TIDMSMS
RNS Number : 9594Y
Smart Metering Systems PLC
15 September 2020
15 September 2020
Smart Metering Systems plc
H1 financial and operational performance highlights business
resilience, underpinned by balance sheet strength
Smart Metering Systems plc (AIM: SMS, the Group), which installs
and manages smart meters and carbon reduction assets (CaRe) to
facilitate effective energy management, has published its half year
results for the six months ended 30 June 2020.
GBP'000 (unless stated otherwise) H1 2020 H1 2019
Index-linked annualised
recurring revenue (ILARR)(1) 75,905 68,320
Group revenue 54,151 54,205
Pre-exceptional EBITDA(2) 27,811 25,823
Underlying profit before
taxation(3) 9,144 4,644
Underlying basic EPS (p)(4) 5.02 3.40
EBITDA 214,121 20,616
Profit/(loss) before taxation 194,475 (1,725)
Basic EPS (p) 171.07 (1.28)
Net cash/(debt) 44,493 (186,592)
----------------------------------- -------- ----------
1 ILARR is the revenue generated from meter rental and data
contracts at a point in time. Includes revenue from third-party
managed meters. H1 2019 ILARR is presented on a pro-forma basis for
comparative purposes, excluding a net contribution of GBP17.6m from
disposed I&C meter assets
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 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.
5 The contracted smart meter order pipeline is comprised of a
combination of guaranteed minimum volume commitments, exclusivity
arrangements and other contracts with customers.
A reconciliation between reported and underlying performance is
detailed in the Financial Review section below.
Highlights
Financial
-- ILARR at 30 June 2020 up 11% to GBP75.9m (30 June 2019: GBP68.3m, pro-forma)
-- Pre-exceptional EBITDA up 8% to GBP27.8m (H1 2019: GBP25.8m)
-- Underlying profit before taxation up 98% to GBP9.1m (H1 2019: GBP4.6m)
-- Net cash at 30 June 2020 of GBP44.5m (30 June 2019: net debt of GBP186.6m)
-- No debt outstanding as at 15 September 2020 and committed facilities available of GBP300m
-- FY 2020 outlook unchanged
Asset disposal - completed 22 April 2020
-- c.187,000 I&C meter assets disposed of with a weighted average age of 4.7 years
-- GBP290.6m gross cash proceeds received from asset disposal
-- GBP194.7m gross gain on disposal reported in the period
Dividend
-- 25p per share dividend intended in respect of FY 2020, to be
paid in four instalments starting October 2020
-- Intention to increase by 10% per annum until FY 2024
-- Covered by long-term index-linked cash flows from existing metering and data asset base
COVID-19
-- Continued growth during challenging period demonstrates the
resilience and strength of the business model
-- Phased and progressive resumption of all non-essential field work progressing well
-- Emergency works maintained throughout the period, helping to
keep the UK's energy infrastructure operating securely
Smart meters
-- Meter installations are beginning to return to a pre-COVID-19
level. This is expected to be achieved in Q4, albeit ongoing local
lockdowns continue to be monitored.
-- c.2 million contracted smart meter order pipeline(5) expected
to add c.GBP40m ILARR over the rollout period
CaRe assets
-- Good progress in the origination of CaRe assets pipeline
-- Partnership agreement with Columbia Threadneedle European
Sustainable Infrastructure Fund (ESIF) announced in March 2020
provides funding options
-- Initial portfolio identified in grid-scale battery storage
Continued ESG enhancements
-- Establishment of a Health, Safety & Sustainability Board Committee
-- Strong net positive environmental impact
-- Active participation in Smart Metering Remobilisation Working Group established by BEIS
-- Proactive engagement with staff during COVID-19, with a focus on employee wellbeing
Board changes
-- On 23 June 2020, Willie MacDiarmid stepped down from the Board and as Non-executive Chairman
-- Miriam Greenwood, formerly the Senior Independent
Non-executive Director, appointed as Non-executive Chairman
-- Jamie Richards appointed as Non-executive Director
Alan Foy, Chief Executive Officer, commented:
"We have delivered a robust financial performance in the face of
a highly challenging operating environment in the first half of
2020, with increases in index-linked annualised recurring revenue
(ILARR) and underlying profitability.
