REG - SSE Plc - Half-year Report <Origin Href="QuoteRef">SSE.L</Origin> - Part 6
08/11/2017 07:06
- Part 6: For the preceding part double click ID:nRSH8580Ve
307.3 Net gains on disposals of businesses and other assets - -
59.1 Fair value uplift on loss of control - 59.1
366.4 - 59.1
Joint ventures and associates:
19.5 Effect of change in UK corporation tax on deferred tax liabilities and assets - 23.2
1.7 Movement on derivatives (net of tax) 1.7 0.6
21.2 1.7 23.8
214.0 Operating profit 31.0 245.0
Finance costs
52.6 Movement on financing derivatives (note 16) (24.0) (20.2)
266.6 Profit before taxation 7.0 224.8
(i) Restated to include the Clyde fair value uplift of £59.1m. See note 4.2 (iii).
6. Exceptional items and certain re-measurements (continued)
6.1 Exceptional items
Reversal of previous Dogger Bank impairment
On 1 September 2017 the Group confirmed the formation of a 50:50 joint venture with Statoil to progress three of the four
consented c. 1.2GW offshore wind projects in the Dogger Bank area. As a result of the formation of the JV and the renewed
commitment to the project, the Group has reversed a previous impairment charge of £7.9m. The reversal of impairment, while
not exceptional by size, has been recognised as an exceptional credit as it was originally charged within the 2013/14
impairment of SSE's offshore wind portfolio, which was treated as exceptional at the time.
Exceptional items recognised in the previous financial year
In the previous financial year, a number of exceptional charges and credits were recognised following impairment reviews
and disposal transactions. Details of those exceptional items are noted. No exceptional charges or credits have been
recorded in the period to 30 September 2016.
(i) Gas production - Significant impairment charges associated with the Group's North Sea gas production assets were
recognised in the year ended 31 March 2017. An exceptional charge of £180.5m was recognised in relation to the Greater
Laggan field following a reduction in the independently assessed quantity of proven and probable (2P) hydrocarbon reserves.
In addition, an impairment charge of £63.8m was recognised in relation to the Bacton field assets, predominantly as a
result of higher than previously assessed decommissioning costs, which were deemed to be irrecoverable during its remaining
economic life. Offsetting these impairment charges was an exceptional credit of £20.0m in relation to previously impaired
intangible development assets in the Greater Laggan development area, which were written back following the identification
of additional prospective resources in the area.
(ii) Retail and other technology developments - In the year ended 31 March 2017 the Group decided to cease development of
its replacement customer service and billing system. As a result of this strategic decision, all amounts capitalised in
relation to the development of the system and related software and hardware were impaired. This resulted in an exceptional
impairment charge of £83.1m being recognised in the year. At the same time the Group conducted a detailed review of related
technology development projects and identified a further £37.2m of development costs within projects that would be
discontinued. These impairments were recognised against both intangible development projects (£78.1m) and property, plant
and equipment (£42.2m).
(iii) Gas storage - During the year ended 31 March 2017 management revised their estimate of the decommissioning costs of
the Aldbrough and Atwick gas storage sites. This resulted in an additional decommissioning provision of £23.8m being
recognised. The associated increase in decommissioning asset was impaired due to the ongoing issues at the plants, in
common with previous assessments of those facilities.
(iii) Thermal generation - As part of the Group's impact assessment of the changes to the Integrated Single Electricity
Market (I-SEM) on the island of Ireland, the Group impaired its oil burning stations at Rhode and Tawnaghmor by £30.7m in
total. In the year to 31 March 2017 the Fiddlers Ferry power station was operational more than expected due to the securing
of a contract to provide ancillary capacity services for a year to March 2017 in addition to positive dark spread margins
in that period. As a result of the unexpected running, the plant was able to utilise previously impaired coal stocks and
reversed a previous inventory impairment of £62.3m.
(iv) Other - Following reassessment of The Energy Services Group's ('ESG') deployment within SSE, the Group concluded that
an impairment adjustment of £36.4m was necessary against the goodwill recognised on acquisition. In addition, the Group
assessed its position in relation to various legal claims and disputes. Consequently, a number of exceptional charges
(£18.2m) and credits (£20.0m) were recognised. These were classified as exceptional as they were previously recognised as
such within the financial statements, or based on their characteristics. The net impact of those items was an exceptional
credit of £1.8m.
