Smart Metering Sys - Half-year results
13/09/2022 07:00
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RNS Number : 1719Z Smart Metering Systems PLC 13 September 2022
13 September 2022
Smart Metering Systems plc
Strong H1 performance, executing on our growth plans
Smart Metering Systems plc (AIM: SMS, "SMS", "the Group"), which installs and
manages smart meters, energy data, grid-scale battery storage and other carbon
reduction ("CaRe") assets, today publishes its half year results for the six
months ended 30 June 2022.
H1 financial performance
£'m (unless stated otherwise) H1 2022 H1 2021 % Change
Alternative performance measures
Index-linked annualised recurring revenue (ILARR)(1) 93.1 84.2 +11%
Pre-exceptional EBITDA(2) 29.1 26.1 +11%
Underlying profit before taxation(3) 10.3 9.6 +7%
Underlying basic EPS (p)(4) 5.92 4.20 +41%
Statutory performance measures
Group revenue 62.7 51.7 +21%
EBITDA 25.8 22.4 +15%
Profit before taxation 6.1 5.0 +22%
Basic EPS (p) 3.37 0.90 +274%
Dividend per share (p) 20.625 18.750 +10%
Net cash 38.6 5.6
(1 ILARR is the revenue generated from meter rental and data contracts at a
point in time. Includes revenue from third-party managed meters.)
(2 Pre-exceptional EBITDA is statutory EBITDA excluding exceptional items.)
(3 Underlying profit before taxation is profit before taxation excluding
exceptional items and amortisation of certain intangibles.)
(4 Underlying basic EPS is underlying profit after taxation divided by the
weighted average number of ordinary shares for the purpose of basic EPS.)
(A reconciliation between statutory and underlying performance is detailed in
the Financial Review section. )
Highlights
Financial
· ILARR of £93.1m at 30 June 2022, up 8% on year-end (31 December 2021:
£85.9m) and up 11% on the prior period (30 June 2021: £84.2m)
· Revenue up 21% to £62.7m (H1 2021: £51.7m)
· Pre-exceptional EBITDA up 11% to £29.1m (H1 2021: £26.1m)
· Underlying profit before taxation up 7% to £10.3m (H1 2021: £9.6m)
· Net cash at 30 June 2022 of £38.6m (30 June 2021: £5.6m)
· Debt facility of £420m fully undrawn at 30 June 2022
Smart meters
· Since the start of Q2 2022, the run rate for smart meter installations
has increased to over 40,000 per month (FY 2021: c.30,000 meters average per
month)
· The total smart meter portfolio was c.1.9m at 30 June 2022 (FY 2021:
c.1.7m), including 230,000 smart meter additions in H1 2022
· Strong contracted smart meter order pipeline at 30 June 2022 of c.2.42m
(31 December 2021: c.2.55m) reflecting a further contract win and net of
installations
Grid-scale batteries
· Grid-scale battery portfolio increased to 760MW (31 December 2021:
620MW) including:
o 50MW site at Burwell operational since end of January 2022 and performing
ahead of previous expectations (equivalent to annualised c. £0.1m/MW EBITDA)
o 360MW fully secured, including 190MW in construction
o 350MW under exclusivity
· Second site of 40MW is now energised and is in the final stages of
commissioning, and a further 100MW is expected to come online by the end of H1
2023
CaRe Products
· Strategic investments in Clenergy EV and n3rgy Data accelerate the
Group's capabilities in electric vehicle (EV) charging infrastructure and
energy data management
· Continued progress in other CaRe products and services including energy
efficiency and Behind-the-Meter solar, storage and heat solutions
· The Group considers these CaRe products to be closely aligned to our
existing engineering and energy skills, and to our technology platforms.
Management sees substantial further growth opportunity in what are large and
growing markets
Outlook
· The Board expects FY2022 pre-exceptional EBITDA and underlying PBT to
be in line with the upgraded guidance given in our trading update announcement
on 27 July 2022
· 10% growth in dividend to 30.25p per share intended for FY 2022 in
line with policy until 2024
· The Board is confident in the Group's growth prospects for FY2023
o we expect the increase in smart meter installation run rates to continue
o our forward view on grid-scale battery returns has improved
o the prevailing inflationary environment is expected to have a net positive
impact on our forecasts due to our index-linked contracts
o as a result, the Board expects that pre-exceptional EBITDA for FY2023 will
be marginally ahead of its previous expectations and, despite the impact of
higher interest rates, underlying PBT will be in line with its previous
expectations
Tim Mortlock, Chief Executive Officer, commented:
"The strong half year results again demonstrate the resilience of our business
model, which is underpinned by our index-linked recurring cash flows from
meter and data assets, and reflect the strong performance of our first
grid-scale battery storage project.
"We have made significant progress in executing the strategy set out last
Autumn. We are pleased to see continued acceleration in our meter installation
run rates, an increase in our smart meter portfolio and a new contract which
adds to our smart meter order pipeline. Leveraging on our end-to-end platform,
we have successfully built and begun to deliver a strong pipeline of
grid-scale battery storage projects within a short period of time, with
significant additional opportunities from this substantial and growing market.
"Our two recent strategic investments in EV charging infrastructure and energy
data are complementary to our existing end-to-end business model and enhance
our ability to accelerate other carbon reduction (CaRe) products and services,
providing opportunities for further growth over the long-term.
"The global energy market is in a period of extreme turbulence and there is a
fundamental need for the CaRe assets we originate and own. These assets enable
the transition to a low carbon, flexible, secure and, of particular importance
at this time to all businesses and consumers, low-cost energy system. We
remain confident about the future growth prospects for the business."
There will be an analyst webcast at 9.00am today - please contact
sms@instinctif.com for details. The half year results presentation will be
published on the Group's website shortly.
For further information:
Smart Metering Systems plc 0141 249 3850
Tim Mortlock, Chief Executive Officer
Gavin Urwin, Chief Financial Officer
Dilip Kejriwal, Head of Investor Relations
Cenkos Securities plc (Joint Broker 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 Hourahane SMS@instinctif.com
Notes to Editors
Smart Metering Systems plc (www.sms-plc.com) is a fully integrated energy
infrastructure company, which installs and manages smart meters, energy data,
grid-scale battery storage and other carbon reduction ("CaRe") assets. The
Group manages and optimises these assets through its in-house technology and
data analytical platform "METIS".
Established in 1995, SMS provides a full end-to-end service, from funding and
installation to management and maintenance, with a highly skilled workforce,
deep engineering expertise and well-established industrial partnerships.
SMS is leading the low carbon, smart energy revolution in the UK and is
committed to reducing its own carbon emissions to net zero by 2030. SMS has
been recognised with the London Stock Exchange's Green Economy Mark every year
since it was introduced in 2019.
SMS plc is headquartered in Glasgow with a national presence across twelve UK
locations.
SMS's shares are quoted on AIM.
Overview
SMS continues to make significant progress in executing the strategy set out
at the time of our equity placing last autumn. The Group has continued to add
to its pipelines of both meter and grid-scale battery storage assets, and
deployment of these pipelines is accelerating. The Group's ILARR has increased
to £93.1m (+11% year-on-year) and our first operational grid-scale battery
site is performing well ahead of the Board's original expectations.
Financial performance over the first half of the year was strong and FY 2022
underlying EBITDA and PBT is expected to be in line with the upgraded guidance
given in our trading update announcement on 27 July 2022.
The Group has continued to increase its smart meter installation run rate. A
new smart meter contract win added c.0.1m to our smart meter order pipeline
which is now at c.2.42m, after taking account of 230,000 smart meter
installations in H1 2022.
We commenced trading of our first 50MW grid-scale battery site at Burwell at
the end of January 2022. The site's performance was well ahead of the Board's
expectations and over H1 was equivalent to an annualised EBITDA contribution
of £0.1m/MW and an annualised yield of c.26%, which we believe to be in-line
with the wider emerging market.