"The completion of a disposal of a minority of our I&C meter
asset portfolio in April has further underscored the attractive
nature of the meter asset class, provided balance sheet strength
and enabled us to substantially increase the FY 2020 dividend. We
have announced today an intended annual increase of 10% over the
coming four years.
"Our pipeline of CaRe asset opportunities is making strong
progress across a range of asset classes following our agreement
with Columbia Threadneedle European Sustainable Infrastructure Fund
announced in March, with an initial portfolio identified in
grid-scale battery storage.
"The entire team at SMS has demonstrated outstanding resilience
and commitment in the face of the challenges presented by COVID-19.
We are well positioned, both financially and operationally, to
deliver on our sizeable contracted smart meter order pipeline and
move forward with the development of CaRe assets. Together, these
will support the next phase of our evolution as a business at the
heart of smart energy management."
For further information:
Smart Metering Systems plc 0141 249 3850
Alan Foy, Chief Executive Officer
Dilip Kejriwal, Head of Investor
Relations
Cenkos Securities plc (Joint Broker 0131 220 6939 / 020 7397
and Nomad) 8900
Neil McDonald / Pete Lynch
Investec Bank plc (Joint Broker) 020 7597 5970
Christopher Baird / Henry Reast
RBC Capital Markets (Joint Broker) 020 7653 4000
Matthew Coakes / Evgeni Jordanov
Instinctif Partners (PR Adviser) 020 7457 2020
Adrian Duffield / Kay Larsen / Chantal SMS@instinctif.com
Woolcock
Notes to Editors
SMS plc (www.sms-plc.com) installs and manages smart meters,
data and 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. As at
30 June 2020 SMS had 3.74 million meter and data assets under
management.
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 smart energy revolution and the assets
deployed remain at the heart of delivering and accelerating the UK
government's net zero carbon ambition. In 2019, SMS was awarded the
London Stock Exchange Green Economy Mark.
SMS plc is headquartered in Glasgow with a national presence
across twelve UK locations.
SMS's shares are listed on AIM.
Overview
The first six months of 2020 has demonstrated again the
resilience and strength of both the Group's business model and the
infrastructure asset classes which SMS originates.
Financial review
The Group reports financial performance on an underlying basis
that shows growth over the prior period with underlying profit
before taxation increasing by 98% to GBP9.1m. This underlying
increase reflects the strength in the Group's ILARR and a dedicated
focus on cost control. Despite the ongoing effects of COVID-19, the
Group continues to trade in line with the Board's expectations.
Minority assets disposal
The Group completed the disposal of a minority of its meter
assets from the I&C portfolio on 22 April 2020 for GBP290.6m.
This has resulted in SMS having a positive net cash position of
GBP44.5m which, together with a GBP300m RCF facility, supports the
growth of the domestic smart meter asset base.
Enhanced dividend
SMS announces that the long-term index-linked cash flows from
its existing asset base are able to support an intended annual
increase of 10% in dividends for each of the financial years FY
2021, FY 2022, FY 2023 and FY 2024. This clarification, to the
previously stated intention to grow dividends at least in line with
RPI, will result in a more predictable return to shareholders and
reflects the forecast growth of the business over and above RPI in
that period. The Group's strong liquidity position supports the
funding of its contracted smart meter order pipeline, which will
further add to its long-term index-linked cash flows.
COVID-19
The impact of COVID-19 has slowed the growth of the Group's
smart meter asset portfolio in the first half of this year, but SMS
has been able to implement a phased and progressive resumption of
all non-essential field work from 1 June 2020. The Enrolment and
Adoption process for SMETS1 meters is also progressing well and
implementation is underway for the Group's largest cohort of SMETS1
meters.
The Group is proud to have been able to support customers and
end consumers throughout the challenging lockdown period in the
provision of emergency call-out services, ensuring that both
I&C and domestic customers remained safely "on supply".
SMS also successfully moved its office-based staff to home-based
working and established a full range of wellbeing and personal
development programmes to support the entire workforce during this
challenging period. Despite the material impact of the cessation of
activities on the utilisation of a large number of the workforce,
the Group was able to return the grant received from the UK
government under the Coronavirus Job Retention Scheme.
The Board thanks all its employees for their hard work and
support in continuing to deliver services seamlessly in these
challenging times. The welfare of employees and customers has
remained the Group's primary concern throughout, informing both the
decision to stand down non-essential engineering activity on 24
March and the phased and progressive remobilisation of meter
exchanges from 1 June. SMS can report that this remobilisation is
progressing well and meter installations are beginning to return to
a pre-COVID-19 level.
