REG - Smart Metering Sys - Half-year Report
12/09/2023 07:00
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RNS Number : 0646M Smart Metering Systems PLC 12 September 2023
12 September 2023
Smart Metering Systems plc
Strong H1 performance; confident outlook
Smart Metering Systems plc (AIM: SMS, "SMS" or the "Group"), the integrated
energy infrastructure company owning and managing meters, energy data,
grid-scale batteries and other carbon reduction ("CaRe") assets, today
publishes its half year results for the six months ended 30 June 2023.
H1 financial performance
£'m (unless stated otherwise) H1 2023 H1 2022 % Change
Alternative performance measures
Index-linked annualised recurring revenue ("ILARR")(1) 110.0 93.1 +18%
Pre-exceptional EBITDA(2) 36.1 29.1 +24%
Underlying profit before taxation(3) 11.2 10.3 +9%
Underlying basic EPS (p)(4) 6.13 5.92 +4%
Statutory performance measures
Revenue 79.3 62.7 +26%
EBITDA 34.1 25.8 +32%
Profit before taxation 8.0 6.1 +31%
Basic EPS (p) 4.32 3.37 +28%
Dividend per share (p) 22.689 20.625 +10%
Net (debt)/cash (96.3) 38.6 n/a
(1 ILARR is the revenue generated from meter rental and data contracts at a
point in time. Includes revenue from third-party managed meters.)
(2 Pre-exceptional EBITDA is statutory EBITDA excluding exceptional items.)
(3 Underlying profit before taxation is profit before taxation excluding
exceptional items and amortisation of certain intangibles.)
(4 Underlying basic EPS is underlying profit after taxation divided by the
weighted average number of ordinary shares for the purpose of basic EPS.)
(A reconciliation between statutory and underlying performance is detailed in
the Financial Review section. )
Highlights
Financial
· ILARR of £110.0m at 30 June 2023, up 13% on year-end (31 December
2022: £97.1m) and up 18% on the prior period (30 June 2022: £93.1m)
· Revenue up 26% to £79.3m (H1 2022: £62.7m)
· Pre-exceptional EBITDA up 24% to £36.1m (H1 2022: £29.1m)
· Underlying profit before taxation up 9% to £11.2m (H1 2022: £10.3m)
· Net debt at 30 June 2023 of £96.3m (30 June 2022: net cash of
£38.6m)
Smart meters
· ILARR growth was supported by higher rental per smart meter, driven
by indexation and an increased focus on single fuel and Industrial and
Commercial ("I&C") smart meter installations
· Smart meter portfolio increased to 2.3 million (31 December 2022: 2.1
million)
· Contracted order pipeline of c.1.95 million (31 December 2022: c.2.17
million), net of c.220,000 smart meters installed during the period
· Significant year-on-year growth in total engineer-delivered works
resulting in higher transactional revenues and ILARR growth
· Continued increases to engineering capacity is expected to accelerate
the installation run rate in H2 2023; on track to deliver at least 500,000
installations this year
Grid-scale batteries
· Grid-scale battery portfolio increased to 860MW (31 December 2022:
760MW) including:
o 240MW operational(1)
§ 140MW operational during H1 2023; performance within the Board's expected
range
§ Additional 100MW operational since H1 2023
o 370MW fully secured, with 50MW expected to be operational in Q4 2023
o 250MW under exclusivity
· Secured the option to increase the duration of at least 290MW 1
MW/hour sites to 2 MW/hour sites
Developing CaRe assets
· SMS continues to build delivery capability, commercial models and
pipelines in developing CaRe assets, strategically aligned with adjacent
markets
o Acquired the domestic services division of Evergreen Energy on 22 August
2023, specialising in the installation and maintenance of renewable energy
assets, including heat pump, solar and battery storage for homeowners
o Development of METIS Energy - currently piloting behind-the-meter CaRe
asset solutions to businesses, housing associations and consumers, beginning
with domestic EV charging
o Installed first public EV charging hubs, operated by the Clenergy EV
platform
Capital allocation
· The current pipeline((2)) of smart meters and grid-scale batteries
can be fully funded from asset-backed internally-generated cash flows and debt
facilities
· Compounding RPI on recurring revenues provides effective protection
in a higher interest rate environment
· Notwithstanding this strong position, the Group may consider
selective asset recycling to maintain a prudent level of gearing in the medium
term and to support future growth
Outlook
· FY 2023 pre-exceptional EBITDA and underlying PBT are expected to
remain in line with the Board's expectations
· The Board expects FY 2024 pre-exceptional EBITDA to be marginally
ahead of its previous expectations with year-on-year growth of c.20%, and
underlying PBT is expected to be in line with the Board's previous
expectations
· The Board continues to be confident in the medium-term outlook with
the index-linkage of SMS's meter revenues continuing to underpin long-term
cash flows
· Dividend growth of 10% to 33.275p per share intended for FY 2023 in
line with stated policy of a 10% per annum increase until 2024; expect to
continue with progressive dividend policy thereafter
(1) Of the 240MW operational, 50MW is energised and will be trading by
the end of September
(2) Current pipelines include the existing c.1.95million meter order
pipeline and 620MW 1 hour duration grid-scale battery pipeline.
Tim Mortlock, Chief Executive Officer, commented:
"SMS continues to deliver operationally and financially, with the strength and
resilience of our model reflected in the significant growth in ILARR and
EBITDA achieved during the first half of the year.
"Our index-linked revenues provide a natural hedge against increased interest
rates in the short term whilst significantly benefitting long-term cash flows.
"Our existing pipelines of meters and grid-scale battery assets can be fully
funded from our internal cash flows and debt facilities. Delivery of this
pipeline is expected to drive further growth, and to more than double the
Group's EBITDA over the next c.4 years.
"We are working to expand these pipelines, and to deliver the significant
additional growth opportunities that exist within our developing CaRe assets.
"We have always been, and will remain, focused on delivering high quality,
safe and secure growth."
There will be an analyst webcast at 9.00am today - please contact
sms@instinctif.com for details. The half year results presentation will be
published on the Group's website shortly.
For further information:
Smart Metering Systems plc 0141 249 3850
Tim Mortlock, Chief Executive Officer
Gail Blain, Chief Financial Officer
Dilip Kejriwal, Head of Investor Relations
Cavendish 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 / James Rudd
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 / Vivian Lai SMS@instinctif.com
The Company announces that its Joint Broker and Nominated Adviser has changed
its name from Cenkos Securities plc to Cavendish Securities plc following
completion of its own corporate merger.
Notes to Editors
Smart Metering Systems plc (www.sms-plc.com (http://www.sms-plc.com) ), the
integrated energy infrastructure company owning and managing smart meters,
energy data, grid-scale batteries and other carbon reduction assets ("CaRe")
to facilitate effective energy management. The Group manages and optimises
these assets through its in-house technology and data analytical platform
"METIS".
Established in 1995, SMS provides a full end-to-end service, from funding and
installation to management and maintenance, with a highly skilled workforce,
deep engineering expertise and well-established industrial partnerships.
