TIDMSMS
RNS Number : 8218S
Smart Metering Systems PLC
14 March 2023
14 March 2023
Smart Metering Systems plc
Strong and resilient 2022 performance; solid foundation to
deliver sustainable 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 2022.
2022 financial performance
GBP'm (unless stated otherwise) 2022 2021 % Change
Alternative performance measures
Index-linked annualised recurring
revenue (ILARR)(1) 97.1 85.9 +13%
Pre-exceptional EBITDA(2) 63.8 52.8 +21%
Underlying profit before taxation(3) 24.5 18.3 +34%
Underlying basic EPS (p)(4) 16.06 9.60 +67%
Statutory performance measures
Group revenue 135.5 108.5 +25%
EBITDA 57.1 46.3 +23%
Profit before taxation 16.0 8.3 +92%
Basic EPS (p) 11.16 3.20 +248%
Dividend per share (p) 30.25 27.50 +10%
Net (debt)/cash (31.2) 117.7
-------------------------------------- ------- ------ ---------
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. Percentage changes are
calculated based on unrounded amounts as shown in the Financial
statements.
Highlights
Financial
-- ILARR at 31 December 2022 up 13% to GBP97.1m (2021: GBP85.9m)
-- Revenue up 25% to GBP135.5m (2021: GBP108.5m)
-- Pre-exceptional EBITDA up 21% to GBP63.8m (2021: GBP52.8m)
-- Underlying profit before taxation up 34% to GBP24.5m (2021: GBP18.3m)
-- Net debt at 31 December 2022 of GBP31.2m (2021: net cash of GBP117.7m)
-- Undrawn debt facility of GBP355m (2021: GBP420m)
Smart meters
-- Smart meter portfolio increased to c.2.1m (2021: c.1.7m)
-- Contracted smart meter order pipeline of c.2.17m (2021:
c.2.55m) reflecting a contract win and net of 480,000
installations
-- Continued growth in meter installation run rate, averaging
c.45,000 per month in the second half of the year (H2 2021:
c.30,000 per month)
Grid-scale batteries
-- Grid-scale battery portfolio increased to 760MW at the year
end (31 December 2021: 620MW), and since then by a further 100MW
project under exclusivity to 860MW including:
-- 140MW operational which have performed ahead of management expectations
-- 470MW fully secured, including 150MW in construction due to be operational in H2 2023
-- 250MW under exclusivity
Other CaRe assets
-- Strategic investments in Clenergy EV and n3rgy Data
accelerate the Group's capabilities in electric vehicle (EV)
charging infrastructure and energy data management
-- The Group continued to build its delivery capability and
commercial asset models for the provision of other
'Behind-the-Meter' CaRe assets such as solar and storage, domestic
EV chargers and air sourced heat pumps
-- The Group continue to see significant long term market opportunity in these sectors
Dividend
-- 10% increase year-over-year, in line with policy until 2024;
covered by long-term, sustainable cash flows generated from
existing assets
Outlook
-- The FY 2023 pre-exceptional EBITDA is expected to be
marginally ahead of and underlying PBT to be in line with our
previous expectations; confident in the medium term outlook
-- The smart meter installation run-rate is expected to
progressively improve throughout rest of the year
-- Continued delivery and growth of the grid-scale battery
pipeline, with EBITDA contribution expected to be at least within
our guided range
-- Confident in successfully developing offerings and building pipeline in other CaRe assets
Tim Mortlock , Chief Executive Officer, commented:
"We have delivered another year of strong performance across all
our key metrics. This again highlights the attractiveness of our
CaRe asset portfolio and the strong execution by our teams.
The strong momentum in our meter and grid-scale batteries
businesses provides us with confidence in our 2023 and longer term
outlook - we will continue to deliver on our sustainable
promises.
We also see significant market opportunities to further
accelerate our portfolio of CaRe assets, including EV charging
infrastructure and Behind-the-meter solar and storage. Meeting the
key challenges of energy security, affordability and sustainability
- SMS is strongly positioned to provide the knowledge, engineering,
data platforms and services behind the UK's move to net zero."
Analyst Webcast
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.
For further information:
Smart Metering Systems plc 0141 249 3850
Tim Mortlock, Chief Executive Officer
Gail Blain, Chief Financial Officer
Dilip Kejriwal, Head of Investor
Relations
Cenkos Securities plc (Joint Broker
and Nomad) 0131 220 6939 / 020 7397 8900
Neil McDonald / Pete Lynch
Investec Bank plc (Joint Broker) 020 7597 5970
Christopher Baird / Henry Reast
RBC Capital Markets (Joint Broker) 020 7653 4000
Matthew Coakes / Evgeni Jordanov
/ Jack Wood
Instinctif Partners (PR Adviser) 020 7457 2020
Tim Linacre / Guy Scarborough / Sarah SMS@instinctif.com
Hourahane
Notes to Editors
Smart Metering Systems plc ( www.sms-plc.com ) installs and
manages smart meters, energy data, grid-scale battery storage and
other carbon reduction ("CaRe") assets to facilitate effective
energy management. The Group manages and optimises these assets
through its in-house technology and data analytical platform.
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. Since 2019, SMS has been awarded the London Stock Exchange
Green Economy Mark every year.
SMS plc is headquartered in Glasgow with a national presence
across several UK locations.
SMS shares are quoted on AIM.
Overview
The Group delivered another year of exceptional operational and
financial performance in 2022, despite a challenging macro
environment. This is evidence of the resilience of our business
model and the consistent cash flows generated from our existing
portfolio of CaRe assets. The momentum across all our CaRe assets
and solutions continued to remain strong providing a solid
foundation for growth and these assets will continue to facilitate
the transformation to a smarter, low carbon and more flexible
energy system.
The meter and data assets ILARR increased 13% to GBP97.1m,
including the annual RPI adjustment. Pre-exceptional EBITDA,
marginally upgraded in the FY 2022 trading statement issued on 26
January 2023, was up 21% to GBP63.8m and underlying PBT, materially
upgraded, was up 34% to GBP24.5m.
The monthly installation run-rate continued to improve
throughout the year, with SMS installing 480,000 smart meters in
2022, outperforming the Group's expectations. The Group have a
contracted pipeline of c.2.17 million smart meters to install which
will further increase ILARR by c.GBP50m.
The Group's first 50MW grid-scale battery site commenced trading
in January 2022. Two further sites went live in December 2022
resulting in 140MW operational by end of the year. The financial
performance of these sites has been considerably ahead of the
Board's initial expectations. The Group's grid-scale battery
pipeline currently stands at 860MW (31 December 2022: 760MW, 2021:
620MW), of which 140MW is operational and 470MW fully secured with
the remaining 250MW under exclusivity.
SMS made two strategic investments in 2022 expanding its
offering in energy data management and accelerating the Group's
capabilities in EV charging infrastructure. The Board see
significant market opportunity in these and other
'Behind-the-Meter' CaRe assets.
UK smart meter rollout
The Group increased the meter installation run rate from
c.30,000 per month in H2 2021 to c.45,000 per month in H2 2022.
This resulted in SMS installing 480,000 smart meters in 2022,
exceeding our expectations and growing our smart meter portfolio to
2.1m as at 31 December 2022 (2021: 1.7m). The Group's strong supply
chain, inventories, delivery capacity and installation run rate
provides the Board confidence in the Group's ability to
successfully deliver, and expand, SMS's smart meter pipeline.
Net of meters installed and including the benefit of a contract
win during the year, the contracted smart meter order pipeline
stood at c.2.17m at 31 December 2022 (31 December 2021:
c.2.55m).
Grid-scale batteries
The Group's first 50MW grid-scale battery site at Burwell
commenced trading in January 2022. Two further sites, 40MW at
Barnsley and 50MW at Brook Farm, became operational in December
2022.
Performance of these sites has been significantly ahead of our
initial expectations of GBP57,000-65,000 EBITDA per MW, generating
an annualised EBITDA of c.GBP123,000 per MW. The majority of the
revenue generated from these assets was from the provision of
frequency services, such as Dynamic Containment, which we expect to
soften over time towards our guided range as the volume of battery
storage in the market grows.
We are also pleased with the record high pricing achieved by
grid-scale battery storage assets during the recent Capacity Market
auction in the UK.
As at 31 December 2022, the Group's portfolio of grid-scale
battery storage assets totalled 760MW (31 December 2021: 620MW),
and since then the pipeline has increased by a further 100MW to
860MW, split as follows:
-- 140MW operational (31 December 2021: nil)
-- 470MW fully secured (31 December 2021: 320MW), of which 150MW in construction
-- 250MW under exclusivity (31 December 2021: 300MW)
Strategic Investments
SMS made two strategic investments in 2022 to accelerate the
Group's EV charging infrastructure capabilities and further
expanding its service offering in energy data management.
The investment in Clenergy EV, a software business with a Charge
Point Operator (CPO) platform focused on EV charging
infrastructure, complements the SMS EV installation capabilities
and has enabled the Group to deliver a fully end-to-end integrated
platform for EV charging infrastructure. The CPO platform is
currently used in c.2,700 EV charge points across the UK. We are
investing further in growing our pipeline of activity in this area
over the coming years, addressing the destination, on-street and
fleet market segments.
The acquisition of n3rgy, a data software company, enhances and
accelerates the SMS existing capabilities in smart energy data
solutions, providing the Group with a strong competitive position
in a considerable addressable market as the electricity industry
moves towards mandatory half-hourly settlement. We have integrated
this capability with our existing FlexiGrid platform, enabling
energy suppliers and other third parties to participate in the
National Grid Demand Flexibility Scheme (DFS) over this Winter,
which pays end consumers to use less energy at times of stress on
the energy network.
ESG progress and sustainability
During 2022, SMS continued to make progress in executing on its
2030 net zero roadmap. Our 'handprint' (carbon emissions mitigated
through our customers using our products and services) during the
year was 14.5 times higher when compared to our total Scope 1 and
Scope 2 'footprint' (carbon emissions generated through our
operations for the reasons explained below).
MSCI upgraded SMS's ESG ratings from A to AA rating in January
2023.
Details on SMS's Scope 1 and Scope 2 emissions over the last
three years are summarised below:
Scope 1 and 2 emissions (TCO2e) 2022 2021 2020
Scope 1 - Company owned vehicles 3,054.9 1,988.0 1,690.0
-------- -------- --------
Scope 1 - Building related 87.6 136.2 106.8
-------- -------- --------
Scope 2 - Building electricity 122.0 137.5 152.4
-------- -------- --------
Scope 2 - Grid-scale batteries
electricity 1,111.2 53.1 -
-------- -------- --------
Total Scope 1 and Scope 2 emissions in 2022 were higher than the
prior year. The increase was due to emissions from operating our
new grid-scale battery assets and from our vehicle fleets. Both
2020 and 2021 were also distorted by the effect of the COVID-19
pandemic.
Whilst our fleet related emissions increased because we added
vehicles to service the increase in smart meter installations, we
improved the overall fuel efficiency with the amount of carbon
emissions emitted per vehicle reducing by 5% since 2019. We are now
beginning our fleet transition and will introduce 100 mild hybrid
vans to the fleet in 2023.
Our Scope 2 emissions from grid-scale batteries reflects the
electricity used to operate the cooling and communication systems
at our grid-scale battery sites. Grid-scale battery storage plays
an essential role in enabling the UK to accelerate the adoption of
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.
Emissions related to our buildings fell 23% from 2021 levels as
we continued to introduce solar panels and battery storage across
our sites.
Dividend
The Board is proposing a 30.25p per share dividend (FY 2021:
27.5p) in line with our stated policy of increasing the dividend
+10% year-on-year until 2024. The dividend demonstrates the
sustainable growth delivered by our strategy and is covered by
long-term, sustainable cash flows generated from our existing
portfolio of CaRe assets.
Current trading and outlook
Meters:
-- The Group's ILARR at the end of February 2023 stood at
GBP98.5m (31 December 2022: GBP97.1m).
