TIDMSMS
RNS Number : 5112A
Smart Metering Systems PLC
21 March 2013
Smart Metering Systems plc
("SMS", "the Company" or the "Group")
Final results for the year ended 31 December 2012
Smart Metering Systems plc (AIM: SMS.L), the integrated metering
services company that connects, owns, operates and maintains
current generation and new advanced metering assets and databases
is pleased to announce final results for the 12 months to 31
December 2012.
Financial Highlights
-- Revenue increased by 32% to GBP21.0m (2011: GBP16.0m)
-- Recurring meter rental increased by 40% to GBP9.3m (2011:
GBP6.6m) representing 44% of total revenue
-- Gross profit increased by 50% to GBP13.3m (2011: GBP8.9m)
-- Gross profit margin increased by 8% to 63%
-- Adjusted EBITDA* increased by 59% to GBP9.0m (2011: GBP5.7m)
-- EBITDA margin increased by 7% to 43%
-- Basic earnings per share increased by 77% to 5.18p (2011:2.93p)
-- Final dividend of 1.15p per ordinary share making 1.65p for the full year
-- New banking club arrangement announced on 2 August 2012 for
GBP45.0m with Barclays Bank PLC (lead bank), Clydesdale Bank PLC
and Lloyds Bank PLC, replacing all existing facilities
-- Available cash resources of GBP31.1m at 31 December 2012
(*Excluding exceptional items and fair value adjustments).
Operational Highlights
-- Total meter portfolio increased by 34% to 341,000 (2011:
254,000) of which 95% are domestic, with substantial growth since
half year (H1 2012: 283,275) and currently over 365,000
-- Increase of 74% in capital investment in meter assets to
GBP16.0m (2011: GBP9.2m) an increase in average monthly run rate of
meter installations to GBP1.3m investment in 2012 (2011:
GBP0.76m)
-- Increase in annualised recurring meter rental revenue as at
31 December 2012 of 42% to GBP10.8m (2011: GBP7.6m) and at 28
February 2013 GBP11.5m.
-- Significant new contracts
-- Gas suppliers
-- Scottish and Southern Energy: c180,000 domestic meters
-- Scottish and Southern Energy: Initial order of 760 I&C
meters and ADM(TM) devices
-- Total Gas and Power: Initial Quantity of 15,000 I&C
meters and ADM(TM) devices
-- Contract Natural Gas: Initial Quantity of 1,475 I&C
meters and ADM(TM) devices with exclusive arrangement to the
balance of their portfolio estimated at over 20,000 I&C
meters
-- DONG Energy Sales for I&C meters and ADM(TM) devices
-- E.ON Energy Solutions for gas metering services for both
domestic and I&C sectors
-- Energy brokers: providers of brokerage services to small, medium and large group consumers
-- BIU, Solis, Energi, Imserve and ISS for ADM(TM) devices and
gas meters
-- ADM(TM)
-- First sales post-trial periods with a number of customers of
over 2,000 units
-- Trials commenced in the Water and LPG markets in the UK
-- Increase of 26% in Asset installation revenue to GBP11.8m
(2011: GBP9.4m) of which Gas Connection business increased turnover
by 10% to GBP6.5m (2011: GBP5.9m)
Alan Foy, Chief Executive Officer, commented:
"In our second year since our AiM admission we have delivered
another strong set of results against our strategy of ongoing
accumulation of meter assets and the introduction of our smart
meter technology ADM(TM). Our second half performance in particular
has been very pleasing building on contracts won in 2011 and 2012.
We continue to strengthen our team and our financial resources and
look to 2013 for another successful year."
Smart Metering Systems plc 0141 249 3850
Alan Foy, Chief Executive Officer
Glen Murray, Finance Director
Cenkos Securities 0131 220 6939 / 0207 397 8900
Ken Fleming
Neil McDonald
Kreab Gavin Anderson 020 7074 1800
Chris Philipsborn
Anna Schoeffler
Notes to Editors
About Smart Metering Systems
Established in 1995, Smart Metering Systems plc based in
Glasgow, connects, owns, operates and maintains metering systems
and databases on behalf of major energy companies and energy
brokers.
Currently the Company is concentrating its efforts on offering
its unique integrated services to the UK industrial and commercial
gas market in which its customers have an 80% market share.
The Company has further applications for gas with its ADM(TM)
device which allows "smart" functions such as remote reading and
half hourly consumption data to be offered to customers in addition
to the normal metering services. Longer term the Company also has
additional applications for water and LPG.
The Company was admitted to the AiM market in July 2011 and is
now part of the FTSE AiM 50 index. For more information on SMS
please visit the Company's website: www.sms-plc.com
Chairman's and Chief Executive Officer's statement
We are pleased to announce another strong set of results for the
year ended 31 December 2012. The results reflect the cumulative
effect of the increase in meters in 2011 and the increasing number
of contracts signed during 2012.
Our Business
Our business operation is based on connecting, owning, operating
and maintaining metering systems and databases on behalf of major
energy companies and energy brokers.
Our core focus is on gas meters in the UK, where we aim to:
-- be the market leader in the independent ownership of industrial and commercial meters;
-- establish ADM(TM) as the industry standard smart metering
solution for Industrial and Commercial (I&C) clients; and
-- grow our domestic meters business organically and potentially through new contracts.
We will also seek out new domestic and international markets for
our products and services to widen our footprint in the UK and
establish an international presence.
Operational Review
During 2012 we have made substantial progress in all three areas
of our business. Following a strong first half where we saw our
meter portfolio increase by 30,000, this accelerated substantially
in the second half with a further 57,725 added, leading to a 34%
increase year-on-year in our gas meter portfolio. The progress we
have made in establishing long term recurring revenue was evidenced
by an increase in year-end annualised recurring meter rental
revenue of 42% to GBP10.8m andGBP42k data provision sales from our
ADM(TM) device.
Industrial and Commercial meters
During 2012 we were delighted to announce a number of major new
contracts for the provision of gas meters within the I & C
market with Contract Natural Gas, Total Gas and Power, DONG Energy
Sales and E.ON Energy Solutions. The current estimates are for a
total programme in excess of 22,000 meters to the end of 2014, of
which over 2,000 had already been delivered by 31 December
2012.
In addition, SMS has also contracted with five energy brokers
who provide brokerage and energy management services to small,
medium and large group consumers for the provision of the ADM(TM)
device and gas meters. The broker business is at present a small
but growing part of our portfolio. The increase in customer base
during 2012 now means that SMS has contracts in place with over 80%
of the total I & C meter market.
Once installed, these meters will be on SMS's long-term index
linked contracts and provide recurring revenue for the lifetime of
the assets (expected to be 25 years).
The size of I & C meters is typically much greater than that
of domestic meters and therefore the revenue per meter is
substantially higher: the equivalent number of domestic meters for
these 22,000 contracts would be in the order of 300,000.
Our transactional gas connections business continues to be cash
generative and secure gas meter ownership for the Group; it has
performed in line with management expectations.
ADM(TM)
The ADM(TM) device is SMS's advanced metering solution which
allows for remote meter reading on a half-hourly basis and has been
designed in line with our own customer requirements. The ability of
remote reading alongside SMS's full service capability in the
I&C market provides a major opportunity for the Company in
extending the service we offer and the ability to seek out further
markets for our overall service. All new contracts announced in
2012 allow for the introduction of the ADM(TM) device into I&C
premises during meter replacement programmes.
The large I&C market (estimated by SMS at greater than
300,000 meters) has to move to an advanced metering solution of
which around 60,000 of the very large category have to be completed
or contracted to be completed by 2014.
The small I&C market (estimated by SMS at over 1.2m meters)
has until 2014 to either opt for an advanced metering solution such
as the ADM(TM) device or alternatively they can be included in the
government's proposed domestic roll out of smart meters.
SMS believes that both market segments will find the ADM(TM)
device an attractive solution, based on its competitive price and
ease of installation.
The Company received full European Patent Approval for ADM(TM)
in August and continues to progress the potential use of the
ADM(TM) device in other sectors such as the UK's water and LPG
industries where trials have commenced.
