REG - SSE Plc - Preliminary results for the year to 31 March 2017 <Origin Href="QuoteRef">SSE.L</Origin> - Part 6
17/05/2017 07:06
- Part 6: For the preceding part double click ID:nRSQ3515Fe
33.2 - 33.2 18.8 - 18.8
Other receivable 25.5 - 25.5 45.0 - 45.0
71.4 - 71.4 88.1 - 88.1
Total finance income 93.7 - 93.7 101.8 - 101.8
Finance costs:
Bank loans and overdrafts (28.9) - (28.9) (27.9) - (27.9)
Other loans and charges (275.4) - (275.4) (257.1) - (257.1)
Interest on pension scheme liabilities (I) (4.0) - (4.0) (20.4) - (20.4)
Notional interest arising on discounted provisions (14.2) - (14.2) (15.7) - (15.7)
Finance lease charges (33.1) - (33.1) (34.7) - (34.7)
Less: interest capitalised (II) 45.4 - 45.4 47.6 - 47.6
Total finance costs (310.2) - (310.2) (308.2) - (308.2)
Changes in fair value of financing derivative assets or liabilities at fair value through profit or loss - 52.6 52.6 - 14.3 14.3
Net finance costs (216.5) 52.6 (163.9) (206.4) 14.3 (192.1)
Presented as:
Finance income 93.7 - 93.7 101.8 - 101.8
Finance costs (310.2) 52.6 (257.6) (308.2) 14.3 (293.9)
Net finance costs (216.5) 52.6 (163.9) (206.4) 14.3 (192.1)
i) The interest on net pension liabilities for the year ended 31 March 2017 of £4.0m (2016 - £20.4m) represents the
respective charges under IAS 19R.
ii) The capitalisation rate applied in determining the amount of borrowing costs to capitalise in the period was 4.23%
(2016 - 4.24%).
Adjusted net finance costs are arrived at after the following adjustments:
2017£m 2016£m
Net finance costs (163.9) (192.1)
(add)/less:
Share of interest from joint ventures and associates:
Scotia Gas Networks loan stock (12.7) (24.3)
Other joint ventures and associates (102.0) (102.5)
(114.7) (126.8)
Interest on pension scheme liabilities 4.0 20.4
Share of interest on net pension liabilities in joint ventures (0.9) 1.9
Movement on financing derivatives (Note 14) (52.6) (14.3)
Adjusted net finance costs (328.1) (310.9)
Notional interest arising on discounted provisions 14.2 15.7
Finance lease charges 33.1 34.7
Hybrid coupon payment (Note 12) (119.3) (124.6)
Adjusted net finance costs for interest cover calculations (400.1) (385.1)
Notes to the Preliminary Statement
for the year ended 31 March 2017
8. Taxation
Analysis of charge recognised in the income statement
Before Exceptional items and certain re-measure-ments Exceptional items and certain re-measure-ments 2017 Before Exceptional items and certain re-measure-ments Exceptional items and certain re-measure-ments 2016
£m £m £m £m £m £m
Current tax
UK corporation tax 188.0 (1.5) 186.5 180.5 (44.2) 136.3
Adjustments in respect of previous years (61.1) (9.0) (70.1) (21.2) - (21.2)
Total current tax 126.9 (10.5) 116.4 159.3 (44.2) 115.1
Deferred tax
Current year 11.8 (60.1) (48.3) 74.9 (186.8) (111.9)
Effect of change in tax rate - (35.4) (35.4) - (41.5) (41.5)
Losses carried forward recognised 86.4 - 86.4 - - -
Adjustments in respect of previous years (61.3) - (61.3) 46.4 - 46.4
Total deferred tax 36.9 (95.5) (58.6) 121.3 (228.3) (107.0)
Total taxation charge 163.8 (106.0) 57.8 280.6 (272.5) 8.1
Adjusted current tax charge
The adjusted current tax charge is arrived at after the following adjustments:
2017£m 2017% 2016£m 2016%
Group tax charge and effective rate 57.8 3.6 8.1 2.1
Add: reported deferred tax credit and effective rate 58.6 3.7 107.0 27.5
Current tax charge and effective rate 116.4 7.3 115.1 29.6
Effect of adjusting items (see below) - 0.2 - (22.0)
Current tax charge and effective rate on adjusted basis 116.4 7.5 115.1 7.6
add/(less):
Share of current tax from joint ventures and associates 30.8 2.0 34.1 2.3
Current tax on exceptional items 10.5 0.7 44.2 2.9
Adjusted current tax charge and effective rate 157.7 10.2 193.4 12.8
The adjusted effective rate is based on adjusted profit before tax being:
2017 2016
£m
Profit before tax 1,776.6 593.3