The Group also successfully completed the final phase
implementation of a Group-wide ERP system during lockdown.
Development of CaRe assets
The Group announced in March 2020 a partnership agreement with
Columbia Threadneedle European Sustainable Infrastructure Fund
(ESIF) and has made strong progress in its pipeline of carbon
reduction (CaRe) assets, with an initial identified portfolio in
grid-scale battery storage. This growing pipeline of activity is
across several asset classes including distributed generation,
battery storage, energy efficiency, heat and electric vehicle
charging infrastructure projects, all of which serve to reduce
carbon emissions.
ESG and sustainability
ESG and sustainability remain key to the Group's operations and
culture. This has been supported by the establishment of a
dedicated Health, Safety & Sustainability Board Committee which
sets objectives, reviews policies and procedures and monitors
performance. The Group has focused on supporting the physical and
mental health and wellbeing of all staff during the COVID-19
crisis.
SMS has transitioned its health & safety management systems
to ISO 45001 from the previous OHSAS 18001 during H1 2020. This
change in accreditation emphasises leadership and responsibility
for health and safety across the entire organisation, and this
approach has been reinforced throughout the senior management
team.
Board changes
On 23 June 2020, Willie MacDiarmid, the Group's Non-executive
Chairman, stepped down from the Board after six years in the role.
Miriam Greenwood, formerly the Senior Independent Non-executive
Director, has succeeded Willie as Non-executive Chairman. In
addition, SMS appointed Jamie Richards, a Chartered Accountant with
25 years' experience in fund management, banking and corporate
recovery, as a Non-executive Director and Chair of the Remuneration
Committee. The Board thanks Willie for his considerable
contribution and leadership over the past six years and welcomes
both Miriam, in her new role as Non-executive Chairman, and Jamie,
who brings considerable expertise and experience in the
infrastructure and solar sectors.
Strategy
The smart meter rollout plays a central role in facilitating the
transition to a zero carbon economy. The Group's commitment to
deliver the future of smart energy has been demonstrated by the
agreement with ESIF to develop a pipeline of CaRe assets.
This strategic goal is underpinned by the Group's focus on
delivering long-term value to its shareholders and ensuring a safe,
efficient and productive working environment for its people.
As reported in the Group's 2019 Annual Report, the Group's
strategy is characterised by an enhanced dividend policy and the
maximisation of growth opportunities in meter and CaRe assets,
whilst maintaining a prudent level of financial leverage. The Board
continues to review and evolve the Group's strategic framework and
has four key strategic pillars against which developments are
measured, now including a dedicated objective around enhancing
shareholder value:
-- delivery of growth in secure long-term index linked revenue streams;
-- enhancement of shareholder value with an attractive, sustainable dividend policy;
-- optimisation of capital allocation and maintenance of an efficient capital structure; and
-- delivery of operational efficiency and customer excellence in everything SMS does.
Minority assets disposal
SMS completed the sale of a minority of the Group's I&C
meter assets to funds managed by Equitix on 22 April 2020. The
disposed portfolio represented GBP18.4m of ILARR and was sold for
gross proceeds of GBP290.6m (a 16.4x multiple of net EBITDA),
following which the Group has reported a gross gain on disposal of
GBP194.7m in the period.
SMS continues to manage this portfolio, which has a weighted
average age of 4.7 years, receiving annual RPI-linked recurring
management fees of c.GBP0.8m. SMS maintains a presence in the
I&C sector through its retained I&C meter asset portfolio,
with an ambition to grow this portfolio further. The Group also
continues to deliver data services and operate a successful
multi-utility connection business.
The disposal reinforces the attractive nature of the asset class
and allows SMS to accelerate its growth in domestic and I&C
meter assets. It has also reset the Group's leverage and will
support the Group's new dividend policy.
Current trading and outlook
COVID-19 slowed the smart meter installation run rate for the
entire UK industry, but it also reduced the capital expenditure
requirement over the period, providing further support to the
Group's liquidity. Furthermore, because of this temporary
deceleration in the smart meter exchange programme, the Group's
traditional meter portfolio has remained in place for longer than
anticipated and has continued to generate revenue from both meter
rental and transactional emergency work. The Group's strong
liquidity profile ensures that the Group will be able to fund its
c.2 million contracted domestic smart meter order pipeline, with
further opportunities from existing customers.
