TIDMSMS
RNS Number : 7471E
Smart Metering Systems PLC
15 March 2022
15 March 2022
Smart Metering Systems plc
Full year results
Strong 2021 performance, well-positioned for growth
Smart Metering Systems plc (AIM: SMS, "SMS", "the Group"), which
installs and manages smart meters, energy data, grid-scale battery
storage and other carbon reduction ("CaRe") assets, today publishes
its full year results for the year ended 31 December 2021.
2021 financial performance
GBP'000 2021 2020(1)
Alternative performance measures
Index-linked annualised recurring
revenue (ILARR)(2) 85,860 76,982
Pre-exceptional EBITDA(3) 52,766 49,894
Underlying profit before taxation(4) 18,267 15,246
Underlying basic EPS (p)(5) 9.60 9.56
Statutory performance measures
Group revenue 108,480 102,982
EBITDA(6) 46,288 231,632
Profit before taxation(6) 8,293 194,964
Basic EPS (p) 3.20 171.65
Dividend per share (p) 27.5 25.0
Net cash 117,687 40,236
-------------------------------------- -------- --------
(1 2020 measures include the financial performance of the
disposed I&C 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 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.)
(6 2020 measures for statutory EBITDA and statutory profit
before taxation include a non-recurring gain of GBP194,713,000 on
the I&C meter portfolio disposal.)
(A reconciliation between statutory and underlying performance
is detailed in the Financial Review section.)
Highlights
Financial
-- ILARR at 31 December 2021 up 12% to GBP85.9m (2020: GBP77.0m)
-- Pre-exceptional EBITDA up 6% to GBP52.8m (2020: GBP49.9m), up 17% like-for-like(7)
-- Underlying profit before taxation marginally ahead of
upgraded expectations, up 20% to GBP18.3m (2020: GBP15.2m), up 58%
like-for-like(7)
-- Acquired I&C meter portfolio and data service contracts initially adding c.GBP3.1m of ILARR
-- Completed GBP175m equity raise in October and refinanced debt facility increased to GBP420m
-- Net cash at 31 December 2021 of GBP117.7m (2020: GBP40.2m)
Dividend
-- +10% year-over-year, in line with policy until 2024; covered
by long-term index-linked cash flows from existing metering and
data asset base
Smart meters
-- Smart meter installation run rate increased to over 30,000
per month in the second half of the year; currently installing 9.4%
of a ll new smart meters in the UK; targeting progressive
improvement in meter install run rate
-- Exclusivity agreement with Shell Energy Retail Limited extended until December 2025
-- Contract wins totalling 900,000 meters in 2021; net of
installations, the contracted smart meter order pipeline improved
to c.2.55m (31 December 2020: c.2.0m)
-- Negligible impact on pipeline from the failure of some energy
suppliers; customer base strengthened
Grid-scale batteries
-- Grid-scale battery pipeline increased to 620MW (31 December 2020: 267MW (8) ):
o 50MW site at Burwell now operational (January 2022)
o 270MW fully secured, including a 30MW site acquired in
February 2022
o 300MW under exclusivity
-- Second site of 40MW expected to be operational by mid-2022 and further 100MW during H1'23
Developing CaRe assets
-- Installation of electric vehicle charge points commenced as
part of Virgin Media Park and Charge project
-- Behind-the-meter smart solar and battery solution launched with initial pilot projects
-- Continued progress in the development of wider CaRe products and services
Environmental, Social and Governance (ESG)
-- Strong progress towards 'net zero by 2030' target, led by energy upgrades to estate and fleet
-- Highest scoring range achieved for 'Corporate Governance' by
Morgan Stanley Capital International (MSCI)
(7 Like-for-like adjusted for the I&C metering and data
portfolio acquisition in 2021 and the prior year I&C meter
portfolio disposal.)
(8 267MW grid-scale battery pipeline was increased to 470MW in
March 2021 and then to 620MW in November 2021.)
Tim Mortlock , Chief Executive Officer, commented:
"Throughout 2021, SMS has demonstrated the strength of its
business model, delivering profit ahead of upgraded expectations,
growth in index-linked annualised recurring revenue and concluding
the year with a strong cash position. Given COVID-19 related
operational challenges and recent turbulence in the UK energy
market, these are impressive results.
"Our contracted smart meter order pipeline remains solid and now
more favourably weighted to larger, well-financed independent
energy suppliers, and supported by the extension to our exclusivity
agreement with Shell Energy Retail. We expect our installation rate
to progressively increase throughout the coming year.
"We made excellent progress in the development of our grid-scale
battery storage assets. The pipeline increased significantly to
620MW, and we finished the year with energising our first 50MW
battery site at Burwell - ahead of programme and on budget. With
construction of our wider secured pipeline progressing well, and
our second 40MW site expected to be operational by mid-2022, we
will soon be able to demonstrate the attractiveness of the
underlying revenue streams and their importance as critical energy
infrastructure.
"Looking ahead, the year has started well, and we are confident
with our previously guided expectations for 2022. Our strong
balance sheet and a resilient, growing smart meter and grid-scale
battery pipeline make SMS well-positioned for further growth.
"Lastly, after nearly two decades with the business, Alan Foy
stepped down as CEO on 1 March 2022. I, along with the Board, wish
to thank him for the tremendous work he has done to drive and
deliver sustained growth and success to SMS. We all wish Alan the
very best for the future."
There will be an analyst webcast at 9.00am today - please
contact sms@instinctif.com for details. The full year results
presentation will be published on the Group's website shortly.
For further information:
Smart Metering Systems plc 0141 249 3850
Tim Mortlock, Chief Executive Officer
Gavin Urwin, Chief Financial 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
Instinctif Partners (PR Adviser) 020 7457 2020
Tim Linacre / Guy Scarborough / SMS@instinctif.com
Sarah Hourahane
Notes to Editors
Smart Metering Systems plc (www.sms-plc.com) is a fully
integrated energy infrastructure company, which installs and
manages smart meters, energy data, grid-scale battery storage 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
The Group's resilient business model has delivered significant
strategic progress and a strong financial performance in 2021 with
underlying profit before tax marginally ahead of already upgraded
consensus expectations at GBP18.3m. Group index-linked annualised
recurring revenue grew 12% to GBP85.9m.
Our contracted smart meter pipeline increased by 900,000 meters
to c.2.55 million, net of meters installed in 2021. While the
failure of some energy suppliers has resulted in some movement in
our customers' metering portfolios, the net impact on the Group's
pipeline has been negligible. We have also benefitted from a
strengthening in our customer base as some portfolios have
consolidated into larger SMS customers through the Supplier of Last
Resort (SoLR) process.
We made considerable progress in developing the pipeline of our
grid-scale battery storage assets. The total pipeline increased to
620MW, of which the first 50MW battery site at Burwell became
operational in January 2022. Another 270MW is fully secured, of
which 40MW is scheduled to become operational mid-2022 and a
further 100MW is scheduled to become operational during H1 2023.
The remaining 300MW is under exclusivity.
This strong operational performance is testament to the
continued dedication and commitment of our people, who remain at
the heart of driving our mission to deliver carbon reduction energy
solutions. The existing meter and grid-scale battery pipelines,
once fully installed, are expected to add a combined c.GBP77m of
EBITDA.
In September, we were pleased to complete a successful GBP175m
equity raise and a refinancing of our debt facility to GBP420m,
which was well supported by our investors and lenders. This
funding, together with internally generated cash, will enable us to
invest in our existing contracted pipelines, whilst also
positioning the business to progress wider-identified growth
opportunities and drive long term shareholder value.
Our established CaRe products, which include meters, energy data
and grid-scale batteries, provide significant additional market
opportunity. Our CaRe asset portfolio also reinforces SMS's
position within and beyond the UK smart meter rollout to drive the
broader 'net zero' agenda and UK energy transition.
Dividend
In line with the Group's stated policy of increasing the
dividend by +10% year-on-year until 2024, the Board is proposing a
27.5p per share dividend (FY 2020: 25.0p). The dividend
demonstrates the sustainable growth delivered by SMS's strategy and
is covered by long-term index-linked cash flows from the existing
metering and data asset base.
Financial review
In 2021 we again faced a challenging macro environment with
COVID-19 impacting the early part of the year and the UK energy
market facing considerable turbulence in the latter part of the
year. With this in mind, we are very pleased to report financial
results ahead of market expectations once again, underpinned by
consistent growth across our key metrics.
2021 has seen us make significant investment in our established
CaRe verticals. Capital expenditure on metering, data and
grid-scale battery storage assets in the year totalled c.GBP112m,
over double our corresponding expenditure in the prior year, and we
invested c.GBP8m on the acquisition of a large-power I&C
metering and data portfolio.
We had a net cash position at 31 December 2021 of GBP117.7m (31
December 2020: GBP40.2m), supported by the c.GBP170m net cash
proceeds raised from our successful equity placing in October and
strong internal cash generation. Following the refinancing of our
debt in September, we finished the year with access to our full
GBP420m revolving credit facility and are thus in a strong position
to support the delivery of our existing meter and battery
pipelines.
UK smart meter rollout
The UK smart meter rollout continues to present a significant
opportunity to grow our ILARR, with Ofgem placing annual binding
installation targets on energy suppliers to ensure at least 85% of
all meters are exchanged to smart by the end of 2025. Ofgem has
also proposed mandatory settlement of energy on a half-hourly
basis, which would significantly increase the market size for these
services from c.300,000 electricity meters to over 26 million
meters by 2026.
SMS succeeded in restoring its smart meter installation rate to
c.30,000 per month following the challenges of COVID-19 and
currently installs 9.4% of all smart meters across the UK. With a
well-balanced engineering workforce, comprising both direct and
sub-contract labour, we are well placed to progressively improve
our run rate through the remainder of the UK smart meter
rollout.
Grid-scale battery storage
The total grid-scale battery pipeline increased to 620MW as at
31 December 2021 (2020: 267MW). Since the year end, we have
acquired a further 30MW grid-scale battery site, taking the total
fully secured to 270MW in addition to the 50MW we now have
operational. The remaining 300MW is under exclusivity. Further to
the launch of our first 50MW site at Burwell in January 2022 we
expect to have our second 40MW site operational by mid-2022 with a
further 100MW expected to become operational during H1 2023. As
these assets become operational in the year, we expect to evidence
the quality of the underlying revenue streams from this critical
energy infrastructure.
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). The economic profile of these assets thus
provides long-term returns after a relatively short construction
phase of typically one year or less.
As early evidence of the returns expected from these assets, we
have secured strong contracted revenues from the recent capacity
market T-1 and T-4 auctions.
ESG progress and sustainability
ESG remains at the core of SMS's culture and operations. Our ESG
responsibilities are an integral element of our business model and
critical to our commitment to managing risk in all areas of the
Company. Our business is intrinsically linked with tackling one of
the greatest challenges of our time - carbon reduction - and we are
proud to be utilising our passion and innovation to work with the
global community as part of the solution.
Key developments in 2021 include:
Environmental:
-- Recognised with the London Stock Exchange's Green Economy Mark for another consecutive year.
-- Scope 1 and Scope 2 emissions fell by 29% in 2021 when
compared with 2019. Although during the year these emissions rose
19% compared to 2020, distorted by the impact of COVID-19.
-- Carbon emissions mitigated through the use of our products
and services increased 17% in 2021.
-- Energy upgrades progressed within both our estate and fleet:
-- More than 90% of company cars transitioned to plug-in hybrid.
-- Several electric vehicle vans received as trial vehicles to
test their viability and suitability.
-- Upgrades commenced on our first office, with extensive
surveying activity across a range of energy efficiency and
renewable solutions.
Social:
-- SMS is now a signatory of the Business in the Community Race
at Work Charter, ensuring our workplaces are tackling barriers
ethnic minority people face in recruitment and progression.
-- We have become a Level 3 Disability Confident Leader, the highest level possible.
-- Renewed focus on equality, diversity and inclusion (EDI) led
by the Board through the launch of a partnership with the Hive
Inclusion Works programme.
-- Group employee survey completed for the second time with a
75% response rate, up 25 percentage points on the inaugural launch
of the survey in 2020.
-- Several initiatives launched to support local communities and
biodiversity efforts whilst constructing grid-scale battery
projects.
Governance:
-- Dedicated board subcommittee for Health, Safety, and
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 improved from 27.8 to 26.6 (on scale of
0-50).
Current trading and outlook
The Group's installation run rate has continued to average
c.30,000 meters per month in the early part of 2022. The Group
expects progressive improvement in this run rate through the
year.
At the end of February 2022, the Group's ILARR stood at GBP86.8m
(31 December 2021: GBP85.9m).
The trading performance of our first 50MW grid-scale battery
project is in line with our expectations and the project has
accessed all available forms of revenue streams.
We have a strong balance sheet and the net proceeds of the 2021
equity placing, alongside our new debt facility and strong internal
cash generation, give us the financial and operational flexibility
to help fund our growing smart meter and grid-scale battery
pipelines.
We remain well positioned in the UK's energy market, with
significant additional growth opportunities for our established and
developing CaRe products and services.
The Board remains confident of the consensus expectations for
the current financial year ("FY 2022").
Management succession
After nearly two decades with the business, Alan Foy decided to
step down as Chief Executive Officer on 1 March 2022. In that time,
Alan dedicated himself to building the business into a full
end-to-end energy solutions provider. He leaves the business
positioned with a strong platform for continued, sustainable growth
in the coming years.
The Board appointed Tim Mortlock to replace Alan as Chief
Executive Officer. Tim has worked closely alongside Alan for
several years and has been central to the development and delivery
of SMS's strategy, most recently as Chief Operating Officer.
Operational review by division
Asset management:
During 2021, meter and data ILARR increased from GBP77.0m to
GBP85.9m due in part to the growth in our I&C data services
following the acquisition of a meter portfolio in April 2021 and
its associated data contracts. The ILARR associated with the
domestic smart meter portfolio increased from GBP42.6m to GBP50.1m,
offset by the anticipated ongoing removal of traditional meters.
Data services ILARR increased from GBP11.7m to GBP13.9m.
At the start of the year SMS had a c.2.0 million contracted
smart meter order pipeline, which increased on a like-for-like
basis to c.2.9 million meters from new contract wins. We exited the
year with a net contracted smart meter order pipeline of c.2.55
million meters, which is expected to add c.GBP51m to our ILARR with
continued additional opportunities in the market to increase this
pipeline further.
We continue to support the enrolment and adoption of first
generation ('SMETS1') smart meters into the Data Communications
Company (DCC) platform, which is progressing at pace. At 28
February 2022, c.8.0 million SMETS1 meters had been migrated as
compared with 3.5 million in February 2021. The migration of the
Group's own SMETS1 portfolio specifically is well underway,
progressing broadly in line with the industry. This process is now
expected to continue through to the end of 2022 following an
extension issued by the Department for Business, Energy &
Industrial Strategy (BEIS).
Our integrated model continues to enable us to originate smart
meter assets with market-leading returns, with the index-linked
nature of our rentals providing strong protection against an
inflationary environment. We have also taken measures to fix the
purchase cost of meters for a large proportion of our pipeline.
The metering market is not immune to global supply chain issues.
This was evident during the year with a combination of COVID-19 and
Brexit impacting the production and delivery of stock from our key
suppliers, and global chip shortages. However, we have taken
further steps to diversify our supply chain and have revised our
stock management policies to ensure we hold significant buffer
stock within our UK distribution warehouses, thereby ensuring stock
availability is not a constraint in delivering our meter
pipeline.
We are extremely pleased with the efficiency of our operational
delivery, and we continue to invest in our engineering capacity to
deliver our increased meter pipeline over the course of the
rollout.
Asset installation:
Installation activities remained restricted by national
lockdowns in the first quarter of the year, especially in Scotland.
Vigilant compliance with updated health and safety working
practices was enforced to protect both our teams and customers. The
impact of COVID-19 has led to the UK smart meter rollout being
extended to the end of 2025, with annual binding installation
targets on energy suppliers from the beginning of 2022.
In the final quarter of 2021, the exit of some energy suppliers
from the market, and subsequent implementation of the SoLR process,
led to some temporary delays in energy suppliers engaging with end
consumers to roll out smart meters, with an increase in
transactional meter call-out requirements as a result.
Despite these challenges, we increased our installation run rate
to over 30,000 meters per month and installed c.350,000 smart
meters during the year in line with expectations, demonstrating the
robustness of our operational model. Through careful management, we
have driven significant efficiencies within the installation
business in the year, with full utilisation of our direct labour
workforce, supplemented by our network of sub-contractors. This
flexible model has allowed us to navigate market conditions
effectively, delivering results marginally ahead of
expectations.
We continue to invest in our engineering capacity as we expect
to drive progressive improvement in our installation run rate
during 2022. Maintaining an appropriate balance between direct
labour and sub-contractors will remain a key focus, ensuring we
sustain the efficiency and utilisation levels we have achieved over
the last 18 months.
Energy management:
The pandemic continued to have an impact on our traditional
consultancy and energy management services, with ongoing delays as
a result of disruption to site works. Service delivery was
maintained but roll out of site-based energy efficiency measures
was 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
the year.
However, supported by the UK Government's 'Net Zero' and 'Heat
and Buildings' strategies, and with increasing energy costs of
significant concern to both I&C and domestic customers, we
remain positive regarding the substantial market opportunities
available to us and the potential for deployment of our existing
and developing CaRe products and services.
It has been a transformative year for our ambitions in
grid-scale battery storage with our first site in Burwell,
Cambridgeshire (50MW) now fully operational following commissioning
in January 2022. We deliver these grid-scale projects from initial
construction through to ongoing operation, trading, maintenance and
asset management. The cash flows 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 distribution network
operator (DNO) - providing strong revenue protection, allied with
strong battery warranty protections.
The increase in wholesale energy costs, which will inevitably
flow through to both I&C and domestic energy charges, drives
greater urgency for innovative solutions which address consumption,
cost and the net-zero challenge. We continue to develop solutions,
aligned to our established technology platforms and engineering
capabilities, to address these challenges:
-- 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 approximately
600 charging sockets will have been installed by the end of the
project. 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. Our training academy is also
now able to train engineers to install EV chargers at the domestic
level.
-- Solopower (behind-the-meter smart solar and storage): our
Solopower solution, which aims to radically reduce carbon emissions
within the UK's social housing stock, was launched in 2021. To
deliver this solution, we are partnering 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 are being progressed in over
1,000 homes across the UK, as well as early-stage projects in the
Republic of Ireland.
-- Heat meters and networks: we have successfully delivered a
pilot solution to 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, alongside the Group's
Solopower solution, to a group of homes, thereby trialling a
'whole-house' approach to the domestic decarbonisation challenge.
This project is expected to progress through 2022.
-- Energy efficiency: with more than 20 years of energy
efficiency consulting and project delivery experience, we are
developing capital projects which will deliver reduced energy
consumption for our I&C customer base. These projects are often
linked to, and identified by, the data services we can provide from
smart and advanced meters - for example, using smart energy control
solutions for energy management and LED lighting projects. By
aligning capital with this expertise, we can deliver cost savings
and permanent carbon reduction for our customers whilst generating
long-term recurring revenues for the Group.
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 and pipelines 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 they each provide a
substantial growth market opportunity.
Financial review
Revenue
31 December 31 December
2021 2020 Percentage
GBPm GBPm change
------------------- ----------- ----------- ------------
Asset management 82.9 78.7 5%
Asset installation 22.0 19.7 12%
Energy management 3.6 4.6 (22%)
------------------- ----------- ----------- ------------
Group revenue 108.5 103.0 5%
------------------- ----------- ----------- ------------
Asset management revenues, which include new revenues from the
acquisition of the large-power I&C metering and data portfolio
in April 2021, are up on the prior year despite loss of revenue
from the prior year I&C meter portfolio disposal. Excluding
both transactions, asset management revenues have increased by c.8%
on a like-for-like basis on the prior year. This reflects the
flow-through effect of increased meter installations at the end of
2020 and into 2021 as COVID-19 restrictions eased and the run rate
was restored to a normalised rate.
Asset installation revenues increased 12% to GBP22.0m as
compared with the prior year, reflecting the recovery of
non-essential field work which was suspended for the majority of
2020. Whilst our connections and infrastructure services have taken
longer to recover than anticipated, we saw a higher-than-usual
volume of transactional meter works through the year as access to
consumer properties re-opened.
As expected, energy management revenues experienced a reduction
of 22% to GBP3.6m. Despite the resumption of key customer projects,
we saw 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.
Gross margins
Overall, the depreciation-adjusted gross margin at the Group
level increased by 6% to 77% (2020: 71%). SMS includes depreciation
on revenue-generating assets within cost of sales and removing this
from the gross margin provides a better comparison of the Group's
underlying trading performance year on year.
Depreciation-adjusted gross profit, in absolute terms, has
increased by GBP11.3m driven in the first instance by the
favourable asset management and asset installation 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 36% in 2021 (2020:
16%). 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 cost of sales with minimal inefficiency being
reported in profit and loss in the year. This focus on operational
efficiency and cost control has allowed the business to invest in
and strengthen other areas which will ensure we continue to drive
efficiency in our operations, and innovation in our services.
The energy management gross margin has increased to 24% (2020:
22%), with the 2020 margin impacted by a non-recurring project
delivered by Solo Energy in the year at a slightly lower margin.
With a predominantly variable cost of sales base, reductions in
revenue have been largely offset by equivalent reductions in cost
of sales.
EBITDA
Pre-exceptional EBITDA provides a more ready comparison of
trading, year on year, showing an increase of 6% to GBP52.8m (2020:
GBP49.9m). Similar to revenue, this includes the effect of the
large-power I&C metering and data portfolio acquired in the
year offset by lost revenue from the 2020 I&C meter portfolio
disposal. Excluding these transactions, like-for-like
pre-exceptional EBITDA increased by c.17% on the prior year. The
primary drivers for this growth are detailed above within the
Revenue and Gross margin sections.