6.2 Certain re-measurements
The Group enters into forward commodity purchase (and sales) contracts to meet the future demand requirements of its Energy
Supply business and to optimise the value of its Generation and other Wholesale assets. Certain of these contracts are
determined to be derivative financial instruments under IAS 39 and as such are required to be recorded at their fair value.
Changes in the fair value of those commodity contracts designated as IAS 39 financial instruments are reflected in the
income statement (as part of 'certain re-measurements'). The Group shows the change in the fair value of these forward
contracts separately as this mark-to-market movement is not relevant to the underlying performance of its operating
segments. The Group will recognise the underlying value of these contracts as the relevant commodity is delivered, which
will predominately be within the subsequent 12 to 36 months. Conversely, commodity contracts that are not financial
instruments under IAS 39 are accounted for as 'own use' contracts. The re-measurements arising from IAS 39 are disclosed
separately to aid understanding of the underlying performance of the Group. This category also includes income statement
movement on financing derivatives (and hedged items) as described in Note 16.
7. Net finance costs
Year ended 31 March 2017 Six months ended 30 September 2017 Six months ended 30 September 2016
£m £m £m
Finance income:
1.8 Interest income from short term deposits 5.1 1.0
20.5 Foreign exchange translation of monetary assets and liabilities - 19.8
Other interest receivable:
12.7 Scotia Gas Networks loan stock 7.7 11.5
33.2 Other joint ventures and associates 18.2 16.4
25.5 Other receivable 13.6 11.8
71.4 39.5 39.7
93.7 Total finance income 44.6 60.5
Finance costs:
(28.9) Bank loans and overdrafts (13.0) (15.9)
(275.4) Other loans and charges (156.0) (134.0)
(4.0) Interest on net pension scheme assets/(liabilities) 1.2 (6.7)
(14.2) Notional interest arising on discounted provisions (8.1) (7.4)
(33.1) Finance lease charges (15.4) (16.5)
45.4 Less: interest capitalised 23.5 19.6
(310.2) Total finance costs (167.8) (160.9)
52.6 Changes in fair value of financing derivative assets or liabilities at fair value through profit or loss (24.0) (20.2)
(163.9) Net finance costs (147.2) (120.6)
Presented as:
93.7 Finance income 44.6 60.5
(257.6) Finance costs (191.8) (181.1)
(163.9) Net finance costs (147.2) (120.6)
Adjusted net finance costs are arrived at after the following adjustments:
Year ended 31 March 2017 Six months ended 30 Six months ended 30
September September2016
2017
£m £m £m
(163.9) Net finance costs (147.2) (120.6)
(add)/less:
Share of interest from joint ventures and associates:
(12.7) Scotia Gas Networks loan stock (7.7) (11.5)
(102.0) Other jointly controlled entities and associates (44.5) (55.6)
(114.7) (52.2) (67.1)
3.1 Interest on pension scheme (assets)/liabilities (1.2) 6.1
(52.6) Movement on financing derivatives (note 16) 24.0 20.2
(328.1) Adjusted net finance costs (176.6) (161.4)
14.2 Notional interest arising on discounted provisions 8.1 7.4
33.1 Finance lease charges 15.4 16.5
(119.3) Hybrid coupon payment (57.4) (73.9)
(400.1) Adjusted net finance costs for interest cover calculations (210.5) (211.4)
8. Taxation
The income tax expense reflects the anticipated effective rate of tax on profits before taxation for the Group for the year
ending 31 March 2018, taking account of the movement in the deferred tax provision in the period so far as it relates to
items recognised in the income statement. The reported tax rate on the profit before tax before exceptional items and
certain re-measurements is 11.1% (2016 - 19.8%, March 2017 - 10.8%). The reported tax rate on the profit before tax after
exceptional items, including the effect of changes in tax rate, and certain re-measurements was 11.2% (2016 - 9.7%(i),
March 2017 - 3.3%).
The total adjusted effective rate of tax on profits before taxation excluding exceptional items, certain re-measurements,
deferred tax associated with interest on net pension liabilities under IAS 19R and adjusted for tax on associates and
jointly controlled entities for the period can be represented as follows:
Year ended 31 March 2017 Six months ended 30 Six months ended 30
September September
2017 2016
Adjusted effective rate:
10.2% Current tax 9.3% 12.0%
2.7% Deferred tax 5.2% 6.0%
12.9% 14.5% 18.0%
(i) Restated to include the Clyde fair value uplift of £59.1m as an exceptional item. See note 4.2 (iii).
