thing for the public is for these assets, and particularly our assets, to remain in private ownership; for us to continue delivering significant investments, and not a penny of that coming out of the public purse or going into the public debt. Just -- one of the people up here but, Mark, to start with maybe, and then we'll go across.

--------------------------------------------------------------------------------

Mark Freshney, Crédit Suisse AG, Research Division - Research Analyst [20]

--------------------------------------------------------------------------------

It's Mark Freshney from Crédit Suisse. I have 2 questions. Firstly, on the Supply business, putting together the collateral lines. I mean, given EBIT margins are expected to be below 2%, you could lose most of that to charges for the collateral facility. So can you give us some indication that you can get cheap enough credit facilities to -- for that business to stand on its own 2 feet? Secondly, with regards to the CfD allocation round that's planned later this year, it's going to be very competitive. I think people are going to have to bid very, very low costs into it. Can you talk about the cost out that you've done in your various projects and whether you can actually be competitive with bidders who may not be rational?

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [21]

--------------------------------------------------------------------------------

So I'll give you 3 goes at that second one. So I think we'll be very careful here that we don't breach the Competition Act in saying anything, but I'll happily let Martin have a go in answering the question. And then if you could find him afterwards because he might leave the building quickly, you can also have a word with Jim. But I doubt any of us are going to give you any real insights, except, we have some great assets in some excellent locations, and we will keep our discipline in making sure we get value for those assets. But maybe, Gregor, just the collateral and then Martin can have a go, too.

--------------------------------------------------------------------------------

Gregor Alexander, SSE plc - Finance Director & Executive Director [22]

--------------------------------------------------------------------------------

Yes. So we've had detailed discussions with third parties in collateral. I'm pretty confident we would be able to put collateral in place. It's a complex area, but I don't think, overall, it should impact significantly on the margins. And we will announce spend more on that if and as when required, but I don't think we should have any issues around that. The issue when we were doing the transaction with Empire was that it was more difficult for us to have conversations with third parties on that collateral. And we aren't quite at that stage to go external. So having done that work over the last few months, we're very hopeful that we can put something in place.

--------------------------------------------------------------------------------

Martin Pibworth, SSE plc - Wholesale Director & Executive Director [23]

--------------------------------------------------------------------------------

Yes. I mean, clearly, Mark, Alistair's right. There's commercial and competition sensitivities around the CfD auction. I mean, I think I'll reiterate that we have a very strong pipeline. And then clearly, over the last few months, the government's commitment to offshore wind out to 2030 is, obviously, placed in the value of that pipeline as well.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [24]

--------------------------------------------------------------------------------

Okay. You want to just go across this row? Thanks very much.

--------------------------------------------------------------------------------

Dominic Charles Nash, Barclays Bank PLC, Research Division - Head of Utilities Research [25]

--------------------------------------------------------------------------------

It's Dominic Nash of Barclays. Three questions, please. I've got quite good ones. Firstly, on IFRS 16. I think you've got in your notes; I think it's going to be like GBP 400 million of extra liabilities. I presume that's not included on your GBP 10 billion net debt number guidance. Secondly, on pensions. When you're doing your tri-annual pension for your executive networks and -- what's your expectations for surplus or deficit going into RIIO 2 on those? And finally, you give us some good guidance on Networks and Generation next year, the GBP 800 million on Networks, and GBP 675 million on thermal and Renewables, that is together. Do you have a feel for what the consensus out in the markets are on those 2 divisions on operating profit next year, please?

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [26]

--------------------------------------------------------------------------------

I'm not sure I do. We can go around it afterwards maybe with [Lory] who's maybe gone through the details of the numbers because I think they're quite detailed. We just thought to help people get their models right if we provided some of the hedge numbers and we focused on the really core businesses that are kind of 80%, 90% of where we were and gave guidance on that, that would give people something to aim at. I'm not aware that they're wildly different. The only thing that we would note is that hedge prices on next year or for the year we're in now may be slightly lower than people expect, and they're obviously coming up. So that's one thing. And the second thing is just because the way the cash flows go to Transmission, Transmission then will may be slightly lower than some people are expecting. It just depends how detailed their modeling is. But I haven't gotten to all that, but happy to have a quick word afterwards on that one. Probably pensions and IFRS 16 inclusion of debt and otherwise, I'm deeply hoping my colleague next to me will be able to help you fill them in.