Administrative costs, excluding depreciation and amortisation,
have increased by c.GBP4m year on year, largely driven by the
following:
-- c.GBP1m of this increase relates to expenditure incurred to
restore our supporting functions to a normalised state following
COVID-19 lockdowns, in areas such as marketing, training,
recruitment, and professional services.
-- As noted above we have worked hard to drive operational
efficiency and cost control within our asset installation business,
and a key enabler of this has been continued investment (c.GBP1m)
in our IT and support systems with the aim of unifying legacy
platforms in areas such as field service management, warehousing,
and logistics.
-- The considerable turbulence in the UK energy market in the
second half of the year, as a result of increases in wholesale gas
prices, has placed significant pressure on energy suppliers and
caused a large number of companies to exit the market. Whilst the
Supplier of Last Resort (SoLR) process provides us with a degree of
protection over the long term, we are exposed in the short term
where there are unpaid charges incurred prior to the supplier
exiting the market. During 2021 we saw an increase in bad debt
charges of c.GBP1m year on year.
Consistent with the prior year, costs directly attributable to
COVID-19, including staff costs that would ordinarily be
capitalised, have been recognised within exceptional costs
(detailed below).
Statutory EBITDA decreased to GBP46.3m (2020: GBP231.6m) mainly
as a result of the non-recurring gain of GBP194.7m arising from the
I&C meter portfolio disposal in the prior year.
Operational and pre-tax profits
Depreciation costs on general property, plant and equipment,
excluding meter assets, have decreased by GBP0.3m to GBP4.1m (2020:
GBP4.4m) due to the effect of disposals and fully depreciated
assets across the various asset classes.
Depreciation costs on meter assets are in line with the prior
year at GBP24.7m. The effects of the 2020 I&C meter portfolio
disposal, for which a c.GBP1.8m depreciation charge was recognised
in 2020, have been partially offset by additional depreciation
recognised as a result of the 2021 large-power I&C metering and
data portfolio acquisition together with the net effect of
additions and removals across the various meter types.
As expected, amortisation costs on our intangible assets
increased by GBP1.1m to GBP4.1m in 2021 (2020: GBP3.0m) following
the implementation of our Groupwide Enterprise Resource Planning
system, which went fully live in April 2020.
Finance costs decreased to GBP3.5m excluding exceptional costs
(2020: GBP4.7m), reflecting the reduced debt position on our
revolving credit facility.
Overall, underlying profit before taxation increased by 20% to
GBP18.3m due to a flow-through of the above points.
Exceptional items
The operating charge to the income statement in respect of
exceptional items of GBP6.5m (2020: GBP13.1m excluding the gain on
the I&C meter portfolio disposal) is driven largely by GBP5.9m
of losses on the traditional and first-generation smart meter
('SMETS1') portfolio (2020: GBP6.0m).
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. Net costs
of GBP0.3m (2020: GBP6.9m) have been treated as such, broken down
as follows:
-- GBP0.8m (2020: GBP6.4m) 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 in 2021, and largely represents
costs related to the Scottish workforce being unable to work in the
early part of the year.
-- 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, who 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 31
December 2021 this provision has been reduced to GBPnil, reflecting
positive recovery trends over the past twelve months, and giving
rise to a GBP0.4m credit in the current year financial statements
(net of write offs). Whilst we will continue to monitor the
situation, we are of the view that there is no longer significant
uncertainty regarding the impact of COVID-19 on our customer
default risk. Consistent with the recognition of the original
impairment loss in the prior year, we have recognised this write
back as exceptional.
-- A successful COVID-19 insurance claim against business
recovery costs of GBP0.1m was also received in the year, recognised
as an exceptional credit in line with the recognition of the
original costs in the prior year.
Other operating exceptional items total GBP0.3m (2020: GBP0.1m)
and comprise acquisition-related costs incurred as part of the
large-power I&C metering and data portfolio acquisition in
April 2021.
The finance charge to the income statement in respect of
exceptional items of GBP1.7m (2020: GBP0.1m) primarily comprises
accelerated amortisation of loan arrangement fees in relation to
the refinancing of the loan facility detailed below.
Effective tax rate
The effective tax rate on statutory profits was 54% (2020: 1%).
The effective tax rate on pre-exceptional profits was 39% (2020:
31%). This 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.GBP2.5m 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 18.5% as expected and broadly 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
year.
The Group's deferred tax balance of GBP12.2m (2020: GBP8.5m) is
primarily made up of GBP11.0m (2020: GBP7.1m) in respect of
accelerated capital allowances.
Earnings per share
Underlying basic earnings per share (EPS), which excludes
exceptional costs, amortisation of certain intangibles and their
associated tax effect, was 9.60p (2020: 9.56p), reflecting the
underlying profitability of the Group. Statutory earnings per share
decreased to 3.20p (2020: 171.65p) as a result of the exceptional
gain on the I&C meter portfolio disposal driving higher
statutory profits in the prior year.
Diluted EPS does not vary significantly from basic EPS; a small
decrease arises as a result of the dilutive impact of shares
issuable in the future to settle the Group's share scheme
obligations.
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.
In line with the Group's policy announced last year, a 27.5p per
share dividend is proposed in respect of FY 2021, representing 10%
growth on the FY 2020 dividend as planned. Consistent with FY 2020,
this is expected to be settled in four equal quarterly instalments.
Two instalments have already been paid, in October 2021 and January
2022 respectively, with the following timetable for the remaining
instalments:
Instalment Ex-dividend date Record date Payment date
3 31 March 2022 1 April 2022 28 April 2022
----------------- ------------- --------------
4 30 June 2022 1 July 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 its long-term index-linked cash
flows.
Cash flow
Operating cash inflow generated in 2021 was strong at GBP62.2m
(2020: GBP43.9m), driven by growth in our underlying cash earnings
and an overall working capital inflow. This operating cash flow is
net of a restricted cash balance of GBP1.3m that has been
recognised in 2021 (2020: GBP1.6m) in relation to amounts received
from energy suppliers on the I&C assets disposed of in the
prior year, together with trading collateral held as part of our
grid-scale battery business.
Capital expenditure on property, plant and equipment was
GBP108.2m (2020: GBP41.8m), excluding right-of-use asset additions
of GBP5.3m primarily in relation to land leases secured as part of
our grid-scale acquisitions. Of this, GBP82.4m (2020: GBP40.3m) was
invested in revenue-generating metering and data assets. This
capital expenditure increased as the prior year was significantly
impacted by COVID-19.
Of the remaining capital expenditure in the year, GBP24.5m
relates to construction of grid-scale battery storage sites,
classified as assets under construction within the Property, plant
and equipment note to the financial statements. The majority of
this spend has arisen on our Burwell site, which went live in
January 2022. In addition to this construction spend, there was a
GBP4.7m cash outflow on sites in development and under
construction, detailed in note 21 to the financial statements.
An GBP8.4m cash outflow funded the acquisition of the
large-power I&C metering and data portfolio. See note 20 to the
consolidated financial statements for further details.
A further GBP2.8m (2020: GBP4.1m) 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 year 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.
Financial resources
From a financing perspective, 2021 was a significant year. With
an increasing requirement for capital, driven by the growth in our
meter and grid-scale battery pipelines, the business made the
decision to raise additional funds via an equity placing.
Concurrently, we entered negotiations with our syndicate of lenders
to refinance our revolving credit facility to better suit the
developing needs of the business.
Our equity placing successfully completed on 4 October 2021 with
the support of both existing shareholders and new investors,
raising gross proceeds of GBP175.1m in line with management's
targets. After the deduction of GBP4.9m of issue costs net proceeds
were GBP170.2m, of which GBP53.3m was used to settle all
outstanding principal amounts under our existing revolving credit
facility. This has re-based our leverage at 31 December 2021 and
will help the business maintain a prudent leverage position over
the medium term.
As part of the refinancing, all outstanding amounts under the
existing facility were settled. Concurrently, the Group undertook a
commercial negotiation, facilitated by debt advisory specialists,
to enter into a new facility on market terms. The new facility has
total available commitments of GBP420m and matures in December
2025. The new facility is provided by a syndicate of lenders,
including the lenders of the existing facility and new lenders.
Unamortised arrangement fees on the existing facility of GBP1.5m
have been accelerated and recognised as an exceptional finance cost
in the consolidated income statement together with GBP0.2m of legal
and professional fees arising on the refinancing.
Transaction costs of GBP2.4m directly attributable to the
establishment of the new facility will be amortised over the
remaining term to 2025.
For the year ended 31 December 2021, GBP0.6m of amortisation of
transaction costs has been recognised within underlying profit in
the consolidated income statement (2020: GBP0.7m) of which GBP0.2m
relates to the new facility. Interest of GBP0.6m (2020: GBP2.3m)
and GBP1.9m of non-utilisation fees (2020: GBP1.6m) have also been
recognised.
Drawdowns made following the refinancing were fully repaid by 31
December 2021, leaving the Group with access to its full GBP420m
commitment at this date. We therefore remain in a net cash position
at 31 December 2021 of GBP117.7m (31 December 2020: net cash of
GBP40.2m). This excludes restricted cash and lease liabilities
accounted for under IFRS 16. Our available cash and unutilised
element of the revolving credit facility stood at GBP537.7m (31
December 2020: GBP340.2m) and we had cash in bank of GBP117.7m at
31 December 2021 (31 December 2020: GBP40.2m), again excluding
restricted cash.
The Group was fully compliant with all its bank covenants
through the year and at 31 December 2021.
Our financial resources continue to provide the financial
flexibility required 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 Statutory gross profit less depreciation
gross profit on revenue-generating assets, recognised
within cost of sales.
------------------------ -------------------------------------------------
Depreciation-adjusted Depreciation-adjusted gross profit divided
gross by statutory revenue.
profit margin
------------------------ -------------------------------------------------
Pre-exceptional EBITDA Statutory EBITDA excluding exceptional
items.
------------------------ -------------------------------------------------
Underlying profit before Profit before taxation excluding exceptional
taxation items and amortisation of certain intangibles(1)
.
------------------------ -------------------------------------------------
Underlying profit after Profit after taxation excluding exceptional
taxation items and amortisation of certain intangibles(1)
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 Amortisation of the Group's new Enterprise Resource 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.)
Reconciliation of statutory to underlying results
SMS uses alternative performance measures, defined above, 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:
Year ended Year ended
31 December 31 December
2021 2020 Percentage
GBPm GBPm change
--------------------------------------------------- ------------ ------------ ----------
Index-linked annualised recurring revenue 85.9 77.0 12%
--------------------------------------------------- ------------ ------------ ----------
Group revenue 108.5 103.0 5%
Statutory profit from operations 13.5 199.6
--------------------------------------------------- ------------ ------------ ----------
Amortisation of intangibles 4.1 3.0
Depreciation 28.7 29.1
--------------------------------------------------- ------------ ------------ ----------
Statutory EBITDA 46.3 231.6 (80%)
Exceptional items(1) (EBITDA-related) 6.5 (181.7)
--------------------------------------------------- ------------ ------------ ----------
Pre-exceptional EBITDA 52.8 49.9 6%
Net interest (excl. exceptional) (3.5) (4.5)
Depreciation (28.7) (29.1)
Amortisation of intangibles included in underlying
profit before taxation(2) (2.3) (1.1)
Underlying profit before taxation 18.3 15.2 20%
--------------------------------------------------- ------------ ------------ ----------
Exceptional items(1) (EBITDA) (6.5) 181.7
Exceptional items(1) (interest) (1.7) (0.1)
Amortisation of intangibles excluded in underlying
profit before taxation (1.8) (1.9)
--------------------------------------------------- ------------ ------------ ----------
Statutory profit before taxation 8.3 195.0 (96%)
Taxation (4.5) (1.5)
--------------------------------------------------- ------------ ------------ ----------
Statutory profit after taxation 3.8 193.5 (98%)
Amortisation of intangibles excluded in underlying
profit after taxation 1.8 1.9
Exceptional items(1) (EBITDA and interest) 8.2 (181.6)
Tax effect of adjustments (2.4) (3.0)
--------------------------------------------------- ------------ ------------ ----------
Underlying profit after taxation 11.4 10.8 6%
Weighted average number of ordinary shares
(basic) 118,330,817 112,715,328
Underlying basic EPS (pence) 9.60 9.56
Weighted average number of ordinary shares
(diluted) 118,972,527 113,637,882
Underlying diluted EPS (pence) 9.55 9.49
--------------------------------------------------- ------------ ------------ ----------
(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 Resource 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.)
Consolidated income statement
For the year ended 31 December 2021
2021 2021 2020 2020
Before Before
exceptional Exceptional 2021 exceptional Exceptional 2020
items Items(1) Total items items Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- ----------- -------------------- -------- ----------- ----------- --------
Revenue 2 108,480 - 108,480 102,982 - 102,982
Cost of sales 3 (48,316) (829) (49,145) (49,980) (4,890) (54,870)
------------------------ ----- ----------- -------------------- -------- ----------- ----------- --------
Gross profit 60,164 (829) 59,335 53,002 (4,890) 48,112
Administrative expenses 3 (41,866) (5,649) (47,515) (36,845) (8,085) (44,930)
Other operating income 3 1,696 - 1,696 1,723 - 1,723
Gain on disposal
of subsidiary 4 - - - - 194,713 194,713
------------------------ ----- ----------- -------------------- -------- ----------- ----------- --------
Profit from operations 3 19,994 (6,478) 13,516 17,880 181,738 199,618
------------------------ ----- ----------- -------------------- -------- ----------- ----------- --------
Finance costs 6 (3,488) (1,742) (5,230) (4,705) (115) (4,820)
Finance income 6 7 - 7 166 - 166
------------------------ ----- ----------- -------------------- -------- ----------- ----------- --------
Profit before taxation 16,513 (8,220) 8,293 13,341 181,623 194,964
Taxation 7 (6,479) 1,978 (4,501) (4,103) 2,618 (1,485)
------------------------ ----- ----------- -------------------- -------- ----------- ----------- --------
Profit for the year
attributable to owners
of the parent 10,034 (6,242) 3,792 9,238 184,241 193,479
------------------------ ----- ----------- -------------------- -------- ----------- ----------- --------
1 Refer to note 3 for details of exceptional items.
The profit from operations arises from the Group's continuing
operations.
Earnings per share attributable to owners of the parent during
the year:
Notes 2021 2020
----------------------------------- ----- ---- ------
Basic earnings per share (pence) 8 3.20 171.65
Diluted earnings per share (pence) 8 3.19 170.26
----------------------------------- ----- ---- ------
Consolidated statement of comprehensive income
For the year ended 31 December 2021
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 for the year 10,034 (6,242) 3,792 9,238 184,241 193,479
Other comprehensive income(1)
Exchange differences
on translation of foreign
operations (46) - (46) 67 - 67
------------------------------ ----------- ----------- ---------------------- ----------- ----------- -------
Other comprehensive income
for the year, net of
tax (46) - (46) 67 - 67
------------------------------ ----------- ----------- ---------------------- ----------- ----------- -------
Total comprehensive income
for the year attributable
to owners of the parent 9,988 (6,242) 3,746 9,305 184,241 193,546
------------------------------ ----------- ----------- ---------------------- ----------- ----------- -------
1 May be reclassified to profit or loss.
Consolidated statement of financial position
As at 31 December 2021
2021 2020
Notes GBP'000 GBP'000
------------------------------- ------- -------- --------
Assets
Non-current assets
Intangible assets 10, 13 25,463 24,923
Property, plant and equipment 11 415,901 328,338
Investments 12 75 75
Other assets 18 1,651 1,308
Trade and other receivables 15 - 12
------------------------------- ------- -------- --------
Total non-current assets 443,090 354,656
------------------------------- ------- -------- --------
Current assets
Inventories 14 22,980 27,650
Other assets 18 550 641
Trade and other receivables 15 47,631 37,164
Income tax recoverable - 576
Cash and cash equivalents 16 117,687 40,236
Restricted cash 16 1,299 1,627
------------------------------- ------- -------- --------
Total current assets 190,147 107,894
------------------------------- ------- -------- --------
Total assets 633,237 462,550
------------------------------- ------- -------- --------
Liabilities
Current liabilities
Trade and other payables 17 56,489 41,958
Lease liabilities 18 999 936
Other liabilities 18 638 388
Bank loans and overdrafts 18 - -
------------------------------- ------- -------- --------
Total current liabilities 58,126 43,282
------------------------------- ------- -------- --------
Non-current liabilities
Bank loans 18 - -
Lease liabilities 18 7,574 4,315
Deferred tax liabilities 22 12,199 8,511
Provisions 18 798 -
Other long-term liabilities 18 750 -
------------------------------- ------- -------- --------
Total non-current liabilities 21,321 12,826
------------------------------- ------- -------- --------
Total liabilities 79,447 56,108
------------------------------- ------- -------- --------
Net assets 553,790 406,442
------------------------------- ------- -------- --------
Equity
Share capital 24 1,333 1,129
Share premium 332,048 160,471
Other reserve 26 9,562 9,562
Own share reserve 24 (825) (749)
Foreign currency translation
reserve (45) 1
Retained earnings 211,717 236,028
------------------------------- ------- -------- --------
Total equity attributable to
owners of the parent 553,790 406,442
------------------------------- ------- -------- --------
Consolidated statement of changes in equity
For the year ended 31 December 2021
Foreign
currency
Attributable to the Share Share Other Own share translation Retained
owners of the parent capital premium reserve reserve reserve earnings Total
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 profit for the
year - - - - - 193,479 193,479
Total other comprehensive
income for the year - - - - 67 - 67
Transactions with
owners in their capacity
as owners
Dividends (note 9) - - - - - (12,226) (12,226)
Shares issued (note
24) 1 365 - - - - 366
Movement in own shares
(note 24) - - - 19 - (180) (161)
Share-based payments
(note 25) - - - - - 626 626
Income tax effect
of share options - - - - - 714 714
-------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 31 December
2020 1,129 160,471 9,562 (749) 1 236,028 406,442
Total profit for the
year - - - - - 3,792 3,792
Total other comprehensive
income
for the year - - - - (46) - (46)
Transactions with
owners in their capacity
as owners
Dividends (note 9) - - - - - (29,060) (29,060)
Shares issued (note
24) 204 171,577 - - - - 171,781
Movement in own shares
(note 24) - - - (76) - (203) (279)
Share-based payments
(note 25) - - - - - 841 841
Income tax effect
of share options - - - - - 319 319
-------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 31 December
2021 1,333 332,048 9,562 (825) (45) 211,717 553,790
-------------------------- -------- -------- -------- --------- ------------ --------- --------
See notes 24 and 26 for details of the Own share reserve and
Other reserve.
Consolidated statement of cash flows
For the year ended 31 December 2021
2021 2020
GBP'000 GBP'000
-------------------------------------------------- --------- ---------
Operating activities
Profit before taxation 8,293 194,964
Finance costs 3,488 4,705
Finance income (7) (166)
Foreign exchange loss 29 4
Exceptional items: gain on disposal of
subsidiary (note 4) - (194,713)
Exceptional items: other(1) 7,288 6,148
Depreciation 28,712 29,057
Amortisation of intangibles 4,060 2,957
Share-based payment expense 841 626
RDEC income (489) (536)
Loss on disposal of property, plant and
equipment 2,457 1,028
Loss on disposal of intangible assets - 12
Movement in inventories 3,359 (648)
Movement in trade and other receivables(2) (7,671) 6,461
Movement in restricted cash 328 (1,627)
Movement in trade and other payables(2) 11,078 (4,361)
-------------------------------------------------- --------- ---------
Cash generated from operations 61,766 43,911
Income tax received 403 -
-------------------------------------------------- --------- ---------
Net cash generated from operations 62,169 43,911
-------------------------------------------------- --------- ---------
Investing activities
-------------------------------------------------- --------- ---------
Proceeds on disposal of subsidiary, gross - 290,615
Payments to dispose of subsidiary(3) - (11,589)
-------------------------------------------------- --------- ---------
Proceeds on disposal of subsidiary, net
of payments to dispose - 279,026
Payments for acquisition of subsidiaries,
net of cash acquired (4,749) (2,438)
Payment for acquisition of new business (8,433) -
Payments to acquire property, plant and
equipment (108,214) (41,796)
Proceeds on disposal of property, plant
and equipment 2,508 4,779
Payments to acquire intangible assets (2,831) (4,056)
Finance income received 7 166
-------------------------------------------------- --------- ---------
Net cash (used in)/generated from investing
activities (121,712) 235,681
-------------------------------------------------- --------- ---------
Financing activities
New borrowings 53,250 15,000
Borrowings repaid (53,250) (285,000)
Principal elements of lease payments (1,247) (1,155)
Finance costs paid (4,200) (6,272)
Net proceeds from share issue 171,781 362
Purchase of own shares (279) (161)
Dividends paid (29,060) (12,226)
-------------------------------------------------- --------- ---------
Net cash generated (used in)/from financing
activities 136,995 (289,452)
-------------------------------------------------- --------- ---------
Net increase/(decrease) in cash and cash
equivalents 77,452 (9,860)
Exchange (gain)/loss on cash and cash equivalents (1) 4
Cash and cash equivalents at the beginning
of the financial year 40,236 50,092
-------------------------------------------------- --------- ---------
Cash and cash equivalents at the end of
the financial year (note 16) 117,687 40,236
-------------------------------------------------- --------- ---------
1 Other exceptional items include GBP5,546,000 for losses on our
meter portfolio and the GBP1,742,000 exceptional finance cost. In
2020, non-cash exceptional items included GBP6,033,000 for losses
on our meter portfolio and the GBP115,000 exceptional finance
cost.
2 In 2020, the movement in trade and other receivables included
an adjustment of GBP4,922,000 and the 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 2020, Payments to dispose of subsidiary of GBP11,589,000
included cash disposed of GBP4,681,000 and transaction costs paid
in the year of GBP6,908,000.
