TIDMSMS
RNS Number : 6126L
Smart Metering Systems PLC
13 September 2021
13 September 2021
Smart Metering Systems plc
Strong H1 performance, well-positioned for growth
Smart Metering Systems plc (AIM: SMS, the Group), the fully
integrated energy infrastructure company owning and managing meter
assets, energy data, grid-scale batteries and other carbon
reduction ("CaRe") assets, has published its half year results for
the six months ended 30 June 2021.
GBP'm (unless stated otherwise) H1 2021 H1 2020(1)
Alternative performance measures
Index-linked annualised recurring
revenue (ILARR)(2) 84.2 75.9
Pre-exceptional EBITDA(3) 26.1 27.8
Underlying profit before taxation(4) 9.6 9.1
Underlying basic EPS (p)(5) 4.20 5.02
Statutory performance measures
Group revenue 51.7 54.2
EBITDA 22.4 214.1
Profit before taxation 5.0 194.5
Basic EPS (p) 0.90 171.07
Dividend per share (p) 18.75 4.58
Net cash/(debt) 5.6 44.5
-------------------------------------- -------- -----------
(1 2020 measures include the financial performance of the
disposed I&C meter portfolio up to the date of sale on 22 April
2020.)
(2 ILARR is the revenue generated from meter rental and data
contracts at a point in time. Includes revenue from third-party
managed meters.)
(3 Pre-exceptional EBITDA is statutory EBITDA excluding
exceptional items.)
4 Underlying profit before taxation (PBT) is profit before
taxation excluding exceptional items and amortisation of certain
intangibles.
(5 Underlying basic EPS is underlying profit after taxation
divided by the weighted average number of ordinary shares for the
purpose of basic EPS. H1 2021 underlying profit after taxation
includes the non-recurring effect of a change in the deferred tax
rate from 19% to 25%, following the UK Government's enactment of
the Finance Bill 2021 in May, detailed further in the Financial
Review section below.)
(A reconciliation between reported and underlying performance is
detailed in the Financial Review section below.)
Highlights
Financial
-- ILARR at 30 June 2021 up 9% on year-end (31 December 2020:
GBP77.0m) and up 11% on the prior period (30 June 2020: GBP75.9m)
to GBP84.2m
-- Revenue down 5%, to GBP51.7m (H1 2020: GBP54.2m), up 8% once
adjusted for the I&C meter portfolio disposal
-- Pre-exceptional EBITDA down 6%, to GBP26.1m (H1 2020:
GBP27.8m), up 22% once adjusted for the I&C meter portfolio
disposal
-- Underlying profit before taxation up 5%, to GBP9.6m (H1 2020:
GBP9.1m), up 87% once adjusted for the I&C meter portfolio
disposal
-- Net cash at 30 June 2021 of GBP5.6m (30 June 2020: net cash
of GBP44.5m), reduction reflects continued investment in
revenue-generating assets
-- 27.5p per share dividend intended in respect of full year FY
2021 (full year FY 2020: 25.0p), to be paid in quarterly
instalments starting October 2021
-- Assuming no further pandemic-related restrictions, the Board
expects FY 2021 underlying PBT to be marginally ahead of its
previous expectations
Smart meters
-- Strong recovery in smart meter installations post COVID-19
-- Net increase in contracted smart meter order pipeline to c.2.75m (31 December 2020: c.2.0m)
Grid-scale batteries
-- 470MW grid-scale battery pipeline established
-- 240MW o f the total pipeline now acquired, of which 90MW are
under construction and progressing in line with earlier
expectations
Acquisition of Industrial & Commercial (I&C) large power
Half Hourly (HH) meter portfolio
-- Completed in April 2021 for GBP8.4m
-- c.15,000 I&C meters acquired from a large energy
supplier, adding c.GBP1.1m to the Group's I&C meters ILARR
-- Data service contracts also acquired, initially generating a further c.GBP2m of data ILARR
Developing CaRe assets
-- Behind-the-meter smart solar and battery solution launched
with pilot projects in up to 1,500 homes; additional pipeline
developing
-- Installation of electric vehicle charge points commenced as
part of Virgin Media Park and Charge project
-- Continued progress in the development of wider CaRe products and services
Environmental, Social and Governance (ESG)
-- Tangible progress towards 'net-zero by 2030' target
-- Several new social initiatives launched
-- Highest scoring for corporate governance by Morgan Stanley Capital International (MSCI)
Fund raising and banking facilities
-- The Company have announced, today, a proposed equity placing
together with a refinancing of its existing revolving credit
facility to GBP420m. We have published further details alongside
these interim results, available here:
https://www.sms-plc.com/corporate/investors/regulatory-news/
Alan Foy, Chief Executive Officer, commented:
"The Group has continued its strong financial performance
throughout the first six months of the year, delivering encouraging
growth and a pleasing recovery in smart meter installation rates.
This performance underlines the resilience of our business, the
defensive nature of the metering infrastructure asset class and the
index-linked sustainable cash flows it generates, despite the
ongoing disruption of COVID-19. We are well positioned for future
growth.
"As we set out at our inaugural Capital Markets Day in June, we
have a considerable market opportunity for our metering, data and
battery CaRe products, with further growth opportunities for our
developing CaRe products. Our recent smart meter contract win with
a large energy supplier will further expand our long-term
index-linked recurring revenues and leverages on the scalability of
our well established end-to-end integrated model.
"Today's proposed fundraising and increased banking facility
significantly strengthen our position within the UK energy market
and provides funding for our growth strategy. Driven by our fully
integrated and scalable technology platform "METIS", SMS is
committed to decarbonising the UK energy system and helping to
deliver on the 'net-zero' agenda.
"In the light of recent trading and assuming no further
pandemic-related restrictions, the Board expects FY 2021 underlying
PBT to be marginally ahead of its previous expectations."
For further information:
Smart Metering Systems plc 0141 249 3850
Alan Foy, Chief Executive Officer
Dilip Kejriwal, Head of Investor Relations
Cenkos Securities plc (Joint Broker 0131 220 6939 / 020 7397
and Nomad) 8900
Neil McDonald / Pete Lynch
Investec Bank plc (Joint Broker) 020 7597 5970
Christopher Baird / Henry Reast
RBC Capital Markets (Joint Broker) 020 7653 4000
Matthew Coakes / Evgeni Jordanov /
Jack Wood
Instinctif Partners (PR Adviser) 020 7457 2020
Tim Linacre / Guy Scarborough / Sarah SMS@instinctif.com
Hourahane
Notes to Editors
Smart Metering Systems plc (www.sms-plc.com) is a fully
integrated energy infrastructure company owning and managing meter
assets, energy data, grid-scale batteries and other carbon
reduction ("CaRe") assets. The Group manages and optimises these
assets through its in-house technology and data analytical platform
"METIS".
Established in 1995, SMS provides a full end-to-end service,
from funding and installation to management and maintenance, with a
highly skilled workforce, deep engineering expertise and
well-established industrial partnerships.
SMS is leading the low carbon, smart energy revolution in the UK
and is committed to reducing its own carbon emissions to net zero
by 2030. SMS has been recognised with the London Stock Exchange's
Green Economy Mark every year since it was introduced in 2019.
SMS plc is headquartered in Glasgow with a national presence
across twelve UK locations.
SMS's shares are listed on AIM.
Overview
Our performance remained strong through the first half of the
year, delivering growth over the prior period, with underlying
profit before taxation increasing by 5% to GBP9.6m despite ongoing
disruption from COVID-19 in the early parts of the year and the
flow through effect of the 2020 I&C meter portfolio disposal.
This performance further demonstrates the resilience of our
business, the defensive nature of the metering infrastructure asset
class and the index-linked sustainable cash flows it generates.
Recovery following COVID-19 has been rapid with the Group
successfully increasing its smart meter installation run rate and
continuing to grow its contracted smart meter order pipeline, now
at c.2.75 million.
Our 470MW grid-scale battery pipeline is progressing at pace
with 240MW of the total pipeline now acquired, of which 90MW is
under construction. The remaining 230MW is under exclusivity and we
are actively developing a wider pipeline of projects. The existing
meter and grid-scale battery pipelines, once fully installed, are
expected to add a combined c.GBP75m of EBITDA.
Our established CaRe products, which include meters, energy data
and grid-scale batteries, allow us to access an addressable market
opportunity of c.GBP1.2bn EBITDA. This demonstrates the scale of
the opportunity ahead of us and the positioning of our business
within and beyond the UK smart meter rollout to drive the
'net-zero' agenda and UK energy transition. There are further
opportunities within our developing CaRe products, including
behind-the-meter, ADM(TM) Australia, energy services, EV charging
infrastructure and heat networks. Our fully integrated and scalable
technology platform "METIS" is at the heart of digitally enabling
and integrating our CaRe assets and energy data solutions and
provides us with a platform for significant growth.
Separately, the Company has today announced an increase in its
funding capacity following a proposed equity placing and the
successful refinancing of its existing revolving credit facility
from GBP300m to GBP420m. The debt refinancing also extends the
maturity date of the existing facility from December 2023 to 2025
on similar attractive terms.
UK smart meter rollout
Whilst COVID-19 impacted the ability to install smart meters at
the beginning of the year (particularly with specific restrictions
in Scotland), the Group is now exceeding its pre-COVID-19 monthly
installation run rate by c.20%, with over 30,000 smart meters
installed per month over the June to August period.
With c.46% of meters now exchanged to smart across the UK, we
have c.1.6m smart meters deployed with an additional smart meter
contracted order pipeline for a further c.2.75m meters. Once
completed, the meter pipeline is estimated to add c.GBP55m to the
Group's ILARR, which should flow to EBITDA as it leverages our
established asset management platform. Independent energy suppliers
constitute over 30% of the market and we estimate that there are a
further c.2.6m meters still to be contracted within the addressable
independent energy market segment.
Ofgem has further strengthened the regulatory regime on
suppliers to deliver the UK smart meter rollout, moving away from
an all-reasonable steps obligation to offer consumers a smart
meter, to mandatory supplier-specific annual binding installation
targets, requiring 85% of UK meters to be smart by 31 December
2025.
Acquisition of I&C meter portfolio
On 6 April 2021, we acquired an I&C large power HH
electricity meter portfolio from a large energy supplier for
GBP8.4m cash consideration.
The c.15,000 I&C meters acquired have added c.GBP1.1m to the
Group's meter rental ILARR. As part of the transaction, data
service contracts have also been transferred to SMS, which will
initially generate a further c.GBP2m of data ILARR. Metering and
data services are reported within our Asset Management
division.
Integration and mobilisation of this acquired business is
progressing well. The acquisition underpins our competitive
position in the I&C sector and reinforces the Group's ability
to consolidate its position by leveraging on its existing
technology platform and nationwide infrastructure, particularly as
the UK's electricity industry moves towards HH settlements, which
is being mandated by the end of 2025.