-- The smart meter installation run-rate is expected to
progressively improve throughout rest of the year and we aim to
install c.600,000 meters in 2023.
Grid-scale battery storage:
-- The grid-scale battery storage assets continued to perform
well during the first two months of 2023.
-- EBITDA contribution expected to be at least within guided
range of GBP57,000 to GBP65,000 per MW.
-- 150MW of assets are under construction, which we expect to become operational in FY 2023.
FY 2023 outlook:
-- The Board expects pre-exceptional EBITDA to be marginally
ahead of its previous expectations and underlying PBT to remain in
line with its previous expectations.
Operational review by division
Asset management:
During 2022, total meter and data asset ILARR grew 13% to
GBP97.1m (2021: GBP85.9m). The increase includes an annual RPI
adjustment which came into effect on 1 April 2022.
A breakdown on ILARR at 31 December 2022 and the % change
compared to 31 December 2021 is shown below:
Category % change ILARR Portfolio
Domestic smart meters + 22.0% GBP61.1m 2.1 million
--------- --------- ------------
Data assets + 15.5% GBP16.0m 0.4 million
--------- --------- ------------
Industrial & Commercial
meters + 14.0% GBP5.3m 0.1 million
--------- --------- ------------
Traditional domestic
meters - 5.3% GBP11.2m 0.3 million
--------- --------- ------------
Third party assets - 36.1% GBP3.5m 1.6 million
--------- --------- ------------
Total GBP97.1m 4.5 million
--------- --------- ------------
In 2022, we added a new contract for c.100,000 meters to our
pipeline. Following the installation of c.480,000 meters during the
year, we ended the year with a contracted smart meter order
pipeline of c.2.17 million meters (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 ahead of the industry with c.80% of our
portfolio of SMETS1 meters now enrolled onto the DCC platform. This
enrolment and adoption programme has now been extended to the end
of 2023.
SMS made the decision through 2021 and 2022 to diversify further
our supply chain to four meter manufacturing partners, which
provided assurance in the near term future cost for a large
proportion of our meter purchases and we increased the level of
buffer stock we hold in our UK warehouses. Whilst not without some
impact on working capital, these decisions have reduced the impact
of inflationary cost increases and ensured that stock availability
has not been an impediment to delivering our pipeline.
The index-linked nature of our meter rentals provides
significant protection against the current high levels of
inflation. Over time, the installed cost of meters may rise but we
expect to at least maintain our initial guided yield on these
assets.
Looking forward, the acquisition of n3rgy enhances SMS
capabilities in smart energy data solutions enabling us to take
advantage of the significant new addressable market opportunity
created by the move to market-wide half hourly settlement which is
mandated from 2026. We are already using this capability in
conjunction with our Flexigrid platform by enabling end consumers
to get paid to use less energy at times of stress on the energy
network, through National Grid's Demand Flexibility service.
Asset installation:
We continued to grow our nationwide engineering services
business over 2022, increasing our total engineering workforce
capacity to over 600 engineers. Our in-house engineers are
supplemented by contractors, and we continue to maintain an
appropriate balance to meet our installation targets while
maximising installation efficiency. We will continue to invest
incrementally in our engineering capacity to further increase our
installation run-rate in the future.
Safety remains our first priority and we again reported zero
injuries under the Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations. We also maintained industry-leading
performance across our other health and safety metrics.
Our engineering resource is supported by our in-house accredited
training academy which we see as essential to promoting health and
safety standards across our business. The training academy also
allows us to extend our capabilities into new sectors, such as the
installation of EV charging infrastructure.
Energy management:
The strong growth in our portfolio of grid-scale battery storage
assets has transformed the Energy management division. The trading
performance and the growth in these assets are detailed in the
grid-scale battery storage section above.
The roll-out of site-based energy efficiency measures
accelerated during the year following the relaxation of COVID-19
restrictions. Our traditional consultancy and energy management
services therefore grew significantly compared to prior year. The
substantial increase in energy costs in 2022 makes the case for our
energy management and efficiency services even more compelling, and
we see significant opportunities to help our Industrial &
Commercial customers reduce costs and support them on their path to
net-zero.
We continued to develop further our capability in the EV
charging space, with particular focus on the destination, on-street
and fleet market segments. Our partnership with Clenergy EV
provides us access to a Charge Point Operator technology platform
that allows us to control both the charge of EV's from any
chargepoint type and the collection of revenue for use of the
chargepoint. With this end-to-end capability in place, we are well
positioned to develop a pipeline of activity in these areas over
the coming years.
We also commenced developing integrated funded-energy solutions
that aggregate the individual CaRe asset classes, such as
distributed solar generation and storage. Applying these to
commercial properties, we are able to reduce reliance on energy
from the grid and optimise the use of energy on-site. We see a
significant growth opportunity for asset deployment in this
sector.
Financial review
Revenue
31 December 31 December
2022 2021 Percentage
GBPm GBPm change
------------------- ----------- ----------- ------------
Asset management 92.8 82.9 12%
Asset installation 30.5 22.0 38%
Energy management 12.2 3.6 237%
------------------- ----------- ----------- ------------
Group revenue 135.5 108.5 25%
------------------- ----------- ----------- ------------
Asset management revenues of GBP92.8m are 12% up on the prior
year. 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 annual RPI uplift which took effect on 1 April
2022.
Asset installation revenues of GBP30.5m increased 38% on the
prior year as a result of increased volume in transactional meter
works and increased activity in our connections business.
Energy management revenues of GBP12.2m were up 237% on the prior
year. This includes GBP7.2m revenue from our grid-scale battery
sites which began operating in the year. Our first grid-scale
battery site became operational in January 2022 and two further
sites went live in December 2022. Revenue from Energy management
excluding grid-scale batteries was GBP5.0m, up 38% on prior year as
a key customer project in the hospitality sector picked up momentum
with the continued recovery from the effect of COVID-19 and sector
focus turning 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.
Depreciation-adjusted gross margin for the asset management
segment is 92% which is in line with prior year (2021: 92%).
The asset installation segment gross margin was 23% (2021: 32%).
In H1 2022 the Group 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 led to additional one-off costs which
depressed the margin in the first half. As expected, the margin
recovered in the second half of 2022.
The energy management segment depreciation-adjusted gross margin
has increased to 57% (2021: 24%). This is due to the addition of
our grid-scale battery sites which generated an 80%
depreciation-adjusted gross margin over the year. Grid-scale
batteries delivered revenue of GBP7.2m and depreciation adjusted
gross profit of GBP5.8m in the year. The gross margin on the
segment's other activities remained constant at 24% (2021:
24%).
Overall, the depreciation-adjusted gross margin at the Group
level fell by 4% to 73% (2021: 77%) due to the investment in our
engineer base in H1 2022 in our asset installation division coupled
with the increase in battery revenues during 2022.
Pre-exceptional EBITDA
Pre-exceptional EBITDA provides a measure of underlying
performance that is comparable over time. Pre-exceptional EBITDA of
GBP63.8m was 21% higher than in the prior year (2021:
GBP52.8m).
The GBP14.5m increase in depreciation-adjusted gross profit
(excluding exceptional cost of sales in 2021 arising from the
result of COVID-19) was partly offset by a GBP3.5m increase in net
operating costs, excluding depreciation and amortisation. This is
being driven by a cost-of-living payment made to our employees in
H2 2022 in response to inflationary and other pressures experienced
in the wider economic environment, further investment in our IT and
support systems and small increases across our cost base to support
growth in other CaRe assets.
Underlying profit before tax
Depreciation costs on meter assets increased 15% to GBP28.3m
(2021: GBP24.7m) due to the increase in the meter asset
portfolio.
Depreciation cost on grid-scale battery sites increased to
GBP1.0m (2021: nil) due to the commencement of depreciation on
operational grid-scale battery sites in the year.
Depreciation costs on general property, plant and equipment,
excluding meter assets and grid-scale battery sites, has reduced by
GBP0.5m to GBP3.5m (2021: GBP4.0m) due to some computer equipment
and fixtures and fittings now being fully depreciated.
Amortisation costs on our intangible assets of GBP4.1m (2021:
GBP4.1m) mainly consist of software amortisation and were in line
with prior year.
Net finance costs increased GBP0.4m to GBP3.9m (2021: GBP3.5m).
Finance costs relating to our loan facility increased GBP0.7m as we
started drawing on the facility in the second half, and interest on
leases also increased GBP0.5m as we leased land for our new
grid-scale battery sites. The impact was however partly offset by
GBP0.3m interest income earned.
As a result, underlying profit before taxation increased by 34%
to GBP24.5m (2021: GBP18.3m).
Exceptional items
Exceptional items of GBP6.6m (2021: GBP8.2m) mainly comprise a
GBP5.7m loss on the traditional and first-generation smart meter
('SMETS1') portfolio (2021: GBP5.9m). 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. Acquisition-related costs and other
exceptional operating items amounted to GBP0.9m (2021: GBP0.6m).
Exceptional items in 2021 also included GBP1.7m exceptional finance
costs comprising the acceleration of unamortised arrangement fees
relating to the Group's previous loan facility which was refinanced
in 2021.
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 year.
The effective tax rate on pre-exceptional profits for the year
is 11.3% (2021: 39%). This represents the announced rate of UK
corporation tax of 25% from 1 April 2023, which is the rate that
will apply when the deferred tax liability generated by the capital
allowances unwinds, less the impact of c.GBP2.5m benefit of the tax
super-deduction that has been assessed on our qualifying meter
assets and grid scale battery capital expenditure during 2022. The
super-deduction is only available on qualifying capital expenditure
until 31 March 2023, therefore it is expected that our effective
tax rate will increase to a more normalised level in 2023.
It should also be noted that the effective rate on
pre-exceptional profits in 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 2021. The
full-year effective tax rate on 2021 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 16.06p (2021: 9.60p), reflecting the
underlying profitability of the Group. Statutory earnings per share
increased to 11.16p (2021: 3.20p). As noted above our 2022 tax
charge also includes the benefit of the tax super-deduction
available on qualifying capital expenditure since April 2021. Our
effective tax rate for 2022 is therefore abnormally low, and this
has resulted in a particularly high growth in our earnings per
share.
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.
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. Two instalments have already been paid, in October
2022 and January 2023 with the following provisional timetable for
the remaining instalments:
Instalment Ex-dividend date Record date Payment date
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, sustainable cash
flows generated from our existing portfolio of metering, data and
grid-scale battery assets.
Cash flow and capex investment
Operating cash inflow in 2022 was GBP63.8m (2021: GBP61.8m). The
cash inflow reflects GBP63.8m pre-exceptional EBITDA, GBP5.5m of
non-cash costs included in EBITDA and a GBP4.3m 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 Group also drew down GBP65.0m under its loan facility.
The cash generated from operations and from our borrowing has
been used to continue investment in our revenue generating meter
and grid-scale battery assets.
Capital expenditure on property, plant and equipment was
GBP143.4m (2021: GBP108.2m). Of this, GBP105.0m was invested in
meter and data assets, GBP36.3m 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 payments of GBP14.6m to
acquire battery sites (2021: GBP4.7m) and a further GBP12.3m of
instalment payments made for grid-scale batteries which have not
yet been delivered (2021: GBPnil). On the balance sheet, the sites
under development are classified as assets under construction
within property, plant and equipment and the instalment payments
for batteries are classified as other non-current receivables.
A further GBP2.2m (2021: GBP2.8m) 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 and a GBP2.1m investment (including transaction
costs) to acquire a 25% stake in Clenergy EV Ltd. See note 24 and
note 12 to the consolidated financial statements for further
details.
Financial resources
Net debt at 31 December 2022 was GBP31.2m (31 December 2021: Net
cash GBP117.7m). This excludes restricted cash and lease
liabilities accounted for under IFRS 16.
The Group has in place a GBP420m debt facility which matures in
December 2025 and was fully compliant with all its bank covenants
throughout the year. The Group has GBP32.8m available in cash and
GBP355m in unutilised facilities (31 December 2021: GBP420m) and
therefore 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 rental
recurring revenue and data contracts at a point in time. Includes
revenue from third-party managed meters.