The Group also made considerable progress in developing its portfolio of
grid-scale battery storage assets which now stands at 760MW, including the
first 50MW operational site.
During H1 2022, SMS also made two strategic investments, accelerating the
Group's capabilities in the EV charging infrastructure asset class and further
expanding its service offering in energy data management. The Group also
continued to make progress in other CaRe products and services, including
energy efficiency, Behind-the-Meter solar, storage and heat solutions - all of
which are central to addressing fuel poverty, the broader 'net zero' agenda
and the UK energy transition.
UK smart meter rollout
SMS has continued to grow its delivery capacity and has, in line with the
Group's expectations, increased the number of smart meters installed to an
average of more than 40,000 per month from Q2 2022 (FY 2021: c.30,000 meters
average per month). We installed 230,000 smart meters during H1 2022,
increasing our smart meter portfolio to c.1.9m. We expect to install at least
450,000 smart meters in FY 2022.
SMS has good visibility of meter hardware availability for the remainder of
2022 and beyond, with a resilient and diverse supply chain in place and the
meter inventory within our UK warehouses to support these continued run-rates.
In June 2022, SMS entered into an agreement with an independent energy
supplier to provide services as an integrated domestic smart meter installer
and Meter Asset Provider. This contract win adds c.0.1m meters to our
contracted smart meter order pipeline. Energy suppliers continue to have
mandated annual installation targets to exchange 85% of meters to smart by the
end of 2025.
We expect further turbulence in the energy market particularly through the
winter period which, alongside the inflationary environment, will continue to
provide many challenges for consumers and industry participants. However, we
remain strongly positioned with our pipeline heavily weighted to larger, well
financed energy suppliers, and we continue to see opportunity in the market to
build our pipeline further.
Grid-scale battery storage
The Group's first 50MW grid-scale battery site at Burwell became operational
and commenced trading at the end of January 2022 and accessed all revenue
streams from 1 March 2022. Thus far, the majority of the revenues have been
generated from the provision of frequency services, such as Dynamic
Containment. Whilst the current Dynamic Containment / frequency service prices
will soften over time as the volume of battery storage in the market grows,
there is a fundamental and increasing need for this asset class to provide
balancing services to the national energy network. This was reflected in
National Grid recently increasing their forecast requirement for energy
storage by 2030 by 7.2GW to 18.7GW (of which 14.1GW is expected to come from
battery storage). There is currently only c.4GW of energy storage connected to
the grid. The increasing requirement is driven by both the growing volume of
intermittent renewable generation and growing peak demand from the
electrification of heat and transport.
Our total grid-scale battery portfolio increased to 760MW (31 December 2021:
620MW) including the first operational 50MW site. The total fully secured has
increased to 360MW of which 190MW is currently in construction. The remaining
350MW is under exclusivity. Our second 40MW site is now energised and is in
the final stages of commissioning with a further 100MW expected to come online
by the end of H1 2023.
The capital costs of developing the sites in construction are progressing in
line with our previous guidance of c.£380k/MW. Longer term we anticipate that
inflation in battery and electrical equipment costs will increase the
development cost for the sites that are yet to enter construction or are
currently under exclusivity. Utilising updated independent long-term revenue
forecasts for the provision of battery services to the grid, we now expect
longer-term EBITDA contribution of £57k-£65k/MW which compares to previous
guidance of £42k-£53k/MW.
The increasing reliance of the UK energy system on intermittent renewable
generation has amplified the importance of grid-scale batteries, underpinning
the attractive revenue streams generated from this asset class, and we will
continue to ensure we are a significant market participant in this substantial
market.
Strategic Investments
During H1 2022, SMS made two strategic investments, accelerating the Group's
capabilities in the EV charging infrastructure asset class and further
expanding its service offering in energy data management.
In EV charging infrastructure, SMS invested an initial £2.0 million to
acquire a 25% shareholding in Clenergy EV, a software business with a Charge
Point Operator (CPO) platform focused on EV charging infrastructure. SMS has
the option to invest a further £2.0 million after one year, leading to the
acquisition of an additional 26% interest, and has an option to acquire the
remaining shares after five years. This investment complements SMS's existing
EV installation capabilities and will enable the Group to deliver a fully
end-to-end integrated platform for EV charging infrastructure. We are
investing in growing our pipeline of activity in this area over the coming
years, addressing the destination, on-street and fleet market segments.
In energy data management, SMS acquired 100% of n3rgy, a data software
company, for a cash consideration of £1.4 million. n3rgy's software (SaaS)
platform enables and facilitates the use of energy consumption, generation and
tariff data from smart meters registered on the Data Communications Company
(DCC) platform. The acquisition will enhance and accelerate SMS's existing
capabilities in smart energy data solutions, providing the Group with a strong
competitive position in the significant addressable market as the electricity
industry moves towards mandatory half-hourly settlement.
ESG progress and sustainability
Our Scope 1 and Scope 2 emissions in H1 2022 are set out below and compared to
H1 2019 as this was our base year when setting net zero targets. Both the
years 2020 and 2021 were distorted by the effect of the COVID-19 pandemic, and
so we are benchmarking our progress against the 2019 position.
Scope 1 and 2 emissions (TCO2e) H1 2022 H1 2019 % change
Total Scope 1 1,454.6 1,439.9 +1%
Scope 2 - Building electricity 65.6 100.6 -35%
Scope 2 - Grid scale batteries electricity 376.7 - +100%
Our Scope 1 emissions, which are mainly generated by our vehicle fleet, were
broadly held at 2019 levels despite the Group carrying out significantly more
meter installation and transactional work. This indicates that our fleet is
operating more efficiently than in 2019. We are currently in the detailed
planning phase for gradually transitioning our vehicle fleet to fully electric
by 2030.
Our Scope 2 building electricity emissions are down 35% from 2019 levels which
was achieved by increasing our employees' awareness of energy efficient
practices and monitoring through our ISO 50001 certified energy management
system. We also commenced site work over the summer on the sustainability
upgrade of our first office. Measures include installing solar panels and
battery storage, replacing the gas boiler with a heat pump and improving
insulation and thermal performance.
Our Scope 2 emissions from grid-scale batteries are entirely due to the
electricity consumed in testing and operating our first grid-scale battery
site. Grid-scale battery storage plays an essential role in enabling the UK to
increase the electricity generated by renewables and so, whilst within the
scope of our reporting, we report these emissions separately due to the
positive contribution these assets make to the net zero transition.
Our 'handprint' is the amount of carbon emissions mitigated through our
customers using our products and services. The positive impact of our H1 2022
handprint was 61 times the negative impact of our carbon footprint.
In the areas of social responsibility, SMS committed to increase its donations
to charities within the local communities close to our offices to £90,000 per
annum over the next three years and we have continued to support a variety of
charities and good causes, suggested by our employees, through donations and
sponsorship.
Current trading and outlook
The Group continued its strong installation run rates in July and August and
is on track to install at least 450,000 smart meters in FY 2022. SMS has good
visibility of meter hardware availability for the remainder of 2022 and
beyond. At 31 August 2022, the Group's ILARR stood at £94.4m.
The trading performance of our first 50MW grid-scale battery project continued
to remain well ahead of expectations in July and August and our second 40MW
site is now energised and is in the final stages of commissioning.
As a result, the Board remains confident that pre-exceptional EBITDA and
underlying PBT for FY2022 will be in line with the upgraded guidance given in
our trading update announcement on 27 July 2022.
Looking forward, there are a number of factors which underpin the Board's
confidence in the Group's prospects for FY2023, notwithstanding current, wider
economic uncertainty.
