Scottish & Southern Energy - Coursework Example

 Executive summary: There will be analysis of the financial report (year 2009/2010) of Scottish and southern Energy(SSE). It is one of the most significant energy related companies in the United Kingdom and the country’s second major energy provider. Its main purpose is the generation and providing of energy, gas, telecom businesses etc.SSE is the largest energy generating company in the UK. It is currently changing its corporate strategies concerning business and finance etc. The company is looking to increase its efficiency and output, related to the costs savings objective of at least £75M has been established. There has been a minimum inclusion of £10m capital efficiencies and £10M annual trading benefits as well. The latest regulatory price reviews clearly say that this group of companies is leading in the United Kingdom for its good efficiency and customer service standards. The company has proved time and time again to have a very good financial record, as well as being appreciable in its strategic policies to manage network assets .Concerning its telecom businesses it has planned further investment over the next two years of £45M to give the Group 2150kms of fiber linking the main cities in both license areas and providing dark fiber and bandwidth services to end customers and other carriers. The company delivered sound financial performance in all aspects of the company including electricity generation, energy supply, networks, gas storage and other such energy services. It has a very diverse experimenting range due to which it has a great advantage over companies who do not have variety in their business plans. Scottish & Southern Energy Introduction Finance has always been the key due to which the world is moving around now days, with nothing working with out money, it cannot even be imagined now that what would happen if the financial system of this world crashes out and there isn’t a bit of money left for any one in this world to be used, as said by David Korten, “As long as you have such a system that is based on the reasoning that if you are making money you are only then making a contribution to society, these financial and rogue practices will continue” (Dake, 2002). It gives us the idea that as long as the system is there finance is going be generated and the world will also be a happy working place to live in. Any good company has to have strong financial not just to support it self but also to support the community it is in because there are a number of people who are getting benefitted by the support system a company provides them. It is always important for a company to have strong financial backgrounds, or else the company is sure to be doomed, as a consultant it is important to analyze each and every step which is taken by the company to give a proper review about it. For that the company’s history and back ground check is very important after that it is important to see the strategies they are implementing in their company. The next step is to look at the financial position of the company and finally the environment of the company cannot be ignored either. The company which is being analyzed here is Scottish and southern plc, all these factors which have been talked about above would be thoroughly analyzed looking mainly on its financial report of 2009/2010, so that the most recent picture about the company could be in front of the reader. History and Background The organization Scottish and Southern Energy plc (LSE: SSE), recognized as SSE, is a British-based power corporation. Their head offices are in Perth, Scotland. It is mentioned in the London Stock Exchange (LSE) and is an element of the FTSE 100 Index. It is one of the most significant energy related companies in the United Kingdom and the country’s second major energy provider, ranking 23rd in the FTSE 100 on 31 March 2009. Its main purpose is the generation and providing of electrical energy, the supplying of gas, the process of gas and telecoms networks and other services which are related to the energy sector such as storage of gas, contracting, maintaining connections and metering are also their key responsibility. The company entered into the hydrocarbon exploration and manufacture sector in April 2010. SSE is the UK's largest generating company, from renewable sources. The corporation was created in 1998 which was followed by a union between Scottish Hydro-Electric and Southern Electric. In 2000, the company obtained the SWALEC energy supply trade. In 2004 the Company got the Fiddlers Ferry Power Stations and Ferry Bridge for £250million and in 2008 it went on to procure Airtricity assets, which is an Irish wind farm business. In 2009 it approved to buy the Uskmouth power station from Welsh Power Group Ltd. In April 2010 the company bought the natural gas exploration and manufacture possessions of Hess Corporation in three key areas of the United Kingdom Continental Shelf - Everest/Lomond, Easington and Bacton (Scottish and Southern Energy plc Annual Report, 2010). Corporate strategy of SSE Scottish and Southern Energy is now in the process of updating its analysts and investors on three major sector which are the business, financial and strategic outlook for the Group following its receiving of the regulatory price reviews affecting its supply, allotment and transmission operations. Impact of the Regulatory Price Reviews The reviews from the regulatory price give us the confirmation that Scottish and Southern Energy is used as the benchmark company in the UK in both supply and distribution for effectiveness. The same review of price was a harsh one but the Group's past capital speculation and high efficiency were documented which helped in canceling out all the negativity. As for the supply section, the review which was gotten by the company was well balanced, and a sound foundation was recognized