SMS is leading the low carbon, smart energy revolution in the UK and is
committed to reducing its own carbon emissions to net zero by 2030. SMS has
been recognised with the London Stock Exchange's Green Economy Mark every year
since it was introduced in 2019.
SMS plc is headquartered in Glasgow with a national presence across twelve UK
locations.
SMS's shares are listed on AIM.
Overview
The Group continued to deliver a strong operational and financial performance
during H1 2023; a testament to the resilient nature of our business model
underpinned by our index-linked annual recurring revenues, which increased to
£110.0m (+13% on year-end 2022). Our operational grid-scale battery portfolio
performed in line with expectations, and we continued to make progress in
developing other CaRe assets.
In H1 2023, SMS's engineering capability delivered significantly higher
volumes of activity compared to the previous period. It fulfilled more
transactional callout services alongside a higher proportion of single fuel
and I&C installations, which generate a higher average rental per meter.
The Group installed c.220,000 smart meters during H1 2023 (H1 2022: c.230,000)
and, supported by continued increases to our engineering capacity, expects to
accelerate the meter installation run-rate during the second half of the year
and to achieve at least 500,000 installs in FY 2023.
The Group's smart meter portfolio stands at 2.3 million (31 December 2022: 2.1
million), with an additional contracted pipeline of c.1.95 million smart
meters to be installed by the end of the roll-out programme.
The Group's operational grid-scale battery portfolio performed within the
Board's expectations, generating an annualised EBITDA of c.£57,000 per MW in
the period. An additional 100MW has become operational since 30 June 2023,
bringing the Group's total operational capacity to 240MW. We expect to
increase this to 290MW by year end. The balance of our grid-scale battery
pipeline stands at 570MW, of which 320MW is fully secured, with 250MW under
exclusivity.
The existing pipeline of meter and grid-scale battery assets is expected to
more than double the Group's EBITDA in c.4 years compared to FY 2022.
Notable developments in other CaRe verticals were achieved in H1 2023,
followed by the acquisition of Evergreen Energy's domestic services division
in August, which will enhance SMS's capacity to deliver an extended range of
low-carbon, behind-the-meter energy solutions to the UK's domestic and
commercial marketplaces. The Group has been developing its new consumer-facing
business - METIS Energy - and pilots have commenced for the delivery of
domestic EV infrastructure. We also installed our first public EV charging
hubs in Elmbridge, operated by the Clenergy EV platform. These early-stage
projects are important to inform the commercial model as we seek to build a
diverse pipeline of activity across the UK.
The Board expects FY 2023 pre-exceptional EBITDA and underlying PBT to be in
line with its expectations. For FY 2024, the Board expects pre-exceptional
EBITDA to be marginally ahead of its previous expectations with c.20%
year-on-year growth. Despite the impact of higher interest rates, underlying
PBT is expected to be in line with previous expectations. The medium-term
outlook remains strong as our index-linked revenues provide a hedge against
interest rates whilst significantly benefiting long-term cash flows.
Index-linked annualised recurring revenue
ILARR grew to £110.0m as at 30 June 2023, which includes the annual RPI
adjustment. This represents a 13% increase since the year end (31 December
2022: £97.1m).
Category % Change ILARR Portfolio
Smart meters + 16.9 % £71.5m 2.3 million
Data assets + 5.6 % £16.9m 0.4 million
Industrial & Commercial meters + 17.2 % £6.2m 0.1 million
Traditional domestic meters + 5.6 % £11.8m 0.2 million
Third party assets +3.9 % £3.6m 1.4 million
Total + 13.3% £110.0m 4.5 million
The Group's ILARR grew in line with the Board's expectations with higher
rental per meter, driven by indexation and an increased delivery of single
fuel and I&C smart meter installations.
UK smart meter rollout
SMS installed c.220,000 (H1 2022: c.230,000) smart meters during the first
half of 2023, increasing the Group's smart meter portfolio to 2.3 million (31
December 2022: 2.1 million). The Group has maintained market share of c.14%,
in line with FY 2022.
The UK smart meter rollout continues to present a significant opportunity to
grow our ILARR, with a contracted smart meter order pipeline at 30 June 2023
of c.1.95 million meters (31 December 2022: c.2.17 million), net of meters
installed in the period. Once fully installed this pipeline is expected to add
c.£47m of EBITDA, excluding the impact of RPI. The roll-out programme aims to
have at least 75% of all meters exchanged to smart by the end of 2025.
SMS's engineering capability delivered higher volumes of activity compared to
the prior period, fulfilling more transactional callout services alongside a
higher proportion of single fuel and I&C installations (which generate a
higher rental income per meter). The positive net outcome was strong growth in
ILARR and higher transactional revenue. We also continued to ensure the
efficient overall utilisation of our engineering capacity during this period.
The Group has further increased its engineering capacity and expects the meter
installation run-rate to accelerate during the second half of the year as a
result; we expect to install at least 500,000 meters in FY 2023.
H1 2023 saw a concentrated drive to recruit and retain skilled talent amidst a
competitive engineer labour market, with high demand across the industry.
There will be ongoing investment in these initiatives during H2 2023,
especially in the southeast of England, to ensure we appropriately and
efficiently balance regional engineering capacity with customer portfolios.
This, coupled with SMS's strong supply chain and inventory levels, provides
the Board with confidence in the Group's ability to deliver successfully its
contracted smart meter pipeline.
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 and is
expected to continue through the remainder of the year in line with the wider
enrolment and adoption programme.
During H1 2023, SMS won a pilot project with Alternative Home Area Network
Company aimed at removing the technical barriers for smart meters in 'hard to
reach' residential properties, which account for c.4% of UK households. This
project builds on our previous provision of test centre facilities for this
technical solution, which, alongside the Group's end-to-end integrated
platform, provides additional growth opportunities in smart metering.
Grid-scale battery storage
At 30 June 2023, the Group's portfolio of grid-scale battery storage assets
totalled 860MW (31 December 2022: 760MW), split as follows:
· 240MW(1) operational
· 140MW operational during H1 2023
· additional 100MW became operational in H2 2023
· 370MW fully secured, with 50MW expected to be operational in Q4
2023
· 250MW under exclusivity
Performance of the operational sites in H1 2023 has been within the Board's
expected range, generating an annualised EBITDA of c.£57,000/MW. As
anticipated, a larger volume of available battery storage capacity across the
UK has saturated the frequency market, which was the primary grid service for
the Group's portfolio in the prior year. Revenues year-to-date have been
largely generated from balancing services, which forms the basis of our
long-term expected annualised EBITDA contribution.
The successful energisation and commencement of operations for the additional
two 50MW sites in September is a significant milestone for the business as we
continue to execute on our pipeline and grow our operational, revenue
generating, portfolio. A further 50MW project is in advanced construction and
is expected to be operational by year end.