9. Dividends
Ordinary dividends
Year ended 31 March 2017 Six months ended 30 September 2017 Six months ended 30 September 2016
Total £m Settled via scrip £m Pence per ordinary share Total£m Settledvia scrip Pence per ordinary share Total £m Settledvia scrip £m Pence per ordinary share
£m
- - - Final - year ended 31 March 2017 638.3 324.5 63.9 - - -
277.1 95.3 27.4 Interim - year ended 31 March 2017 - - - - - -
629.5 142.6 62.5 Final- year ended 31 March 2016 - - - 629.5 142.6 62.5
906.6 237.9 638.3 324.5 629.5 142.6
The final dividend of 63.9p per ordinary share declared in the financial year ended 31 March 2017 (2016 - 62.5p) was
approved at the Annual General Meeting on 20 July 2017 and was paid to shareholders on 22 September 2017. Shareholders were
able to elect to receive ordinary shares credited as fully paid instead of the interim cash dividend under the terms of the
Company's scrip dividend scheme.
An interim dividend of 28.4p per ordinary share (2016 - 27.4p) has been proposed and is due to be paid on 16 March 2018 to
those shareholders on the SSE plc share register on 18 January 2018. The proposed interim dividend has not been included as
a liability in these financial statements. A scrip dividend will be offered as an alternative.
10. Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 September 2017 is based on the net profit attributable to ordinary
shareholders and the weighted average number of ordinary shares outstanding during the period ended 30 September 2017. All
earnings are from continuing operations.
Adjusted earnings per share
Adjusted earnings per share has been calculated by excluding the charge for deferred tax, the interest on net pension
liabilities under IAS 19R and the impact of exceptional items and certain re-measurements.
Year ended 31 March 2017 Six months ended (Restated)Six months ended
30 September 2017 30 September 2016
Earnings£m Earnings per sharepence Earnings£m Earnings per sharepence Earnings(i)£m Earnings per share(i)pence
1,599.5 158.4 Basic 299.8 29.8 535.3 53.1
(372.6) (36.9) Exceptional items and certain re-measurements (note 6) (5.9) (0.6) (248.2) (24.6)
1,226.9 121.5 Basic excluding exceptional items and certain re- measurements 293.9 29.2 287.1 28.5
Adjusted for:
4.0 0.4 Interest on net pension scheme liabilities (note 7) (1.2) (0.1) 6.7 0.7
(0.9) (0.1) Share of interest on net pension liabilities in joint venture - - (0.6) (0.1)
36.9 3.7 Deferred tax 21.9 2.2 24.6 2.4
2.0 0.2 Deferred tax from share of joint ventures and associates (0.4) (0.1) 27.0 2.7
1,268.9 125.7 Adjusted 314.2 31.2 344.8 34.2
1,599.5 158.4 Basic 299.8 29.8 535.3 53.1
- (0.2) Dilutive effect of convertible debt and share options - - - (0.1)
1,599.5 158.2 Diluted 299.8 29.8 535.3 53.0
The weighted average number of shares used in each calculation is as follows:
Year ended 31 March 2017Number of shares(millions) Six months ended 30 September 2017Number of shares (millions) Six months ended 30 September 2016Number of shares(millions)
1,009.7 For basic and adjusted earnings per share 1,005.3 1,008.0
1.4 Effect of exercise of share options 1.5 1.7
1,011.1 1,006.8 1,009.7
(i) Restated to include the Clyde fair value uplift of £59.1m as an exceptional item. See note 4.2 (iii)
11. Acquisitions, disposals and held for sale
Significant disposals
Clyde windfarm - On 28 August 2017 the Clyde Extension windfarm, comprising 54 turbines generating an additional 172.8MW,
reached its Commercial Operation Date. In March 2016, SSE announced the initial sale of 49.9% of Clyde Windfarm (Scotland)
Limited ("Clyde") equating to 349.6MW of the existing operational wind farm. It was agreed between the partners that when
Commercial Operation began, the equity stake in Clyde jointly owned by Greencoat UK Wind Plc ("UKW") and GLIL
Infrastructure LLP ("GLIL") would be diluted from 49.9% to 30%, with the Group retaining 70%. Due to the contractual
agreement between the parties, the Group assessed that dilution did not give rise to a change in control, therefore Clyde
remains an equity accounted joint venture.
On 4 September 2017 the Group completed the disposal of a further 5.0% equity stake in Clyde to the existing joint venture
partners for consideration of £67.8m, recognising a gain on sale of £24.0m. At 30 September 2017, the Group's shareholding
in Clyde was therefore 65% with UKW and GLIL jointly owning 35%.