Accounting policies
This note provides a list of the significant accounting policies
adopted in the preparation of these consolidated financial
statements. These policies have been consistently applied to all
the years presented, unless otherwise stated. The consolidated
financial statements of the Group for the year ended 31 December
2021 were approved and authorised for issue in accordance with a
resolution of the Directors on 15 March 2022. Smart Metering
Systems plc (SMS) is a public limited company limited by shares and
incorporated in Scotland, with its registered office at 2nd Floor,
48 St. Vincent Street, Glasgow G2 5TS. The Company's ordinary
shares are traded on AIM.
Basis of preparation
The consolidated financial statements have been prepared in
accordance with UK-adopted international accounting standards.
The consolidated financial statements have been prepared on a
historical cost basis, modified by the revaluation of certain
financial assets and financial liabilities that have been measured
at fair value.
The consolidated financial statements are presented in British
Pounds Sterling (GBP), which is Smart Metering System plc's
functional and presentation currency, and all values are rounded to
the nearest thousand (GBP'000) except where otherwise
indicated.
In preparing the consolidated financial statements management
has considered the impact of climate change, particularly in the
context of the disclosures included in the Strategic report and the
Group's net-zero carbon target. These considerations did not have a
material impact on the financial reporting judgements and
estimates, consistent with the assessment that climate change is
not expected to have a significant impact on the Group's going
concern assessment to December 2023. Qualitative explorations of
potential areas of concern, including an evaluation of climate
exposure on our physical assets such as offices, warehouses and
vehicles, has been carried out and we have identified areas of
potential climate-related risk, such as extreme weather events
which could affect our physical locations and road-based employees.
Overall, the risk of climate-related change on the Group is
considered low.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2021
or 2020 but is derived from those accounts. Statutory accounts for
the year ended 31 December 2020 have been delivered to the
Registrar of companies and those for 2021 will be delivered in due
course. The auditor has reported on both sets of accounts; its
reports were unqualified, did not contain an emphasis of matter
reference and did not contain statements 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. The Directors have performed their assessment
of the entity's ability to continue as a going concern, from the
date of issue of these financial statements to 31 December 2023.
Over 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 its pre-COVID-19 run rate. 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.
Management has modelled several different meter installation and
grid-scale battery storage scenarios, including a downside scenario
which assumed a slower rollout of new meter installations over the
year and delayed the energisation of grid-scale battery storage
sites. 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.
In September 2021, the Group completed the refinancing of its
revolving credit facility in order to support ongoing investment in
its established carbon reduction ('CaRe') assets. The total
available funding under the new loan facility is GBP420m and the
maturity date is December 2025. In addition, in early October 2021,
the Group completed a successful equity placing, raising proceeds
of c.GBP175m. These proceeds were used to make a voluntary
prepayment under the Group's refinanced loan facility of the full
outstanding principal of c.GBP53m. At the date of approving the
financial statements, the Group had access to the full GBP420m of
its revolving credit facility with no amount 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 31
December 2021. The financial covenants attached to the refinanced
facility are that EBITDA should be no less than 4.00x interest and
net debt should be no more than 4.75x EBITDA. At 31 December 2021
these stood at 16.11x and -2.07x respectively, on account of a net
cash-positive position, demonstrating significant headroom. The
Group does not expect to breach these covenants in the period from
the date of release of these financial statements to 31 December
2023.
The Group was in a net cash position of GBP117.7m at 31 December
2021 following the equity placing and the subsequent voluntary
prepayment of its loan facility (31 December 2020: GBP40.2m net
cash) and, at that date, undrawn facilities were GBP420m (31
December 2020: GBP300m). The Group balance sheet shows consolidated
net assets of GBP553.8m (31 December 2020: GBP406.4m), of which
GBP366.7m (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 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 enhanced dividend policy. It
proposes a 27.5p per share annualised dividend in respect of FY
2021. The first of four cash instalments, a total of GBP7.8m, was
paid in October 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.
Basis of consolidation
The consolidated accounts of the Group include the assets,
liabilities and results of the Company and subsidiary undertakings
in which Smart Metering Systems plc has a controlling interest.
Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if, and only
if, the Group has all the following: power over the investee (i.e.
existing rights that give it the current ability to direct the
relevant activities of the investee); exposure, or rights, to
variable returns from its involvement with the investee; and the
ability to use its power over the investee to affect its returns.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Group. They are deconsolidated from the date
that control ceases.
The acquisition method of accounting is used to account for
business combinations by the Group.
When necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies into line with
the Group's accounting policies.
All intra-group assets and liabilities, equity, income, expenses
and cash flows relating to transactions between members of the
Group are eliminated in full on consolidation.
Foreign currency translation
Group companies
The results and financial position of foreign operations (none
of which has the currency of a hyperinflationary economy) that have
a functional currency different from the presentation currency are
translated into the presentation currency as follows:
-- assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet;
-- non-monetary assets at the date of acquisition are translated
at the historical rate and are not subsequently revalued;
-- income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average
exchange rates (unless this is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the
dates of the transactions); and
-- all resulting exchange differences are recognised in Other
comprehensive income and accumulated in a separate reserve within
equity.
Goodwill and fair value adjustments arising on the acquisition
of a foreign operation are treated as assets and liabilities of the
foreign operation and translated at the closing rate.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of
such transactions, and from the translation of monetary assets and
liabilities denominated in foreign currencies at year-end exchange
rates, are generally recognised in profit or loss. They are
deferred in equity if they relate to qualifying cash flow hedges
and qualifying net investment hedges or are attributable to part of
the net investment in a foreign operation.
Foreign exchange gains and losses that relate to borrowings are
presented in the statement of profit or loss, within Finance costs.
All other foreign exchange gains and losses are presented in the
statement of profit or loss on a net basis within Administrative
expenses.
Use of estimates and judgements
The Directors are required to make judgements, estimates and
assumptions about the carrying amount of assets and liabilities
that are not readily apparent from other sources. These estimates
and associated assumptions are based on historical experience and
other factors considered to be relevant. Actual results may differ
from these estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision
and future periods if the revision affects both current and future
periods.
Critical accounting judgements
The following are the critical judgements that the Directors
have made in the process of applying the Group's accounting
policies and that have the most significant effect on the amounts
recognised in the financial statements:
-- presentation of costs attributable to COVID-19 as exceptional:
- 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, 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
- as at 31 December 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 GBPnil as at 31 December 2021, reflecting
positive recovery trends over the past twelve months, giving rise
to a GBP0.4m credit in the current year financial statements (net
of write-offs). Whilst management will continue to monitor the
situation in case of any changed circumstances arising from the
pandemic, it is of the view that there is no longer significant
uncertainty regarding the impact of COVID-19 on customer default
risk. Consistent with the recognition of the original impairment
loss in the prior year, management has taken the judgement to
recognise this write-back as exceptional;
-- capitalisation of internal installation costs:
- a significant level of in-house installation of customers'
meter assets is carried out by the Group, certain costs of which
are capitalised (2021: GBP38.2m, 2020: GBP19.8m) and depreciated as
part of property, plant and equipment depreciation. Judgement is
required by management to ascertain the appropriate categories and
proportion of overheads and other expenses that are directly
attributable to installation of meter assets. Typically,
capitalised costs will include staff costs, and a systematic
allocation of any production overheads deemed to be directly
attributable to the process of installing a meter owned by the
Group. Other general and administrative overheads, such as sales,
marketing and training costs, are expensed directly to profit and
loss; and
-- presentation of losses on disposal of certain meter assets as exceptional items:
- as a result of the inherent volatility associated with the UK
smart meter rollout, and removal of traditional meter assets as
part of this, management has taken the decision to show losses
arising on disposal of these meters - being the net book value less
the associated termination income received representing proceeds on
disposal - as exceptional administrative expenses. By disclosing
these amounts separately, the traditional meter asset portfolio can
be better tracked to assist the users of the financial statements
to better understand the premature retirement of these
revenue-generating assets that is outside the Group's control. The
residual value of the traditional meter asset portfolio of GBPnil
reflects the consumption of economic benefit from installed assets,
being the income earned from the provision of the meter. On
disposal, the receipt of termination income, recognised as a
component of the net gain or loss on the disposal of these meter
assets, will vary depending on the energy supplier and is therefore
not within our control. As the receipt of proceeds from disposal is
inherently volatile, a loss on disposal can still arise in certain
circumstances. A loss on disposal of traditional meter assets was
recognised as an exceptional cost in the year ended 31 December
2021; and
- technical communication issues for some first-generation smart
meter assets (SMETS1 meters) on supplier churn have continued
through 2021, with the Data Communications Company (DCC) Enrolment
and Adoption programme now due to extend through to the end of
2022. As a result, the Group has continued to see a small
proportion of SMETS1 meters removed from the wall. As these
removals are attributable to the temporary industry transition
period, management has made the judgement to recognise losses
arising on the disposal of these meters as exceptional until
resolution by the Enrolment and Adoption programme is complete.
-- identification of indicators of impairment of the meter asset
portfolio in accordance with IAS 36 and assumptions applied in
determining the carrying value of the portfolio of meter
assets:
- due to the uncertainties associated with the timing of the UK
domestic smart meter rollout, the expected useful life and carrying
value of traditional meters requires significant judgement, as does
the level of recoverability of termination income. These
assumptions are used in deriving the depreciation rates applied and
the impairment calculation performed on carrying value. For the
traditional meters, as the UK smart meter rollout progresses, our
portfolio of traditional meter assets is diminishing. It is
therefore crucial that the recoverability of the carrying value of
our meter assets, recognised in Property, plant and equipment, be
assessed. The two main drivers for assessing this recoverability
are:
1) the timing of the removals of these meters -this decision
lies with the end consumer and removals are largely undertaken by
third parties, which means we have little control over the timing
and quantity of these removals; and
2) the estimated future cash flows from termination income -
these are derived using historical data and analysis around the
risk of churn between contracted and non-contracted customers. The
assessment includes consideration of the extent to which
termination income and future rental income are received as
traditional meters continue to be removed from the wall.
In 2021, this assessment has identified that the carrying value
of the traditional meter assets portfolio is recoverable and,
therefore, no impairment charge has been recognised (2020:
GBPnil).
- potential indicators of impairment have also been assessed in
relation to our smart and I&C meters, including consideration
of the temporary industry transitional issues experienced with some
SMETS1 assets as detailed above. Management has concluded that
there is no significant risk of impairment with regards to the
Group's smart and I&C meters at 31 December 2021, consistent
with the prior year.
Key sources of estimation uncertainty
The Group has no key sources of estimation uncertainty at the
reporting date that may have a significant risk of causing material
adjustment to the carrying amounts of assets and liabilities within
the next financial year.
Revenue recognition
Refer to details in note 2.
Exceptional items and separately disclosed items
The Group presents as exceptional items on the face of the
consolidated statement of comprehensive income 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 better understand
the elements of financial performance in that year facilitating
comparison with prior periods and to better assess trends in
financial performance.
Termination fee income is reported as part of Other operating
income in the consolidated statement of comprehensive income given
its materiality and nature. Any termination fee income arising on
the loss of meter assets is reported within Administrative expenses
as a component of net gain or loss on disposal. Termination fee
income does not arise from the principal activities of the Group.
Any such gain or loss on disposal relating to traditional meter
assets and SMETS1 meter assets is disclosed as an exceptional
item.
Government grants
Grants from governments are recognised at their fair value where
there is reasonable assurance that the grant will be received and
the Group will comply with all attached conditions, usually on
submission of a valid claim for payment. Government grants relating
to costs are deferred and recognised in profit or loss over the
period necessary to match them with the costs that they are
intended to compensate. Government grants relating to capital
expenditure are included in liabilities as deferred income and they
are credited to profit or loss on a straight-line basis over the
expected lives of the related assets. Amounts credited to profit or
loss are recognised as part of Other operating income in the
consolidated statement of comprehensive income.
The R&D expenditure credit (RDEC) scheme is a UK Government
tax incentive which allows qualifying companies to claim R&D
expenditure credits (RDECs) equal to 12% of their qualifying
research and development expenditure. The credit is taxable at the
corporation tax rate and is included in the company's taxable
trading profits. RDECs are accounted for by the Group in accordance
with IAS 20 Government Grants and recognised within Other operating
income in the consolidated statement of comprehensive income.
Outstanding amounts receivable are recognised in the consolidated
balance sheet within Trade and other receivables.
Financial assets
The Group's financial assets include cash and cash equivalents
and trade and other receivables. Investments consist of an
immaterial debt investment held at amortised cost.
Classification
The Group classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value, either
through other comprehensive income (FVOCI) or through profit or
loss (FVPL); and
-- those to be measured at amortised cost.
The classification depends on the Group's business model for
managing the financial assets and the contractual terms of the cash
flows.
For investments in equity instruments that are not held for
trading, this will depend on whether the Group has made an
irrevocable election at the time of initial recognition to account
for the equity investment at FVOCI. The Group reclassifies debt
investments when and only when its business model for managing
those assets changes.
Recognition and derecognition
Financial assets are initially recognised on trade date.
Financial assets are derecognised when the rights to receive cash
flows from the financial assets have expired or have been
transferred and the Group has transferred substantially all the
risks and rewards of ownership.
Measurement
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at FVPL,
transaction costs that are directly attributable to the acquisition
of the financial asset. Transaction costs of financial assets
carried at FVPL are expensed in profit or loss.
Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost. They are
generally due for settlement within 30 days and are therefore all
classified as current. Due to their short-term nature, carrying
value is considered to approximate fair value.
Cash and cash equivalents
Refer to accounting policy on Cash and cash equivalents.
Impairment
The Group assesses, on a forward-looking basis, the expected
credit losses associated with its debt instruments carried at
amortised cost and FVOCI. The impairment methodology applied
depends on whether there has been a significant increase in credit
risk. For trade receivables and accrued income, which include
contract assets and billed and unbilled receivables arising from
contracts with customers, the Group applies the simplified approach
permitted by IFRS 9, which requires expected lifetime losses to be
recognised from initial recognition of the receivables.
Trade receivables and accrued income are written off, and
derecognised, where there is no reasonable expectation of recovery.
Indicators that there is no reasonable expectation of recovery
include, amongst others, the customer ceasing trading and entering
administration with no expected recovery from the Supplier of Last
Resort process, or a failure by the customer to make contractual
payments for a period of greater than or equal to 365 days past
due. Indicators are assessed on an individual customer basis.
Impairment losses, including the loss allowance, on trade
receivables and accrued income are presented within Administrative
expenses. Subsequent recoveries of amounts previously written off
are credited against the same line item.
Further information about the impairment of trade receivables
and accrued income, and the Group's exposure to credit risks, can
be found in note 19.
Financial liabilities
The Group's financial liabilities include trade and other
payables, bank loans and overdrafts, and leases.
Classification
Financial liabilities are classified as financial liabilities at
fair value through profit or loss or loans and borrowings, as
appropriate. The Group determines the classification of its
financial liabilities at initial recognition.
Recognition
All financial liabilities are recognised initially at fair value
and, in the case of bank loans, net of directly attributable
transaction costs.
Measurement
Trade and other payables and bank overdrafts
Trade and other payables, and overdrafts, are subsequently
measured at amortised cost using the effective interest rate
method. Trade and other payables are presented as current
liabilities unless payment is not due within twelve months after
the reporting period. Due to their short-term nature, carrying
value is considered to approximate fair value.
Bank loans
Bank loans are subsequently measured at amortised cost. Interest
expense on bank loans is recognised in the consolidated income
statement using the effective interest rate method.
Transaction costs on revolving credit facilities are recognised
as transaction costs of the loan to the extent that it is probable
that some or all the facility will be drawn down. In this case, the
fee is deferred within Other assets until the drawdown occurs. Upon
drawdown of the first loan, these costs are reclassified from Other
assets to Bank loans and subsequently amortised over the term of
the facility.
Borrowings are removed from the balance sheet when the
obligation specified in the contract is discharged or cancelled or
has expired. The difference between the carrying amount of a
financial liability that has been extinguished or transferred to
another party and the consideration paid, including any non-cash
assets transferred, or liabilities assumed, is recognised in profit
or loss as Other income or Finance costs.
If a facility is modified, then it is assessed whether the
modification is significant enough to constitute an extinguishment
either qualitatively or quantitatively (defined as a change in the
present value of cash flows, including any transaction costs paid,
exceeding 10%). If a modification is considered an extinguishment
of the initial loan, the new modified loan is recorded at fair
value and a gain/loss is recognised immediately in the consolidated
income statement for the difference between the carrying amount of
the old loan and the new loan. Any costs incurred are recognised in
profit or loss. Where a modification is not significant enough to
be an extinguishment, the cash flows under the modified loan are
rediscounted at the original effective interest rate and an
immediate gain or loss is recognised accordingly in the
consolidated income statement on the date of modification. Any
costs incurred are recognised over the remaining period of the
modified debt, within the effective interest rate.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least twelve months after the reporting
period.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the
net amount reported in the consolidated statement of financial
position, if, and only if, there is a currently enforceable legal
right to offset the recognised amounts and there is an intention to
settle on a net basis, or to realise the assets and settle the
liabilities simultaneously.
Leases
Group as lessor
The arrangements the Group has in place to act as Meter Asset
Provider do not constitute a lease of the meter asset to the energy
supplier. SMS controls the meter as the Group retains legal title
and obtains substantially all the economic benefit. The assets are
recognised as property, plant and equipment when in use under
contract with an energy supplier and related income for the service
of providing a fitted meter is recognised in accordance with IFRS
15. Further information about the Group's accounting policy for
revenue recognition is given in note 2, and for property, plant and
equipment in note 11.
Group as lessee
The Group leases various offices, warehouses and motor vehicles
and, following the business combinations disclosed in note 20,
land. For offices, warehouses and motor vehicles rental contracts
are typically made for fixed periods of three to ten years. For
land, rental contracts are typically made for fixed periods of 20
to 40 years. Contracts may have extension or early termination
options. Lease terms are negotiated on an individual basis and
contain a wide range of different terms and conditions. The lease
agreements do not impose any covenants, but leased assets may not
be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is
available for use by the Group.
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated). The lease term is reassessed if an option is
actually exercised (or not exercised) or the Group becomes obliged
to exercise (or not exercise) it. The assessment of reasonable
certainty is only revised if a significant event or a significant
change in circumstances occurs, which affects this assessment, and
that is within the control of the lessee.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- variable lease payments that are based on an index or a rate,
initially measured using the index or rate as at the commencement
date;
-- amounts expected to be payable by the lessee under residual value guarantees;
-- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
-- Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
lessee's incremental borrowing rate is used, being the rate that
the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment
with similar terms and conditions. The weighted average lessee's
incremental borrowing rate applied to the lease liabilities at 31
December 2021 was 4.7% (31 December 2020: 4.8%).
The Group is exposed to potential future increases in variable
lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to
lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the right-of-use
asset.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date
less any lease incentives received;
-- any initial direct costs; and
-- restoration costs.
The Group is required to restore the land leased as part of its
grid-scale battery storage business, and certain leased warehouses,
to the condition required by the terms and conditions of the lease
at the end of the respective lease terms. Under IFRS 16, the
estimated liability for such restoration costs is recognised as a
provision under IAS 37 at initial recognition and is not included
as part of the lease liability. As right-of-use assets are measured
subsequent to initial recognition using a cost model, any change in
the estimate of such costs after initial recognition is added to,
or deducted from, the cost of the right-of-use asset.
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term, on a straight-line
basis.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of twelve months or less. Low-value assets comprise IT
equipment and small items of office furniture, where the value of
the asset on inception is less than c.US$5,000.
Payments for services are separated from the lease components of
a contract and accounted for as an administrative expense.
Business combinations
The acquisition method of accounting is used to account for all
business combinations, regardless of whether equity instruments or
other assets are acquired. The consideration transferred for the
acquisition of a subsidiary comprises the:
-- fair values of the assets transferred;
-- liabilities incurred to the former owners of the acquired business;
-- equity interests issued by the Group;
-- fair value of any asset or liability resulting from a
contingent consideration arrangement; and
-- fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the
acquisition date. The Group recognises any non-controlling interest
in the acquired entity on an acquisition-by-acquisition basis
either at fair value or at the non-controlling interest's
proportionate share of the acquired entity's net identifiable
assets.
Acquisition-related costs are expensed as incurred.
The excess of the:
-- consideration transferred;
-- amount of any non-controlling interest in the acquired entity; and
-- acquisition-date fair value of any previous equity interest in the acquired entity
over the fair value of the net identifiable assets acquired is
recorded as goodwill. If those amounts are less than the fair value
of the net identifiable assets of the business acquired, the
difference is recognised directly in profit or loss as a bargain
purchase. Where settlement of any part of cash consideration is
deferred, the amounts payable in the future are discounted to their
present value as at the date of exchange. The discount rate used is
the entity's incremental borrowing rate, being the rate at which a
similar borrowing could be obtained from an independent financier
under comparable terms and conditions.
Contingent consideration is classified either as equity or a
financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value, with changes in fair
value recognised in profit or loss.
If the business combination is achieved in stages, the
acquisition-date carrying value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date. Any gains or losses arising from such
remeasurement are recognised in profit or loss.
Asset acquisitions
Asset acquisitions include the acquisition of a group of assets
that does not constitute a business.
The relevant IFRS is applied when accounting for the acquisition
of an individual asset.
Where the acquisition involves a group of assets and
liabilities, the individual assets and liabilities acquired are
identified and recognised. The cost of the transaction is allocated
to the assets acquired, and liabilities assumed, based on their
relative fair values at the date of purchase. No goodwill arises on
the transaction.
The cost of the transaction is measured at the fair value of the
consideration transferred at the acquisition date. This can include
cash payments, financial liabilities incurred, equity interests
issued by the Group and the fair value of any asset or liability
arising from a contingent or deferred consideration arrangement.
Non-monetary assets might be exchanged as part of the consideration
for the transaction. The cost of an item acquired in exchange for a
non-monetary asset or assets is generally measured at fair
value.
Contingent consideration is classified either as equity or a
financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value, with changes in fair
value recognised in profit or loss.