SMS has secured the option to increase the duration of at least 290MW 1
MW/hour sites to 2 MW/hour sites, which will enable the Group to access
further revenue opportunities from delivery of balancing and other wholesale
services.
(1) Of the 240MW operational, 50MW is energised and will be trading by
the end of September
Developing CaRe verticals
Our developing CaRe verticals are strategically aligned with adjacent markets
in which we can leverage our closely related technologies, engineering
expertise and wider capabilities.
Behind-the-meter
SMS has been actively developing METIS Energy, contributing to the Group's
journey to provide behind-the-meter CaRe solutions for businesses, housing
associations and consumers, which are critical to the UK's transition to net
zero.
The initial focus of METIS Energy will be the delivery of domestic EV charging
infrastructure, with the aim of extending this to solar, storage and air
source heat pump solutions in the near term. The Group has been operating
several pilots and is actively engaging with the market, in particular housing
associations and end consumers, to develop the commercial asset models
required to scale full operation.
SMS purchased the domestic services division of Evergreen Energy Limited in
August 2023, bringing into the Group significant technical expertise in
domestic heat pumps, solar PV and battery storage. This strategic acquisition
bolsters the Group's overall capacity to deliver these carbon reduction assets
on a wider national scale, to a fast-growing domestic and commercial
marketplace.
We have also partnered with Samsung to deliver a UK Government funded heat
pump trial in Oxford, comprising 150 heat pumps. This initial project is part
of a wider requirement for 30,000 air source heat pumps across the council by
2040 and could be further upscaled nationwide.
Public EV charging infrastructure
The Group has installed its first public EV charging hubs in Elmbridge. The
hubs will be operated by the Clenergy EV technology platform, a charge point
operator platform which now manages over 3,500 public charging stations across
the country. We are working with landlords, businesses, local authorities and
fleet operators to build a pipeline of activity in the destination and rapid
charging segments of the EV market and early-stage projects like this are
important to inform the business case.
This is a developing area of our business and one which is closely aligned to
our existing engineering skills and technology platforms, and where we see
significant growth opportunity over the longer term.
Energy data management
Earlier this year we were pleased to be the largest independent aggregator of
customers into the National Grid Demand Flexibility Service, which we believe
is an important precursor to the development of a more flexible energy system
- built on the data from smart meters.
As an established provider of accredited half hourly data services to
businesses and energy suppliers in the I&C space, we have extended this
capability in recent years to ensure we can obtain data effectively from
domestic smart meters.
We are, therefore, well positioned as the industry programme to facilitate the
mandatory market wide introduction of half hourly settlement to energy
suppliers on smart meters progresses. SMS have been accepted as early adopters
for the programme, with our METIS data services platform scheduled to
participate in system testing in Q4. This programme, once implemented by 2026,
will enable a more flexible UK energy system.
Energy Services
As expected, H1 2023 saw continued growth in our traditional consultancy and
energy management services compared to the prior period, with ongoing
pressures on our Industrial & Commercial customers to reduce costs in
response to the current inflationary environment and retail energy prices.
ESG progress and sustainability
During H1 2023, SMS continued to make progress in executing its 2030 net zero
roadmap.
Energy-efficiency upgrades are almost complete at one of our major office
sites, including the use of solar, batteries and air source heat pumps. Almost
one-fifth of the Group's fleet are expected to transition to mild-hybrid
(MHEV) vehicles by the end of the year, firmly on track to transition the
entire vehicle fleet to fully electric by 2030.
SMS's 'handprint' (carbon emissions mitigated through our customers using our
products and services) during the period was twenty-two times higher when
compared to our total Scope 1 and Scope 2 'footprint' (carbon emissions
generated through our operations for the reasons explained below).
We have also seen continual improvement across our ESG ratings during H1 2023.
Notably:
· MSCI - upgraded to AA rating
· S&P Global - increased score of 50 from 39, performing
significantly above the average global score of 23
· Sustainalytics - performance in the top 4th percentile for the
'Global Universe' and 'Subindustry' categories
· Moody's - performance above sector average across all ESG
performance categories
Capital allocation
The Group's current pipeline of smart meters and grid-scale batteries can be
fully funded from asset-backed internally generated cash flows and debt
facilities.
The Group has incurred c.£60m of capital expenditure on grid-scale battery
storage sites still in construction and not yet operational as at 30 June
2023. Adjusting for this, the Group's leverage ratio is closer to c.0.5x
(unadjusted: c.1.3x).
Notwithstanding this strong position, the Group may also consider selective
asset recycling to both maintain a prudent level of gearing in the medium term
and to support future growth.
Board changes
Mike Winkel was appointed as a Non-executive Director of the Group from 6 June
2023. As former COO of E.ON SE and CEO of its renewables business, Mike has
extensive energy industry experience, which will be of significant value to
the Group as it continues to build on its established growth platform.
Current trading and outlook
Meters:
· ILARR at the end of August 2023 stood at £111.0m (30 June 2023:
£110.0m).
· Expect to install at least 500,000 meters in 2023 with a higher
average rental per meter than our previous expectations.
Grid-scale battery storage:
· Two 50MW sites operational in September; further 50MW site
expected to become operational by the end of the year.
· Trading performance of the Group's operational portfolio in H2
2023 is expected to remain in line with H1 performance.
Outlook:
· Index-linked revenues provide a hedge against short-term interest
rates whilst significantly benefiting long-term cash flows.
· FY 2023: The Board expects pre-exceptional EBITDA and underlying
PBT to remain in line with its previous expectations.
· FY 2024: The Board expects pre-exceptional EBITDA to be
marginally ahead of its previous expectations, with year-on-year growth of
c.20%, and underlying PBT to be in line with its previous expectations.
· The Board remains confident in both the near-term and medium-term
outlook.
Financial review
Revenue
H1 June 2023 H1 June 2022
£m £m % Change
Asset management 53.6 44.8 20%
Asset installation 17.6 12.3 43%
Energy management 8.1 5.6 45%
Group revenue 79.3 62.7 26%
Asset management revenues of £53.6m are 20% up on the prior period. This
growth reflects the flow-through effect of meters installed by the end of
2022, new assets installed in H1 and the annual RPI uplift which took effect
on 1 April 2023.
Asset installation revenues of £17.6m increased 43% on the prior period as a
result of increased volume in transactional meter works, including emergency
callout services.
Energy management revenues of £8.1m were 45% up on the prior period. This
includes £4.0m revenue from our grid-scale battery sites (H1 2022: £2.8m);
two further sites became operational in December 2022. Revenue from energy
management excluding grid-scale batteries was £4.1m, up 46% on the prior
period as a key customer project in the hospitality sector sustained momentum
with a sector focus on energy efficiency. At the beginning of the period, the
energy management division also benefited from the successful participation in
the National Grid Demand Flexibility Service using our Flexigrid platform.
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 was 93%
which is in line with prior period (H1 2022: 93%).