As part of that disposal agreement, UKW and GLIL also have the option to buy a further 14.9% of Clyde, equating to 77.8MW,
for a cash consideration of £202.2 million, before costs. This option can be exercised between 1 April 2018 and 30 June
2018 and would result in SSE's equity share in Clyde reducing to 50.1% with UKW and GLIL owning the remaining 49.9%. As a
result, 14.9% of the Group's investment in Clyde has been presented as held for sale within these Interim Statements.
Ferrybridge MFE2 - On 7 September 2017, the Group disposed of a 50% equity stake in its subsidiary Ferrybridge MFE2 Limited
to Wheelabrator Technologies Inc. for consideration of £62.5m, recognising nil gain/(loss) on disposal. The Group disposed
of a subsidiary on the date it lost control and acquired a joint venture which it then recognised at fair value under the
principles of both IFRS 3 'Business Combinations' and IFRS 11 'Joint Arrangements'. A gain of £6.7m was recognised on
acquisition of the joint venture following the fair value assessment. The Group's 50% interest in Ferrybridge MFE2 was
classified as held for sale at 31 March 2017.
Prior period disposals
In the period to 30 September 2016, the Group disposed of £43.5m of smart meter assets to Meter Fit 10 Limited for cash
consideration equal to book value resulting in nil gain/(loss) on disposal and, at the same time, entered into a contract
with the purchaser for meter asset services.
In the financial year to 31 March 2017, in addition to the disposal noted in the period to 30 September 2016, the Group
completed the disposal of a 16.7% equity stake in Scotia Gas Networks (SGN) to wholly owned subsidiaries of the Abu Dhabi
Investment Authority (ADIA). Cash consideration of £615.1m was received and an exceptional gain on sale of £307.3m was
recognised on disposal. In May 2016, the Group also recognised a £20.3m gain on disposal of 10% of Beatrice Offshore
Windfarm Limited for consideration of £31.7m to joint venture partners CI Beatrice I Limited and CI Beatrice II Limited.
On 30 March 2017 the Group completed the disposal of its stake in three Tay Valley Streetlighting joint ventures in Leeds,
Stoke and Newcastle to DIF Infra 4 UK Limited for net consideration of £40.4m, resulting in a gain on sale of £2.2m.
Held for sale assets
A number of assets and liabilities associated with activities are deemed available for immediate sale and have been
separately presented on the face of the balance sheet at 30 September 2017. The assets have been stated at the lower of
cost or fair value less costs to sell.
March2017 September 2017 September 2016
£m £m £m
63.6 Property plant and equipment - -
- Equity investments in joint ventures and associates 44.9 214.4
- Loans to joint ventures and associates 85.3 89.1
2.7 Derivative financial assets - -
66.3 Non-current assets 130.2 303.5
- Trade and other receivables - 103.0
4.1 Derivative financial assets - -
4.1 Current assets - 103.0
70.4 Total assets 130.2 406.5
- Trade and other payables - (6.6)
- Current liabilities - (6.6)
- Loans and borrowings - (104.8)
(1.4) Deferred tax liabilities - -
(1.4) Non-current liabilities - (104.8)
(1.4) Total liabilities - (111.4)
69.0 Net assets 130.2 295.1
11. Acquisitions, disposals and held for sale (continued)
Held for sale assets (continued)
The assets and liabilities classified as held for sale at 30 September 2017 are the Group's 14.9% equity interest in Clyde
Windfarm (Scotland) Limited (see 'Significant Disposals'). The joint venture partners Greencoat UK Wind Holdco Limited and
GLIL Corporate Holdings Limited have a non-transferrable option to purchase a further 14.9% equity stake in the joint
venture for consideration of £202.2m between 1 April 2018 and 30 June 2018.
At 31 March 2017, the Group classified 50% of its share of Ferrybridge MFE2 Limited assets and liabilities as held for
sale. The Group's 50% share was disposed on 7 September 2017.
The assets and liabilities identified as held for sale at 30 September 2016 relate to the Group's 16.7% equity stake in
Scotia Gas Networks (SGN), which was sold to the Abu Dhabi Investment Authority (AIDA) on 26 October 2016 for headline
consideration of £621.0m, in addition to the Group's investment in three remaining UK PFI street lighting companies. The
sale of the Group's stake in the Tay Valley streetlighting projects to DIF Infra 4 UK Limited for consideration of £40.4m
was completed on 30 March 2017, resulting in a gain on sale of £2.2m.