The Group recommenced non-essential meter exchange activity on 1
June and adopted an appropriately phased and progressive approach.
Meter installations are beginning to return to a pre-COVID-19
level. This is expected to be achieved in Q4, albeit ongoing local
lockdowns continue to be monitored. The Enrolment and Adoption
process for SMETS1 meters is progressing well and implementation is
underway for the Group's largest cohort of SMETS1 meters.
At 31 August 2020 ILARR from the Group's meter and data assets
stood at GBP76.6m (30 June 2020: GBP75.9m) and total meter and data
assets under management had increased to 3.80 million (30 June
2020: 3.74 million).
Despite the effects of COVID-19, the Group continues to trade in
line with the Board's expectations and FY 2020 revenue and
underlying profitability also remains in line. This reflects the
resilience of the Group's business model and the defensive nature
of the metering infrastructure asset class with the stable cash
flows it generates.
ESG
ESG and sustainability remain key to SMS's operations and
culture. For over two decades, SMS has focused on providing energy
solutions to the UK's largest emissions sectors. The Group has
invested significant resources in its delivery of a fully
integrated, end-to-end energy service, underpinned by extensive
industrial expertise, a full in-house technology platform and
well-established infrastructure. Effective partnerships enable SMS
to identify opportunities, positioning the Group well to help
deliver the UK government's net zero carbon ambition.
The environment
The significance of ESG, and sustainability in the business, is
emphasised by the establishment of a Health, Safety &
Sustainability Board Committee in H1 2020. This Committee sets
objectives, reviews policies and procedures, and monitors
performance, ensuring the provision of appropriate resources to
meet the Group's objective of reducing its own carbon footprint and
that of its customers.
SMS is proud of the net positive effect of its solutions, which
was recognised through the London Stock Exchange's Green Economy
Mark, as announced in November 2019. This is awarded to
organisations that generate over 50% of total annual revenues from
products and services that contribute to the global green
economy.
With a concentrated focus on its own environmental performance,
the Group is working towards the goal of a net zero footprint, at
the same time as it continues investment in services and solutions
which reduce the Group's customers' environmental impact.
People
By listening to employees, SMS has been able to improve its
reward initiatives and implement a range of new and enhanced
measures. The Group has also achieved several accreditations during
the period in recognition of its policies and practices in areas
such as healthy working, family and disability.
In addition, SMS achieved the C-19 Business Pledge founded by
former UK Cabinet Minister Rt Hon. Justine Greening. The aim of the
Pledge is to encourage businesses to be proactive in committing to
tackle the coronavirus pandemic by helping communities, businesses
and society.
COVID-19 best practice
From the start of the COVID-19 lockdown, the Group continued to
deliver emergency callout services ensuring continuity of energy
supply, including to care homes and critical national
infrastructure. Updated risk assessments were implemented, and
appropriate PPE and training were issued to support this
activity.
SMS has also been an active member of the Smart Metering
Remobilisation Working Group, assembled by BEIS to act as a forum
to proactively address the challenges faced by COVID-19 and share
best working practices in relation to smart meter installations.
Through this forum, the Group has shared best practices relating to
customer communications, as well as the health and safety
techniques used by its engineers, helping to maintain traction for
the UK smart meter rollout.
Throughout 2020, and in particular during the COVID-19 crisis,
SMS has proactively engaged with and communicated with its staff,
with a focus on employee wellbeing. The Group's dedicated Company
wellbeing page, created with employee participation, supports
mental, financial and physical wellbeing by offering support on
home schooling, financial sign posting, bereavement counselling,
remote working advice and mental health support. Accredited Mental
Health First Aid training has been provided, supplemented by 100
employees who previously attended Mind mental health training,
mindfulness sessions and exercise classes. Staff have also been
supported with continuous training and development via e-learning
modules on topics including resilience, homeworking and a safe and
healthy return to work.