Add/(less):
Exceptional items and certain re-measurements (266.6) 858.0
Share of tax from joint ventures/associates before exceptional items and certain re-measurements 32.8 39.9
Interest on pension scheme liabilities 4.0 20.4
Share of interest on net pension liabilities in jointly controlled entities and associates (0.9) 1.9
Adjusted profit before tax 1,545.9 1,513.5
Notes to the Preliminary Statement
for the year ended 31 March 2017
9. Dividends
9.1 Ordinary dividends
Year ended 31 March 2017 Total Settled via scrip Pence per ordinary share Year ended 31 March 2016 Total Settled via scrip Pence per ordinary share
£m £m £m £m
Interim - year ended 31 March 2017 277.1 95.3 27.4 - - -
Final - year ended 31 March 2016 629.5 142.6 62.5 - - -
Interim - year ended 31 March 2016 - - - 270.5 16.3 26.9
Final - year ended 31 March 2015 - - - 613.5 159.5 61.8
906.6 237.9 884.0 175.8
The final dividend of 62.5p per ordinary share declared in the financial year ended 31 March 2016 (2015- 61.8p) was
approved at the Annual General Meeting on 21 July 2016 and was paid to shareholders on 23 September 2016. Shareholders were
able to elect to receive ordinary shares credited as fully paid instead of the cash dividend under the terms of the
Company's scrip dividend scheme.
An interim dividend of 27.4p per ordinary share (2016 - 26.9p) was declared and paid on 17 March 2017 to those shareholders
on the SSE plc share register on 20 January 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.
The proposed final dividend of 63.9p per ordinary share based on the number of issued ordinary shares at 31 March 2017 is
subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these
financial statements. Based on shares in issue at 31 March 2017, this would equate to a final dividend of £649.0m.
9.2 Earnings per Share
(i) Basic earnings per share
The calculation of basic earnings per ordinary share at 31 March 2017 is based on the net profit attributable to ordinary
shareholders and a weighted average number of ordinary shares outstanding during the year ended 31 March 2017. All earnings
are from continuing operations.
(ii) Adjusted earnings per share
Adjusted earnings per share has been calculated by excluding the charge for deferred tax, interest on net pension
liabilities under IAS 19R and the impact of exceptional items and certain re-measurements (Note 6).
Year ended 31 March 2017 Year ended 31 March 2017 Year ended 31 March 2016 Year ended 31 March 2016
Earnings£m Earnings per sharepence Earnings£m Earnings per sharepence
Basic 1,599.5 158.4 460.6 46.1
Exceptional items and certain re-measurements (Note 6) (372.6) (36.9) 585.5 58.5
Basic excluding exceptional items and certain re-measurements 1,226.9 121.5 1,046.1 104.6
Adjusted for:
Interest on net pension scheme liabilities (Note 7) 4.0 0.4 20.4 2.0
Share of interest on net pension scheme liabilities in joint venture (Note 7) (0.9) (0.1) 1.9 0.2
Deferred tax (Note 8) 36.9 3.7 121.3 12.1
Deferred tax from share of joint ventures and associates 2.0 0.2 5.8 0.6
Adjusted 1,268.9 125.7 1,195.5 119.5
Basic 1,599.5 158.4 460.6 46.1
Dilutive effect of outstanding share options - (0.2) - (0.1)
Diluted 1,599.5 158.2 460.6 46.0
Notes to the Preliminary Statement
for the year ended 31 March 2017
9 Dividends (continued)
9.2 Earnings per share (continued)
(ii) Adjusted earnings per share (continued)
The weighted average number of shares used in each calculation is as follows:
31 March 2017Number of shares(millions) 31 March 2016Number of shares(millions)
For basic and adjusted earnings per share 1,009.7 1,000.0
Effect of exercise of share options 1.4 1.2
For diluted earnings per share 1,011.1 1,001.2
9.3 Dividend cover
The Group's adjusted dividend cover metric is calculated by comparing adjusted earnings per share to the projected dividend
per share payable to ordinary shareholders.