Grid-scale batteries
We have continued to make strong progress in further developing
and securing our 470MW pipeline of grid-scale battery storage
sites, which is reported within our Energy Management division.
Within the existing 470MW pipeline the first two sites,
totalling 90MW, have commenced construction and are advancing in
line with expectations. A further 150MW has been acquired
year-to-date with 100MW due to start construction during the fourth
quarter 2021 and 50MW due to start construction during the fourth
quarter 2022. The remaining 230MW is under exclusivity.
We are also developing a wider pipeline of projects, which are
at various stages of progression, targeting over 10% market share
in the coming years.
Developing CaRe assets
Development of wider CaRe products and services reported within
our Energy Management division, including our Solopower solution
and electric vehicle (EV) charging infrastructure, continues with
ongoing IT investment, leveraging our existing infrastructure and
expertise.
Pilot projects for our behind-the-meter solution have been
established in up to 1,500 homes in Scotland and are progressing
well, with early developments made on expanding this pipeline of
activity across the UK.
Installations of EV chargers have commenced as part of the
Virgin Media Park and Charge project, on which we are a lead
coordinator, and we entered a partnership with Aberdeen City
Council in H1, as part of a GBP5.2m green energy project, to trial
the installation of heat pumps and integration of electrified heat
alongside our Solopower solution.
Current trading and outlook
The monthly smart meter installation run rate has recovered
since the beginning of 2021 and is currently operating at c.20%
above the pre-COVID-19 run rate. We installed over 30,000 smart
meters per month during the June to August period, whilst
continuing to focus successfully on the safety and efficiency of
our operational delivery.
At the end of August 2021, the Group's ILARR stood at GBP84.8m
(30 June 2021: GBP84.2m) with 4.1 million meter and data assets
under management (30 June 2021: 4.0 million).
The existing meter and grid-scale battery pipelines, once
completed, are expected to add a combined c.GBP75m of EBITDA. The
net proceeds of the proposed equity placing will be utilised
alongside the extended GBP420m debt facility to give us the
financial and operational flexibility to help fund these
pipelines.
As the Company set out at its inaugural Capital Markets Event in
June, we remain well positioned in the UK's energy market, with
significant additional growth opportunities for our established and
developing CaRe products and services.
In the light of recent trading and assuming no further
pandemic-related restrictions, the Board expects FY 2021 underlying
PBT to be marginally ahead of its previous expectations.
ESG and sustainability
ESG leadership is at the core of our business as we seek to
realise our purpose, "to serve our customers and protect our
environment". We are dedicated to helping our customers reduce
their carbon emissions and are committed to achieving net zero in
our own business by 2030. Our CaRe products and services are
critical to achieving a cleaner and resilient future energy
system.
We published a detailed update on our ESG initiatives on 28 July
2021.
Key developments in 2021 include:
Environmental:
-- Recognised with the London Stock Exchange's Green Economy
Mark (the "Mark") every year since it was introduced in 2019.
-- In the first half of 2021, our Scope 1 and Scope 2 emissions
fell by 31% when compared with the first half of 2019. Although
during the period emissions rose 17% compared to H1 2020, this
comparison is distorted by the impact of COVID-19.
-- Carbon emissions avoided through the use of our products and
services increased 74% in H1 2021, compared to H1 2020, resulting
in an 11x positive impact versus our carbon footprint (H1 2020
& H1 2019: 8x).
-- Our vehicle fleet represented 88% of the Group's total carbon
emissions in H1 2021 with the remaining 12% originating from
buildings. We actively continued to address each of these two areas
to reduce our carbon emissions footprint:
o More than 90% of company cars were transitioned to plug-in
hybrid
o Commenced replacement of our van fleet to plug-in hybrid
o Office upgrades commenced with the objective of increasing
renewable power and energy efficiency, including air source heat
pumps for water heating and solar PV for renewable electricity
Social:
-- SMS is now a signatory of the Business in the Community Race
at Work Charter, ensuring its workplaces are tackling barriers that
ethnic minority people face in recruitment and progression.
-- We have become a Level 3 Disability Confident Leader, the highest level possible.
-- Several initiatives launched to support local communities and
biodiversity efforts whilst constructing grid-scale battery
projects.
-- We have donated over 150 tablet computers to schools,
community and learning centres, care facilities, and local
charities across England, Scotland, and Wales.
Governance:
-- Dedicated board subcommittee for Health, Safety, &
Sustainability operating effectively, headed by the Group's
Chairman Miriam Greenwood.
-- Completion of annual Carbon Disclosure Project (CDP)
submission in July, aligning with the key requirements under TCFD
(Taskforce for Climate-related Financial Disclosure) of
climate-related governance, strategy, risk management, metrics and
targets.
-- Successfully concluded the ISO50001 external audit process
and completed our external ISO re-certification audits with zero
non-conformities or observations.
-- Morgan Stanley Capital International (MSCI) weighted average
performance improved from 6.3 to 6.6 (on scale of 10) and
Sustainalytics risks rating reduced from 27.8 to 26.6 (on scale of
0-50).
Operational review by division
Asset Management:
The Group's meter and data assets ILARR grew 9% to GBP84.2m at
30 June 2021 (31 December 2020: GBP77.0m) with total meter and data
assets under management of 4.0 million (31 December 2020: 3.8
million). With the easing of COVID-19 restrictions in recent
months, capital deployment into new smart meter assets has ramped
up again and, in line with expectations, we have seen a
corresponding increase in the volumes of traditional meters being
removed from the wall as a result.
ILARR from our domestic smart meter portfolio grew 9% to
GBP46.6m, with 1.5 million smart meters at 30 June 2021. In H1
2021, we entered into agreements with two of the fastest growing
independent energy suppliers to provide services as an integrated
domestic smart meter installer and Meter Asset Provider (MAP).
Under the terms of the agreements, which include a minimum
contracted order commitment, we will fund and install domestic
smart meters on behalf of the energy suppliers. These wins enhanced
our contracted smart meter order pipeline to c.2.5 million meters
at 30 June 2021 (31 December 2020: c.2.0 million). Net of meters
installed during H1; the Group's pipeline stood at c.2.35 million
at 30 June 2021. We have since announced a further contract win
with a large energy supplier to fund and provide services, as MAP,
for the installation of at least 400,000 domestic smart meters,
bringing our current contracted smart meter order pipeline to
c.2.75m. Once installed, this pipeline is estimated to add c.GBP55m
to the Group's ILARR. We continue to target the additional c.2.6m
meter opportunity we believe is still available to be contracted
with independent energy
suppliers.
We continue to support the enrolment and adoption of SMETS1
meters into the Data Communications Company (DCC) platform. As at 2
September 2021, c.5.6 million SMETS1 meters had been migrated. The
migration of our own SMETS1 portfolio is well underway with
c.216,000 SMS SMETS1 meters enrolled at the end of June, equivalent
to c.18% of the Group's SMETS1 portfolio. This process has focused
initially on those meters which had lost their smart functionality
and is now expected to continue through to the end of 2022
following an extension issued by BEIS.
ILARR from data assets grew 22% to GBP14.3m and ILARR from
I&C assets grew 51% to GBP4.5m, including the initial c.GBP2.0m
data service contracts and c.GBP1.1m meter assets acquired as part
of the I&C HH meter portfolio acquisition detailed above.
BEIS have recently confirmed their intention to mandate market
wide HH settlement from 2025. This change is anticipated to grow
the current market for such industry accredited services and
represents a significant opportunity for us, leveraging our
in-house, accredited and scalable technology platforms.
Traditional domestic meter ILARR decreased by 4% to GBP12.8m and
third-party assets ILARR decreased 6% to GBP6.0m as a result of
traditional meter exchanges for smart, in line with expectations.
We expect the remaining traditional meter portfolio to be exchanged
with smart meters over the course of the UK smart meter
rollout.
Asset Installation:
The increase in the meter installation run rate, as detailed
above, has been managed efficiently and cost effectively, ensuring
all control measures to protect the safety of engineers, support
staff and the end consumer remain strictly enforced and adhered to.
Additional PPE continues to be used by all engineers.
Consistent with the prior year, our engineer capacity has been -
and continues to be - carefully monitored in response to the
installation run rate. Use of a flexible engineering model,
including both direct SMS engineers and subcontractors, has allowed
us to adapt quickly to meet customer demand efficiently. Supported
by robust stock control, established IT platforms and the newly
integrated Groupwide Enterprise Resource Planning (ERP) system,
installation operations continue to run efficiently.
In June 2021, BEIS announced a further 6-month extension to the
'all reasonable steps' obligation to the end of 2021, thus
extending the UK smart meter rollout deadline to 31 December 2025
(previously 1 July 2025) in recognition of the ongoing delays
caused by COVID-19 in the early parts of the year. Focus remains on
aligning our engineering capacity and installation profile over
this extended BEIS rollout period, using technology to drive both
efficiency improvements and an improved customer experience.
H1 has seen the Asset Installation business expand its
installation services into non-metering utility infrastructure and
energy services activities, in support of new CaRe assets.
Specifically, the first Electric Vehicle (EV) charging installs
were successfully carried out by our engineers as part of a trial
project, leveraging the newly accredited EV Chargepoint
Installation course delivered at the Group's training academy to
support this expansion. Our training academy is maintained to
exceptional standards with capacity to train up to c.120 engineers
per month.
Energy Management:
COVID-19 continued to have an impact on our consultancy and
energy management services during the first half of the year with
ongoing delays as a result of disruption to site works. Service
delivery has been maintained but roll out of site-based energy
efficiency measures has been impacted by customers' financial and
operational constraints imposed by COVID-19, impacting our ability
to deploy these services. Consequently, revenue in this division
declined during H1.
Supported by the UK Government's climate change agenda, we
remain committed to exploring the substantial market opportunities
arising from the potential scope for deployment of CaRe products
and services.
Most notably, development of our pipeline of grid-scale battery
storage projects has been a key priority through H1. This is a
critical asset class required by the UK energy system to provide
flexibility services to balance the grid and support the continued
introduction of more intermittent renewable generation.
Construction is advancing as planned on the two projects acquired
in 2020, in Burwell and Barnsley, totalling 90MW capacity. These
sites are forecast to be energised in Q1 2022.
In addition, we have acquired a further three 50MW projects
year-to-date, which are intended to be constructed over the next
12-18 months. We are in exclusivity to acquire a further 230MW,
giving a total current pipeline of 470MW consistent with
year-end.
We will deliver these grid-scale projects from initial
construction through to ongoing operation, trading, maintenance and
asset management. The cashflows from grid-scale batteries, once
energised, are fundamentally driven by the daily requirement for
balancing services on the grid which, in tandem with growth in
intermittent renewable generation, is substantially increasing the
need for such services. The counterparties to these services are
the system operators - National Grid and the DNO - providing strong
revenue protection, allied with strong battery warranty
protections. The economics of this asset class are attractive with
an initial EBITDA yield of c.11-14% against a build cost of
c.GBP380,000 per MW, from an asset whose base electrical
infrastructure has an expected life in excess of 40 years (with
battery cell replacement around every 10 years). These forecasts
are supported by independent industry modelling. The economic
profile of these assets thus provides long-term returns after a
relatively quick construction phase of typically one year or
less.