Transaction costs are capitalised as a component of the cost of
the assets acquired.
Research and development
Expenditure on pure and applied research activities is
recognised in the consolidated statement of comprehensive income as
an expense as incurred.
Expenditure on product and system development activities is
capitalised if the product or process is technically and
commercially feasible and the Group intends and has the technical
ability and sufficient resources to complete development; if future
economic benefits are probable; and if the Group can measure
reliably the expenditure attributable to the intangible asset
during its development. The expenditure capitalised includes the
cost of materials, direct labour and an appropriate proportion of
overheads.
Capitalised development expenditure is stated at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is calculated when the asset is available for use,
so as to write off its cost, less its estimated residual value,
over the useful economic life of that asset as follows:
-- Development of ADM(TM) units 10% on cost, straight line
-- Development of internally generated information technology
systems ('IT development) 20% and
50% on cost, straight line
Capitalised development expenditure on ADM(TM) units is
disclosed within Property, plant and equipment as part of Meter
assets and amortised over the same useful economic life as that
applied to the tangible ADM(TM) unit.
Capitalised IT development expenditure is disclosed within
Intangible assets as part of IT development and software. All costs
capitalised within this category relate to information technology
and, with the exception of one system, are amortised over the same
useful economic life of five years. A new system was integrated and
brought into use during 2020 and associated development costs are
amortised over the remaining contract term of two years.
Intangible assets
Intangible assets acquired separately from third parties consist
of software costs, including licence fees. These are recognised as
assets, measured at cost and classified as part of IT development
and software.
Internally generated intangible assets relate to IT development
and are recognised as part of IT development and software. Refer to
further details in the research and development accounting policy
above.
Intangible assets acquired as part of a business combination are
recognised outside goodwill if the asset is separable or arises
from contractual or other legal rights. They are recognised at
their fair value at the date of acquisition and are subsequently
amortised on a straight line basis over their estimated useful
lives.
Following initial recognition, intangible assets are measured at
cost at the date of acquisition less any amortisation and any
impairment losses. Amortisation costs are included within
Administrative expenses disclosed in the consolidated statement of
comprehensive income.
Intangible assets are amortised over their useful lives as
follows:
-- IT development and software 20% and 50% on cost, straight line
-- Intangibles recognised upon acquisition:
- Customer contracts 20% on cost, straight line
- Trademarks 33% on cost, straight line
Useful lives are examined on an annual basis and adjustments,
where applicable, are made on a prospective basis.
As part of a business acquisition in 2021 (see note 20 for
details), the Group acquired a portfolio of customer contracts
which are amortised over the average remaining contract term of
five years. All other customer contracts recognised upon
acquisition were fully amortised in the year.
In preparing the consolidated financial statements management
considered the impact of the IFRS Interpretations Committee's March
2021 decision, that clarifies the treatment and recognition of
cloud computing implementation costs. These considerations did not
have a material impact on the consolidated financial statements in
the year ended 31 December 2021.
Goodwill
Goodwill represents the excess of the consideration transferred
over the fair value of the identifiable assets and liabilities of
the acquiree at the date of acquisition. Goodwill on acquisitions
of subsidiaries is included in intangible assets. Goodwill is not
amortised but is tested annually for impairment, or if there is an
indication of impairment, and is carried at cost less accumulated
impairment losses. See note 13 for detailed assumptions and
methodology. Impairment losses are not subsequently reversed.
Goodwill is allocated to cash-generating units (CGUs) for the
purpose of impairment testing. The allocation is made to those CGUs
or groups of CGUs that are expected to benefit from the business
combination in which the goodwill arose. The units or groups of
units are identified at the lowest level at which goodwill is
monitored for internal management purposes. In the prior year the
CGUs were defined in line with the Group's operating segments.
However, given the ongoing business development within the energy
management segment and the diversification of energy assets as a
result, management has deemed it appropriate to separate out the
Solo Energy business as a standalone CGU. See note 13 for further
details.
If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (or
CGU) in prior years. A reversal of an impairment loss is recognised
as income immediately.
Detailed assumptions used in the annual impairment test for
goodwill, with regard to discount, growth and inflation rates, are
set out in note 13.
Contingent consideration is recorded initially at fair value and
classified as equity or a financial liability. Contingent
consideration classified as equity is not remeasured, but
contingent consideration classified as a financial liability is
subsequently remeasured at fair value through profit or loss.
Adjustments to provisional fair values of identifiable assets
and liabilities (and to estimates of contingent consideration)
arising from additional information, obtained within the
measurement period (no more than one year from the acquisition
date), about facts and circumstances existing at the acquisition
date, are adjusted against goodwill. Other adjustments to
provisional fair values or changes in contingent consideration are
recognised through profit or loss.
Impairment of tangible and intangible assets other than
goodwill
At each reporting date, the Group reviews the carrying amounts
of its property, plant and equipment and intangibles to determine
whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group
estimates the recoverable amount of the CGU to which the asset
belongs.
The recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have been adjusted.
Detailed assumptions used in the impairment test for meter
assets are set out in note 11.
An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of
accumulated depreciation and any accumulated impairment losses.
Such cost includes the cost of replacing part of the property,
plant and equipment. When significant parts of property, plant and
equipment are required to be replaced in intervals, the Group
recognises such parts as individual assets with specific useful
lives and depreciation. Pursuant to the acquisition of the meter
installation businesses on 18 March 2016 certain internal costs to
the Group are also capitalised where they are demonstrated as being
directly attributable to bringing the meter assets into their
usable condition.
All other repair and maintenance costs are recognised in the
consolidated statement of comprehensive income as incurred.
For each asset depreciation is calculated using the
straight-line method to allocate its cost, net of its residual
value if applicable, over its estimated useful life as follows:
-- Freehold property 2%
-- Short-leasehold property Shorter of the lease term or 15% and 20%
-- Meter assets Smart meters and Industrial & Commercial
meters 5%
ADM(TM) units 10%
Traditional meters to 1 July 2025
-- Plant and machinery 33%
-- Fixtures, fittings and equipment 20% and 33%
-- Motor vehicles 25%
-- Right-of-use assets Shorter of the asset's useful life and
the lease term
An item of property, plant and equipment and any significant
part initially recognised is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the consolidated statement of
comprehensive income when the asset is derecognised. The asset's
residual values, useful lives and methods of depreciation are
reviewed at each financial year end and adjusted prospectively, if
appropriate.
Property, plant and equipment is initially recorded at cost.
The following changes in estimates with regard to property,
plant and equipment were made with effect from 1 April 2021:
-- Construction of grid-scale battery storage sites
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 and effective from 1 April 2021, is
accounted for on a prospective basis in the 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 11).
There has been no material change in the amounts capitalised as a
result of this reclassification.
With effect from 1 April 2021, acquired development and
construction rights together with directly attributable costs
incurred in relation to the construction of the grid-scale battery
storage sites are accounted for under IAS 16: Property, plant and
equipment. These are recorded at cost and classified as part of
Assets under construction within Property, plant and equipment.
Whilst under construction no depreciation is recorded.
The following change in estimates with regard to property, plant
and equipment was made with effect from 1 January 2020:
-- With respect to the domestic traditional meter asset
portfolio, the useful life of all opening assets was extended from
31 December 2022 to 1 July 2025 to reflect the UK Government's
confirmation on 18 June 2020 that it would introduce a new
regulatory framework, first proposed in September 2019, for the
next phase of the UK smart meter rollout. The new four-year
framework was implemented from 1 July 2021, effectively extending
the smart meter rollout to 1 July 2025. It is accepted that the
rate of meter exchange to smart meters will vary year by year as
the rollout proceeds, but there is currently no reliable basis on
which to predict the annual profile. Accordingly, a straight-line
approach to depreciation of these assets continued to be adopted.
As a result of this change in estimate, the consolidated income
statement for the year ended 31 December 2020 reflected a reduced
charge for depreciation of GBP4.8m, recognised within depreciation
in Cost of sales. It was not practicable to estimate the effect of
this change on future periods because the future removal profile of
the domestic traditional meter asset portfolio is volatile and
outside our control.
See the Leases accounting policy for further details on the
recognition and measurement of right-of-use assets under IFRS
16.
Inventories
Finished goods and consumables
Finished goods and consumables are stated at the lower of cost
and net realisable value. Cost comprises direct materials and
purchases of meter assets and ADM(TM) units at cost. Costs of
purchased inventory are determined after deducting rebates and
discounts. Net realisable value represents the estimated selling
price for inventories in the ordinary course of business less the
estimated costs necessary to make the sale.
At 31 December 2020: Work in progress - grid-scale batteries
Work in progress is stated at the lower of cost and net
realisable value. Cost includes:
-- work in progress recognised as a result of business combinations;
-- direct materials, including the purchase of batteries at cost
(after deducting rebates and discounts); and
-- the cost of development, including direct labour and an
appropriate proportion of overhead expenditure.
Net realisable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale.
With effect from 1 April 2021 work in progress in relation to
grid-scale batteries is recognised as part of Property, plant and
equipment. See Accounting policies - property, plant and equipment
for details.
Cash and cash equivalents
Cash and cash equivalents in the consolidated statement of
financial position comprises cash at bank and in hand and
short-term deposits with an original maturity of three months or
less. For the purpose of the consolidated statement of cash flows,
cash and cash equivalents consists of cash and short-term deposits
as defined above, net of outstanding bank overdrafts.
Restricted cash
Restricted cash in the consolidated statement of financial
position comprises:
-- amounts collected from customers on behalf of a third party,
as part of a services arrangement, that have not yet been
allocated. These monies are held in a trust account whilst awaiting
allocation and, per the terms of the account, cannot be used by the
Group to meet other short-term cash commitments. They have thus
been disclosed separately from cash and cash equivalents and;
-- amounts held as collateral in order to trade electricity on
the wholesale market as part of the Group's grid-scale battery
storage business. Whilst no grid-scale battery storage sites were
operational at 31 December 2021, collateral was in place at this
date in preparation for the commencement of wholesale trading
services in early FY 2022. These monies are held in designated
trading accounts and cannot be used by the Group to meet other
short-term cash commitments. They have thus been disclosed
separately from cash and cash equivalents.
Any movement in restricted cash is classified as an operating
cash flow in the consolidated statement of cash flows, in line with
the operational nature of the services being delivered.
Pension costs
The Group operates a defined contribution pension scheme for
employees. The assets of the scheme are held separately from those
of the Group. The annual contributions payable are charged to the
consolidated statement of comprehensive income.
Share-based payments
IFRS 2 Share-based Payment has been applied to all grants of
equity instruments. The Group issues equity-settled share-based
payments to certain employees under the terms of the Group's
various employee share and option schemes. Equity-settled
share-based payments are measured at fair value at the date of the
grant. The fair value determined at the grant date of
equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on an estimate of the shares
that will ultimately vest.
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new ordinary shares or
options are shown in equity as a deduction from the proceeds.
Own share reserve
The Group offers a Share Incentive Plan for all employees and
has established a trust to facilitate the delivery of SMS shares
under this plan. The holdings of this trust include shares that
have not vested unconditionally to employees of the Group. These
shares are recorded at cost and are classified as own shares. The
cost to the Company of acquiring these own shares held in trust is
shown as a deduction from shareholders' equity.
Dividends
Dividend distributions to the Company's shareholders are
recognised in the accounting period in which the dividends are
paid.
Taxation
Tax currently payable is based on the taxable profit for the
year and any adjustment to tax payable in respect of prior years.
Taxable profit differs from accounting profit as reported in the
consolidated statement of comprehensive income because it excludes
items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is measured using
tax rates that have been enacted or substantively enacted by the
reporting date.
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying amount of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred tax is
recognised in respect of all temporary differences that have
originated but not reversed at the balance sheet date, where
transactions or events that result in an obligation to pay more tax
in the future or a right to pay less tax in the future have
occurred at the balance sheet date.
Deferred tax is measured at the tax rates that are expected to
apply in the periods in which the asset or liability is settled
based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date. It is recognised
in the income statement except when it relates to items recognised
in other comprehensive income or directly in equity, such as
share-based payments. In this case, the deferred tax is also
recognised in other comprehensive income or directly in equity,
respectively.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profit will be available against which
the temporary difference can be utilised. Their carrying amount is
reviewed at each balance sheet date on the same basis.
Deferred tax liabilities are recognised for all temporary
differences, except in respect of:
-- temporary differences arising from the initial recognition of
goodwill or an asset or liability in a transaction that is not a
business combination and at the time of the transaction affects
neither the accounting profit nor taxable profit or loss; and
-- temporary differences associated with investments in
subsidiaries where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset where there is a
legally enforceable right to offset current tax assets and
liabilities and where the deferred tax balances relate to the same
taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset
and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
Standards and interpretations
New and amended standards adopted by the Group
The Group has applied the following standards and amendments for
the first time for its annual reporting period commencing 1 January
2021:
Standard or interpretation Effective date
--------------------------- ------------------------------- ---------------
'Leases', COVID-19 - Related 1 June 2020
IFRS 16 (amendment) rent concessions
IFRS 9, IAS 39, Interest rate benchmark reform 1 January 2021
IFRS 7, IFRS 4 and - Phase 2
IFRS 16 (amendment)
--------------------------- ------------------------------- ---------------
The amendments listed above did not have any impact on the
amounts recognised in prior periods or the current period and are
not expected to affect future periods significantly.
The Group's revolving credit facility previously attracted
interest at a fixed margin over the three-month London Inter-Bank
Offered Rate (LIBOR). Under the new facility established in
September 2021, LIBOR was replaced by the Sterling Overnight Index
Average (SONIA) and the transition was managed carefully with the
Group's lending agent. There has not been any material change in
the overall cost of borrowing as a result of this. Overall,
interest rate benchmark reform is not anticipated to have a
significant impact on the Group's risk management strategy.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2021 reporting
periods and have not been early-adopted by the Group.
The amendments to IAS 12 Income Taxes, regarding deferred tax
related to assets and liabilities arising from a single
transaction, will apply to the Group as a lessee under IFRS 16. Its
potential effects are under consideration.
All other standards are not expected to have a material impact
on the entity in the current or future reporting periods, or on
foreseeable future transactions.
Notes to the financial statements
For the year ended 31 December 2021
1 Segmental reporting
For management purposes, the Group is organised into three core
divisions, as follows:
-- Asset management, which comprises regulated management of gas
and electric meters, ADM(TM) units and energy data assets 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).
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 mainly 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
31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Segment revenue 82,828 74,208 3,620 - 160,656
Inter-segment revenue - (52,176) - - (52,176)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Revenue from external customers 82,828 22,032 3,620 - 108,480
Cost of sales (31,479) (14,081) (2,756) - (48,316)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Segment gross profit - pre-exceptional
cost of sales 51,349 7,951 864 - 60,164
Exceptional items (cost of
sales) - (829) - - (829)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Segment gross profit 51,349 7,122 864 - 59,335
Other operating costs/income - - 1,256 (33,373) (32,117)
Depreciation - (196) - (3,797) (3,993)
Amortisation of intangibles (1,725) - (31) (2,304) (4,060)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations
- pre-exceptional operating
items 49,624 6,926 2,089 (39,474) 19,165
Exceptional items (operating) (6,213) - - 564 (5,649)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations 43,411 6,926 2,089 (38,910) 13,516
Net finance costs: other (3,132) - (161) (188) (3,481)
Net finance costs: exceptional (1,742) - - - (1,742)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) before tax 38,537 6,926 1,928 (39,098) 8,293
Tax expense (4,501)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit for year 3,792
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Asset Asset Energy Total
management installation management Unallocated operations
(restated) GBP'000 GBP'000 (restated) GBP'000
31 December 2020 GBP'000 GBP'000
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Segment revenue 78,675 49,011 4,583 - 132,269
Inter-segment revenue - (29,287) - - (29,287)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Revenue from external customers 78,675 19,724 4,583 - 102,982
Cost of sales (29,825) (16,591) (3,564) - (49,980)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Segment gross profit - pre-exceptional
cost of sales 48,850 3,133 1,019 - 53,002
Exceptional items (cost of
sales) - (4,890) - - (4,890)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Segment gross profit/(loss) 48,850 (1,757) 1,019 - 48,112
Other operating costs/income - - - (27,780) (27,780)
Depreciation (1,385) - (21) (2,979) (4,385)
Amortisation of intangibles
- restated(1) (1,642) - (32) (1,283) (2,957)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations
- pre-exceptional operating
items - restated(1) 45,823 (1,757) 966 (32,042) 12,990
Exceptional items (operating) 188,612 (928) - (1,056) 186,628
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations
- restated(1) 234,435 (2,685) 966 (33,098) 199,618
Net finance costs: other (4,399) - (33) (107) (4,539)
Net finance costs: exceptional (115) - - - (115)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) before tax -
restated(1) 229,921 (2,685) 933 (33,205) 194,964
Tax expense (1,485)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit for year 193,479
--------------------------------------- ----------- ------------- ----------- ----------- -----------
(1 Amortisation of the Group's Enterprise Resourcing Planning
system, which went live in full in 2020, has been reclassified from
Asset management to Unallocated to reflect its Groupwide use. This
is in line with the current year disclosure.)
Inter-segment revenue relates to installation services provided
by the asset installation segment to the asset management
segment.
Depreciation of GBP24.7m (2020: GBP24.7m) 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 2019, a
small minority of operations are based in the Republic of
Ireland.
The Group has two major customers that each generated 10% or
more of total Group turnover, as listed below by segment:
2021 2020
GBP'000 GBP'000
-------------------------------- -------- --------
Customer 1 - Asset Management 12,647 12,876
Customer 1 - Asset Installation 2,644 359
Customer 2 - Asset Management 8,900 7,816
Customer 2 - Asset Installation 8,025 6,251
-------------------------------- -------- --------
32,216 27,302
-------------------------------- -------- --------
Segment assets and liabilities
Asset Asset Energy Total
management installation management Unallocated operations
31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------- ----------- ----------- -----------
Assets reported by segment
Intangible assets 11,540 3,497 2,497 7,929 25,463
Property, plant and equipment 366,702 128 38,868 10,203 415,901
Inventories 22,763 215 2 - 22,980
Contract assets - 46 - - 46
Other assets (bank loans) 2,201 - - - 2,201
------------------------------ ----------- ------------- ----------- ----------- -----------
403,206 3,886 41,367 18,132 466,591
Assets not by segment 166,646
------------------------------ ----------- ------------- ----------- ----------- -----------
Total assets 633,237
------------------------------ ----------- ------------- ----------- ----------- -----------
Liabilities by segment
Contract liabilities 1,527 2,084 121 - 3,732
Lease liabilities - - 4,060 4,513 8,573
Other liabilities - - 638 - 638
Other long-term liabilities - - 1,473 75 1,548
Bank loans - - - - -
------------------------------ ----------- ------------- ----------- ----------- -----------
1,527 2,084 6,292 4,588 14,491
Liabilities not by segment 64,956
------------------------------ ----------- ------------- ----------- ----------- -----------
Total liabilities 79,447
------------------------------ ----------- ------------- ----------- ----------- -----------
Asset Asset Energy Total
management installation management Unallocated operations
(restated) GBP'000 GBP'000 (restated) GBP'000
31 December 2020 GBP'000 GBP'000
-------------------------------- ----------- ------------- ----------- ----------- -----------
Assets reported by segment
Intangible assets - restated(1) 9,072 3,497 2,118 10,236 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
-------------------------------- ----------- ------------- ----------- ----------- -----------
352,676 4,005 9,088 17,138 382,907
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 loans - - - - -
-------------------------------- ----------- ------------- ----------- ----------- -----------
1,981 2,216 2,495 2,248 8,940
Liabilities not by segment 47,168
-------------------------------- ----------- ------------- ----------- ----------- -----------
Total liabilities 56,108
-------------------------------- ----------- ------------- ----------- ----------- -----------
(1 Intangible assets recognised in relation to the Group's
Enterprise Resourcing Planning System, which went live in full in
2020, have been reclassified from Asset Management to Unallocated
to reflect its Groupwide use. This is in line with the current year
disclosure.)
Assets not by segment include cash and cash equivalents, trade
and other receivables and investments.
Liabilities not by segment include trade and other payables and
deferred tax liabilities.
Additions to non-current assets within each segment are listed
below:
Asset Asset Energy Total
management installation management Unallocated operations
(restated) GBP'000 GBP'000 (restated) GBP'000
GBP'000 GBP'000
------------------------- ----------- ------------- ----------- ----------- -----------
Additions to non-current
assets
2021 84,779 90 27,720 3,686 116,275
2020 - restated(1) 42,736 2 2,568 2,811 48,117
------------------------- ----------- ------------- ----------- ----------- -----------
(1 Intangible asset additions recognised in relation to the
Group's Enterprise Resourcing Planning System, which went live in
full in 2020, have been reclassified from Asset Management to
Unallocated to reflect its Groupwide use. This is in line with the
current year disclosure.)
2 Revenue from contracts with customers
(a) 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
Year ended 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ----------- ------------- ----------- -----------
Major service lines
Metering 74,358 - - 74,358
Data management 8,470 - - 8,470
Utility connections - 5,852 - 5,852
Transactional meter works - 15,649 - 15,649
Energy management - 531 3,620 4,151
----------------------------------- ----------- ------------- ----------- -----------
82,828 22,032 3,620 108,480
----------------------------------- ----------- ------------- ----------- -----------
Timing of revenue recognition
Services transferred at a point in
time - 15,649 - 15,649
Services transferred over time 82,828 6,383 3,620 92,831
----------------------------------- ----------- ------------- ----------- -----------
82,828 22,032 3,620 108,480
----------------------------------- ----------- ------------- ----------- -----------
Asset Asset Energy Total
Management Installation Management operations
Year ended 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ----------- ------------- ----------- -----------
Major service lines
Metering 70,780 - - 70,780
Data management 7,895 - - 7,895
Utility connections - 8,817 - 8,817
Transactional meter works - 10,275 - 10,275
Energy management - 632 4,583 5,215
----------------------------------- ----------- ------------- ----------- -----------
78,675 19,724 4,583 102,982
----------------------------------- ----------- ------------- ----------- -----------
Timing of revenue recognition
Services transferred at a point in
time - 10,275 - 10,275
Services transferred over time 78,675 9,449 4,583 92,707
----------------------------------- ----------- ------------- ----------- -----------
78,675 19,724 4,583 102,982
----------------------------------- ----------- ------------- ----------- -----------
(b) Assets and liabilities related to contracts with
customers
The Group has recognised the following assets and liabilities
related to contracts with customers:
2021 2020
GBP'000 GBP'000
----------------------------- -------- --------
Current contract assets 46 47
----------------------------- -------- --------
Total contract assets 46 47
----------------------------- -------- --------
Current contract liabilities 3,732 3,689
----------------------------- -------- --------
Total contract liabilities 3,732 3,689
----------------------------- -------- --------
Trade receivables and unbilled receivables are disclosed in note
15.