2017 2017 2017 2016 2016 2016
Earnings per share Dividend per share Dividend Cover Earning per share Dividend per share Dividend cover
(pence) (pence) (times) (pence) (pence) (times)
Reported 158.4 91.3 1.74 46.1 89.4 0.51
Adjusted 125.7 91.3 1.38 119.5 89.4 1.34
10. Acquisitions, disposals and held-for-sale assets
10.1 Acquisitions
The Group increased its share in the Dogger Bank Offshore Wind development on 24 March 2017 following the acquisition of an
additional 12.5% stake from former consortium partner Statkraft for consideration of £15.8m. This takes SSE's share of the
project to 37.5%. Following this the Group reversed a previous impairment of £10.7m in respect of the project within other
intangible assets. The Dogger Bank offshore wind development comprises four projects which are located in the North Sea off
the east coast of England and has a potential generating capacity of up to 4,800MW. Due to the development being assessed
as being a joint operation, the purchase price has been wholly allocated against intangible development assets.
10.2 Disposals
(i) Significant disposals
On 26 October 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). After transaction costs and adjustments, cash consideration
received was £615.1m and an exceptional gain on sale of £307.3m was recognised on disposal. Following the divestment, the
Group will retain a 33.3% equity stake in SGN. These assets were not held for sale at 31 March 2016. The disposed 16.7%
stake of SGN sold contributed £34.2m to the Group's reported profits in the current financial year.
(ii) Other disposals
On 21 January 2016, the company sold a 10% share in Beatrice Offshore Windfarm Limited to CI Beatrice I Limited and CI
Beatrice II Limited split equally between the two entities for total consideration of £31.7m of which £21.2m was deferred.
The deferred element of the consideration was contingent on certain events occurring after the balance sheet date.
Following confirmation of those events, in May 2016, the Group received net cash proceeds of £31.7m which also included an
element of deferred consideration associated with a prior divestment (£10.5m). The Group consequently recognised a £20.3m
gain on disposal in the current year. This was deemed not to be exceptional due to the value being below the Group's stated
criteria for such items (see Note 3.2).
On 26 May 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. The assets disposed were held for sale at 31 March 2016.
On 30 March 2017, the Group completed the disposal of its stake in three Lighting Services PFI 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 £2.3m. This
was deemed not to be exceptional due to the value being below the Group's stated criteria for such items (see Note 3.2).
This disposal reduced the Group's reported net debt by £129.4m. These assets were held for sale at 31 March 2016.
Notes to the Preliminary Statement
for the year ended 31 March 2017
10 Acquisitions, disposals and held-for-sale assets (continued)
10.3 Disposal reconciliation
The following table summarises all businesses and assets disposed of during the financial year, including those not
previously 'held for sale' and including other assets and investments disposed of as part of the normal course of business
and which are noted in the relevant respective notes to the financial statements.
2017 2017 2016
Held for sale at March 2017 Not Held for Sale at March 2017 Total Total
Net assets disposed: £m £m £m £m
Property, plant and equipment - 15.5 15.5 44.3
Intangible and biological assets 43.5 - 43.5 11.7
Investments - joint venture and other - 326.9 326.9 -
Trade and other receivables 104.5 1.3 105.8 1.4
Trade and other payables (0.9) (6.4) (7.3) 28.8
Provisions 16.2 - 16.2 -
Loans and borrowings (90.4) - (90.4) -
Net assets 72.9 337.3 410.2 86.2
Proceeds of disposal:
Consideration 213.4 672.6 886.0 542.2
Debt reduction (129.4) - (129.4) (23.5)
Non-recourse loan (i) - - - (200.7)
Costs of disposal (6.1) (5.6) (11.7) (5.6)
Provisions (2.8) - (2.8) -
Net proceeds 75.1 667.0 742.1 312.4
-
Gain on disposal after provisions 2.2 329.7 331.9 226.2
Presentation:
Equity - - - 138.6
Income statement exceptional credit - 307.3 307.3 57.6
Income statement non exceptional credit 2.2 22.4 24.6 30.0
2017£m 2016£m
Net proceeds of disposal 742.1 312.4
Provisions (2.8) -
Proceeds of disposal per cash flow statement 739.3 312.4
Cash from Clyde transaction recorded as New Borrowings in cash flow statement - 200.7
Total cash proceeds 739.3 513.1
The debt reduction items £129.4m (2016- £23.5m) are associated with the disposal of PFI Lighting Services companies.