In addition, we have continued to develop the verticals
below:
-- Solopower (behind-the-meter smart solar and storage): Our
Solopower solution, which aims to reduce carbon emissions of the
UK's social housing stock radically, was launched earlier this
year. We will partner with local councils and housing associations
to upgrade the energy performance of social housing accommodation
significantly through the use of solar generation and battery
storage, supported by our Flexigrid(TM) technology platform. Pilot
projects have been established in up to 1,500 homes in Scotland,
and we are now beginning to develop this pipeline of activity
across the UK, including early-stage projects in the Republic of
Ireland.
-- EV infrastructure: we are developing solutions in the
domestic and destination (both workplace and on-street) parts of
the market and remain lead coordinators on the Virgin Media Park
and Charge ("VPACH") project, which is establishing on-street
charging solutions. Installations of EV chargers as part of the
VPACH project have commenced and it is expected that between 300
and 600 charging sockets will have been installed by mid-2022. We
have the engineering skills and knowledge to establish and
originate destination charging infrastructure and its electrical
connection to the grid, utilising our established and scalable
field management platform. As detailed above, our training academy
is also now able to train engineers to install EV chargers at the
domestic level.
-- Heat meters and networks: Through H1, we have continued to
pilot a solution for a nation-wide hotel chain for smart heating
controls and we are working with other existing and potential
customers to explore alternative heat solutions. In April 2021 we
announced our partnership with Aberdeen City Council to roll out
fabric retrofits and air sourced heat pumps to 100 homes, alongside
the Group's Solopower solution, to trial a 'whole-house' approach
to the domestic decarbonisation challenge.
Whilst these verticals are at various stages of development, we
have established trials and pilots in all of them and are
developing the commercial models accordingly. All of these products
are closely aligned to our existing vertically-integrated
technology and engineering platform, and indeed are complementary
to each other - we are positioning our business in areas in which
we already have substantial experience and capability. These
markets also all share two key characteristics - they reduce
carbon, and each in their own right provide a substantial growth
market opportunity.
Financial review
H1 2021 saw another period of consistent growth in our key
metrics on a like-for-like basis (excluding the effects of the
disposed I&C meter portfolio), including ILARR, pre-exceptional
EBITDA and underlying profit before taxation. The resilience of our
business model has been further demonstrated in the speed with
which we have been able to restore our core businesses post
COVID-19.
The first half of the year has seen us make significant
investment in our established CaRe products and services verticals.
Capital expenditure on metering and data assets in the period
totalled almost GBP40m and we invested c.GBP8m on the acquisition
of the large power I&C portfolio detailed above. An additional
c.GBP8m has been invested in the ongoing construction of grid-scale
battery storage sites, including the acquisition of three
additional 50MW sites.
We maintained a net cash position at 30 June 2021 of GBP5.6m (31
December 2020: GBP40.2m) with access to over GBP265m of our GBP300m
revolving credit facility.
Together with the debt refinancing and proposed equity raise
announced today, we are in a strong position to support the
delivery of our existing meter and battery pipelines.
Reconciliation of statutory to underlying results
SMS uses alternative performance measures, defined at the end of
this Financial review, to present a clear view of what the Group
considers to be the results of its underlying, sustainable business
operations. Excluding certain items enables consistent year-on-year
comparisons and aids a better understanding of business
performance.
A reconciliation of these performance measures is disclosed
below:
Period ended Period ended
30 June 30 June
2021 2020 Percentage
GBPm GBPm change
--------------------------------------------------- ------------ ------------ ----------
ILARR 84.2 75.9 11%
--------------------------------------------------- ------------ ------------ ----------
Group revenue 51.7 54.2 (5%)
Statutory profit from operations 6.6 197.7
--------------------------------------------------- ------------ ------------ ----------
Amortisation of intangibles 1.9 0.9
Depreciation 13.9 15.5
--------------------------------------------------- ------------ ------------ ----------
Statutory EBITDA 22.4 214.1 (90%)
Exceptional items(1) (EBITDA related) 3.7 (186.3)
--------------------------------------------------- ------------ ------------ ----------
Pre-exceptional EBITDA 26.1 27.8 (6%)
Net interest (excl. exceptional) (1.6) (3.1)
Depreciation (13.9) (15.5)
Amortisation of intangibles included in underlying
profit before taxation(2) (1.1) -
--------------------------------------------------- ------------ ------------ ----------
Underlying profit before taxation 9.6 9.1 5%
Exceptional items (EBITDA) (3.7) 186.3
Exceptional items (interest) -- (0.1)
Amortisation of intangibles excluded in underlying
profit before taxation (0.8) (0.9)
--------------------------------------------------- ------------ ------------ ----------
Statutory profit before taxation 5.0 194.5 (97%)
Taxation (4.0) (1.7)
--------------------------------------------------- ------------ ------------ ----------
Statutory profit after taxation 1.0 192.8 (99%)
Amortisation of intangibles excluded in underlying
profit after taxation 0.8 0.9
Exceptional items (EBITDA and interest) 3.7 (186.2)
Tax effect of adjustments (0.8) (1.8)
--------------------------------------------------- ------------ ------------ ----------
Underlying profit after taxation 4.7 5.7 (18%)
Weighted average number of ordinary shares
(basic) 113,115,772 112,686,659
Underlying basic EPS (pence) 4.20 5.02
Weighted average number of ordinary shares
(diluted) 113,954,757 113,568,045
Underlying diluted EPS (pence) 4.17 4.98
--------------------------------------------------- ------------ ------------ ----------
Revenue
30 June 30 June
2021 2020 Percentage
GBP'm GBP'm change
------------------- ------- ------- ----------
Asset Management 39.4 42.0 (6%)
Asset Installation 10.4 9.4 11%
Energy Management 1.9 2.8 (32%)
------------------- ------- ------- ----------
Group revenue 51.7 54.2 (5%)
------------------- ------- ------- ----------
Asset Management revenues are down on the prior period due to
loss of revenue from the I&C meter portfolio disposal, which
completed on 22 April 2020. Excluding this transaction, Asset
Management revenues have increased by c.10% on a like-for-like
basis on the prior period. This reflects the flow through effect of
increased meter installations at the end of 2020 and into Q1 2021
as COVID-19 restrictions eased and the run rate was restored to a
normalised rate.
Asset Installation revenues have increased 11% to GBP10.4m as
compared with the prior period, reflecting the recovery of
non-essential field work which was suspended for the majority of
the comparative period. As access to consumer properties has
re-opened, we have also seen a higher-than-usual volume of
transactional meter works through the first half of 2021 together
with an increase in revenues from utility connections and
infrastructure services.
As expected, Energy Management revenues have experienced a
reduction of 32% to GBP1.9m (H1 2020: GBP2.8m). Despite the
resumption of key customer projects, we are seeing projects run at
a lower capacity due to the slow recovery of the broader
hospitality industry post-COVID-19, with revised scope changes to
align with customer budget constraints.
Pre-exceptional EBITDA
Pre-exceptional EBITDA provides a more ready comparison of
trading, period on period, showing a decrease of 6% to GBP26.1m
(2020: GBP27.8m). This reflects the effect of lost revenue from the
2020 I&C meter portfolio disposal. Excluding this transaction,
like-for-like pre-exceptional EBITDA has increased by c.22% on the
prior period.
The majority of this increase is driven by the favourable Asset
Management revenue movements detailed above. The remaining increase
is attributable to our continued and dedicated focus on operational
efficiency and cost control within the Asset Installation business,
which has reported a positive gross profit margin, excluding
exceptional cost of sales arising as a result of COVID-19, of 38%
in H1 2021. Efforts to control the Group's operating cost base in
order to increase efficiency in the labour force, including an
appropriate balance between direct labour and subcontractors, have
driven a reduction in costs of sale with minimal inefficiency being
reported in profit and loss in H1 2021.
Consistent with prior year, costs directly attributable to
COVID-19, including staff costs that would ordinarily be
capitalised, have been recognised within exceptional costs
(detailed below).
Underlying profit before taxation
Depreciation costs on general property, plant and equipment,
excluding meter assets, have decreased by GBP0.1m to GBP2.1m (2020:
GBP2.2m) due to the effect of removals across the various asset
classes.
Depreciation costs on meter assets have decreased by GBP1.5m to
GBP11.8m (2020: GBP13.3m), due to the 2020 I&C meter portfolio
disposal, for which a c.GBP1.8m depreciation charge was recognised
in H1 2020. This has been offset with additional depreciation
recognised as a result of the 2021 large power I&C meter
acquisition together with the net effect of additions and removals
across the various meter types.
The net interest charge in the period is GBP1.6m (2020:
GBP3.2m), reflecting our undrawn position on our revolving credit
facility up to April 2021.
Overall, underlying profit before taxation has increased by 5%
to GBP9.6m due to a flow through of the above points.
Exceptional items
The operating charge to the income statement in respect of other
exceptional items of GBP3.7m (2020: GBP8.4m excluding the gain on
disposal of a subsidiary as part of the I&C meter portfolio
disposal) is driven largely by GBP3.0m of losses on the traditional
and SMETS1 meter portfolio (2020: GBP2.6m).
Consistent with the prior year, management has deemed it
appropriate to classify costs attributable to COVID-19 as
exceptional in line with the Group's accounting policy. GBP0.5m of
net costs (2020: GBP5.6m) have been treated as such:
-- GBP0.8m (2020: GBP5.2m) of costs that would have ordinarily
been capitalised as directly attributable to the installation of
meter assets - consisting primarily of staff costs - have been
recognised as exceptional in line with the same principles as those
applied in the prior year. This amount is substantially reduced due
to the lifting of restrictions from April 2021, and largely
represents the Scottish workforce who were unable to work in the
early part of 2021.
-- In the prior year, management had recognised an exceptional
bad debt charge of GBP0.5m in relation to a sub-portfolio of
smaller, independent customers which were identified as having a
potentially elevated credit risk as a direct consequence of
COVID-19 and were provided for on a specific basis. As at 30 June
2021 this provision has been reduced to GBP0.3m based on positive
recovery trends over the past twelve months, giving rise to a
GBP0.2m exceptional credit in the period. This judgement will
continue to be monitored through the remainder of the year.
-- A successful COVID-19 insurance claim against business
recovery costs of GBP0.1m was also received in the period,
recognised as an exceptional credit in line with the recognition of
the original costs in the prior year.
Other operating exceptional items total GBP0.2m (2020: GBP0.2m)
and primarily comprise acquisition-related costs incurred as part
of the large power I&C business acquisition in April 2021.