--------------------------- -------------------------------------------------
Depreciation-adjusted gross Statutory gross profit less depreciation
profit on revenue-generating assets, recognised
within cost of sales.
--------------------------- -------------------------------------------------
Depreciation-adjusted gross Depreciation-adjusted gross profit divided
profit margin by statutory revenue.
--------------------------- -------------------------------------------------
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 debt/cash Total bank loans less cash and cash equivalents,
excluding restricted cash. Excludes lease
liabilities recognised under IFRS 16.
--------------------------- -------------------------------------------------
1 Amortisation of the Group's 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
2022 2021 Percentage
GBPm GBPm change
--------------------------------------------------- ------------ ------------ ----------
Index-linked annualised recurring revenue 97.1 85.9 13%
--------------------------------------------------- ------------ ------------ ----------
Group revenue 135.5 108.5 25%
--------------------------------------------------- ------------ ------------ ----------
Statutory profit from operations 20.1 13.5
Amortisation of intangibles 4.2 4.1
Depreciation 32.9 28.7
--------------------------------------------------- ------------ ------------ ----------
Statutory EBITDA 57.1 46.3 23%
Exceptional items(1) (EBITDA-related) 6.6 6.5
--------------------------------------------------- ------------ ------------ ----------
Pre-exceptional EBITDA 63.8 52.8 21%
Share of loss of associate (0.2) -
Net interest (excluding exceptional) (3.9) (3.5)
Depreciation (32.9) (28.7)
Amortisation of intangibles included in underlying
profit before taxation(2) (2.3) (2.3)
--------------------------------------------------- ------------ ------------ ----------
Underlying profit before taxation 24.5 18.3 34%
Exceptional items(1) (EBITDA) (6.6) (6.5)
Exceptional items(1) (interest) - (1.7)
Amortisation of intangibles excluded in underlying
profit before taxation (1.8) (1.8)
--------------------------------------------------- ------------ ------------ ----------
Statutory profit before taxation 16.0 8.3 92%
Taxation (1.1) (4.5)
--------------------------------------------------- ------------ ------------ ----------
Statutory profit after taxation 14.9 3.8 292%
Amortisation of intangibles excluded in underlying
profit after taxation 1.8 1.8
Exceptional items(1) (EBITDA and interest) 6.6 8.2
Tax effect of adjustments (2.0) (2.4)
--------------------------------------------------- ------------ ------------ ----------
Underlying profit after taxation 21.4 11.4 88%
Weighted average number of ordinary shares
(basic) 133,241,113 118,330,817
Underlying basic EPS (pence) 16.06 9.60 67%
Weighted average number of ordinary shares
(diluted) 133,857,082 118,972,527
Underlying diluted EPS (pence) 15.98 9.55 67%
--------------------------------------------------- ------------ ------------ ----------
(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 Enterprise Resource Planning
system remains within the underlying cost base of the business and
is therefore a part of the Group's underlying profit measures.)
Year
ended Year ended
31 December 31 December
2022 2021 Percentage
GBPm GBPm change
--------------------------------------- ------------ ------------ ----------
Statutory gross profit 70.0 59.4 18%
Depreciation included in cost of sales 29.3 24.7
--------------------------------------- ------------ ------------ ----------
Depreciation-adjusted gross profit 99.4 84.1 18%
--------------------------------------- ------------ ------------ ----------
Depreciation-adjusted gross margin 73% 77%
Financial tables and notes
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2022
2022 2021
Before 2022 Before 2021
exceptional Exceptional 2022 exceptional Exceptional 2021
items items(1) Total items items Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ----- ------------ ------------ -------- ------------ ------------ --------
Revenue 2 135,520 - 135,520 108,480 - 108,480
Cost of sales 3 (65,498) - (65,498) (48,316) (829) (49,145)
----------------------- ----- ------------ ------------ -------- ------------ ------------ --------
Gross profit 70,022 - 70,022 60,164 (829) 59,335
Administrative
expenses 3 (45,222) (6,646) (51,868) (41,866) (5,649) (47,515)
Other operating
income 3 1,936 - 1,936 1,696 - 1,696
----------------------- ----- ------------ ------------ -------- ------------ ------------ --------
Profit from operations 3 26,736 (6,646) 20,090 19,994 (6,478) 13,516
Share of loss
of associate 12 (186) - (186) - - -
Finance costs 5 (4,273) - (4,273) (3,488) (1,742) (5,230)
Finance income 5 324 - 324 7 - 7
----------------------- ----- ------------ ------------ -------- ------------ ------------ --------
Profit before
taxation 22,601 (6,646) 15,955 16,513 (8,220) 8,293
Taxation 6 (2,557) 1,473 (1,084) (6,479) 1,978 (4,501)
----------------------- ----- ------------ ------------ -------- ------------ ------------ --------
Profit for the
year attributable
to owners
of the parent 20,044 (5,173) 14,871 10,034 (6,242) 3,792
----------------------- ----- ------------ ------------ -------- ------------ ------------ --------
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 2022 2021
----------------------------------- ----- ----- ----
Basic earnings per share (pence) 7 11.16 3.20
Diluted earnings per share (pence) 7 11.11 3.19
----------------------------------- ----- ----- ----
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2022
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 for the year 20,044 (5,173) 14,871 10,034 (6,242) 3,792
Other comprehensive
income(1)
Exchange differences
on translation
of foreign operations 9 - 9 (46) - (46)
--------------------------- ------------ ------------ -------- ------------ ------------ --------
Other comprehensive
income
for the year, net of
tax 9 - 9 (46) - (46)
--------------------------- ------------ ------------ -------- ------------ ------------ --------
Total comprehensive
income
for the year attributable
to owners
of the parent 20,053 (5,173) 14,880 9,988 (6,242) 3,746
--------------------------- ------------ ------------ -------- ------------ ------------ --------
1 May be reclassified to profit or loss.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
2022 2021
Notes GBP'000 GBP'000
------------------------------------------- ----- -------- --------
Assets
Non-current assets
Intangible assets 9, 10 25,832 25,463
Property, plant and equipment 11 533,240 415,901
Investments 40 75
Investment in associate 12 1,940 -
Other assets - 1,651
Trade and other receivables 14 12,347 -
------------------------------------------- ----- -------- --------
Total non-current assets 573,399 443,090
------------------------------------------- ----- -------- --------
Current assets
Inventories 13 37,438 22,980
Other assets - 550
Trade and other receivables 14 52,935 47,631
Cash and cash equivalents 15 32,770 117,687
Cash and cash equivalents - restricted 15 307 1,299
------------------------------------------- ----- -------- --------
Total current assets 123,450 190,147
------------------------------------------- ----- -------- --------
Assets held for sale 16 513 -
------------------------------------------- ----- -------- --------
Total assets 697,362 633,237
------------------------------------------- ----- -------- --------
Liabilities
Current liabilities
Trade and other payables 17 69,378 56,489
Bank loans and overdrafts 18 591 -
Lease liabilities 19 885 999
Other liabilities 21 1,388 638
Total current liabilities 72,242 58,126
------------------------------------------- ----- -------- --------
Non-current liabilities
Bank loans 18 63,349 -
Lease liabilities 19 11,476 7,574
Provisions 20 2,033 798
Other liabilities 21 1,280 750
Deferred tax liabilities 22 13,496 12,199
Total non-current liabilities 91,634 21,321
------------------------------------------- ----- -------- --------
Total liabilities 163,876 79,447
------------------------------------------- ----- -------- --------
Net assets 533,486 553,790
------------------------------------------- ----- -------- --------
Equity
Share capital 27 1,334 1,333
Share premium 332,332 332,048
Other reserve 29 9,562 9,562
Own share reserve 27 (955) (825)
Foreign currency translation reserve (36) (45)
Retained earnings 191,249 211,717
------------------------------------------- ----- -------- --------
Total equity attributable to owners of the
parent 533,486 553,790
------------------------------------------- ----- -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 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 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 8) - - - - - (29,060) (29,060)
Shares issued (note 27) 204 171,577 - - - - 171,781
Movement in own shares
(note 27) - - - (76) - (203) (279)
Share-based payments (note
28) - - - - - 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
Total profit for the year - - - - - 14,871 14,871
Total other comprehensive
income
for the year - - - - 9 - 9
Transactions with owners
in their capacity as owners
Dividends (note 8) - - - - - (37,592) (37,592)
Shares issued (note 27) 1 284 - - - - 285
Movement in own shares
(note 27) - - - (130) - (265) (395)
Share-based payments (note
28) - - - - - 2,611 2,611
Income tax effect of share
options - - - - - (93) (93)
----------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 31 December 2022 1,334 332,332 9,562 (955) (36) 191,249 533,486
----------------------------- -------- -------- -------- --------- ------------ --------- --------
See notes 27 and 29 for details of the Own share reserve and
Other reserve.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
2021
2022 (restated)
GBP'000 GBP'000
------------------------------------------------------------ --------- -----------
Operating activities
Profit before taxation 15,955 8,293
Share of loss of associate 186 -
Finance costs 4,273 3,488
Finance income (324) (7)
Foreign exchange loss - 29
Exceptional items: other(1) 5,716 7,288
Depreciation 32,876 28,712
Amortisation of intangibles 4,152 4,060
Share-based payment expense 2,612 841
RDEC income (280) (489)
Loss on disposal of property, plant and equipment 2,937 2,457
Movement in inventories (12,481) 3,359
Movement in trade and other receivables (5,369) (7,671)
Movement in trade and other payables 13,009 11,078
Movement in provisions (5) -
------------------------------------------------------------ --------- -----------
Cash generated from operations 63,257 61,438
Income tax received 568 403
------------------------------------------------------------ --------- -----------
Net cash generated from operations 63,825 61,841
------------------------------------------------------------ --------- -----------
Investing activities
------------------------------------------------------------ --------- -----------
Payments for asset acquisitions (14,627) (4,749)
Payment for acquisition of new business, net of cash
acquired (1,346) (8,433)
Payment for acquisition of associate (2,126) -
Payments to acquire property, plant and equipment (143,399) (108,214)
Payments on account to acquire grid-scale battery assets (12,347) -
Proceeds on disposal of property, plant and equipment 3,131 2,508
Payments to acquire intangible assets (2,172) (2,831)
Finance income received 324 7
------------------------------------------------------------ --------- -----------
Net cash used in investing activities (172,562) (121,712)
------------------------------------------------------------ --------- -----------
Financing activities
New borrowings 65,000 53,250
Borrowings repaid - (53,250)
Principal elements of lease payments (1,500) (1,247)
Finance costs paid (2,975) (4,200)
Net proceeds from share issue 285 171,781
Purchase of own shares (395) (279)
Dividends paid (37,592) (29,060)
------------------------------------------------------------ --------- -----------
Net cash generated from financing activities 22,823 136,995
------------------------------------------------------------ --------- -----------
Net increase/(decrease) in cash and cash equivalents (85,914) 77,124
Exchange (gain)/loss on cash and cash equivalents 5 (1)
Cash and cash equivalents at the beginning of the financial
year 118,986 41,863
------------------------------------------------------------ --------- -----------
Cash and cash equivalents at the end of the financial
year (note 15) (2) 33,077 118,986
------------------------------------------------------------ --------- -----------
1 Other exceptional items comprise GBP5,716,000 for losses on
our meter portfolio. In 2021, non-cash exceptional items included
GBP5,546,000 for losses on our meter portfolio and the GBP1,742,000
exceptional finance cost.
2 Cash and cash equivalents includes restricted cash following
an IFRIC agenda decision in March 2022. Amounts shown for 2021 have
been restated on a comparable basis.