Total disposals
The following table summarises all businesses and assets disposed of during the financial year including the significant
disposals referred to above. The table differentiates the disposals of previously 'held for sale' assets and businesses
from other disposals which include other assets and investments disposed of as part of the normal course of business.
March2017 September2017 September2016
£m £m £m
Net proceeds of disposal
75.1 - Previously held for sale 62.5 43.5
667.0 - Not held for sale 58.2 -
- - Receipt of deferred consideration on Beatrice divestment - 32.7
.
(2.8) Provisions - -
739.3 Total cash proceeds 120.7 76.2
12. Sources of finance
Capital management
The Board's policy is to maintain a strong balance sheet and credit rating so as to support investor counterparty and
market confidence and to underpin future development of the business. The Group's credit ratings are also important in
maintaining an efficient cost of capital and in determining collateral requirements throughout the Group. Based on latest
assessment, the Group's long term credit rating was improved from A- negative to A- stable outlook by Standard & Poor's,
and was A3 stable outlook for Moody's. Further detail of the capital management objectives, policies and procedures are
included in the 'Financial management and balance sheet' section of the Strategy and Finance section of this report.
The maintenance of a medium-term corporate model is a key control in monitoring the development of the Group's capital
structure, and allows for detailed scenarios and sensitivity testing. Key ratios drawn from this analysis underpin regular
updates to the Board and include the ratios used by the rating agencies in assessing the Group's credit ratings.
The Group has the option to purchase its own shares on the market; the timing of these purchases depends on market prices
and economic conditions. The use of share buy-backs shall be implemented if the Directors believe that doing so would be in
the best interests of shareholders. Following the disposal of 16.7% of the Group's stake in Scotia Gas Networks last year,
this method of returning capital to shareholders could have the advantage of offsetting the earnings per share (EPS)
reduction resulting from the disposal and reducing the total dividend outflow in future years. Under the share buyback
programme announced on 11 November 2016, 16.7m shares were repurchased and cancelled in the six months to 30 September 2017
for a total consideration of £245.5m with a further 1.8m repurchased and held in treasury for a total consideration of
£25.0m (2016 - nil; March 2017 - 8.9m shares repurchased and cancelled for a total consideration of £131.5m).
The Group's debt requirements are principally met through issuing bonds denominated in Sterling and Euros as well as
private placements and medium term bank loans including those with the European Investment Bank. In addition, the Group has
issued hybrid capital securities which bring together features of both debt and equity, are perpetual and subordinate to
all senior creditors. The Group has £1.7bn of committed bank facilities which relate to the Group's revolving credit,
bilateral facility and EIB facility. £1.5bn of these facilities can be accessed at short notice for use in managing the
Group's short term funding requirements; however, these committed facilities remain undrawn for the majority of the time.
The remaining £200m EIB facility will be drawn before 31 March 2018 when it will become a 10 year term loan.
12. Sources of Finance (continued)
Capital management (continued)
The Group's intent is to balance returns to shareholders between current returns through dividends and long-term capital
investment for growth. The Group will continue to maintain its capital discipline and will continue to operate within the
current economic environment prudently. There were no changes to this capital management approach during the period.
March2017 September2017 September2016
£m £m £m
7,805.5 Total borrowings (excluding finance leases) 8,272.4 7,132.1
(1,427.0) Less: Cash and cash equivalents (1,199.6) (257.9)
6,378.5 Net debt (excluding hybrid equity) 7,072.8 6,874.2
2,209.7 Hybrid equity 2,209.7 2,209.7
(105.2) Cash held as collateral and other short-term loans (36.7) (88.5)
8,483.0 Adjusted net debt and hybrids 9,245.8 8,995.4
4,062.8 Equity attributable to shareholders of the parent 3,865.8 2,753.3
12,545.8 Total capital excluding finance leases 13,111.6 11,748.7
13. Loans and other borrowings
March2017 September2017 September2016
£m £m £m
Current
118.8 Other short-term loans 106.0 313.5
23.6 Obligations under finance leases 28.5 25.3
142.4 134.5 338.8
Non current
7,686.7 Loans 8,166.4 6,818.6
253.3 Obligations under finance leases 237.0 265.3
7,940.0 8,403.4 7,083.9
8,082.4 Total loans and borrowings 8,537.9 7,422.7
(1,427.0) Cash and cash equivalents (1,199.6) (257.9)
6,655.4 Unadjusted net debt 7,338.3 7,164.8
Add/(less):
2,209.7 Hybrid equity (note 14) 2,209.7 2,209.7
(276.9) Obligations under finance leases (265.5) (290.6)
(105.2) Cash held as collateral (36.7) (88.5)
8,483.0 Adjusted Net Debt and Hybrid Capital 9,245.8 8,995.4
SSE's adjusted net debt and hybrid capital was £9.2bn at 30 September 2017, compared with £8.5bn on 31 March 2017 and
£9.0bn on 30 September 2016. The increase in net debt and hybrid capital reflects SSE's ongoing investment programme.