Effective tax rate
The current forecast of the effective tax rate on
pre-exceptional profits for the full year is estimated at 38.70%
(30 June 2020: 39.28%). The effective rate on pre-exceptional
profits remains high due to a change in the deferred tax rate,
following the UK Government's enactment of the Finance Bill 2021 in
May, which confirmed an increase in the rate of corporation tax
from 19% to 25% from 1 April 2023. This has been applied to the
Group's brought forward deferred tax liabilities on its portfolio
of meter assets, giving rise to an opening balance impact of
c.GBP2.7m recognised as a charge in the current period. Excluding
the impact of this rate change, the full year effective tax rate on
pre-exceptional profits is estimated at 19.32% as expected and in
line with the prior year.
The Group's capital expenditure as it pertains to meter assets
qualifies for capital allowances, providing the Group with tax
relief on such expenditure. These allowances are claimed in the tax
year in which the asset is acquired and set against taxable profit
for that year, thus reducing the total tax payable. As a result,
the Group was not tax paying in either the current or prior
period.
Dividend
A 25p per share dividend in respect of FY 2020 was approved at
the Group's Annual General Meeting in May, and the fourth and final
instalment of this was paid in July 2021. A dividend accrual of
GBP7.1m has thus been recognised in our interim financial
statements at 30 June 2021.
In line with the Group's policy announced last year, a 27.5p per
share dividend is intended in respect of FY 2021. Consistent with
FY 2020, this is expected to be settled in four equal quarterly
instalments and the provisional dividend timetable for FY 2021 is
as follows:
Instalment Ex-dividend date Record date Payment date
1 30 September 2021 01 October 2021 28 October 2021
------------------ ---------------- ----------------
2 05 January 2022 06 January 2022 27 January 2022
------------------ ---------------- ----------------
3 31 March 2022 01 April 2022 28 April 2021
------------------ ---------------- ----------------
4 29 June 2022 30 June 2022 28 July 2022
------------------ ---------------- ----------------
The Board remains comfortable that future dividend payment
amounts are sufficiently secured by income from our existing
metering and data asset base and their long-term index-linked cash
flows.
Cash flow and financial resources
Operating cash inflow in H1 2021 was GBP34.4m (H1 2020:
GBP10.6m), driven by growth in our underlying cash earnings and an
overall working capital inflow, supported by the utilisation of
existing stock to fulfil H1 meter installations.
This operating cash flow is net of a restricted cash balance of
GBP1.9m that has been recognised in H1 2021 (H1 2020: GBP4.9m) in
relation to amounts received from energy suppliers on the I&C
assets disposed of in the prior year.
Capital expenditure on property, plant and equipment was
GBP44.3m (H1 2020: GBP17.4m). Of this, GBP39.8m (H1 2020: GBP16.5m)
has been invested in revenue-generating metering and data assets.
This capital expenditure has increased as the prior period was
significantly impacted by COVID-19 and the temporary suspension of
non-essential field work, including smart meter installations, from
24 March 2020 to 1 June 2020.
GBP4.3m of the GBP44.3m capital expenditure in the period
relates to construction of grid-scale battery storage sites,
classified as assets under construction within the Property, plant
and equipment note to the interim financial statements. In addition
to this construction spend, there has been a GBP3.8m cash outflow
on H1 site
acquisitions, detailed in note 11 to the interim financial statements.
A further GBP1.1m (H1 2020: GBP2.7m) investment has been made in
intangible assets, primarily comprising development of software to
support the metering and installations business. This has reduced
on the prior period as a result of the Groupwide Enterprise
Resource Planning system that went live across the Group in H1
2020, with a reduction in capital investment post-go-live as
expected.
At 30 June 2021, utilisation of the facility totalled GBP33.3m,
net of GBP1.6m arrangement fees which continue to be amortised over
the term of the facility. GBP0.5m of loan costs have been paid in
the period (H1 2020: GBP4.8m), primarily comprising non-utilisation
fees as interest on amounts drawn down is not due for payment until
H2. We were fully compliant with all of our bank covenants at 30
June 2021.
We remain in a net cash position at 30 June 2021 of GBP5.6m (31
December 2020: net cash of GBP40.2m). This excludes restricted
cash. Our available cash and unutilised element of the revolving
credit facility stood at GBP304.1m (31 December 2020: GBP340.2m)
and we had cash in bank of GBP37.3m at 30 June 2021 (31 December
2020: GBP40.2m), again excluding restricted cash.
Our financial resources continue to provide the financial
flexibility required in order to maximise pipeline growth in a
capital efficient way.
Definitions of alternative performance measures
Alternative performance
measure Definition
--------------------------- -------------------------------------------------
Index-linked annualised The revenue being generated from meter
recurring revenue rental and data contracts at a point
in time. Includes revenue from third-party
managed meters.
--------------------------- -------------------------------------------------
Depreciation-adjusted gross Statutory gross profit adding back depreciation
profit on revenue-generating assets, recognised
within statutory cost of sales.
--------------------------- -------------------------------------------------
Depreciation-adjusted gross Depreciation-adjusted gross profit divided
profit margin by statutory revenue.
--------------------------- -------------------------------------------------
Pre-exceptional EBITDA Statutory EBITDA excluding exceptional
items.1
--------------------------- -------------------------------------------------
Underlying profit before Profit before taxation excluding exceptional
taxation items and amortisation of certain intangibles(2)
.
--------------------------- -------------------------------------------------
Underlying profit after Profit after taxation excluding exceptional
taxation items and amortisation of certain intangibles(2)
and the tax effect of these adjustments.
--------------------------- -------------------------------------------------
Underlying basic EPS Underlying profit after taxation divided
by the weighted average number of ordinary
shares for the purposes of basic EPS.
--------------------------- -------------------------------------------------
Underlying diluted EPS Underlying profit after taxation divided
by the weighted average number of ordinary
shares for the purposes of diluted EPS.
--------------------------- -------------------------------------------------
Net cash/debt Total bank loans less cash and cash equivalents,
excluding restricted cash. Excludes lease
liabilities recognised under IFRS 16.
--------------------------- -------------------------------------------------
(1 Exceptional items are 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 on the
consolidated income statement.)
(2 Amortisation of the Group's new Enterprise Resourcing
Planning system, which went live in full in 2020, remains within
the underlying cost base of the business and is therefore a part of
the Group's underlying profit measures.)
Financial tables and notes
Consolidated income statement
For the period ended 30 June 2021
Unaudited
--------------------------------------------------------------------------
Six months ended 30 June
--------------------------------------------------------------------------
2021 2021 2020 2020
Before Exceptional Before Exceptional
exceptional items 2021 exceptional items 2020
items 1 Total items 1 Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----- ------------ ------------ -------- ------------ ------------ --------
Revenue 3 51,678 - 51,678 54,151 - 54,151
Cost of sales (22,537) (800) (23,337) (27,846) (4,309) (32,155)
------------------------------- ----- ------------ ------------ -------- ------------ ------------ --------
Gross profit 29,141 (800) 28,341 26,305 (4,309) 21,996
Administrative expenses (19,447) (2,917) (22,364) (15,726) (4,110) (19,836)
Other operating income 581 - 581 844 - 844
Gain on disposal of subsidiary 5 - - - - 194,729 194,729
------------------------------- ----- ------------ ------------ -------- ------------ ------------ --------
Profit from operations 10,275 (3,717) 6,558 11,423 186,310 197,733
Finance costs (1,553) - (1,553) (3,251) (115) (3,366)
Finance income 1 - 1 108 - 108
------------------------------- ----- ------------ ------------ -------- ------------ ------------ --------
Profit/(loss) before taxation 8,723 (3,717) 5,006 8,280 186,195 194,475
Taxation (4,660) 677 (3,983) (3,322) 1,621 (1,701)
------------------------------- ----- ------------ ------------ -------- ------------ ------------ --------
Profit/(loss) for the period
and total comprehensive
income attributable to
owners of the parent 4,063 (3,040) 1,023 4,958 187,816 192,774
------------------------------- ----- ------------ ------------ -------- ------------ ------------ --------
1 Refer to note 4 for details of exceptional items.
Consolidated statement of comprehensive income
For the period ended 30 June 2021
Unaudited
-----------------------------------------------------------------------------
Six months ended 30 June
-----------------------------------------------------------------------------
2021 2020
Before 2021 Before 2020
exceptional Exceptional 2021 exceptional Exceptional 2020
items items Total items items Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------ -------- ------------ ------------ ---------
Profit/(loss) for the period 4,063 (3,040) 1,023 4,958 187,816 192,774
-------------------------------- ------------ ------------ -------- ------------ ------------ ---------
Other comprehensive income
Exchange differences on
translation
of foreign operations (42) - (42) 83 - 83
-------------------------------- ------------ ------------ -------- ------------ ------------ ---------
Other comprehensive
income/(loss)
for the period, net of tax (42) - (42) 83 - 83
-------------------------------- ------------ ------------ -------- ------------ ------------ ---------
Total comprehensive income
for the period attributable
to owners of the parent 4,021 (3,040) 981 5,041 187,816 192,857
-------------------------------- ------------ ------------ -------- ------------ ------------ ---------
The profit from operations arises from the Group's continuing
operations.