Cash and cash equivalents comprise:
2022 2021
GBP'000 GBP'000
-------------------------------------------- -------- --------
Cash and cash equivalents 32,770 117,687
Cash and cash equivalents - restricted cash 307 1,299
-------------------------------------------- -------- --------
Total cash and cash equivalents 33,077 118,986
-------------------------------------------- -------- --------
ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation
of these consolidated financial statements are set out below. 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 2022 were approved and
authorised for issue in accordance with a resolution of the
Directors on 14 March 2023. 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.
Following an IFRIC agenda decision in March 2022 cash and cash
equivalents now include restricted cash. Amounts shown for 2021
have been restated on a comparable basis.
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. Our net-zero plans are to electrify
our vehicle fleet and carry out sustainability upgrades to our
building estate. The fleet will be replaced at the end of the
useful life. 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 2024. 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.
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
2024.
Management has modelled several different meter installation and
grid-scale battery storage scenarios, including a downside scenario
which assumed a reduced rollout of new meter installations over the
five-year period 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 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 31 December 2022, the Group had a
drawn-down amount of GBP65m (31 December 2021: GBPnil).
The Group was compliant with all its debt covenants at 31
December 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 31 December 2022 these
stood at 18.84x and 0.45x respectively, 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 2024, being the period for the going concern
assessment.
The Group balance sheet shows consolidated net assets of
GBP533.5m (31 December 2021: GBP553.8m), of which GBP429.7m (31
December 2021: GBP366.7m) 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.
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 30.25p per
share annualised dividend in respect of FY 2022. The first of four
cash instalments, a total of GBP10.1m, was paid in October
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 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:
-- capitalisation of internal installation costs:
-- a significant level of in-house installation of meter assets
is carried out by the Group, certain costs of which are capitalised
(2022: GBP51.8m, 2021: GBP38.2m) 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;
-- 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 users of the financial statements to
better understand the premature retirement of these
revenue-generating assets that is outside the Group's control. On
disposal, the receipt of termination income which is 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; and
-- 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.; and
-- 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
these 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 2022, this assessment has identified that the carrying value
of the traditional meter assets portfolio is recoverable and,
therefore, no impairment charge has been recognised (2021:
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 2022, 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
(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 are 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) Grid-scale batteries
Grid-scale battery assets generate revenue by providing several
services.
Capacity market
SMS enters into longer term contracts with the National Grid.
During the contract period, which may last from one to 15 years,
SMS's only obligation is to make itself available to provide the
capacity agreed in the contract when notification is received from
National Grid. Pricing is fixed at an auction.
There is a single performance obligation to be available to
provide capacity to the National Grid. Revenue is recognised over
time.
Wholesale market
SMS trades power with a counterparty on an exchange on the EPEX
GB Day Ahead and Intraday markets, with the intention of buying
power at a low off-peak price and selling at a high peak price. All
trades take place at spot price and there are no forward or future
contracts. All trades are settled daily.
There is a single performance obligation for SMS to buy or sell
power on the exchange. Revenue is recognised for each transaction
at a point in time.
Balancing mechanism
SMS enters into short-term contracts with Elexon BSC to help
balance the demands of the National Grid by increasing or
decreasing generation (or consumption). Contracts range for a
length of one to 60 minutes and prices are fixed when a bid is
submitted. Elexon accepts only the cheapest bids needed to balance
the grid.
There is a single performance obligation for SMS to increase or
decrease its battery asset output. Revenue is recognised over time.
However, due to the short-term nature of the contracts, there would
be no material difference between recognition over time or at a
point in time.
Ancillary services market
SMS enters into contracts with the National Grid to help
maintain frequency on the grid. During the contract period SMS is
required to use the grid-scale battery asset following the Grid's
instructions. The price is fixed at auction.
Revenue is recognised over time. However, due to the short-term
nature of the contracts, there would be no material difference
between recognition over time or at a point in time.
Embedded benefits
SMS enters into contracts with the National Grid and the
Distribution Network Operator under which SMS is paid based on the
amount of electricity exported during Triad or peak periods.
There is a single performance obligation to export capacity
during Triad or peak periods. Revenue is recognised over time.
However, due to the short-term nature of the contracts, there would
be no material difference between recognition over time or at a
point in time.
Imbalance
Elexon BSC is obliged to purchase or sell electricity generated
or sold in any half-hour period which is not otherwise contracted
for. SMS buys or sells power to meet its requirements for the other
revenue streams. The purchase and selling prices are at a spot
price set by a formula.
There is a single performance obligation for SMS to export or
import power. Revenue is recognised for each transaction at a point
in time.
(vi) 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.
(vii) 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.
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 the IFRS
15 transaction price 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 23.
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 the 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 above, and for property,
plant and equipment in note 11.
Group as lessee
The Group leases land, offices, warehouses and motor vehicles.
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 2022 was 5% (31 December 2021: 4.7%).
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.
Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate can be
made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and
uncertainties surrounding the obligation.
If the effect of the time value of money is material, provisions
are determined by discounting the expected future cash flows at a
discount rate that reflects the current market assessments of the
time value of money. Where discounting is used, the increase in the
provision due to the passage of time is recognised within finance
costs.
Provisions are split between amounts expected to be settled
within 12 months of the balance sheet date (current) and amounts
expected to be settled later (non-current).
Decommissioning and restoration provisions
Provisions for decommissioning and restoration costs arise in
connection with the Group's grid-scale battery storage business,
and with certain leased warehouses.
The Group is required to restore the land leased as part of its
grid-scale battery storage sites, 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).
The amount recognised is the present value of the estimated
future expenditure determined in accordance with current
conditions, requirements, and price levels, discounted over the
useful economic life of the asset where appropriate.
The effects of changes resulting from revisions to the timing or
amount of the original estimate of the provision are reflected on a
prospective basis, generally by adjustment to the carrying amount
of the related right-of-use asset recorded within property, plant
and equipment.
An amount equivalent to the decommissioning provision is
recognised as part of the corresponding right-of-use asset, which
is subsequently depreciated at the same rate as the rest of the
asset. Other than the unwinding of discount on or utilisation of
the provision, any change in present value of the estimated
expenditure is reflected as an adjustment to the provision and the
corresponding asset.
Provisions also include the estimated cost to de-commission
grid-scale battery assets at the end of their life. These costs
have been capitalised as part of the related asset within property,
plant and equipment, and are depreciated over the life of the
asset. Changes in the provision arising from revised estimates that
relate to the asset are recorded as adjustments to the carrying
value of the asset.
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.
Investments in associates
An associate is an entity in which the Group has significant
influence, but not control or joint control, over the financial and
operating policies. Interests in associates are accounted for using
the equity method. They are initially recognised at cost, which
includes transaction costs. Subsequent to initial recognition, the
consolidated financial statements include the Group's share of the
profit or loss and other comprehensive income of the associated
undertakings, until the date on which significant influence
ceases.
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:
10% on cost, straight
* Development of ADM(TM) units line
20% and 50% on cost,
* Development of internally generated information straight line
technology systems ('IT development')
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, in general, are amortised over an 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:
20% and 50% on cost, straight line
* IT development and software
* Intangibles recognised upon acquisition: 20% on cost, straight line
33% on cost, straight line
* Customer contracts
* Trademarks
Useful lives are examined on an annual basis and adjustments,
where applicable, are made on a prospective basis.
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. 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.
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.
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.
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.
Property, plant and equipment is initially recorded at cost.
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.
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.
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%
Shorter of the lease term or 15% and 20%
* Short-leasehold property
Smart meters and Industrial & Commercial meters
* Meter assets 5%
ADM(TM) units 10%
Traditional meters to 1 July 2025
* Plant and machinery 33%
20% and 33%
* Fixtures, fittings and equipment
* Motor vehicles 25%
Shorter of the lease term or 2.5% to 10%
* Grid-scale assets Battery assets 10%
Shorter of the asset's useful life and the lease
* Right-of-use assets 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.
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 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.
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 on the statement of financial
position.
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
2022:
Standard or interpretation Effective date
-------------------------- ------------------------------------- --------------
IFRS 3 (amendment) Business Combinations Reference 1 January 2022
to the Conceptual Framework
IAS 16 (amendment) Property, Plant and Equipment 1 January 2022
- Proceeds Before Intended Use
IAS 37 (amendment) Provisions, Contingent Liabilities, 1 January 2022
Contingent Assets, Onerous Contracts
- Cost of Fulfilling a Contract
-------------------------- ------------------------------------- --------------
The amendments listed above did not have any material impact on
the amounts recognised in prior periods or the current period and
are not expected to affect future periods significantly.
New standards and interpretations not yet adopted:
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2022 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. These amendments are
effective for periods beginning on or after 1 January 2023 and
their 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 2022
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 building and operation
of grid-scale batteries, the provision of energy consultancy
services and 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 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ----------- ------------- ----------- ----------- -----------
Segment revenue 92,815 83,752 12,213 - 188,780
Inter-segment revenue - (53,260) - - (53,260)
----------------------------------- ----------- ------------- ----------- ----------- -----------
Revenue from external customers 92,815 30,492 12,213 - 135,520
Cost of sales (35,698) (23,530) (6,270) - (65,498)
----------------------------------- ----------- ------------- ----------- ----------- -----------
Segment gross profit 57,117 6,962 5,943 - 70,022
Other operating costs/income - - 611 (36,204) (35,593)
Depreciation - (69) (240) (3,232) (3,541)
Amortisation of intangibles (1,828) - (20) (2,304) (4,152)
----------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations
- pre-exceptional operating items 55,289 6,893 6,294 (41,740) 26,736
Exceptional items (operating) (5,789) (30) - (827) (6,646)
----------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations 49,500 6,863 6,294 (42,567) 20,090
Share of loss of associate (186)
Net finance costs: other (3,949)
Profit/(loss) before tax 15,955
Tax expense (1,084)
----------------------------------- ----------- ------------- ----------- ----------- -----------
Profit for year 14,871
----------------------------------- ----------- ------------- ----------- ----------- -----------
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 - 59,355
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 (3,481)
Net finance costs: exceptional (1,742)
-----------
Profit/(loss) before tax 8,293
Tax expense (4,501)
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Profit for year 3,792
--------------------------------------- ----------- ------------- ----------- ----------- -----------
Inter-segment revenue relates to installation services provided
by the asset installation segment to the asset management
segment.
Depreciation associated with meter assets in the asset
management segment and grid-scale battery assets in the energy
management segment has been reported within Cost of sales as these
assets directly drive revenue (see note 3).
All material operations are based in the UK and revenue
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:
2022 2021
GBP'000 GBP'000
-------------------------------- -------- --------
Customer 1 - Asset management 17,574 12,647
Customer 1 - Asset installation 5,052 2,644
Customer 2 - Asset management 8,056 8,900
Customer 2 - Asset installation 8,784 8,025
-------------------------------- -------- --------
39,466 32,216
-------------------------------- -------- --------
Segment assets and liabilities
Asset Asset Energy Total
management installation management Unallocated operations
31 December 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------- ----------- ----------- -----------
Assets reported by segment
Intangible assets 13,550 3,497 3,161 5,624 25,832
Property, plant and equipment 429,709 71 95,225 8,235 533,240
Investment in associate - - 1,940 - 1,940
Trade and other receivables -
non-current - - 12,347 - 12,347
Inventories 37,136 302 - - 37,438
Contract assets - 10 277 - 287
480,395 3,880 112,950 13,859 611,084
Assets not by segment 86,278
------------------------------ ----------- ------------- ----------- ----------- -----------
Total assets 697,362
------------------------------ ----------- ------------- ----------- ----------- -----------
Liabilities by segment
Contract liabilities 1,518 1,805 80 - 3,403
Lease liabilities - - 8,405 3,956 12,361
Provisions - - 1,963 70 2,033
Other liabilities 606 - 2,062 - 2,668
2,124 1,805 12,510 4,026 20,465
Liabilities not by segment 143,411
------------------------------ ----------- ------------- ----------- ----------- -----------
Total liabilities 163,876
------------------------------ ----------- ------------- ----------- ----------- -----------
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
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, and in 2022 also include bank loans.