(i) Due to the consolidation, at 31 March 2016, of Clyde Windfarm (Scotland) Limited, the Group required to recognise
£200.7m of non-recourse borrowings due from Clyde to other shareholders. Consequently, this balance was excluded from
adjusted net debt and hybrids at that date with cash proceeds from the Clyde transaction being presented gross. The change
in consolidation status of Clyde from 13 May 2016 means that this presentation is not applicable to the 31 March 2017.
Further commentary is provided at Note 4.2 (iii).
Notes to the Preliminary Statement
for the year ended 31 March 2017
10 Acquisitions, disposals and held-for-sale assets (continued)
10.4 Held-for-sale assets and liabilities
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 31 March 2017. The assets have been stated at their fair value
less costs to sell.
The assets and liabilities classified as held for sale, and the comparative balances at 31 March 2017, are as follows:
2017 2016
£m £m
Property plant and equipment 63.6 -
Other intangible - 27.9
Derivative financial assets 2.7 -
Non-current assets 66.3 27.9
Trade and other receivables - 106.3
Derivative financial assets 4.1 -
Current assets 4.1 106.3
Total assets 70.4 134.2
Loans and borrowings - (11.2)
Trade and other payables - (5.9)
Current liabilities - (17.1)
Loans and borrowings - (97.9)
Deferred tax liabilities (1.4) -
Non-current liabilities (1.4) (97.9)
Total liabilities (1.4) (115.0)
Net assets 69.0 19.2
The Group has recognised £14.3m of operating wind farm assets as held for sale at 31 March 2017. The other held for sale
items relate to 50% of the assets and liabilities of Ferrybridge MFE 2 Limited. This subsidiary is responsible for the
development of a 70MW multi fuel power plant situated close to the Group's operating multi fuel joint venture at
Ferrybridge. SSE currently owns 100% of Ferrybridge MFE 2 Limited but has a contractual agreement, subject to various
contingent matters, to dispose of 50% of the share capital of the company to the joint venture partner of the initial multi
fuel facility. This transaction is anticipated to take place within the next year.
The aggregated pre-tax profit contribution of the held for sale assets and businesses in the year to 31 March 2017 was £nil
(2016: £1.8m).
During the prior items held for sale related to the remaining streetlighting activities of the group, these assets were
sold during March 2017. Other assets held for sale were smart meter assets, these were sold to Meter Fit 10 Limited in
April 2016.
10.5 Acquisitions and disposals in the previous year
(i) Acquisitions in the previous year
On 28 October 2016, the Group through its wholly owned subsidiary, SSE E&P UK Limited, acquired a 20% interest in the four
gas fields known as the Greater Laggan Area, along with a 20% interest in the Shetland Gas Terminal, from Total E&P UK
Limited. The cash consideration paid for the business was £669.0m.
Notes to the Preliminary Statement
for the year ended 31 March 2017
10 Acquisitions, disposals and held-for-sale assets (continued)
10.6 Disposals in the previous year
On 29 October 2015, the Group agreed to sell its shareholding in Galloper Wind Farm to its co-venturer RWE Innogy for cash
consideration of £18.3m. The gain on the disposal of £18.3m was recorded as an exceptional item. On 28 May 2015, the Group
also agreed to sell three onshore wind development sites (Cour, Blackcraig, Whiteside Hill, 98MW) to Blue Energy. Total
consideration for these assets was £52.4m. Consequently, an exceptional gain on disposal of £39.3m was recorded.
On 18 March 2016, the Group sold a 49.9% stake in its wholly owned operational 349.6MW Clyde Wind Farm to Greencoat UK Wind
Holdco Limited ("UKW") and GLIL Corporate Holdings Limited("GLIL") for cash consideration of £339.2 million after costs. At
31 March 2016, the stake held by the co-investors was deemed to be that of a non-controlling interest in an entity under
the Group's control .This key accounting judgement is explained at note 4.2 (iii). The consequence of that judgement was
that the gain recorded on disposal of £138.6m was recognised directly in equity instead of in the income statement and the
non-recourse to SSE loans in the entity required to be recorded on the Group balance sheet. Following amendments to the
shareholders agreements between SSE, UKW and GLIL on 13 May 2016, SSE changed it's accounting of Clyde Windfarm to an
equity accounted joint venture.
11. Sources of finance
11.1 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 in the Group 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. As
at 31 March 2017, the Group's long term credit rating was A- negative outlook for Standard & Poor's and A3 stable outlook
for Moody's.
