TIDMSMS
RNS Number : 1719Z
Smart Metering Systems PLC
13 September 2022
13 September 2022
Smart Metering Systems plc
Strong H1 performance, executing on our growth plans
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 half year results for the six months ended 30 June 2022.
H1 financial performance
GBP'm (unless stated otherwise) H1 2022 H1 2021 % Change
Alternative performance measures
Index-linked annualised recurring
revenue (ILARR)(1) 93.1 84.2 +11%
Pre-exceptional EBITDA(2) 29.1 26.1 +11%
Underlying profit before taxation(3) 10.3 9.6 +7%
Underlying basic EPS (p)(4) 5.92 4.20 +41%
Statutory performance measures
Group revenue 62.7 51.7 +21%
EBITDA 25.8 22.4 +15%
Profit before taxation 6.1 5.0 +22%
Basic EPS (p) 3.37 0.90 +274%
Dividend per share (p) 20.625 18.750 +10%
Net cash 38.6 5.6
-------------------------------------- -------- -------- ---------
(1 ILARR is the revenue generated from meter rental and data
contracts at a point in time. Includes revenue from third-party
managed meters.)
(2 Pre-exceptional EBITDA is statutory EBITDA excluding
exceptional items.)
(3 Underlying profit before taxation is profit before taxation
excluding exceptional items and amortisation of certain
intangibles.)
(4 Underlying basic EPS is underlying profit after taxation
divided by the weighted average number of ordinary shares for the
purpose of basic EPS.)
(A reconciliation between statutory and underlying performance
is detailed in the Financial Review section.)
Highlights
Financial
-- ILARR of GBP93.1m at 30 June 2022, up 8% on year-end (31
December 2021: GBP85.9m) and up 11% on the prior period (30 June
2021: GBP84.2m)
-- Revenue up 21% to GBP62.7m (H1 2021: GBP51.7m)
-- Pre-exceptional EBITDA up 11% to GBP29.1m (H1 2021: GBP26.1m)
-- Underlying profit before taxation up 7% to GBP10.3m (H1 2021: GBP9.6m)
-- Net cash at 30 June 2022 of GBP38.6m (30 June 2021: GBP5.6m)
-- Debt facility of GBP420m fully undrawn at 30 June 2022
Smart meters
-- Since the start of Q2 2022, the run rate for smart meter
installations has increased to over 40,000 per month (FY 2021:
c.30,000 meters average per month)
-- The total smart meter portfolio was c.1.9m at 30 June 2022
(FY 2021: c.1.7m), including 230,000 smart meter additions in H1
2022
-- Strong contracted smart meter order pipeline at 30 June 2022
of c.2.42m (31 December 2021: c.2.55m) reflecting a further
contract win and net of installations
Grid-scale batteries
-- Grid-scale battery portfolio increased to 760MW (31 December 2021: 620MW) including:
o 50MW site at Burwell operational since end of January 2022 and
performing ahead of previous expectations (equivalent to annualised
c. GBP0.1m/MW EBITDA)
o 360MW fully secured, including 190MW in construction
o 350MW under exclusivity
-- Second site of 40MW is now energised and is in the final
stages of commissioning, and a further 100MW is expected to come
online by the end of H1 2023
CaRe Products
-- Strategic investments in Clenergy EV and n3rgy Data
accelerate the Group's capabilities in electric vehicle (EV)
charging infrastructure and energy data management
-- Continued progress in other CaRe products and services
including energy efficiency and Behind-the-Meter solar, storage and
heat solutions
-- The Group considers these CaRe products to be closely aligned
to our existing engineering and energy skills, and to our
technology platforms. Management sees substantial further growth
opportunity in what are large and growing markets
Outlook
-- The Board expects FY2022 pre-exceptional EBITDA and
underlying PBT to be in line with the upgraded guidance given in
our trading update announcement on 27 July 2022
-- 10% growth in dividend to 30.25p per share intended for FY
2022 in line with policy until 2024
-- The Board is confident in the Group's growth prospects for FY2023
o we expect the increase in smart meter installation run rates
to continue
o our forward view on grid-scale battery returns has
improved
o the prevailing inflationary environment is expected to have a
net positive impact on our forecasts due to our index-linked
contracts
o as a result, the Board expects that pre-exceptional EBITDA for
FY2023 will be marginally ahead of its previous expectations and,
despite the impact of higher interest rates, underlying PBT will be
in line with its previous expectations
Tim Mortlock , Chief Executive Officer, commented:
"The strong half year results again demonstrate the resilience
of our business model, which is underpinned by our index-linked
recurring cash flows from meter and data assets, and reflect the
strong performance of our first grid-scale battery storage
project.
"We have made significant progress in executing the strategy set
out last Autumn. We are pleased to see continued acceleration in
our meter installation run rates, an increase in our smart meter
portfolio and a new contract which adds to our smart meter order
pipeline. Leveraging on our end-to-end platform, we have
successfully built and begun to deliver a strong pipeline of
grid-scale battery storage projects within a short period of time,
with significant additional opportunities from this substantial and
growing market.
"Our two recent strategic investments in EV charging
infrastructure and energy data are complementary to our existing
end-to-end business model and enhance our ability to accelerate
other carbon reduction (CaRe) products and services, providing
opportunities for further growth over the long-term.
"The global energy market is in a period of extreme turbulence
and there is a fundamental need for the CaRe assets we originate
and own. These assets enable the transition to a low carbon,
flexible, secure and, of particular importance at this time to all
businesses and consumers, low-cost energy system. We remain
confident about the future growth prospects for the business."
There will be an analyst webcast at 9.00am today - please
contact sms@instinctif.com for details. The half 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
/ Jack Wood
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 quoted on AIM.
Overview
SMS continues to make significant progress in executing the
strategy set out at the time of our equity placing last autumn. The
Group has continued to add to its pipelines of both meter and
grid-scale battery storage assets, and deployment of these
pipelines is accelerating. The Group's ILARR has increased to
GBP93.1m (+11% year-on-year) and our first operational grid-scale
battery site is performing well ahead of the Board's original
expectations.
Financial performance over the first half of the year was strong
and FY 2022 underlying EBITDA and PBT is expected to be in line
with the upgraded guidance given in our trading update announcement
on 27 July 2022.
The Group has continued to increase its smart meter installation
run rate. A new smart meter contract win added c.0.1m to our smart
meter order pipeline which is now at c.2.42m, after taking account
of 230,000 smart meter installations in H1 2022.
We commenced trading of our first 50MW grid-scale battery site
at Burwell at the end of January 2022. The site's performance was
well ahead of the Board's expectations and over H1 was equivalent
to an annualised EBITDA contribution of GBP0.1m/MW and an
annualised yield of c.26%, which we believe to be in-line with the
wider emerging market.
The Group also made considerable progress in developing its
portfolio of grid-scale battery storage assets which now stands at
760MW, including the first 50MW operational site.
During H1 2022, SMS also made two strategic investments,
accelerating the Group's capabilities in the EV charging
infrastructure asset class and further expanding its service
offering in energy data management. The Group also continued to
make progress in other CaRe products and services, including energy
efficiency, Behind-the-Meter solar, storage and heat solutions -
all of which are central to addressing fuel poverty, the broader
'net zero' agenda and the UK energy transition.
UK smart meter rollout
SMS has continued to grow its delivery capacity and has, in line
with the Group's expectations, increased the number of smart meters
installed to an average of more than 40,000 per month from Q2 2022
(FY 2021: c.30,000 meters average per month). We installed 230,000
smart meters during H1 2022, increasing our smart meter portfolio
to c.1.9m. We expect to install at least 450,000 smart meters in FY
2022.
SMS has good visibility of meter hardware availability for the
remainder of 2022 and beyond, with a resilient and diverse supply
chain in place and the meter inventory within our UK warehouses to
support these continued run-rates.
In June 2022, SMS entered into an agreement with an independent
energy supplier to provide services as an integrated domestic smart
meter installer and Meter Asset Provider. This contract win adds
c.0.1m meters to our contracted smart meter order pipeline. Energy
suppliers continue to have mandated annual installation targets to
exchange 85% of meters to smart by the end of 2025.