Significant changes in contract assets and liabilities
Contract assets and contract liabilities have not changed
significantly, and movements reflect the general timing of revenue
recognition and status of services in progress at the end of the
year.
Revenue recognised in relation to contract liabilities
The following table shows how much of the revenue recognised in
the current period relates to carried-forward contract
liabilities:
2021 2020
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Revenue recognised that was included in the contract
liability balance at the beginning of the period 2,636 2,991
----------------------------------------------------- -------- --------
No revenue was recognised in 2021 in relation to performance
obligations satisfied in previous periods.
Transaction price for which performance obligations not
satisfied
All our utilities connections and energy management contracts
are either for periods of one year or less or are billed
periodically based on time and resources incurred, or other unit
measures. As permitted under IFRS 15, the transaction price
allocated to these performance obligations unsatisfied at the end
of the reporting period is not disclosed.
(c) Accounting policies and significant judgements
(i) Metering
Meter rental
The Group acts as a gas and electricity Meter Asset Provider
(MAP), providing and installing meters to energy suppliers on
behalf of the end consumer.
As a result of the Group's assessment of contracts on
implementation of IFRS 16, and any potential interaction with IFRS
15, it was determined that the arrangements the Group has in place
to act as MAP do not constitute a lease of the meter asset to the
energy supplier. Therefore, the related income for the service of
providing a fitted meter is recognised in accordance with IFRS
15.
The provision of meter assets to energy suppliers ('MAP
services'), together with the initial installation, is considered a
distinct and single performance obligation on the basis that, as
MAP, the Group has an obligation to its customers to provide a
fitted meter. This is a separately identifiable service to which a
stand-alone selling price is typically allocated. Over the course
of the contract term, which runs in perpetuity, the Group delivers
a series of monthly services for which benefits are simultaneously
received and consumed by the customer.
Charges for MAP services are calculated daily based on the
number of installed meters and invoiced to customers monthly once
validation checks have been completed. As revenue from MAP charges
is attributed to services provided daily, revenue is always based
on the actual level of service provided and, therefore, any
uncertainty at the end of each reporting period is limited to the
extent that validation checks are still being completed. Revenue is
thus recognised over time based on our right to invoice and
includes contract Retail Price Index (RPI) uplifts.
As a result of industry regulations, and subject to specific
contract terms with a customer, the Group may be required to make
payments to customers for shortfalls in the level of service
provided. These charges are directly related to the service being
provided to the customer and thus recognised as a reduction to
revenue in the month in which the service failure occurred. Where
service levels are set based on annual targets, charges are
estimated monthly and subsequently finalised at the end of the
year. Uncertainty, as it pertains to these payments to customers,
is thus typically resolved by the end of the reporting period.
If a MAP contract is cancelled, termination fees may be levied
on the energy supplier. There has been no change in the accounting
for these termination fees and they continue to be classified
within Other operating income unless they have arisen on the loss
of the meter assets, in which case they are reported within
Administrative expenses as a component of net gain or loss on
disposal.
If the services rendered by the Group exceed the payment
received, then accrued income is recognised. This is subsequently
reclassified to receivables at the point at which the Group has an
unconditional right to payment.
Asset management services
The Group provides meter asset management and operations
services to energy suppliers. These services are considered a
distinct performance obligation from the meter rental on the basis
that these are separately identifiable services to which a
stand-alone selling price is allocated, and they are not necessary
to bring the meter asset into use.
Over the course of the contract term, which can either be fixed
or in perpetuity, the Group delivers a series of monthly services
for which the benefits are simultaneously received and consumed by
a customer. Therefore, these are accounted for as a single
performance obligation.
Service charges are calculated based on the number of meters
appointed and are accrued monthly. As revenue from service charges
is attributed to services provided periodically, revenue is always
based on the actual level of service provided and, therefore, there
is no uncertainty at the end of each reporting period. For charges
invoiced to customers monthly revenue is thus recognised over time
based on our right to invoice and includes contract RPI uplifts.
For charges invoiced to customers annually in advance, including
contract RPI uplifts, a contract liability is recognised and
subsequently released to the income statement over the year on a
straight-line basis. The Group uses the practical expedient under
IFRS 15 from adjusting revenue for any significant financial
components of one year or less.
The Group's meter asset management contracts also include the
provision of transactional meter works. These are considered
further in section (iv) below.
If the services rendered by the Group exceed the payment
received, then a contract asset is recognised. This is subsequently
reclassified to receivables at the point at which the Group has an
unconditional right to payment.
Third-party management services
The Group provides management services to a third party to whom
it sold a minority of its meter asset portfolio in April 2020.
These services include accounting and treasury, portfolio asset
management and other administrative tasks.
The various activities that make up these management services
are provided to the third party on an integrated basis. Over the
course of the contract term, which runs for as long as there are
meters within the scope of the services, the Group delivers a
series of monthly services for which the benefits are
simultaneously received and consumed by the customer. Therefore,
these are accounted for as a single performance obligation.
Service charges are currently based on a fixed annual fee,
subject to contract RPI uplifts, and are invoiced to the customer
monthly. Revenue is thus recognised over time based on our right to
invoice.
If the services rendered by the Group exceed the payment
received, then a contract asset is recognised. This is subsequently
reclassified to receivables at the point at which the Group has an
unconditional right to payment.
(ii) Data services
The Group provides data collection and aggregation services to
Industrial & Commercial (I&C) electricity customers and,
through use of the ADM(TM) unit, to I&C gas customers. Over the
course of the contract term, which can either be fixed or in
perpetuity, the Group delivers a series of monthly services for
which the benefits are simultaneously received and consumed by a
customer. Therefore, these are accounted for as a single
performance obligation.
Service charges are calculated based on the number of
meters/ADM(TM) units appointed and are accrued monthly. As revenue
from service charges is attributed to services provided
periodically, revenue is always based on the actual level of
service provided and, therefore, there is no uncertainty at the end
of each reporting period. Service charges, including contract RPI
uplifts, are billed to clients annually in advance and therefore a
contract liability is recognised and subsequently released to the
income statement over the year on a straight-line basis. The Group
uses the practical expedient under IFRS 15 from adjusting revenue
for any significant financial components of one year or less.
The ADM(TM) device is a proprietary product for the Group and
there are no other market providers of this device. A customer
cannot therefore benefit from the data services without
installation, and the installation is not separately identifiable
as it is integral to the subsequent data services. This is
therefore accounted for along with the data services as a single
performance obligation and any corresponding charges are recognised
over the term of the contract.
(iii) Utility connections services (gas and electricity)
Gas and electricity connections services are provided under
fixed-price contracts with I&C customers and can be delivered
to a single site or multiple sites. Whilst each service consists of
multiple activities, the Group's promise in the contract is to
deliver an integrated end-to-end service to which the underlying
activities are inputs. Where services are delivered to multiple
sites, and these are substantially the same, a series of services
is being provided. In all cases, therefore, these contracts give
rise to a single performance obligation to which the fixed price is
allocated. Subsequent variations to this price, due to changes in
the inputs required, are accounted for as contract modifications
and recognised on a cumulative catch-up basis.
Services are transferred over time on the basis that these are
customised services with no alternative use and the Group has an
enforceable right to payment for work completed to date.
Revenue is recognised on the stage of completion with reference
to the actual services provided as a proportion of the total
service expected to be provided under the contract, as the services
can enhance a work-in-progress asset for the customer and have no
alternative use. This is determined on a contract-by-contract basis
using a milestone approach with reference to the milestones set out
in the contract or otherwise agreed. Where relevant, consideration
is also given to material services provided between milestones.
Estimates of revenues, costs or extent of progress towards
completion are revised if circumstances change and any resulting
increases or decreases in estimated revenues or costs are reflected
in profit or loss in the period in which the circumstances that
give rise to the revision become known to management.
The customer pays the fixed amount based on a payment schedule.
In certain circumstances the customer pays in advance and therefore
a contract liability is recognised and subsequently released to the
income statement based on the measure of progress detailed above.
As the contract is cancellable at the customer's discretion,
subject to settlement for services provided to the date of
cancellation, a contract liability is not recognised until the cash
has been received.
If the services rendered by the Group exceed the payment
received, then a contract asset is recognised. This is subsequently
reclassified to receivables at the point at which the Group has an
unconditional right to payment.
The Group utilises the practical expedient available under IFRS
15 for costs to obtain a contract. Commissions paid as part of
obtaining a contract are expensed as incurred on the basis that the
contract term is typically less than twelve months.
(iv) Transactional meter works
Transactional works, which include emergency, adversarial and
other maintenance services, and are typically short term in nature,
are accounted for as a separate performance obligation to asset
management services (see section (i) above) on the basis that these
works are separately identifiable and can be performed by another
party. A customer, being the energy supplier, is legally obligated
to appoint a meter asset manager and can therefore benefit from
this service in isolation, without the subsequent transactional
works which are initiated on an ad-hoc basis upon demand by the
customer.
In 2020, the Group also started to provide transactional meter
works to the third party to whom the Group sold a minority of its
meter asset portfolio in April 2020.
The transaction price allocated to transactional works is based
on stand-alone selling prices (per unit, where relevant) and
revenue is recognised at a point in time when the transaction has
been completed and accepted by the customer. This is the point at
which the customer is charged for the service and a receivable is
recognised by the Group as we have an unconditional right to
payment. The customer will settle the transaction price for these
services as part of the regular monthly billing cycle for metering
and asset management services.
The customer pays the fixed amount based on the transactional
services provided and this is charged once the service has been
completed and accepted by the customer.
For segmental purposes, this transactional, non-recurring
revenue is recognised within asset installation.
(v) Energy management services
Energy management services provided mainly to I&C customers
include utility bureau and bill validation services, risk
management and procurement services and energy reduction and
environmental management services.
Certain services, such as utility bureau and bill validation,
are delivered through a series of monthly services over the course
of the contract term, for which the benefits are simultaneously
received and consumed by a customer. These are accounted for as a
single performance obligation. The transaction price allocated
includes a fixed monthly service charge together with a variable
component for specific activities that may not be carried out every
month. As revenue from charges is attributed to services provided
monthly, revenue is always based on the actual level of service
provided and, therefore, there is no uncertainty at the end of each
reporting period. Revenue is thus recognised over time based on our
right to invoice.
Contracts for specialist consultancy services may include
multiple projects. Where these projects are separately identifiable
within the contract and are not interrelated, they are accounted
for as separate performance obligations. The transaction price is
allocated based on the stand-alone charges for each project.
Other energy reduction and environmental management services are
typically longer-term, multi-site contracts and, therefore, the
revenue recognition is consistent with that detailed above for
utility connections - see details in section (iii) above.
(vi) Assets and liabilities arising from contracts with
customers
Costs to fulfil a contract
In certain circumstances, the Group may incur costs to fulfil
its obligations under a contract once it is obtained, but before
transferring goods or services to the customer. These costs are
assessed on a contract-by-contract basis and, where they are
considered to meet the definition of fulfilment costs under IFRS
15, they are recognised as an asset and amortised on a systematic
basis consistent with the pattern of transfer of the services to
which the asset relates.
Contract assets and liabilities
We receive payments from customers based on a billing schedule,
as established in our contracts.
The timing of revenue recognition, billing and cash collections
results in:
-- billed and unbilled accounts receivable, which are recognised
when our right to consideration becomes unconditional, and
classified as trade receivables and accrued income
respectively;
-- unbilled amounts, where we have a conditional right to
consideration based on future performance, recognised as contract
assets. These amounts will be billed in accordance with the
agreed-upon contractual terms; and
-- payments received in advance of performance under a contract,
recognised as contract liabilities. Contract liabilities are
recognised as revenue as (or when) we perform under a contract.
For project-based services, work in progress is billed in
accordance with the agreed-upon contractual terms with the
customer. We typically receive interim payments as work progresses,
which can give rise to a billed or unbilled accounts receivable,
where our right to payment is unconditional, or a contract asset,
where revenue has been recognised based on progress completed but
our right to payment is still conditional on future performance.
For some contracts, we may be entitled to receive advance payments.
We recognise a contract liability for these advance payments in
excess of revenue recognised.
Cancellation terms can vary but typically include provisions
that allow the customer to terminate the contract at their
discretion subject to a penalty or settlement of amounts for work
completed prior to termination. Contracts allow both parties to
cancel without penalty in the case of a material breach of
contract.
3 Profit from operations
The Group has identified a number of items which are material
due to their nature and/or amount. These are listed separately here
to provide a better understanding of the financial performance of
the Group.
2021 2020
GBP'000 Restated(2)
GBP'000
------------------------------------------------------------- -------- ------------
Profit from operations is stated after (charging)/crediting:
Cost of sales:
Direct staff and subcontractor costs (22,602) (23,752)
Depreciation of meter assets (24,719) (24,672)
Inventory costs (995) (1,556)
------------------------------------------------------------- -------- ------------
Total cost of sales (before exceptional items) (48,316) (49,980)
Administrative expenses:
Staff costs (17,842) (17,685)
Depreciation:
- owned assets (3,087) (3,403)
- leased assets (906) (982)
Amortisation of intangibles (4,060) (2,957)
Auditor's remuneration (note 3a) (392) (346)
Loss on disposal (2,457) (1,040)
Operating lease rentals(1) (293) (346)
Research and development costs (39) (76)
Other operating charges (12,790) (10,010)
------------------------------------------------------------- -------- ------------
Total administrative expenses (before exceptional
items) (41,866) (36,845)
Exceptional items (note 3b) (6,478) 181,738
Other operating income (note 3c) 1,696 1,723
------------------------------------------------------------- -------- ------------
Total operating costs (94,964) 96,636
------------------------------------------------------------- -------- ------------
1 2021 operating lease rentals include GBP264,000 on short-term
leases (2020: GBP314,000) and GBP29,000 on leases of low-value
assets (2020: GBP32,000).
2 2020 capitalised staff costs have been reclassified from Other
operating charges to Staff costs to align with current year
presentation.
(a) Auditor's remuneration
Auditor's remuneration can be analysed as:
2021 2020
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Audit of the parent company and consolidated financial
statements 133 144
Audit of the financial statements of the Company's
subsidiaries 229 172
Other services - audit-related assurance services 30 30
------------------------------------------------------- -------- --------
392 346
------------------------------------------------------- -------- --------
(b) Exceptional items
2021 2020
GBP'000 GBP'000
------------------------------------- -------- --------
Exceptional operating items
Gain on disposal of subsidiary - 194,713
Costs attributable to COVID-19 (265) (6,857)
Losses on the traditional and SMETS1
meter portfolio (5,906) (6,033)
Acquisition-related costs (307) -
Other - (85)
--------------------------------------- -------- --------
(6,478) 181,738
------------------------------------- -------- --------
Exceptional finance items
Facility fees (1,742) (115)
--------------------------------------- -------- --------
(1,742) (115)
------------------------------------- -------- --------
Total exceptional items (8,220) 181,623
--------------------------------------- -------- --------
There are total exceptional items in the consolidated income
statement of GBP8,220,000. Exceptional operating costs primarily
comprise GBP265,000 of costs directly attributable to COVID-19 (see
Accounting policies - critical accounting judgements - for further
details), GBP5,906,000 of losses on our traditional and SMETS1
meter portfolio and GBP307,000 of acquisition-related costs
incurred on the large-power I&C meter and data acquisition
detailed in note 20.
In 2020, an exceptional gain on the disposal of a subsidiary of
GBP194,713,000 was recognised separately in the consolidated income
statement. See note 4 for details. There were total other
exceptional items in the consolidated income statement of
GBP13,090,000. Exceptional operating costs comprised GBP6,857,000
of costs directly attributable to COVID-19, GBP6,033,000 of losses
on disposal of our traditional and SMETS1 meter portfolio
(GBP9,521,000 net book value less GBP3,488,000 termination income)
and GBP85,000 of other miscellaneous costs.
Exceptional finance costs of GBP1,742,000 comprise the
acceleration of unamortised arrangement fees relating to the
existing facility of GBP1,506,000 together with GBP236,000 of legal
and professional fees attributable to the extinguishment. In 2020,
exceptional finance costs of GBP115,000 comprised break costs
incurred on full voluntary prepayment of the Group's loan facility
(see note 18 for details).
The tax effect of exceptional items charged in 2021 is a credit
of GBP1,978,000 (2020: credit of GBP2,618,000).
(c) Other operating income
2021 2020
GBP'000 GBP'000
------------------------ -------- --------
Termination fee income 103 985
Government grant income 1,255 738
Other income 338 -
------------------------ -------- --------
1,696 1,723
------------------------ -------- --------
Of the government grant income of GBP1,255,000 (2020:
GBP738,000) recognised in the year ended 31 December 2021,
GBP489,000 relates to RDECs (2020: GBP536,000) which are detailed
in the Accounting policies. GBP766,000 relates to grant income
received on government-funded energy efficiency projects within the
energy management business.
4 Disposal of subsidiary
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.
5 Particulars of employees
The average number of staff employed by the Group during the
financial year, including Executive Directors, by activity was:
2021 2020
Number Number
---------------------------------------------------------- ------- -------
Administrative staff 488 497
Operational staff 548 546
Sales staff 5 4
IT staff 81 73
Directors (excluding 4 (2020: 4) Non-executive Directors) 3 3
---------------------------------------------------------- ------- -------
1,125 1,123
---------------------------------------------------------- ------- -------
The aggregate payroll costs of the employees, including
Executive Directors, were:
2021 2020
GBP'000 GBP'000
------------------------------ -------- --------
Wages and salaries 42,973 39,880
Social security costs 4,694 4,103
Staff pension costs 1,365 1,229
Share-based payment (note 25) 841 626
Director pension costs 21 18
------------------------------ -------- --------
49,894 45,856
------------------------------ -------- --------
6 Finance costs and finance income
2021 2020
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Finance costs
Bank loans and overdrafts 3,132 4,556
Lease liabilities 75 172
Foreign exchange loss/(gain) on intra-group borrowings 281 (23)
------------------------------------------------------- -------- --------
Total pre-exceptional finance costs 3,488 4,705
------------------------------------------------------- -------- --------
Exceptional finance costs 1,742 115
------------------------------------------------------- -------- --------
Total finance costs 5,230 4,820
------------------------------------------------------- -------- --------
Finance income
Bank interest receivable 7 166
------------------------------------------------------- -------- --------
Total finance income 7 166
------------------------------------------------------- -------- --------
7 Taxation
2021 2020
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Analysis of charge in the year
Current tax:
Current income tax expense 93 331
Adjustment to tax charge in respect of previous periods - 92
-------------------------------------------------------- -------- --------
Total current income tax 93 423
Deferred tax:
Origination and reversal of temporary differences 2,087 (198)
Adjustment to tax charge in respect of prior periods (127) (304)
Adjustment attributable to change in tax rates 2,448 1,564
-------------------------------------------------------- -------- --------
Tax on profit 4,501 1,485
-------------------------------------------------------- -------- --------
The charge for the period can be reconciled to the profit per
the consolidated statement of comprehensive income as follows:
2021 2020
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Profit before tax 8,293 194,964
---------------------------------------------------- -------- --------
Tax at the UK corporation tax rate of 19.00% (2020:
19.00%) 1,576 37,043
Expenses not deductible for tax purposes 171 1,565
Income not taxable - (38,495)
Adjustments to tax charge in respect of previous
periods (127) (212)
Impact of deferred tax not recognised (99)
Impact of overseas tax rates 24 20
Change in tax rate(1) 2,956 1,564
---------------------------------------------------- -------- --------
Tax expense in the income statement 4,501 1,485
---------------------------------------------------- -------- --------
1 See note 22 for further details.
Current tax credit through equity in the year was GBPnil (2020:
GBPnil).
8 Earnings per share
The calculation of earnings per share (EPS) is based on the
following data and number of shares:
2021 2020
GBP'000 GBP'000
--------------------------------------------------- ----------- -----------
Profit for the year used for calculation of basic
EPS 3,792 193,479
--------------------------------------------------- ----------- -----------
Number of shares 2021 2020
--------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for the
purposes of basic EPS 118,330,817 112,715,328
Effect of potentially dilutive ordinary shares:
- share options 641,710 922,554
--------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for the
purposes of diluted EPS 118,972,527 113,637,882
--------------------------------------------------- ----------- -----------
EPS:
- basic (pence) 3.20 171.65
- diluted (pence) 3.19 170.26
--------------------------------------------------- ----------- -----------
9 Dividends
Year Year
Year ended Year ended
ended 31 December ended 31 December
31 December 2021 31 December 2020
2021 Per share 2020 Per share
GBP'000 (pence) GBP'000 (pence)
----------------------------- ------------ ------------ ------------ ------------
Paid 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
Paid first interim dividend 7,829 6.875 7,058 6.25
----------------------------- ------------ ------------ ------------ ------------
Total dividends 29,060 25.625 12,226 10.83
----------------------------- ------------ ------------ ------------ ------------
In 2021, the paid second interim dividend, paid third interim
dividend and paid final dividend are in respect of FY 2020 and the
paid first interim dividend is in respect of FY 2021. In 2020, the
paid second interim dividend is in respect of FY 2019 and the paid
first interim dividend is in respect of FY 2020.