Earnings per share attributable to owners of the parent during
the period:
Six months Six months
ended ended
30 June 30 June
2021 2020
Notes Unaudited Unaudited
----------------------------------- ----- ---------- ----------
Basic earnings per share (pence) 6 0.90 171.07
Diluted earnings per share (pence) 6 0.90 169.74
----------------------------------- ----- ---------- ----------
Consolidated interim statement of financial position
As at 30 June 2021
Unaudited Audited
30 June 31 December
2021 2020
Notes GBP'000 GBP'000
-------------------------------------------------- ----- --------- ------------
Assets
Non-current assets
Intangible assets 25,630 24,923
Property, plant and equipment 8 368,201 328,338
Investments 75 75
Other assets - 1,308
Trade and other receivables - 12
-------------------------------------------------- ----- --------- ------------
Total non-current assets 393,906 354,656
-------------------------------------------------- ----- --------- ------------
Current assets
Inventories 18,367 27,650
Other assets - 641
Trade and other receivables 43,527 37,164
Income tax recoverable 165 576
Cash and cash equivalents 37,319 40,236
Restricted cash 1,937 1,627
-------------------------------------------------- ----- --------- ------------
Total current assets 101,315 107,894
-------------------------------------------------- ----- --------- ------------
Total assets 495,221 462,550
-------------------------------------------------- ----- --------- ------------
Liabilities
Current liabilities
Trade and other payables 57,860 41,958
Lease liabilities 869 936
Other liabilities 888 388
Bank loans and overdrafts 9 133 -
-------------------------------------------------- ----- --------- ------------
Total current liabilities 59,750 43,282
-------------------------------------------------- ----- --------- ------------
Non-current liabilities
Bank loans 9 31,634 -
Lease liabilities 3,953 4,315
Deferred tax liabilities 11,360 8,511
Other long term liabilities 362 -
-------------------------------------------------- ----- --------- ------------
Total non-current liabilities 47,309 12,826
-------------------------------------------------- ----- --------- ------------
Total liabilities 107,059 56,108
-------------------------------------------------- ----- --------- ------------
Net assets 388,162 406,442
-------------------------------------------------- ----- --------- ------------
Equity
Share capital 1,137 1,129
Share premium 161,533 160,471
Other reserve 9,562 9,562
Own share reserve (781) (749)
Foreign currency translation reserve (41) 1
Retained earnings 216,752 236,028
-------------------------------------------------- ----- --------- ------------
Total equity attributable to owners of the parent 388,162 406,442
-------------------------------------------------- ----- --------- ------------
Consolidated interim statement of changes in equity
For the period ended 30 June 2021
Foreign
currency
Share Share Other Own share translation Retained
Attributable to the owners capital premium reserve reserve reserve earnings Total
of the parent company: GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 1 January 2020 1,128 160,106 9,562 (768) (66) 53,615 223,577
Total comprehensive income
for the period - - - - 83 192,774 192,857
Transactions with owners in
their capacity as owners
Dividends (note 7) - - - - - (5,168) (5,168)
Shares issued - 125 - - - - 125
Movement in own shares - - - (91) - (70) (161)
Share-based payments - - - - - 389 389
Income tax effect of share
options - - - - - 168 168
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 30 June 2020 1,128 160,231 9,562 (859) 17 241,708 411,787
Total comprehensive income
for the period - - - - (16) 705 689
Transactions with owners in
their capacity as owners
Dividends (note 7) - - - - - (7,058) (7,058)
Shares issued 1 240 - - - - 241
Movement in own shares - - - 110 - (110) -
Share-based payments - - - - - 237 237
Income tax effect of share
options - - - - - 546 546
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 31 December 2020 1,129 160,471 9,562 (749) 1 236,028 406,442
Total comprehensive income
for the period - - - - (42) 1,023 981
Transactions with owners in
their capacity as owners
Dividends (note 7) - - - - - (21,231) (21,231)
Shares issued 8 1,062 - - - - 1,070
Movement in own shares - - - (32) - (57) (89)
Share-based payments - - - - - 325 325
Income tax effect of share
options - - - - - 664 664
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 30 June 2021 1,137 161,533 9,562 (781) (41) 216,752 388,162
---------------------------- -------- -------- -------- --------- ------------ --------- --------
Consolidated interim statement of cash flows
For the period ended 30 June 2021
Six months Six months
ended ended
30 June 30 June
2021 2020
Unaudited Unaudited
GBP'000 GBP'000
--------------------------------------------------------- ---------- ----------
Operating activities
Profit before taxation 5,006 194,475
Finance costs 1,553 3,251
Finance income (1) (108)
Foreign exchange loss (8) 11
Exceptional items: gain on disposal of subsidiary (note
5) - (194,729)
Exceptional items: other1 2,985 2,962
Depreciation 13,852 15,523
Amortisation of intangibles 1,997 864
Share-based payment expense 325 389
Loss on disposal of property, plant and equipment 645 579
Movement in inventories 6,372 (1,741)
Movement in trade and other receivables(2) (4,554) (4,277)
Movement in restricted cash (311) (4,852)
Movement in trade and other payables(2) 6,134 (1,754)
--------------------------------------------------------- ---------- ----------
Cash generated from operations 33,995 10,593
Income tax received 409 -
--------------------------------------------------------- ---------- ----------
Net cash generated from operations 34,404 10,593
--------------------------------------------------------- ---------- ----------
Investing activities
--------------------------------------------------------- ---------- ----------
Proceeds on disposal of subsidiary, gross - 290,615
Payments to dispose of subsidiary(3) - (11,573)
--------------------------------------------------------- ---------- ----------
Payments for acquisition of subsidiaries, net of cash
acquired (note 11) (3,848) -
Payment for acquisition of new business (note 10) (8,433) -
Payments to acquire property, plant and equipment (44,326) (17,367)
Proceeds on disposal of property, plant and equipment 1,366 3,079
Payments to acquire intangible assets (1,123) (2,688)
Finance income received 1 108
--------------------------------------------------------- ---------- ----------
Net cash (used in)/generated from investing activities (56,363) 262,174
--------------------------------------------------------- ---------- ----------
Financing activities
New borrowings 33,250 15,000
Borrowings repaid - (270,000)
Principal elements of lease payments (586) (576)
Finance costs paid (478) (4,793)
Net proceeds from share issue 1,070 125
Purchase of own shares (89) (161)
Dividends paid (14,124) (5,168)
--------------------------------------------------------- ---------- ----------
Net cash generated from/(used in) financing activities 19,043 (265,573)
--------------------------------------------------------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents (2,916) 7,194
Exchange gain on cash and cash equivalents (1) 3
Cash and cash equivalents at the beginning of the period 40,236 50,092
--------------------------------------------------------- ---------- ----------
Cash and cash equivalents at the end of the period 37,319 57,289
--------------------------------------------------------- ---------- ----------
1 Other non-cash material exceptional items include GBP2,985,000
for losses on our meter portfolio. In the period ended 30 June
2020, other non-cash material exceptional items included
GBP2,611,000 for losses on our meter portfolio and a GBP351,000
exceptional bad debt charge.
2 In the period ended 30 June 2020, movement in trade and other
receivables included an adjustment of GBP4,922,000 and movement in
trade and other payables included an adjustment of GBP237,000 for
working capital disposed of as part of the subsidiary sale.
3 In the period ended 30 June 2020, payments to dispose of
subsidiary of GBP11,573,000 included cash disposed of GBP4,681,000
and transaction costs paid of GBP6,892,000.
Notes to the interim report
For the period ended 30 June 2020
1 Basis of preparation
This condensed consolidated interim financial report for the
half-year reporting period ended 30 June 2021 has been prepared in
accordance with Accounting Standard IAS 34 Interim Financial
Reporting. The Company is a public limited company incorporated and
domiciled in Scotland whose shares are quoted on AIM, a market
operated by the London Stock Exchange.
The financial information contained in this half-yearly
financial report does not constitute statutory accounts as defined
in section 434 of the Companies Act 2006. It does not therefore
include all the information and disclosures required in the annual
financial statements and should be read in conjunction with the
Group's annual financial statements for the year ended 31 December
2020.
The financial information for the six months ended 30 June 2021
is also unaudited.
The comparative information for the year ended 31 December 2020
has been extracted from the Group's published financial statements
for that year, which were prepared in accordance with International
Financial Reporting Standards (IFRSs) in conformity with the
requirements of the Companies Act 2006 and have been delivered to
the Registrar of Companies. The report of the auditor on these
accounts was unqualified and 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 five-year
forward-looking basis. These forecasts cover operational cash flows
and investment capital expenditure and are prepared based on
management's estimation of installation run rates through the UK
smart meter rollout. Through the course of the COVID-19 pandemic,
forecasts have continued to be reviewed in detail to ensure any
estimated potential impact of COVID-19 restrictions and regulations
has been appropriately incorporated, along with the Group's
proposed responses. Following the lifting of restrictions and
resumption of core services, no significant COVID-19 adjustments
have been required in management's latest forecasts.
Non-essential field work, including planned installations of
smart meters, was suspended from 24 March 2020. However, this was a
temporary response measure and, following the UK Government's
announcement detailing phased lifting of restrictions, a
progressive resumption of all non-essential field work commenced
from 1 June 2020. Through the second half of 2020, the Group
continued to see a recovery in installation run rates, despite
continued local restrictions, and by Q4 2020 was operating at c.80%
of the pre-COVID-19 run rate. Where permitted under the UK
Government's guidelines, installation activity continued in the
early part of 2021 through the second national lockdown. Since
April 2021, following the easing of restrictions, the Group has
operated above the pre-COVID-19 run rate.
Management has modelled several different meter installation
scenarios, including a downside scenario, which assumed a slower
rollout of new installations over the year. The scenario proved
that the business would still have sufficient cash flow to continue
to operate, banking covenants would remain satisfied with adequate
headroom, and adequate cash would be available to cover liabilities
and operating costs. This modelling provides confidence to
management that, even in adverse circumstances, the business will
still have sufficient resources to continue to operate. As
anticipated, the main impact of COVID-19 has been one of timing and
management does not expect any significant longer-term effects on
the business as a result of the pandemic.
Following the disposal of a minority of the Group's meter
assets, effected by the sale of a wholly owned subsidiary of the
Group on 22 April 2020 (the 'Disposal'), gross cash consideration
of GBP290.6m was received (see note 5 for further details). These
proceeds were used to make a voluntary prepayment under the Group's
existing loan facility of the full outstanding principal of
GBP270m. Concurrently, the total available funding under the loan
facility was reduced from GBP420m to GBP300m on the same terms
through to the end of 2023. At the date of releasing the interim
financial report, the Group had access to c.GBP247m of this loan
facility, with c.GBP53m drawn down. The Group has not required any
new or extended facilities as a result of COVID-19, nor has it
needed to renegotiate or waive any of its bank covenants.
The Group was compliant with all its debt covenants at 30 June
2021. The financial covenants attached to this facility are that
EBITDA should be no less than 4.00x interest and net debt should be
no more than 5.75x EBITDA. At 30 June 2021 these stood at 15.04x
and -0.16x respectively, on account of a net cash-positive
position, demonstrating significant headroom. The Group does not
expect to breach these covenants in the year from the date of
release of this report.
The Group remains in a net cash position of GBP5.6m at 30 June
2021 (GBP40.2m net cash at 31 December 2020 as a result of the
Disposal and the subsequent voluntary prepayment of its loan
facility) and, at that date, undrawn facilities were GBP266.8m (31
December 2020: GBP300m). The Group balance sheet shows consolidated
net assets of GBP388.2m (3 1 December 2020: GBP406.4m), of which
GBP344.2m ( 31 December 2020: GBP315.5m) relates to
revenue-generating meter and data assets. The liquidity of the
Group thus remains strong and continues to provide the financial
flexibility required in order to support the Group's long-term
growth prospects.
The Group has not had to rely on any government support schemes
as a result of COVID-19. With significant coverage provided by
existing long-term, inflation-linked and recurring cash flows, the
Group remains committed to its revised dividend policy. It approved
a 25p per share annualised dividend in respect of FY 2020 and all
four cash instalments had been paid at the date of approving the
interim financial statements. The Group intends to pay a 27.5p per
share annualised dividend in respect of FY 2021.
Based on the current cash flow projections and facilities in
place and having given consideration to various outcomes of future
performance and forecast capital expenditure, including extreme
downside scenarios, the Directors consider it appropriate to
continue to prepare the financial statements on a going concern
basis and are of the view that there are no material uncertainties
regarding the Group's going concern status.