We expect the increase in smart meter installation run rates to continue into
next year as we deliver our contracted smart meter order pipeline. Our forward
view on grid-scale battery returns has improved, supported by independent
forecasts, the positive early trading from our first grid-scale battery site
and the current favourable frequency market. We will continue to invest in the
development of our EV business, creating attractive new growth opportunities.
In addition, the prevailing inflationary environment is expected to have a
positive impact on index-linked revenues from our smart meter portfolio with
effect from April 2023. However, inflation will also increase operational
costs and capital expenditure across the Group and increasing interest rates
coupled with higher net debt levels in line with the Group's investment plans
will result in higher interest costs.
Overall, the Board expects that pre-exceptional EBITDA for FY2023 will be
marginally ahead of its previous expectations and that underlying PBT will
remain in line with its previous expectations.
Operational review by division
Asset management:
Total meter and data asset ILARR has grown 8% since year-end to £93.1m (31
December 2021: £85.9m). The increase includes an annual RPI adjustment of
4.3% which came into effect on 1 April 2022.
A breakdown on ILARR at 30 June 2022 and the % change since 31 December 2021
is shown below:
Category % change ILARR Details
Domestic smart meters + 15% £57.4m 1.9 million smart meters
Data assets + 13% £15.7m 0.5 million data assets
I&C meters + 10% £5.1m 0.1 million I&C meters
Traditional domestic meters - 1% £11.6m Traditional meters to be exchanged for smart over the UK smart meter rollout
programme
Third party assets - 39% £3.3m Industry appointment to third party owned meters (traditional). Now excludes
£2.2m of pass-through third-party rental
Total £93.1m
In June 2022, SMS entered into an agreement with an independent energy
supplier to provide services as an integrated domestic smart meter installer
and Meter Asset Provider. This contract win adds c.0.1m meters to SMS's
contracted smart meter order pipeline.
The Group installed 230,000 smart meters during H1 2022, thereby increasing
the smart meter portfolio to c.1.9m meters. The net remaining smart meter
order pipeline at 30 June 2022 stood at c.2.42 million meters (31 December
2021: c.2.55 million).
SMS has continued to support the enrolment and adoption of first generation
('SMETS1') smart meters into the Data Communications Company (DCC) platform.
The migration of the Group's own SMETS1 portfolio is progressing slightly
ahead of the industry with c.70% of our portfolio of SMETS1 meters now
enrolled onto the DCC platform.
The Group maintains a diverse source of meter manufacturers and has
purposefully increased stock levels in our UK distribution warehouses to
mitigate the risk of delays in the supply chain and ensure that meters are
available to support the growth in our installation run rate.
The index-linked nature of our meter rentals protects us from the current high
levels of inflation. We expect that although, over time, the installed cost of
meters will rise in line with this inflation, the RPI indexation of our
revenue will result in us at least maintaining our guided yield on these
assets.
We have also moved to align our ILARR reporting with our financial accounts,
by excluding pass-through elements of third-party managed meters, which has
always been a feature of this segment. This fully aligns our ILARR reporting
with the revenue performance in our Asset Management division.
Following the acquisition of a large power metering and data portfolio in
April 2021, we have been pleased to continue to grow and fully recognise the
ILARR from these data services as we have integrated the services into our
METIS platform and validated the contracted position of all revenue streams.
Looking forward, the acquisition of n3rgy enhances SMS capabilities in smart
energy data solutions. This strengthens the Group's ability to take advantage
of the significant new addressable market created by the move to market-wide
half hourly settlement which BEIS have mandated from the end of 2025.
Asset installation:
We have continued to invest in our delivery capability, in order to increase
our installation run rate. Over FY 2021 we installed c.30,000 meters per
month, but for Q2 2022 this increased to an average of over 40,000 per month
with a total of 230,000 meters installed in H1 2022. We expect to install over
450,000 smart meters in FY 2022.
Whilst we have consciously increased our direct labour engineering capacity,
we continue to focus on balancing regional engineering capacity with customer
portfolios to maximise installation efficiency and we will seek to maintain an
appropriate balance of direct and sub-contractor resources to maintain this
efficient approach. We also continue to support energy suppliers and
developers in the provision of new connections and emergency call-out
services, a recurring transactional service requirement which can also provide
complementary opportunities for asset origination.
Alongside our core focus on delivering first class customer service and
increasing our smart meter installation run rate, the Group is investing in
building our capabilities in the installation of other CaRe asset classes - in
particular domestic electric vehicle charge points. We see this as a
significant and complementary future market opportunity.
Energy management:
The commencement of trading at our Burwell grid-scale battery site has more
than doubled the revenue of the Energy management division. The trading
performance of grid-scale batteries and the growth in our battery portfolio
are detailed in the grid-scale battery storage section above.
Our traditional consultancy and energy management services grew significantly
compared to the prior period.
Our work at some of our key customers had been constrained while the country
was under COVID-19 restrictions. This year however, site-based energy
efficiency projects have now been able to progress at a more normal pace. The
exceptional increase in energy costs over recent months makes the case for our
energy management and efficiency services even more compelling, and we see
substantial demand for holistic services to I&C customers to reduce costs
and support them on their path to net-zero.
The Group also considers an integrated approach to our energy solutions to be
a significant differentiator and a potential driver of asset origination and
value. We are able to combine asset classes such as battery storage, renewable
generation and EV charging infrastructure with deployment of our electrical
infrastructure and energy efficiency expertise. We are investing in growing
our pipeline of activity in these areas over the coming years, in particular
to address the EV charging destination, on-street and fleet market segments.
Financial review
Revenue
30 June 2022 30 June 2021
£m £m Percentage
change
Asset management 44.8 39.4 14%
Asset installation 12.3 10.4 18%
Energy management 5.6 1.9 186%
Group revenue 62.7 51.7 21%
Asset management revenues of £44.8m, which include revenues from the
acquisition of the large-power I&C metering and data portfolio in April
2021, are 14% up on the prior period. This growth reflects the flow-through
effect of progressively increasing the rate of meter installations at the end
of 2021 and into 2022 and the 4.3% annual RPI uplift which took effect on 1
April 2022.
Asset installation revenues of £12.3m increased 18% on the prior period with
growth across both our connections business and transactional meter works.
Energy management revenues of £5.6m were 186% up on the prior period. This
includes £2.8m revenue from our first grid-scale battery site which became
operational at the end of January 2022 and began providing dynamic frequency
response services from March 2022. Revenue from Energy management excluding
grid-scale battery of £2.8m grew 47% on prior period as a key customer
project in the hospitality sector picked up momentum as the sector continued
to recover from the effect of COVID-19 and focus turned to energy efficiency.
Gross margins
SMS includes depreciation on revenue-generating assets within cost of sales
for statutory reporting purposes. Removing this from the gross margin provides
a better comparison of the Group's underlying trading performance
year-on-year. Overall, the depreciation-adjusted gross margin at the Group
level fell by 5% to 73% (H1 2021: 78%). This is mainly due to a lower margin
in the asset installation segment.
Depreciation-adjusted gross margin for the asset management segment is 93%
which is in line with prior period (H1 2021: 93%).
The asset installation segment gross margin was 14% (H1 2021: 38%). In H1 2021
the asset installation margin was positively impacted by the flow through from
some high margin transactional work that has not repeated in H1 2022.
Furthermore, in H1 2022 the Group has continued to grow its engineering
workforce in order to support the planned increase in meter installations.
Costs associated with this investment in the workforce such as recruitment and
training have led to additional one-off costs in the period.
The energy management segment depreciation-adjusted gross margin has increased
to 49% (H1 2021: 25%). This is due to the start of trading of our first
grid-scale battery site which generated a 75% depreciation-adjusted gross
margin over the period. Grid-scale batteries delivered revenue of £2.8m and
depreciation adjusted gross profit of £2.1m in the period. The gross margin
on the segment's other activities remained broadly constant at 23% (H1 2021:
25%).