We expect further turbulence in the energy market particularly
through the winter period which, alongside the inflationary
environment, will continue to provide many challenges for consumers
and industry participants. However, we remain strongly positioned
with our pipeline heavily weighted to larger, well financed energy
suppliers, and we continue to see opportunity in the market to
build our pipeline further.
Grid-scale battery storage
The Group's first 50MW grid-scale battery site at Burwell became
operational and commenced trading at the end of January 2022 and
accessed all revenue streams from 1 March 2022. Thus far, the
majority of the revenues have been generated from the provision of
frequency services, such as Dynamic Containment. Whilst the current
Dynamic Containment / frequency service prices will soften over
time as the volume of battery storage in the market grows, there is
a fundamental and increasing need for this asset class to provide
balancing services to the national energy network. This was
reflected in National Grid recently increasing their forecast
requirement for energy storage by 2030 by 7.2GW to 18.7GW (of which
14.1GW is expected to come from battery storage). There is
currently only c.4GW of energy storage connected to the grid. The
increasing requirement is driven by both the growing volume of
intermittent renewable generation and growing peak demand from the
electrification of heat and transport.
Our total grid-scale battery portfolio increased to 760MW (31
December 2021: 620MW) including the first operational 50MW site.
The total fully secured has increased to 360MW of which 190MW is
currently in construction. The remaining 350MW is under
exclusivity. Our second 40MW site is now energised and is in the
final stages of commissioning with a further 100MW expected to come
online by the end of H1 2023.
The capital costs of developing the sites in construction are
progressing in line with our previous guidance of c.GBP380k/MW.
Longer term we anticipate that inflation in battery and electrical
equipment costs will increase the development cost for the sites
that are yet to enter construction or are currently under
exclusivity. Utilising updated independent long-term revenue
forecasts for the provision of battery services to the grid, we now
expect longer-term EBITDA contribution of GBP57k-GBP65k/MW which
compares to previous guidance of GBP42k-GBP53k/MW.
The increasing reliance of the UK energy system on intermittent
renewable generation has amplified the importance of grid-scale
batteries, underpinning the attractive revenue streams generated
from this asset class, and we will continue to ensure we are a
significant market participant in this substantial market.
Strategic Investments
During H1 2022, SMS made two strategic investments, accelerating
the Group's capabilities in the EV charging infrastructure asset
class and further expanding its service offering in energy data
management.
In EV charging infrastructure, SMS invested an initial GBP2.0
million to acquire a 25% shareholding in Clenergy EV, a software
business with a Charge Point Operator (CPO) platform focused on EV
charging infrastructure. SMS has the option to invest a further
GBP2.0 million after one year, leading to the acquisition of an
additional 26% interest, and has an option to acquire the remaining
shares after five years. This investment complements SMS's existing
EV installation capabilities and will enable the Group to deliver a
fully end-to-end integrated platform for EV charging
infrastructure. We are investing in growing our pipeline of
activity in this area over the coming years, addressing the
destination, on-street and fleet market segments.
In energy data management, SMS acquired 100% of n3rgy, a data
software company, for a cash consideration of GBP1.4 million.
n3rgy's software (SaaS) platform enables and facilitates the use of
energy consumption, generation and tariff data from smart meters
registered on the Data Communications Company (DCC) platform. The
acquisition will enhance and accelerate SMS's existing capabilities
in smart energy data solutions, providing the Group with a strong
competitive position in the significant addressable market as the
electricity industry moves towards mandatory half-hourly
settlement.
ESG progress and sustainability
Our Scope 1 and Scope 2 emissions in H1 2022 are set out below
and compared to H1 2019 as this was our base year when setting net
zero targets. Both the years 2020 and 2021 were distorted by the
effect of the COVID-19 pandemic, and so we are benchmarking our
progress against the 2019 position.
Scope 1 and 2 emissions (TCO2e) H1 2022 H1 2019 % change
Total Scope 1 1,454.6 1,439.9 +1%
-------- -------- ---------
Scope 2 - Building electricity 65.6 100.6 -35%
-------- -------- ---------
Scope 2 - Grid scale batteries
electricity 376.7 - +100%
-------- -------- ---------
Our Scope 1 emissions, which are mainly generated by our vehicle
fleet, were broadly held at 2019 levels despite the Group carrying
out significantly more meter installation and transactional work.
This indicates that our fleet is operating more efficiently than in
2019. We are currently in the detailed planning phase for gradually
transitioning our vehicle fleet to fully electric by 2030.
Our Scope 2 building electricity emissions are down 35% from
2019 levels which was achieved by increasing our employees'
awareness of energy efficient practices and monitoring through our
ISO 50001 certified energy management system. We also commenced
site work over the summer on the sustainability upgrade of our
first office. Measures include installing solar panels and battery
storage, replacing the gas boiler with a heat pump and improving
insulation and thermal performance.
Our Scope 2 emissions from grid-scale batteries are entirely due
to the electricity consumed in testing and operating our first
grid-scale battery site. Grid-scale battery storage plays an
essential role in enabling the UK to increase the electricity
generated by renewables and so, whilst within the scope of our
reporting, we report these emissions separately due to the positive
contribution these assets make to the net zero transition.
Our 'handprint' is the amount of carbon emissions mitigated
through our customers using our products and services. The positive
impact of our H1 2022 handprint was 61 times the negative impact of
our carbon footprint.
In the areas of social responsibility, SMS committed to increase
its donations to charities within the local communities close to
our offices to GBP90,000 per annum over the next three years and we
have continued to support a variety of charities and good causes,
suggested by our employees, through donations and sponsorship.
Current trading and outlook
The Group continued its strong installation run rates in July
and August and is on track to install at least 450,000 smart meters
in FY 2022. SMS has good visibility of meter hardware availability
for the remainder of 2022 and beyond. At 31 August 2022, the
Group's ILARR stood at GBP94.4m.
The trading performance of our first 50MW grid-scale battery
project continued to remain well ahead of expectations in July and
August and our second 40MW site is now energised and is in the
final stages of commissioning.
As a result, the Board remains confident that pre-exceptional
EBITDA and underlying PBT for FY2022 will be in line with the
upgraded guidance given in our trading update announcement on 27
July 2022.
Looking forward, there are a number of factors which underpin
the Board's confidence in the Group's prospects for FY2023,
notwithstanding current, wider economic uncertainty.
We expect the increase in smart meter installation run rates to
continue into next year as we deliver our contracted smart meter
order pipeline. Our forward view on grid-scale battery returns has
improved, supported by independent forecasts, the positive early
trading from our first grid-scale battery site and the current
favourable frequency market. We will continue to invest in the
development of our EV business, creating attractive new growth
opportunities.
In addition, the prevailing inflationary environment is expected
to have a positive impact on index-linked revenues from our smart
meter portfolio with effect from April 2023. However, inflation
will also increase operational costs and capital expenditure across
the Group and increasing interest rates coupled with higher net
debt levels in line with the Group's investment plans will result
in higher interest costs.
Overall, the Board expects that pre-exceptional EBITDA for
FY2023 will be marginally ahead of its previous expectations and
that underlying PBT will remain in line with its previous
expectations.
Operational review by division
Asset management:
Total meter and data asset ILARR has grown 8% since year-end to
GBP93.1m (31 December 2021: GBP85.9m). The increase includes an
annual RPI adjustment of 4.3% which came into effect on 1 April
2022.