Domestic Meters
SMS was successful during 2012 in obtaining two further
contracts in the domestic market. In May SMS was contracted by SSE
to provide Meter Operations Services in all regions outside of
Scotland and the South-East of England for two years. In November,
a similar contract was agreed with E.ON Energy Solutions. The
current estimate is that these two contracts will add a further
c.180,000 units to the SMS meter portfolio over the lifetime of the
contracts of which 90,000 have been delivered to date.
Significantly, the new agreement with SSE replaced an existing
agreement that the customer had with the market leader in the
domestic asset management business and marks a deepening of SMS's
relationship with SSE.
Financial Review
Results for the year
During 2012, the Company increased revenue by 32% to GBP21.0m as
a result of increasing meters under ownership and management and
the contracted annual RPI increase. Recurring meter rental revenue,
in line with the Company's strategy, increased to 44% of total
revenue in 2012 compared to 41% in the same period in 2011.
Administration expenses, at GBP6.1m (excluding exceptional
costs), were up 39% compared to 2011, substantially due to
investment in staff numbers which have increased from 42 to 77 in
line with the growth of the Company and its listed status and
increased depreciation due to the increased meter base held by the
Company.
Finance costs increased from GBP535k to GBP739k due to higher
outstanding debt in the period as a result of the increase in meter
investment.
Gross profit increased from GBP8.9m to GBP13.3m and adjusted
EBITDA from GBP5.7m to GBP9.0m.
Cash and borrowings
As at 31 December 2012, the Company had debt of GBP20.4m
compared to GBP11.2m in 2011, cash balances of GBP6.5m (2011:
GBP7.3m), unused facilities of GBP24.6m and gearing of 85%
(2011:32%)
In August, SMS announced a new banking club arrangement with
three major UK banks. The GBP45.0m facility with Barclays Bank PLC
(lead bank), Clydesdale Bank PLC and Lloyds Bank PLC replaced the
existing arrangement with Clydesdale Bank PLC. SMS intends to use
the new facility to fund the purchase of meter assets during a
phased installation over the course of the next 24 months in line
with the recent substantial contract wins. Interest is paid
quarterly at 2.9% plus three month rolling LIBOR on the outstanding
balance with drawn funds repaid equally over ten years. 1.45% is
paid on undrawn funds. SMS has entered into a hedging arrangement
to swap three-month rolling LIBOR, currently at c.0.51%, to a fixed
0.90-0.92% over four years for c.70% of the facility.
Net debt at 31 December 2012 was GBP13.9m (2011: GBP3.9m)
Capital investment in meters was GBP16.0m in 2012 compared to
GBP9.2m in 2011.
Treasury policies
The Company uses interest rate swaps to manage interest rate
fluctuations on interest-bearing loans and borrowings which means
that the Company pays a fixed interest rate rather than being
subject to fluctuations in the variable rate.
Interest rate swaps covered an amount of GBP13.2m as at 31
December 2012 (2011: GBP5.5m) and there was an interest rate cap
over an amount of GBPnil as at 31 December 2012 (2011:
GBP5.5m).
The interest rate swap results in a fixed interest rate of
0.90-0.92%. The termination date for the derivatives is 15
September 2016.
People
During 2012 we continued to add to our management team and staff
with the appointment of Derek Lithgow as Chief Operating Officer,
Stan Chaloner as Group Sales Director and John Duke as Supply Chain
Director, reflecting both the growth in the business and future
opportunities. During the year SMS moved to larger premises in
Glasgow following the expansion in staff numbers.
Steve Timoney, who founded the business in 1997 and has acted as
Deputy Chairman since the Company's admission to AIM in 2010, has
decided to retire from the business at the conclusion of the next
Annual General Meeting (AGM). The Board wishes Steve all the best
in his retirement and thanks him for the outstanding support he has
given Alan Foy in his position as Chief Executive for the last five
years. The Company will seek to recruit an additional non-executive
director.
The most important part of our business is ensuring that we
provide the highest quality of service to our customers, a value
that continues to underpin the business. The results this year
reflect the continued dedication of our staff in this endeavour and
we would like to thank them for their continued support.
Dividend
At the time of our admission to AiM, we stated that we intended
to adopt a dividend policy that will take account of the Group's
profitability, underlying growth prospects and availability of cash
and distributable reserves, while maintaining an appropriate level
of dividend cover.
SMS is therefore delighted to announce a proposed final cash
dividend of 1.15p for the financial year ended 31 December 2012 to
shareholders. In addition to the interim dividend of 0.5p this will
make a full year distribution of 1.65p. The final dividend will be
will be paid on 31(st) May 2013 to those shareholders on the
register (record date) on 26(th) April 2013 with an ex-dividend
date of 24(th) April 2013.
Outlook
With further increases in recurring meter rental revenue as a
result of contracts won in 2012, the increasing take up of the
ADM(TM) device and the increased banking facilities agreed during
2012, we look forward again to a strong performance in 2013.
Smart Metering Systems plc
Annual report and accounts 2012
Consolidated statement of comprehensive income
For the year ended 31 December 2012
2012 2011
---------------------------------------------- ------ -------- --------
Notes GBP'000 GBP'000
---------------------------------------------- ------ -------- --------
Revenue 1 21,029 15,964
Cost of sales 2 (7,759) (7,109)
---------------------------------------------- ------ -------- --------
Gross profit 13,270 8,855
Administrative expenses 2 (7,337) (5,050)
---------------------------------------------- ------ -------- --------
Profit from operations 2 5,933 3,805
---------------------------------------------- ------ -------- --------
Attributable to:
Operating profit before exceptional items 7,176 4,482
Exceptional items and fair value adjustments 2 (1,243) (677)
---------------------------------------------- ------ -------- --------
Finance costs 5 (739) (535)
Finance income 5 33 41
---------------------------------------------- ------ -------- --------
Profit before taxation 5,227 3,311
Taxation 6 (914) (1,121)
---------------------------------------------- ------ -------- --------
Profit for the year attributable to equity
holders 4,313 2,190
Other comprehensive income - -
------------------------------------------------------ -------- --------
Total comprehensive income 4,313 2,190
------------------------------------------------------ -------- --------
The profit from operations arises from the Group's continuing
operations.