--------------------------------------------------------------------------------

Gregor Alexander, SSE plc - Finance Director & Executive Director [27]

--------------------------------------------------------------------------------

Yes. So we've laid out the impact of IFRS 16. And you know it's to the prelim statement, so you go to north 3.2, and lays out that. And add...

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [28]

--------------------------------------------------------------------------------

Page 55.

--------------------------------------------------------------------------------

Gregor Alexander, SSE plc - Finance Director & Executive Director [29]

--------------------------------------------------------------------------------

55 and 56. And the key thing there is that we'd add to the liabilities, but we adjust for finance leases anyway in our adjusted net debt. We will adjust for the new standard as well. And the GBP 10 billion doesn't assume any of that in there. That's very consistent with -- the rating agencies already take all of this into account in the ratings. The other thing to point out on IFRS 16 is that it will have an impact and we state that in the note, in that we'll have a reduction in operating costs of GBP 45 million. Depreciation will increase by roughly GBP 35 million, and the interest cost will increase by about GBP 15 million. So net-net, the P&L of about GBP 5 million net cost. On your pensions issue, we have 2 schemes, one in surplus in the north and one in deficit. We're just going through the tri-annual review. And it's so schemed at the moment. The north scheme surplus tri-annual review is around GBP 150 million. The south scheme will be circa GBP 300 million to GBP 400 million deficit. And I don't what to preclude what actually will come up. The surplus is in a good position to be in. And clearly, there will be some clawback in the price control, but -- in the next price control for that. But that's very positive, and we have actually stopped deficit payments in the north scheme. The south scheme, I would still expect that to be covered in the next price control.

--------------------------------------------------------------------------------

Dominic Charles Nash, Barclays Bank PLC, Research Division - Head of Utilities Research [30]

--------------------------------------------------------------------------------

And can you give us a moment on that? Ofgem will -- are still going to continue under their consultation paying deficit revenue allowances?

--------------------------------------------------------------------------------

Gregor Alexander, SSE plc - Finance Director & Executive Director [31]

--------------------------------------------------------------------------------

Yes. There's a complex [part on whether they apply] going back 3, 4 years ago. And we started that as a baseline and that then adjust what is recovered. So over time, the recovery comes down, but most of the [original] commitment is still there in the [megawatts].

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [32]

--------------------------------------------------------------------------------

Okay. Any more questions? We'll go Mr. Turner, and then the gentleman over there.

--------------------------------------------------------------------------------

Iain Stewart Turner, Exane BNP Paribas, Research Division - Analyst of Utilities [33]

--------------------------------------------------------------------------------

It's Iain Turner from Exane. Can I -- you've got a slide about the onshore and the offshore pipeline and you talk about the possibility of bidding in the next CfD round, but, I mean, that's just about the start, isn't it? I mean, presumably, you're pretty confident you're going to be bidding those projects.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [34]

--------------------------------------------------------------------------------

Yes, okay. We don't control the joint venture that we have with Equinor, but we fully expect them to bid 2 or 3 of the 1,200-megawatt fields that they've got. And because of the -- because we've got 4 sites to Seagreen, which is ours, there's one gentleman in the room who's actually, I think, has got vision of what's going on in that JV, but the rest of us don't because we can't pass confidential information. So as far as I know, I would expect them to bid up to 3.6-gigs, but we don't know any more than that. And obviously, Seagreen we're intending bringing in as well, so that prequel and all the rest of it. Yes. Just the gentleman over there. Maybe, James, just to throw it depending on how much you like.

--------------------------------------------------------------------------------

Christopher Robert Laybutt, JP Morgan Chase & Co, Research Division - Research Analyst [35]

--------------------------------------------------------------------------------

Chris Laybutt, JPMorgan. Just a couple of questions. Firstly, in terms of your hedging strategy, very clearly set out. And apologies for my voice. For the hedging strategy within Retail, you haven't got any comment on that. What is the strategy today? What's the risk going into next winter given you still do own it? And I guess just some general comments would be helpful. Also, on Retail, you did spend around GBP 100 million CapEx last year, which was about level with the run rate from the year before. What is the expectations going forward for that line? And I guess, an idea of what you're spending on would be great. And lastly, just on customer. I missed the 2 -- where customer numbers are today versus the end of March. April was a very high churn year. Did you lose any customers in that period or not?