Pre-exceptional EBITDA
Pre-exceptional EBITDA provides a measure of underlying performance that is
comparable over time. Pre-exceptional EBITDA of £29.1m is 11% higher than in
the prior period (H1 2021: £26.1m).
The £5.0m increase in depreciation-adjusted gross profit is partly offset by
a £2.0m increase in administrative costs, excluding depreciation and
amortisation. Over the second half of 2021 we invested in our IT and support
systems and we restored our support functions to a normalised position
following COVID-19 lockdowns. Administrative costs in H1 2022 are £1.1m below
H2 2021 with a fall in bad debt expense more than offsetting inflationary cost
increases.
Underlying profit before tax
Depreciation costs on general property, plant and equipment, excluding meter
assets and grid-scale battery sites, has reduced by £0.2m to £1.9m (H1 2021:
£2.1m) due to some computer equipment and fixtures and fitting now being
fully depreciated.
Depreciation costs on meter assets increased 16% to £13.7m (H1 2021: £11.8m)
due to the increase in the meter asset portfolio and a full six months of
depreciation being charged on the large-power I&C metering and data
portfolio acquired in April 2021.
Depreciation cost on grid-scale battery sites increased to £0.4m (H1 2021:
nil) due to the commencement of depreciation on our first operational
grid-scale battery site in H1 2022.
Amortisation costs on our intangible assets of £2.1m (H1 2021: £2.0m) mainly
consist of software amortisation and were in line with prior period.
Net finance costs of £1.6m (H1 2021: £1.6m) were broadly in line with prior
period. As part of our refinancing in October 2021 we increased our committed
loan facility from £300m to £420m and this has resulted in an increase in
the commitment fees on our unutilised facility. This was however offset by
interest income and FX gains.
As a result, underlying profit before taxation increased by 7% to £10.3m (H1
2021: £9.6m).
Exceptional items
Exceptional items of £3.3m (H1 2021: £3.7m) mainly comprise a £3.3m loss on
the traditional and first-generation smart meter ('SMETS1') portfolio (H1
2021: £3.0m). In line with the Group's established policy, these losses are
shown separately as exceptional items in order to enhance disclosure of
underlying continuing profitability. Exceptional items in H1 2021 also
included £0.5m of costs attributable to COVID-19 and £0.2m of acquisition
and other costs that have not repeated in H1 2022.
Effective tax rate
The Group's capital expenditure on meter assets qualifies for capital
allowances, providing the Group with tax relief on such expenditure. These
allowances are claimed in the tax year in which the asset is acquired and set
against taxable profit for that year, thus reducing the total tax payable. As
a result, the Group was not tax-paying in either the current or prior period.
The current forecast of the effective tax rate on pre-exceptional profits for
the full year is estimated at 25.49% (30 June 2021: 38.70%). This is in line
with the announced rate of UK corporation of 25% from 1 April 2023, which is
the rate that will apply when the deferred tax liability generated by the
capital allowances unwinds.
This forecast full year effective tax rate does not include any benefit from
the tax super-deduction. The Group is continuing to evaluate the applicability
of the super-deduction to its capital expenditure. The super-deduction rules
are complex to apply in the context of the Group's contracting structure. The
Group however anticipates reaching a conclusion by year end.
The effective rate on pre-exceptional profits in H1 2021 was high due to a
change in the deferred tax rate, following the UK Government's enactment of
the Finance Bill 2021 in May, which confirmed the increase in the rate of
corporation tax from 19% to 25% from 1 April 2023. This was applied to the
Group's brought-forward deferred tax liabilities on its portfolio of meter
assets increasing the charge in H1 2021. The full-year effective tax rate on
FY21 pre-exceptional profits excluding the impact of this rate change, was
18.5%.
Earnings per share
Underlying basic earnings per share (EPS), which excludes exceptional items,
amortisation of certain intangibles and their associated tax effect, was 5.92p
(H1 2021: 4.20p), reflecting the underlying profitability of the Group.
Statutory earnings per share increased to 3.37p (H1 2021: 0.90p).
Dividend
A 27.5p per share dividend in respect of FY 2021 was approved at the Group's
Annual General Meeting in May, and the fourth and final instalment of this was
paid in July 2022. A dividend accrual of £9.2m has therefore been recognised
at 30 June 2022 in our interim financial statements.
In line with the Group's policy to grow dividends at 10% per annum, a 30.25p
per share dividend is proposed in respect of FY 2022. This is expected to be
settled in four equal quarterly instalments in accordance with the provisional
timetable below:
Instalment Ex-dividend date Record date Payment date
1 6 October 2022 7 October 2022 28 October 2022
2 05 January 2023 6 January 2023 26 January 2023
3 06 April 2023 11 April 2023 27 April 2023
4 06 July 2023 07 July 2023 27 July 2023
The Board remains comfortable that future dividend payment amounts are
sufficiently secured by long-term index-linked cash flows from our existing
metering and data asset base and cash flows from our grid-scale battery
assets.
Cash flow and capex investment
Operating cash inflow in H1 2022 was £18.6m (H1 2021: £34.4m). The cash
inflow reflects £29.1m pre-exceptional EBITDA, £2.2m of non-cash costs
included in EBITDA and a £12.7m cash outflow on working capital net of tax
receipts, largely due to a deliberate build-up of inventory levels to mitigate
the risk of delays in the supply chain and ensure that meters are available to
grow our installation run rate.
The cash generated from operations and net cash from our October 2021 equity
placing have been used to continue investment in our revenue generating meter
and grid-scale battery assets.
Capital expenditure on property, plant and equipment was £59.1m (H1 2021:
£44.3m). Of this, £50.2m was invested in meter and data assets, £6.8m in
developing grid-scale battery sites and £1.1m relates to the purchase of land
at one of our grid-scale sites.
Investing activities also include a further £13.6m of instalment payments
made for grid-scale batteries which have not yet been delivered and payments
of £1.7m to acquire battery sites. On the balance sheet, the sites under
development are classified as assets under construction within the property,
plant and equipment and the instalment payments for batteries are classified
as other non-current receivables.
A further £1.1m (H1 2021: £1.1m) investment has been made in intangible
assets, mainly relating to the development of software to support the metering
and installations business.
Investing cash outflows also include a £1.4m payment to acquire n3rgy Data
Ltd in May and a £2.1m investment (including transaction costs) to acquire a
25% stake in Clenergy EV Ltd. See note 9 and note 11 to the consolidated
financial statements for further details.
Financial resources
Net cash at 30 June 2022 was £38.6m (31 December 2021: 117.7m). This excludes
restricted cash and lease liabilities accounted for under IFRS 16. The Group
also has in place a £420m debt facility which matures in December 2025 and
was fully compliant with all its bank covenants through the period to 30 June
2022. The Group has not drawn on this facility over H1 2022 and therefore had
£458.6m available in cash and unutilised facilities at 30 June 2022 (31
December 2021: £537.7m). In July 2022, the Group made a £25m draw down and
continues to have the financial flexibility required to maximise growth
potential in a capital-efficient way.
Definitions of alternative performance measures
Alternative performance measure Definition
Index-linked annualised 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(1).
Underlying profit after taxation Profit after taxation excluding exceptional items and amortisation of certain
intangibles(1) and the tax effect of these adjustments.
Underlying basic EPS Underlying profit after taxation divided by the weighted average number of
ordinary shares for the purposes of basic EPS.
Underlying diluted EPS Underlying profit after taxation divided by the weighted average number of
ordinary shares for the purposes of diluted EPS.
Net cash/debt Total bank loans less cash and cash equivalents, excluding restricted cash.