In September 2017, SSE issued an inaugural Green Bond - an 8 year E600m Euro Bond with a coupon of 0.875% and an all in
cost of 0.98%. The total Bond will be denominated in euros to be used as a net investment hedge against the Group's assets
in the Republic of Ireland. In order to maintain the correct level of euro denominated debt against the Republic of Ireland
assets, E400m of the 2% June 2020 Bond was swapped to Sterling prior to issuance of the bond which increased the all in
cost of that portion of the E600m bond to 2.99%.
Adjusted net debt and hybrid capital is stated after removing obligations on finance leases and cash held as collateral in
line with the Group's presentation basis which is explained at Note 2(ii). Cash held as collateral refers to amounts
deposited on commodity trading exchanges which are reported within Trade and other receivables on the face of the balance
sheet.
In addition, the Group has an established E1.5bn Euro commercial paper programme (paper can be issued in a range of
currencies and swapped into Sterling). The Group has £1.7bn (September 2016 - £1.5bn) of committed credit facilities in
place. During the six months to September 2017 SSE exercised the second, and last, one year extension option on the £1.3bn
revolving credit facility meaning this will mature in July 2022. The £200m bilateral facility has a similar extension
option and this has been exercised in October 2017 meaning this will mature in November 2022. The £200m EIB facility that
was signed in March 2017 has a one year availability period and it is SSE's intention to draw that facility in the second
half of the year when it will become a 10 year term loan. At 30 September 2017, all of these facilities were undrawn.
Included within loans and borrowings at 30 September 2017 is £1.0bn (2016 - nil, March 2017 - £1.0bn) of hybrid debt
securities issued on 16 March 2017 with an issuer first call date on 16 September 2022. The dual tranche issuance comprised
£300m with a coupon of 3.625% and $900m with a coupon of 4.75%. The $900m tranche was swapped to both Euros and Sterling,
bringing the all-in rate down to 2.72% and resulting in an all-in funding cost for both tranches of 3.02% per annum. The
purpose of these instruments is to use the proceeds to replace SSE's hybrid equity instruments issued in 2012 (at an all-in
rate of 5.6%) which has an issuer call date on 1 October
13. Loans and other borrowings (continued)
2017 (see Note 14 (i)). Due to the instruments having a fixed redemption date, they have been accounted for as debt and are
included within loans and borrowings. This is in contrast to the previous hybrid issues which have had no fixed redemption
date and were accounted for as equity.
14. Hybrid Equity
March 2017 September 2017 September 2016
£m Perpetual subordinated capital securities £m £m
427.2 USD 700m 5.625% perpetual subordinated capital securities (i) 427.2 427.2
598.2 EUR 750m 5.625% perpetual subordinated capital securities (i) 598.2 598.2
748.3 GBP 750m 3.875% perpetual subordinated capital securities (ii) 748.3 748.3
436.0 EUR 600m 2.375% perpetual subordinated capital securities (ii) 436.0 436.0
2,209.7 2,209.7 2,209.7
The purpose of the SSE's hybrid capital programme is to strengthen SSE's capital base and complement other sources of
finance. Further commentary is provided in the Capital Management section of Note 12.
(i) 18 September 2012 E750m and US$700m Hybrid Capital Bonds
Each bond has no fixed redemption date but the Company may, at its sole discretion, redeem all, but not part, of these
capital securities at their principal amount. The date for the discretionary redemption of the capital issued on 18
September 2012 is 1 October 2017 and every five years thereafter.
For the E750m capital issued on 18 September 2012, coupon payments are expected to be made annually in arrears on 1 October
in each year. For the US$700m capital issued on 18 September 2012, coupon payments are expected to be made bi-annually in
arrears on 1 April and 1 October each year.
On 2 October 2017, following the period end date, the Group redeemed all of the capital securities at their principal
amount. The funding has been replaced by a debt accounted £1.0bn instrument issued on 16 March 2017 (see Note 13).