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [36]

--------------------------------------------------------------------------------

Yes. Customer numbers, I think, across the whole year were down close to GBP 0.5 million. So they continue to fall, and I think they stood at GBP 5.8 million, GBP 4 million, something like that, in the domestic retail business.

--------------------------------------------------------------------------------

Christopher Robert Laybutt, JP Morgan Chase & Co, Research Division - Research Analyst [37]

--------------------------------------------------------------------------------

Is that at March?

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [38]

--------------------------------------------------------------------------------

Yes, yes. End of March number.

--------------------------------------------------------------------------------

Christopher Robert Laybutt, JP Morgan Chase & Co, Research Division - Research Analyst [39]

--------------------------------------------------------------------------------

So where are you today?

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [40]

--------------------------------------------------------------------------------

I don't know. I don't know. On the hedging strategy in Retail, we essentially align our hedging strategy on our forecast customer numbers and forecast demands with the Ofgem price cap formula. So we are seeking to risk-minimize. That obviously just slightly depends on where your customer numbers are and whether your forecast of those is right or not. Gregor will forecast that.

--------------------------------------------------------------------------------

Gregor Alexander, SSE plc - Finance Director & Executive Director [41]

--------------------------------------------------------------------------------

On CapEx, we've got quite big a commitment in smart. So around 50% of that will be on smart commitment. Some companies expense, some companies capitalize that. And then the ongoing CapEx for the existing systems and digitalization, keeping that forward. I'd say -- I would expect once smart starts peeling off -- this is smart systems. It's not the meters. The meters have settled out (inaudible) . I would expect that run rate to come down to kind of closer to GBP 30 million to GBP 50 million a year.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [42]

--------------------------------------------------------------------------------

Okay. Any more? Oh here, this one.

--------------------------------------------------------------------------------

Alex Leng, UBS Investment Bank, Research Division - Associate Analyst [43]

--------------------------------------------------------------------------------

It's Alex from UBS. Just one on your onshore pipeline, if I could. You talked about exploring merchant opportunities in onshore. I was wondering if you could talk at all about the level of analysis you've done there and how the economics could look like for you? And then, also, I see you have about 400 megawatts of unnamed new or extended projects. Can you talk at all about maybe your confidence level on those or what they might be contingent on?

--------------------------------------------------------------------------------

Martin Pibworth, SSE plc - Wholesale Director & Executive Director [44]

--------------------------------------------------------------------------------

Yes. So just on the onshore pipeline, I mean, clearly, there is a move to kind of subsidy-free onshore wind. And I guess, the big move over the last 12 months has been the carbon price, and carbon prices have been pretty volatile [accepting] that. But they've pretty much been stuck in a range of, let's say, EUR 22 to EUR 27 over the last 6 months. And assuming that kind holds us very constructive for trying to do onshore wind in that way. I think it's also worth noting that, while we don't have one yet, we are aware of potential corporate PPAs that are entering the market, and we've probably seen an increase in interest. And these are corporate PPAs as well that apply genuine additionality . So they are looking for -- it's getting rolled in -- be behind developments in actual construction of newbuilds. So we see that as a positive trend and one that we expect to continue. In terms of kind of unnamed onshore developments, we've got plenty of kind of options of expansions and replanting around the existing sites. And if we listed them all out, it'd be probably a (inaudible) long list of development opportunities.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [45]

--------------------------------------------------------------------------------

Richard is just back over there.

--------------------------------------------------------------------------------

Unidentified Analyst, [46]

--------------------------------------------------------------------------------

Just coming back to the Retail CapEx, again, just to clarify that point. So if you're building out your own smart meter base, does that GBP 100 million hold essentially for the next 2 years, assuming some run past the deadline for December 2020 before installation? Because the industry is almost certainly going to run past that deadline. And just to clarify, are you going to keep that quasi RAV asset, the meter base, as a long-term asset yourself? Or would you look to monetize it at some point, given there's plenty of buyers in the market for that type of asset? And then third question relating to Retail CapEx. Is that sort of post metering GBP 30 million to GBP 50 million going to be sufficient to cover the CapEx you require on your legacy IT systems having obviously not moved to the new structure with energy, given that you're probably going to migrate to their system?