A breakdown on ILARR at 30 June 2022 and the % change since 31
December 2021 is shown below:
Category % change ILARR Details
Domestic smart meters + 15% GBP57.4m 1.9 million smart meters
--------- --------- -----------------------------
Data assets + 13% GBP15.7m 0.5 million data assets
--------- --------- -----------------------------
I&C meters + 10% GBP5.1m 0.1 million I&C meters
--------- --------- -----------------------------
Traditional domestic - 1% GBP11.6m Traditional meters to be
meters exchanged for smart over
the UK smart meter rollout
programme
--------- --------- -----------------------------
Third party assets - 39% GBP3.3m Industry appointment to
third party owned meters
(traditional). Now excludes
GBP2.2m of pass-through
third-party rental
--------- --------- -----------------------------
Total GBP93.1m
--------- --------- -----------------------------
In June 2022, SMS entered into an agreement with an independent
energy supplier to provide services as an integrated domestic smart
meter installer and Meter Asset Provider. This contract win adds
c.0.1m meters to SMS's contracted smart meter order pipeline.
The Group installed 230,000 smart meters during H1 2022, thereby
increasing the smart meter portfolio to c.1.9m meters. The net
remaining smart meter order pipeline at 30 June 2022 stood at
c.2.42 million meters (31 December 2021: c.2.55 million).
SMS has continued to support the enrolment and adoption of first
generation ('SMETS1') smart meters into the Data Communications
Company (DCC) platform. The migration of the Group's own SMETS1
portfolio is progressing slightly ahead of the industry with c.70%
of our portfolio of SMETS1 meters now enrolled onto the DCC
platform.
The Group maintains a diverse source of meter manufacturers and
has purposefully increased stock levels in our UK distribution
warehouses to mitigate the risk of delays in the supply chain and
ensure that meters are available to support the growth in our
installation run rate.
The index-linked nature of our meter rentals protects us from
the current high levels of inflation. We expect that although, over
time, the installed cost of meters will rise in line with this
inflation, the RPI indexation of our revenue will result in us at
least maintaining our guided yield on these assets.
We have also moved to align our ILARR reporting with our
financial accounts, by excluding pass-through elements of
third-party managed meters, which has always been a feature of this
segment. This fully aligns our ILARR reporting with the revenue
performance in our Asset Management division.
Following the acquisition of a large power metering and data
portfolio in April 2021, we have been pleased to continue to grow
and fully recognise the ILARR from these data services as we have
integrated the services into our METIS platform and validated the
contracted position of all revenue streams. Looking forward, the
acquisition of n3rgy enhances SMS capabilities in smart energy data
solutions. This strengthens the Group's ability to take advantage
of the significant new addressable market created by the move to
market-wide half hourly settlement which BEIS have mandated from
the end of 2025.
Asset installation:
We have continued to invest in our delivery capability, in order
to increase our installation run rate. Over FY 2021 we installed
c.30,000 meters per month, but for Q2 2022 this increased to an
average of over 40,000 per month with a total of 230,000 meters
installed in H1 2022. We expect to install over 450,000 smart
meters in FY 2022.
Whilst we have consciously increased our direct labour
engineering capacity, we continue to focus on balancing regional
engineering capacity with customer portfolios to maximise
installation efficiency and we will seek to maintain an appropriate
balance of direct and sub-contractor resources to maintain this
efficient approach. We also continue to support energy suppliers
and developers in the provision of new connections and emergency
call-out services, a recurring transactional service requirement
which can also provide complementary opportunities for asset
origination.
Alongside our core focus on delivering first class customer
service and increasing our smart meter installation run rate, the
Group is investing in building our capabilities in the installation
of other CaRe asset classes - in particular domestic electric
vehicle charge points. We see this as a significant and
complementary future market opportunity.
Energy management:
The commencement of trading at our Burwell grid-scale battery
site has more than doubled the revenue of the Energy management
division. The trading performance of grid-scale batteries and the
growth in our battery portfolio are detailed in the grid-scale
battery storage section above.
Our traditional consultancy and energy management services grew
significantly compared to the prior period.
Our work at some of our key customers had been constrained while
the country was under COVID-19 restrictions. This year however,
site-based energy efficiency projects have now been able to
progress at a more normal pace. The exceptional increase in energy
costs over recent months makes the case for our energy management
and efficiency services even more compelling, and we see
substantial demand for holistic services to I&C customers to
reduce costs and support them on their path to net-zero.
The Group also considers an integrated approach to our energy
solutions to be a significant differentiator and a potential driver
of asset origination and value. We are able to combine asset
classes such as battery storage, renewable generation and EV
charging infrastructure with deployment of our electrical
infrastructure and energy efficiency expertise. We are investing in
growing our pipeline of activity in these areas over the coming
years, in particular to address the EV charging destination,
on-street and fleet market segments.
Financial review
Revenue
30 June 30 June
2022 2021 Percentage
GBPm GBPm change
------------------- ------- ------- ------------
Asset management 44.8 39.4 14%
Asset installation 12.3 10.4 18%
Energy management 5.6 1.9 186%
------------------- ------- ------- ------------
Group revenue 62.7 51.7 21%
------------------- ------- ------- ------------
Asset management revenues of GBP44.8m, which include revenues
from the acquisition of the large-power I&C metering and data
portfolio in April 2021, are 14% up on the prior period. This
growth reflects the flow-through effect of progressively increasing
the rate of meter installations at the end of 2021 and into 2022
and the 4.3% annual RPI uplift which took effect on 1 April
2022.
Asset installation revenues of GBP12.3m increased 18% on the
prior period with growth across both our connections business and
transactional meter works.
Energy management revenues of GBP5.6m were 186% up on the prior
period. This includes GBP2.8m revenue from our first grid-scale
battery site which became operational at the end of January 2022
and began providing dynamic frequency response services from March
2022. Revenue from Energy management excluding grid-scale battery
of GBP2.8m grew 47% on prior period as a key customer project in
the hospitality sector picked up momentum as the sector continued
to recover from the effect of COVID-19 and focus turned to energy
efficiency.
Gross margins
SMS includes depreciation on revenue-generating assets within
cost of sales for statutory reporting purposes. Removing this from
the gross margin provides a better comparison of the Group's
underlying trading performance year-on-year. Overall, the
depreciation-adjusted gross margin at the Group level fell by 5% to
73% (H1 2021: 78%). This is mainly due to a lower margin in the
asset installation segment.
Depreciation-adjusted gross margin for the asset management
segment is 93% which is in line with prior period (H1 2021:
93%).
The asset installation segment gross margin was 14% (H1 2021:
38%). In H1 2021 the asset installation margin was positively
impacted by the flow through from some high margin transactional
work that has not repeated in H1 2022. Furthermore, in H1 2022 the
Group has continued to grow its engineering workforce in order to
support the planned increase in meter installations. Costs
associated with this investment in the workforce such as
recruitment and training have led to additional one-off costs in
the period.
The energy management segment depreciation-adjusted gross margin
has increased to 49% (H1 2021: 25%). This is due to the start of
trading of our first grid-scale battery site which generated a 75%
depreciation-adjusted gross margin over the period. Grid-scale
batteries delivered revenue of GBP2.8m and depreciation adjusted
gross profit of GBP2.1m in the period. The gross margin on the
segment's other activities remained broadly constant at 23% (H1
2021: 25%).
Pre-exceptional EBITDA
Pre-exceptional EBITDA provides a measure of underlying
performance that is comparable over time. Pre-exceptional EBITDA of
GBP29.1m is 11% higher than in the prior period (H1 2021:
GBP26.1m).
The GBP5.0m increase in depreciation-adjusted gross profit is
partly offset by a GBP2.0m increase in administrative costs,
excluding depreciation and amortisation. Over the second half of
2021 we invested in our IT and support systems and we restored our
support functions to a normalised position following COVID-19
lockdowns. Administrative costs in H1 2022 are GBP1.1m below H2
2021 with a fall in bad debt expense more than offsetting
inflationary cost increases.
Underlying profit before tax
Depreciation costs on general property, plant and equipment,
excluding meter assets and grid-scale battery sites, has reduced by
GBP0.2m to GBP1.9m (H1 2021: GBP2.1m) due to some computer
equipment and fixtures and fitting now being fully depreciated.
Depreciation costs on meter assets increased 16% to GBP13.7m (H1
2021: GBP11.8m) due to the increase in the meter asset portfolio
and a full six months of depreciation being charged on the
large-power I&C metering and data portfolio acquired in April
2021.