Earnings per share attributable to owners of the parent during
the year:
Notes 2012 2011
Basic earnings per share (pence) 7 5.18 2.93
Diluted earnings per share (pence) 7 5.00 2.90
------------------------------------ ------ ----- -----
Consolidated statement of financial position
As at 31 December 2012
2012 2011
------------------------------------------- ------ -------- --------
Notes GBP'000 GBP'000
------------------------------------------- ------ -------- --------
Assets
Non-current
Intangible assets 9 1,916 1,885
Property, plant and equipment 10 36,104 21,327
------------------------------------------- ------ -------- --------
38,020 23,212
------------------------------------------- ------ -------- --------
Current assets
Inventories 12 373 83
Trade and other receivables 13 3,091 1,606
Cash and cash equivalents 14 6,455 7,317
Other current financial assets 18 - 18
------------------------------------------- ------ -------- --------
9,919 9,024
Total assets 47,939 32,236
Liabilities
Current liabilities
Trade and other payables 15 8,201 6,379
Bank loans and overdrafts 16 2,150 1,328
Commitments under hire purchase agreements 17 3 3
Other current financial liabilities 18 170 339
------------------------------------------- ------ -------- --------
10,524 8,049
------------------------------------------------------------- --------
Non-current liabilities
Bank loans 16 18,299 9,845
Obligations under hire purchase agreements 17 10 13
Deferred tax liabilities 20 2,510 1,873
------------------------------------------- ------ -------- --------
20,819 11,731
------------------------------------------- ---------------- --------
Total liabilities 31,343 19,780
------------------------------------------- ---------------- --------
Net assets 16,596 12,456
------------------------------------------- ---------------- --------
Equity
Share capital 22 833 833
Share premium 8,653 8,653
Other reserve 24 1 1
Retained earnings 7,109 2,969
------------------------------------------- ---------------- --------
Total equity attributable to equity
holders of the parent company 16,596 12,456
------------------------------------------- ---------------- --------
Consolidated statement of changes in equity
For the year ended 31 December 2012
Share Share Other Retained
capital premium reserve earnings Total
Attributable to the owners GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
of the parent company:
----------------------------- -------- --------- -------- --------- --------
As at 1 January 2011 - - 1 1,526 1,527
Profit for the year - - - 2,190 2,190
Transactions with owners in their capacity as owners:
Share bonus issue (Note 22) 666 - - (666) -
Shares issued (Note 22) 167 9,833 - - 10,000
Share issue costs - (1,180) - - (1,180)
Dividends (Note 8) - - - (180) (180)
Share options - - - 99 99
----------------------------- -------- --------- -------- --------- --------
As at 31 December 2011 833 8,653 1 2,969 12,456
Profit for the year - - - 4,313 4,313
Transactions with owners in their capacity as owners:
Dividends (Note 8) - - - (417) (417)
Share options - - - 244 244
----------------------------- -------- --------- -------- --------- --------
As at 31 December 2012 833 8,653 1 7,109 16,596
----------------------------- -------- --------- -------- --------- --------
Consolidated statement of cash flows
For the year ended 31 December 2012
2012 2011
GBP'000 GBP'000
--------------------------------------------------- --------- --------
Cash flow from operating activities
Profit before taxation 5,227 3,311
Finance costs 739 535
Finance income (33) (41)
Fair value movement on derivatives (151) 249
Depreciation 1,599 956
Amortisation 238 234
Share-based payment expense 244 99
Increase in inventories (290) (83)
(Increase) in trade and other receivables (1,485) (438)
Decrease in trade and other payables 1,835 128
--------------------------------------------------- --------- --------
Cash generated from operations 7,923 4,950
Taxation (290) -
--------------------------------------------------- --------- --------
Net cash generated from operations 7,633 4,950
--------------------------------------------------- --------- --------
Investing activities
Payments to acquire property, plant and equipment (16,380) (9,332)
Disposal of property, plant and equipment 4 180
Payments to acquire intangible assets (269) (388)
Finance income 33 41
--------------------------------------------------- --------- --------
Net cash used in investing activities (16,612) (9,499)
--------------------------------------------------- --------- --------
Financing activities
New borrowings 10,947 3,148
Capital repaid (1,671) (1,211)
Net outflow from other long-term creditors (3) -
Finance costs (739) (535)
Net proceeds from share issue - 8,820
Dividend paid (417) (180)
--------------------------------------------------- --------- --------
Net cash generated from financing activities 8,117 10,042
Net increase in cash and cash equivalents (862) 5,493
Cash and cash equivalents at the beginning
of the financial year 7,317 1,824
--------------------------------------------------- --------- --------
Cash and cash equivalents at the end of the
financial year (Note 14) 6,455 7,317
--------------------------------------------------- --------- --------
Accounting policies
The Company is incorporated and domiciled in the UK. The Group's
activities consist of the rental and management of gas meters and
that of laying infrastructure pipes for industrial and commercial
premises and the provision of specialist technical advice on the
use and management of energy for industrial and commercial
users.
Basis of preparation
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2012
or 2011. Statutory accounts for 2011 have been delivered to the
registrar of companies, and those for 2012 will be delivered in due
course. The auditors have reported on those accounts; their reports
were(i) unqualified, (ii) did not include references to any matters
to which the auditors drew attention by way of emphasis without
qualifying their reports and (iii) did not contain a statement
under section 498(2) or (3) of the Companies Act 2006.
Going concern
Management prepares budgets and forecasts on a rolling 24 month
basis. These forecasts cover operational cashflows investment
capital expenditure. The Group has committed bank facilities which
extend to July 2014 and available cash resources at 31 December
2012 of GBP31.1m.
Based on the current projections and facilities in place the
Directors consider it appropriate to continue to prepare the
financial statements on a going concern basis.
Basis of consolidation
The consolidated financial statements incorporate the
consolidated financial statements of the Company and all Group
undertakings being UK Gas Connection Limited, UK Meter Assets
Limited, UKMA (AF) Limited and UK Data Management Limited. These
are adjusted, where appropriate, to conform to Group accounting
policies and are prepared to the same accounting reference date.
The Company was incorporated on 27 October 2009. The Group was
formed on 24 December 2009 through the acquisition of the entire
share capital of UK Gas Connection Limited and UK Meter Assets
Limited (the only subsidiaries in existence at that time).
Whilst the Group was newly formed, the ultimate ownership of all
companies remained unchanged and, as such, the financial statements
have been prepared based on a reconstruction under common control,
reflecting the Group results for the current and prior years as
though the Group structure has always existed.
Use of estimates and judgments
The preparation of the financial statements requires the use of
estimates and assumptions. Although these estimates are based on
management's best knowledge, actual results ultimately may differ
from these estimates.
The key sources of estimation uncertainty that have a
significant risk of causing material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are the estimation of share-based payment costs. The estimation of
share-based payment costs requires the selection of an appropriate
valuation model, consideration as to the inputs necessary for the
valuation model chosen and the estimation of the number of awards
that will ultimately vest, inputs for which arise from judgments
relating to the probability of meeting non-market performance
conditions and the continuing participation of employees.
Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured. Revenue is measured at the fair value of the
consideration received, excluding discounts and VAT.
Revenue is recognised when the significant rewards and risk of
ownership have been passed to the buyer. The risk and rewards of
ownership transfer when the Company fulfils its contractual
obligations to customers by supplying services, or when they have
the right to receive the income.
Meter rental income
Rental income is recognised when the Company is contractually
entitled to it. Rental income is calculated on a daily basis and
invoiced monthly. Rental contracts do not operate on a fixed term
basis.
Gas connection
Revenue from gas connection contracts is recognised upon
delivery of the related service, in line with our contractual
entitlement.
Data management
Data provision income is recognised when the Company is
contractually entitled to it. Data provision income is invoiced in
advance and is recognised in a straight line over the contract
period.
Segment reporting
An operating segment is a group of assets and operations engaged
in providing products or services that are subject to risks and
returns that are different from those of other business segments.
Operating segments are reported in a manner consistent with the
reports made to the chief operating decision maker which are
consistent with the reported results.
The Company considers that the role of chief operating decision
maker is performed by the Board of Directors.
Financial assets
Initial recognition and measurement
Financial assets within the scope of IAS 39 are classified as
financial assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments, available-for-sale
financial assets or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. The Group
determines the classification of its financial assets at initial
recognition.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the marketplace (regular way trades) are recognised on the trade
date, i.e. the date that the Group commits to purchase or sell the
asset.
The Group's financial assets include cash and short-term
deposits, trade and other receivables, loans and other receivables,
quoted and unquoted financial instruments and derivative financial
instruments.
Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified
as financial liabilities at fair value through profit or loss,
loans and borrowings or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. The Group
determines the classification of its financial liabilities at
initial recognition. All financial liabilities are recognised
initially at fair value and in the case of loans and borrowings,
net of directly attributable transaction costs.
The Group's financial liabilities include trade and other
payables, bank overdraft, loans and borrowings, financial guarantee
contracts and derivative financial instruments.
Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original
liability and the recognition of a new liability and the difference
in the respective carrying amounts is recognised in the income
statement.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the
net amount reported in the consolidated statement of financial
position if, and only if, there is a currently enforceable legal
right to offset the recognised amounts and there is an intention to
settle on a net basis, or to realise the assets and settle the
liabilities simultaneously.
Initial recognition and subsequent measurement
The Group uses derivative financial instruments such as interest
rate swaps to hedge its interest rate risk. Such derivative
financial instruments are initially recognised at fair value on the
date on which a derivative contract is entered into and are
subsequently remeasured at fair value. Derivatives are carried as
financial assets when the fair value is positive and as financial
liabilities when the fair value is negative. The Group has not
designated any derivatives for hedge accounting.
Current versus non-current classification
Derivative instruments that are not designated as effective
hedging instruments are classified as current or non-current or
separated into a current and non-current portion based on an
assessment of the facts and circumstances (i.e. the underlying
contracted cash flows).
Where the Group will hold a derivative as an economic hedge (and
does not apply hedge accounting) for a period beyond twelve months
after the reporting date, the derivative is classified as
non-current (or separated into current and non-current portions)
consistent with the classification of the underlying item.
Derivative instruments that are designated as, and are effective
hedging instruments, are classified consistent with the
classification of the underlying hedged item. The derivative
instrument is separated into a current portion and non-current
portion only if a reliable allocation can be made.