Operational review by division
Asset management:
Despite the temporary suspension of all non-essential field work
between 24 March and 1 June 2020, ILARR from the Group's meter and
data assets grew 4.6% to GBP75.9m as at 30 June 2020 (31 December
2019: GBP72.6m, pro forma, excluding the net contribution from
disposed I&C meter assets) whilst total meter and data assets
under management stood at 3.74 million (31 December 2019: 3.73
million). COVID-19 has slowed capital deployment into new smart
meter assets, with the corollary being that the Group's portfolio
of traditional meters has remained on the wall for longer than
expected and has continued to generate revenue over the period
through both meter rental and transactional emergency work.
ILARR from the domestic smart meter portfolio grew 7.4% to
GBP40.9m, ILARR from data assets grew 2.2% to GBP12.5m, and ILARR
from Industrial and Commercial meters grew c.15.8%, on a pro-forma
basis, to GBP4.2m. Traditional domestic meter ILARR decreased by
1.6% to GBP18.3m, as expected. SMS expects the remaining
traditional meter portfolio to be exchanged with smart meters over
the course of the UK smart meter rollout. The Group, currently, has
a contracted order pipeline of c.2 million smart meters, which will
add c.GBP40m to ILARR, from an existing customer base that has an
additional c.4 million meters to be exchanged.
Positive progress has been made in the maturity of the DCC
SMETS2 solution and platform, with the initial industry-wide radio
frequency technical issues now resolved and energy suppliers
beginning to introduce SMETS2 pre-payment solutions. As at 7
September 2020, over 919,000 SMETS1 meters had been migrated to the
DCC systems through the Enrolment and Adoption process, with the
cohorts of meter types which form the Group's SMETS1 portfolio
beginning migration in August 2020. This process is expected to
continue from now through to the end of 2021.
Half-hourly data settlement services have begun to be deployed
to energy supplier customers, alongside smart meter firmware
management and testing requirements, which will provide significant
additional value and further opportunities for growth over coming
years.
Asset installation:
The COVID-19 crisis had a direct impact on the asset
installation division, impeding its ability to deploy meter assets
between 24 March and 1 June 2020 due to the temporary cessation of
all non-essential meter works between these dates. The division has
recommenced all installation activities in a phased and progressive
manner, having implemented a robust training regime, PPE and
supporting control measures to ensure the safety of its engineers
and support staff. Remobilisation is progressing well and meter
installations are beginning to return to a pre-COVID-19 level.
An improvement in the meter installation run rate is very
encouraging. However, future challenges cannot be ruled out,
particularly from potential local or national lockdowns caused by a
subsequent wave of infections.
SMS also installed the industry's first three-phase SMETS2
meter, in August 2020, which will enable smart meters to be used
for large domestic and small I&C properties for the first time.
This is a significant milestone for the industry and demonstrates
the Group's leading position in developing and delivering
innovative market solutions in partnership with its customers and
supply chain.
The extension to the UK smart meter rollout deadline to 1 July
2025 provides a smoother runway for installations over coming
years. The Group has taken measures to ensure the efficiency of its
delivery with a focus on technology solutions and optimisation of
engineering resources to allow flexibility in delivering its
contracted meter installation pipeline.
Energy management:
Many of the Group's consultancy and energy management services
proceeded as normal during the first half of the year; however,
COVID-19 has had a significant impact in forcing the temporary
suspension of all site works. This has impacted the ability to
deploy energy saving solutions to customers, most notably the
delivery of an LED lighting and heating controls project for a
large hotel chain. Revenue in this division in H1 has declined as a
result. However, SMS has remained in active contact with its key
customers and all contracts remain intact, with work successfully
resuming in August.
The priority during this difficult period has been, where
possible, to provide an uninterrupted service to existing
customers. The Group has also made progress in the origination of
CaRe assets, following the Group's announcement of its funding
partnership with ESIF on 17 March 2020. The potential scope for
deployment of CaRe assets has also improved further following the
UK government's policy response to help the economic recovery from
the COVID-19 crisis, aimed particularly at green recovery.
CaRe asset opportunities are at various stages of development,
but notable progress has been made in grid-scale battery storage.
SMS has exclusivity to 117.5MW grid-scale battery storage
"shovel-ready" sites with a further pipeline of projects at various
stages of development. The "shovel-ready" projects are expected to
be constructed over the next 12-18 months. This is a key asset
class required by the UK energy system to provide flexibility
services to balance the grid and support the continued introduction
of more intermittent renewable generation.
In addition, continued development has been made in the
verticals below:
-- "Behind the Meter" smart solar and storage: Solo Energy, a
wholly owned subsidiary of the Group, is delivering trials of its
"Behind the Meter" "solar plus battery" business model with local
authorities and housing associations for up to 1,500
households.