Depreciation cost on grid-scale battery sites increased to
GBP0.4m (H1 2021: nil) due to the commencement of depreciation on
our first operational grid-scale battery site in H1 2022.
Amortisation costs on our intangible assets of GBP2.1m (H1 2021:
GBP2.0m) mainly consist of software amortisation and were in line
with prior period.
Net finance costs of GBP1.6m (H1 2021: GBP1.6m) were broadly in
line with prior period. As part of our refinancing in October 2021
we increased our committed loan facility from GBP300m to GBP420m
and this has resulted in an increase in the commitment fees on our
unutilised facility. This was however offset by interest income and
FX gains.
As a result, underlying profit before taxation increased by 7%
to GBP10.3m (H1 2021: GBP9.6m).
Exceptional items
Exceptional items of GBP3.3m (H1 2021: GBP3.7m) mainly comprise
a GBP3.3m loss on the traditional and first-generation smart meter
('SMETS1') portfolio (H1 2021: GBP3.0m). In line with the Group's
established policy, these losses are shown separately as
exceptional items in order to enhance disclosure of underlying
continuing profitability. Exceptional items in H1 2021 also
included GBP0.5m of costs attributable to COVID-19 and GBP0.2m of
acquisition and other costs that have not repeated in H1 2022.
Effective tax rate
The Group's capital expenditure on meter assets qualifies for
capital allowances, providing the Group with tax relief on such
expenditure. These allowances are claimed in the tax year in which
the asset is acquired and set against taxable profit for that year,
thus reducing the total tax payable. As a result, the Group was not
tax-paying in either the current or prior period.
The current forecast of the effective tax rate on
pre-exceptional profits for the full year is estimated at 25.49%
(30 June 2021: 38.70%). This is in line with the announced rate of
UK corporation of 25% from 1 April 2023, which is the rate that
will apply when the deferred tax liability generated by the capital
allowances unwinds.
This forecast full year effective tax rate does not include any
benefit from the tax super-deduction. The Group is continuing to
evaluate the applicability of the super-deduction to its capital
expenditure. The super-deduction rules are complex to apply in the
context of the Group's contracting structure. The Group however
anticipates reaching a conclusion by year end.
The effective rate on pre-exceptional profits in H1 2021 was
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 the increase in the rate of corporation tax from 19% to
25% from 1 April 2023. This was applied to the Group's
brought-forward deferred tax liabilities on its portfolio of meter
assets increasing the charge in H1 2021. The full-year effective
tax rate on FY21 pre-exceptional profits excluding the impact of
this rate change, was 18.5%.
Earnings per share
Underlying basic earnings per share (EPS), which excludes
exceptional items, amortisation of certain intangibles and their
associated tax effect, was 5.92p (H1 2021: 4.20p), reflecting the
underlying profitability of the Group. Statutory earnings per share
increased to 3.37p (H1 2021: 0.90p).
Dividend
A 27.5p per share dividend in respect of FY 2021 was approved at
the Group's Annual General Meeting in May, and the fourth and final
instalment of this was paid in July 2022. A dividend accrual of
GBP9.2m has therefore been recognised at 30 June 2022 in our
interim financial statements.
In line with the Group's policy to grow dividends at 10% per
annum, a 30.25p per share dividend is proposed in respect of FY
2022. This is expected to be settled in four equal quarterly
instalments in accordance with the provisional timetable below:
Instalment Ex-dividend date Record date Payment date
1 6 October 2022 7 October 2022 28 October 2022
----------------- --------------- ----------------
2 05 January 2023 6 January 2023 26 January 2023
----------------- --------------- ----------------
3 06 April 2023 11 April 2023 27 April 2023
----------------- --------------- ----------------
4 06 July 2023 07 July 2023 27 July 2023
----------------- --------------- ----------------
The Board remains comfortable that future dividend payment
amounts are sufficiently secured by long-term index-linked cash
flows from our existing metering and data asset base and cash flows
from our grid-scale battery assets.
Cash flow and capex investment
Operating cash inflow in H1 2022 was GBP18.6m (H1 2021:
GBP34.4m). The cash inflow reflects GBP29.1m pre-exceptional
EBITDA, GBP2.2m of non-cash costs included in EBITDA and a GBP12.7m
cash outflow on working capital net of tax receipts, largely due to
a deliberate build-up of inventory levels to mitigate the risk of
delays in the supply chain and ensure that meters are available to
grow our installation run rate.
The cash generated from operations and net cash from our October
2021 equity placing have been used to continue investment in our
revenue generating meter and grid-scale battery assets.
Capital expenditure on property, plant and equipment was
GBP59.1m (H1 2021: GBP44.3m). Of this, GBP50.2m was invested in
meter and data assets, GBP6.8m in developing grid-scale battery
sites and GBP1.1m relates to the purchase of land at one of our
grid-scale sites.
Investing activities also include a further GBP13.6m of
instalment payments made for grid-scale batteries which have not
yet been delivered and payments of GBP1.7m to acquire battery
sites. On the balance sheet, the sites under development are
classified as assets under construction within the property, plant
and equipment and the instalment payments for batteries are
classified as other non-current receivables.
A further GBP1.1m (H1 2021: GBP1.1m) investment has been made in
intangible assets, mainly relating to the development of software
to support the metering and installations business.
Investing cash outflows also include a GBP1.4m payment to
acquire n3rgy Data Ltd in May and a GBP2.1m investment (including
transaction costs) to acquire a 25% stake in Clenergy EV Ltd. See
note 9 and note 11 to the consolidated financial statements for
further details.
Financial resources
Net cash at 30 June 2022 was GBP38.6m (31 December 2021:
117.7m). This excludes restricted cash and lease liabilities
accounted for under IFRS 16. The Group also has in place a GBP420m
debt facility which matures in December 2025 and was fully
compliant with all its bank covenants through the period to 30 June
2022. The Group has not drawn on this facility over H1 2022 and
therefore had GBP458.6m available in cash and unutilised facilities
at 30 June 2022 (31 December 2021: GBP537.7m). In July 2022, the
Group made a GBP25m draw down and continues to have the financial
flexibility required to maximise growth potential 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:
Period Period
ended ended
30 June 30 June
2022 2021 Percentage
GBPm GBPm change
--------------------------------------------------- ----------- ----------- ----------
Index-linked annualised recurring revenue 93.1 84.2 11%
--------------------------------------------------- ----------- ----------- ----------
Group revenue 62.7 51.7 21%
--------------------------------------------------- ----------- ----------- ----------
Statutory profit from operations 7.7 6.6
Amortisation of intangibles 2.1 1.9
Depreciation 16.0 13.9
--------------------------------------------------- ----------- ----------- ----------
Statutory EBITDA 25.8 22.4 15%
Exceptional items(1) 3.3 3.7
--------------------------------------------------- ----------- ----------- ----------
Pre-exceptional EBITDA 29.1 26.1 11%
Net interest (1.6) (1.6)
Depreciation (16.0) (13.9)
Amortisation of intangibles included in underlying
profit before taxation(2) (1.2) (1.1)
--------------------------------------------------- ----------- ----------- ----------
Underlying profit before taxation 10.3 9.6 7%
Exceptional items(1) (3.3) (3.7)
Amortisation of intangibles excluded in underlying
profit before taxation (0.9) (0.8)
--------------------------------------------------- ----------- ----------- ----------
Statutory profit before taxation 6.1 5.0 22%
Taxation (1.6) (4.0)
--------------------------------------------------- ----------- ----------- ----------
Statutory profit after taxation 4.5 1.0 350%
Amortisation of intangibles excluded in underlying
profit after taxation 0.9 0.8
Exceptional items(1) 3.3 3.7
Tax effect of adjustments (0.8) (0.8)
--------------------------------------------------- ----------- ----------- ----------
Underlying profit after taxation 7.9 4.7 68%
Weighted average number of ordinary shares
(basic) 133,225,387 113,115,772
Underlying basic EPS (pence) 5.92 4.20
Weighted average number of ordinary shares
(diluted) 134,030,175 113,954,757
Underlying diluted EPS (pence) 5.89 4.17
--------------------------------------------------- ----------- ----------- ----------
(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.)