Exceptional items
The Group presents as exceptional items on the face of the
income statement those material items of income and expense which,
because of the nature or expected infrequency of the events giving
rise to them, merit separate presentation to allow shareholders to
understand better the elements of financial performance in that
year, so as to facilitate comparison with prior periods and to
assess better trends in financial performance.
Research and development
Expenditure on pure and applied research activities is
recognised in the income statement as an expense as incurred.
Expenditure on product development activities is capitalised if
the product or process is technically and commercially feasible and
the Group intends and has the technical ability and sufficient
resources to complete development, future economic benefits are
probable and if the Group can measure reliably the expenditure
attributable to the intangible asset during its development. The
expenditure capitalised includes the cost of materials, direct
labour and an appropriate proportion of overheads.
Capitalised development expenditure is stated at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is calculated, when the product or system is
commercialised or in use, so as to write off the cost of an asset,
less its estimated residual value, over the useful economic life of
that asset as follows:
Amortisation 20% on cost straight line
Intangible assets
Intangible assets acquired separately from third parties are
recognised as assets and measured at cost.
Following initial recognition, intangible assets are measured at
cost at the date of acquisition less any amortisation and any
impairment losses. Amortisation costs are included within the net
operating expenses disclosed in the statement of comprehensive
income.
Intangible assets are amortised over their useful lives as
follows:
Software 12.5% straight line
Useful lives are also examined on an annual basis and
adjustments, where applicable, are made on a prospective basis. The
Company does not have any intangible assets with indefinite
lives.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of
accumulated depreciation and/or accumulated impairment losses, if
any. Such cost includes the cost of replacing part of the plant and
equipment and borrowing costs for long-term construction projects
if the recognition criteria are met. When significant parts of
property, plant and equipment are required to be replaced in
intervals, the Group recognises such parts as individual assets
with specific useful lives and depreciation, respectively.
All other repair and maintenance costs are recognised in the
income statement as incurred.
Depreciation is calculated on a straight line basis over the
estimated useful life of the asset as follows:
Short leasehold property 20% on cost
Plant and machinery 5% on cost
Fixtures and fittings 15% on cost
Equipment 33% on cost
Land is not depreciated.
An item of property, plant and equipment and any significant
part initially recognised is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the income statement when the
asset is derecognised. The asset's residual values, useful lives
and methods of depreciation are reviewed at each financial year end
and adjusted prospectively, if appropriate.
All fixed assets are initially recorded at cost.
Impairment of assets
Property, plant and equipment and intangible assets are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss
is recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs to sell and value in
use. For purposes of assessing impairment assets that do not
individually generate cash flows are assessed as part of the
cash-generating unit to which they belong. Cash-generating units
are the lowest levels for which there are cash flows that are
largely independent of the cash flows from other assets or groups
of assets.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Costs comprise direct materials. Net realisable value
represents the estimated selling price for inventories less all
estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at
bank and in hand and short-term deposits with an original maturity
of three months or less. For the purpose of the consolidated
statement of cash flows, cash and cash equivalents consist of cash
and short-term deposits as defined above, net of outstanding bank
overdrafts.
Hire purchase agreements
Assets held under hire purchase agreements are capitalised and
disclosed under tangible fixed assets at their fair value. The
capital element of the future payments is treated as a liability
and the notional interest is charged to the statement of
comprehensive income in proportion to the remaining balance
outstanding.
Leased assets and obligations
Finance leases, which transfer to the Group substantially all
the risks and benefits incidental to ownership of the leased item,
are capitalised at the commencement of the lease at the fair value
of the leased property or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned between
finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are recognised in the income statement.
Leased assets are depreciated over the useful life of the asset.
However, if there is no reasonable certainty that the Group will
obtain ownership by the end of the lease term, the asset is
depreciated over the shorter of the estimated useful life of the
asset and the lease term. Operating lease payments are recognised
as an expense in the income statement on a straight line basis over
the lease term.
All other leases are operating leases and the annual rentals are
charged to the statement of comprehensive income on a straight line
basis over the lease term.
Pension costs
The Group operates a defined contribution pension scheme for
employees. The assets of the scheme are held separately from those
of the Group. The annual contributions payable are charged to the
statement of comprehensive income.
Share-based payments
The costs of equity-settled share-based payments are charged to
the income statement over the vesting period. The charge is based
on the fair value of the equity instrument granted and the number
of equity instruments that are expected to vest.
Taxation
Tax currently payable is based on the taxable profit for the
year. Taxable profit differs from accounting profit as reported in
the statement of comprehensive income because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The
Group's liability for current tax is measured using tax rates that
have been enacted or substantively enacted by the reporting
date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised. The deferred tax balance is
calculated based on tax rates that have been enacted or
substantively enacted by the reporting date.
Adoption of the international accounting standards
New standards, amendments and interpretations issued but not
effective for the financial year beginning 1 January 2013 and not
early adopted
Standard Key requirements Effective date
---------------------------- ---------------------------------------------------- ---------------
IFRS 1, Government The amendments provide relief to first-time 1 January 2013
Loans adopters of IFRSs by allowing prospective
application of IFRS 9 or IAS 39 and paragraph
10A of IAS 20 to government loans outstanding
at the transition to IFRS.
IFRS 7, Financial The amendments require entities to disclose 1 January 2013
Instruments: Offsetting information about the rights of offset
Financial Assets and related arrangements for financial
and Financial Liabilities' instruments under an enforceable master
netting agreement or similar agreement.
IFRS 9, Financial The standard is the first standard issued 1 January 2015
Instruments as part of a wider project to replace IAS
39. It replaces the parts of IAS 39 that
relate to the classification and measurement
of financial instruments. IFRS 9 requires
financial assets to be classified into
two measurement categories: those measured
as at fair value and those measured at
amortised cost. The classification depends
on the entity's business model and the
contractual cash flow characteristics of
the instrument. The guidance in IAS 39
on impairment of financial assets and hedge
accounting continues to apply.
IFRS 10, Consolidated The standard's objective is to establish 1 January 2014
financial statements principles for the presentation and preparation
of consolidated financial statements when
an entity controls one or more other entities.
It builds on existing principles by identifying
the concept of control as the determining
factor in whether an entity should be included
within the consolidated financial statements
of the parent Company. The standard provides
additional guidance to assist in the determination
of control where this is difficult to assess.
IFRS 11, Joint arrangements IFRS 11 is a more realistic reflection 1 January 2014
of joint arrangements by focusing on the
rights and obligations of the arrangement
rather than its legal form. There are two
types of joint arrangement: joint operations
and joint ventures. Proportional consolidation
of joint ventures is no longer allowed.
IFRS 12, Disclosures IFRS 12 includes the disclosure requirements 1 January 2014
of interests in for all forms of interests in other entities,
other entities including joint arrangements, associates,
special purpose vehicles and other off
balance sheet vehicles.
IFRS 13, Fair value IFRS 13 aims to improve consistency and 1 January 2014
measurement reduce complexity by providing a precise
definition of fair value and a single source
of fair value measurement and disclosure
requirements for use across IFRSs.
Amendment to IAS The main change resulting from these amendments 1 July 2012
1, Financial statement is a requirement for entities to group
presentation regarding items presented in 'other comprehensive
other comprehensive income' (OCI) on the basis of whether they
income are potentially reclassifiable to profit
or loss subsequently (reclassification
adjustments). The amendments do not address
which items are presented in OCI.
Amendment to IAS These amendments eliminate the corridor 1 January 2013
19, Employee benefits approach and calculate finance costs on
a net funding basis.
IAS 27 (revised IAS 27 (revised 2011) includes the provisions 1 January 2013
2011), Separate on separate financial statements that are
financial statements left after the control provisions of IAS
27 have been included in the new IFRS 10.
IAS 28 (revised IAS 28 (revised 2011) includes the requirements 1 January 2014
2011), Associates for joint ventures, as well as associates,
and joint ventures to be equity accounted following the issue
of IFRS 11.
IAS 32, Offsetting The amendments clarify existing application 1 January 2014
Financial Assets issues relating to the offsetting requirements.
and Financial Liabilities
---------------------------- ---------------------------------------------------- ---------------
There are no other IFRS or IFRIC interpretations that are not
yet effective that would be expected to have a material impact on
Smart Metering Systems plc.
None of the above interpretations would have an impact on this
financial information if applied.