Excludes lease liabilities recognised under IFRS 16.
(1 Amortisation of the Group's new Enterprise Resource Planning system, which
went live in full in 2020, remains within the underlying cost base of the
business and is therefore a part of the Group's underlying profit measures.)
Reconciliation of statutory to underlying results
SMS uses alternative performance measures, defined above, to present a clear
view of what the Group considers to be the results of its underlying,
sustainable business operations. Excluding certain items enables consistent
year-on-year comparisons and aids a better understanding of business
performance. A reconciliation of these performance measures is disclosed
below:
Period Period ended Percentage
ended 30 June change
30 June 2021
2022 £m
£m
Index-linked annualised recurring revenue 93.1 84.2 11%
Group revenue 62.7 51.7 21%
Statutory profit from operations 7.7 6.6
Amortisation of intangibles 2.1 1.9
Depreciation 16.0 13.9
Statutory EBITDA 25.8 22.4 15%
Exceptional items(1) 3.3 3.7
Pre-exceptional EBITDA 29.1 26.1 11%
Net interest (1.6) (1.6)
Depreciation (16.0) (13.9)
Amortisation of intangibles included in underlying profit before taxation(2) (1.2) (1.1)
Underlying profit before taxation 10.3 9.6 7%
Exceptional items(1) (3.3) (3.7)
Amortisation of intangibles excluded in underlying profit before taxation (0.9) (0.8)
Statutory profit before taxation 6.1 5.0 22%
Taxation (1.6) (4.0)
Statutory profit after taxation 4.5 1.0 350%
Amortisation of intangibles excluded in underlying profit after taxation 0.9 0.8
Exceptional items(1) 3.3 3.7
Tax effect of adjustments (0.8) (0.8)
Underlying profit after taxation 7.9 4.7 68%
Weighted average number of ordinary shares (basic) 133,225,387 113,115,772
Underlying basic EPS (pence) 5.92 4.20
Weighted average number of ordinary shares (diluted) 134,030,175 113,954,757
Underlying diluted EPS (pence) 5.89 4.17
(1 Exceptional items are those material items of income and expense which,
because of the nature or expected infrequency of the events giving rise to
them, merit separate presentation on the consolidated income statement.)
(2 Amortisation of the Group's new Enterprise Resource Planning system, which
went live in full in 2020, remains within the underlying cost base of the
business and is therefore a part of the Group's underlying profit measures.)
Financial tables and notes
Consolidated income statement
For the period ended 30 June 2022
Unaudited
Six months ended 30 June
Notes 2022 2022 2022 2021 2021 2021
Before Exceptional Total Before Exceptional Total
exceptional items1 £'000 exceptional items1 £'000
items £'000 items £'000
£'000 £'000
Revenue 3 62,676 - 62,676 51,678 - 51,678
Cost of sales (30,834) - (30,834) (22,537) (800) (23,337)
Gross profit 31,842 - 31,842 29,141 (800) 28,341
Administrative expenses (21,330) (3,325) (24,655) (19,447) (2,917) (22,364)
Other operating income 532 - 532 581 - 581
Profit from operations 11,044 (3,325) 7,719 10,275 (3,717) 6,558
Finance costs (1,741) - (1,741) (1,553) - (1,553)
Finance income 78 - 78 1 - 1
Profit/(loss) before taxation 9,381 (3,325) 6,056 8,723 (3,717) 5,006
Taxation (2,391) 831 (1,560) (4,660) 677 (3,983)
Profit/(loss) for the period and total comprehensive income attributable to 6,990 (2,494) 4,496 4,063 (3,040) 1,023
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 2022
Unaudited
Six months ended 30 June
2022 2022 2022 2021 2021 2021
Before Exceptional Total Before Exceptional Total
exceptional items £'000 exceptional items £'000
items £'000 items £'000
£'000 £'000
Profit/(loss) for the period 6,990 (2,494) 4,496 4,063 (3,040) 1,023
Other comprehensive income
Exchange differences on translation of foreign operations 9 - 9 (42) - (42)
Other comprehensive income/(loss) for the period, net of tax 9 - 9 (42) - (42)
Total comprehensive income for the period attributable to owners of the parent 6,999 (2,494) 4,505 4,021 (3,040) 981
The profit from operations arises from the Group's continuing operations.
Earnings per share attributable to owners of the parent during the period:
Notes Six months Six months
ended ended
30 June 30 June
2022 2021
Unaudited Unaudited
Basic earnings per share (pence) 5 3.37 0.90
Diluted earnings per share (pence) 5 3.35 0.90
Consolidated interim statement of financial position
As at 30 June 2022
Notes Unaudited Audited
30 June 31 December
2022 2021
£'000 £'000
Assets
Non-current assets
Intangible assets 26,689 25,463
Property, plant and equipment 7 456,676 415,901
Investments 41 75
Investments in associates 2,125 -
Other assets 1,376 1,651
Trade and other receivables 13,632 -
Total non-current assets 500,539 443,090
Current assets
Inventories 29,752 22,980
Other assets 550 550
Trade and other receivables 46,492 47,631
Income tax recoverable 69 -
Cash and cash equivalents 38,624 117,687
Restricted cash 2,954 1,299
Total current assets 118,441 190,147
Total assets 618,980 633,237
Liabilities
Current liabilities
Trade and other payables 59,146 56,489
Lease liabilities 1,056 999
Provisions 71 -
Other liabilities 688 638
Total current liabilities 60,961 58,126
Non-current liabilities
Bank loans 8 - -
Lease liabilities 9,255 7,574
Deferred tax liabilities 14,266 12,199
Provisions 1,288 798
Other long-term liabilities 1,471 750
Total non-current liabilities 26,280 21,321
Total liabilities 87,241 79,447
Net assets 531,739 553,790
Equity
Share capital 1,334 1,333
Share premium 332,305 332,048
Other reserve 9,562 9,562
Own share reserve (927) (825)
Foreign currency translation reserve (36) (45)
Retained earnings 189,501 211,717
Total equity attributable to owners of the parent 531,739 553,790
Consolidated interim statement of changes in equity
For the period ended 30 June 2022
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 2021 1,129 160,471 9,562 (749) 1 236,028 406,442
Total comprehensive income for the period - - - - (42) 1,023 981
Transactions with owners in their capacity as owners
Dividends (note 6) - - - - - (21,231) (21,231)
Shares issued 8 1,062 - - - - 1,070
Movement in own shares - - - (32) - (57) (89)
Share-based payments - - - - - 325 325
Income tax effect of share options - - - - - 664 664
As at 30 June 2021 1,137 161,533 9,562 (781) (41) 216,752 388,162
Total comprehensive income for the period - - - - (4) 2,769 2,765
Transactions with owners in their capacity as owners
Dividends (note 6) - - - - - (7,829) (7,829)
Shares issued 196 170,515 - - - - 170,711
Movement in own shares - - - (44) - (146) (190)
Share-based payments - - - - - 516 516
Income tax effect of share options - - - - - (345) (345)
As at 31 December 2021 1,333 332,048 9,562 (825) (45) 211,717 553,790
Total comprehensive income for the period - - - - 9 4,496 4,505
Transactions with owners in their capacity as owners
Dividends (note 6) - - - - - (27,505) (27,505)
Shares issued 1 257 - - - - 258
Movement in own shares - - - (102) - (64) (166)
Share-based payments - - - - - 1,366 1,366
Income tax effect of share options - - - - - (509) (509)
As at 30 June 2022 1,334 332,305 9,562 (927) (36) 189,501 531,739
Consolidated interim statement of cash flows
For the period ended 30 June 2022
Six months Six months
ended ended
30 June 30 June
2022 2021
Unaudited Unaudited
£'000 £'000
Operating activities
Profit before taxation 6,056 5,006
Finance costs 1,741 1,553
Finance income (78) (1)
Foreign exchange loss (19) (8)
Exceptional items1 3,293 2,985
Depreciation 16,104 13,852
Amortisation of intangibles 2,059 1,997
Share-based payment expense 1,365 325
Loss on disposal of property, plant and equipment 892 645
Movement in inventories (5,923) 6,372
Movement in trade and other receivables 691 (4,554)
Movement in restricted cash (1,655) (311)
Movement in trade and other payables (6,398) 6,134
Movement in provisions (4) -
Cash generated from operations 18,124 33,995
Income tax received 503 409
Net cash generated from operations 18,627 34,404
Investing activities
Payments for acquisition of subsidiaries, net of cash acquired (note 10) (1,655) (3,848)
Payment for acquisition of new business (note 9) (1,432) (8,433)
Payment to acquire interest in associate (2,125) -
Payments to acquire property, plant and equipment (59,119) (44,326)
Payments on account to acquire grid-scale battery assets (13,632) -
Proceeds on disposal of property, plant and equipment 1,730 1,366
Payments to acquire intangible assets (1,133) (1,123)
Finance income received 78 1
Net cash (used in)/generated from investing activities (77,288) (56,363)
Financing activities
New borrowings - 33,250
Principal elements of lease payments (719) (586)
Finance costs paid (1,440) (478)
Net proceeds from share issue 258 1,070
Purchase of own shares (166) (89)
Dividends paid (18,334) (14,124)
Net cash (used in)/generated from financing activities (20,401) 19,043
Net (decrease)/increase in cash and cash equivalents (79,062) (2,916)
Exchange gain on cash and cash equivalents (1) (1)
Cash and cash equivalents at the beginning of the period 117,687 40,236
Cash and cash equivalents at the end of the period 38,624 37,319
1 Non-cash material exceptional items include £3,293,000 for losses on our
meter portfolio (30 June 2021: £2,985,000).