1(a) Significant accounting policies
As required in AIM Rule 18, the interim financial report for the
half-year reporting period ended 30 June 2021 is presented and
prepared in a form consistent with that which will be adopted in
the annual statutory financial statements for the year ended 31
December 2021 and having regard to the IFRS applicable to such
annual accounts.
The accounting policies adopted are consistent with those of the
corresponding interim period. They are also consistent with those
of the prior year except for the following change in recognition
regarding the construction of grid-scale battery storage sites:
Construction of grid-scale battery storage sites
As at 31 December 2020, SMS had acquired two special purpose
vehicles, enabling the Group to obtain control over the rights
required to develop and commission two grid-scale battery storage
sites, totalling 90MW, as part of the Group's investment strategy
in CaRe assets. At 31 December 2020, the Company accounted for work
in progress acquired, together with the fair value uplift applied
to the acquisition balance sheets in relation to development and
construction rights, and additional costs of development incurred
up to 31 December 2020, as part of Inventories on the consolidated
balance sheet.
A change in management's business intention regarding these
grid-scale battery storage sites, implemented as part of the
Group's wider strategy, is accounted for on a prospective basis in
the H1 2021 financial statements and has resulted in a GBP4.1m
reclassification of amounts previously recognised as Inventory to
Assets under construction within Property, plant and equipment (see
note 8). There has been no material change in the amounts
capitalised as a result of this reclassification.
With effect from 1 January 2021, acquired development and
construction rights together with directly attributable costs
incurred in relation to the construction of the grid-scale battery
storage sites will be accounted for under IAS 16: Property, plant
and equipment. These will be recorded at cost and classified as
part of Assets under construction within Property, plant and
equipment. Whilst under construction no depreciation will be
recorded.
1(b) New and amended standards adopted by the Group
The Group has applied the following standards and amendments for
the first time for their annual reporting period commencing 1
January 2021:
Standard or interpretation Effective date
-------------------------- --------------------------------------------- --------------
IFRS 16 (amendment) 'Leases', COVID-19 - Related rent concessions 1 June 2020
IFRS 9, IAS 39,
IFRS 7, IFRS 4 Interest rate benchmark reform - Phase
and IFRS 16 (amendment) 2 1 January 2021
-------------------------- --------------------------------------------- --------------
The amendments listed above did not have any impact on the
amounts recognised in prior periods and the current period and are
not expected to affect future periods significantly.
The Group's existing revolving credit facility attracts interest
at a fixed margin over the three-month London Inter-Bank Offered
Rate (LIBOR). At the end of 2021, LIBOR will be replaced by
Sterling Overnight Index Average (SONIA), but the Group does not
expect any material change in the overall cost of borrowing as a
result of this. The transition will be managed carefully with the
Group's lending agent. Overall, interest rate benchmark reform is
not anticipated to have a significant impact on the Group's risk
management strategy.
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
1(c) Critical accounting judgements
The judgements made by the Directors in the process of preparing
the interim financial statements for the period ended 30 June 2021
are consistent with those disclosed in the Group's published
financial statements for the year ended 31 December 2020.
With regard to the presentation of costs attributable to
COVID-19 as exceptional the following judgements have been made for
the period ended 30 June 2021:
-- as a result of reduced engineering activity in periods of
lockdown due to COVID-19, management has estimated that GBP0.8m of
costs that would ordinarily be capitalised as directly attributable
to the installation of meter assets - consisting primarily of staff
costs - have remained in underlying profit. Consistent with the
Group's accounting policy on exceptional items (see below), these
material costs are attributable to a rare macroeconomic event,
being the COVID-19 pandemic, and therefore management has taken the
judgement to recognise these costs as exceptional; and
-- at 30 June 2021, management has assessed the expected credit
losses for trade receivables. COVID-19 has generated global
financial uncertainty; however, the potential impact of this on the
Group's credit risk is mitigated by the highly regulated nature of
the utilities industry and the extensive support made available to
energy - and other infrastructure - suppliers by the UK Government.
As a result, management has not increased the expected loss rates
for the trade receivables portfolio as a whole. Instead, a subset
of trade receivables has been identified as having a potentially
elevated credit risk, due to a greater risk of administration as a
direct consequence of COVID-19. This subset of trade receivables
has been provided for on a specific basis and in the prior year
resulted in an additional GBP0.5m impairment loss. This provision
has been reduced to GBP0.3m at 30 June 2021, reflecting positive
recovery trends over the past twelve months, giving rise to a
GBP0.2m credit in the current period financial statements. Given
the continued uncertainty regarding the impact of COVID-19 on
customer default risk, management will continue to monitor the
situation and reassess its expected credit losses at each reporting
period end. Consistent with the recognition of the original
impairment loss in the prior year, management has taken the
judgement to recognise this incremental write back as
exceptional.
The Group's accounting policy on exceptional items is included
below for reference:
Exceptional items and separately disclosed items
The Group presents as exceptional items on the face of the
consolidated income statement those items of income and expense
which, because of the material 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.
2 Segmental reporting
For management purposes, the Group is organised into three core
divisions, as follows:
-- Asset Management, which comprises regulated management of gas
meters, electric meters and ADM(TM) units within the UK;
-- Asset Installation, which comprises installation of domestic
and I&C gas meters and electricity meters throughout the UK;
and
-- Energy Management, which comprises the provision of energy
consultancy services and, following the acquisition of Solo Energy
Limited, the management of Distributed Energy Resources (DER)
assets.
For the purpose of making decisions about resource allocation
and performance assessment, it is the operating results of the
three core divisions listed above that are monitored by management
and the Group's chief operating decision-maker, being the SMS
Board. It is these divisions, therefore, that are defined as the
Group's reportable operating segments.
Segment performance is evaluated based on gross profit.
The following segment information is presented in respect of the
Group's reportable segments together with additional balance sheet
information:
Asset Asset Energy Total
Management Installation Management Unallocated operations
30 June 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Segment revenue 39,378 34,585 1,937 - 75,900
Inter-segment revenue - (24,222) - - (24,222)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Revenue from external customers 39,378 10,363 1,937 - 51,678
Cost of sales (14,655) (6,424) (1,458) - (22,537)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Segment gross profit - pre-exceptional
cost of sales 24,723 3,939 479 - 29,141
Exceptional items (cost of sales) - (800) - - (800)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Segment gross profit/(loss) 24,723 3,139 479 - 28,341
Other operating costs/income - - - (14,813) (14,813)
Depreciation (625) - (33) (1,398) (2,056)
Amortisation of intangibles (1,982) - (15) - (1,997)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations - pre-exceptional
operating items 22,116 3,139 431 (16,211) 9,475
Exceptional items (operating) (3,194) (29) - 306 (2,917)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations 18,922 3,110 431 (15,905) 6,558
Net finance costs: other (1,397) - (66) (89) (1,552)
Net finance costs: exceptional - - - - -
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Profit/(loss) before tax 17,525 3,110 365 (15,994) 5,006
Tax expense - - - (3,983) (3,983)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Profit for period 17,525 3,110 365 (19,977) 1,023
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Asset Asset Energy Total
Management Installation Management Unallocated operations
30 June 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- ----------- ------------- ----------- ----------- -----------
Segment revenue 41,974 22,406 2,779 - 67,159
Inter-segment revenue - (13,008) - - (13,008)
----------------------------------------------- ----------- ------------- ----------- ----------- -----------
Revenue from external customers 41,974 9,398 2,779 - 54,151
Cost of sales (16,035) (9,824) (1,987) - (27,846)
----------------------------------------------- ----------- ------------- ----------- ----------- -----------
Segment gross profit/(loss) - pre-exceptional
cost of sales 25,939 (426) 792 - 26,305
Exceptional items (cost of sales) - (4,309) - - (4,309)
----------------------------------------------- ----------- ------------- ----------- ----------- -----------
Segment gross profit/(loss) 25,939 (4,735) 792 - 21,996
Other operating costs/income - - - (11,810) (11,810)
Depreciation (136) - - (2,072) (2,208)
Amortisation of intangibles (848) - (16) - (864)
----------------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations - pre-exceptional
operating items 24,955 (4,735) 776 (13,882) 7,114
Exceptions items (operating): gain on
disposal of subsidiary 194,729 - - - 194,729
Exceptional items (operating): other - (679) - (3,431) (4,110)
----------------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations 219,684 (5,414) 776 (17,313) 197,733
Net finance costs: exceptional (115) - - - (115)
Net finance costs: other (3,128) - - (15) (3,143)
----------------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) before tax 216,441 (5,414) 776 (17,328) 194,475
----------------------------------------------- ----------- ------------- ----------- ----------- -----------
Tax expense (1,701) (1,701)
----------------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit for period 216,441 (5,414) 776 (19,029) 192,774
----------------------------------------------- ----------- ------------- ----------- ----------- -----------
Inter-segment revenue relates to installation services provided
by the Asset Installation segment to the Asset Management
segment.
Depreciation of GBP11.8m (30 June 2020: GBP13.3m) associated
with meter assets has been reported within Cost of sales, in the
Asset Management segment, as the meter assets directly drive
revenue.
All material revenues and operations are based and generated in
the UK. Following the acquisition of Solo Energy Limited in
September 2019, a small minority of operations are based in the
Republic of Ireland.
In H2 2020 there was a reclassification of GBP2.1m between cost
of sales and other operating costs which is not reflected in the H1
2020 figures.
Segment assets and liabilities
Asset Asset Energy Total
Management Installation Management Unallocated operations
30 June 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------- ----------- ----------- -----------
Assets reported by segment
Intangible assets 19,903 3,497 2,230 - 25,630
Property, plant and equipment 346,955 132 15,068 6,046 368,201
Inventories 18,180 187 - - 18,367
Contract assets - - 8 - 8
------------------------------ ----------- ------------- ----------- ----------- -----------
385,038 3,816 17,306 6,046 412,206
Assets not by segment 83,015
------------------------------ ----------- ------------- ----------- ----------- -----------
Total assets 495,221
------------------------------ ----------- ------------- ----------- ----------- -----------
Liabilities by segment
Contract liabilities 2,635 2,327 67 - 5,029
Lease liabilities 487 - 2,472 1,863 4,822
Other long term liabilities - - 362 - 362
Bank loan 31,767 - - - 31,767
------------------------------ ----------- ------------- ----------- ----------- -----------
34,889 2,327 2,901 1,863 41,980
Liabilities not by segment 65,079
------------------------------ ----------- ------------- ----------- ----------- -----------
Total liabilities 107,059
------------------------------ ----------- ------------- ----------- ----------- -----------
Asset Asset Energy Total
Management Installation Management Unallocated operations
31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------- ----------- ----------- -----------
Assets reported by segment
Intangible assets 19,308 3,497 2,118 - 24,923
Property, plant and equipment 318,979 235 2,222 6,902 328,338
Inventories 22,676 273 4,701 - 27,650
Contract assets - - 47 - 47
Other assets (bank loans) 1,949 - - - 1,949
------------------------------ ----------- ------------- ----------- ----------- -----------
362,912 4,005 9,088 6,902 382,907
Assets not by segment 79,643
------------------------------ ----------- ------------- ----------- ----------- -----------
Total assets 462,550
------------------------------ ----------- ------------- ----------- ----------- -----------
Liabilities by segment
Contract liabilities 1,254 2,216 219 - 3,689
Lease liabilities 727 - 2,276 2,248 5,251
Bank loan - - - - -
------------------------------ ----------- ------------- ----------- ----------- -----------
1,981 2,216 2,495 2,248 8,940
Liabilities not by segment 47,168
------------------------------ ----------- ------------- ----------- ----------- -----------
Total liabilities 56,108
------------------------------ ----------- ------------- ----------- ----------- -----------
3 Disaggregation of revenue from contracts with customers
The Group reports the following segments: Asset Management,
Asset Installation and Energy Management, in accordance with IFRS 8
Operating Segments. We have determined that, to meet the objective
of the disaggregation disclosure requirement in paragraph 114 of
IFRS 15, which is to disaggregate revenue from contracts with
customers into categories that depict how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by
economic factors, further disaggregation is required into the major
types of services offered. The following table thus discloses
segmental revenue by type of service delivered and timing of
revenue recognition, including a reconciliation of how this
disaggregated revenue ties in with the Asset Management, Asset
Installation and Energy Management segments, in accordance with
paragraph 115 of IFRS 15.