-- EV infrastructure: SMS is an OLEV accredited EV charger
installer. It is currently managing the planned roll-out of 1,200
EV charge points as part of an on-street parking project in
partnership with a global telco company and has also been appointed
by Crown Commercial Service (CCS) to its delivery framework for
vehicle charging infrastructure solutions.
-- Heat networks and meters: SMS is currently piloting a
solution for a nation-wide hotel chain for smart heating controls
and is also addressing the need, legislated for in the Heat Network
(Metering and Billing) Regulations, for heat meters to be installed
to existing and new heat networks.
These opportunities are all within SMS's existing developmental
capabilities and the partnership with ESIF provides funding
options, allowing further development of these CaRe assets. Capital
will be allocated to these portfolios on an asset-by-asset basis
and only once funding is secured.
Financial review
In summary, the six-month period ended 30 June 2020 was
challenging, however SMS has responded well, adapting to a new way
of working under the restrictions resulting from the UK-wide
economic shutdown and reporting financial performance on an
underlying basis, which shows growth over the prior period.
The resilience of the underlying business model of investment in
assets with a long-term income stream was clearly demonstrated by
the asset management segment, which showed revenue growth in the
period despite the lockdown. Underlying Group profitability at both
EBITDA and PBT level also show period on period growth.
Our liquidity was also significantly strengthened in the period
as the GBP290.6m gross cash proceeds from the sale of a minority of
meter assets were used to repay the entirety of the Group's debt,
leaving the business in a cash positive position and with access to
a GBP300m RCF. The Group's strong cash position and underlying
growth during the lockdown period enabled the Board to take the
decision in June to return furlough grants covering the earlier
part of the furlough scheme.
On the strength of the underlying business performance the
intention to increase the dividend from 6.88p for FY 2019 to 25p
for FY 2020 has been announced, demonstrating the Group's
commitment to return value to shareholders from its installed asset
base.
Reconciliation of reported to underlying results
SMS uses alternative performance measures, defined at the end of
the Financial Review, to present a clear view of what the Group
considers to be the results of its underlying, sustainable business
operations. By excluding certain items, this enables consistent
year-on-year comparisons and aids a better understanding of
business performance.
A reconciliation of these performance measures is disclosed
below:
Period ended Period ended
30 June 30 June
2020 2019 Percentage
GBPm GBPm change
---------------------------------------- ------------ ------------ ----------
ILARR(1) 75.9 68.3 11%
---------------------------------------- ------------ ------------ ----------
Group revenue 54.2 54.2 Flat
Statutory profit from operations 197.7 2.4
---------------------------------------- ------------ ------------ ----------
Amortisation of intangibles 0.9 1.1
Depreciation 15.5 17.2
---------------------------------------- ------------ ------------ ----------
Statutory EBITDA 214.1 20.6 >100%
Exceptional items (EBITDA related) (186.3) 5.2
---------------------------------------- ------------ ------------ ----------
Pre-exceptional EBITDA 27.8 25.8 8%
Net interest (excl. exceptional) (3.1) (4.0)
Depreciation (15.5) (17.2)
---------------------------------------- ------------ ------------ ----------
Underlying profit before taxation 9.1 4.6 98%
Exceptional items (EBITDA) 186.3 (5.2)
Exceptional items (interest) (0.1) (0.1)
Amortisation of intangibles (0.9) (1.1)
---------------------------------------- ------------ ------------ ----------
Statutory profit/(loss) before taxation 194.5 (1.7) >100%
Taxation (1.7) 0.3
---------------------------------------- ------------ ------------ ----------
Statutory profit/(loss) after taxation 192.8 (1.4) >100%
Amortisation of intangibles 0.9 1.1
Exceptional items (EBITDA and interest) (186.2) 5.3
Tax effect of adjustments (1.8) (1.1)
---------------------------------------- ------------ ------------ ----------
Underlying profit after taxation 5.7 3.9 46%
Weighted average number of ordinary
shares (basic) 112,686,659 112,495,520
Underlying basic EPS (pence) 5.02 3.40
Weighted average number of ordinary
shares (diluted) 113,568,045 113,409,293
Underlying diluted EPS (pence) 4.98 3.37
---------------------------------------- ------------ ------------ ----------
1 ILARR for the period ended 30 June 2019 is presented on a
pro-forma basis for comparative purposes, excluding a net
contribution of GBP17.6m from disposed I&C meter assets
Revenue
30 June 30 June
2020 2019 Percentage
GBP'm GBP'm change
------------------- ------- ------- ----------
Asset management 42.0 39.4 7%
Asset installation 9.4 10.2 (8%)
Energy management 2.8 4.6 (40%)
