Wizard wrote:Well, if this is the plan they are sticking to then I think the wording of the announcement quoted in the OP is disingenuous, given the previous announcement was for a "post transaction" dividend. As there is now no transaction is on the horizon I think the management should be obliged to make the position very clear. You are probably right, but I think management are being pretty shoddy here.
I suspect it's probably more that the position simply isn't all that clear, even to the management. I base that on the following quote from Friday's RNS:
"SSE believes that SSE Energy Services will be best positioned to build on this strong performance in a future outside of the SSE group. With that in mind, SSE is continuing to build on the significant work done to date to separate SSE Energy Services as an independent, self-sufficient entity within the group, in preparation for its future outside it.
Future options are now being assessed for SSE Energy Services. These include: a standalone demerger and listing on either the premium or the standard listing segment of the Official List; a sale; or an alternative transaction. If none of the other options is viable SSE may retain Energy Services as a separate, ring-fenced business within the SSE group that would be expected to be cash flow positive. These options are being assessed, taking into consideration the best interests of customers, employees and shareholders, and with the support of external advisers. SSE will provide a further update on the progress of its assessment of the options by the end of March 2019.
In the light of that, I think they're being pretty clear, as long as one reads and considers everything they've said put together. With my bold, they said in their initial summary of the RNS that they reiterate their "intention ... to deliver the five-year dividend plan set out in May 2018
". That five-year plan was in their final results for 2017/18
and included a statement that (again with my bold) "For 2019/20, SSE is planning to set the first post-transaction dividend at 80.0 pence per share, which reflects the impact of the changes in the SSE group expected to take effect by then.
" and monabri's link and quote above says that that was repeated completely unchanged in their interim results. And my quote above indicates that they still intend to dispose of SSE Energy Services. Keeping it within the SSE group is a possible outcome but very much a backstop - if I may use that word without contravening TLF's policy on bad language! ;-
Putting those together, they still intend for there to be a transaction in which they dispose of SSE Energy Services, for that transaction to be done in the fairly near future (since they're implicitly saying that the 2019/20 dividend is intended to be post-transaction) and for the first post-transaction dividend to be reduced from the current level to 80p to reflect the fact that SSE Energy Services and its earnings have been disposed of.
There will be compensation for that loss of earnings and dividends. It's basically that between them, shareholders will own whatever value SSE obtains for the disposal. Just how much that value is likely to be is open to question, of course, and there is at least one conceivable route by which it ends up as zero. There are also conceivable routes by which it might be nonzero, but subsequently get lost - e.g. a disposal for cash, which the company then uses for what eventually turns out to be an ill-considered acquisition. But none of those will be what the company intends
to do! - which is something the RNSes don't state, but also don't need to because it's an implicit part of being a public company at all.
It is however pretty clear from my quote above that it is not currently clear what form the disposal will take - not just unclear to us, but also unclear to the directors. And that affects how
shareholders are compensated for the loss of earnings and dividends from the disposal will take - for instance, for a standalone demerger and listing, it's clearly that they'll then own shares in the demerged company (which hopefully will give them back the lost earnings and dividends), while for a sale for cash, it might be a special dividend (that shareholders can reinvest as they feel fit to obtain replacement earnings and dividends if they want), a share buyback or tender offer (that will reduce shares in issue and so increase the EPS represented by the remaining earnings and thus the dividends per share fundable from them), the acquisition of some other business (hopefully providing replacement earnings / dividend-funding ability) or doubtless various other possibilities.
So it seems pretty clear to me that the directors cannot
currently be clear about how shareholders will be compensated for the expected loss of earnings and dividends from the disposal, if it happens. They presumably could be clear about the corresponding compensation if it doesn't prove possible and SSE retains SSE Energy Services, but (at least IMHO) they're quite entitled to assume that shareholders know that intentions can change and are sometimes forced to by circumstances: if they can't dispose of SSE Energy Services, the "transaction" they're talking about won't exist and it will be impossible
for them to deliver their intention about the "first post-transaction dividend", because there will be no such thing as the "first post-transaction dividend"! It might turn out that in that event, they decide to make their dividend for 2019/20 be 80p anyway - but if it does, that
will be the real dividend-cutting decision, not last year's results or this trading statement. (Something similar goes for some possible cases in which they do dispose of SSE Energy Services, by the way - e.g. if they sell it for cash but decide both
to retain the cash rather than returning it to shareholders and
to stick to their intention to make the 2019/20 dividend 80p rather than restoring its current level.)
So I'm not excluding the possibility that they'll end up using all this business about disposing of SSE Energy Services as a smokescreen for an 18% dividend cut - just saying that they haven't done it yet. What they have said and done seems entirely consistent with the possibility that they're preparing such a smokescreen, but also entirely consistent with the possibility that they're not - so basically it offers no hint either way that I can see about whether they are.
I would personally be a bit surprised if they are intending to do so, on the grounds that an 18% cut is quite a bit below the normal level for deliberate dividend cuts (as opposed to dividend reductions caused by exchange rate fluctuations, rights issue adjustments, etc) - I would generally expect directors who decide that their company needs to cut its dividend to want a more substantial one, if only to get all the bad publicity over at once. Not so surprised that I feel I can completely dismiss the possibility, especially given the 'stealth' aspect of cutting the dividend that way. But surprising enough to make it pretty unlikely IMHO, and I generally don't spend my time on pretty unlikely possibilities beyond that needed to establish to my satisfaction that they are pretty unlikely. Especially when "wait for the possibilities to narrow down and then see" seems an entirely viable approach to take - especially when there's good reason to believe that they will narrow down in the short term, such as the expected update by the end of March (which is
the short term as far as share investments are concerned, even though it is highly likely to be an eternity in politics!).
One final comment: what I've said above about just what SSE have said might well strike some as a rather pedantic / legalistic way of looking at it. But what companies say in RNSes is very much a legal / regulatory matter, and I'd be pretty certain that it will have been carefully vetted by the company's lawyers - who will take a rather pedantic / legalistic approach to it. That includes doing their best not to say more than is required by the laws and regulations, especially about matters that might come back to bite them. In particular, words like "expects", "intends", "commits" or "will" are likely to have been looked at pretty carefully by the company, especially with regard to not saying anything stronger than is required. Readers who don't take care to look at them similarly are liable to see incorrect 'implications' in RNSes that the company's lawyers have actually taken care to ensure are not there - i.e. whose origins are in the readers' own minds rather than the RNSes. Or much more briefly, it's a good idea to read RNSes with an eye on not inadvertently misleading yourself about what the company has said!