Notes to the financial statements
For the year ended 31 December 2012
1 Segmental reporting
For management purposes, the Group is organised into two core
divisions, management of assets and installation of meters, which
form the basis of the Group's reportable operating segments.
Operating segments within those divisions are combined on the basis
of their similar long-term economic characteristics and similar
nature of their products and services, as follows:
The management of assets comprises regulated management of gas
meters within the UK.
The installation of meters comprises installation of domestic
and industrial and commercial gas meters throughout the UK.
Management monitors the operating results of its divisions
separately for the purpose of making decisions about resource
allocation and performance assessment. The operating segments
disclosed in the financial statements are the same as reported to
the Board. Segment performance is evaluated based on gross profit
or loss excluding operating costs not reported by segment,
depreciation, amortisation of intangible assets and exceptional
items.
The following tables present information regarding the Group's
reportable segments for the years ended 31 December 2012 and 31
December 2011:
Asset Asset Total
management installation Unallocated operations
31 December 2012 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------- ------------ -----------
Segment/Group revenue 9,254 11,775 - 21,029
Operating costs (2,194) (5,565) - (7,759)
------------------------------ ----------- ------------- ------------ -----------
Segment profit - Group gross
profit 7,060 6,210 - 13,270
Items not reported by segment:
Other operating costs - - (4,266) (4,266)
Depreciation (918) - (672) (1,590)
Amortisation (238) - - (238)
Exceptional items and fair
value adjustments - - (1,243) (1,243)
------------------------------ ----------- ------------- ------------ -----------
Profit before interest and
tax 5,904 6,210 (6,181) 5,933
Net finance costs - - (706) (706)
------------------------------ ----------- ------------- ------------ -----------
Profit before tax 5,904 6,210 (6,887) 5,227
Tax expense (914)
------------------------------------------------------------------------ -----------
Profit for year 4,313
------------------------------------------------------------------------ -----------
Asset Asset Total
management installation Unallocated operations
31 December 2011 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------- ------------ -----------
Segment/Group revenue 6,614 9,350 - 15,964
Cost of sales (1,973) (5,136) - (7,109)
------------------------------ ----------- ------------- ------------ -----------
Segment profit - Group gross
profit 4,641 4,214 - 8,855
Items not reported by segment:
Other operating costs - - (3,182) (3,182)
Depreciation (918) - (38) (956)
Amortisation (235) - - (235)
Exceptional items and fair
value adjustments - - (677) (677)
------------------------------ ----------- ------------- ------------ -----------
Profit before interest and
tax 3,488 4,214 (3,897) 3,805
Net finance costs - - (494) (494)
------------------------------ ----------- ------------- ------------ -----------
Profit before tax 3,488 4,214 (4,391) 3,311
Tax expense (1,121)
------------------------------------------------------------------------ -----------
Profit for year (2,190)
------------------------------------------------------------------------ -----------
All revenues and operations are based and generated in the
UK.
The Group has one major customer that generated turnover within
each segment as listed below:
2012 2011
GBP'000 GBP'000
--------------------------------- -------- --------
Customer 1 - Asset Management 5,511 4,380
Customer 1 - Asset Installation 4,228 2,860
--------------------------------- -------- --------
9,739 7,240
--------------------------------- -------- --------
No segmentation is presented for the majority of Group assets
and liabilities as these are managed centrally, independently of
operating segments.
Those assets and liabilities that are managed and reported on a
segmental basis are detailed below.
Segment assets and liabilities
Asset Asset Total
management installation operations
31 December 2012 GBP'000 GBP'000 GBP'000
-------------------------------------------- ----------- ------------- -----------
Assets reported by segment
Intangible assets 1,916 - 1,916
Plant and machinery 35,791 - 35,791
Inventories 373 - 373
-------------------------------------------- ----------- ------------- -----------
38,080
Assets not reported by segment 9,859
------------------------------------------------------------------------ -----------
Total assets 47,939
------------------------------------------------------------------------ -----------
Liabilities reported by segment
Obligations under hire purchase agreements 13 - 13
-------------------------------------------- ----------- ------------- -----------
13
Liabilities not reported by segment 31,333
------------------------------------------------------------------------ -----------
Total liabilities 31,346
------------------------------------------------------------------------ -----------
Asset Asset Total
management installation operations
31 December 2011 GBP'000 GBP'000 GBP'000
-------------------------------------------- ----------- ------------- -----------
Assets reported by segment
Intangible assets 1,885 - 1,885
Plant and machinery 21,125 - 21,125
Inventories 83 - 83
-------------------------------------------- ----------- ------------- -----------
23,093
Assets not reported by segment 9,143
-------------------------------------------- ----------- ------------- -----------
Total assets 32,236
-------------------------------------------- ----------- ------------- -----------
Liabilities reported by segment
Obligations under hire purchase agreements 16 - 16
-------------------------------------------- ----------- ------------- -----------
16
Liabilities not reported by segment 19,764
------------------------------------------------------------------------ -----------
Total liabilities 19,780
------------------------------------------------------------------------ -----------
2 Income statement by nature and items of expenditure included
in the consolidated income statement
2012 2011
GBP'000 GBP'000
--------------------------------------------- -------- --------
Revenue 21,029 15,964
Direct rental costs (2,194) (1,973)
Direct subcontractor costs (4,556) (4,437)
Other direct sales costs and systems rental (1,001) (699)
Staff costs (2,665) (1,965)
Depreciation:
- owned assets (1,568) (948)
- leased assets (31) (8)
Amortisation (238) (234)
Auditor's remuneration:
- as auditor (43) (59)
- other services (22) (188)
Exceptional costs (1,243) (677)
Operating lease costs:
- plant and equipment (30) (25)
Other operating charges (1,505) (946)
--------------------------------------------- -------- --------
Operating profit 5,933 3,805
Finance costs (739) (535)
Finance income 33 41
--------------------------------------------- -------- --------
Profit before taxation 5,227 3,311
--------------------------------------------- -------- --------
Included in exceptional items and fair value adjustments
expenses are: i) GBPNil (2011: GBP329,000) that relates to costs
incurred during the listing process, ii) GBP(151,000) (2011:
GBP249,000) relates to the interest rate hedge fair value
adjustment, iii) GBP652,518 (2011: GBPNil) of costs associated with
restructuring debt facilities, iv) GBP395,300 (2011: GBPNil)
settlement of hedge, v) GBP243,675 (2011: GBP99,000) that relates
to share-based payments, and vi) GBP102,650 (2011: GBPNil) TUPE
costs relating to a contract win during the year.
Amounts paid to our auditors during the year totalled GBP65,480
(2011: GBP247,000).