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [47]

--------------------------------------------------------------------------------

So look, I'll let Gregor do the -- all the CapEx stuff. I think in the longer term, what a CapEx is, is in that business is going to be determined by Katie and the new team, essentially. I (inaudible) see that CapEx level coming down, but I'll let Gregor run through the detail on the smart. The IT systems are fine and working well. An actual fact that the systems that were chosen by the management team to take the merged company forward, so they wouldn't have actually gone forward with [their own power] IT system, which, I think, shows that an independent set of people have a lot of faith in what we've got.

--------------------------------------------------------------------------------

Gregor Alexander, SSE plc - Finance Director & Executive Director [48]

--------------------------------------------------------------------------------

Yes. I did make it clear that the CapEx isn't the meters. So the meters are with a MAP, and we have a service contract with the MAPs. So the MAP owns the meters. The spend on smart is DCCs, central systems, and the associated interface to our systems is required. That is coming towards an end as we get it through the SMETS2 process. So that's why we'd expect that to tail off. So even if the smart program is extended, we wouldn't expect the same levels of CapEx going forward for smart.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [49]

--------------------------------------------------------------------------------

Yes, Fraser.

--------------------------------------------------------------------------------

Fraser Andrew McLaren, BofA Merrill Lynch, Research Division - Director [50]

--------------------------------------------------------------------------------

It's Fraser McLaren from Bank of America. Just 2 regulatory questions, if I may. First of all, on Ofgem's network access charging review, just I'm wondering what that might mean in the longer term for your existing generation fleet and how that affects how you look at this year's offshore [round]? And then secondly, to what extent should a lengthy appeal of the competition proxy model hamper the new opportunities that you see in Transmission?

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [51]

--------------------------------------------------------------------------------

Well, I think there's some uncertainty about whether this close moving over less than 2 years away from RIIO 2, is there any point going to competition proxy model, will obviously be one of the questions. And I know Ofgem has stated that they want to. I think it's relatively clear that there may be a couple of companies out there who may want to appeal that. So I think we'll probably have to find a sensible way through there. Yes, I think it's obviously sad for the Scottish islands if something is really wanted by local communities there, by politicians and there's actually a manifesto commitment from the government to deliver -- if we deliver non-assets free islands connections in the near future. So I think that's the bigger problem for Ofgem, the government than it is for us. But we're prepared to engage constructively as long people can come up with a sensible way of doing it. But RIIO being a price control for 21 months before you're going to have a new one anyway seems a very odd thing to do. I suppose there's -- I'd say on that. Regarding the charging mechanism, I'm going to -- but we're going to let Martin have a go, and then we're going to throw it at Rob. He used to be the Regulations Director but now runs Transmission. Of course he got away from such things given we've been doing charging reviews for about 15, 20 years now.

--------------------------------------------------------------------------------

Martin Pibworth, SSE plc - Wholesale Director & Executive Director [52]

--------------------------------------------------------------------------------

Yes. I mean, so to clarify these reviews have been ongoing for a while, and you'd expect to fund newbuild and indeed newbuild Renewables and also indeed in terms of kind of [cost] in mechanism points of return assumptions to model in an interpretation of that review. So it just kind of goes naturally into the economics of those assets.

--------------------------------------------------------------------------------

Alistair Phillips-Davies, SSE plc - CEO & Executive Director [53]

--------------------------------------------------------------------------------

We'll take various assumptions on how build that into our modeling. There might have been one more hand up, but maybe not. Is there any more -- any question from -- no?

Okay, all right. Look, we're around for a little while afterwards, if anybody wants to speak to us. Thank you very much, indeed. I'm sure we'll get your feedback on our results. But also, if you want to pass any feedback to any of the staff on the new venue on the way out as well, we'd be delighted to take that. I believe a couple of people like the bacon rolls, so we'll stick with those for next time. Thank you.