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Distribution. This means the Regulated Asset Value (RAV) of SSE’s five Networks companies is
now on course to reach close to £9bn by 2020, net of the recent disposal of a 16.7% stake in SGN
(which is consistent with the forecast of £10bn RAV by 2020 in place prior to the disposal).
progress on the delivery SSE’s wind farm projects in construction and pre-construction which, for
the first time ever, stands at just over 1GW and includes both on- and offshore developments.
Over the next 3 years delivery of these projects will increase SSE’s total renewable energy
capacity to almost 4GW.
Allocating capital and investment expenditure in the period up to 2020
SSE announced in March 2016 that investment and capital expenditure was expected to be in the
range of £5.5 - 6bn across the four years to March 2020. Following the decision to proceed with the
construction of the 225MW Stronelairg onshore wind farm, it is now expected to be around £1.85bn
in 2016/17, which would be SSE’s highest-ever total in one financial year, and in 2017/18 it is
currently expected to be around £1.75bn. SSE is therefore maintaining investment momentum and
it is now expected that total investment and capital expenditure will be closer to £6bn in this period
to 2020. Around £5bn of that is already committed, predominantly in economically-regulated
electricity networks and government-mandated renewable energy projects.
The decision to proceed with Stronelairg follows a ruling in favour of the project by the Court of
Session in July 2016. This is a challenging project, but the electricity output from the development is
expected to qualify for Renewables Obligation Certificates. At all times SSE will continue to allocate
capital in a way that is consistent with its focus on strong financial management, operational
efficiency and maintaining a balanced range of businesses.
Realising value from assets
On 17 October 2016, SSE announced that it had sold a 16.7% equity stake in Scotia Gas Networks
Limited (‘SGN’) to wholly owned subsidiaries of the Abu Dhabi Investment Authority (ADIA), for a
headline consideration of £621m based on an effective economic date of 1 April 2016. The sale was
completed on 26 October 2016 and SSE will retain a 33.3% equity stake in SGN.
When it announced the possible sale of SGN, SSE said that should a sale be completed, it would
expect to use the proceeds to return value to its shareholders or to invest to create value for
shareholders, should there be the right opportunity. The development of the Stronelairg wind farm
is one such opportunity for the SSE group. After meeting transaction-related costs, SSE therefore
plans to: direct around £100m of the proceeds to support that investment: and to return around
£500m to shareholders and currently intends to structure this by way of an on-market share buyback,
which it expects to execute by 31 December 2017. Thereafter, the impact on adjusted
earnings per share following the sale and the use of sale proceeds is expected to be broadly neutral.
The gain on the disposal of the 16.7% equity stake in SGN will be treated as an exceptional item in
SSE’s Financial Statements for 2016/17.
Maintaining a strong balance sheet
As a long-term business, SSE believes that it should maintain a strong balance sheet, illustrated by its
commitment to robust ratios for retained cash flow and funds from operations/debt. SSE believes
that a strong balance sheet enables it to secure funding from debt investors at competitive and
efficient rates and take decisions that are focused on the long term - all of which supports the
delivery of annual increases in the dividend of at least RPI inflation and the maintenance of an
appropriate level of dividend cover.
In October 2016, Moody’s Investors Service affirmed SSE’s senior credit rating of A3, changed SSE’s
outlook from negative to stable and raised SSE’s threshold for retained cashflow / debt ratio to ‘mid
teens’ (previously 13%). In the same month, Standard & Poor’s affirmed SSE’s A-rating and negative
outlook, while also raising SSE’s threshold for funds from operations/debt ratio to around 23%
(previously 20-23%).
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