Notes to the interim report
For the period ended 30 June 2022
1 Basis of preparation
This condensed consolidated interim financial report for the half-year
reporting period ended 30 June 2022 has been prepared in accordance with
Accounting Standard IAS 34 Interim Financial Reporting. The Company is a
public limited company incorporated and domiciled in Scotland whose shares are
quoted on AIM, a market operated by the London Stock Exchange.
The financial information contained in this half-yearly financial report does
not constitute statutory accounts as defined in section 434 of the Companies
Act 2006. It does not therefore include all the information and disclosures
required in the annual financial statements and should be read in conjunction
with the Group's annual financial statements for the year ended 31 December
2021.
The financial information for the six months ended 30 June 2022 is also
unaudited.
The comparative information for the year ended 31 December 2021 has been
extracted from the Group's published financial statements for that year, which
were prepared in accordance with UK-adopted international accounting standards
and have been delivered to the Registrar of Companies. The report of the
auditor on these accounts was unqualified and did not contain a statement
under section 498(2) or (3) of the Companies Act 2006.
Going concern
Management prepares budgets and forecasts on an eight-year forward-looking
basis. These forecasts cover operational cash flows and investment capital
expenditure and are prepared based on management's estimation of installation
run rates through the UK smart meter rollout and the planned roll-out of
grid-scale battery storage assets.
Management has modelled different meter installation and grid-scale battery
roll-out scenarios, including a downside scenario, which assumed a slower
rollout of new installations and delays to the grid-scale battery sites
becoming operational. The scenario proved that the business would still have
sufficient cash flow to continue to operate, banking covenants would remain
satisfied with adequate headroom, and adequate cash would be available to
cover liabilities and operating costs. This modelling provides confidence to
management that, even in adverse circumstances, the business will still have
sufficient resources to continue to operate.
The Group has a £420m revolving credit facility which matures in December
2025 and no amounts were drawn as at 30 June. The Group made a £25m draw down
in July 2022 and so at the date of releasing the interim financial report, the
Group had access to c.£381m of this loan facility after taking account of
letter of credit facilities.
The Group was compliant with all its debt covenants at 30 June 2022. The
financial covenants attached to the facility are that EBITDA should be no less
than 4.00x interest and net debt should be no more than 4.75x EBITDA. At 30
June 2022 these stood at 16.76x and -0.62x respectively, on account of a net
cash-positive position, demonstrating significant headroom. The Group does not
expect to breach these covenants in the year from the date of release of this
report.
The Group remains in a net cash position of £38.6m at 30 June 2022 (31
December 2021: £117.7m). The Group balance sheet shows consolidated net
assets of £531.7m (31 December 2021: £553.8m), of which £396.5m (31
December 2020: £366.7m) relates to revenue-generating meter and data assets
and £17.2m (31 December 2021: £nil) relates to revenue generating grid-scale
battery assets which are currently operational. The liquidity of the Group
thus remains strong and continues to provide the financial flexibility
required in order to support the Group's long-term growth prospects.
With significant coverage provided by existing long-term, inflation-linked and
recurring cash flows, the Group remains committed to its dividend policy. It
approved a 27.5p per share annualised dividend in respect of FY 2021 and all
four cash instalments had been paid at the date of approving the interim
financial statements. The Group intends to pay a 30.25p per share annualised
dividend in respect of FY 2022.
Based on the current cash flow projections and facilities in place and having
given consideration to various outcomes of future performance and forecast
capital expenditure, including an extreme downside scenario, the Directors
consider it appropriate to continue to prepare the financial statements on a
going concern basis and are of the view that there are no material
uncertainties regarding the Group's going concern status.
Significant accounting policies
As required in AIM Rule 18, the interim financial report for the half-year
reporting period ended 30 June 2022 is presented and prepared in a form
consistent with that which will be adopted in the annual statutory financial
statements for the year ended 31 December 2022 and having regard to the
accounting policies applicable to such annual accounts.
The accounting policies adopted are consistent with those followed in the
Group's financial statements for the year ended 31 December 2021, except for
the adoption of new standards effective 1 January 2022.
Several amendments apply for the first time in 2022 but do not have an impact
on the condensed consolidated interim financial report for the half-year
reporting period ended 30 June 2022.
The Group has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective.
Critical accounting judgements
The critical accounting judgements made by the Directors in applying the
Group's accounting policies and the key sources of estimation uncertainty were
the same as those described in the Group's published financial statements for
the year ended 31 December 2021.
2 Segmental reporting
For management purposes, the Group is organised into three core divisions, as
follows:
• Asset Management, which comprises regulated management of gas and
electric meters, ADM™ units and energy data assets within the UK;
• Asset Installation, which comprises installation of domestic and
I&C gas meters and electricity meters throughout the UK; and
• Energy Management, which comprises the building and operation of
grid-scale batteries, the provision of energy consultancy services and,
following the acquisition of Solo Energy Limited, the management of
Distributed Energy Resources (DER) assets.
For the purpose of making decisions about resource allocation and performance
assessment, it is the operating results of the three core divisions listed
above that are monitored by management and the Group's chief operating
decision-maker, being the SMS Board. It is these divisions, therefore, that
are defined as the Group's reportable operating segments.
Segment performance is evaluated based on gross profit.