Per the Group's revised dividend policy, a 27.5p per share
dividend is proposed in respect of FY 2021. This will be paid to
shareholders in four cash instalments.
The first instalment of GBP7.8m was paid on 28 October 2021 to
shareholders on the register at 1 October 2021, with an ex-dividend
date of 30 September 2021. The remaining instalments are intended
to be paid as follows:
Instalment Ex-dividend date Record date Payment date
2 06 January 2022 07 January 2022 27 January 2022
----------------- ---------------- ----------------
3 31 March 2022 01 April 2022 28 April 2022
----------------- ---------------- ----------------
4 30 June 2022 1 July 2022 28 July 2022
----------------- ---------------- ----------------
These remaining instalments will amount to c.GBP24m and will be
accounted for in 2022.
Under the new dividend policy, the second interim dividend is
paid out of profits recognised in the year prior to the year in
which the dividends are declared and reported. As at 31 December
2021, the distributable profits in the parent company were adequate
to cover the proposed second interim dividend of c.GBP8m.
10 Intangible assets
Intangibles
recognised IT development
Goodwill upon acquisition and software Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------- ----------------- -------------- --------
Cost
As at 1 January 2020 8,547 2,257 24,445 35,249
Additions - - 4,056 4,056
Exchange adjustments - - (12) (12)
Disposals 60 4 29 93
----------------------- -------- ----------------- -------------- --------
As at 31 December 2020 8,607 2,261 28,518 39,386
Additions - - 2,831 2,831
Acquisitions 859 1,010 - 1,869
Exchange adjustments (66) (3) (31) (100)
----------------------- -------- ----------------- -------------- --------
As at 31 December 2021 9,400 3,268 31,318 43,986
----------------------- -------- ----------------- -------------- --------
Amortisation
As at 1 January 2020 - 2,171 9,335 11,506
Charge for year - 32 2,925 2,957
----------------------- -------- ----------------- -------------- --------
As at 31 December 2020 - 2,203 12,260 14,463
Charge for year - 179 3,881 4,060
----------------------- -------- ----------------- -------------- --------
As at 31 December 2021 - 2,382 16,141 18,523
----------------------- -------- ----------------- -------------- --------
Net book value
As at 31 December 2021 9,400 886 15,177 25,463
----------------------- -------- ----------------- -------------- --------
As at 31 December 2020 8,607 58 16,258 24,923
----------------------- -------- ----------------- -------------- --------
As at 1 January 2020 8,547 86 15,110 23,743
----------------------- -------- ----------------- -------------- --------
The acquisition of an Industrial & Commerical large-power
Half Hourly electricity meter and data portfolio in April 2021
resulted in the recognition of goodwill of GBP859,000, which has
been assigned to the asset management operating segment. In
addition, the customer contracts acquired as part of this
transaction were valued at GBP1,010,000 and have been recognised as
additions within the Intangibles recognised upon acquisition asset
class. See note 20 for further details on this business
acquisition.
No goodwill or intangible assets were recognised as a result of
acquisitions in 2020.
11 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
Acquisitions - - - - - - - -
Impairment - - - - - - - -
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) - - - - - - 4,071 4,071
Additions - 82,401 126 1,117 28 5,267 24,505 113,444
Acquisitions - 6,682 - - - - 5,414 12,096
Impairment - - - - - - - -
Disposals (2) (19,889) - (52) (202) - - (20,145)
Exchange adjustments - - - (6) - (4) - (10)
--------------------- ----- --------- ---------- ----------- --------- ------------ ------------- ---------
As at 31 December
2021 2,805 461,340 1,170 8,207 5,131 12,273 33,990 524,916
--------------------- ----- --------- ---------- ----------- --------- ------------ ------------- ---------
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
Impairment - - - - - - - -
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 year 171 24,719 204 1,555 1,157 1,032 - 28,838
Impairment - - - - - - - -
Disposals 1 (6,767) - (43) (134) - - (6,943)
Exchange adjustments - - - (1) - (1) - (2)
--------------------- ----- --------- ---------- ----------- --------- ------------ ------------- ---------
As at 31 December
2021 851 94,635 994 6,232 3,410 2,893 - 109,015
--------------------- ----- --------- ---------- ----------- --------- ------------ ------------- ---------
Net book value
As at 31 December
2021 1,954 366,705 176 1,975 1,721 9,380 33,990 415,901
--------------------- ----- --------- ---------- ----------- --------- ------------ ------------- ---------
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 Accounting policies -
property, plant and equipment - for further details.
Meter assets
In 2020, meter asset disposals included 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.
In 2021, meter asset acquisitions include the c.15,000 assets
acquired as part of the Industrial & Commercial large-power
Half Hourly electricity business acquisition. See note 20 for
details.
Included within the closing Meter assets net book value of
GBP366,705,000 (2020: GBP315,463,000) is GBP16,246,000 (2020:
GBP22,627,000) relating to the traditional meter portfolio. In
accordance with our accounting policy these assets will be written
down to zero by 1 July 2025. In the 2021 consolidated financial
statements the traditional meter portfolio generated GBP12,781,000
(2020: GBP13,140,000) revenue with a corresponding GBP5,071,000
(2020: GBP5,668,000) depreciation charge. As at 31 December 2021,
GBP11,787,000 (2020: GBP13,333,000) of annualised recurring revenue
arises from the owned traditional meter portfolio.
The assets are secured by a bond and floating charge (note
18).
For the purpose of impairment testing the traditional meter
asset portfolio recognised within "Meter assets" is assessed as a
stand-alone cash-generating unit (CGU) and its carrying amount is
compared with the recoverable amount. See background information
provided in the "Key sources of estimation uncertainty" section in
the accounting policies. The recoverable amount is determined based
on a value-in-use calculation, which uses the following key
assumptions:
-- estimated future cash flows from rental income, which are
assumed to decline on a straight-line basis;
-- estimated future cash flows from termination income, which
are derived using historical data and analysis around the risk of
churn between contracted and non-contracted customers and the risk
of recoverability once issued; and
-- a pre-tax discount rate of 1.9% , which reflects the risk
attached to the time value of these specific cash flows and is
deemed to be best represented by the Group's incremental cost of
borrowing on the basis that cash flows are secured by the installed
meter and the risk inherent in the decline of the cash flows is
already accounted for through the assumptions detailed above.
As a result of this impairment test, it was identified that the
value in use of the traditional meter assets CGU exceeded its
carrying value and therefore no impairment has been recognised in
the year to 31 December 2021.
Management has performed sensitivity analysis on the key
assumptions both with other variables held constant and with other
variables simultaneously changed. Management has concluded that
there are 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 for either CGU.
In line with IAS 36, no impairment review was considered
necessary at 31 December 2020 as the previous impairment review 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. There had 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 was a lower volume of traditional meter asset
removals through 2020. Therefore, no impairment was recognised in
the period ended 31 December 2020.
No impairment on other meter assets was recognised in 2021 or
2020.
Right-of-use assets
Additions to right-of-use assets during the 2021 financial year
were GBP5,267,000 (2020: GBP2,265,000).
A breakdown of right-of-use assets is presented below:
2021 2020
Carrying value GBP'000 GBP'000
--------------- -------- --------
Properties(1) 4,502 2,918
Motor vehicles - 7
Land 4,878 2,223
--------------- -------- --------
9,380 5,148
--------------- -------- --------
(1 Properties include office and warehouse space.)
The statement of profit or loss shows the following amounts
relating to leases:
2021 2020
Depreciation charge on right-of-use assets GBP'000 GBP'000
------------------------------------------- -------- --------
Properties 919 948
Motor vehicles 6 13
Land 107 21
------------------------------------------- -------- --------
1,032 982
------------------------------------------- -------- --------
12 Financial asset investments
Unlisted
investments Total
GBP'000 GBP'000
-------------------------------------------- ------------ --------
Cost
As at 1 January 2020 and 1 January 2021 75 75
Impairment - -
-------------------------------------------- ------------ --------
As at 31 December 2020 and 31 December 2021 75 75
-------------------------------------------- ------------ --------
13 Impairment of goodwill
The goodwill acquired in a business combination is allocated, at
acquisition, to the CGUs that are expected to benefit from that
business combination. Goodwill is monitored by management at the
level of the CGUs which, in the prior year, were defined as the
three operating segments identified in note 1. Given the ongoing
business development within the energy management segment and the
diversification of energy assets as a result, management has deemed
it appropriate to separate out the Solo Energy business in the
current year as a standalone CGU. All the goodwill previously
allocated to the energy management CGU relates to the acquisition
of Solo Energy Limited and, therefore, as the Solo Energy business
develops it is at this level that goodwill will be monitored for
internal management purposes. The corresponding goodwill balance
has thus been reclassified in the current year, as seen in the
table below.
A segment-level summary of the goodwill allocation is presented
below:
Asset Asset Energy
management installation management Solo Energy Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ----------- ------------- ----------- ----------- --------
Cost
As at 1 January 2020 4,112 3,497 998 - 8,607
Reclassification - - (998) 998 -
Acquisitions (note 20) 859 - - - 859
Exchange adjustments - - - (66) (66)
----------------------- ----------- ------------- ----------- ----------- --------
As at 31 December 2021 4,971 3,497 - 932 9,400
----------------------- ----------- ------------- ----------- ----------- --------
Additional goodwill of GBP859,000 has been recognised in the
current year as a result of business combinations, arising on the
acquisition of an Industrial & Commercial large-power Half
Hourly electricity business. See note 20 for further details. This
goodwill has been allocated entirely to asset management on the
basis that this is the operating segment that will receive the
benefits from the acquisition.
The Group tests goodwill for impairment annually or more
frequently if there are indications that goodwill might be
impaired. Goodwill is tested for impairment by comparing the
carrying amount of each CGU, including goodwill, with the
recoverable amount. The recoverable amounts are determined based on
value-in-use calculations which require assumptions. The
calculations use cash flow projections based on financial budgets
approved by the Board covering a one-year period, together with
management forecasts for a further four-year period. These budgets
and forecasts have regard to historical performance and knowledge
of the current market, together with the Group's views on the
future achievable growth and the impact of committed cash flows.
Specifically, budgets and forecasts used in the assessment of
goodwill at 31 December 2021 incorporate the effects of the
extended deadline for the UK smart meter rollout to 31 December
2025. Cash flows beyond this are extrapolated using the estimated
growth rates stated below.
The cash flows used in the value-in-use calculation for the
asset management segment include all costs incurred in the
provision of meter assets to energy suppliers, together with the
initial installation. The cash flows used in the value-in-use
calculation for the asset installation segment exclude installation
costs incurred to fit an owned meter. For the purpose of the
value-in-use calculation, these are instead allocated to the asset
management segment, being the segment to which the corresponding
revenues are allocated.
The annual impairment test was performed for the three CGUs
identified above that have goodwill allocated to them. No evidence
of impairment was found at the balance sheet date.
The key assumptions used in the value-in-use calculations for
those CGUs that have goodwill allocated to them are as follows:
-- Perpetual growth rate - the terminal cash flows are
extrapolated in perpetuity using a growth rate of 2.25% for asset
management (2020: 2.0%) and 1.0% for asset installation and Solo
Energy (2020: 1.5% for asset installation and energy management).
The rate of 2.25% applied to asset management is derived from
historical Retail Price Index increases applied to the segment's
index-linked meter rentals, with a small reduction in recognition
of the impact of COVID-19 on macroeconomic growth. This is not
considered to be higher than the average long-term industry growth
rate. The rate of 1.0% applied to asset installation and Solo
Energy is aligned to the Group's corporate forecast model and is
prudently lower than the rate applied to asset management as
revenues in these segments are not always index-linked.
-- Discount rate - the discount rate is initially based on the
weighted average cost of capital (WACC) which would be anticipated
for a market participant investing in the Group. A specific
discount rate is then calculated for each operating segment, taking
into account the time value of money, the segment's risk profile
and the impact of the current economic climate. The pre-tax
discount rates applied are 6.8%, 8.6% and 18.2% for asset
management, asset installation and Solo Energy respectively (2020:
6.8% for asset management, 9.0% for asset installation and 11.7%
for energy management) and the post-tax discount rates applied are
5.5%, 7.00% and 15.0% for asset management, asset installation and
Solo Energy respectively (2020: 5.5% for asset management, 7.25%
for asset installation and 8.9% for Solo Energy). The risk premium
assigned to the asset Installation CGU reflects the shorter-term
nature of the underlying revenues within this segment, as compared
to the annually-recurring revenue generated by an installed asset.
The risk premium assigned to the Solo Energy CGU reflects the
pre-revenue status of this part of the business, in which the
underlying system is still undergoing development.
Management has performed sensitivity analysis on the key
assumptions both with other variables held constant and with other
variables simultaneously changed. Management has concluded that
there are no reasonably possible changes in the key assumptions
that would cause the carrying amounts of goodwill to exceed the
value in use for either CGU.
14 Inventories
2021 2020
GBP'000 GBP'000
----------------- -------- --------
Finished goods 22,476 22,676
Work in progress - 4,701
Consumables 504 273
----------------- -------- --------
22,980 27,650
----------------- -------- --------
In the prior year, work in progress related to the construction
of grid-scale battery storage sites. Of the total work-in-progress
balance of GBP4,701,000 at 31 December 2020, GBP3,438,000 related
to the acquisition of companies and GBP1,262,000 related to the
subsequent capitalisation of directly attributable construction
costs. This work in progress has been reclassified to Assets under
construction within Property, plant and equipment in the current
year, in line with the Group's change in accounting policy. See
Accounting policies - property, plant and equipment - for further
details.
15 Trade and other receivables
2021 2020
GBP'000 restated(1)
GBP'000
------------------------------- -------- ------------
Current
Trade receivables 22,451 20,272
Prepayments and deferred costs 2,520 2,225
Accrued income 19,265 12,442
Other receivables 1,463 1,245
VAT recoverable 1,932 980
------------------------------- -------- ------------
47,631 37,164
------------------------------- -------- ------------
(1 GBP2,038,000 has been reclassified from Prepayments and
deferred costs to Accrued income.)
Amounts falling due after more than one year:
2021 2020
GBP'000 GBP'000
--------------- -------- --------
Accrued income - 12
--------------- -------- --------
Accrued income is made up of the following balances:
2021 2020
GBP'000 restated(1)
GBP'000
--------------------- -------- ------------
Unbilled receivables 18,915 12,395
Contract assets 46 47
Other accrued income 304 -
--------------------- -------- ------------
19,265 12,442
--------------------- -------- ------------
(1 GBP2,038,000 has been reclassified from Prepayments and
deferred costs to Accrued income and recognised as part of Unbilled
receivables.)
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
The Group's credit risk is primarily attributable to trade
receivables and accrued income. The amounts presented in the
consolidated statement of financial position are net of any loss
allowance. The total loss allowance for trade receivables and
accrued income at 31 December 2021 was GBP4,370,000 (2020:
GBP4,904,000). See note 19 for further details. The ageing profile
of trade receivables past due date is shown below:
2021 2020
GBP'000 GBP'000
----------------------------- -------- --------
Current 13,019 13,608
1-30 days 3,728 3,208
31-60 days 1,615 1,914
61-90 days 1,499 1,090
91-120 days 1,705 328
Over 120 days 5,812 4,868
----------------------------- -------- --------
27,378 25,016
Loss allowance (3,969) (4,744)
Amounts offset (see note 19) (958) -
----------------------------- -------- --------
22,451 20,272
----------------------------- -------- --------
Trade receivables are non-interest-bearing and are generally on
30-90-day terms. Trade receivables due from related parties at 31
December 2021 amounted to GBPnil (2020: GBPnil).
All trade receivables are denominated in Sterling.
Accrued income, which is made up of unbilled receivables and
contract assets, is presented net of any loss allowance and
impairment, with amounts being invoiced periodically and customers
being the same as those within trade receivables.
16 Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group. The
carrying amount of the asset approximates the fair value. All
balances are held in Sterling.
During 2021, GBP50,000,000 of cash was placed on short-term
deposit (2020: GBPnil)
For the purposes of the cash flow statement, cash and cash
equivalents comprises:
2021 2020
GBP'000 GBP'000
-------------------- -------- --------
Cash at bank 67,687 40,236
Short-term deposits 50,000 -
-------------------- -------- --------
117,687 40,236
-------------------- -------- --------
Restricted cash is excluded from cash and cash equivalents, in
line with the Group's accounting policy and is disclosed separately
in the consolidated statement of financial position.
17 Trade and other payables
2021 2020
GBP'000 GBP'000
----------------- -------- --------
Current
Trade payables 16,638 10,215
Other payables 4,097 3,815
Other taxes 1,519 3,894
Deferred income 2,898 2,498
Advance payments 1,185 1,422
Accruals 30,152 20,114
----------------- -------- --------
56,489 41,958
----------------- -------- --------
Deferred income and advance payments are made up of the
following balances:
2021 2020
GBP'000 GBP'000
---------------------- -------- --------
Contract liabilities 3,732 3,689
Other deferred income 351 231
---------------------- -------- --------
4,083 3,920
---------------------- -------- --------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
Trade payables are classified at amortised cost, are
non-interest-bearing and are normally settled on 30-45-day
terms.
All trade liabilities are denominated in Sterling.
18 Financial liabilities and provisions
(a) Financial liabilities
2021 2020
GBP'000 GBP'000
------------------ -------- --------
Current
Lease liabilities 999 936
Other liabilities 638 388
Bank loans - -
------------------ -------- --------
1,637 1,324
------------------ -------- --------
Non-current
Lease liabilities 7,574 4,315
Other liabilities 1,548 -
Bank loans - -
------------------ -------- --------
9,122 4,315
------------------ -------- --------
At the start of 2020, the Group had a revolving credit facility
of GBP420m, with a five-year term ending December 2023 (the
'existing 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
existing facility were reduced from GBP420m to GBP300m. There were
no other material changes to the terms and conditions. This
amendment did not substantially change the existing revolving
credit facility, nor did it discharge any obligations. As such,
this was deemed to be a modification. There was no material impact
to the consolidated income statement in the year ended 31 December
2020 as a result of the modification; GBP0.1m of break costs
incurred as a result of the voluntary prepayment were recognised as
an exceptional finance cost.
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 from the initial establishment of
the revolving credit facility in December 2018 continued to be
amortised over the remaining duration of the facility to 2023,
together with additional transaction costs of GBP0.1m directly
attributable to the modification of the loan on 22 April 2020. For
the year ended 31 December 2020, GBP0.7m of transaction costs were
recognised within the consolidated income statement and the
unamortised transaction costs of GBP1.9m that would ordinarily be
deducted from the carrying value of the bank loans were recorded as
'Other assets' at 31 December 2020.In line with the Group's
accounting policy, these unamortised transaction costs were
reclassified to Bank loans upon the first drawdown in H1 2021.
On 13 September 2021, the Group successfully completed the
refinancing of its existing facility to better support the ongoing
growth and development of the Group. As part of the refinancing,
all outstanding amounts under the existing facility were settled.
Concurrently, the Group undertook a commercial negotiation,
facilitated by debt advisory specialists, to enter into a new
facility on market terms. The new facility has total available
commitments of GBP420m and matures in December 2025. The new
facility is provided by a syndicate of lenders, including the
lenders of the existing facility and new lenders. Unamortised
arrangement fees on the existing facility of GBP1.5m have been
accelerated and recognised as an exceptional finance cost in the
consolidated income statement together with GBP0.2m of legal and
professional fees arising on the refinancing. No amount is drawn
down on the new facility at 31 December 2021 and transaction costs
of GBP2.4m are amortised over the duration of the new facility to
2025.
For the year ended 31 December 2021, GBP2.1m of transaction
costs have been recognised within the consolidated income statement
(2020: GBP0.7m) of which GBP0.2m relates to the new facility.
GBP1.9m relates to the existing facility of which GBP1.5m
accelerated amortisation of transaction costs has been recognised
within Exceptional costs. Interest of GBP0.6m has been recognised
(2020: GBP2.3m).
Whilst a drawdown of GBP53m was made under the new facility in
H2, this was settled in full in November 2021. Therefore, as at 31
December 2021 there is no outstanding principal or interest. The
amount recognised against Bank loans is thus GBPnil. Unamortised
transaction costs of GBP2.2m, that would ordinarily be deducted
against the carrying value of the bank loans, have therefore been
reclassified to Other assets at 31 December 2021.
Up until 13 September 2021, the existing facility attracted
interest at a rate of 1.85% over three-month LIBOR and 0.65% was
payable on undrawn funds. From 13 September 2021, the new facility
attracted interest at a rate of 1.85% over three-month SONIA and
0.65% was payable on undrawn funds. Interest continues to be
settled quarterly.
The Group has complied with the financial covenants of its
borrowing facility during the current and prior reporting
periods.
(b) Changes in liabilities arising from financing activities
Lease liabilities Bank loans
Financial liabilities GBP'000 GBP'000
------------------------------------------------ ----------------- ----------
At 1 January 2020 3,963 269,260
Cash flows (i) (1,155) (274,143)
New leases 2,260 -
Other non-cash changes (i) 183 2,934
------------------------------------------------ ----------------- ----------
At 31 December 2020 5,251 (1,949)
Cash flows (i) (1,247) (2,631)
New leases 4,230 -
Other non-cash changes (i) 339 2,379
------------------------------------------------ ----------------- ----------
At 31 December 2021 8,573 (2,201)
------------------------------------------------ ----------------- ----------
Presentational reclassification to Other assets - 2,201
------------------------------------------------ ----------------- ----------
At 31 December 2021 8,573 -
------------------------------------------------ ----------------- ----------
(i) Cash flows and other non-cash changes
Cash flows on lease liabilities include GBP1,247,000 of lease
payments. Cash flows on bank loans include GBP53,250,000 of new
borrowings less GBP53,250,000 of borrowings repaid, interest
payments of GBP554,000 and a payment of GBP2,077,000 for
arrangement fees.