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 support and
inform 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 from the market. The timing of these purchases will depend on market
prices and economic conditions. As part of the utilisation of the proceeds from its disposal of a 16.7% stake in Scotia Gas
Networks, the Group had announced on 11 November 2016 that it would commence a discretionary programme to purchase its
shares for cancellation or to be held in treasury. This programme commenced on 11 November 2016 and is due to complete no
later than 31 December 2017. The aggregate purchase price of all shares acquired under the programme will be no greater
than £500.0m and no more than 100,759,681 shares. The purpose of the programme is to reduce the share capital of the
Company. As at 31 March 2017, the Group had completed the on-market repurchase and cancellation of 8.9million of its shares
in the period to 31 March 2017 for total cash outlay of £131.5m. See further detail within Note 12.
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 the financial year the
group received £501m relating to a US private placement which was signed ahead of the 31 March 2016 year end. Also during
the financial year, the Group issued hybrid securities which bring together features of both debt and equity of £1.0bn. As
these securities have a fixed redemption date these are accounted for as debt. The securities are different from the hybrid
securities previously issued which were perpetual and subordinate to all senior creditors and which are accounted for as
equity.The Group currently has £1.7bn of committed bank facilities of which £1.5bn relates to the Group's revolving credit
and bilateral facilities that 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 £0.2bn relates
to a new EIB facility that was signed in March 17 with a 12 month drawing period that, once drawn, will convert to being a
10 year term loan. The Group's capital comprises:
2017£m 2016£m
Total borrowings (excluding finance leases) 7,805.5 6,868.0
Less : Cash and cash equivalents (1,427.0) (360.2)
Net debt (excluding hybrid equity) 6,378.5 6,507.8
Hybrid equity 2,209.7 2,209.7
Cash held as collateral and other short term loans (105.2) (121.8)
Balances due to non-controlling interest partners in Clyde Windfarm (Scotland) Ltd - (200.7)
Adjusted Net Debt and Hybrids 8,483.0 8,395.0
Equity attributable to shareholders of the parent 4,062.8 2,984.8
Total capital excluding finance leases 12,545.8 11,379.8
In summary, the Group's intent is to balance returns to shareholders between current returns through dividends and
long-term capital investment for growth. In doing so, the Group will maintain its capital discipline and will continue to
operate within the current economic environment prudently. There were no changes to the Group's capital management approach
during the year.
Notes to the Preliminary Statement
for the year ended 31 March 2017
11 Sources of finance (continued)
11.2 Loans and borrowings
2017£m 2016£m
Current
Other short-term loans 118.8 898.8
Obligations under finance leases 23.6 24.5
142.4 923.3
Non current
Loans 7,686.7 5,969.2
Obligations under finance leases 253.3 276.3
7,940.0 6,245.5
Total loans and borrowings 8,082.4 7,168.8
Add:
Cash and cash equivalents (1,427.0) (360.2)
Unadjusted Net Debt 6,655.4 6,808.6
Add/(less):
Hybrid equity (Note 12) 2,209.7 2,209.7
Obligations under finance leases (276.9) (300.8)
Cash held as collateral and other short term loans (105.2) (121.8)
Balances due to non-controlling interest partners in Clyde Windfarm (Scotland) Limited - (200.7)
Adjusted Net Debt and Hybrid Capital 8,483.0 8,395.0
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash
at bank and short term highly liquid investments with a maturity of six months or less. The cash and cash equivalents are
higher year on year due to the early refinancing of £1.0bn Hybrids in October 17.
Borrowing facilities
The Group has an established E1.5bn Euro commercial paper programme (paper can be issued in a range of currencies and
swapped into sterling) and as at 31 March 2017 no commercial paper was outstanding (2016 - £198.8m). During the year the
Group extended its existing £1.5bn revolving credit and bilateral facilities by invoking the one year extension options
with the facilities now maturing in August 2021 (£1.3bn) and November 2021 (£0.2bn). These facilities continue to provide
back up to the commercial paper programme and, as at 31 March 2017, they were undrawn. The Group has a further £200m
facility available with the European Investment Bank which will be fully drawn during 2017 when it will become a 10 year
term loan.