for the hydro benefit cross subsidy among production and allocation in Scotland. As every one knows that utility laws are always suppose to be based on the code of good companies making above average profits. In spite of the strictness of the laws and of the economy, Scottish and Southern Energy is pretty confident in its self that it can make more than the 6.5% return set by the rules and regulations in all its network businesses, as it has plans to improve the efficiency of the organization. In the supply business the notional margin on sales of 1.5% is expected to be exceeded due to efficiencies in both electricity purchasing and indirect costs. Efficiency Improvements Substantial development has already been done in the incorporation of both the regions i.e. North and South businesses of Scottish and Southern Energy. Those integrations are as follows: A circumlocutory costs savings objective of at least £75M has been situated which has been gotten from synergy benefits from the union. Most excellent practice and all-purpose efficiency developments, with £30M being targeted and gotten in the present financial year and the complete benefit flowing through in 2001/2002. Another thing that has been identified is the minimum inclusion of £10m capital efficiencies and £10M annual trading benefits. Financial Position History of the finance in SSE SSE’s performance in the financial sector has to be appraised, and this appraisal is due to the fact that the interim results in November and the 1999/2000 dividend will be in line with the policy of 5-8% real growth on the 1998/99 level. The impact that has been expected in 2000 and 2001 was about £65M , in the non-attendance of unanticipated conditions ,to be offset by the synergy benefits delivered by the merger, organic growth in supply and earnings from committed generation investments. Due to this the result is that the company was aiming to deliver real dividend growth for the next five years. For the first three years it was planned that the growth would be at least 4% in real terms which would then followed by real growth. And as every one knows inflation cannot be ignored so considering this factor the nominal growth would have been at least 7% and the group would have maintained the dividend cover above 1.5 The company had the plan to continue the strong balance sheets it had in the utility sector in the year 1999 and 2000 which was more than 5 times. The company had an exceptionally good growth especially in the medium term and intended to maintain the interest cover above 4 times. The initiation about share buyback incentive gave 15.5 million to date which represent 1.8% shares of the issued share capital which has already been bought. The average price of the share was £4.96 and the impact all over was the enhancement of 1% in earnings per share (Scottish and Southern Energy plc Annual Report, 2010.) Strategic Outlook The strategy that any company follows is a big part of how the financial gain is gotten by the company. A wrong step in the strategic management can make a company lose millions of dollars worth of investment. If it is seen the strategies that SSE acquired it could be said that it exploited every opportunity that came its way and made money out of it. As everyone knows, the company has a great financial record so it is important to look upon the strategies it implied to do that. The company proved it self and had a record of managing network assets and due to this it was positioned to capitalize the opportunities that were available to both the ownership and the administration of the company. The latest regulatory price reviews clearly say that this group of companies is leading in the United Kingdom for its good efficiency and customer service standards. The focus in the section would be upon the skills that were used to take advantages of the opportunities given to the company. Scottish and Southern Energy has the lowest cost to serve the mass market supply business driven by leading edge CS systems developed for the competitive market. This positions the Group well for further development in mass market supply by organic growth, affinity deals and potential acquisitions; In Generation, plans are well advanced for further development of small scale embedded plant and a significant number of sites have been secured. Options for the development of a second power station at Keadby are also under active consideration so that the Group will be well placed when the gas moratorium is lifted. This will maintain its position as the UK generator with the youngest and most efficient portfolio of assets. Telecoms Business Development Since the merger Scottish and Southern Energy has continued to expand its telecoms business, where the competitive advantages the Group can offer in Scotland were already well developed. The experience gained through this will now be exploited on a wider basis with a planned further investment over the next two years of £45M to give the Group 2150kms (650kms of which has already been installed) of fiber linking the main cities in both license areas and providing dark fiber and bandwidth services to end customers and other carriers. Commenting on the financial strategy and business update, Chief Executive Jim Forbes said 'Scottish and Southern Energy offers shareholders a unique combination of sustained real dividend growth without damaging dividend cover and a strong balance sheet. We are also well on our way to delivering the synergy benefits of the merger, maintaining our position as the benchmark company for both efficiency and customer service. With our strong performance in the competitive market, Scottish and Southern Energy now has the second largest energy supply business in the UK. Leaving the group exceptionally in a good position due to this it can look around and exploit the opportunities that knocks on it doors especially the ones which