This can be analysed as:
2012 2011
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Statutory audit (Baker Tilly UK Audit LLP) 43 59
Reporting accountant services (Baker Tilly
Corporate Finance LLP) - 167
Taxation services (Baker Tilly Tax and Accounting
Limited) 19 15
Non-statutory audit services (Baker Tilly
UK Audit LLP) 3 6
--------------------------------------------------- -------- --------
65 247
--------------------------------------------------- -------- --------
3 Particulars of employees
The average number of staff employed by the Group, including
Executive Directors, during the financial year was:
2012 2011
Number Number
-------------------------------- ------- -------
Number of administrative staff 5 5
Number of operational staff 54 34
Number of sales staff 3 -
Number of IT staff 3 -
Number of Directors 3 3
-------------------------------- ------- -------
68 42
-------------------------------- ------- -------
The aggregate payroll costs, including Executive Directors, of
the above were:
2012 2011
GBP'000 GBP'000
------------------------ -------- --------
Wages and salaries 2,170 1,711
Social security costs 256 195
Staff pension costs 40 40
Director pension costs 18 19
------------------------ -------- --------
2,484 1,965
------------------------ -------- --------
4 Directors' emoluments
The Directors' aggregate remuneration in respect of qualifying
services were:
2012 2011
GBP'000 GBP'000
----------------------------------------------- -------- --------
Emoluments receivable 518 586
Fees 50 333
Value of Group pension contributions to money
purchase schemes 4 3
Other pension 14 16
----------------------------------------------- -------- --------
586 938
----------------------------------------------- -------- --------
2012 2011
Emoluments of highest paid Director GBP'000 GBP'000
------------------------------------- -------- --------
Total emoluments 350 310
Pension contributions 13 10
------------------------------------- -------- --------
The number of Directors who accrued benefits under Company
pension schemes was as follows:
2012 2011
Number Number
------------------------ ------- -------
Money purchase schemes 1 2
------------------------ ------- -------
5 Finance costs and finance income
2012 2011
GBP'000 GBP'000
--------------------------- -------- ---------
Finance costs
Bank loans and overdrafts 738 533
Finance leases 1 2
--------------------------- -------- ---------
Total finance costs 739 535
--------------------------- -------- ---------
Finance income
Bank interest receivable 33 41
--------------------------- -------- ---------
6 Taxation
2012 2011
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Analysis of charge in the year
Current tax:
Current income tax expense 200 212
Over provision in prior year 77 -
--------------------------------------------------- -------- --------
Total current income tax 277 212
Deferred tax:
Origination and reversal of temporary differences 637 909
--------------------------------------------------- -------- --------
Tax on profit on ordinary activities 914 1,121
--------------------------------------------------- -------- --------
The charge for the period can be reconciled to the profit per
the consolidated statement of comprehensive income as follows:
Profit before tax 5,227 3,311
---------------------------------------------------------- ------ ------
Tax at the UK corporation tax rate of 24.5% (2011:
26.5%) 1,281 877
Expenses not deductible for tax purposes 45 228
Adjustments to tax charge in respect of previous periods (174) 51
Change in tax rate (221) (35)
R&D enhanced deductions (17) -
---------------------------------------------------------- ------ ------
Tax expense in the income statement 914 1,121
---------------------------------------------------------- ------ ------
7 Earnings per share
The calculation of EPS is based on the following data and number
of shares:
2012 2011
GBP'000 GBP'000
--------------------------------------------- -------- --------
Profit for the year used for calculation of
basic EPS 4,313 2,190
Amortisation of intangible assets 238 235
Exceptional costs 1,243 677
Tax effect of adjustments (355) (92)
--------------------------------------------- -------- --------
Earnings for the purpose of adjusted EPS 5,439 3,010
--------------------------------------------- -------- --------
Number of shares 2012 2011
---------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for the
purposes of basic EPS 83,339,747 74,709,610
Effect of potentially dilutive ordinary shares:
- share options 2,957,911 728,577
---------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for the
purposes of diluted EPS 86,297,658 75,438,187
---------------------------------------------------- ----------- -----------
Earnings per share:
- basic (pence) 5.18 2.93
- diluted (pence) 5.00 2.90
Adjusted earnings per share:
- basic (pence) 6.53 4.03
- diluted (pence) 6.30 3.99
---------------------------------------------------- ----------- -----------
The Directors consider that the adjusted earnings per share
calculation gives a better understanding of the Group's earnings
per share.
8 Dividends
2012 2011
GBP'000 GBP'000
-------------------------------------------- -------- --------
Equity dividends
Paid during the year:
Dividends on equity shares GBP0.005 (2011:
GBP600) 417 180
-------------------------------------------- -------- --------
Total dividends 417 180
-------------------------------------------- -------- --------
9 Intangible assets
Research
and
development Software Total
GBP'000 GBP'000 GBP'000
------------------------ ------------ --------- --------
Cost
As at 1 January 2011 171 1,810 1,981
Additions 388 - 388
------------------------ ------------ --------- --------
As at 31 December 2011 559 1,810 2,369
Additions 269 - 269
------------------------ ------------ --------- --------
As at 31 December 2012 828 1,810 2,638
------------------------ ------------ --------- --------
Amortisation
As at 1 January 2011 14 235 249
Charge for year - 235 235
------------------------ ------------ --------- --------
As at 31 December 2011 14 470 484
Charge for year 3 235 238
------------------------ ------------ --------- --------
As at 31 December 2012 17 705 722
------------------------ ------------ --------- --------
Net book value
At 31 December 2012 811 1,105 1,916
------------------------ ------------ --------- --------
At 31 December 2011 545 1,340 1,885
------------------------ ------------ --------- --------
At 1 January 2011 157 1,574 1,731
------------------------ ------------ --------- --------
10 Property, plant and equipment
Short leasehold Plant and Fixtures
property machinery and fittings Equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------------- ---------- ------------- ---------- --------
Cost
As at 1 January
2011 31 13,852 24 133 14,040
Additions - 9,168 1 163 9,332
--------------------- ---------------- ---------- ------------- ---------- --------
As at 31 December
2011 31 23,020 25 296 23,372
Additions 72 16,200 91 17 16,380
Disposals - - (13) - (13)
--------------------- ---------------- ---------- ------------- ---------- --------
As at 31 December
2012 103 39,220 103 313 39,739
--------------------- ---------------- ---------- ------------- ---------- --------
Depreciation
As at 1 January
2011 12 977 4 96 1,089
Charge for year 6 918 5 27 956
--------------------- ---------------- ---------- ------------- ---------- --------
As at 31 December
2011 18 1,895 9 123 2,045
Charge for year 12 1,534 11 42 1,599
Disposals - - (9) - (9)
--------------------- ---------------- ---------- ------------- ---------- --------
As at 31 December
2012 30 3,429 11 165 3,635
--------------------- ---------------- ---------- ------------- ---------- --------
Net book value
At 31 December 2012 73 35,791 92 148 36,104
--------------------- ---------------- ---------- ------------- ---------- --------
At 31 December 2011 13 21,125 16 173 21,327
--------------------- ---------------- ---------- ------------- ---------- --------
At 1 January 2011 19 12,875 20 37 12,951
--------------------- ---------------- ---------- ------------- ---------- --------
Hire purchase agreements
Included within the net book value of GBP36,104,000 (2011:
GBP21,327,000, 2010: GBP12,951,000) is GBP115,000 (2011:
GBP145,000, 2010: GBPNil) relating to assets held under hire
purchase agreements. The depreciation charged to the consolidated
financial statements in the year in respect of such assets amounted
to GBP31,000 (2011: GBP8,000, 2010: GBP23,000).
The assets are secured by a bond and floating charge (note
16).
11 Financial asset investments
Subsidiary undertakings
Country of Proportion
of
incorporation Holding shares Nature of business
held
------------------- -------------- ---------------- ----------- -------------------
All held by the
Company:
UK Gas Connection Scotland Ordinary shares 100% Gas utility
Limited management
UK Meter Assets Scotland Ordinary shares 100% Gas utility
Limited management
UK Data Management Scotland Ordinary shares 100% Data management
Limited
UKMA (AF) Limited* England Ordinary shares 100% Leasing
------------------- -------------- ---------------- ----------- -------------------
* The shareholding in this company is indirect via a subsidiary
company.
12 Inventories
2012 2011
GBP'000 GBP'000
------------- -------- --------
Inventories 373 83
------------- -------- --------
13 Trade and other receivables
2012 2011
GBP'000 GBP'000
------------------- -------- --------
Trade receivables 1,270 480
Prepayments 60 24
Accrued income 1,516 965
Other receivables 32 63
VAT recoverable 213 74
Other debtors - -
------------------- -------- --------
3,091 1,606
------------------- -------- --------
The debtors above include the following amounts falling due
after more than one year:
2012 2011
GBP'000 GBP'000
------------------- --------- --------
Other receivables - 34
------------------- --------- --------
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
The Group's credit risk is primarily attributable to trade
receivables. The amounts presented in the statement of financial
position are net of allowances for doubtful receivables. There was
no allowance for doubtful receivables in the year (2011: GBPNil,
2010: GBPNil). The ageing profile of trade receivables past due
date is shown below:
2012 2011
GBP'000 GBP'000
------------------------------------ -------- --------
31-60 days 148 20
60-90 days 56 15
Over 90 days 49 10
------------------------------------ -------- --------
253 45
------------------------------------ -------- --------
Allowance for doubtful receivables - -
------------------------------------ -------- --------
253 45
------------------------------------ -------- --------
Trade receivables are non-interest-bearing and are generally on
30-90 days terms.
Trade receivables due from related parties at 31 December 2012
amounted to GBPNil (2011: GBP34,000, 2010: GBP31,000).
Receivables are all in Sterling denominations.
The Directors are of the opinion that none of the overdue debts
as at 31 December 2012 (2011: GBPNil, 2010: GBPNil) require
impairment.