Hybrid Debt
On 16 March 2017, the Group issued £1.0bn of new hybrid debt securities. Those hybrid equity securities have an issuer
first call date on 1 October 2017 and are able to be redeemed at the Group's discretion. This dual tranche issue comprises
£300m with a coupon of 3.625% and $900m with a coupon of 4.75%. The $900m tranche has been swapped back 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 to SSE of 3.02%
per annum. This compares favourably to the all-in funding cost of 4.02% achieved on SSE's most recent Hybrid equity
securities issued in 2015. The intent is to use the proceeds to replace SSE's hybrid issued in 2012 (at an all-in rate of
5.6%), which has an issuer first call date on 1 October 2017. Due to the hybrids having a fixed redemption date, they have
been accounted for as a debt item and are included within Loans and Other Borrowings in the table above. This is in
contrast to the previous Hybrid issues which have no fixed redemption date and are accounted for as Equity, see Note 12.
Notes to the Preliminary Statement
for the year ended 31 March 2017
12. Equity
12.1 Share capital
Number(millions) £m
Allotted, called up and fully paid:
At 31 March 2016 1,007.6 503.8
Issue of shares (i) 16.9 8.5
Shares repurchased (ii) (8.9) (4.5)
At 31 March 2017 1,015.6 507.8
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.
i. Shareholders were able to elect to receive ordinary shares in place of the final dividend of 62.5p per ordinary share
(in relation to year ended 31 March 2016) and the interim dividend of 27.4p (in relation to the current year) under the
terms of the Company's scrip dividend scheme. This resulted in the issue of 9,395,092 and 6,324,986 new fully paid ordinary
shares respectively (2016: 10,600,639 and 1,172,973). In addition, the Company issued 1.2m (2016 - 2.8m) shares during the
year under the savings-related share option schemes for a consideration of £13.8m (2016 - £25.0m)
ii. During the current financial year the company began a programme of share repurchases 8.9m shares were repurchased for
total consideration of £131.5m. The programme was announced on 11 November 2016 and the Group plan to continue this
activity until December 2017. The nominal value of share capital repurchased and cancelled is transferred out of share
capital and into the capital redemption reserve.
During the year, on behalf of the Company, the employee share trust purchased 0.8m shares for a total consideration of
£12.6m (2016 - 0.8m shares, consideration of £11.1m). At 31 March 2017, the trust held 2.9m shares (2016 - 3.0m) which had
a market value of £42.5m (2016 - £45.5m).
12.2 Hybrid Equity
2017 2016
£m £m
USD 700m 5.625% perpetual subordinated capital securities 427.2 427.2
EUR 750m 5.625% perpetual subordinated capital securities 598.2 598.2
GBP 750m 3.875% perpetual subordinated capital securities 748.3 748.3
EUR 600m 2.375% perpetual subordinated capital securities 436.0 436.0
2,209.7 2,209.7
(i) 18 September 2012 E750m and US$700m Hybrid Equity 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. The Group anticipate that proceeds from the 16 March 2017
issuance of hybrid debt securities will be utilised in the discretionary redemption of both 2012 bonds.
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.
(ii) 10 March 2015 £750m and E600m Hybrid Equity Bonds
On 10 March 2016, the Company issued £750m and E600m hybrid equity bonds with 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 equity bond is 10 September 2020 and then these can occur
every 5 years thereafter. The date for the first discretionary redemption of the E600m hybrid equity bond is 1 April 2021
and then these can occur every 5 years thereafter. The purpose of the outstanding issues was to strengthen SSE's capital
base and fund the Group's ongoing capital investment and acquisitions.
For the £750m hybrid equity bond issued on 10 March 2015 the first coupon payment was made on 10 September 2016 and are
expected to be made annually in arrears thereafter, and for the E600m hybrid equity bond issued on 10 March 2015, the first
coupon payment was made on 1 April 2016 and expected to be made annually in arrears thereafter.
Notes to the Preliminary Statement
for the year ended 31 March 2017
12 Equity (continued)
(iii) Coupon Payments
Coupon payments in relation to the $700m hybrid equity bond were paid on 1 April 2016 and 1 October 2016 totalling £23.3m
(2016 - £24.9m). A coupon payment of £33.6m (2016 - £36.2m) in relation to the E750m hybrid equity bond was paid on 1
October 2016.
For the E600m hybrid equity bond the first coupon payment of £18.6m was paid on 1 April 2016 and for the £750m hybrid
equity bond the first coupon payment of £43.8m was paid on 10 September 2016, both were for first long coupon periods from
10 March 2016.
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.