will be emerging in the next phase of development of the UK utility market and here the major role would of the confidence of the company. It also powerfully differentiates Scottish and Southern Energy as an asset proposition in the utility sector. So it can be said that SSE is no doubt a very good candidate if some one wants to invest their money into it. Financial Performance In the report of 2009 /2010, the chairman of SSE, the Lord Smith of Kelvin said these words about the financial position of the company: “Although it was a very demanding year, SSE was able to deliver sound financial and operational performance in 2009/10, with good progress being made in all aspects of the company including electricity generation, energy supply, networks, gas storage and other such energy services. Customer service standards were also maintained on a good level, and we are working hard to make them better still.” “SSE’s market-based and different economically-regulated energy businesses provide a large platform from which to deliver maintained real growth in the dividend, through increasing value from operations and creating proper value from investments. This balance, together with excellent performance, has enabled us to give a 6.1% increase in the full-year dividend for 2009/10, to 70 pence per share.” “Our commitment to sustained real growth in the dividend is stronger than ever. Having analyzed the progress made over the past few years, and the options available for growth that have been developed for the coming years, the Board has decided that SSE’s new dividend target should have at least 2% increase, more than inflation in every one of the three years to 2013, with our commitment to continuous real growth continuing. The achievement of all these targets will mean that SSE will have delivered 14 one after the other, annual above-inflation dividend increases.” “The next few years will present some major challenges, including fast evolving energy markets. Our strategy of balancing market-based and businesses that are economically regulated gives SSE an in-built resilience and a vast area of opportunities to be able to achieve the new dividend targets to 2013, as well as the ability to build on them with further real growth in the following years.” If the above statement has to be analyzed it can said that the core purpose of the company is to provide people with energy in a way that is reliable and sustainable. And if its strategy has to be seen then it can be said that the strategy of SSE is to deliver constant real growth in the form of dividend payable to its shareholders through the well-organized process of an investment in a balanced range of market-based and businesses that are economically regulated in energy production, storage, distribution, supply and related services, majorly in the UK and Ireland. Execution of the strategy which has been discussed above is the reason due to which SSE has unshakable financial principles. Those principles that are being so much praised are as follows: effectual administration of the main businesses; preservation of a well-built balance sheet; Thorough examination to make sure reserves are well-founded and, if suitable, innovative. consumption of a selective and closely controlled approach towards acquisitions Use of purchases made in the market of the Company’s own shares as the main point alongside which financial decisions are made. It is the function of these doctrines which wires the completion of SSE’s first duty to shareholders: as every one knows that is the delivery of sustained real dividend growth. Because if the dividend growth isn’t good enough nobody would like to invest in the company even though it has a variety in which one can invest The advantages which are being gained bye the SSE’s strategies are as follows: Even though the main business of SSE is the energy sector, it still has a very diverse range in which it is experimenting. And in these diverse of range of businesses in which it is experimenting it has a great amount of assets. And due to this diversity factor, SSE has a great amount of range to where it can invest.( Scottish and Southern Energy plc Financial report for the year to 31 March 2010, 2010). Summary of the analysis In London stock exchange SSE is the only company that has and could operate economically-regulated businesses, which is the electricity network and it also possesses market based businesses which is the production and supply of electricity and energy, in the whole United Kingdom. This means it is able to follow operational, asset or attainment opportunities all through the sector of gas and electricity to attain time after time the levels of success required to hold up constant real dividend growth. All this also means that SSE has the ability to derive stable and more expected levels of revenue from very little of its activities and more erratic levels from most of the others, because of this there is great potential of growth for the company .The consequences of this balancing act has been that SSE has superior resilience to risks connected with shorter-term trends or troubles and problems within its region or the wider financial system than do other organizations with less variety within their business model. References Dake, A.M. (2002). A Better Future with Globalization? Interview with DAVID KORTEN. [Online]. Available at < http://www.paraview.com/features/korten.htm> Scottish and Southern Energy plc Annual Report. 2010. Scottish and Southern Energy plc Annual Report 2010. [Online] . Available at < www.scottish-southern.co.uk/.../2010AnnualReportAndAccounts.pdf> Scottish and Southern Energy plc Financial report for the year to 31 March 2010. 2010. Scottish and Southern Energy plc Financial report for the year to 31 March 2010. [Online] . Available at < http://investorcentre.scottish-southern.co.uk/pdf/SSE_PRELIMINARY_RESULTS_2010.pdf> Read More