The asset installation segment gross margin was 25% (H1 2022: 14%). As
expected, the margin recovered through the second half of 2022 and into H1
2023. H1 2022 margin was depressed by additional one-off costs incurred in the
sizeable upscaling of the Group's engineering workforce. Investment in our
engineering capacity has continued in H1 2023, whilst ensuring efficient
utilisation.
The energy management segment depreciation-adjusted gross margin has slightly
decreased to 46% (H1 2022: 49%). This is due to our grid-scale battery sites
which generated a 68% depreciation-adjusted gross margin over the period (H1
2022: 75%), impacted by timings as two further sites ramped up
revenue-generating activity following completion of construction at the end of
2022. Grid-scale batteries delivered revenue of £4.0m and depreciation
adjusted gross profit of £2.7m in the period. The gross margin on the
segment's other activities remained broadly constant at 25% (H1 2022: 23%).
Overall, the depreciation-adjusted gross margin at the Group level remained
consistent with the prior period at 73% (H1 2022: 73%).
Pre-exceptional EBITDA
Pre-exceptional EBITDA provides a measure of underlying performance that is
comparable over time. Pre-exceptional EBITDA of £36.1m is 24% higher than in
the prior period (H1 2022: £29.1m).
The £11.8m increase in depreciation-adjusted gross profit is partly offset by
a £4.6m increase in net operating costs, excluding depreciation and
amortisation. This has been driven primarily by an increase in staff costs,
with several reward initiatives delivered in the period in recognition of the
sustained inflationary pressures.
IT costs have also increased on the prior period, driven by strategic
investment in key technologies and platforms to support growth in both our
existing and developing CaRe verticals.
Underlying profit before tax
Depreciation costs on meter assets increased 15% to £15.7m (H1 2022: £13.7m)
due to the increase in the meter asset portfolio.
Depreciation costs on grid-scale battery sites increased 275% to £1.5m (H1
2022: £0.4m) as a consequence of the commencement of depreciation on
operational grid-scale battery sites at the end of 2022 and into H1 2023.
Depreciation costs on general property, plant and equipment, excluding meter
assets and grid-scale battery sites, has reduced by £0.5m to £1.4m (H1 2022:
£1.9m) due to some computer equipment and fixtures and fitting now being
fully depreciated.
Amortisation costs on our intangible assets of £2.4m (H1 2022: £2.1m) mainly
consist of software amortisation and are slightly higher than the prior period
as a result of ongoing investment in our IT systems.
Net finance costs increased by £3.0m to £4.6m (H1 2022: £1.6m). Finance
costs relating to our loan facility increased £3.1m as we started drawing on
the facility in the second half of 2022 and macro-economic conditions have
driven up interest rates in the current period. Interest on leases also
increased £0.1m in relation to land leases on our grid-scale battery sites.
The impact was, however, partly offset by interest income earned.
As a result, underlying profit before taxation increased by 9% to £11.2m (H1
2022: £10.3m).
Exceptional items
Exceptional items of £2.0m (H1 2022: £3.3m) mainly comprise a £1.9m loss on
the traditional and first-generation smart meter ('SMETS1') portfolio (H1
2022: £3.3m). 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. Other exceptional operating items
amounted to £0.1m (H1 2022: £nil).
Effective tax rate
The Group's capital expenditure on meter assets qualifies for capital
allowances, providing the Group with tax relief on this expenditure. These
allowances are claimed in the tax year in which the asset is acquired and set
against taxable profit for that year, thus reducing the total tax payable. As
a result, the Group was not tax-paying in either the current or prior period.
The current estimate of the effective tax rate on pre-exceptional profits for
the full year is 27.41% (30 June 2022: 25.49%). This broadly 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. The increase in the forecast full year effective tax rate
is largely attributable to a reduction in the deferred tax asset on the
Group's share options.
Earnings per share
Underlying basic earnings per share (EPS), which excludes exceptional items,
amortisation of certain intangibles and their associated tax effect, was 6.13p
(H1 2022: 5.92p), reflecting the growth in underlying profitability of the
Group. Statutory earnings per share increased to 4.32p (H1 2022: 3.37p).
Dividend
A 30.25p per share dividend in respect of FY 2022 was approved at the Group's
Annual General Meeting in May, and the fourth and final instalment of this was
paid in July 2023. A dividend accrual of £10.1m has therefore been recognised
at 30 June 2023 in our interim financial statements.
In line with the Group's policy to grow dividends at 10% per annum until 2024,
a 33.275p per share dividend is intended in respect of FY 2023. This is
expected to be settled in four equal quarterly instalments in accordance with
the provisional timetable below:
Instalment Ex-dividend date Record date Payment date
1 05 October 2023 06 October 2023 26 October 2023
2 04 January 2024 05 January 2024 25 January 2024
3 04 April 2024 05 April 2024 25 April 2024
4 04 July 2024 05 July 2024 25 July 2024
The Board remains comfortable that future dividend payments 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 H1 2023 was £30.3m (H1 2022: £18.6m). The cash
inflow reflects £36.1m pre-exceptional EBITDA, £2.7m of non-cash costs
included in EBITDA and a £8.5m 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 drew down a further £75.0m under its loan facility during the
period, taking the total facility drawn to £140m.
The cash generated from operations and from our borrowing is funding continued
investment in our revenue-generating meter and grid-scale battery assets.
Capital expenditure on property, plant and equipment was £63.0m (H1 2022:
£59.1m). Of this, £50.1m was invested in meter and data assets and £10.2m
in developing grid-scale battery sites.
Investing activities also include payments of £0.5m to settle deferred
consideration on battery sites acquired in prior periods and a further £7.9m
of instalment payments for grid-scale batteries which have not yet been
delivered. 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 £2.6m (H1 2022: £1.1m) investment has been made in intangible
assets, mainly relating to the development of software to support the
metering, data and installations businesses.
Financial resources
Net debt at 30 June 2023 was £96.3m (31 December 2022: £31.2m). This
excludes restricted cash and lease liabilities accounted for under IFRS 16.
The Group has in place a £420m debt facility and was fully compliant with all
its bank covenants throughout the period. The Group has £45.3m available in
cash (31 December 2022: £32.8m) and £280m in unutilised facilities (31
December 2022: £355m) and therefore continues to have the financial
flexibility required to deliver growth in a capital-efficient way.
The Group's leverage ratio, calculated as net debt over the 6-month annualised
EBITDA, was c.1.3x at 30 June 2023. However, this includes c.£60m of
cumulative capital expenditure on the construction of grid-scale battery
storage sites that are not yet operational. Adjusting for this, the Group's
leverage ratio is closer to c.0.5x.
The Group's current pipeline of smart meters and grid-scale batteries can be
fully funded from asset-backed internally generated cash flows and debt
facilities. Notwithstanding this strong position, the Group may also consider
selective asset recycling to both maintain a prudent level of gearing in the
medium term and to support future growth.
Definitions of alternative performance measures
Alternative performance measure Definition
Index-linked annualised recurring revenue The revenue being generated from meter rental and data contracts at a point
in time. Includes revenue from third-party managed meters.