The following segment information is presented in respect of the Group's
reportable segments together with additional balance sheet information:
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 intangibles (892) - (15) (1,152) (2,059)
Profit/(loss) from operations - pre-exceptional operating items 26,979 1,649 2,645 (20,229) 11,044
Exceptional items (operating) (3,338) (29) - 42 (3,325)
Profit/(loss) from operations 23,641 1,620 2,645 (20,187) 7,719
Net finance costs: other (1,663)
Profit/(loss) before tax 6,056
Tax expense (1,560)
Profit for period 4,496
30 June 2021 Asset Asset Energy Unallocated (restated) Total
Management Installation Management £'000 operations
£'000 £'000 £'000 £'000
Segment revenue 39,378 34,585 1,937 - 75,900
Inter-segment revenue - (24,222) - - (24,222)
Revenue from external customers 39,378 10,363 1,937 - 51,678
Cost of sales (14,655) (6,424) (1,458) - (22,537)
Segment gross profit - pre-exceptional cost of sales 24,723 3,939 479 - 29,141
Exceptional items (cost of sales) - (800) - - (800)
Segment gross profit 24,723 3,139 479 - 28,341
Other operating costs/income - - - (14,813) (14,813)
Depreciation (625) - (33) (1,398) (2,056)
Amortisation of intangibles1 (829) - (15) (1,153) (1,997)
Profit/(loss) from operations - pre-exceptional operating items 23,269 3,139 431 (17,364) 9,475
Exceptional items (operating) (3,194) (29) - 306 (2,917)
Profit/(loss) from operations 20,075 3,110 431 (17,058) 6,558
Net finance costs: other (1,552)
Profit/(loss) before tax 5,006
Tax expense (3,983)
Profit for period 1,023
1 Amortisation of intangibles for the period ended 30 June 2021 has been
restated to show amortisation of the group-wide ERP system of £1,153,000
under unallocated rather than in the Asset Management segment.
Inter-segment revenue relates to installation services provided by the asset
installation segment to the asset management segment.
Depreciation of £13.7m (30 June 2021: £11.8m) associated with meter assets
has been reported within Cost of sales, in the asset management segment, as
the meter assets directly drive revenue.
Depreciation of £0.4m (30 June 2021: nil) associated with grid-scale
batteries has been reported within Cost of sales, in the energy management
segment, as the battery assets directly drive revenue.
All material revenues and operations are based and generated in the UK.
Following the acquisition of Solo Energy Limited in September 2019, a small
minority of operations are based in the Republic of Ireland.
gment assets and liabilities
30 June 2022 Asset Asset Energy Unallocated Total
Management Installation Management £'000 operations
£'000 £'000 £'000 £'000
Assets reported by segment
Intangible assets 13,577 3,497 2,834 6,781 26,689
Property, plant and equipment 396,501 86 49,541 10,548 456,676
Investments in associates - - 2,125 - 2,125
Inventories 29,515 235 2 - 29,752
Other receivables - - 13,632 - 13,632
Contract assets - 55 - - 55
Other assets (bank loans) - - - 1,926 1,926
439,593 3,873 68,134 19,255 530,855
Assets not by segment 88,125
Total assets 618,980
Liabilities by segment
Contract liabilities 1,722 1,567 41 - 3,330
Lease liabilities - - 6,208 4,103 10,311
Other liabilities - - 688 - 688
Provisions - - 1,288 71 1,359
Other long-term liabilities 697 - 774 - 1,471
Bank loans - - - - -
2,419 1,567 8,999 4,174 17,159
Liabilities not by segment 70,082
Total liabilities 87,241
31 December 2021 Asset Asset Energy Unallocated Total
Management Installation Management £'000 operations
£'000 £'000 £'000 £'000
Assets reported by segment
Intangible assets 11,540 3,497 2,497 7,929 25,463
Property, plant and equipment 366,702 128 38,868 10,203 415,901
Inventories 22,763 215 2 - 22,980
Contract assets - 46 - - 46
Other assets (bank loans) 2,201 - - - 2,201
403,206 3,886 41,367 18,132 466,591
Assets not by segment 166,646
Total assets 633,237
Liabilities by segment
Contract liabilities 1,527 2,084 121 - 3,732
Lease liabilities - - 4,060 4,513 8,573
Other liabilities - - 638 - 638
Other long-term liabilities - - 1,473 75 1,548
Bank loans - - - - -
1,527 2,084 6,292 4,588 14,491
Liabilities not by segment 64,956
Total liabilities 79,447
Assets not by segment include cash and cash equivalents, trade and other
receivables and investments. Liabilities not by segment include trade and
other payables and deferred tax liabilities.
3 Disaggregation of revenue from contracts with customers
The Group reports the following segments: asset management, asset installation
and energy management, in accordance with IFRS 8 Operating Segments. We have
determined that, to meet the objective of the disaggregation disclosure
requirement in paragraph 114 of IFRS 15, which is to disaggregate revenue from
contracts with customers into categories that depict how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by economic
factors, further disaggregation is required into the major types of services
offered. The following table thus discloses segmental revenue by type of
service delivered and timing of revenue recognition, including a
reconciliation of how this disaggregated revenue ties in with the asset
management, asset installation and energy management segments, in accordance
with paragraph 115 of IFRS 15.
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
Period ended 30 June 2021 Asset Asset Energy Total
Management Installation Management operations
£'000 (restated) £'000 £'000
£'000
Major service lines
Metering 35,505 - - 35,505
Data management 3,873 - - 3,873
Utility connections1 - 2,787 - 4,384
Transactional meter works1 - 7,435 - 5,838
Energy management - 141 1,937 2,078
39,378 10,363 1,937 51,678
Timing of revenue recognition
Services transferred at a point in time - 5,838 - 5,838
Services transferred over time 39,378 4,525 1,937 45,840
39,378 10,363 1,937 51,678
1 Asset Installation revenue has been restated to align the allocation of
revenue between the utility connections and transactional meter works service
lines.
4 Exceptional items
30 June 2022 30 June 2021
£'000 £'000
Exceptional operating items
Losses on the traditional and SMETS1 meter portfolio (3,292) (2,985)
Costs attributable to COVID-19 - (523)
Other (33) (209)
Total exceptional items (3,325) (3,717)
5 Earnings per share
The calculation of earnings per share (EPS) is based on the following data and
number of shares:
Six months Six months
ended ended
30 June 30 June
2022 2021
Unaudited Unaudited
£'000 £'000
Profit for the period used for calculation of basic EPS 4,496 1,023
Number of shares Six months Six months
ended ended
30 June 30 June
2022 2021
Unaudited Unaudited
Weighted average number of ordinary shares for the purposes of basic EPS 133,225,387 113,115,772
Effect of potentially dilutive ordinary shares:
- share options 804,788 838,985
Weighted average number of ordinary shares for the purposes of diluted EPS 134,030,175 113,954,757
EPS:
- basic (pence) 3.37 0.90
- diluted (pence) 3.35 0.90
6 Dividends
Six months Six months Six months Six months
ended ended Year ended Year ended ended ended
30 June 30 June 31 December 31 December 30 June 30 June
2022 2022 2021 2021 2021 2021
Unaudited Per share Audited Per share Unaudited Per share
£'000 (pence) £'000 (pence) £'000 (pence)
FY20 2nd interim dividend paid - - 7,059 6.250 7,059 6.250
FY20 3rd interim dividend paid - - 7,065 6.250 7,065 6.250
FY20 final dividend accrued - - - - 7,107 6.250
FY20 final dividend paid - - 7,107 6.250 - -
FY21 1st interim dividend paid - - 7,829 6.875 - -
FY21 2nd interim dividend paid 9,166 6.875 - - - -
FY21 3rd interim dividend paid 9,169 6.875 - - - -
FY21 final dividend accrued 9,170 6.875 - - - -
Total dividends 27,505 20.625 29,060 25.625 21,231 18.750
Per the Group's dividend policy, a 27.5p per share dividend was approved in
respect of FY 2021, payable in four instalments of 6.875p per share. The final
instalment of the FY 2021 dividend was paid on 28 July 2022.
A 30.25p per share dividend is intended in respect of FY 2022 payable in four
instalments of 7.5625p per share.