13. Retirement Benefit Obligations
13.1 Valuation of combined Pension Schemes
Long- term rate of return expected at 31 March 2017 Valueat 31 March 2017 Long- term rate of return expected at 31 March 2016 Valueat 31 March 2016
% £m % £m
Equities 5.5 1,203.9 5.5 1,049.6
Government bonds 0.0 1,079.9 1.2 1,001.7
Corporate bonds 2.7 1,288.6 3.0 1,069.7
Insurance contracts 2.7 221.3 - -
Other investments 3.4 591.9 1.7 581.9
Total fair value of plan assets 4,385.6 3,702.9
Present value of defined benefit obligation (4,315.1) (3,835.0)
Pension asset/(liability) before IFRIC 14 70.5 (132.1)
IFRIC 14 liability (i) - (262.7)
Surplus/(deficit) in the schemes 70.5 (394.8)
Deferred tax thereon (ii) (106.6) 71.0
Net pension liability (iii) (36.1) (323.8)
(i) The IFRIC 14 adjustment represents the restriction on the Group's ability to recognises scheme surplus under the
'asset ceiling' test. The application of this adjustment changed in the current year following a change to scheme rules
(see note 4.2(v)).
(ii) Deferred tax rate of 35% applied to pension surpluses, whilst 17% applied to pension deficits.
(iii)The two pensions schemes of the group, Scottish Hydro Electric pension scheme and the Southern Electric pension scheme
are in individual in net asset and liability positions respectively, and as such these positions have been presented
separately on the balance sheet, see below
Balance Sheet presentation2017 Balance sheet presentation 2016
£m £m
Retirement benefit asset 525.4 -
Retirement benefit liability (454.9) (394.8)
Net pension asset/(liability) 70.5 (394.8)
Notes to the Preliminary Statement
for the year ended 31 March 2017
13 Retirement Benefit Obligations (continued)
Movements in the defined benefit asset obligations and assets during the year:
2017 2016
Assets£m Obligations (i)£m Total£m Assets£m Obligations (i)£m Total£m
at 1 April 3,702.9 (3,835.0) (132.1) 3,751.0 (4,209.1) (458.1)
Included in Income Statement
Current service cost - (50.9) (50.9) - (61.8) (61.8)
Past service cost - (13.6) (13.6) - (4.3) (4.3)
Interest income/(cost) 130.9 (134.9) (4.0) 121.2 (134.9) (13.7)
130.9 (199.4) (68.5) 121.2 (201.0) (79.8)
Included in Other Comprehensive Income
Actuarial (loss)/gain arising from:
Demographic assumptions - 259.6 259.6 - 48.0 48.0
Financial assumptions - (807.9) (807.9) - 277.4 277.4
Experience assumptions - 31.4 31.4 - 101.5 101.5
Return on plan assets excluding interest income 675.5 - 675.5 (123.1) - (123.1)
675.5 (516.9) 158.6 (123.1) 426.9 303.8
Other
Contributions paid by the employer 112.5 - 112.5 102.0 - 102.0
Scheme participants contributions 0.2 (0.2) - 0.3 (0.3) -
Benefits paid (236.4) 236.4 - (148.5) 148.5 -
(123.7) 236.2 112.5 (46.2) 148.2 102.0
Balance at 31 March 4,385.6 (4,315.1) 70.5 3,702.9 (3,835.0) (132.1)
I) The IFRIC 14 adjustment represents the restriction on the Group's ability to recognises scheme surplus under the 'asset
ceiling' test. The application of this adjustment changed in the current year following a change to scheme rules (see note
4.2(v)).
Charges / (credits) recognised:
2017 2016
£m £m
Current service cost (charged to operating profit) 64.5 66.1
64.5 66.1
(Credited)/charged to finance costs:
Interest on pension scheme assets (130.9) (121.2)
Interest on pension scheme liabilities 134.9 134.9
IFRIC 14 impact on net interest - 6.7
4.0 20.4
Notes to the Preliminary Statement
for the year ended 31 March 2017
14. Financial risk management
14.1 Financial risk management
The Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Risk
Committee in the Wholesale and Retail divisions, both of, which report directly to the Executive Committee to 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, energy supply and treasury operations. The
Risk Committee's of Wholesale and Retail are designed to ensure strict business separation requirements are maintained.
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 Risk Committee's in Wholesale and Retail.
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 year are explained below .
For financial reporting purposes, the Group has classified derivative financial instruments into two categories, operating
derivatives and financing derivatives. Operating derivatives relate to qualifying commodity contracts which includes
certain contracts 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.
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