Depreciation-adjusted gross profit Statutory gross profit less depreciation on revenue-generating assets,
recognised within cost of sales.
Depreciation-adjusted gross Depreciation-adjusted gross profit divided by statutory revenue.
profit margin
Pre-exceptional EBITDA Statutory EBITDA excluding exceptional items.
Underlying profit before taxation Profit before taxation excluding exceptional items and amortisation of certain
intangibles.
Underlying profit after taxation Profit after taxation excluding exceptional items and amortisation of certain
intangibles and the tax effect of these adjustments.
Underlying basic EPS Underlying profit after taxation divided by the weighted average number of
ordinary shares for the purposes of basic EPS.
Underlying diluted EPS Underlying profit after taxation divided by the weighted average number of
ordinary shares for the purposes of diluted EPS.
Net cash/debt Total bank loans less cash and cash equivalents, excluding restricted cash.
Excludes lease liabilities recognised under IFRS 16.
Reconciliation of statutory to underlying results
SMS uses alternative performance measures, defined above, to present a clear
view of what the Group considers to be the results of its underlying,
sustainable business operations. Excluding certain items enables consistent
year-on-year comparisons and aids a better understanding of business
performance. A reconciliation of these performance measures is disclosed
below:
Period Period ended Percentage
ended 30 June change
30 June 2022
2023 £m
£m
Index-linked annualised recurring revenue 110.0 93.1 18%
Group revenue 79.3 62.7 26%
Statutory profit from operations 13.0 7.7
Amortisation of intangibles 2.4 2.1
Depreciation 18.7 16.0
Statutory EBITDA 34.1 25.8 32%
Exceptional items(1) 2.0 3.3
Pre-exceptional EBITDA 36.1 29.1 24%
Net interest (4.6) (1.6)
Share of profit/(loss) of associate (0.4) -
Depreciation (18.7) (16.0)
Amortisation of intangibles included in underlying profit before taxation (1.2) (1.2)
Underlying profit before taxation 11.2 10.3 9%
Exceptional items(1) (2.0) (3.3)
Amortisation of intangibles excluded in underlying profit before taxation (1.2) (0.9)
Statutory profit before taxation 8.0 6.1 31%
Taxation (2.2) (1.6)
Statutory profit after taxation 5.8 4.5 29%
Amortisation of intangibles excluded in underlying profit after taxation 1.2 0.9
Exceptional items(1) 2.0 3.3
Tax effect of adjustments (0.8) (0.8)
Underlying profit after taxation 8.2 7.9 4%
Weighted average number of ordinary shares (basic) 133,338,954 133,225,387
Underlying basic EPS (pence) 6.13 5.92
Weighted average number of ordinary shares (diluted) 133,911,379 134,030,175
Underlying diluted EPS (pence) 6.11 5.89
(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.)
Financial tables and notes
Consolidated income statement
For the period ended 30 June 2023
Unaudited
Six months ended 30 June
Notes 2023 2023 2023 2022 2022 2022
Before Exceptional Total Before Exceptional Total
exceptional items1 £'000 exceptional items1 £'000
items £'000 items £'000
£'000 £'000
Revenue 3 79,307 - 79,307 62,676 - 62,676
Cost of sales (38,838) - (38,838) (30,834) - (30,834)
Gross profit 40,469 - 40,469 31,842 - 31,842
Administrative expenses (25,783) (1,984) (27,767) (21,330) (3,325) (24,655)
Other operating income 344 - 344 532 - 532
Profit from operations 15,030 (1,984) 13,046 11,044 (3,325) 7,719
Share of profit/(loss) of associate (388) - (388) - - -
Finance costs (5,092) - (5,092) (1,741) - (1,741)
Finance income 471 - 471 78 - 78
Profit/(loss) before taxation 10,021 (1,984) 8,037 9,381 (3,325) 6,056
Taxation (2,746) 464 (2,282) (2,391) 831 (1,560)
Profit/(loss) for the period and total comprehensive income attributable to 7,275 (1,520) 5,755 6,990 (2,494) 4,496
owners of the parent
1 Refer to note 4 for details of exceptional items.
Consolidated statement of comprehensive income
For the period ended 30 June 2023
Unaudited
Six months ended 30 June
2023 2023 2023 2022 2022 2022
Before Exceptional Total Before Exceptional Total
exceptional items £'000 exceptional items £'000
items £'000 items £'000
£'000 £'000
Profit/(loss) for the period 7,275 (1,520) 5,755 6,990 (2,494) 4,496
Other comprehensive income
Exchange differences on translation of foreign operations (1) - (1) 9 - 9
Other comprehensive income/(loss) for the period, net of tax (1) - (1) 9 - 9
Total comprehensive income for the period attributable to owners of the parent 7,274 (1,520) 5,754 6,999 (2,494) 4,505
The profit from operations arises from the Group's continuing operations.
Earnings per share attributable to owners of the parent during the period:
Notes Six months Six months
ended ended
30 June 30 June
2023 2022
Unaudited Unaudited
Basic earnings per share (pence) 5 4.32 3.37
Diluted earnings per share (pence) 5 4.30 3.35
Consolidated interim statement of financial position
As at 30 June 2023
Notes Unaudited Audited
30 June 31 December
2023 2022
£'000 £'000
Assets
Non-current assets
Intangible assets 25,946 25,832
Property, plant and equipment 7 569,780 533,240
Investments 40 40
Investments in associates 1,551 1,940
Trade and other receivables 20,264 12,347
Total non-current assets 617,581 573,399
Current assets
Inventories 45,760 37,438
Trade and other receivables 55,552 52,935
Cash and cash equivalents 45,272 32,770
Restricted cash 219 307
Total current assets 146,803 123,450
Assets held for sale 513 513
Total assets 764,897 697,362
Liabilities
Current liabilities
Trade and other payables 80,577 69,378
Bank loans and overdrafts 2,920 591
Lease liabilities 718 885
Other liabilities 950 1,388
Total current liabilities 85,165 72,242
Non-current liabilities
Bank loans 8 138,624 63,349
Lease liabilities 11,105 11,476
Deferred tax liabilities 15,922 13,496
Provisions 2,033 2,033
Other long-term liabilities 1,195 1,280
Total non-current liabilities 168,879 91,634
Total liabilities 254,044 163,876
Net assets 510,853 533,486
Equity
Share capital 1,336 1,334
Share premium 333,416 332,332
Other reserve 9,562 9,562
Own share reserve (1,086) (955)
Foreign currency translation reserve (37) (36)
Retained earnings 167,662 191,249
Total equity attributable to owners of the parent 510,853 533,486
Consolidated interim statement of changes in equity
For the period ended 30 June 2023
Attributable to the owners of the parent company: Share Share Other Own share Foreign currency translation Retained Total
capital premium reserve reserve reserve earnings £'000
£'000 £'000 £'000 £'000 £'000 £'000
As at 1 January 2022 1,333 332,048 9,562 (825) (45) 211,717 553,790
Total comprehensive income for the period - - - - 9 4,496 4,505
Transactions with owners in their capacity as owners
Dividends (note 6) - - - - - (27,505) (27,505)
Shares issued 1 257 - - - - 258
Movement in own shares - - - (102) - (64) (166)
Share-based payments - - - - - 1,366 1,366
Income tax effect of share options - - - - - (509) (509)
As at 30 June 2022 1,334 332,305 9,562 (927) (36) 189,501 531,739
Total comprehensive income for the period - - - - - 10,375 10,375
Transactions with owners in their capacity as owners
Dividends (note 6) - - - - - (10,087) (10,087)
Shares issued - 27 - - - - 27