Other non-cash changes in lease liabilities include GBP281,000
of interest charges plus GBP58,000 arising from changes in lease
terms and foreign exchange impact in the year. Other non-cash
changes in bank loans include GBP308,000 of arrangement fees
accrued but not yet paid offset with GBP554,000 of interest charges
and GBP2,133,000 amortisation of arrangement fees (of which
GBP1,506,000 relates to the accelerated amortisation of arrangement
fees as a result of the re-financing of the Group's revolving
credit facility).
At 31 December 2021, there were no outstanding amounts under the
Group's revolving credit facility. Therefore, unamortised
arrangement fees of GBP2,201,000 have been classified separately as
Other assets in the consolidated statement of financial position in
line with the Group's accounting policy. Unamortised arrangement
fees of GBP550,000 have been classified as current Other assets,
with the balance of GBP1,651,000 classified as non-current, in line
with the remaining term of the facility.
In 2020, cash flows on lease liabilities included GBP1,155,000
of lease payments. Cash flows on bank loans included GBP15,000,000
of new borrowings less GBP285,000,000 of borrowings repaid,
interest payments of GBP4,000,000 and a payment of GBP143,000 for
arrangement fees.
Other non-cash changes in lease liabilities included GBP172,000
of interest charges plus GBP11,000 arising from changes in lease
terms and foreign exchange impact in the year. Other non-cash
changes in bank loans included GBP2,276,000 of interest charges and
GBP658,000 amortisation of arrangement fees.
(c) Other liabilities
Other liabilities comprise:
2021 2020
GBP'000 GBP'000
--------------------------------------- -------- --------
Current
Deferred consideration on acquisitions 638 388
--------------------------------------- -------- --------
638 388
--------------------------------------- -------- --------
Non-current
Deferred consideration on acquisitions 750 -
750 -
--------------------------------------- -------- --------
Refer to note 21 for further details on the deferred
consideration on acquisitions.
(d) Provisions
Provisions comprise:
Non-current
Provision for restoration costs recognised under
IFRS 16 798 -
------------------------------------------------- ---
798 -
------------------------------------------------- ---
The Group is required to restore the land leased as part of its
grid-scale battery storage business, and certain leased warehouses,
to the condition required by the terms and conditions of the lease
at the end of the respective lease terms (which range between three
to ten years for warehouses and 20 to 40 years for land). A
provision has been recognised for the present value of the
estimated expenditure required to carry out this restoration. These
costs have been capitalised as part of the cost of right-of-use
assets and are depreciated over the shorter of the term of the
lease and the useful life of the assets.
19 Financial risk management
The Board reviews and agrees policies for managing the risks
associated with interest rate, credit and liquidity risk. The Group
has in place a risk management policy that seeks to minimise any
adverse effect on the financial performance of the Group by
continually monitoring the following risks:
(a) Interest rate risk
The Group's main interest rate risk arises from its floating
rate bank loan, which was undrawn at 31 December 2021 (2020:
GBPnil). See note 18 for further details.
There were no overdrafts at 31 December 2021 (2020: none) and
the interest charge arising on lease liabilities does not represent
a cash interest rate risk for the Group.
The Group's financial assets at 31 December 2021 comprise cash
and trade receivables. The cash balance of GBP117,687,000 (2020:
GBP40,236,000) is a floating rate financial asset, but interest
income is not typically material.
Interest rate sensitivity
The following table demonstrates the sensitivity to a change in
interest rates on the Group's floating rate bank loan. The Group's
profit before tax is affected through the impact on floating rate
borrowings as follows:
Effect
on profit
Increase/(decrease) before
in basis tax
points GBP'000
---- ------------------- ----------
2021 +70bps -
2020 +70bps -
---- ------------------- ----------
Management believes that a movement in interest rates of 70 bps
gives a reasonable measure of the Group's sensitivity to interest
rate risk. The table above demonstrates the sensitivity to a
possible change in interest rates, with all other variables held
constant, of the Group's profit before tax.
(b) Fair values of financial liabilities and financial
assets
The Group's bank loan is measured at amortised cost. For fair
value disclosure purposes, the bank loan is considered to be a
level 2 financial instrument on the basis that it is not traded in
an active market. The fair values, based upon the market value or
discounted cash flows of financial liabilities and financial assets
held in the Group, were not materially different from their book
values.
(c) Foreign currency risk
The Group's exposure to the risk of changes in foreign exchange
primarily arises from a single subsidiary, operating in Euros. With
the exception of this entity, all of the Group's operating
activities are denominated in Pounds Sterling and, therefore, the
Group's overall exposure is not significant.
(d) Liquidity risk
The Group manages its cash in a manner designed to ensure
maximum benefit is gained whilst ensuring security of investment
sources. The Group's policy on investment of surplus funds is to
place deposits at institutions with strong credit ratings; this is
considered to be institutions with a credit rating of AA- and
above. Currently, all of the chosen investment institutions are in
line with these criteria.
The ageing and maturity profile of the Group's material
financial liabilities is disclosed in the table below. The amounts
disclosed are the contractual undiscounted cash flows.
Between
Less than two and Over Total contractual
one year five years five years cash flows
31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ --------- ----------- ----------- -----------------
Contractual maturities of financial
liabilities
Trade payables 16,638 - - 16,638
Bank loan - - - -
Other liabilities 638 - - 638
Other long-term liabilities - 750 - 750
Lease liabilities 1,280 3,232 5,965 10,477
------------------------------------ --------- ----------- ----------- -----------------
18,556 3,982 5,965 28,503
------------------------------------ --------- ----------- ----------- -----------------
Between
Less than two and Over Total contractual
one year five years five years cash flows
31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ --------- ----------- ----------- -----------------
Contractual maturities of financial
liabilities
Trade payables 10,215 - - 10,215
Bank loan - - - -
Other liabilities 388 - - 388
Lease liabilities 1,172 2,657 4,222 8,051
------------------------------------ --------- ----------- ----------- -----------------
11,775 2,657 4,222 18,654
------------------------------------ --------- ----------- ----------- -----------------
The contractual undiscounted cash flows on the bank loan reflect
the contractual arrangements in place at the year-end date. As
disclosed in note 18, the Group had no outstanding principal at 31
December 2021 or 31 December 2020 and therefore the contractual
undiscounted cash flows at 31 December 2021 and 31 December 2020
are GBPnil in the tables above.
(e) Credit risk
The Group's credit risk primarily arises from credit exposures
to energy suppliers (our customers), including outstanding
receivables, due to the Group trading with a limited number of
companies, which are generally large utility companies or financial
institutions.
Credit risk is managed on a Group basis. For banks and financial
institutions, only independently rated parties with a minimum
rating of AA- are accepted. With regard to customers, the Group
assesses the credit quality of the customer, considering its
financial position, past experience and other factors. The Group
does not expect, in the normal course of events, that debts due
from customers are at significant risk. The Group's maximum
exposure to credit risk equates to the carrying value of cash and
cash equivalents, trade and other receivables, contract assets and
investments. The Group's maximum exposure to credit risk from its
customers is GBP41,716,000 (2020 restated: GBP32,725,000), being
the sum of the carrying value of trade receivables and accrued
income, including contract assets, as disclosed within Trade and
other receivables in note 15. The Group regularly monitors and
updates its cash flow forecasts to ensure it has sufficient and
appropriate funds to meet its ongoing operational requirements.
Impairment of financial assets
The Group has two types of financial assets that are subject to
IFRS 9's expected credit loss model:
-- trade receivables, which consist of billed receivables
arising from contracts with customers, for the provision of meter
asset installation, management and energy services; and
-- accrued income, which consists of contract assets and
unbilled receivables arising from contracts with customers.
While cash and cash equivalents, and debt investments held at
amortised cost, are also subject to the impairment requirements of
IFRS 9, the identified impairment loss was immaterial.
The Group applies the IFRS 9 simplified approach to measuring
forward-looking expected credit losses, which uses a lifetime
expected loss allowance for all trade receivables and accrued
income, including contract assets.
To measure the ECL, trade receivables and accrued income have
been grouped based on shared credit risk characteristics and the
days past due. Accrued income relates to rights to consideration
for performance, and other operating charges, before payment is due
from customers, and consists of unbilled receivables and contract
assets (see note 2 for details). These have substantially the same
risk characteristics as the trade receivables for the same types of
contracts. The Group has therefore concluded that the expected loss
rates for trade receivables are a reasonable approximation of the
loss rates for accrued income.
The Group has established a provision matrix based on the
payment profiles of sales, over the most recent twelve-month period
that is an appropriate representation of loss patterns, and the
corresponding historical credit losses experienced within this
period. The historical loss rates are adjusted to reflect current
and forward-looking information that might affect the ability of
customers to settle the receivables, including macroeconomic
factors as relevant. In calculating the loss rates, certain
historical losses arising from specific circumstances with
customers have been removed where these are not indicative of
future loss patterns.
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 GBPnil at 31 December 2021, reflecting positive recovery
trends over the past twelve months, giving rise to a GBP0.4m credit
in the current year financial statements (net of write-offs).
Whilst management will continue to monitor the situation in case of
any changed circumstances arising from the pandemic, it is of the
view that there is no longer significant uncertainty regarding the
impact of COVID-19 on customer default risk. Consistent with the
recognition of the original impairment loss in the prior year,
management has taken the judgement to recognise this write back as
exceptional.
During the second half of 2021, the global energy market has
suffered from unprecedented increases in wholesale gas prices,
creating significant volatility within the UK energy market and
leading to a number of independent energy suppliers entering
administration and exiting the market. This crisis has notably
impacted the smaller independent energy suppliers and, 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 the crisis. This subset of trade receivables has
been provided for on a specific basis and has resulted in an
additional GBP0.4m impairment loss in the year. Given the continued
and changing uncertainty regarding the impact of this crisis on
customer default risk, management will continue to monitor the
situation and reassess its ECL at each reporting period end
accordingly.
On that basis, the loss allowance at 31 December 2021 was
determined as GBP4,370,000 (2020: GBP4,904,000) for trade
receivables and accrued income. A reconciliation of these balances
is provided as follows:
Accrued Trade
income receivables Total
GBP'000 GBP'000 GBP'000
----------------------------------------- -------- ------------ --------
At 1 January 2021 160 4,744 4,904
Increase in loss allowance recognised in
profit or loss
during the year - underlying 241 3,161 3,402
Decrease in loss allowance recognised in
profit or loss
during the year - exceptional - (438) (438)
Amounts reversed/written off during the
year - (3,498) (3,498)
----------------------------------------- -------- ------------ --------
At 31 December 2021 401 3,969 4,370
----------------------------------------- -------- ------------ --------
The overall loss allowance has decreased at 31 December 2021.
Whilst the crisis in the energy market has given rise to an
additional impairment loss in the year, as detailed above, the
impairment loss recognised in relation to COVID-19 in 2020 has been
reversed and several individual trade receivables, previously
impaired as a result of specific circumstance with customers, have
been settled in the year.
Total net impairment losses on financial and contract assets
were GBP2,964,000 in 2021 (2020: GBP3,229,000) including the
GBP438,000 exceptional credit. Of this amount, GBP2,964,000 (2020:
GBP3,229,000) relates to amounts arising from trade receivables and
accrued income.
Fair value
There is no material difference between the book value and the
fair value of any financial asset or liability.
(f) Capital management
Capital is the equity attributable to the equity holders of the
parent. The primary objective of the Group's capital management is
to ensure that it maintains a strong credit rating and healthy
capital ratios in order to support its business and maximise
shareholder value. The Group manages its capital structure, and
makes adjustments to it, in light of changes in economic
conditions. To maintain or adjust the capital structure, the Group
may adjust the dividend payment to shareholders, sell assets,
return capital to shareholders or issue new shares.
The Group monitors capital on the basis of a leverage ratio.
This ratio is calculated as net debt divided by pre-exceptional
EBITDA. Net debt is calculated as total borrowings less cash.
Pre-exceptional EBITDA is calculated as operating profit before any
significant exceptional items, interest, tax, depreciation and
amortisation.
The objective of SMS's strategy is to deliver long-term value to
its shareholders whilst maintaining a balance sheet structure that
safeguards the Group's nancial position. Under the Group's enhanced
dividend policy, SMS declared a 25p per share dividend in respect
of FY 2020 and proposes a 27.5p per share dividend in respect of FY
2021. The first of three interim dividend instalments was paid in
October 2021. The Group's long-term index-linked cash flows from
its existing asset base are able to support an intended annual
increase of 10% in dividends for each of the financial years FY
2022, FY 2023 and FY 2024. This results in a more predictable
return to shareholders and reflects the forecast growth of the
business over and above RPI in that period. The Group's strong
liquidity position supports the funding of its contracted smart
meter order pipeline, which will further add to its long-term
index-linked cash flows.
(g) Disclosure of offsetting arrangements
Amounts Balance
Gross balances(1) offset(2) sheet(3)
31 December 2021 GBP'000 GBP'000 GBP'000
---------------------- ----------------- ---------- ---------
Financial assets
Trade receivables 23,409 (958) 22,451
Accrued income 20,313 (1,048) 19,265
---------------------- ----------------- ---------- ---------
Financial liabilities
Trade payables 16,770 (132) 16,638
Accruals 32,026 (1,874) 30,152
---------------------- ----------------- ---------- ---------
(1 The gross amounts of the recognised financial assets and
liabilities)
(2 The amounts offset in accordance with the criteria in IAS
32)
(3 The net amounts presented in the consolidated statement of
financial position)
20 Business combinations
Year ended 31 December 2021
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.GBP1.1m 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.GBP2m of annualised
recurring data revenue. This is reported through the Group's asset
management segment.
As part of the transaction, a workforce was transferred with the
skills, knowledge and experience to generate revenues from the
assets and contracts acquired, and potentially grow the acquired
business for the Group. Such a workforce meets the definition of a
substantive process under IFRS 3. 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.
The assets and liabilities recognised as a result of the
acquisition were as follows:
Fair value
GBP'000
-------------------------------------------- ----------
Intangible assets: customer contracts 1,010
Property, plant and equipment: meter assets 6,682
Inventories 700
Trade and other receivables 1,778
Trade and other payables (2,368)
Deferred tax liability (228)
-------------------------------------------- ----------
Net identifiable assets acquired 7,574
Add: goodwill 859
-------------------------------------------- ----------
Net assets acquired 8,433
-------------------------------------------- ----------
No contingent assets or liabilities were acquired. The customer
contracts acquired were valued using a multi-period excess earnings
method, which assesses the present value of the after-tax cash
flows attributable only to these contracts.
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.
For the year ended 31 December 2021, the acquired business
contributed a net profit before taxation of GBP1.7m to the Group.
If the acquisition had occurred on 1 January 2021, consolidated
pro-forma profit for the year ended 31 December 2021 would have
been approximately GBP2.2m.
Acquisition-related costs of GBP0.3m have been incurred to date,
including transaction costs and mobilisation costs to integrate the
newly-acquired business into the Group, and have been included as
part of exceptional Administrative costs in the consolidated
statement of comprehensive income.
Year ended 31 December 2020
During the year ended 31 December 2020, the Group acquired 100%
of the issued share capital of the following companies:
Registered Purchase Acquisition
Name of acquired Company office prior consideration date Nature of the
company number to acquisition GBP GBP company
---------------------- -------- ------------------ -------------- ------------ ------------------
Salisbury
House
Station Road
East Anglia Grid Cambridge 16 October Special purpose
Storage One Limited 11110483 CB1 2LA 1,575,882 2020 vehicle
------------------ -------------- ------------
Burwell Power Limited 12028663 Holding company(1)
---------------------- -------- ------------------ -------------- ------------ ------------------
16a Suite
18
Oakham Enterprise
Park
Ashwell Road
Add Renewables Oakham, Rutland 30 September Special purpose
No.3 Limited 10042216 LE15 7TU 1,344,000 2020 vehicle
---------------------- -------- ------------------ -------------- ------------ ------------------
1 Burwell Power Limited is the direct parent of East Anglia Grid
Storage One Limited (the 'subsidiary').
All three companies report in British Pounds Sterling. The
acquisitions enable SMS 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 strategy of investment in
CaRe 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. The acquired sites will be
constructed over the next twelve months.
Details of the purchase consideration are as follows:
Contingent
Cash paid consideration
Name of acquired company GBP GBP
------------------------------------------------- --------- --------------
Burwell Power Limited and its subsidiary
East Anglia Grid Storage One Limited (together,
'Burwell') 1,375,882 200,000
Add Renewables No.3 Limited ('Barnsley') 1,156,500 187,500
------------------------------------------------- --------- --------------
Total purchase consideration 2,532,382 387,500
------------------------------------------------- --------- --------------
In the event that total connection costs per MW fall below
various set thresholds, total additional consideration of up to
GBP387,500 may be payable in cash upon energisation (when the
grid-scale battery storage asset is connected to the grid). Target
energisation was end of 2021. The fair value of the contingent
consideration recognised of GBP387,500 was estimated by calculating
the present value of the future expected cash flows based on
current budgets and forecasts. The estimate ignores the impact of
discounting on the basis that the anticipated payment date is
within twelve months of the current reporting date.
The assets and liabilities recognised as a result of the
acquisitions were as follows:
Burwell Barnsley Total
fair value fair value fair value
GBP'000 GBP'000 GBP'000
--------------------------------- ---------- ---------- ----------
Cash and cash equivalents 94 - 94
Inventories: work in progress(1) 1,757 1,681 3,438
Trade and other receivables 39 - 39
Trade and other payables - (22) (22)
Deferred tax liability (314) (315) (629)
--------------------------------- ---------- ---------- ----------
Net identifiable assets acquired 1,576 1,344 2,920
Add: goodwill - - -
--------------------------------- ---------- ---------- ----------
Net assets acquired 1,576 1,344 2,920
--------------------------------- ---------- ---------- ----------
1 Total inventories of GBP3,438,000 include a fair value uplift
of GBP2,683,000.
No contingent assets or liabilities were acquired.
A total fair value uplift of GBP2.7m (net of tax) was applied to
the acquisition balance sheets in relation to development and
construction rights, which have been included within work in
progress and recorded as part of Inventories in the consolidated
balance sheet. The acquisitions therefore resulted in goodwill of
GBPnil.
The entities acquired contributed GBPnil turnover or profit to
the Group's results in the year ended 31 December 2020. If the
acquisitions had occurred on 1 January 2020, consolidated pro-forma
revenue and profit for the year ended 31 December 2020 would also
have been GBPnil. No further adjustments were required as there
were no material differences in the accounting policies between the
Group and the entities acquired.
Acquisition-related costs of GBP0.1m were incurred and have been
recorded as part of Administrative costs in the consolidated
statement of comprehensive income. These have not been classified
as exceptional on the basis that, through these acquisitions, the
Group is establishing a trade of constructing and selling
grid-scale batteries.
As part of the acquisition, lease liabilities of GBP2.2m were
recognised relating to leases of land held by the acquired
companies. Associated right-of-use assets of the same amount were
recognised on the Group's consolidated balance sheet within
Property, plant and equipment.
21 Asset acquisitions
During the year ended 31 December 2021, the Group acquired 100%
of the issued share capital of the following companies:
Name of acquired Company Registered office Purchase consideration Acquisition Nature of
company number prior to acquisition GBP'000 date the company
------------------- -------- --------------------- ---------------------- ----------- ---------------
Unit 9, the Green
Easter Park, Benyon
Road, Reading,
Newtonwood Energy Berkshire 9 March Special purpose
Storage Limited 11257609 RG7 2PQ 1,471 2021 vehicle
Unit 9, the Green
Easter Park, Benyon
Road, Reading,
Brook Farm Energy Berkshire 11 June Special purpose
Storage Limited 10780034 RG7 2PQ 1,572 2021 vehicle
------------------- -------- --------------------- ---------------------- ----------- ---------------
Suite 4D Drake
House, Dursley,
Berkeley Battery Gloucestershire 15 June Special purpose
Storage 2 Limited 10942601 GL11 4HH 1,306 2021 vehicle
------------------- -------- --------------------- ---------------------- ----------- ---------------
Unit 8-9 Benyon
Road, Silchester,
Brentwood Energy Reading, Berkshire 1 October Special purpose
Storage Limited 11516707 RG7 2PQ 1,401 2021 vehicle
------------------- -------- --------------------- ---------------------- ----------- ---------------
All four companies report in British Pounds Sterling. The
acquisitions enable SMS to obtain control over the rights required
to develop and commission four grid-scale battery storage sites,
totalling 200MW, as part of the Group's strategy of investment in
CaRe assets. Grid-scale battery storage is reported through the
Group's energy management segment and 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. The acquired sites will be
constructed over the next 12 to 24 months.
Details of the purchase consideration are as follows:
Cash paid Deferred consideration Total consideration
Name of acquired company GBP'000 GBP'000 GBP'000
----------------------------------- --------- ---------------------- -------------------
Newtonwood Energy Storage Limited 1,221 250 1,471
Brook Farm Energy Storage Limited 1,572 - 1,572
Berkeley Battery Storage 2 Limited 1,056 250 1,306
Brentwood Energy Storage Limited 901 500 1,401
----------------------------------- --------- ---------------------- -------------------
Total purchase consideration 4,750 1,000 5,750
----------------------------------- --------- ---------------------- -------------------
In respect of three of the four companies, total additional
consideration of GBP750,000 is payable in cash upon energisation
(when the grid-scale battery storage asset is connected to the
grid). In addition, in respect of one of the four companies, total
additional consideration of GBP250,000 is payable in cash upon the
full execution of an extension of the term of the land lease. The
payments have been measured at fair value at the acquisition date,
ignoring the impact of discounting on the basis that the
anticipated payment date is within 24 months of the current
reporting date and management consider the impact of discounting
over this period to be immaterial.