------------------- ------- ------- ----------
Group revenue 54.2 54.2 Flat
------------------- ------- ------- ----------
The disposal of c.187,000 of the Group's meter assets in April
2020 has resulted in a net ILARR adjustment of GBP17.6m, presented
on a pro-forma basis as GBP72.6m at 31 December 2019 for
comparative purposes. Like-for-like ILARR therefore grew 4.6% to
GBP75.9m as at 30 June 2020, despite the temporary suspension of
all non-essential site work between 24 March and 1 June in response
to COVID-19. This reflects continued growth in the meter estate
from Q1 smart meter installations, together with the effect of an
annual RPI increase effected in April. The Group's remobilisation
plan is progressing well and management expects run rates to return
to similar levels prior to COVID-19 in Q4 2020, albeit ongoing
local lockdowns continue to be monitored.
Asset management revenues are up, despite loss of revenue from
the asset disposal, due to the flow through effect of installations
in 2019 and Q1 2020, together with an annual RPI increase in April
2020. Whilst COVID-19 restrictions have slowed growth in the short
term, the Group's installed portfolio of 3.74 million
revenue-generating assets provides extensive financial
resilience.
Asset installation revenue has decreased 8% to GBP9.4m as
compared with the prior period. This is in part due to legacy
installation-only work for third parties coming to an end, as
anticipated, in the first quarter of 2019. The suspension of all
non-essential field work as a result of COVID-19 brought a
reduction in revenues from utility connections and infrastructure
services; however, customer contracts remain intact and revenues
should return to normal levels in H2. The adverse impact on
revenues due to COVID-19 has, in part, been mitigated by the
continued delivery of emergency jobs during the outbreak.
Of the Group's operating segments, energy management has
experienced the largest decrease in revenue as a result of COVID-19
with a reduction of 40% to GBP2.8m (2019: GBP4.6m). This is
attributable to the suspension of all site work from mid-March,
most notably the suspension of work associated with the
energy-efficient lighting and heating control project for a large
hotel chain. Projects have started to resume but it is anticipated
that site work will initially run at a lower capacity as the
broader hospitality industry recovers.
Gross margins
Overall, the depreciation-adjusted gross margin at the Group
level has increased 5% to 65% (2019: 60%). SMS includes
depreciation on revenue-generating assets within cost of sales and
removing this from the gross margin provides a better comparison of
the Group's underlying trading performance year on year.
This is a result of an overall increase in depreciation-adjusted
gross profit of GBP2.9m. Although revenues have remained flat,
supported by the flow through impact of the Group's ILARR, costs of
sale have decreased by GBP2.9m due to the suspension of
non-essential field work.
The depreciation-adjusted gross margin for asset management has
increased from 92% to 94%, reflecting the growth in revenues
detailed above and a reduction in cost of sales due to lower
contractor costs incurred in the data business as a result of
COVID-19. The gross margin for asset management, including
depreciation, has increased by 9% from 53% to 62%, primarily as a
result of a change to a depreciation related accounting estimate,
made with effect from 1 January 2020, in relation to SMS's
traditional meter assets. With the smart meter exchange programme
being extended to 1 July 2025, management has extended the
estimated economic life of the traditional meters to match and the
depreciation charge therefore reduces. As a result, there is a
GBP2.3m credit recognised within depreciation in cost of sales on a
statutory basis - see note 1(a) to the financial statements for
further details.
The asset installation business reported a negative gross profit
margin of 5% (2019: negative 48%). The low margin in H1 2019 was
due to the Group's decision to retain its installation capacity to
ensure the business was appropriately positioned to benefit from
the run rates initially anticipated from progression to the main
SMETS2 phase of the smart meter rollout. As initial installation
targets in the market started to look increasingly challenging,
attention was turned to controlling the Group's operating cost base
in order to increase efficiency in the labour force. As a result,
the gross profit margin improved to negative 6% in H2 2019. The
further improvement to negative 5% in H1 2020 reflects a continued,
dedicated focus on cost control in the first part of the year,
adapting the Group's engineer capacity in order to meet customer
demand efficiently. Following the suspension of all smart meter
installations from 24 March to 1 June, management has reduced
operating costs where possible, with furloughed staff costs that
would ordinarily be capitalised recognised within exceptional
costs, as detailed below. The overall margin for the division has
thus been protected.