Movement in own shares - - - (28) - (201) (229)
Share-based payments - - - - - 1,245 1,245
Income tax effect of share options - - - - - 416 416
As at 31 December 2022 1,334 332,332 9,562 (955) (36) 191,249 533,486
Total comprehensive income for the period - - - - (1) 5,755 5,754
Transactions with owners in their capacity as owners
Dividends (note 6) - - - - - (30,282) (30,282)
Shares issued 2 1,084 - - - - 1,086
Movement in own shares - - - (131) - (102) (233)
Share-based payments - - - - - 1,186 1,186
Income tax effect of share options - - - - - (144) (144)
As at 30 June 2023 1,336 333,416 9,562 (1,086) (37) 167,662 510,853
Consolidated interim statement of cash flows
For the period ended 30 June 2023
Six months Six months
ended ended
30 June 30 June
2023 2022
Unaudited Unaudited
£'000 £'000
Operating activities
Profit before taxation 8,037 6,056
Share of (profit)/loss of associate 388 -
Finance costs 5,092 1,741
Finance income (471) (78)
Foreign exchange loss - (19)
Exceptional items1 1,857 3,293
Depreciation 18,651 16,104
Amortisation of intangibles 2,356 2,059
Share-based payment expense 1,186 1,365
Loss on disposal of property, plant and equipment 1,452 892
Loss on disposal of intangible assets 52 -
Movement in inventories (7,322) (5,923)
Movement in trade and other receivables (2,844) 691
Movement in restricted cash - (1,655)
Movement in trade and other payables 1,644 (6,398)
Movement in provisions - (4)
Cash generated from operations 30,078 18,124
Income tax received 227 503
Net cash generated from operations 30,305 18,627
Investing activities
Payments for acquisition of subsidiaries, net of cash acquired(2) (543) (1,655)
Payment for acquisition of new business - (1,432)
Payment to acquire interest in associate - (2,125)
Payments to acquire property, plant and equipment (62,985) (59,119)
Payments on account to acquire grid-scale battery assets (7,918) (13,632)
Proceeds on disposal of property, plant and equipment 3,494 1,730
Payments to acquire intangible assets (2,582) (1,133)
Finance income received 471 78
Net cash (used in)/generated from investing activities (70,063) (77,288)
Financing activities
New borrowings 140,000 -
Borrowings repaid (65,000) -
Principal elements of lease payments (843) (719)
Finance costs paid (2,658) (1,440)
Net proceeds from share issue 1,086 258
Purchase of own shares (233) (166)
Dividends paid (20,178) (18,334)
Net cash (used in)/generated from financing activities 52,174 (20,401)
Net (decrease)/increase in cash and cash equivalents 12,416 (79,062)
Exchange gain on cash and cash equivalents (2) (1)
Cash and cash equivalents at the beginning of the period 33,077 117,687
Cash and cash equivalents at the end of the period 45,491 38,624
1 Non-cash material exceptional items include £1,857,000 for losses on our
meter portfolio (30 June 2022: £3,293,000).
2 Payments for acquisition of subsidiaries comprise £543,000 of deferred
consideration from prior period acquisitions settled in the current period.
There were no new subsidiaries acquired in the period ended 30 June 2023.
Notes to the interim report
For the period ended 30 June 2023
1 Basis of preparation
This condensed consolidated interim financial report for the half-year
reporting period ended 30 June 2023 has been prepared in accordance with
Accounting Standard IAS 34 Interim Financial Reporting. The Company is a
public limited company incorporated and domiciled in Scotland whose shares are
quoted on AIM, a market operated by the London Stock Exchange.
The financial information contained in this half-yearly financial report does
not constitute statutory accounts as defined in section 434 of the Companies
Act 2006. It does not therefore include all the information and disclosures
required in the annual financial statements and should be read in conjunction
with the Group's annual financial statements for the year ended 31 December
2022.
The financial information for the six months ended 30 June 2023 is also
unaudited.
The comparative information for the year ended 31 December 2022 has been
extracted from the Group's published financial statements for that year, which
were prepared in accordance with UK-adopted international accounting standards
and have been delivered to the Registrar of Companies. The report of the
auditor on these accounts was unqualified and did not contain a statement
under section 498(2) or (3) of the Companies Act 2006.
Going concern
Management prepares budgets and forecasts on 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 and the planned roll-out of
grid-scale battery storage assets.
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 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.
The Group has a £420m revolving credit facility which matures in December
2025. At 30 June 2023, the Group had drawn down £140m (31 December 2022:
£65m) and had a net debt position of £96.3m (31 December 2022: £31.2m).
The Group was compliant with all its debt covenants at 30 June 2023. The
financial covenants attached to the facility are that EBITDA should be no less
than 4.00x interest and net debt should be no more than 4.75x EBITDA. At 30
June 2023 these stood at 11.79x and 1.28x respectively, demonstrating
significant headroom. The Group does not expect to breach these covenants in
the year from the date of release of this report.
The Group balance sheet shows consolidated net assets of £510.9m (31 December
2022: £533.5m), of which £456.4m (31 December 2022: £429.7m) 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 approved a 30.25p per share annualised dividend in respect of FY
2022 and all four cash instalments had been paid at the date of approving the
interim financial statements. The Group intends to pay a 33.275p per share
annualised dividend in respect of FY 2023.
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.
Significant accounting policies
As required in AIM Rule 18, the interim financial report for the half-year
reporting period ended 30 June 2023 is presented and prepared in a form
consistent with that which will be adopted in the annual statutory financial
statements for the year ended 31 December 2023 and having regard to the
accounting policies applicable to such annual accounts.
The accounting policies adopted are consistent with those followed in the
Group's financial statements for the year ended 31 December 2022, except for
the adoption of new standards effective 1 January 2023.
For periods of account commencing on or after 1 January 2023, IAS 12.15 (d)
has amended the scope of the Initial Recognition Exemption ('IRE') to prevent
its application to deferred tax assets and liabilities arising from a single
transaction. The application of this amendment to the Group has been assessed
at 30 June 2023 and is not considered to have a material impact on the
condensed consolidated interim financial results.
Several other amendments apply for the first time in 2023 but do not have an
impact on the condensed consolidated interim financial report for the
half-year reporting period ended 30 June 2023.
The Group has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective.