Additions to non-current assets within each segment are listed
below:
Asset Asset Energy Unallocated Total
Management Installation Management Operations
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----------- ------------- ----------- ----------- -----------
Additions to non-current assets
2022 106,626 14 43,003 2,263 151,906
2021 84,779 90 27,720 3,686 116,275
------------------------------- ----------- ------------- ----------- ----------- -----------
2 Revenue from contracts with customers
(a) Disaggregation of revenue from contracts with customers
Segment revenue by type of service delivered and by timing of
revenue recognition is as follows:
Asset Asset Energy Total
management installation management operations
Year ended 31 December 2022 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ----------- ------------- ----------- -----------
Major service lines
Metering 80,634 - - 80,634
Data management 12,181 - - 12,181
Utility connections - 7,129 - 7,129
Transactional meter works - 23,059 - 23,059
Grid-scale batteries - - 7,211 7,211
Energy management - 304 5,002 5,306
---------------------------------------- ----------- ------------- ----------- -----------
92,815 30,492 12,213 135,520
---------------------------------------- ----------- ------------- ----------- -----------
Timing of revenue recognition
Services transferred at a point in time - 23,059 1,533 24,592
Services transferred over time 92,815 7,433 10,680 110,928
---------------------------------------- ----------- ------------- ----------- -----------
92,815 30,492 12,213 135,520
---------------------------------------- ----------- ------------- ----------- -----------
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 92,381
---------------------------------------- ----------- ------------- ----------- -----------
82,828 22,032 3,620 108,480
---------------------------------------- ----------- ------------- ----------- -----------
(b) Assets and liabilities related to contracts with
customers
The Group has recognised the following assets and liabilities
related to contracts with customers:
2022 2021
GBP'000 GBP'000
----------------------------- -------- --------
Current contract assets 287 46
----------------------------- -------- --------
Total contract assets 287 46
----------------------------- -------- --------
Current contract liabilities 3,403 3,732
----------------------------- -------- --------
Total contract liabilities 3,403 3,732
----------------------------- -------- --------
Trade receivables and unbilled receivables are disclosed in note
14.
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:
2022 2021
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Revenue recognised that was included in the contract
liability balance
at the beginning of the period 3,107 2,636
----------------------------------------------------- -------- --------
No revenue was recognised in 2022 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.
3 Profit from operations
2021
2022 (restated)
GBP'000 GBP'000
------------------------------------------------------------- --------- -----------
Profit from operations is stated after (charging)/crediting:
Cost of sales:
Direct staff and subcontractor costs (31,207) (22,338)
Depreciation of meter assets (28,340) (24,719)
Depreciation of grid-scale assets (994) -
Inventory costs (3,316) (995)
Short-term lease expense - restated (1) (1,641) (264)
------------------------------------------------------------- --------- -----------
Total cost of sales (before exceptional items) (65,498) (48,316)
Administrative expenses:
Staff costs (20,924) (17,842)
Depreciation:
- owned assets (2,477) (3,087)
- leased assets (1,064) (906)
Amortisation of intangibles (4,152) (4,060)
Auditor's remuneration (note 3a) (405) (392)
Loss on disposal (2,937) (2,457)
Low-value lease expense (37) (29)
Research and development costs (55) (39)
Other operating charges (13,171) (13,054)
------------------------------------------------------------- --------- -----------
Total administrative expenses (before exceptional items) (45,222) (41,866)
Exceptional items (note 3b) (6,646) (6,478)
Other operating income (note 3c) 1,936 1,696
------------------------------------------------------------- --------- -----------
Total operating costs (115,430) (94,964)
------------------------------------------------------------- --------- -----------
(1) Short-term lease expense relating to vans has been reclassified
from Administrative expenses to Cost of sales in line with current
year disclosure.
(a) Auditor's remuneration
Auditor's remuneration can be analysed as:
2022 2021
GBP'000 GBP'000
---------------------------------------------------------------- -------- --------
Audit of the parent company and consolidated financial
statements 141 133
Audit of the financial statements of the Company's subsidiaries 234 229
Other services - audit-related assurance services 30 30
---------------------------------------------------------------- -------- --------
405 392
---------------------------------------------------------------- -------- --------
(b) Exceptional items
2022 2021
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Exceptional operating items
Losses on the traditional and SMETS1 meter portfolio (5,716) (5,906)
Acquisition-related costs (205) (307)
Costs attributable to COVID-19 - (265)
Other non-recurring professional fees (725) -
(6,646) (6,478)
----------------------------------------------------- -------- --------
Exceptional finance items
Facility fees - (1,742)
----------------------------------------------------- -------- --------
- (1,742)
----------------------------------------------------- -------- --------
Total exceptional items (6,646) (8,220)
----------------------------------------------------- -------- --------
In 2021 exceptional finance costs of GBP1,742,000 comprised 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.
The tax effect of exceptional items charged in 2022 is a credit
of GBP1,473,000 (2021: credit of GBP1,978,000).
(c) Other operating income
2022 2021
GBP'000 GBP'000
------------------------ -------- --------
Termination fee income - 103
Government grant income 891 1,255
Other income 1,045 338
------------------------ -------- --------
1,936 1,696
------------------------ -------- --------
Of the government grant income of GBP891,000 (2021:
GBP1,255,000) recognised in the year ended 31 December 2022,
GBP280,000 relates to RDECs (2021: GBP489,000) which are detailed
in the Accounting policies. A further GBP611,000 (2021: GBP766,000)
relates to grant income received on government-funded energy
efficiency projects within the energy management business.
4 Particulars of employees
The average number of staff employed by the Group during the
financial year, including Executive Directors, by activity was:
2022 2021
Number Number
---------------------------------------------------------- ------- -------
Administrative staff 539 488
Operational staff 729 548
Sales staff 6 5
IT staff 85 81
Directors (excluding 4 (2021: 4) Non-executive Directors) 2 3
---------------------------------------------------------- ------- -------
1,361 1,125
---------------------------------------------------------- ------- -------
The aggregate payroll costs of the employees were:
2022 2021
GBP'000 GBP'000
------------------------------ -------- --------
Wages and salaries 58,823 42,973
Social security costs 5,050 4,694
Staff pension costs 1,426 1,365
Share-based payment (note 28) 2,612 841
Director pension costs 24 21
------------------------------ -------- --------
67,935 49,894
------------------------------ -------- --------
5 Finance costs and finance income
2022 2021
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Finance costs
Bank loans and overdrafts 3,833 3,132
Lease liabilities 552 75
Unwind of discount on liabilities 19 -
Foreign exchange (gain)/loss on intra-group borrowings (131) 281
------------------------------------------------------- -------- --------
Total pre-exceptional finance costs 4,273 3,488
Exceptional finance costs - 1,742
------------------------------------------------------- -------- --------
Total finance costs 4,273 5,230
------------------------------------------------------- -------- --------
Finance income
Bank interest receivable 324 7
------------------------------------------------------- -------- --------
Total finance income 324 7
------------------------------------------------------- -------- --------
6 Taxation
2022 2021
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Analysis of charge in the year
Current tax:
Current income tax expense 53 93
Adjustment to tax charge in respect of previous periods 2 -
-------------------------------------------------------- -------- --------
Total current income tax 55 93
Deferred tax:
Origination and reversal of temporary differences 1,322 2,087
Adjustment to tax charge in respect of prior periods (293) (127)
Adjustment attributable to change in tax rates - 2,448
-------------------------------------------------------- -------- --------
Tax on profit 1,084 4,501
-------------------------------------------------------- -------- --------
The charge for the period can be reconciled to the profit per
the consolidated statement of comprehensive income as follows:
2022 2021
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Profit before tax 15,955 8,293
Tax at the UK corporation tax rate of 19.00% (2021:
19.00%) 3,031 1,576
Expenses not deductible for tax purposes 277 171
Income not taxable (28) -
Impact of super-deduction permanent benefit (2,294) -
Adjustments to tax charge in respect of previous periods (291) (127)
Impact of deferred tax not recognised 47 (99)
Impact of overseas tax rates 25 24
Change in tax rate(1) 317 2,956
--------------------------------------------------------- -------- --------
Tax expense in the income statement 1,084 4,501
--------------------------------------------------------- -------- --------
1 See note 22 for further details.
Current tax credit through equity in the year was GBPnil (2021:
GBPnil).
7 Earnings per share
The calculation of earnings per share (EPS) is based on the
following data and number of shares:
2022 2021
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Profit for the year used for calculation of basic EPS 14,871 3,792
------------------------------------------------------ -------- --------
Number of shares 2022 2021
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purposes
of basic EPS 133,241,113 118,330,817
Effect of potentially dilutive ordinary shares:
- share options 615,969 641,710
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purposes
of diluted EPS 133,857,082 118,972,527
------------------------------------------------------------ ----------- -----------
EPS:
- basic (pence) 11.16 3.20
- diluted (pence) 11.11 3.19
------------------------------------------------------------ ----------- -----------
8 Dividends
Year Year
Year ended Year ended
ended 31 December ended 31 December
31 December 2022 31 December 2021
2022 Per share 2021 Per share
GBP'000 (pence) GBP'000 (pence)
------------------------------------- ------------ ------------ ------------ ------------
FY 2020 second interim dividend paid - - 7,059 6.2500
FY 2020 third interim dividend paid - - 7,065 6.2500
FY 2020 final dividend paid - - 7,107 6.2500
FY 2021 first interim dividend paid - - 7,829 6.8750
FY 2021 second interim dividend paid 9,166 6.8750 - -
FY 2021 third interim dividend paid 9,169 6.8750 - -
FY 2021 final dividend paid 9,170 6.8750 - -
FY 2022 first interim dividend paid 10,087 7.5625
------------------------------------- ------------ ------------ ------------ ------------
Total dividends 37,592 28.1875 29,060 25.6250
------------------------------------- ------------ ------------ ------------ ------------
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 to shareholders in four cash instalments.
A 30.25p per share dividend is proposed in respect of FY 2022
payable in four instalments of 7.5625p per share which are intended
to be paid as follows:
Instalment Ex-dividend date Record date Payment date
---------- ---------------- --------------- ---------------
1 06 October 2022 07 October 2022 28 October 2022
---------- ---------------- --------------- ---------------
2 05 January 2023 06 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 second, third and fourth instalments will amount to c.GBP30m
and will be accounted for in 2023.
Under the 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 2022,
the distributable profits in the parent company were adequate to
cover the proposed second interim dividend of c.GBP10m.
9 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 2021 8,607 2,261 28,518 39,386
Additions - - 2,831 2,831
Acquisitions (note 24) 859 1,010 - 1,869
Exchange adjustments (66) (3) (31) (100)
----------------------- -------- ----------------- -------------- --------
As at 31 December 2021 9,400 3,268 31,318 43,986
Additions - - 2,222 2,222
Acquisitions (note 24) 737 - 1,479 2,216
Exchange adjustments 51 - 32 83
----------------------- -------- ----------------- -------------- --------
As at 31 December 2022 10,188 3,268 35,051 48,507
----------------------- -------- ----------------- -------------- --------
Amortisation
As at 1 January 2021 - 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
Charge for year - 223 3,929 4,152
----------------------- -------- ----------------- -------------- --------
As at 31 December 2022 - 2,605 20,070 22,675
----------------------- -------- ----------------- -------------- --------
Net book value
As at 31 December 2022 10,188 663 14,981 25,832
----------------------- -------- ----------------- -------------- --------
As at 31 December 2021 9,400 886 15,177 25,463
----------------------- -------- ----------------- -------------- --------
As at 1 January 2021 8,607 58 16,258 24,923
----------------------- -------- ----------------- -------------- --------
10 Impairment of goodwill
The goodwill arising in a business combination is allocated, at
acquisition, to the CGUs that are expected to benefit from that
business combination. Goodwill is allocated to CGUs as follows:
Asset Asset
management installation Solo Energy Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ----------- ------------- ----------- --------
Cost
As at 1 January 2022 4,971 3,497 932 9,400
Acquisitions (note 24) 737 - - 737
Exchange adjustments - - 51 51
----------------------- ----------- ------------- ----------- --------
As at 31 December 2022 5,708 3,497 983 10,188
----------------------- ----------- ------------- ----------- --------
Additional goodwill of GBP737,000 has been recognised in the
year on the acquisition of n3rgy Data Limited and is recognised in
the Asset management CGU.