Financial tables and notes
Consolidated income statement
For the period ended 30 June 2022
Unaudited
--------------------------------------------------------------------------
Six months ended 30 June
--------------------------------------------------------------------------
2022 2022 2021 2021
Before Exceptional Before Exceptional
exceptional items 2022 exceptional items 2021
items 1 Total items 1 Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
Revenue 3 62,676 - 62,676 51,678 - 51,678
Cost of sales (30,834) - (30,834) (22,537) (800) (23,337)
------------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
Gross profit 31,842 - 31,842 29,141 (800) 28,341
Administrative expenses (21,330) (3,325) (24,655) (19,447) (2,917) (22,364)
Other operating income 532 - 532 581 - 581
------------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
Profit from operations 11,044 (3,325) 7,719 10,275 (3,717) 6,558
Finance costs (1,741) - (1,741) (1,553) - (1,553)
Finance income 78 - 78 1 - 1
------------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
Profit/(loss) before taxation 9,381 (3,325) 6,056 8,723 (3,717) 5,006
Taxation (2,391) 831 (1,560) (4,660) 677 (3,983)
------------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
Profit/(loss) for the period
and total comprehensive
income attributable to
owners of the parent 6,990 (2,494) 4,496 4,063 (3,040) 1,023
------------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
1 Refer to note 4 for details of exceptional items.
Consolidated statement of comprehensive income
For the period ended 30 June 2022
Unaudited
----------------------------------------------------------------------------
Six months ended 30 June
----------------------------------------------------------------------------
2022 2021
Before 2022 Before 2021
exceptional Exceptional 2022 exceptional Exceptional 2021
items items Total items items Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ------------ -------- ------------ ------------ --------
Profit/(loss) for the period 6,990 (2,494) 4,496 4,063 (3,040) 1,023
---------------------------------- ------------ ------------ -------- ------------ ------------ --------
Other comprehensive income
Exchange differences on
translation
of foreign operations 9 - 9 (42) - (42)
---------------------------------- ------------ ------------ -------- ------------ ------------ --------
Other comprehensive income/(loss)
for the period, net of tax 9 - 9 (42) - (42)
---------------------------------- ------------ ------------ -------- ------------ ------------ --------
Total comprehensive income
for the period attributable
to owners of the parent 6,999 (2,494) 4,505 4,021 (3,040) 981
---------------------------------- ------------ ------------ -------- ------------ ------------ --------
The profit from operations arises from the Group's continuing
operations.
Earnings per share attributable to owners of the parent during
the period:
Six months Six months
ended ended
30 June 30 June
2022 2021
Notes Unaudited Unaudited
----------------------------------- ----- ---------- ----------
Basic earnings per share (pence) 5 3.37 0.90
Diluted earnings per share (pence) 5 3.35 0.90
----------------------------------- ----- ---------- ----------
Consolidated interim statement of financial position
As at 30 June 2022
Unaudited Audited
30 June 31 December
2022 2021
Notes GBP'000 GBP'000
-------------------------------------------------- ----- --------- ------------
Assets
Non-current assets
Intangible assets 26,689 25,463
Property, plant and equipment 7 456,676 415,901
Investments 41 75
Investments in associates 2,125 -
Other assets 1,376 1,651
Trade and other receivables 13,632 -
-------------------------------------------------- ----- --------- ------------
Total non-current assets 500,539 443,090
-------------------------------------------------- ----- --------- ------------
Current assets
Inventories 29,752 22,980
Other assets 550 550
Trade and other receivables 46,492 47,631
Income tax recoverable 69 -
Cash and cash equivalents 38,624 117,687
Restricted cash 2,954 1,299
-------------------------------------------------- ----- --------- ------------
Total current assets 118,441 190,147
-------------------------------------------------- ----- --------- ------------
Total assets 618,980 633,237
-------------------------------------------------- ----- --------- ------------
Liabilities
Current liabilities
Trade and other payables 59,146 56,489
Lease liabilities 1,056 999
Provisions 71 -
Other liabilities 688 638
-------------------------------------------------- ----- --------- ------------
Total current liabilities 60,961 58,126
-------------------------------------------------- ----- --------- ------------
Non-current liabilities
Bank loans 8 - -
Lease liabilities 9,255 7,574
Deferred tax liabilities 14,266 12,199
Provisions 1,288 798
Other long-term liabilities 1,471 750
-------------------------------------------------- ----- --------- ------------
Total non-current liabilities 26,280 21,321
-------------------------------------------------- ----- --------- ------------
Total liabilities 87,241 79,447
-------------------------------------------------- ----- --------- ------------
Net assets 531,739 553,790
-------------------------------------------------- ----- --------- ------------
Equity
Share capital 1,334 1,333
Share premium 332,305 332,048
Other reserve 9,562 9,562
Own share reserve (927) (825)
Foreign currency translation reserve (36) (45)
Retained earnings 189,501 211,717
-------------------------------------------------- ----- --------- ------------
Total equity attributable to owners of the parent 531,739 553,790
-------------------------------------------------- ----- --------- ------------
Consolidated interim statement of changes in equity
For the period ended 30 June 2022
Foreign
currency
Share Share Other Own share translation Retained
Attributable to the owners capital premium reserve reserve reserve earnings Total
of the parent company: GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 1 January 2021 1,129 160,471 9,562 (749) 1 236,028 406,442
Total comprehensive income
for the period - - - - (42) 1,023 981
Transactions with owners in
their capacity as owners
Dividends (note 6) - - - - - (21,231) (21,231)
Shares issued 8 1,062 - - - - 1,070
Movement in own shares - - - (32) - (57) (89)
Share-based payments - - - - - 325 325
Income tax effect of share
options - - - - - 664 664
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 30 June 2021 1,137 161,533 9,562 (781) (41) 216,752 388,162
Total comprehensive income
for the period - - - - (4) 2,769 2,765
Transactions with owners in
their capacity as owners
Dividends (note 6) - - - - - (7,829) (7,829)
Shares issued 196 170,515 - - - - 170,711
Movement in own shares - - - (44) - (146) (190)
Share-based payments - - - - - 516 516
Income tax effect of share
options - - - - - (345) (345)
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 31 December 2021 1,333 332,048 9,562 (825) (45) 211,717 553,790
Total comprehensive income
for the period - - - - 9 4,496 4,505
Transactions with owners in
their capacity as owners
Dividends (note 6) - - - - - (27,505) (27,505)
Shares issued 1 257 - - - - 258
Movement in own shares - - - (102) - (64) (166)
Share-based payments - - - - - 1,366 1,366
Income tax effect of share
options - - - - - (509) (509)
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 30 June 2022 1,334 332,305 9,562 (927) (36) 189,501 531,739
---------------------------- -------- -------- -------- --------- ------------ --------- --------
Consolidated interim statement of cash flows
For the period ended 30 June 2022
Six months Six months
ended ended
30 June 30 June
2022 2021
Unaudited Unaudited
GBP'000 GBP'000
--------------------------------------------------------- ---------- ----------
Operating activities
Profit before taxation 6,056 5,006
Finance costs 1,741 1,553
Finance income (78) (1)
Foreign exchange loss (19) (8)
Exceptional items1 3,293 2,985
Depreciation 16,104 13,852
Amortisation of intangibles 2,059 1,997
Share-based payment expense 1,365 325
Loss on disposal of property, plant and equipment 892 645
Movement in inventories (5,923) 6,372
Movement in trade and other receivables 691 (4,554)
Movement in restricted cash (1,655) (311)
Movement in trade and other payables (6,398) 6,134
Movement in provisions (4) -
--------------------------------------------------------- ---------- ----------
Cash generated from operations 18,124 33,995
Income tax received 503 409
--------------------------------------------------------- ---------- ----------
Net cash generated from operations 18,627 34,404
--------------------------------------------------------- ---------- ----------
Investing activities
Payments for acquisition of subsidiaries, net of cash
acquired (note 10) (1,655) (3,848)
Payment for acquisition of new business (note 9) (1,432) (8,433)
Payment to acquire interest in associate (2,125) -
Payments to acquire property, plant and equipment (59,119) (44,326)
Payments on account to acquire grid-scale battery assets (13,632) -
Proceeds on disposal of property, plant and equipment 1,730 1,366
Payments to acquire intangible assets (1,133) (1,123)
Finance income received 78 1
--------------------------------------------------------- ---------- ----------
Net cash (used in)/generated from investing activities (77,288) (56,363)
--------------------------------------------------------- ---------- ----------
Financing activities
New borrowings - 33,250
Principal elements of lease payments (719) (586)
Finance costs paid (1,440) (478)
Net proceeds from share issue 258 1,070
Purchase of own shares (166) (89)
Dividends paid (18,334) (14,124)
--------------------------------------------------------- ---------- ----------
Net cash (used in)/generated from financing activities (20,401) 19,043
--------------------------------------------------------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents (79,062) (2,916)
Exchange gain on cash and cash equivalents (1) (1)
Cash and cash equivalents at the beginning of the period 117,687 40,236
--------------------------------------------------------- ---------- ----------
Cash and cash equivalents at the end of the period 38,624 37,319
--------------------------------------------------------- ---------- ----------
1 Non-cash material exceptional items include GBP3,293,000 for
losses on our meter portfolio (30 June 2021: GBP2,985,000).