Critical accounting judgements
The critical accounting judgements made by the Directors in applying the
Group's accounting policies and the key sources of estimation uncertainty were
the same as those described in the Group's published financial statements for
the year ended 31 December 2022.
2 Segmental reporting
For management purposes, the Group is organised into three core divisions, as
follows:
• Asset management, which comprises regulated management of gas and
electric meters, ADM™ 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) assets.
For the purpose of making decisions about resource allocation and performance
assessment, it is the operating results of the three core divisions listed
above that are monitored by management and the Group's chief operating
decision-maker, being the SMS Board. It is these divisions, therefore, that
are defined as the Group's reportable operating segments.
Segment performance is evaluated based on gross profit.
The following segment information is presented in respect of the Group's
reportable segments together with additional balance sheet information:
30 June 2023 Asset Asset Energy Unallocated Total
management installation management £'000 operations
£'000 £'000 £'000 £'000
Segment revenue 53,621 46,324 8,057 - 108,002
Inter-segment revenue - (28,695) - - (28,695)
Revenue from external customers 53,621 17,629 8,057 - 79,307
Cost of sales (19,724) (13,248) (5,866) - (38,838)
Segment gross profit - pre-exceptional cost of sales 33,897 4,381 2,191 - 40,469
Exceptional items (cost of sales) - - - - -
Segment gross profit 33,897 4,381 2,191 - 40,469
Other operating (costs)/income 252 - 14 (21,907) (21,641)
Depreciation - (21) (146) (1,274) (1,441)
Amortisation of intangibles (1,146) - (59) (1,152) (2,357)
Profit/(loss) from operations - pre-exceptional operating items 33,003 4,360 2,000 (24,333) 15,030
Exceptional items (operating) (1,859) - - (125) (1,984)
Profit/(loss) from operations 31,144 4,360 2,000 (24,458) 13,046
Share of profit/(loss) of associate (388)
Net finance costs: other (4,621)
Profit/(loss) before tax 8,037
Tax expense (2,282)
Profit for period 5,755
30 June 2022 Asset Asset Energy Unallocated Total
management installation management £'000 operations
£'000 £'000 £'000 £'000
Segment revenue 44,833 43,688 5,549 - 94,070
Inter-segment revenue - (31,394) - - (31,394)
Revenue from external customers 44,833 12,294 5,549 - 62,676
Cost of sales (16,962) (10,592) (3,280) - (30,834)
Segment gross profit - pre-exceptional cost of sales 27,871 1,702 2,269 - 31,842
Exceptional items (cost of sales) - - - - -
Segment gross profit 27,871 1,702 2,269 - 31,842
Other operating costs/income - - 409 (17,232) (16,823)
Depreciation - (53) (18) (1,845) (1,916)
Amortisation of intangibles1 (892) - (15) (1,152) (2,059)
Profit/(loss) from operations - pre-exceptional operating items 26,979 1,649 2,645 (20,229) 11,044
Exceptional items (operating) (3,338) (29) - 42 (3,325)
Profit/(loss) from operations 23,641 1,620 2,645 (20,187) 7,719
Net finance costs: other (1,663)
Profit/(loss) before tax 6,056
Tax expense (1,560)
Profit for period 4,496
Inter-segment revenue relates to installation services provided by the asset
installation segment to the asset management segment.
Depreciation of £15.7m (30 June 2022: £13.7m) associated with meter assets
has been reported within Cost of sales, in the asset management segment, as
the meter assets directly drive revenue.
Depreciation of £1.5m (30 June 2022: £0.4m) associated with grid-scale
batteries has been reported within Cost of sales, in the energy management
segment, as the battery assets directly drive revenue.
Within the energy management segment, Revenue of £4.0m (30 June 2022: £2.8m)
and depreciation-adjusted Cost of sales of £1.3m (30 June 2022: £0.7m)
associated with the grid-scale battery service line have been reported,
generating a depreciation-adjusted gross profit of £2.7m in the period ended
30 June 2023 (30 June 2022: £2.1m).
All material revenues and operations are based and generated in the UK.
Following the acquisition of Solo Energy Limited in September 2019, a small
minority of operations are based in the Republic of Ireland.
Segment assets and liabilities
30 June 2023 Asset Asset Energy Unallocated Total
management installation management £'000 operations
£'000 £'000 £'000 £'000
Assets reported by segment
Intangible assets 14,810 3,497 3,164 4,475 25,946
Property, plant and equipment 456,436 102 102,662 10,580 569,780
Investments in associates - - 1,551 - 1,551
Inventories 45,491 269 - - 45,760
Other receivables - - 20,264 - 20,264
Contract assets - 17 18 - 35
516,737 3,885 127,659 15,055 663,336
Assets not by segment 101,561
Total assets 764,897
Liabilities by segment
Contract liabilities 2,323 1,059 38 - 3,420
Lease liabilities - - 8,374 3,449 11,823
Other liabilities - - 950 - 950
Provisions - - 1,963 70 2,033
Other long-term liabilities 626 - 569 - 1,195
Bank loans - - - 141,544 141,544
2,949 1,059 11,894 145,063 160,965
Liabilities not by segment 93,079
Total liabilities 254,044
31 December 2022 Asset Asset Energy Unallocated Total
management installation management £'000 operations
£'000 £'000 £'000 £'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
Investments in associates - - 1,940 - 1,940
Inventories 37,136 302 - - 37,438
Other receivables - - 12,347 - 12,347
Contract assets - 10 277 - 287
86,278
Assets not by segment 697,362
Total assets 13,550 3,497 3,161 5,624 25,832
Liabilities by segment
Contract liabilities 1,518 1,805 80 - 3,403
Lease liabilities - - 8,405 3,956 12,361
Other liabilities 606 - 2,062 - 2,668
Provisions - - 1,963 70 2,033
20,465
Liabilities not by segment 143,411
Total liabilities 163,876
Assets not by segment include cash and cash equivalents, trade and other
receivables and investments. Liabilities not by segment include trade and
other payables and deferred tax liabilities.
3 Disaggregation of revenue from contracts with customers
The Group reports the following segments: asset management, asset installation
and energy management, in accordance with IFRS 8 Operating Segments. We have
determined that, to meet the objective of the disaggregation disclosure
requirement in paragraph 114 of IFRS 15, which is to disaggregate revenue from
contracts with customers into categories that depict how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by economic
factors, further disaggregation is required into the major types of services
offered. The following table thus discloses segmental revenue by type of
service delivered and timing of revenue recognition, including a
reconciliation of how this disaggregated revenue ties in with the asset
management, asset installation and energy management segments, in accordance
with paragraph 115 of IFRS 15.
