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Pressure on SSE grows over decision to not list renewables business

SSE has said splitting the business would jeopardise its ability to finance and deliver the major infrastructure needed for net zero. Image: SSE

SSE has said splitting the business would jeopardise its ability to finance and deliver the major infrastructure needed for net zero. Image: SSE

Concerns around SSE's corporate governance and financial performance have been raised by investor Elliot Advisors after the utility rejected calls to list its renewables business.

It follows SSE publishing its Net Zero Acceleration Programme on 17 November, which detailed what SSE said was the optimal pathway to accelerate clean growth, lead the energy transition and create value for all shareholders. It included plans to invest £12.5 billion by 2026 to accelerate progress towards net zero.

However, this programme - which Elliott Advisors described as "disappointing" - didn't provide a "convincing explanation" as to why SSE is not listing its renewables business, something which Elliot Advisors said could create £5 billion of value.

The investor continued that a separation would resolve the long-term funding challenges that have "historically hindered SSE’s growth", reversing years of share-price underperformance and allowing SSE to accelerate the green energy investments required.

However, SSE chief executive Alistair Phillips-Davies said in response to Elliott Advisors that a separation of the business risks “valuable growth options” across the clean energy value chain and would jeopardise SSE’s ability to finance and deliver the major infrastructure needed for net zero, while also losing shared skills that benefit the group.

“Separation does not support the financing of our core growth businesses and would rule out adjacent growth options, as well as reducing the resilience of the business model – it is not the right outcome to maximise value for shareholders or our other stakeholders,” Davies said.

Elliott Advisors has also criticised SSE's initial sale of a minority stake in its networks business, stating that "both the quantum and the timing of that transaction lacked ambition".

The investor said that moving forward, SSE should “provide a detailed and credible plan to address investor concerns around SSE’s corporate governance, its ability to fund its growth in the long term and its persistent undervaluation”, with Elliott Advisors stating that there are "serious questions" about the adequacy of SSE’s corporate governance under which its opaque review was conducted.

SSE’s latest full year financial results showed that operating profit of its Renewables arm grew substantially from £576.3 million in 2019/20 to £731.8 million in 2020/21, however its Enterprise and Business Energy arms saw lowered performance.

Business Energy’s operating profits were hit by approximately £80 million due to reduced demand, increased bad debt and £24 million of losses due to early settlement of excess commodity hedges, while Enterprise was hit by £40 million due to a reduced contracting order book and lower activity overall.

Its distribution arm also saw operating profit fall from £356.3 million to £267.3 million.

However, the following half year results saw the operating profit of its Renewables arm fall by 82% to £25.4 million for the six month period, while adjusted and reported operating profit grew for SSEN Transmission by 58% to £181.7 million.

Looking ahead, SSE should explore additional strategic initiatives, Elliott Advisors said, including a more ambitious disposal of Networks and a partial listing or partial disposal of Renewables, add two new independent directors with renewables experience to the board and create a strategic review committee composed of independent board members.

The recommendations from Elliott Advisors follows speculation that the investor was pushing for a split of SSE in September, having built up its stake in recent months.

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