Asset Asset Energy Total
Management Installation Management operations
Period ended 30 June 2021 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ----------- ------------- ----------- -----------
Major service lines
Metering 35,505 - - 35,505
Data management 3,873 - - 3,873
Utility connections - 4,384 - 4,384
Transactional meter works - 5,838 - 5,838
Energy management - 141 1,937 2,078
---------------------------------------- ----------- ------------- ----------- -----------
39,378 10,363 1,937 51,678
---------------------------------------- ----------- ------------- ----------- -----------
Timing of revenue recognition
Services transferred at a point in time - 5,838 - 5,838
Services transferred over time 39,378 4,525 1,937 45,840
---------------------------------------- ----------- ------------- ----------- -----------
39,378 10,363 1,937 51,678
---------------------------------------- ----------- ------------- ----------- -----------
Asset Asset Energy Total
Management Installation Management operations
Period ended 30 June 2020 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ----------- ------------- ----------- -----------
Major service lines
Metering 38,029 - - 38,029
Data management 3,945 - - 3,945
Utility connections - 3,924 - 3,924
Transactional meter works - 5,132 - 5,132
Energy management - 342 2,779 3,121
---------------------------------------- ----------- ------------- ----------- -----------
41,974 9,398 2,779 54,151
---------------------------------------- ----------- ------------- ----------- -----------
Timing of revenue recognition
Services transferred at a point in time - 5,132 - 5,132
Services transferred over time 41,974 4,266 2,779 49,019
41,974 9,398 2,779 54,151
---------------------------------------- ----------- ------------- ----------- -----------
4 Exceptional items
30 June 30 June
2021 2020
GBP'000 GBP'000
------------------------------------- -------- --------
Exceptional operating items
Gain on disposal of subsidiary - 194,729
Costs attributable to COVID-19 (523) (5,575)
Losses on the traditional and SMETS1
meter portfolio (2,985) (2,611)
Acquisition-related costs (156) -
Other (53) (233)
--------------------------------------- -------- --------
(3,717) 186,310
------------------------------------- -------- --------
Exceptional finance items
Facility fees - (115)
--------------------------------------- -------- --------
- (115)
------------------------------------- -------- --------
Total exceptional items (3,717) 186,195
--------------------------------------- -------- --------
There were total exceptional items on the consolidated income
statement of GBP3,717,000. Material exceptional operating costs
comprise GBP523,000 of costs directly attributable to COVID-19 (see
note 1(c) - critical accounting judgements - for further details)
and GBP2,985,000 of losses on our traditional and SMETS1 meter
portfolio. Other exceptional operating costs consist primarily of
acquisition-related costs incurred on the large power I&C meter
and data acquisition detailed in note 10.
In the period ended 30 June 2020, an exceptional gain on the
disposal of a subsidiary of GBP194.7m was recognised separately on
the consolidated income statement. See note 5 for details. There
were total other exceptional items on the consolidated income
statement of GBP8,534,000. Exceptional operating costs comprised
GBP5,575,000 of costs directly attributable to COVID-19,
GBP2,611,000 of losses on our traditional and SMETS1 meter
portfolio and GBP233,000 of restructuring costs incurred in
right-sizing the Group's installation business in response to
delays in the UK smart meter rollout. Exceptional finance costs of
GBP115,000 comprised break costs incurred on full voluntary
prepayment of the Group's loan facility.
5 Disposal of subsidiary in the prior period
On 12 March 2020, the Group conditionally signed an agreement to
dispose of a minority of the Group's meter assets through the sale
of the entire share capital of Crail Meters Limited (Crail), a
wholly owned subsidiary of the Group.
The meter asset provision (MAP) business carried on by two
existing operating subsidiaries of the Group (the Meter Managers)
was transferred to Crail on 12 March 2020. The business transferred
included c.187,000 Industrial & Commercial (I&C) meter
assets, amongst other working capital balances. Crail continued to
trade from 12 March 2020 through to 22 April 2020.
On 22 April 2020 the entire share capital of Crail was sold to
an unconnected third party. Total gross cash consideration of
GBP290.6m was received, comprising a payment for the sale of the
shares in Crail and the repayment of an intercompany debt owed by
Crail to the Meter Managers. There was no contingent or non-cash
consideration.
The total carrying amount of net assets disposed was GBP89.0m,
including GBP86.1m of meter assets, a GBP9.1m net receivable of
working capital balances and GBP6.2m of deferred tax liabilities,
giving rise to a gross gain of GBP201.6m. After the deduction of
GBP6.9m transaction costs, a net gain on disposal of GBP194.7m was
recognised separately in the consolidated income statement.
Excluding deferred taxation and transaction costs, the gain was
GBP195.4m.
Crail did not meet the definition of a discontinued operation
under IFRS 5 on the basis that the minority portfolio of I&C
assets disposed did not represent the loss of a separate, major
line of business and, although I&C activities were
significantly reduced, they were not entirely discontinued.
SMS manages the disposed I&C meter portfolio on behalf of
the purchaser, for which it receives annual RPI-linked management
fees of GBP0.8m.
6 Earnings per share (EPS)
The calculation of EPS is based on the following data and number
of shares:
Six months Six months
ended ended
30 June 30 June
2021 2020
Unaudited Unaudited
GBP'000 GBP'000
-------------------------------------------------------- ---------- ----------
Profit for the period used for calculation of basic EPS 1,023 192,774
-------------------------------------------------------- ---------- ----------
Six months Six months
ended ended
30 June 30 June
2021 2020
Number of shares Unaudited Unaudited
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purposes
of basic EPS 113,115,772 112,686,659
Effect of potentially dilutive ordinary shares:
- share options 838,985 881,386
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purposes
of diluted EPS 113,954,757 113,568,045
------------------------------------------------------------ ----------- -----------
EPS:
- basic (pence) 0.90 171.07
- diluted (pence) 0.90 169.74
------------------------------------------------------------ ----------- -----------
7 Dividends
Six months Six months Six months Six months
ended ended ended ended Year ended Year ended
30 June 30 June 30 June 30 June 31 December 31 December
2021 2021 2020 2020 2020 2020
Unaudited Per share Unaudited Per share Audited Per share
GBP'000 (pence) GBP'000 (pence) GBP'000 (pence)
---------------------------- ---------- ---------- ---------- ---------- ------------- -------------
Accrued final dividend 7,107 6.25 - - - -
Paid third interim dividend 7,065 6.25 - - - -
Paid second interim
dividend 7,059 6.25 5,168 4.58 5,168 4.58
Paid first interim dividend - - - - 7,058 6.25
---------------------------- ---------- ---------- ---------- ---------- ------------- -------------
Total dividends 21,231 18.75 5,168 4.58 12,226 10.83
---------------------------- ---------- ---------- ---------- ---------- ------------- -------------
Per the Group's revised dividend policy, a 25p per share
dividend was approved in respect of FY 2020, paid to shareholders
in four cash instalments. All instalments had been paid at the date
of approval of the interim financial statements as follows:
Instalment Dividend amount Ex-dividend Record date Payment date
- GBP'000 date
First interim 7,058 1 October 2020 2 October 2020 29 October 2020
---------------- --------------- --------------- ----------------
Second interim 7,059 7 January 2021 8 January 2021 28 January 2021
---------------- --------------- --------------- ----------------
Third interim 7,065 1 April 2021 6 April 2021 29 April 2021
---------------- --------------- --------------- ----------------
Final(1) 7,107 1 July 2021 2 July 2021 29 July 2021
---------------- --------------- --------------- ----------------
(1 The final instalment of the FY 2020 dividend was accrued, but
not paid, at 30 June 2021.)
A 27.5p per share dividend is intended in respect of FY 2021.
This is expected to be paid to shareholders in four cash
instalments. The first instalment is intended to be paid on 28
October 2021 to shareholders on the register at 1 October 2021,
with an ex-dividend date of 30 September 2021.
8 Property, plant and equipment
Fixtures,
Freehold/ Plant fittings Assets
leasehold Meter and and Motor Right-of-use under
property assets machinery equipment vehicles assets construction Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ---------- --------- ---------- ----------- --------- ------------ ------------ ---------
Cost
As at 1 January
2020 2,751 483,528 1,024 5,858 6,028 4,745 - 503,934
Additions 56 40,349 20 1,329 42 2,265 - 44,061
Disposals - (131,731) - (43) (765) - - (132,539)
Exchange adjustments - - - 4 - - - 4
-------------------- ---------- --------- ---------- ----------- --------- ------------ ------------ ---------
As at 31 December
2020 2,807 392,146 1,044 7,148 5,305 7,010 - 415,460
Reclassification(1) - - (5) - - - 4,071 4,066
Additions - 39,779 - 214 28 431 4,305 44,757
Acquisitions - 6,817 - - - - 4,158 10,975
Disposals - (8,917) - - (146) - - (9,063)
Exchange adjustments - - - (1) - (3) - (4)
-------------------- ---------- --------- ---------- ----------- --------- ------------ ------------ ---------
As at 30 June
2021 2,807 429,825 1,039 7,361 5,187 7,438 12,534 466,191
-------------------- ---------- --------- ---------- ----------- --------- ------------ ------------ ---------
Depreciation
As at 1 January
2020 505 84,811 500 3,114 1,466 880 - 91,276
Charge for year 174 24,672 290 1,639 1,300 982 - 29,057
Disposals - (32,800) - (37) (379) - - (33,216)
Exchange adjustments - - - 5 - - - 5
-------------------- ---------- --------- ---------- ----------- --------- ------------ ------------ ---------
As at 31 December
2020 679 76,683 790 4,721 2,387 1,862 - 87,122
Charge for period 86 11,796 107 797 585 481 - 13,852
Disposals - (2,882) - - (101) - - (2,983)
Exchange adjustments - - - - - (1) - (1)
-------------------- ---------- --------- ---------- ----------- --------- ------------ ------------ ---------
As at 30 June
2021 765 85,597 897 5,518 2,871 2,342 - 97,990
-------------------- ---------- --------- ---------- ----------- --------- ------------ ------------ ---------
Net book value
As at 30 June
2021 2,042 344,228 142 1,843 2,316 5,096 12,534 368,201
-------------------- ---------- --------- ---------- ----------- --------- ------------ ------------ ---------
As at 31 December
2020 2,128 315,463 254 2,427 2,918 5,148 - 328,338
-------------------- ---------- --------- ---------- ----------- --------- ------------ ------------ ---------
As at 1 January
2020 2,246 398,717 524 2,744 4,562 3,865 - 412,658
-------------------- ---------- --------- ---------- ----------- --------- ------------ ------------ ---------
1 The reclassification of GBP4,071,000 within Assets under
construction relates to costs previously recorded within
Inventories at 31 December 2020. See note 1(a) for details.