Period ended 30 June 2023 Asset Asset Energy Total
management installation management operations
£'000 £'000 £'000 £'000
Major service lines
Metering 47,117 - - 47,117
Data management 6,503 - - 6,503
Utility connections - 4,023 - 4,023
Transactional meter works - 13,589 - 13,589
Grid-scale batteries - - 4,010 4,010
Energy management - 18 4,047 4,065
53,620 17,630 8,057 79,307
Timing of revenue recognition
Services transferred at a point in time - 13,589 1,024 14,613
Services transferred over time 53,620 4,041 7,033 64,694
53,620 17,630 8,057 79,307
Period ended 30 June 2022 Asset Asset Energy Total
management installation management operations
£'000 £'000 £'000 £'000
Major service lines
Metering 38,515 - - 38,515
Data management 6,319 - - 6,319
Utility connections - 3,448 - 3,448
Transactional meter works - 8,695 - 8,695
Grid-scale batteries - - 2,764 2,764
Energy management - 151 2,784 2,935
44,834 12,294 5,548 62,676
Timing of revenue recognition
Services transferred at a point in time - 8,695 - 8,695
Services transferred over time 44,834 3,599 5,548 53,981
44,834 12,294 5,548 62,676
4 Exceptional items
30 June 2023 30 June 2022
£'000 £'000
Exceptional operating items
Losses on the traditional and SMETS1 meter portfolio (1,858) (3,292)
Other (126) (33)
Total exceptional items (1,984) (3,325)
5 Earnings per share
The calculation of earnings per share (EPS) is based on the following data and
number of shares:
Six months Six months
ended ended
30 June 30 June
2023 2022
Unaudited Unaudited
£'000 £'000
Profit for the period used for calculation of basic EPS 5,755 4,496
Number of shares Six months Six months
ended ended
30 June 30 June
2023 2022
Unaudited Unaudited
Weighted average number of ordinary shares for the purposes of basic EPS 133,338,954 133,225,387
Effect of potentially dilutive ordinary shares:
- share options 572,425 804,788
Weighted average number of ordinary shares for the purposes of diluted EPS 133,911,379 134,030,175
EPS:
- basic (pence) 4.32 3.37
- diluted (pence) 4.30 3.35
6 Dividends
Six months Six months Six months Six months
ended ended Year ended Year ended ended ended
30 June 30 June 31 December 31 December 30 June 30 June
2023 2023 2022 2022 2022 2022
Unaudited Per share Audited Per share Unaudited Per share
£'000 (pence) £'000 (pence) £'000 (pence)
FY21 2nd interim dividend paid - - 9,166 6.875 9,166 6.875
FY21 3rd interim dividend paid - - 9,169 6.875 9,169 6.875
FY21 final dividend paid - - 9,170 6.875 9,170 6.875
FY22 first dividend accrued - - 10,087 7.5625 - -
FY22 1st interim dividend paid - - - - - -
FY22 2nd interim dividend paid 10,088 7.5625 - - - -
FY22 3rd interim dividend paid 10,090 7.5625 - - - -
FY22 final dividend accrued 10,104 7.5625
Total dividends 30,282 22.6875 37,592 28.1875 27,505 20.625
Per the Group's dividend policy, a 30.25p per share dividend was approved in
respect of FY 2022, payable in four instalments of 7.5625p per share. The
final instalment of the FY 2022 dividend was paid on 27 July 2023.
A 33.275p per share dividend is intended in respect of FY 2023 payable in four
instalments of 8.31875p per share.
7 Property, plant and equipment
Freehold/ Plant and Fixtures, Motor Right-of-use Grid-scale assets Assets under construction Total
leasehold Meter machinery fittings and vehicles assets £'000 £'000 £'000
property assets £'000 equipment £'000 £'000
£'000 £'000 £'000
Cost
As at 1 January 2022 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
Reclassification - - - - - - 124 (124) -
Additions - 50,086 96 320 2,391 - - 10,177 63,070
Disposals - (12,014) (5) (36) (1,108) (54) - - (13,217)
Exchange adjustments - - - (2) - (1) - - (3)
As at 30 June 2023 3,218 583,643 1,277 9,480 6,639 16,945 54,256 41,435 716,893
Depreciation
As at 1 January 2022 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
Charge for period 79 15,716 30 474 311 632 1,494 - 18,736
Disposals - (4,373) (5) (36) (956) (54) - - (5,424)
Exchange adjustments - - - (1) - (1) - - (2)
As at 30 June 2023 925 127,202 1,110 7,840 3,412 4,136 2,488 - 147,113
Net book value
As at 30 June 2023 2,293 456,441 167 1,640 3,227 12,809 51,768 41,435 569,780
As at 31 December 2022 2,372 429,712 101 1,795 1,299 13,441 53,138 31,382 533,240
As at 1 January 2022 1,954 366,705 176 1,975 1,721 9,380 - 33,990 415,901
Included within the closing meter assets net book value of £456,441,000 (31
December 2022: £429,712,000) is £9,251,000 (31 December 2022: £11,173,000)
relating to the traditional meter portfolio, which will be written down to
zero by 1 July 2025. In the H1 2023 consolidated financial statements there
was a £2,061,000 depreciation charge recognised on the traditional domestic
meter portfolio (H1 2022: £2,581,000). £11,790,000 annualised recurring
revenue as at 30 June 2023 (30 June 2022: £11,675,000) arises from the owned
traditional meter portfolio.
The assets are secured by a bond and floating charge.
For the purpose of impairment testing, the traditional meter asset portfolio
recognised within "Meter assets" is assessed as a standalone cash-generating
unit (CGU) and it's carrying amount is compared with the recoverable amount.
In line with IAS 36, no impairment review was considered necessary at 30 June
2023 as the previous impairment review carried out at 31 December 2022 showed
a significant excess of recoverable amount over carrying amount and management
concluded that there were no reasonably possible changes in the key
assumptions that would cause the carrying amounts of the traditional meter
portfolio to exceed the value in use. Since this date there have also been no
events that would eliminate this excess or any new material indicators of
impairment.
Therefore, no impairment has been recognised in the period ended 30 June 2023
(30 June 2022: £nil). No impairment on other meter assets has been recognised
in the period ended 30 June 2023 (30 June 2022: £nil).
8 Bank loans
Six months Six months
ended ended
30 June 30 June
2023 2022
Unaudited Unaudited
£'000 £'000
Current 2,920 -
Non-current 138,624 -
141,544 -
The Group has a £420m 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 balance as at 30 June 2023 is stated net of £1,376,000 of unamortised
transaction costs (31 December 2022: £1,651,000).
The Group has complied with the financial covenants of its borrowing facility
during the current and prior reporting periods.
9 The half-yearly financial report was approved by the Board of Directors on
12 September 2023.
10 A copy of this half-yearly financial report is available by visiting our
website at www.sms-plc.com (http://www.sms-plc.com) .
11 Post balance sheet events
Following the 30 June 2023 period end, the Group acquired the trade and assets
of the domestic services division of Evergreen Energy Limited. Evergreen
Energy's domestic services division specialises in the installation and
maintenance of renewable energy assets, including heat pump, solar and battery
storage for homeowners. The acquisition will enhance SMS's capacity to deliver
an extended range of low-carbon, behind-the-meter energy solutions to the UK's
domestic and commercial marketplaces.
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