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.
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 (2021: 2.25%) and 1.0% for asset installation and Solo
Energy (2021: 1.0% 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. 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 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 8.0%, 10.0% and 19.4% for asset
management, asset installation and Solo Energy respectively (2021:
6.8% for asset management, 8.6% for asset installation and 18.2%
for Solo Energy) and the post-tax discount rates applied are 6.0%,
7.5% and 15.0% for asset management, asset installation and Solo
Energy respectively (2021: 5.5% for asset management, 7.00% for
asset installation and 15.0% 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 any of the CGUs.
11 Property, plant and equipment
Fixtures,
Land Plant fittings Assets
and Meter and and Motor Right-of-use Grid-scale under
buildings 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(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
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 - - - 1 - - 54,048 (54,049) -
Reclassified as
held for sale (688) - - - - - - - (688)
Additions 1,105 105,004 18 994 719 5,509 84 36,251 149,684
Acquisitions - - - 1 - - - 15,190 15,191
Disposals (4) (20,773) (2) (8) (494) (785) - - (22,066)
Exchange adjustments - - - 3 - 3 - - 6
-------------------- --------- -------- --------- ---------- -------- ------------ ---------- ------------ --------
As at 31 December
2022 3,218 545,571 1,186 9,198 5,356 17,000 54,132 31,382 667,043
-------------------- --------- -------- --------- ---------- -------- ------------ ---------- ------------ --------
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
Reclassified as
held for sale (174) - - - - - - - (174)
Charge for year 172 28,340 91 1,176 1,038 1,264 994 - 33,075
Disposals (3) (7,116) - (7) (391) (599) - - (8,116)
Exchange adjustments - - - 2 - 1 - - 3
-------------------- --------- -------- --------- ---------- -------- ------------ ---------- ------------ --------
As at 31 December
2022 846 115,859 1,085 7,403 4,057 3,559 994 - 133,803
-------------------- --------- -------- --------- ---------- -------- ------------ ---------- ------------ --------
Net book value
As at 31 December
2022 2,372 429,712 101 1,795 1,299 13,441 53,138 31,382 533,240
-------------------- --------- -------- --------- ---------- -------- ------------ ---------- ------------ --------
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
-------------------- --------- -------- --------- ---------- -------- ------------ ---------- ------------ --------
1. The reclassification of GBP4,071,000 within Assets under
construction relates to costs previously recorded within
Inventories at 31 December 2020.
Meter assets
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 24 for
details.
Included within the closing Meter assets net book value of
GBP429,712,000 (2021: GBP366,705,000) is GBP11,173,000 (2021:
GBP16,246,000) 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 2022 consolidated financial
statements the traditional meter portfolio generated GBP10,198,000
(2021: GBP12,781,000) of revenue with a corresponding GBP4,383,000
(2021: GBP5,071,000) depreciation charge. As at 31 December 2022,
GBP11,168,000 (2021: GBP11,787,000) of annualised recurring revenue
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
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 decline
based on the forecast for when meters are replaced;
-- 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 non-recoverability once issued; and
-- a pre-tax discount rate of 6.45%, 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.
The impairment test indicated 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 2022.
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.
No impairment on other meter assets was recognised in 2022 or
2021.
Right-of-use assets
A breakdown of right-of-use assets is presented below:
2022 2021
Carrying value GBP'000 GBP'000
--------------- -------- --------
Properties(1) 3,840 4,502
Land 9,601 4,878
--------------- -------- --------
13,441 9,380
--------------- -------- --------
1 Properties include office and warehouse space.
The statement of profit or loss shows the following amounts
relating to leases:
2022 2021
Depreciation charge on right-of-use assets GBP'000 GBP'000
------------------------------------------- -------- --------
Properties 1,024 919
Motor vehicles - 6
Land 240 107
------------------------------------------- -------- --------
1,264 1,032
------------------------------------------- -------- --------
12 Investment in associate
2022 2021
GBP'000 GBP'000
----------------------------- -------- --------
At 1 January - -
Additions 2,126 -
Share of loss for the period (186)
Dividends received - -
----------------------------- -------- --------
At 31 December 1,940 -
----------------------------- -------- --------
On 15 June 2022, the Group acquired a 25% shareholding in
Clenergy EV Ltd, a software business with a chargepoint operator
(CPO) platform focused 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 remining shares after five years.
Summarised financial information for Clenergy EV Ltd for the
period since investment and after adjustment for fair value
adjustments at acquisition and differences in accounting policies
is set out below:
2022 2021
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Revenue 723 -
--------------------------------------------------------- -------- --------
Operating profit excluding depreciation and amortisation
(EBITDA) (88) -
Depreciation and amortisation (868) -
Taxation 214 -
--------------------------------------------------------- -------- --------
Loss after taxation (742) -
--------------------------------------------------------- -------- --------
Group's share of associate's loss for the period (186) -
--------------------------------------------------------- -------- --------
2022 2021
GBP'000 GBP'000
---------------------------------------- -------- --------
Non-current assets 8,627 -
Current assets 1,609 -
Current liabilities (482) -
Non-current liabilities (1,996) -
---------------------------------------- -------- --------
Net assets 7,758 -
---------------------------------------- -------- --------
Group's share of associate's net assets 1,940 -
---------------------------------------- -------- --------
13 Inventories
2022 2021
GBP'000 GBP'000
--------------- -------- --------
Finished goods 36,888 22,476
Consumables 550 504
--------------- -------- --------
37,438 22,980
--------------- -------- --------
14 Trade and other receivables
2022 2021
GBP'000 GBP'000
------------------------------- -------- --------
Current
Trade receivables 25,297 22,451
Prepayments and deferred costs 3,112 2,520
Accrued income 19,385 19,265
Other receivables 4,517 1,463
VAT recoverable 624 1,932
------------------------------- -------- --------
52,935 47,631
------------------------------- -------- --------
Amounts falling due after more than one year:
2022 2021
GBP'000 GBP'000
--------------------------------------------------------- -------- --------
Payments on account to acquire grid-scale battery assets 12,347 -
--------------------------------------------------------- -------- --------
Accrued income is made up of the following balances:
2022 2021
GBP'000 GBP'000
--------------------- -------- --------
Unbilled receivables 18,714 18,915
Contract assets 287 46
Other accrued income 384 304
--------------------- -------- --------
19,385 19,265
--------------------- -------- --------
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 2022 was GBP4,182,000 (2021:
GBP4,370,000). See note 23 for further details. The ageing profile
of trade receivables past due date is shown below:
2022 2021
GBP'000 GBP'000
----------------------------- -------- --------
Current 15,894 13,019
1-30 days 7,069 3,728
31-60 days 1,128 1,615
61-90 days 639 1,499
91-120 days 597 1,705
Over 120 days 4,782 5,812
----------------------------- -------- --------
30,109 27,378
Loss allowance (3,026) (3,969)
Amounts offset (see note 23) (1,786) (958)
----------------------------- -------- --------
25,297 22,451
----------------------------- -------- --------
Trade receivables are non-interest-bearing and are generally on
30 to 90-day terms. Trade receivables due from related parties at
31 December 2022 amounted to GBPnil (2021: GBPnil).
Substantially 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. The loss
allowance for accrued income at 31 December 2022 was GBP1,156,000
(2021: GBP401,000) and the charge recognised in profit or loss
during the year was GBP755,000.
15 Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group. The
carrying amount of the asset approximates the fair value.
Substantially all balances are held in Sterling.
For the purposes of the cash flow statement, cash and cash
equivalents comprises:
2022 2021
GBP'000 GBP'000
--------------------------------------- -------- --------
Cash at bank 32,770 67,687
Short-term deposits - 50,000
--------------------------------------- -------- --------
Cash and cash equivalents 32,770 117,687
Cash and cash equivalents - restricted 307 1,299
--------------------------------------- -------- --------
Total cash and cash equivalents 33,077 118,986
--------------------------------------- -------- --------
16 Assets held for sale
The Group classifies non-current assets as held for sale if the
assets are available immediately for sale in their present
condition, management is committed to a plan to sell the assets
under usual terms, it is highly probable that their carrying
amounts will be recovered principally through a sale transaction
rather than through continuing use and the sale is expected to be
completed within one year from the date of the initial
classification.
Assets classified as held for sale are presented separately in
the consolidated statement of financial position and are measured
at the lower of their carrying amount and fair value less costs to
sell. Property, plant and equipment are not depreciated once
classified as held for sale.
2022 2021
GBP'000 GBP'000
--------------------------- -------- --------
Property awaiting disposal 513 -
513 -
--------------------------- -------- --------
A warehouse, which is no longer required following the
consolidation of the Group's warehouse operations, is classified as
held for sale as at 31 December 2022.
17 Trade and other payables
2022 2021
GBP'000 GBP'000
----------------- -------- --------
Current
Trade payables 28,447 16,638
Other payables 5,350 4,097
Other taxes 1,725 1,519
Deferred income 2,806 2,898
Advance payments 995 1,185
Accruals 30,055 30,152
----------------- -------- --------
69,378 56,489
----------------- -------- --------
Deferred income and advance payments are made up of the
following balances:
2022 2021
GBP '000 GBP'000
---------------------- --------- --------
Contract liabilities 3,403 3,732
Other deferred income 398 351
---------------------- --------- --------
3,801 4,083
---------------------- --------- --------
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 to 45-day
terms.
Substantially all trade liabilities are denominated in
Sterling.
18 Bank loans
2022 2021
GBP'000 GBP'000
------------ -------- --------
Current 591 -
Non-current 63,349 -
------------ -------- --------
63,940 -
------------ -------- --------
The Group has a GBP420m revolving credit facility which matures
in December 2025. Interest is payable at a rate of 1.85% over SONIA
and 0.65% is payable on undrawn funds.
The loans drawn under the facility are all denominated in Pounds
Sterling. The balance as at 31 December 2022 is stated net of
GBP1,651,000 of unamortised transaction costs.
No principal or interest was outstanding as at 31 December 2021
and the amount recognised as Bank loans was therefore nil.
Unamortised transaction costs of GBP2,201,000 that would ordinarily
be deducted from the carrying value of bank loans were therefore
classified as Other assets (GBP550,000 was 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).
The movement in bank loans is:
2022 2021
GBP'000 GBP'000
---------------------------------------------------- -------- --------
As at 1 January (2,201) (1,949)
Cash flows - proceeds of new borrowings 65,000 -
Cash flows - payments of interest (212) (554)
Cash flows - payments of arrangement fees (227) (2,077)
Non-cash changes - accrual of interest 803 246
Non-cash changes - amortisation of arrangement fees 777 2,133
---------------------------------------------------- -------- --------
As at 31 December 63,940 (2,201)
---------------------------------------------------- -------- --------
Presentational reclassification to Other assets - 2,201
---------------------------------------------------- -------- --------
Bank loans as at 31 December 63,940 -
---------------------------------------------------- -------- --------
The Group has the following committed facility:
2022 2021
GBP'000 GBP'000
------------------------------------- -------- --------
Undrawn committed borrowing facility 323,450 404,650
Bank loans drawn 65,000 -
Utilised in respect of guarantees 31,550 15,350
------------------------------------- -------- --------
Total facility 420,000 420,000
------------------------------------- -------- --------
The Group has complied with the financial covenants of its
borrowing facility during the current and prior reporting
periods.