Meter asset disposals in the year ended 31 December 2020 include
the c.187,000 assets disposed of as part of the sale of a
subsidiary on 22 April 2020. The assets disposed of had a net book
value of GBP86,103,000.
Included within the closing meter assets net book value of
GBP344,228,000 (31 December 2020: GBP315,463,000) is GBP19,667,000
(31 December 2020: GBP22,627,000) relating to the traditional
domestic meter portfolio, which will be written down to zero by 1
July 2025. In the H1 2021 consolidated financial statements there
was a GBP2,465,000 depreciation charge recognised on the
traditional domestic meter portfolio (H1 2020: GBP2,845,000).
GBP12,801,000 annualised recurring revenue as at 30 June 2021 (30
June 2020: GBP13,795,000) arises from the owned traditional and
domestic meter portfolio.
The assets are secured by a bond and floating charge.
For the purpose of impairment testing, the traditional meter
asset portfolio recognised within Meter assets is assessed as a
standalone cash-generating unit (CGU) and its carrying amount is
compared with the recoverable amount. In line with IAS 36, no
impairment review was considered necessary at 30 June 2021 as the
previous impairment review carried out at 31 December 2019 showed a
significant excess of recoverable amount over carrying amount and
management concluded that there were no reasonably possible changes
in the key assumptions that would cause the carrying amounts of the
traditional meter portfolio to exceed the value in use. Since this
date there have also been no events that would eliminate this
excess or any new material indicators of impairment. As a result of
COVID-19, and the reduced smart meter installation activity, there
has continued to be a lower volume of traditional meter asset
removals through the first part of 202 1.
Therefore, no impairment has been recognised in the period ended
30 June 2021 (30 June 2020: GBPnil). No impairment on other meter
assets has been recognised in the period ended 30 June 2021 (30
June 2020: GBPnil).
9 Bank loans
30 June 31 December
2021 2020
GBP'000 GBP'000
------------ -------- -----------
Current
Bank loans 133 -
------------ -------- -----------
Non-current
Bank loans 31,634 -
------------ -------- -----------
31,767 -
------------ -------- -----------
Drawdowns were made under the revolving credit facility in H1
2021 and the Group had a total outstanding principal of GBP33.3m at
30 June 2021. Accrued interest of GBP0.1m has been recognised as
part of the carrying value of Bank loans at 30 June 2021 together
with a deduction of GBP1.6m for unamortised transaction costs. The
facility attracted interest at a rate of 1.85% over the three-month
LIBOR and 0.65% was payable on undrawn funds. The interest is
required to be settled quarterly and has thus been classified as
current at 30 June 2021.
In line with the Group's accounting policy, unamortised
transaction costs were reclassified to Bank loans upon the first
drawdown in H1 2021. These continue to be amortised over the
remaining duration of the facility to 2023. For the period ended 30
June 2021, GBP0.3m of transaction costs have been recognised within
the consolidated income statement (30 June 2020: GBP0.3m).
At the start of 2020, the Group had a revolving credit facility
of GBP420m, with a five-year term ending December 2023 (the
'facility'). Following the Group's sale of a wholly owned
subsidiary on 22 April 2020, the gross proceeds received of
GBP290.6m were used to make a voluntary prepayment and the total
outstanding principal value at 22 April 2020 of GBP270m, together
with outstanding interest and commitment fees of GBP0.6m, was
settled. Concurrently, the total commitments available under the
facility were reduced from GBP420m to GBP300m. There were no other
material changes to the terms and conditions. A drawdown of
GBP15.0m was made in May 2020 but this was subsequently settled at
the end of the three-month term. No subsequent drawdowns were made
by the Group in FY 2020 and, therefore, as at 31 December 2020
there was no outstanding principal or interest. The amount
recognised against Bank loans was thus GBPnil. Unamortised
transaction costs of GBP1.9m that would ordinarily be deducted
against the carrying value of the bank loans were recorded as
'Other assets' at 31 December 2020.
No exceptional finance costs have been recognised in the period
ended 30 June 2021 (30 June 2020: GBP0.1m of break costs incurred
as a result of the voluntary prepayment).
The Group has complied with the financial covenants of its
borrowing facility during the current and prior reporting
periods.
10 Business combinations
On 6 April 2021 the Group acquired a portfolio of c.15,000
Industrial & Commercial large power Half Hourly electricity
meters from a third party. This acquisition will add c.GBP1.1
million of annualised recurring meter revenue to the Group's ILARR.
The Group also took ownership of the Meter Operator (MOP) and data
service contracts associated with a portfolio of electricity
meters, which will initially generate a further net c.GBP2 million
of annualised recurring data revenue.
On the basis that the Group has obtained inputs, a substantive
process and outputs, management has concluded that the acquisition
meets the definition of a business combination and should be
accounted as such under IFRS 3.
Purchase consideration consisted of cash only. Total cash paid
was GBP8,433,000.
Management's purchase price allocation exercise is not yet fully
finalised. However, the assets and liabilities provisionally
recognised as a result of the acquisition are as follows:
Fair value
GBP'000
-------------------------------------------- ----------
Intangible assets: customer contracts 686
Property, plant and equipment: meter assets 6,817
Inventories 707
Trade and other receivables 1,781
Trade and other payables (2,369)
Deferred tax liability (156)
-------------------------------------------- ----------
Net identifiable assets acquired 7,466
Add: goodwill 967
-------------------------------------------- ----------
Net assets acquired 8,433
-------------------------------------------- ----------
No contingent assets or liabilities were acquired.
The goodwill is attributable to the opportunity to grow this
part of the business for the Group. Goodwill will not be deductible
for tax purposes.
Acquisition-related costs of GBP0.2m have been incurred to date,
including transaction costs and mobilisation costs to integrate the
newly-acquired business with the Group, and have been included as
part of exceptional Administrative costs in the consolidated
statement of comprehensive income.
11 Asset acquisitions
During the period ended 30 June 2021, the Group acquired 100% of
the issued share capital of the following companies:
Name of acquired Company Registered office Purchase consideration Nature of the
company number prior to acquisition GBP'000 company
------------------- -------- --------------------- ---------------------- ---------------
Unit 9, the Green
Easter Park, Benyon
Road, Reading,
Newtonwood Energy Berkshire Special purpose
Storage Limited 11257609 RG7 2PQ 1,470 vehicle
Unit 9, the Green
Easter Park, Benyon
Road, Reading,
Brook Farm Energy Berkshire Special purpose
Storage Limited 10780034 RG7 2PQ 1,572 vehicle
------------------- -------- --------------------- ---------------------- ---------------
Suite 4D Drake
House, Dursley,
Berkeley Battery Gloucestershire Special purpose
Storage 2 Limited 10942601 GL11 4HH 1,306 vehicle
------------------- -------- --------------------- ---------------------- ---------------
All three companies report in British Pounds Sterling. The
acquisitions enable SMS to obtain control over the rights required
to develop and commission three grid-scale battery storage sites as
part of the Group's investment strategy in carbon reduction assets.
Grid-scale battery storage is a key asset class required by the UK
energy system to provide flexibility services to balance the grid
and support the continued introduction of more intermittent
renewable generation.
Details of the purchase consideration are as follows:
Cash paid Deferred consideration Total fair
GBP'000 GBP'000 value
Name of acquired company GBP'000
----------------------------- --------- ---------------------- ----------
Newtonwood Energy Storage
Limited 1,220 250 1,470
Brook Farm Energy Storage
Limited 1,572 - 1,572
Berkeley Battery Storage
2 Limited 1,056 250 1,306
----------------------------- --------- ---------------------- ----------
Total purchase consideration 3,848 500 4,348
----------------------------- --------- ---------------------- ----------
In respect of two of the three companies, total additional
consideration of GBP500,000 is payable in cash upon energisation
(when energy is first sold to the grid). The payment has been
measured at fair value at the acquisition date, ignoring the impact
of discounting on the basis that the anticipated payment date is
within 12 months of the current reporting date.
Management has concluded that these acquisitions do not meet the
definition of a business combination under IFRS 3 on the basis that
no substantive processes have been transferred. Therefore, these
transactions have been accounted for as acquisitions of a group of
assets. No goodwill thus arises on the transactions.
The individual assets and liabilities acquired have been
identified and the cost of the transactions has been allocated to
the assets acquired, and liabilities assumed, based on their
relative fair values at the date of purchase as follows:
Newtonwood Brook Farm Berkeley Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ---------- ---------- -------- --------
Assets under construction 1,272 1,596 1,290 4,158
Trade and other receivables 198 76 16 290
Trade and other payables - (100) - (100)
----------------------------- ---------- ---------- -------- --------
Total purchase consideration 1,470 1,572 1,306 4,348
----------------------------- ---------- ---------- -------- --------
No contingent assets or liabilities were acquired.
The majority of the value gained from acquiring the three sites
is attributable to development and construction rights and
therefore a significant portion of the total cost of the
transaction has been allocated to Assets under construction due to
its higher fair value relative to the other net assets
acquired.
Transaction costs of GBP0.1m were incurred and have been
capitalised as a component of the cost of the assets acquired,
classified as part of Assets under construction within Property,
plant and equipment.
12 The half-yearly financial report was approved by the Board of
Directors on 13 September 2021.
13 A copy of this half-yearly financial report is available by
visiting our website at www.sms-plc.com .
14 Post balance sheet events
The Company have announced today a proposed equity placing
together with a refinancing of its existing revolving credit
facility from GBP300m to GBP420m, also extending the maturity date
of the existing facility from December 2023 to 2025 on similar
attractive terms. These transactions will be recognised in H2.
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END
IR ZXLFFFKLEBBL
(END) Dow Jones Newswires
September 13, 2021 11:35 ET (15:35 GMT)
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