(ii) 10 March 2015 £750m and E600m hybrid Capital Bonds
The March 2015 hybrid capital bonds have no fixed redemption date, but the Company may, at its sole discretion, redeem all,
but not part, of the capital securities at their principal amount. The date for the first potential discretionary
redemption of the £750m hybrid capital bond is 10 September 2020 and then every 5 years thereafter. The date for the first
discretionary redemption of the E600m hybrid capital bond is 1 April 2021 and then every 5 years thereafter.
For the £750m capital issued coupon payments are made annually on 10 September, and for the E600m capital issued coupon
payments are made annually on 1 April.
(iii) Coupon Payments
In relation to the $700m hybrid capital bond, coupon payments of £10.7m (2016 - £11.5m) were made on 1 April 2017 and of
£10.5m (2016 - £11.8m) on 2 October 2017. In relation to the E750m hybrid capital bond a coupon payment of £30.6m (2016 -
£33.6m) was made on 2 October 2017.
In relation to the E600m hybrid capital bond a coupon payment of £17.6m (2016 - £18.6m) was paid on 1 April 2017 and for
the £750m hybrid capital bond a coupon payment of £29.1m (2016 - £43.8m) was paid on 10 September 2017.
The coupon payments in the six month period to 30 September 2017 consequently totalled £57.4m (2016 - £73.9m) with a
further £41.1m (2016 - £45.4m) being paid on 2 October 2017.
The Company has the option to defer coupon payments on the bonds on any relevant payment date, as long as a dividend on the
ordinary shares has not been declared. Deferred coupons shall be satisfied only in the following circumstances, all of
which occur at the sole option of the Company:
-- redemption; or
-- dividend payment on ordinary shares.
Interest will accrue on any deferred coupon.
15. Share capital
Number(millions) £m
Allotted, called up and fully paid:
At 1 April 2017 1,015.6 507.8
Issue of shares 23.6 11.8
Shares repurchased and cancelled (16.7) (8.3)
At 30 September 2017 1,022.5 511.3
The Company has one class of ordinary share which carries no right to fixed income. The holders of ordinary shares are
entitled to receive dividends as declared and are entitled to one vote per share at meetings of the Company.
Shareholders were able to elect to receive ordinary shares in place of the final dividend for the year to 31 March 2017 of
63.9p (2016 - 62.5p in relation to the final dividend for the year to 31 March 2016; 27.4p - March 2017, in relation to the
interim dividend for the year to 31 March 2017) per ordinary share under the terms of the Company's scrip dividend scheme.
This resulted in the issue of 23,497,675 (September 2016 - 9,395,092, March 2017 - 6,324,986) new fully paid ordinary
shares.
In addition, the Company issued 0.1m shares (2016 - 0.1m, March 2017 - 1.2m) during the period under the savings-related
share option schemes, and discretionary share option schemes for a consideration of £1.1m (2016 - £0.9m, March 2017 -
£13.8m).
Under the share buyback programme announced on 11 November 2016, 16.7m shares were repurchased and cancelled in the six
months to 30 September 2017 for a total consideration of £245.5m (2016 - nil; March 2017 - 8.9m shares repurchased for a
total consideration of £131.5m).
As part of the same share buyback programme the Group has purchased 1.8m shares (2016 - nil, 31 March 2017 - nil) for total
consideration of £25.0m in the six months to 30 September 2017 to be retained as treasury shares. These shares will be held
by the Group and used to award shares to employees under the Sharesave scheme in the UK.
In total, since the announcement of the £500m share buyback scheme on 11 November 2016, the Group has purchased 27.4m
shares for consideration of £402.0m.
During the period, on behalf of the Company, the employee share trust purchased 0.9 million shares (2016 - 0.3 million,
March 2017 - 0.8 million) for a consideration of £12.6m (2016 - £5.0m, March 2017 - £12.6m) to be held in trust for the
benefit of employee share schemes.
16. Financial Risk Management
The Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Risk
Committees in the Wholesale and Retail businesses, both of which report directly to the Executive Committee, support the
Group's risk management responsibilities by reviewing the strategic, market, credit, operational and liquidity risks and
exposures that arise from the Group's energy portfolio management, generation and energy supply operations. The Risk
Committees of Wholesale and Retail are designed to ensure strict business separation requirements are maintained. In
addition the Group's Tax and Treasury committee has oversight of the Group's credit exposures and reports directly to the
Finance Director.
The Group's policies for risk management are established to identify the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. These policies, and the systems used to monitor
activities, are reviewed regularly by the Group's Risk Committees.