Notes to the interim report
For the period ended 30 June 2022
1 Basis of preparation
This condensed consolidated interim financial report for the
half-year reporting period ended 30 June 2022 has been prepared in
accordance with Accounting Standard IAS 34 Interim Financial
Reporting. The Company is a public limited company incorporated and
domiciled in Scotland whose shares are quoted on AIM, a market
operated by the London Stock Exchange.
The financial information contained in this half-yearly
financial report does not constitute statutory accounts as defined
in section 434 of the Companies Act 2006. It does not therefore
include all the information and disclosures required in the annual
financial statements and should be read in conjunction with the
Group's annual financial statements for the year ended 31 December
2021.
The financial information for the six months ended 30 June 2022
is also unaudited.
The comparative information for the year ended 31 December 2021
has been extracted from the Group's published financial statements
for that year, which were prepared in accordance with UK-adopted
international accounting standards and have been delivered to the
Registrar of Companies. The report of the auditor on these accounts
was unqualified and did not contain a statement under section
498(2) or (3) of the Companies Act 2006.
Going concern
Management prepares budgets and forecasts on an eight-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 and the planned roll-out of grid-scale battery
storage assets.
Management has modelled different meter installation and
grid-scale battery roll-out scenarios, including a downside
scenario, which assumed a slower rollout of new installations and
delays to the grid-scale battery sites becoming operational. 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.
The Group has a GBP420m revolving credit facility which matures
in December 2025 and no amounts were drawn as at 30 June. The Group
made a GBP25m draw down in July 2022 and so at the date of
releasing the interim financial report, the Group had access to
c.GBP381m of this loan facility after taking account of letter of
credit facilities.
The Group was compliant with all its debt covenants at 30 June
2022. The financial covenants attached to the facility are that
EBITDA should be no less than 4.00x interest and net debt should be
no more than 4.75x EBITDA. At 30 June 2022 these stood at 16.76x
and -0.62x respectively, on account of a net cash-positive
position, demonstrating significant headroom. The Group does not
expect to breach these covenants in the year from the date of
release of this report.
The Group remains in a net cash position of GBP38.6m at 30 June
2022 (31 December 2021: GBP117.7m). The Group balance sheet shows
consolidated net assets of GBP531.7m (31 December 2021: GBP553.8m),
of which GBP396.5m (31 December 2020: GBP366.7m) relates to
revenue-generating meter and data assets and GBP17.2m (31 December
2021: GBPnil) relates to revenue generating grid-scale battery
assets which are currently operational. The liquidity of the Group
thus remains strong and continues to provide the financial
flexibility required in order to support the Group's long-term
growth prospects.
With significant coverage provided by existing long-term,
inflation-linked and recurring cash flows, the Group remains
committed to its dividend policy. It approved a 27.5p per share
annualised dividend in respect of FY 2021 and all four cash
instalments had been paid at the date of approving the interim
financial statements. The Group intends to pay a 30.25p per share
annualised dividend in respect of FY 2022.
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 an extreme
downside scenario, 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.
Significant accounting policies
As required in AIM Rule 18, the interim financial report for the
half-year reporting period ended 30 June 2022 is presented and
prepared in a form consistent with that which will be adopted in
the annual statutory financial statements for the year ended 31
December 2022 and having regard to the accounting policies
applicable to such annual accounts.
The accounting policies adopted are consistent with those
followed in the Group's financial statements for the year ended 31
December 2021, except for the adoption of new standards effective 1
January 2022.
Several amendments apply for the first time in 2022 but do not
have an impact on the condensed consolidated interim financial
report for the half-year reporting period ended 30 June 2022.
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
Critical accounting judgements
The critical accounting judgements made by the Directors in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those described in the
Group's published financial statements for the year ended 31
December 2021.
2 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 building and operation
of grid-scale batteries, the provision of energy consultancy
services and, following the acquisition of Solo Energy Limited, the
management of Distributed Energy Resources (DER) assets.
For the purpose of making decisions about resource allocation
and performance assessment, it is the operating results of the
three core divisions listed above that are monitored by management
and the Group's chief operating decision-maker, being the SMS
Board. It is these divisions, therefore, that are defined as the
Group's reportable operating segments.
Segment performance is evaluated based on gross profit.
The following segment information is presented in respect of the
Group's reportable segments together with additional balance sheet
information:
Asset Asset Energy Total
Management Installation Management Unallocated operations
30 June 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Segment revenue 44,833 43,688 5,549 - 94,070
Inter-segment revenue - (31,394) - - (31,394)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Revenue from external customers 44,833 12,294 5,549 - 62,676
Cost of sales (16,962) (10,592) (3,280) - (30,834)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Segment gross profit - pre-exceptional
cost of sales 27,871 1,702 2,269 - 31,842
Exceptional items (cost of sales) - - - - -
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Segment gross profit 27,871 1,702 2,269 - 31,842
Other operating (costs)/income - - 409 (17,232) (16,823)
Depreciation - (53) (18) (1,845) (1,916)
Amortisation of intangibles (892) - (15) (1,152) (2,059)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations - pre-exceptional
operating items 26,979 1,649 2,645 (20,229) 11,044
Exceptional items (operating) (3,338) (29) - 42 (3,325)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations 23,641 1,620 2,645 (20,187) 7,719
------------------------------------------------ ----------- ------------- ----------- -----------
Net finance costs: other (1,663)
-----------
Profit/(loss) before tax 6,056
Tax expense (1,560)
-----------
Profit for period 4,496
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Asset Asset Energy Unallocated Total
Management Installation Management (restated) operations
30 June 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Segment revenue 39,378 34,585 1,937 - 75,900
Inter-segment revenue - (24,222) - - (24,222)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Revenue from external customers 39,378 10,363 1,937 - 51,678
Cost of sales (14,655) (6,424) (1,458) - (22,537)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Segment gross profit - pre-exceptional
cost of sales 24,723 3,939 479 - 29,141
Exceptional items (cost of sales) - (800) - - (800)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Segment gross profit 24,723 3,139 479 - 28,341
Other operating costs/income - - - (14,813) (14,813)
Depreciation (625) - (33) (1,398) (2,056)
Amortisation of intangibles 1 (829) - (15) (1,153) (1,997)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations - pre-exceptional
operating items 23,269 3,139 431 (17,364) 9,475
Exceptional items (operating) (3,194) (29) - 306 (2,917)
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations 20,075 3,110 431 (17,058) 6,558
------------------------------------------------ ----------- ------------- ----------- -----------
Net finance costs: other (1,552)
Profit/(loss) before tax 5,006
Tax expense (3,983)
-----------
Profit for period 1,023
------------------------------------------------ ----------- ------------- ----------- ----------- -----------
1 Amortisation of intangibles for the period ended 30 June 2021
has been restated to show amortisation of the group-wide ERP system
of GBP1,153,000 under unallocated rather than in the Asset
Management segment.