19 Lease liabilities
2022 2021
GBP'000 GBP'000
------------ -------- --------
Current
Current 885 999
Non-current 11,476 7,574
12,361 8,573
------------ -------- --------
The movement in lease liabilities is:
2022 2021
GBP'000 GBP'000
------------------------------------------------------ -------- --------
As at 1 January 8,573 5,251
Cash flows - lease payments (1,500) (1,247)
Non-cash changes - accrued lease payments (22) -
Non-cash changes - new leases 3,654 4,230
Non-cash changes - changes in lease terms and foreign
exchange impact 1,107 58
Non-cash changes - interest charge 549 281
------------------------------------------------------ -------- --------
As at 31 December 12,361 8,573
------------------------------------------------------ -------- --------
20 Provisions
Provisions comprise:
2022 2021
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Non-current
Provision for restoration and decommissioning costs 2,033 798
---------------------------------------------------- -------- --------
2,033 798
---------------------------------------------------- -------- --------
The movement in provisions is:
2022 2021
GBP'000 GBP'000
---------------------- -------- --------
As at 1 January 798 -
Provisions recognised 1,240 798
Utilised in the year (5) -
---------------------- -------- --------
As at 31 December 2,033 798
---------------------- -------- --------
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. Provisions also include
the estimated cost to decommission grid-scale batteries at the end
of their life.
21 Other liabilities
Other liabilities comprise:
2022 2021
GBP'000 GBP'000
----------------------------------------- -------- --------
Current
Deferred consideration on acquisitions 1,388 638
----------------------------------------- -------- --------
1,388 638
----------------------------------------- -------- --------
Non-current
Deferred consideration on acquisitions 674 750
Contingent consideration on acquisitions 606 -
----------------------------------------- -------- --------
1,280 750
----------------------------------------- -------- --------
Refer to notes 24 and 25 for further details on the contingent
and deferred consideration.
22 Deferred taxation
The movement in the deferred taxation liability during the year
was:
2022 2021
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Opening deferred tax liability 12,199 8,511
Increase in provision through consolidated statement
of comprehensive income 1,029 4,408
Increase/(decrease) in provision through equity 93 (319)
Deferred tax in respect of acquisitions and disposals 175 (401)
------------------------------------------------------ -------- --------
Closing deferred tax liability 13,496 12,199
------------------------------------------------------ -------- --------
The Group's provision for deferred taxation consists of the tax
effect of temporary differences in respect of:
2022 2021
GBP'000 GBP'000
------------------------------------------------------------- -------- --------
Excess of taxation allowances over depreciation on property,
plant and equipment 13,527 11,036
Tax losses available (115) (51)
Deferred tax asset on share options (1,519) (1,438)
Deferred tax on intangibles acquired 1,240 1,168
Other temporary differences(1) 363 1,484
------------------------------------------------------------- -------- --------
13,496 12,199
------------------------------------------------------------- -------- --------
The deferred tax included in the consolidated statement of
comprehensive income is as follows:
2022 2021
GBP'000 GBP'000
-------------------------------------- -------- --------
Accelerated capital allowances 2,491 3,902
Tax losses (9) 74
Deferred tax asset on share options (175) 558
Movement in fair value of intangibles (157) 256
Other temporary differences(1) (1,121) (382)
-------------------------------------- -------- --------
1,029 4,408
-------------------------------------- -------- --------
1 Other temporary differences predominately relate to deferred tax on provisions and accruals.
At 31 December 2022, the main rate of corporate tax applying to
the profits of the Group was 19%. In the spring Budget 2021, the UK
Government announced that from 1 April 2023 the corporation tax
rate would increase to 25% (rather than remaining at 19%, as
previously enacted). This new law was substantively enacted on 24
May 2021. Deferred taxes at the balance sheet date have been
measured using these enacted tax rates and reflected in these
financial statements.
Further, the UK Government announced legislation in respect of
the 'super-deduction' for qualifying capital expenditure incurred
during a two-year period commencing 1 April 2021. This new law was
also substantively enacted on 24 May 2021. The Group has recognised
an estimated permanent benefit of GBP2,294,000 on qualifying assets
when calculating the tax charge for the current year, as well as a
permanent benefit in respect of the prior year of GBP230,000.
The Group had unrecognised trading losses of GBP1,762,000 (2021:
GBP1,456,000) in subsidiary undertakings at 31 December 2022. The
Group also had unrecognised capital losses of GBP729,000 (2021:
GBP729,000) in subsidiary undertakings at 31 December 2022.
23 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. See note 18 for further details.
There were no overdrafts at 31 December 2022 (2021: 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 2022 comprise cash
and trade receivables. The cash balance of GBP32,770,000 (2021:
GBP117,687,000) is a floating rate financial asset, but interest
income is not typically material.
Interest rate sensitivity
The following table shows how a change in interest rates applied
to the average level of borrowings would have affected the Group's
interest cost and profit before tax:
(Decrease)
Increase/(decrease) in profit
in interest before
rate in tax
basis points GBP'000
---- ------------------- ----------
2022 +100bps (198)
2021 +70bps -
---- ------------------- ----------
(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 Total
Less than two and Over contractual
one year five years five years cash flows
31 December 2022 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ --------- ----------- ----------- ------------
Contractual maturities of financial
liabilities
Trade payables 28,447 - - 28,447
Bank loan 591 - - 591
Other liabilities 1,388 1,280 - 2,668
Lease liabilities 1,133 3,104 5,648 9,885
------------------------------------ --------- ----------- ----------- ------------
31,559 4,384 5,648 41,591
------------------------------------ --------- ----------- ----------- ------------
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
------------------------------------ --------- ----------- ----------- -----------------
(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 GBP44,682,000 (2021: GBP41,716,000), 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 14. 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.
During the second half of 2021, the global energy market
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 notably impacted
the smaller independent energy suppliers and, as a result,
management did not increase 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 GBP0.2m 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 2022 was
determined as GBP4,182,000 (2021: GBP4,370,000) 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 2022 401 3,969 4,370
Increase in loss allowance recognised in profit
or loss
during the year - underlying 755 (192) 563
Decrease in loss allowance recognised in profit
or loss
during the year - exceptional - - -
Amounts reversed/written off during the year - (751) (751)
------------------------------------------------ -------- ------------ --------
At 31 December 2022 1,156 3,026 4,182
------------------------------------------------ -------- ------------ --------
The overall loss allowance has decreased at 31 December 2022.
Whilst the crisis in the energy market has given rise to an
additional impairment loss in the year, as detailed above, only one
energy supplier entered administration during 2022 in comparison to
the high number of insolvencies seen in the prior year.
Total net impairment losses on financial and contract assets
were GBP563,000 in 2022 (2021: GBP2,964,000). Of this amount,
GBP563,000 (2021: GBP2,964,000) 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 27.5p per share dividend in respect
of FY 2021 and proposes a 30.25p per share dividend in respect of
FY 2022. 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
Gross Amounts Balance
balances(1) offset(2) sheet(3)
31 December 2022 GBP'000 GBP'000 GBP'000
--------------------------------- ------------------ -------------- -------------
Financial assets
Trade receivables 27,083 (1,786) 25,297
Accrued income 23,138 (3,753) 19,385
--------------------------------- ------------------ -------------- -------------
Financial liabilities
Trade payables 28,579 (132) 28,447
Accruals 35,463 (5,408) 30,055
--------------------------------- ------------------ -------------- -------------
Gross Amounts Balance
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 Amounts are offset where there is a legally enforceable right to
offset the recognised amounts and there is an intention to settle on
a net basis or realise the asset and liability simultaneously, in accordance
with IAS 32.
3 The net amounts presented in the consolidated statement of financial
position.
24 Business combinations
Year ended 31 December 2022
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 contingent 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 and is reported in the
Group's asset management segment.
The fair values of the assets and liabilities acquired and of
the consideration are as follows:
Fair value
GBP'000
--------------------------------- ----------
Intangible assets: software 1,479
Trade and other receivables 149
Cash 86
Trade and other payables (202)
Deferred tax liabilities (229)
Net identifiable assets acquired 1,283
Add: goodwill 737
--------------------------------- ----------
Net assets acquired 2,020
--------------------------------- ----------
Satisfied by:
Cash 1,432
Contingent consideration 588
Total consideration 2,020
--------------------------------- ----------
The net outflow of cash in respect of the purchase of the
business is:
GBP'000
------------------------------------------------------------ -------
Cash consideration 1,432
Cash and cash equivalents acquired (86)
Net cash outflow in respect of the purchase of the business 1,346
------------------------------------------------------------ -------
No contingent assets or liabilities were acquired.
If n3rgy Data Limited's EBITDA over a five year earn-out period
exceeds a threshold, then contingent consideration becomes payable
based on the amount by which the EBITDA exceeds threshold. The
minimum payment is therefore nil and the maximum payment is
unlimited. The fair value of the contingent consideration at the
acquisition date of GBP588,000 represents the estimated most likely
pay-out based on management's future forecast of future trading
(level 3) discounted at the Group's incremental borrowing rate.
The goodwill is mainly attributable to synergies and the
opportunity to accelerate growth of the Group's data business.
Goodwill will not be deductible for tax purposes.
The acquisition contributed GBP127,000 to the Group's revenue
and reduced the Group's profit before tax by GBP406,000 between the
date of acquisition and 31 December 2022.
If the acquisition had been completed on 1 January 2022, the
Group's revenue would have been GBP135,591,000 and profit before
tax would have been GBP15,786,000 for the year ended 31 December
2022.
Acquisition-related costs of GBP20,000 have been included as
part of exceptional Administrative costs in the consolidated
statement of comprehensive income.
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. The Group also took ownership of the
Meter Operator (MOP) and data service contracts associated with a
portfolio of electricity meters. 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 for 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
31 December 2021 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.
25 Asset acquisitions
Year ended 31 December 2022
During the year ended 31 December 2022, the Group acquired 100%
of the issued share capital of the seven special purpose vehicle
companies listed below. Details of the purchase consideration are
as follows:
Company Acquisition Deferred
number date Cash consideration consideration Total consideration
Name of acquired company GBP'000 GBP'000 GBP'000
--------------------------------- -------- ----------- ------------------ -------------- -------------------
14 February
Balance Energy 2 Limited 12266348 2022 856 - 856
26 April
Fen Power 1 Limited 12875930 2022 600 274 874
Drumcross Energy Storage Limited SC679835 8 July 2022 2,815 - 2,815
17 August
Erskine Energy Storage Limited SC690064 2022 2,654 - 2,654
1 October
Balance Energy 3 Ltd 12341398 2022 2,780 400 3,180
1 October
Balance Energy 1 Ltd 11894406 2022 3,031 200 3,231
7 October
Bramford Power Limited 12480700 2022 1,826 - 1,826
--------------------------------- -------- ----------- ------------------ -------------- -------------------
Total purchase consideration 14,562 874 15,436
--------------------------------- -------- ----------- ------------------ -------------- -------------------
All seven companies report in British Pounds Sterling. The
acquisitions enable SMS to obtain control over the rights required
to develop and commission seven grid-scale battery storage sites,
totalling 320MW, 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.
In respect of one of the companies, deferred consideration of
GBP274,000 is payable in cash upon energisation (when the
grid-scale battery storage asset is connected to the grid).
Deferred consideration of a further GBP600,000 is payable on the
execution of certain property deeds. 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:
Total
GBP'000
----------------------------- --------
Assets under construction 15,190
Trade and other receivables 248
Trade and other payables (2)
--------------------------------- --------
Total purchase consideration 15,436
--------------------------------- --------
The majority of the value gained from acquiring the sites is
attributable to development and construction rights and therefore
most of the total cost of the transaction has been allocated to
Assets under construction.
No contingent assets or liabilities were acquired.