7 Property, plant and equipment
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 2021 2,807 392,146 1,044 7,148 5,305 7,010 - - 415,460
Reclassification - - - - - - - 4,071 4,071
Additions - 82,401 126 1,117 28 5,267 - 24,505 113,444
Acquisitions - 6,682 - - - - - 5,414 12,096
Disposals (2) (19,889) - (52) (202) - - - (20,145)
Exchange adjustments - - - (6) - (4) - - (10)
As at 31 December 2021 2,805 461,340 1,170 8,207 5,131 12,273 - 33,990 524,916
Reclassification - (50) - - - - 17,557 (17,557) (50)
Additions 1,105 50,249 15 622 468 2,645 84 6,752 61,940
Acquisitions - - - - - - - 1,730 1,730
Disposals - (10,440) - - (86) - - - (10,526)
Exchange adjustments - - - 1 - (3) - - (2)
As at 30 June 2022 3,910 501,099 1,185 8,830 5,513 14,915 17,641 24,915 578,008
Depreciation -
As at 1 January 2021 679 76,683 790 4,721 2,387 1,862 - - 87,122
Charge for year 171 24,719 204 1,555 1,157 1,032 - - 28,838
Disposals 1 (6,767) - (43) (134) - - - (6,943)
Exchange adjustments - - - (1) - (1) - - (2)
As at 31 December 2021 851 94,635 994 6,232 3,410 2,893 - - 109,015
Charge for period 86 13,676 64 632 581 642 423 - 16,104
Disposals 1 (3,716) - - (73) - - - (3,788)
Exchange adjustments - - - - - 1 - - 1
As at 30 June 2022 938 104,595 1,058 6,864 3,918 3,536 423 - 121,332
Net book value -
As at 30 June 2022 2,972 396,504 127 1,966 1,595 11,379 17,218 24,915 456,676
As at 31 December 2021 1,954 366,705 176 1,975 1,721 9,380 - 33,990 415,901
As at 1 January 2021 2,128 315,463 254 2,427 2,918 5,148 - - 328,338
Included within the closing meter assets net book value of £396,504,000 (31
December 2021: £366,705,000) is £13,039,000 (31 December 2021: £16,246,000)
relating to the traditional meter portfolio, which will be written down to
zero by 1 July 2025. In the H1 2022 consolidated financial statements there
was a £2,581,000 depreciation charge recognised on the traditional domestic
meter portfolio (H1 2021: £2,465,000). £11,675,000 annualised recurring
revenue as at 30 June 2022 (30 June 2021: £12,801,000) arises from the owned
traditional meter portfolio.
The assets are secured by a bond and floating charge.
For the purpose of impairment testing, the traditional meter asset portfolio
recognised within "Meter assets" is assessed as a standalone cash-generating
unit (CGU) and it's carrying amount is compared with the recoverable amount.
In line with IAS 36, no impairment review was considered necessary at 30 June
2022 as the previous impairment review carried out at 31 December 2021 showed
a significant excess of recoverable amount over carrying amount and management
concluded that there were no reasonably possible changes in the key
assumptions that would cause the carrying amounts of the traditional meter
portfolio to exceed the value in use. Since this date there have also been no
events that would eliminate this excess or any new material indicators of
impairment.
Therefore, no impairment has been recognised in the period ended 30 June 2022
(30 June 2021: £nil). No impairment on other meter assets has been recognised
in the period ended 30 June 2022 (30 June 2021: £nil).
8 Bank loans
The Group has a £420m revolving credit facility which matures in December
2025. Interest is payable at a rate of 1.85% over three-month SONIA and 0.65%
is payable on undrawn funds.
No principle or interest was outstanding as at 31 December 2021 and no amounts
were drawn in H1 2022. The amount recognised as Bank loans as at 30 June 2022
is therefore nil. Unamortised transaction costs of £1.9m (31 December 2021:
£2.2m) that would ordinarily be deducted from the carrying value of bank
loans have therefore been classified as Other assets.
The Group has complied with the financial covenants of its borrowing facility
during the current and prior reporting periods.
9 Business combinations
On 25 May 2022, the Group acquired 100% of the issued share capital of n3rgy
Data Limited, a data software company, for cash consideration of £1.4m and
additional deferred consideration subject to the company achieving certain
performance targets. n3rgy Data Limited's software enables and facilitates the
use of energy consumption, generation and tariff data from smart meters. The
acquisition is expected to enhance and accelerate the Group's capabilities in
smart energy data solutions.
Management's purchase price allocation exercise is not yet finalised. The
provisional fair values of the assets and liabilities acquired and of the
consideration are as follows:
Fair value
£'000
Intangible assets: software 2,061
Trade and other receivables 123
Trade and other payables (55)
Net assets acquired 2,129
Satisfied by:
Cash 1,432
Contingent consideration 697
Total consideration 2,129
10 Asset acquisitions
During the period ended 30 June 2022, the Group acquired 100% of the issued
share capital of the following companies:
Name of acquired company Company number Registered office prior to acquisition Purchase consideration Nature of the company
£'000
Balance Energy 2 Limited 12266348 Alexandra Business Park, Prescot Road, St Helens, Merseyside 856 Special purpose vehicle
WA10 3TP
Fen Power 1 Limited 12875930 Salisbury House, Station Road, Cambridge 874 Special purpose vehicle
CB1 2LA
Both companies report in British Pounds Sterling. The acquisitions enable SMS
to obtain control over the rights required to develop and commission two 30MW
grid-scale battery storage sites as part of the Group's investment strategy in
Carbon Reduction (CaRe) assets. Grid-scale battery storage is reported through
the Group's energy management segment and is a key asset class required by the
UK energy system to provide flexibility services to balance the grid and
support the continued introduction of more intermittent renewable generation.
Details of the purchase consideration are as follows:
Name of acquired company Cash paid Deferred consideration Total fair value
£'000 £'000 £'000
Balance Energy 2 Limited 856 - 856
Fen Power 1 Limited 600 274 874
Total purchase consideration 1,456 274 1,730
The deferred consideration of £274,000 for Fen Power 1 Limited is payable in
cash upon energisation (after the asset is tested and commissioned and
electricity is imported from or exported to the grid).
Management has concluded that these acquisitions do not meet the definition of
a business combination under IFRS 3 on the basis that no substantive processes
have been transferred. Therefore, these transactions have been accounted for
as acquisitions of a group of assets. No goodwill thus arises on the
transactions.
The individual assets and liabilities acquired have been identified and the
cost of the transactions has been allocated to the assets acquired, and
liabilities assumed, based on their relative fair values at the date of
purchase as follows:
Balance Energy 2 Limited Fen Power 1 Limited Total
£'000 £'000 £'000
Assets under construction 856 874 1,730
Total purchase consideration 856 874 1,730
11 Investment in associate
On 15 June 2022, the Group invested £2.1m (including transaction costs) to
acquire a 25% shareholding in Clenergy EV Ltd, a software business with a
Charge Point Operator (CPO) platform focussed on electric vehicle charging
infrastructure. The agreement also gives the Group the option to invest a
further £2.0m after one year to acquire an additional 26% interest and an
option to acquire the remaining shares after five years.
12 The half-yearly financial report was approved by the Board of Directors on
13 September 2022.
13 A copy of this half-yearly financial report is available by visiting our
website at www.sms-plc.com (http://www.sms-plc.com) .
14 Post balance sheet events
Following the 30 June 2022 period end, the Group acquired 100% of the issued
share capital of the following companies:
Name of acquired company Acquisition date Cash paid Deferred consideration Total fair value
£'000 £'000 £'000
Drumcross Energy Storage Limited 8 July 2022 2,815 - 2,815
Erskine Energy Storage Limited 17 August2022 2,554 100 2,654
These acquisitions enable SMS to obtain control over the rights required to
develop and commission two 30MW grid-scale battery storage sites as part of
its ongoing investment strategy in carbon reduction assets.
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