Inter-segment revenue relates to installation services provided
by the asset installation segment to the asset management
segment.
Depreciation of GBP13.7m (30 June 2021: GBP11.8m) associated
with meter assets has been reported within Cost of sales, in the
asset management segment, as the meter assets directly drive
revenue.
Depreciation of GBP0.4m (30 June 2021: nil) associated with
grid-scale batteries has been reported within Cost of sales, in the
energy management segment, as the battery assets directly drive
revenue.
All material revenues and operations are based and generated in
the UK. Following the acquisition of Solo Energy Limited in
September 2019, a small minority of operations are based in the
Republic of Ireland.
gment assets and liabilities
Asset Asset Energy Total
Management Installation Management Unallocated operations
30 June 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------- ----------- ----------- -----------
Assets reported by segment
Intangible assets 13,577 3,497 2,834 6,781 26,689
Property, plant and equipment 396,501 86 49,541 10,548 456,676
Investments in associates - - 2,125 - 2,125
Inventories 29,515 235 2 - 29,752
Other receivables - - 13,632 - 13,632
Contract assets - 55 - - 55
Other assets (bank loans) - - - 1,926 1,926
------------------------------ ----------- ------------- ----------- ----------- -----------
439,593 3,873 68,134 19,255 530,855
Assets not by segment 88,125
------------------------------ ----------- ------------- ----------- ----------- -----------
Total assets 618,980
------------------------------ ----------- ------------- ----------- ----------- -----------
Liabilities by segment
Contract liabilities 1,722 1,567 41 - 3,330
Lease liabilities - - 6,208 4,103 10,311
Other liabilities - - 688 - 688
Provisions - - 1,288 71 1,359
Other long-term liabilities 697 - 774 - 1,471
Bank loans - - - - -
------------------------------ ----------- ------------- ----------- ----------- -----------
2,419 1,567 8,999 4,174 17,159
Liabilities not by segment 70,082
------------------------------ ----------- ------------- ----------- ----------- -----------
Total liabilities 87,241
------------------------------ ----------- ------------- ----------- ----------- -----------
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
------------------------------ ----------- ------------- ----------- ----------- -----------
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.
3 Disaggregation of revenue from contracts with customers
The Group reports the following segments: asset management,
asset installation and energy management, in accordance with IFRS 8
Operating Segments. We have determined that, to meet the objective
of the disaggregation disclosure requirement in paragraph 114 of
IFRS 15, which is to disaggregate revenue from contracts with
customers into categories that depict how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by
economic factors, further disaggregation is required into the major
types of services offered. The following table thus discloses
segmental revenue by type of service delivered and timing of
revenue recognition, including a reconciliation of how this
disaggregated revenue ties in with the asset management, asset
installation and energy management segments, in accordance with
paragraph 115 of IFRS 15.
Asset Asset Energy Total
Management Installation Management operations
Period ended 30 June 2022 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ----------- ------------- ----------- -----------
Major service lines
Metering 38,515 - - 38,515
Data management 6,319 - - 6,319
Utility connections - 3,448 - 3,448
Transactional meter works - 8,695 - 8,695
Grid-scale batteries - - 2,764 2,764
Energy management - 151 2,784 2,935
---------------------------------------- ----------- ------------- ----------- -----------
44,834 12,294 5,548 62,676
---------------------------------------- ----------- ------------- ----------- -----------
Timing of revenue recognition
Services transferred at a point in time - 8,695 - 8,695
Services transferred over time 44,834 3,599 5,548 53,981
---------------------------------------- ----------- ------------- ----------- -----------
44,834 12,294 5,548 62,676
---------------------------------------- ----------- ------------- ----------- -----------
Asset
Asset Installation Energy Total
Management (restated) Management operations
Period ended 30 June 2021 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ----------- ------------- ----------- -----------
Major service lines
Metering 35,505 - - 35,505
Data management 3,873 - - 3,873
Utility connections 1 - 2,787 - 4,384
Transactional meter works 1 - 7,435 - 5,838
Energy management - 141 1,937 2,078
---------------------------------------- ----------- ------------- ----------- -----------
39,378 10,363 1,937 51,678
---------------------------------------- ----------- ------------- ----------- -----------
Timing of revenue recognition
Services transferred at a point in time - 5,838 - 5,838
Services transferred over time 39,378 4,525 1,937 45,840
---------------------------------------- ----------- ------------- ----------- -----------
39,378 10,363 1,937 51,678
---------------------------------------- ----------- ------------- ----------- -----------
1 Asset Installation revenue has been restated to align the
allocation of revenue between the utility connections and
transactional meter works service lines.
4 Exceptional items
30 June 30 June
2022 2021
GBP'000 GBP'000
------------------------------------- -------- --------
Exceptional operating items
Losses on the traditional and SMETS1
meter portfolio (3,292) (2,985)
Costs attributable to COVID-19 - (523)
Other (33) (209)
--------------------------------------- -------- --------
Total exceptional items (3,325) (3,717)
--------------------------------------- -------- --------
5 Earnings per share
The calculation of earnings per share (EPS) is based on the
following data and number of shares:
Six months Six months
ended ended
30 June 30 June
2022 2021
Unaudited Unaudited
GBP'000 GBP'000
-------------------------------------------------------- ---------- ----------
Profit for the period used for calculation of basic EPS 4,496 1,023
-------------------------------------------------------- ---------- ----------
Six months Six months
ended ended
30 June 30 June
2022 2021
Number of shares Unaudited Unaudited
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purposes
of basic EPS 133,225,387 113,115,772
Effect of potentially dilutive ordinary shares:
- share options 804,788 838,985
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purposes
of diluted EPS 134,030,175 113,954,757
------------------------------------------------------------ ----------- -----------
EPS:
- basic (pence) 3.37 0.90
- diluted (pence) 3.35 0.90
------------------------------------------------------------ ----------- -----------
6 Dividends
Six months Six months Six months Six months
ended ended Year ended Year ended ended ended
30 June 30 June 31 December 31 December 30 June 30 June
2022 2022 2021 2021 2021 2021
Unaudited Per share Audited Per share Unaudited Per share
GBP'000 (pence) GBP'000 (pence) GBP'000 (pence)
-------------------------- ---------- ---------- ------------- ------------- ---------- ----------
FY20 2nd interim dividend
paid - - 7,059 6.250 7,059 6.250
FY20 3rd interim dividend
paid - - 7,065 6.250 7,065 6.250
FY20 final dividend
accrued - - - - 7,107 6.250
FY20 final dividend
paid - - 7,107 6.250 - -
FY21 1st interim dividend
paid - - 7,829 6.875 - -
FY21 2nd interim dividend
paid 9,166 6.875 - - - -
FY21 3rd interim dividend
paid 9,169 6.875 - - - -
FY21 final dividend
accrued 9,170 6.875 - - - -
-------------------------- ---------- ---------- ------------- ------------- ---------- ----------
Total dividends 27,505 20.625 29,060 25.625 21,231 18.750
-------------------------- ---------- ---------- ------------- ------------- ---------- ----------
Per the Group's dividend policy, a 27.5p per share dividend was
approved in respect of FY 2021, payable in four instalments of
6.875p per share. The final instalment of the FY 2021 dividend was
paid on 28 July 2022.
A 30.25p per share dividend is intended in respect of FY 2022
payable in four instalments of 7.5625p per share.