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 Brentwood Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ---------- ---------- -------- --------- --------
Assets under construction 1,272 1,596 1,290 1,256 5,414
Trade and other receivables 199 76 16 145 436
Trade and other payables - (100) - - (100)
----------------------------- ---------- ---------- -------- --------- --------
Total purchase consideration 1,471 1,572 1,306 1,401 5,750
----------------------------- ---------- ---------- -------- --------- --------
No contingent assets or liabilities were acquired.
The majority of the value gained from acquiring the four 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 GBP0.2m 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.
22 Deferred taxation
The movement in the deferred taxation liability during the year
was:
2021 2020
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Opening deferred tax liability 8,511 13,779
Increase in provision through consolidated statement
of comprehensive income 4,408 1,061
Increase/(decrease) in provision through equity (319) (714)
Deferred tax in respect of acquisitions and disposals (401) (5,615)
------------------------------------------------------ -------- --------
Closing deferred tax liability 12,199 8,511
------------------------------------------------------ -------- --------
The Group's provision for deferred taxation consists of the tax
effect of temporary differences in respect of:
2021 2020
GBP'000 GBP'000
------------------------------------------------ -------- --------
Excess of taxation allowances over depreciation
on property, plant and equipment 11,036 7,134
Tax losses available (51) (125)
Deferred tax asset on share options (1,438) (1,676)
Deferred tax on intangibles acquired 1,168 684
Other 1,484 2,494
------------------------------------------------ -------- --------
12,199 8,511
------------------------------------------------ -------- --------
The deferred tax included in the consolidated statement of
comprehensive income is as follows:
2021 2020
GBP'000 GBP'000
-------------------------------------- -------- --------
Accelerated capital allowances 3,902 1,688
Tax losses 74 (124)
Deferred tax asset on share options 558 29
Movement in fair value of intangibles 256 626
Other (382) (1,158)
-------------------------------------- -------- --------
4,408 1,061
-------------------------------------- -------- --------
At 31 December 2021, the main rate of corporate tax applying to
the profits of the Group was 19%. In the Spring Budget 2020, the UK
Government announced that from 1 April 2020 the corporation tax
rate would remain at 19% (rather than reducing to 17%, as
previously enacted). The Government's budget announcements on 3
March 2021 included the confirmation that the rate of corporation
tax would increase to 25% from 1 April 2023. This new law was
substantively enacted on 24 May 2021. Deferred taxes at the balance
sheet date have been re-measured using these enacted tax rates and
reflected in these financial statements. The impact of tax rate
changes, on both the Group's opening deferred tax liability and
current-year total tax timing differences, amounts to
GBP2,956,000.
The Group had unrecognised trading losses of GBP1,456,000 (2020:
GBP954,000) in subsidiary undertakings at 31 December 2021. The
Group also had unrecognised capital losses of GBP729,000 (2020:
GBP729,000) in subsidiary undertakings at 31 December 2021.
23 Related party transactions
(a) Subsidiaries
The Group's subsidiaries at 31 December 2021 are set out below.
Unless otherwise stated, they have share capital consisting solely
of ordinary shares, and the proportion of ownership interests held
equals the voting rights held by the Group. The country of
registration is also their principal place of business.
Registered Proportion
Office of
(see key shares
below table) Holding held Nature of business
-------------------------- ------------- -------- ---------- -------------------------------
Ordinary
SMS Connections Limited 1 shares 100% Gas utility connections
Ordinary Gas and electric asset
SMS Meter Assets Limited 1 shares 100% management
Ordinary Gas and electric asset
SMS MAPCO 1 Limited 2 shares 100% management
Ordinary Gas and electric asset
SMS MAPCO 2 Limited 2 shares 100% management
SMS Data Management Ordinary
Limited 1 shares 100% Data management
Smart Metering Systems Ordinary
PTY Limited (Australia) 4 shares 100% Data management
Ordinary
UKMA (AF) Limited* 2 shares 100% Funding
SMS Corporate Services Ordinary
Limited 1 shares 100% Administrative services
SMS Asset Management Ordinary Gas and electric third-party
Limited* 2 shares 100% asset management
SMS Energy Services Ordinary Electricity utility connections
Limited 2 shares 100% and management
SMS Data Services Ordinary Electric asset and data
Limited* 2 shares 100% management
CH4 Gas Utility and
Maintenance Services Ordinary
Limited* 2 shares 100% Meter installation
SMS Utilities Academy Ordinary Engineer training and
Limited* 2 shares 100% development
Ordinary
Trojan Utilities Limited* 2 shares 100% Meter installation
Ordinary Business and domestic
Qton Solutions Limited* 2 shares 100% software development
Smart Battery Systems Ordinary
Limited 2 shares 100% Holding company
Solo Energy Limited Ordinary
(UK)* 1 shares 100% Renewable asset management
Solo Energy Limited Ordinary
(Ireland)* 3 shares 100% Renewable asset management
Ordinary
Care Assets Limited 2 shares 100% Holding company
Add Renewables No.3 Ordinary
Limited* 2 shares 100% Renewable asset management
Ordinary
Burwell Power Limited* 2 shares 100% Holding company
East Anglia Grid Storage Ordinary
One Limited* 2 shares 100% Renewable asset management
Newtonwood Energy Ordinary
Storage Limited* 2 shares 100% Renewable asset management
Brook Farm Energy Ordinary
Storage Limited* 2 shares 100% Renewable asset management
Berkeley Battery Storage Ordinary
2 Limited* 2 shares 100% Renewable asset management
Brentwood Energy Storage Ordinary
Limited* 2 shares 100% Renewable asset management
-------------------------- ------------- -------- ---------- -------------------------------
* The shareholding in this company is indirect, via a subsidiary
company.
1 Registered office address: 2nd Floor, 48 St. Vincent Street,
Glasgow G2 5TS.
2 Registered office address: Prennau House, Copse Walk, Cardiff
Gate Business Park, Cardiff CF23 8XH.
3 Registered office address: West Building, Carrigaline
Industrial Estate, Carrigaline, Co. Cork, Republic of Ireland.
4 Registered office address: KPMG, 'Tower 3' Level 38, 300
Bangaroo Avenue, Sydney, NSW 2000, Australia.
(b) Key management personnel compensation
The Group has determined that its key management personnel
comprise the Executive Directors, Non-executive Directors and
certain senior management personnel. The aggregate compensation
paid or payable to key management is shown below:
2021 2020
GBP'000 GBP'000
----------------------------- -------- --------
Short-term employee benefits 2,747 3,024
Post-employment benefits 35 28
Termination benefits 146 -
Share-based payments 262 219
----------------------------- -------- --------
3,190 3,271
----------------------------- -------- --------
(c) Directors
Directors' emoluments
Aggregate remuneration for both Executive and Non-executive
Directors in respect of qualifying services was:
2021 2020
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Aggregate emoluments 1,744 2,010
Company contributions to money purchase pension scheme 21 18
Company contributions to private pension plan - -
------------------------------------------------------- -------- --------
1,765 2,028
------------------------------------------------------- -------- --------
In 2021, GBP146,000 was payable to a Director as settlement
following resignation (2020: no amount was payable to
Directors).
Emoluments of highest paid Director
2021 2020
GBP'000 GBP'000
----------- -------- --------
Emoluments 694 796
----------- -------- --------
In addition, rent was paid into the highest paid Director's
personal pension scheme. See note 22 (d) for further details.
Number of Directors who accrued benefits under Company pension
schemes
2021 2020
Number Number
----------------------- ------- -------
Money purchase schemes 3 2
----------------------- ------- -------
(d) Other transactions with related parties
During the year, the Group entered into the following
transactions with related parties:
-- Rent amounting to GBP10,375 (2020: GBP41,500) was paid to the
Directors' pension scheme, Eco Retirement Benefit Scheme, for the
use of certain premises. Alan Foy is a trustee of the scheme. At
the year-end date, an amount of GBPnil (2020: GBPnil) was
outstanding in this regard.
-- The Group paid dividends to Alan Foy of GBP906,915 (2020:
GBP441,930), The Metis Trust(1) of GBP230,625 (2020: GBP97,470),
Metis Investments Limited(2) of GBP387,968 (2020: GBP105,332), Tim
Mortlock of GBP1,501 (2020: GBP570), Gavin Urwin of GBP153 (2020:
GBPnil), David Thompson (whilst a Director) of GBP188 (2020:
GBP325), Miriam Greenwood of GBP6,129 (2020: GBP2,529), Willie
MacDiarmid(3) of GBPnil (2020: GBP271), Graeme Bissett of GBP4,116
(2020: GBP901) and Jamie Richards of GBP1,002 (2020: GBP244).
(1 Alan Foy is a trustee but not a beneficiary.)
(2 Alan Foy is a Director and shareholder.)
(3 Paid to a connected person.)
24 Share capital
2021 2020
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Allotted and called up:
133,321,555 ordinary shares of GBP0.01 each (2020:
112,946,331 ordinary shares of GBP0.01 each) 1,333 1,129
--------------------------------------------------- -------- --------
On 4 October 2021, the Group successfully completed an equity
raise for gross proceeds of c.GBP175m. The total number of shares
issued as a result of the raise was 19,453,777 with a nominal value
of GBP195,000. Net proceeds of GBP170,154,000 were received, after
the deduction of GBP4,930,000 of directly attributable issue costs.
The excess value of the shares over their nominal value of
GBP169,959,000 has been recognised within Share premium.
During the year 921,447 (2020: 134,793) ordinary share options
were exercised in relation to the Group's employee share plans
which are described in note 25. The ordinary shares issued have a
nominal value of GBP9,000 (2020: GBP1,000) and aggregate
consideration of GBP1,627,000 (2020: GBP362,000) was received.
In addition, in 2020, a scrip dividend was offered to
shareholders in respect of the first interim dividend, paid on 29
October 2020, which allowed shareholders to elect to receive
ordinary shares of 1p each in the Company in lieu of a cash
dividend. Based on a scrip dividend reference price of 634.6p a
total of 416 new ordinary shares were issued with a nominal value
of GBP4. The excess value of the shares over their nominal value of
GBP3,000 was recognised within Share premium.
The Group's Share Incentive Plan is administered by the Smart
Metering Systems SIP Trust, which acquires shares in SMS (own
shares) to satisfy awards under this plan and facilitate the
delivery of shares to participants. At 31 December 2021, 139,055
(2020: 140,695) own shares were held in trust with a carrying value
of GBP825,000 (2020: GBP749,000) and a market value of GBP1,169,000
(2020: GBP1,000,000). The Company purchased 34,191 shares (2020:
28,354) from the market during 2021 with a weighted average fair
value of GBP8.15 per share (2020: GBP5.68).
25 Share-based payments
(a) Employee option plans
On 20 June 2011 the Company adopted both the Approved Company
Share Option Plan (CSOP) and the Unapproved Share Option Plan (the
'Unapproved Plan').
The CSOP is open to any employee of any member of the Group up
to a maximum value of GBP30,000 per employee. The Unapproved Plan
is open to any employee, including Executive Directors, of the
Company or any other Group company who is required to devote
substantially the whole of their time to their duties under their
contract of employment.
Under the plans, participants are granted options which, except
in certain specified circumstances, only vest if certain
performance conditions are met and the employee is still in service
within five years of the date of grant. The performance conditions
for awards are based on market capitalisation and individual
performance targets. Once vested, the options remain exercisable
for a period of up to ten years from the date of grant. The
exercise price of the options is determined by the Directors but
shall not be less than the closing price at which the Company's
shares are traded on the date of grant.
Summary of options
The table below summarises options granted under the CSOP and
Unapproved Plan:
At Fair
At 31 Exercise value
1 January December price Date Expiry at grant
Plan 2021 Granted Exercised Forfeited Expired 2021 (pence) exercisable date (pence)
-------------- --------- ------- --------- --------- ------- --------- -------- ----------- ------ ---------
15 Jul 15 Jul
CSOP 25,853 - (25,853) - - - 76.0 2014 2021 17.1
20 Jun 20 Jun
Unapproved 321,666 - (321,666) - - - 60.0 2016 2021 13.0
28 May 28 May
Unapproved 325,000 - (325,000) - - - 153.5 2017 2022 40.0
12 Nov 12 Nov
Unapproved 40,000 - - - - 40,000 350.0 2019 2024 84.8
12 Nov 12 Nov
Unapproved 578,085 - (175,498) (4,755) - 397,832 350.0 2019 2024 84.8
20 Mar 19 Mar
Unapproved 26,066 - (26,066) - - - 391.8 2021 2026 61.5
4 Jul 3 Jul
Unapproved 38,586 - (38,586) - - - 410.0 2021 2026 114.3
18 Aug 17 Aug
Unapproved 58,520 - (8,778) (5,852) - 43,890 470.0 2021 2026 87.2
1 Sep 31 Aug
Unapproved 100,000 - - (100,000) - - 529.0 2021 2026 141.5
26 Sep 25 Sep
Unapproved 50,000 - - - - 50,000 529.0 2021 2026 142.4
28 Nov 28 Nov
Unapproved - - - - - - 550.0 2021 2026 141.0
1 Jan 13 Jul
Unapproved(1) 469,001 - - (60,000) - 409,001 700.0 2023 2028 125.2
13 Sep 12 Sep
Unapproved(2) 12,000 - - - - 12,000 602.8 2023 2028 154.3
1 Jan 13 Jul
Unapproved(1) 469,000 - - (60,000) - 409,000 700.0 2023 2028 34.6
13 Sep 12 Sep
Unapproved(2) 12,000 - - - - 12,000 602.8 2023 2028 98.0
5 Sep 4 Sep
Unapproved 370,000 - - - - 370,000 454.6 2024 2029 111.5
1 Jan 13 Jul
Unapproved(1) 469,000 - - (60,000) - 409,000 700.0 2023 2028 37.2
13 Sep 12 Sep
Unapproved(2) 12,000 - - - - 12,000 602.8 2023 2028 105.6
26 Jun 25 Jun
Unapproved(3) 76,000 - - - - 76,000 577.4 2025 2030 59.3
01 Jan 13 Jul
Unapproved(1) - 468,999 - (60,000) - 408,999 700.0 2023 2028 134.3
13 Sep 12 Sep
Unapproved(2) - 12,000 - - - 12,000 602.8 2023 2028 266.1
26 Jun 25 Jun
Unapproved(3) - 76,000 - - - 76,000 577.4 2025 2030 191.4
10 Feb 09 Feb
Unapproved(4) - 290,000 - - - 290,000 705.4 2026 2031 210.8
-------------- --------- ------- --------- --------- ------- --------- -------- ----------- ------ ---------
Total 3,452,777 846,999 (921,447) (350,607) - 3,027,722
-------------- --------- ------- --------- --------- ------- --------- -------- ----------- ------ ---------
1 These options relate to the first four, of five, tranches.
2 These options relate to the first four, of five, tranches.
3 These options relate to the first two of five tranches.
4 These options relate to the first of five tranches.
The weighted average share price at the date of exercise of
options exercised during the year ended 31 December 2021 was
GBP8.36 (2020: GBP6.06).
Fair value of options granted
The assessed fair value at the valuation date of options granted
during the year ended 31 December 2021 ranged from 134.3p to
266.1p, as disclosed in the table above (2020: 37.2p to 105.6p).
The fair value of options granted is estimated using appropriate
option pricing models, taking into account the exercise price, the
term of the option, the share price at grant date and expected
price volatility of the underlying share, the expected dividend
yield, the risk-free interest rate for the term of the option, and
the market-based performance conditions. The expected price
volatility is based on historical volatility, adjusted for any
expected changes to future volatility due to publicly available
information.
The total fair value of these options is recognised over the
period from their grant date until they become exercisable.
The following table lists the range of assumptions applied to
options granted under the Unapproved Plan during the current and
prior years:
31 December 2021 31 December 2020
-------------------------------- ---------------- -------------------------------
Dividend yield (%) 3.3 4.3
Expected volatility (%) 35.96 to 41.33 35.70 to 39.04
Risk-free interest rate (%) 0.09 to 0.39 (0.05) to (0.06)
Expected option life (years) 2.28 to 4.87 3.03 to 5.00
Exercise price (GBP) 5.77 to 7.05 5.77 to 7.00
Share price at grant date (GBP) 8.30 5.79 to 5.81
Fair value at grant date (GBP) 1.34 to 2.66 0.37 to 1.06
-------------------------------- ---------------- -------------------------------
Where the options granted have a market performance condition
attached, the Group has used a Monte-Carlo model in order to allow
for the impact of this condition. Where there is no market
performance condition attached, the Group has used the traditional
Black-Scholes model. The dividend yield was determined using the
published yield at the date of grant. The expected volatility
reflects the assumption that historical volatility, as measured
over several different periods, is indicative of future trends,
which may not necessarily be the case. The risk-free interest rate
is taken from a government bond yield rate with a redemption period
consistent with the corresponding vesting period of the options.
The expected life of the options is based on historical data and is
not necessarily indicative of exercise patterns that may occur.
The expense recognised in 2021 for all options is GBP563,000
(2020: GBP357,000).
(b) Share Incentive Plan (SIP)
The Company introduced the SIP in October 2014. All employees of
the Group (including Executive Directors) are eligible to
participate in the SIP. Participants may each acquire Partnership
Shares worth up to GBP1,800 per year from their pre-tax earnings at
market value. The Company awards participants one Matching Share
for each Partnership Share which they acquire. Dividends received
on shares held in the SIP are reinvested to acquire Dividend Shares
at market value. Matching Shares may be forfeited if the
participant disposes of the corresponding Partnership Shares or
leaves the employment of the Group within three years of the award
date.
The table below shows the number of shares held in the SIP at
the beginning and end of the year.
Weighted
At 1 average
January Awarded At 31 December acquisition
Type of award 2021 shares Sold/transferred Forfeited 2021 price
-------------- -------- ------- ---------------- --------- -------------- ------------
Partnership 222,119 52,824 (44,628) - 230,315 5.40
Matching 219,888 52,824 (25,799) (17,970) 228,943 5.40
Dividend 14,407 13,771 (2,974) - 25,204 5.80
-------------- -------- ------- ---------------- --------- -------------- ------------
Total 456,414 119,419 (73,401) (17,970) 484,462
-------------- -------- ------- ---------------- --------- -------------- ------------
The SIP is administered by the Smart Metering Systems SIP Trust
(the 'Trust'). To the extent sufficient shares are not already held
by the Trust, Matching Shares awarded by the Trust to employees are
acquired in the market prior to the award. Matching Shares held by
the Trust which have not yet vested unconditionally at the end of
the reporting period are shown as own shares in the financial
statements.
The fair value of the Matching Shares at the award date is equal
to the share price at the award date. The weighted average fair
value per share of the Matching Shares awarded during 2021 was
approximately GBP8.18 per share (2020: GBP6.08). The total fair
value of Matching Shares awarded is recognised over the three-year
period starting on the respective award dates.
The expense recognised in 2021 for all Matching Shares is
GBP278,000 (2020: GBP269,000). No expense is recognised for the
Partnership Shares and Dividend Shares because the participants pay
full market value for these shares.
26 Other reserve
This is a non-distributable reserve that initially arose by
applying merger relief under section 612 of the Companies Act 2006
to the shares issued in 2009 in connection with the Group
restructuring. Additionally, the premium of GBP4,189,000 and
GBP1,115,000 arising on the issue of shares as part of the
acquisitions of CH4 Gas Utility and Maintenance Services Limited
('CH4'), Trojan Utilities Limited ('Trojan') and Qton Solutions
Limited ('Qton') has been credited to this reserve.
27 Commitments under operating leases
The Group's commercial leases for certain vehicles, offices,
warehouses and land are accounted for under IFRS 16 and are thus
excluded from the below operating lease commitments disclosure.
Commitments under operating leases include the Group's
commercial leases for its fleet vans and items of office equipment.
These leases are either short-term (the contract term is less than
twelve months) or low-value (underlying asset less than $5,000)
and, therefore, meet the exemption criteria under IFRS 16. They
continue to be expensed through the consolidated statement of
comprehensive income. These leases have lives between one and three
years and some have renewal options included in the contracts.
There are no restrictions placed upon the Group as a result of
entering into these leases.
Future minimum rentals payable under non-cancellable operating
leases as at each year end are as follows:
2021 2020
GBP'000 GBP'000
------------------------------------------------- -------- --------
Future minimum commitments under operating lease
agreements are as follows:
Payable within one year 31 59
Payable within two and five years 14 41
Payable after five years - -
------------------------------------------------- -------- --------
45 100
------------------------------------------------- -------- --------
28 Capital commitments
Significant capital expenditure contracted for at the end of the
reporting period but not recognised as liabilities is as
follows:
2021 2020
GBP'000 GBP'000
------------------------------ -------- --------
Property, plant and equipment 27,746 -
Intangible assets - 160
Inventory - work in progress - 9,370
------------------------------ -------- --------
In 2021, capital expenditure of GBP27,746,000 contracted for in
relation to property, plant and equipment related to the Group's
grid-scale battery storage projects under construction.
In 2020, capital expenditure of GBP9,370,000 contracted for in
relation to inventory related to the Group's grid-scale battery
storage projects under construction. These costs are now recognised
within Property, plant and equipment. See Accounting policies -
property, plant and equipment - for further details.
29 Contingencies
The Group has a contingent success fee arrangement in place with
a supplier totalling GBP0.75m that becomes payable should certain
contractual conditions be met. At the date of signing these
financial statements, the conditions had not been met.
30 Ultimate controlling party
There is no ultimate controlling party by virtue of the
structure of shareholdings in the Group.
31 Post balance sheet events
Acquisition of grid-scale battery storage project
On 14 February 2022 the Group acquired 100% of the issued share
capital of Balance Energy 2 Limited for total purchase
consideration of c.GBP0.8m. The acquisition enables SMS to obtain
control over the rights required to develop and commission a 30MW
grid-scale battery storage site as part of its ongoing investment
strategy in carbon reduction assets.
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END
FR BZLLFLXLBBBX
(END) Dow Jones Newswires
March 15, 2022 03:00 ET (07:00 GMT)
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