Exposure to the commodity, currency and interest rate risks noted arise in the normal course of the Group's business and
derivative financial instruments are entered into to hedge exposure to these risks. The objectives and policies for holding
or issuing financial instruments and similar contracts, and the strategies for achieving those objectives that have been
followed during the period remain as stated in the Group's financial statements at March 2017.
In the six months to 30 September 2017, the Group continued to be exposed to difficult economic conditions. In reference to
credit risk, the impairment provision for credit losses remained at the same level as March 2017. The Group has continued
to commit significant internal resource to managing credit risk in the period.
The Group's policy in relation to liquidity risk continues to be to ensure, in so far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to its reputation. Further detail is noted in the Group's financial statements at
March 2017.
For financial reporting purposes, the Group has classified derivative financial instruments into two categories, operating
derivatives and financing derivatives. Operating derivatives relate to all qualifying commodity contracts including those
for electricity, gas, oil, coal and carbon. Financing derivatives include all fair value and cash flow interest rate
hedges, non-hedge accounted (mark-to-market) interest rate derivatives, cash flow foreign exchange hedges and non-hedge
accounted foreign exchange contracts. Non-hedge accounted contracts are treated as held for trading.
16. Financial Risk Management (continued)
The net movement reflected in the interim income statement can be summarised as follows:
Year ended 31 March 2017£m Six months ended 30 September 2017£m Six months ended 30 September 2016£m
Operating derivatives
(438.6) Total result on operating derivatives (i) (293.6) (501.6)
639.6 Less: amounts settled (ii) 315.0 663.7
201.0 Movement in unrealised derivatives 21.4 162.1
Financing derivatives (and hedged items)
(136.3) Total result on financing derivatives (i) (213.1) 8.6
188.9 Less: amounts settled (ii) 189.1 (28.8)
52.6 Movement in unrealised derivatives (24.0) (20.2)
253.6 Net income statement impact (2.6) 141.9
(i) Total result on derivatives (and hedged items) in the income statement represents the total amounts (charged) or
credited to the income statement in respect of operating and financial derivatives.
(ii) Amounts settled in the period represent the result on derivatives transacted which have matured or been delivered and
have been included within the total result on derivatives.
The fair values of the primary financial assets and liabilities of the Group together with their carrying values are as
follows:
March 2017 September 2017 September 2016
Carryingvalue£m Fairvalue£m Carryingvalue£m Fairvalue£m Carryingvalue£m Fairvalue£m
Financial Assets
Current
2,598.6 2,598.6 Trade receivables 1,820.6 1,820.6 1,555.6 1,555.6
16.6 16.6 Other receivables 16.5 16.5 16.6 16.6
105.2 105.2 Cash collateral and other short term loans 36.7 36.7 88.5 88.5
1,427.0 1,427.0 Cash and cash equivalents 1,199.6 1,199.6 257.9 257.9
1,269.5 1,269.5 Derivative financial assets 1,037.4 1,037.4 1,934.9 1,934.9
5,416.9 5,416.9 4,110.8 4,110.8 3,853.5 3,853.5
Non-current
9.6 9.6 Unquoted equity investments 9.6 9.6 9.7 9.7
788.4 788.4 Loans to associates and jointly controlled entities 825.0 825.0 733.9 733.9
528.3 528.3 Derivative financial assets 515.7 515.7 760.0 760.0
1,326.3 1,326.3 1,350.3 1,350.3 1,503.6 1,503.6
6,743.2 6,743.2 5,461.1 5,461.1 5,357.1 5,357.1
Financial Liabilities
Current
(2,606.7) (2,606.7) Trade payables (1,571.3) (1,571.3) (1,477.4) (1,477.4)
(118.8) (122.3) Bank loans commercial paper and overdrafts (106.0) (106.0) (313.5) (315.8)
(23.6) (23.6) Finance lease liabilities (28.5) (28.5) (25.3) (25.3)
(1,153.2) (1,153.2) Derivative financial liabilities (1,025.0) (1,025.0) (1,814.5) (1,814.5)
(3,902.3) (3,905.8) (2,730.8) (2,730.8) (3,630.7) (3,633.0)
Non-current
(7,686.7) (8,876.5) Loans and borrowings (8,166.4) (9,297.4) (6,818.6) (8,038.2)
(253.3) (253.3) Finance lease liabilities (237.0) (237.0) (265.3) (265.3)
(703.2) (703.2) Derivative financial liabilities (693.3) (693.3) (987.4) (987.4)
(8,643.2) (9,833.0)
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