14 Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group. The
carrying amount of the asset approximates the fair value. All
balances are held in Sterling.
During each period, there were no amounts of cash placed on
short-term deposit.
For the purposes of the cash flow statement, cash and cash
equivalents comprise:
2012 2011
GBP'000 GBP'000
---------------- -------- --------
Cash 6,455 7,317
Bank overdraft - -
---------------- -------- --------
6,455 7,317
---------------- -------- --------
15 Trade and other payables
2012 2011
GBP'000 GBP'000
----------------- -------- --------
Current
Trade payables 3,434 2,035
Other payables 12 10
Other taxes 176 143
Corporation tax 148 161
Deferred income 88 -
Accruals 4,343 4,030
----------------- -------- --------
8,201 6,379
----------------- -------- --------
The maturity profile of trade payables is given below:
2012 2011
GBP'000 GBP'000
-------------- -------- --------
Current 2,518 1,530
31-60 days 607 281
60-90 days 42 39
Over 90 days 266 185
-------------- -------- --------
3,433 2,035
-------------- -------- --------
Trade payables are non-interest-bearing and are normally settled
on 30-45 day terms.
All trade liabilities are Sterling denominated.
16 Bank loans and overdrafts
2012 2011
GBP'000 GBP'000
----------------- -------- --------
Current
Bank loans 2,150 1,328
Bank overdrafts - -
----------------- -------- --------
2,150 1,328
----------------- -------- --------
Non-current
Bank loans 18,299 9,845
Bank overdraft - -
----------------- -------- --------
18,299 9,845
----------------- -------- --------
Bank loans at 31 December 2012 relate to a new term loan
facility of GBP45.0m that was finalised in August 2012.
The term loan is available for 24 months, is payable in equal
quarterly instalments based on a ten year repayment profile, with a
final repayment date of 31 July 2017. The term loan attracts
interest at a rate of 2.9% over the three month LIBOR. 1.45% is
paid on undrawn funds.
The banks have a bond and floating charge over current and
future property and assets.
The Group has fixed the bank interest payable through an
interest rate swap (see note 18).
17 Commitments under hire purchase agreements
Future minimal commitments under hire purchase agreements are as
follows:
2012 2011
GBP'000 GBP'000
-------------------------------------------- -------- --------
Current
Amounts payable within one year 3 3
-------------------------------------------- -------- --------
Non-current
Amounts payable between two to five years 10 13
Amounts payable after more than five years - -
-------------------------------------------- -------- --------
10 13
-------------------------------------------- -------- --------
The Group has hire purchase contracts for various items of
computer equipment. These leases have terms of renewal but no
purchase options and escalation clauses. Renewals are at the option
of the specific entity that holds the lease.
The Directors consider that the future minimum lease payments
under hire purchase contracts approximate to the present value of
the minimum payments. Obligations under hire purchase contracts are
secured on the underlying assets.
18 Other financial liabilities and assets
The Group's treasury policy and management of financial
instruments, which form part of these financial statements, are set
out in the Financial Review.
2012 2011
GBP'000 GBP'000
----------------------------- -------- --------
Other financial assets - 18
----------------------------- -------- --------
Non-current liabilities
Other financial liabilities 170 339
----------------------------- -------- --------
Other financial assets and liabilities relate to the fair value
adjustment on interest rate swaps.
The Group uses interest rate swaps to manage interest rate risk
on interest-bearing loans and borrowings which means that the Group
pays a fixed interest rate rather than being subject to
fluctuations in the variable rate. The Group has not designated
these derivatives as cash flow hedges.
The interest rate swaps cover an interest rate swap for an
amount of GBP13,200,000 as at 31 December 2012 (2011: GBP5,500,000,
2010: GBP3,800,000) and an interest rate cap over an amount of
GBPNil as at 31 December 2012 (2011: GBP5,500,000, 2010:
GBP4,000,000).
The interest rate swap results in a fixed interest rate of
0.90-0.92%.
The termination date for the derivatives is 15 September
2016.
The movement in the fair value is shown below:
2012 2011
GBP'000 GBP'000
-------------------------- -------- --------
Interest rate swap
Opening position 18 99
Adjustment to fair value (18) (81)
-------------------------- -------- --------
Closing position - 18
-------------------------- -------- --------
Interest rate cap
Opening position (339) (171)
Adjustment to fair value 169 (168)
-------------------------- -------- --------
Closing position (170) (339)
-------------------------- -------- --------
Fair values
The Directors do not consider there to be any material
differences between the fair values and carrying values of any
financial assets or liabilities recorded within these financial
statements at the balance sheet date other than as set out
below.
Fair value hierarchy
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1: quoted (unadjusted) prices in active markets for identical
assets or liabilities;
-- Level 2: other techniques for which all inputs which have a significant
effect on the recorded fair value are observable, either directly or
indirectly; and
-- Level 3: techniques which use inputs which have a significant effect
on the recorded fair value that are not based on observable market
data.
At 31 December 2012, the Group held the following financial
instruments measured at fair value:
31 December
2012 Level Level
1 2 Level 3
Liabilities measured at fair GBP'000 GBP'000 GBP'000 GBP'000
value
------------------------------- ------------ -------- -------- --------
Financial liabilities at fair value through the income statement:
Interest rate derivatives 170 - 170 -
------------------------------- ------------ -------- -------- --------
Fair value has been assessed on a Mark to Market basis.
The above liabilities are shown on the statement of financial
position as other current financial assets and other current
financial liabilities.
During the reporting period ended 31 December 2012, there were
no transfers between Level 1 and Level 2 fair value measurements
and no transfers into and out of Level 3 fair value
measurements.
19 Financial risk management
The Board reviews and agrees policies for managing the risks
associated with interest rate, credit and liquidity risk. The Group
has in place a risk management policy that seeks to minimise any
adverse effect on the financial performance of the Group by
continually monitoring the following risks:
Interest rate risk
The Group's interest rate risk arises as a result of both its
long and short-term borrowing facilities.
The Group seeks to manage exposure to interest rate fluctuations
through the use of fixed interest rate swaps.
Interest rate sensitivity
The following table demonstrates the sensitivity to a change in
interest rates on loans and borrowings, after the impact of hedge
accounting. The Group's profit before tax is affected through the
impact on floating rate borrowings as follows:
Effect
on profit
Increase/decrease before
tax
Pound Sterling in basis GBP'000
points
---------------- ------------------ -----------
2012 1% 65
2011 1% 51
---------------- ------------------ -----------
Interest rate risk profile of financial liabilities
The interest rate profile of the financial liabilities of the
Group (being bank loans and overdrafts, obligations under finance
leases and other financial liabilities) as at each period end is as
follows:
Fixed rate Variable
rate
financial financial
liabilities
liabilities Total
GBP'000 GBP'000 GBP'000
---------------- ------------- ------------ --------
2012 13,213 7,249 20,462
2011 5,516 5,673 11,189
1 January 2011 5,000 4,434 9,434
---------------- ------------- ------------ --------
The fixed rate financial liabilities relates to the portion of
the banking facility that is fixed through hedging instruments.
The following is the maturity profile of the Group's financial
liabilities as at 31 December:
2012 2011
GBP'000 GBP'000
-------------------- -------- --------
Fixed rate
Less than one year 1,324 642
Two to five years 5,289 2,430
Over five years 6,600 2,444
-------------------- -------- --------
13,213 5,516
-------------------- -------- --------
Variable rate
Less than one year 803 630
Two to five years 3,212 2,521
Over five years 3,234 2,522
-------------------- -------- --------
7,249 5,673
-------------------- -------- --------
Interest rate risk profile of financial assets
The Group's financial assets at 31 December 2012 comprise cash
and trade receivables. The cash balance of GBP6,455,000 (2011:
GBP7,317,000, 2010: GBP1,835,000) is a floating rate financial
asset.
Fair values of financial liabilities and financial assets
The fair values, based upon the market value or discounted cash
flows of financial liabilities and financial assets held in the
Group, were not materially different from their book values.
Foreign currency risk
The Group's exposure to the risk of changes in foreign exchange
rates is insignificant as primarily all of the Group's operating
activities are denominated in Pound Sterling.
Liquidity risk
The Group manages its cash in a manner designed to ensure
maximum benefit is gained whilst ensuring security of investment
sources. The Group's policy on investment of surplus funds is to
place deposits at institutions with strong credit ratings.