7 Property, plant and equipment
Fixtures,
Freehold/ Plant fittings Assets
leasehold Meter and and Motor Right-of-use Grid-scale under
property assets machinery equipment vehicles assets assets construction Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- --------- -------- --------- ---------- -------- ------------ ----------- ------------ --------
Cost
As at 1 January
2021 2,807 392,146 1,044 7,148 5,305 7,010 - - 415,460
Reclassification - - - - - - - 4,071 4,071
Additions - 82,401 126 1,117 28 5,267 - 24,505 113,444
Acquisitions - 6,682 - - - - - 5,414 12,096
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
Reclassification - (50) - - - - 17,557 (17,557) (50)
Additions 1,105 50,249 15 622 468 2,645 84 6,752 61,940
Acquisitions - - - - - - - 1,730 1,730
Disposals - (10,440) - - (86) - - - (10,526)
Exchange
adjustments - - - 1 - (3) - - (2)
----------------- --------- -------- --------- ---------- -------- ------------ ----------- ------------ --------
As at 30 June
2022 3,910 501,099 1,185 8,830 5,513 14,915 17,641 24,915 578,008
----------------- --------- -------- --------- ---------- -------- ------------ ----------- ------------ --------
Depreciation -
As at 1 January
2021 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
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
Charge for period 86 13,676 64 632 581 642 423 - 16,104
Disposals 1 (3,716) - - (73) - - - (3,788)
Exchange
adjustments - - - - - 1 - - 1
----------------- --------- -------- --------- ---------- -------- ------------ ----------- ------------ --------
As at 30 June
2022 938 104,595 1,058 6,864 3,918 3,536 423 - 121,332
----------------- --------- -------- --------- ---------- -------- ------------ ----------- ------------ --------
Net book value -
As at 30 June
2022 2,972 396,504 127 1,966 1,595 11,379 17,218 24,915 456,676
----------------- --------- -------- --------- ---------- -------- ------------ ----------- ------------ --------
As at 31 December
2021 1,954 366,705 176 1,975 1,721 9,380 - 33,990 415,901
----------------- --------- -------- --------- ---------- -------- ------------ ----------- ------------ --------
As at 1 January
2021 2,128 315,463 254 2,427 2,918 5,148 - - 328,338
----------------- --------- -------- --------- ---------- -------- ------------ ----------- ------------ --------
Included within the closing meter assets net book value of
GBP396,504,000 (31 December 2021: GBP366,705,000) is GBP13,039,000
(31 December 2021: GBP16,246,000) relating to the traditional meter
portfolio, which will be written down to zero by 1 July 2025. In
the H1 2022 consolidated financial statements there was a
GBP2,581,000 depreciation charge recognised on the traditional
domestic meter portfolio (H1 2021: GBP2,465,000). GBP11,675,000
annualised recurring revenue as at 30 June 2022 (30 June 2021:
GBP12,801,000) arises from the owned traditional meter
portfolio.
The assets are secured by a bond and floating charge.
For the purpose of impairment testing, the traditional meter
asset portfolio recognised within "Meter assets" is assessed as a
standalone cash-generating unit (CGU) and it's carrying amount is
compared with the recoverable amount. In line with IAS 36, no
impairment review was considered necessary at 30 June 2022 as the
previous impairment review carried out at 31 December 2021 showed a
significant excess of recoverable amount over carrying amount and
management concluded that there were no reasonably possible changes
in the key assumptions that would cause the carrying amounts of the
traditional meter portfolio to exceed the value in use. Since this
date there have also been no events that would eliminate this
excess or any new material indicators of impairment.
Therefore, no impairment has been recognised in the period ended
30 June 2022 (30 June 2021: GBPnil). No impairment on other meter
assets has been recognised in the period ended 30 June 2022 (30
June 2021: GBPnil).
8 Bank loans
The Group has a GBP420m revolving credit facility which matures
in December 2025. Interest is payable at a rate of 1.85% over
three-month SONIA and 0.65% is payable on undrawn funds.
No principle or interest was outstanding as at 31 December 2021
and no amounts were drawn in H1 2022. The amount recognised as Bank
loans as at 30 June 2022 is therefore nil. Unamortised transaction
costs of GBP1.9m (31 December 2021: GBP2.2m) that would ordinarily
be deducted from the carrying value of bank loans have therefore
been classified as Other assets.
The Group has complied with the financial covenants of its
borrowing facility during the current and prior reporting
periods.
9 Business combinations
On 25 May 2022, the Group acquired 100% of the issued share
capital of n3rgy Data Limited, a data software company, for cash
consideration of GBP1.4m and additional deferred consideration
subject to the company achieving certain performance targets. n3rgy
Data Limited's software enables and facilitates the use of energy
consumption, generation and tariff data from smart meters. The
acquisition is expected to enhance and accelerate the Group's
capabilities in smart energy data solutions.
Management's purchase price allocation exercise is not yet
finalised. The provisional fair values of the assets and
liabilities acquired and of the consideration are as follows:
Fair value
GBP'000
---------------------------- ----------
Intangible assets: software 2,061
Trade and other receivables 123
Trade and other payables (55)
---------------------------- ----------
Net assets acquired 2,129
---------------------------- ----------
Satisfied by:
Cash 1,432
Contingent consideration 697
---------------------------- ----------
Total consideration 2,129
---------------------------- ----------
10 Asset acquisitions
During the period ended 30 June 2022, the Group acquired 100% of
the issued share capital of the following companies:
Name of acquired Company Registered office Purchase consideration Nature of the
company number prior to acquisition GBP'000 company
-------------------- -------- --------------------- ---------------------- ---------------
Alexandra Business
Park, Prescot
Road, St Helens,
Balance Energy Merseyside Special purpose
2 Limited 12266348 WA10 3TP 856 vehicle
Salisbury House,
Station Road,
Cambridge Special purpose
Fen Power 1 Limited 12875930 CB1 2LA 874 vehicle
-------------------- -------- --------------------- ---------------------- ---------------
Both companies report in British Pounds Sterling. The
acquisitions enable SMS to obtain control over the rights required
to develop and commission two 30MW grid-scale battery storage sites
as part of the Group's investment strategy in Carbon Reduction
(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.
Details of the purchase consideration are as follows:
Cash paid Deferred consideration Total fair
GBP'000 GBP'000 value
Name of acquired company GBP'000
----------------------------- --------- ---------------------- ----------
Balance Energy 2 Limited 856 - 856
Fen Power 1 Limited 600 274 874
----------------------------- --------- ---------------------- ----------
Total purchase consideration 1,456 274 1,730
----------------------------- --------- ---------------------- ----------
The deferred consideration of GBP274,000 for Fen Power 1 Limited
is payable in cash upon energisation (after the asset is tested and
commissioned and electricity is imported from or exported to the
grid).
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:
Balance Energy Fen Power 1
2 Limited Limited Total
GBP'000 GBP'000 GBP'000
----------------------------- -------------- ----------- --------
Assets under construction 856 874 1,730
Total purchase consideration 856 874 1,730
----------------------------- -------------- ----------- --------
11 Investment in associate
On 15 June 2022, the Group invested GBP2.1m (including
transaction costs) to acquire a 25% shareholding in Clenergy EV
Ltd, a software business with a Charge Point Operator (CPO)
platform focussed on electric vehicle charging infrastructure. The
agreement also gives the Group the option to invest a further
GBP2.0m after one year to acquire an additional 26% interest and an
option to acquire the remaining shares after five years.
12 The half-yearly financial report was approved by the Board of
Directors on 13 September 2022.
13 A copy of this half-yearly financial report is available by
visiting our website at www.sms-plc.com .
14 Post balance sheet events
Following the 30 June 2022 period end, the Group acquired 100%
of the issued share capital of the following companies:
Cash paid Deferred consideration Total fair
Acquisition GBP'000 GBP'000 value
Name of acquired company date GBP'000
------------------------- -------------- --------- ---------------------- ----------
Drumcross Energy Storage
Limited 8 July 2022 2,815 - 2,815
Erskine Energy Storage
Limited 17 August2022 2,554 100 2,654
------------------------- -------------- --------- ---------------------- ----------
These acquisitions enable SMS to obtain control over the rights
required to develop and commission two 30MW grid-scale battery
storage sites as part of its ongoing investment strategy in carbon
reduction assets.
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END
IR QLLFFLKLXBBX
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