The cash outflow in 2022 relating to asset acquisitions is as
follows:
Total
GBP'000
----------------------------------------- --------
Cash consideration 14,562
Less payments made in advance in earlier
years (135)
Add deferred consideration paid in 2022
on acquisitions in earlier years 200
-------------------------------------------- --------
Cash outflow on asset acquisitions
in 2022 14,627
-------------------------------------------- --------
Year ended 31 December 2021
During the year ended 31 December 2021, the Group acquired 100%
of the issued share capital of the following companies:
Registered office Purchase Acquisition Nature of
Name of acquired Company prior consideration date the
company number to acquisition GBP GBP company
------------------- -------- ------------------- -------------- -------------- ---------------
Unit 9, the Green
Easter Park,
Benyon Road,
Newtonwood Energy Reading, Berkshire Special purpose
Storage Limited 11257609 RG7 2PQ 1,471 9 March 2021 vehicle
------------------- -------- ------------------- -------------- -------------- ---------------
Unit 9, the Green
Easter Park,
Benyon Road,
Brook Farm Energy Reading, Berkshire Special purpose
Storage Limited 10780034 RG7 2PQ 1,572 11 June 2021 vehicle
------------------- -------- ------------------- -------------- -------------- ---------------
Suite 4D Drake
House, Dursley,
Berkeley Battery Gloucestershire Special purpose
Storage 2 Limited 10942601 GL11 4HH 1,306 15 June 2021 vehicle
------------------- -------- ------------------- -------------- -------------- ---------------
Unit 8-9 Benyon
Road, Silchester,
Brentwood Energy Reading, Berkshire Special purpose
Storage Limited 11516707 RG7 2PQ 1,401 1 October 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.
Details of the purchase consideration are as follows:
Deferred
Cash paid 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.
26 Related party transactions
(a) 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:
2022 2021
GBP'000 GBP'000
----------------------------- -------- --------
Short-term employee benefits 3,154 2,747
Post-employment benefits 50 35
Termination benefits 273 146
Share-based payments 1,661 262
----------------------------- -------- --------
5,138 3,190
----------------------------- -------- --------
(b) Directors
Directors' emoluments
Aggregate remuneration for both Executive and Non-executive
Directors in respect of qualifying services was:
2022 2021
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Aggregate emoluments 1,776 1,744
Company contributions to money purchase pension scheme 24 21
1,800 1,765
------------------------------------------------------- -------- --------
In 2022, GBP273,000 was payable to a Director as settlement
following resignation (2021: GBP146,000 was payable to a Director
as settlement following resignation).
Emoluments of highest paid Director
2022 2021
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Emoluments 901 694
Company contributions to money purchase pension scheme 20 -
------------------------------------------------------- -------- --------
921 694
------------------------------------------------------- -------- --------
Number of Directors who accrued benefits under Company pension
schemes
2022 2021
Number Number
----------------------- -------- -------
Money purchase schemes 3 3
----------------------- -------- -------
(c) Other transactions with related parties
During the year, the Group entered into the following
transactions with related parties:
Rent amounting to GBPnil (2021: GBP10,375) paid to the
Directors' pension scheme, Eco Retirement Benefit Scheme, for the
use of certain premises. Alan Foy is a trustee of the scheme.
The Group paid dividends to Alan Foy (whilst a Director) of
GBP321,809 (2021: GBP906,915), The Metis Trust(1) of GBP61,875
(2021: GBP230,625), Metis Investments Limited(2) of GBP25,599
(2021: GBP387,968), Tim Mortlock of GBP5,033 (2021: GBP1,501),
Gavin Urwin (whilst a Director) of GBP458 (2021: GBP153), Miriam
Greenwood of GBP7,177 (2021: GBP6,129), Graeme Bissett of GBP5,796
(2021: GBP4,116) and Jamie Richards of GBP1,389 (2021:
GBP1,002).
1 Alan Foy is a trustee but not a beneficiary.
2 Alan Foy is a Director and shareholder.
27 Share capital
2022 2021
GBP'000 GBP'000
--------------------------------------------------------------- -------- --------
Allotted and called up:
133,397,009 ordinary shares of GBP0.01 each (2021: 133,321,555
ordinary shares of GBP0.01 each) 1,334 1,333
--------------------------------------------------------------- -------- --------
During the year 75,454 (2021: 921,447) ordinary share options
were exercised in relation to the Group's employee share plans
which are described in note 28. The ordinary shares issued have a
nominal value of GBP755 (2021: GBP9,000) and aggregate
consideration of GBP285,000 (2021: GBP1,627,000) was received.
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 2022, 145,821
(2021: 139,055) own shares were held in trust with a carrying value
of GBP955,000 (2021: GBP825,000) and a market value of GBP1,140,000
(2021: GBP1,169,000). The Company purchased 48,900 shares (2021:
34,191) from the market during 2022 with a weighted average fair
value of GBP8.08 per share (2021: GBP8.15).
28 Share-based payments
(a) Employee option plans
The Group operates the Unapproved Share Option Plan (the
'Unapproved Plan') and the Long-Term Incentive Plan (LTIP).
The Unapproved Plan is open to any employee, including Executive
Directors. 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 five years
from 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.
The LTIP is open to senior employees. Participants are granted
nil-cost options which are subject to performance conditions and
remaining employed up to the vesting date. The performance
conditions are based on the total shareholder return and meeting
financial and non-financial targets over a three-year performance
period. The vesting period varies from three to five years. Once
vested, the options remain exercisable for a period of up to ten
years from the date of award.
Summary of options
The table below summarises options granted under the Unapproved
Plan and LTIP:
At Fair
At 31 Exercise value
1 January December price Date Expiry at grant
Plan 2022 Granted Exercised Forfeited Expired 2022 (pence) exercisable date (pence)
-------------- --------- ------- --------- --------- ------- --------- -------- ----------- ------- --------
12 Nov 11 Nov
Unapproved 437,832 - (57,898) - - 379,934 350.0 2019 2024 84.8
18 Aug 17 Aug
Unapproved 43,890 - (17,556) - - 26,334 470.0 2021 2026 87.2
26 Sep 25 Sep
Unapproved 50,000 - - - - 50,000 529.0 2021 2026 142.4
13 Jul
Unapproved 409,001 - - (16,000) - 393,001 700.0 1 Jan 2023 2028 125.2
13 Sep 12 Sep
Unapproved 12,000 - - - - 12,000 602.8 2023 2028 154.3
13 Jul
Unapproved 409,000 - - (16,000) - 393,000 700.0 1 Jan 2023 2028 34.6
13 Sep 12 Sep
Unapproved 12,000 - - - - 12,000 602.8 2023 2028 98.0
4 Sep
Unapproved 370,000 - - - - 370,000 454.6 5 Sep 2024 2029 111.5
13 Jul
Unapproved 409,000 - - (16,000) - 393,000 700.0 1 Jan 2023 2028 37.2
13 Sep 12 Sep
Unapproved 12,000 - - - - 12,000 602.8 2023 2028 105.6
26 Jun 25 Jun
Unapproved(1) 76,000 - - - - 76,000 577.4 2025 2030 59.3
01 Jan 13 Jul
Unapproved 408,999 - - (16,000) - 392,999 700.0 2023 2028 134.3
13 Sep 12 Sep
Unapproved 12,000 - - - - 12,000 602.8 2023 2028 266.1
26 Jun 25 Jun
Unapproved(1) 76,000 - - - - 76,000 577.4 2025 2030 191.4
10 Feb 09 Feb
Unapproved(2) 290,000 - - - - 290,000 705.4 2026 2031 210.8
13 Jul
Unapproved - 408,999 - (16,000) - 392,999 700.0 1 Jan 2023 2028 11.1
13 Sep 12 Sep
Unapproved - 12,000 - - 12,000 602.8 2023 2028 195.5
26 Jun 25 Jun
Unapproved(1) - 76,000 - - 76,000 577.4 2025 2030 144.4
10 Feb 09 Feb
Unapproved(2) - 290,000 - - 290,000 705.4 2026 2031 181.4
18 May 18 May
LTIP - 57,701 - - 57,701 nil 2025 2032 631.1
18 May 18 May
LTIP - 19,234 - - 19,234 nil 2025 2032 313.0
18 May 18 May
LTIP - 9,617 - - 9,617 nil 2026 2032 604.1
18 May 18 May
LTIP - 3,206 - - 3,206 nil 2026 2032 301.0
18 May 18 May
LTIP - 9,617 - - - 9,617 nil 2027 2032 578.3
18 May 18 May
LTIP - 3,205 - - - 3,205 nil 2027 2032 290.1
-------------- --------- ------- --------- --------- ------- --------- -------- ----------- ------- --------
Total 3,027,722 889,579 (75,454) (80,000) - 3,761,847
-------------- --------- ------- --------- --------- ------- --------- -------- ----------- ------- --------
1 These options relate to the first three of five tranches.
2 These options relate to the first two of five tranches.
The weighted average share price at the date of exercise of
options exercised during the year ended 31 December 2022 was
GBP8.02 (2021: GBP8.37).
Fair value of options granted
Awards subject to a market capitalisation or total shareholder
return condition are valued using a Monte Carlo simulation. Other
awards are valued using the Black-Scholes model.
The principal assumptions used in these valuations were:
31 December 2022 31 December 2021
-------------------------------- ----------------- ----------------
Dividend yield (%) 3.5 to 4.3 3.3
Expected volatility (%) 30.03 to 38.48 35.96 to 41.33
Risk-free interest rate (%) 1.25 to 4.16 0.09 to 0.39
Expected option life (years) 1.28 to 4.87 2.28 to 4.87
Exercise price (GBP) nil to 7.05 5.77 to 7.05
Share price at grant date (GBP) 7.08 to 7.89 8.30
Fair value at grant date (GBP) 0.11 to 6.31 1.34 to 2.66
-------------------------------- ----------------- ----------------
The expected price volatility is based on historical volatility,
adjusted for any expected changes to future volatility due to
publicly available information.
In January 2022, the Remuneration Committee assessed performance
of the first four tranches of the 2018 awards and the first two
tranches of the 2020 awards under the Unapproved Plan against
vesting criteria. These awards did not meet the market
capitalisation targets set when they were originally granted. The
Remuneration Committee exercised the discretion available to it
under the plan and, after taking into account a range of factors,
concluded that these awards would vest at 95% of the maximum. This
has been accounted for as a modification of the awards. In
accordance with IFRS 2, the options were valued as at the date of
modification based on the original terms using a Monte-Carlo
simulation, and based on the modified terms using the Black Scholes
model. The incremental fair value granted as a result of the
modifications was GBP1,067,000, all of which was recognised as an
expense in 2022.
The expense recognised in 2022 for all options, including the
effect of the modifications, is GBP2,262,000 (2021:
GBP563,000).
(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 31 average
At 1 January Awarded December acquisition
Type of award 2022 shares Sold/transferred Forfeited 2022 price
-------------- ------------ ------- ---------------- --------- --------- ------------
Partnership 230,315 61,103 (36,545) - 254,873 6.10
Matching 228,943 61,103 (23,875) (14,437) 251,734 6.10
Dividend 25,204 12,327 (2,826) - 34,705 7.24
-------------- ------------ ------- ---------------- --------- --------- ------------
Total 484,462 134,533 (63,246) (14,437) 541,312
-------------- ------------ ------- ---------------- --------- --------- ------------
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 2022 was
approximately GBP8.02 per share (2021: GBP8.18). 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 2022 for all Matching Shares is
GBP350,000 (2021: GBP278,000). No expense is recognised for the
Partnership Shares and Dividend Shares because the participants pay
full market value for these shares.
29 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.
30 Capital commitments
Significant capital expenditure contracted for at the end of the
reporting period but not recognised as liabilities is as
follows:
2022 2021
GBP'000 GBP'000
------------------------------ -------- --------
Property, plant and equipment 38,930 27,746
Capital expenditure of GBP35,901,000 (2021: GBP27,746,000)
contracted for in relation to property, plant and equipment relates
to the Group's grid-scale battery storage projects under
construction. The remaining GBP3,029,000 (2021: GBPnil) relates to
the purchase of motor vehicles.
31 Ultimate controlling party
There is no ultimate controlling party by virtue of the
structure of shareholdings in the Group.
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END
FR UOSAROKUOAUR
(END) Dow Jones Newswires
March 14, 2023 03:00 ET (07:00 GMT)
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