The ageing and maturity profile of the Group's material
liabilities are covered within the relevant liability note.
Credit risk
Credit risk with respect to trade receivables is due to the
Group trading with a limited number of companies who are generally
large utility companies or financial institutions. Therefore, the
Group does not expect, in the normal course of events, that these
debts are at significant risk. The Group's maximum exposure to
credit risk equates to the carrying value of cash held on deposit
and trade and other receivables.
The Group's maximum exposure to credit risk from its customers
is GBP2,786,000 (2011: GBP1,445,000, 2010: GBP1,078,000) as
disclosed in note 13 - trade and other receivables.
The Group regularly monitors and updates its cash flow forecasts
to ensure it has sufficient and appropriate funds to meet its
ongoing operational requirements whilst maintaining adequate
headroom on its facilities to ensure no breach in its banking
covenants.
Capital management
Capital is the equity attributable to the equity holders of the
parent. The primary objective of the Group's capital management is
to ensure that it maintains a strong credit rating and healthy
capital ratios in order to support its business and maximise
shareholder value. The Group manages its capital structure, and
makes adjustments to it, in light of changes in economic
conditions. To maintain or adjust the capital structure, the Group
may adjust the dividend payment to shareholders, sell assets,
return capital to shareholders or issue new shares.
The Group monitors capital on the basis of a leverage ratio.
This ratio is calculated as net debt divided by EBITDA. Net debt is
calculated as total borrowings less cash. EBITDA is calculated as
operating profit before any significant non-recurring items,
interest, tax, depreciation and amortisation.
20 Deferred taxation
The movement in the deferred taxation asset during the period
was:
2012 2011
GBP'000 GBP'000
------------------------------------------------ -------- --------
Opening deferred tax liability 1,873 964
Increase in provision through income statement 637 909
------------------------------------------------ -------- --------
Closing deferred tax liability 2,510 1,873
------------------------------------------------ -------- --------
All movements identified have gone through the income
statement.
The Group's provision for deferred taxation consists of the tax
effect of temporary differences in respect of:
2012 2011
GBP'000 GBP'000
------------------------------------------------- -------- --------
Excess of taxation allowances over depreciation
on fixed assets 2,788 2,329
Tax losses available (239) (371)
Fair value of interest rate swaps (net) (39) (85)
------------------------------------------------- -------- --------
2,510 1,873
------------------------------------------------- -------- --------
The deferred tax included in the income statement is as
follows:
2012 2011
GBP'000 GBP'000
----------------------------------------------- -------- --------
Accelerated capital allowances 459 924
Tax losses 132 50
Movement in fair value of interest rate swaps 46 (65)
----------------------------------------------- -------- --------
637 909
----------------------------------------------- -------- --------
21 Related party transactions
A number of key management personnel hold positions in other
entities that result in them having control or significant
influence over the financial or operating policies.
A number of these entities transacted with the Group in the
reporting period. The terms and conditions of the transactions with
key management personnel and their related parties were no more
favourable than those available, or which might reasonably be
expected to be available, on similar transactions to non-key
management personnel and related entities on an arm's length
basis.
During the period, the Group entered into the following
transactions with related parties:
During the year the Group paid rent amounting to GBP41,500
(2011: GBP41,500, 2010: GBP65,500) to the Directors' pension
scheme, Eco Retirement Benefit Scheme, for the use of certain
premises. Both Stephen Timoney and Alan Foy are trustees of the
scheme. At the year-end date, an amount of GBP4,150 (2011:
GBP4,150, 2010: GBP6,414) was outstanding in this regard.
During the year, the Group paid dividends to S Timoney and A Foy
of GBP125,024 and GBP66,675 respectively.
Remuneration of key management which includes executive and
non-executive directors together with certain management
personnel:
At At
31 December 31 December
2012 2011
GBP'000 GBP'000
------------------------------------------------- ------------ ------------
Salaries and other short term employee benefits 754 953
------------------------------------------------- ------------ ------------
22 Share capital
2012 2011
GBP'000 GBP'000
-------------------------------------------- -------- --------
Allotted and called up:
83,339,747 ordinary shares of GBP0.01 each
(2011 and 2010: 83,339,747 ordinary shares
of GBP1 each) 833 833
-------------------------------------------- -------- --------
On 17 June 2011 each of the 300 ordinary shares of GBP1 each
then in issue was sub-divided into 100 ordinary shares of GBP0.01
each.
On 17 June 2011 4,980,000 ordinary shares of GBP0.01 each were
issued to Steve Timoney and Alan Foy by means of a bonus issue.
On 20 June 2011 61,663,080 ordinary shares of GBP0.01 each were
issued to Steve Timoney and Alan Foy by means of a bonus issue.
On 8 July 2011 16,666,667 ordinary shares were issued for
GBP0.60.
23 Share-based payments
On 20 June 2011 the Company adopted both an Approved Company
Share Option Plan (the CSOP) and an Unapproved Company Share Option
Plan (the Unapproved Plan).
CSOP
The CSOP is open to any employee of any member of the Group up
to a maximum value of GBP30,000 per employee. No option can be
exercised within three years of its date of grant.
Unapproved plan
The Unapproved Plan is open to any employee, Executive Director
or Non-executive Director of the Company or any other Group company
who is required to devote substantially the whole of his time to
his duties under his contract of employment. Except in certain
specified circumstances no option will be exercisable within five
years of its grant.
At 31 Exercise
At 1 January December price Date
Plan 2012 Granted Lapsed 2012 (pence) exercisable Expiry
date
------------ ------------- ---------- -------- ---------- --------- ------------ --------
CSOP 578,952 - (6,579) 572,373 76.0 15/7/14 15/7/21
CSOP - 39,088 - 39,088 153.5 28/5/15 28/5/22
CSOP - 12,097 - 12,097 248.0 3/12/15 3/12/22
Unapproved 3,082,333 - - 3,083,333 60.0 20/6/16 20/6/21
Unapproved 717,500 - - 717,500 60.0 20/6/12* 20/2/21
Unapproved - 1,162,629 - 1,162,629 153.5 28/5/17 28/5/22
Unapproved - 805,660 - 805,660 248.0 3/12/17 3/12/22
------------ ------------- ---------- -------- ---------- --------- ------------ --------
*Only 50% of the options can be exercised at this date.
Valuation
The fair value of all options granted has been estimated using
the Black-Scholes option model, taking into account the terms and
conditions upon which the options were granted. The following table
lists the inputs to the model used for the year ended 31 December
2012:
Unapproved
CSOP plan
--------------------------------- ------ -----------
Dividend yield 1.25% 1.25%
Expected share price volatility 40% 40%
Risk-free interest rate 0.40% 0.77%
Expected life of option (years) 3 5
Option strike price (GBP) 2.48 2.48
Share price (GBP) 2.48 2.48
--------------------------------- ------ -----------
The weighted average fair value of share options issued during
the year was GBP1.82.
24 Other reserve
This is a non-distributable reserve that arose by applying
merger relief under s162 CA06 to the shares issued in 2008 in
connection with the Group restructuring. This was previously
recognised as a merger reserve under UK GAAP. Under IFRS, this has
been classed as an "other reserve".
25 Commitments under operating leases
The Group has entered into commercial leases for office space.
These leases have lives between one and 15 years with no renewal
option included in the contracts. There are no restrictions placed
upon the Group by entering into these leases.
Future minimum rentals payable under non-cancellable operating
leases as at each year end are as follows:
2012 2011
GBP'000 GBP'000
------------------------------------------------- -------- --------
Future minimal commitments under operating lease
agreements are as follows:
Payable within one year 65 68
Payable within two and five years 704 166
Payable after five years 176 218
------------------------------------------------- -------- --------
945 452
----------------------------------------------------------- --------
26 Ultimate controlling party
There is no ultimate controlling party by virtue of the
structure of shareholdings in the Group.
27 Contingent liability
The Group is the subject of an ongoing HMRC enquiry in respect
of payments made to Employee Benefit Trusts in prior years. Whilst
the outcome of the enquiry is, as yet, uncertain, the beneficiaries
of the Trusts have provided the Company with indemnities against
any additional tax that may become payable as a result of these
enquiries.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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