The energy management gross margin has increased to 29% (2019:
22%), supported by the commencement of a smart heating controls
project in H2 2019 at slightly higher margins.
EBITDA
Statutory EBITDA increased to GBP214.1m (2019: GBP20.6m) largely
as a result of the gain of GBP194.7m recognised upon disposal of a
minority of the Group's meter assets. Pre-exceptional EBITDA
provides a more ready comparison of trading, period on period,
showing an increase of c.8% to GBP27.8m (2019: GBP25.8m).
This underlying increase demonstrates the financial resilience
of the Group's business model with strong ILARR and a dedicated
focus on cost control. Up to March 2020 cost control was focused on
right-sizing the Group's internal installation capacity, as
detailed above. Towards the end of March, as the pandemic worsened,
management turned its attention to ensuring the Group's operating
cost base was as streamlined as possible, suspending any
non-critical business spend.
Other costs in the year which impacted the Group's underlying
profitability include a GBP0.5m bad debt charge in relation to a
customer with which a settlement agreement was reached during the
first half of the year. The Group was partially provided against
this debt prior to the settlement. There have been no significant
changes to expected loss rates in relation to the Group's trade
receivable portfolio. The impact of COVID-19 on the Group's credit
risk is discussed in the "Other exceptional items" section
below.
Disposal of a minority of the Group's I&C portfolio (the
Disposal)
As previously announced, on 12 March 2020, the Group
conditionally signed an agreement to dispose of a minority of the
Group's meter assets through the sale of the entire share capital
of Crail Meters Limited (Crail), a wholly owned subsidiary of the
Group. This transaction completed on 22 April 2020.
The meter asset provider (MAP) business that was transferred
comprised c.187,000 Industrial & Commercial (I&C) meter
assets, representing c.GBP18.4m ILARR.
Total gross cash consideration received by the Group on 22 April
2020 was GBP290.6m, reinforcing the inherent value of the Group's
meter assets, which generate highly stable and long-term
index-linked cash flows with limited maintenance requirements.
These proceeds have allowed the Group to reset its leverage,
supporting a GBP270m voluntary prepayment of the Group's revolving
credit facility and driving a net cash position of GBP44.5m at 30
June 2020.
Overall, the Disposal has given rise to a gross gain of
GBP201.6m in the period. After the deduction of GBP6.9m transaction
costs, a net gain on disposal of GBP194.7m has been recognised
separately in the consolidated statement of comprehensive income as
exceptional. Of this net gain, GBP6.2m relates to the transfer of a
deferred tax liability on those assets. Further details can be
found in note 5 to the financial statements.
The Disposal does not constitute a discontinued operation on the
basis that the minority portfolio of I&C assets disposed does
not represent the loss of a separate, major line of business and,
whilst I&C activities have been significantly reduced, they
have not been entirely discontinued. The Group will continue to
pursue new contracts.
The disposed portfolio of assets generates a new recurring
revenue stream for the Group in the form of management fees. The
Group will continue to manage the portfolio of disposed assets for
the new owners, generating annual RPI-linked recurring management
fees of GBP0.8m for these services.
Other exceptional items
The operating charge to the income statement in respect of other
exceptional items of GBP8.4m (2019: GBP5.2m) is driven largely by
GBP5.6m of costs attributable to COVID-19 that management has
deemed appropriate to classify as exceptional in line with the
Group's accounting policy.
As a result of the temporary suspension of all non-essential
field work in response to COVID-19, management has estimated that
GBP5.2m of costs that would have ordinarily been capitalised as
directly attributable to the installation of meter assets -
consisting primarily of staff costs - have remained in underlying
profit. As material costs, attributable to a rare macroeconomic
event, management has taken the judgement to recognise these costs
as exceptional. In addition, management has recognised an
exceptional bad debt charge of GBP0.4m in relation to a
sub-portfolio of smaller, independent customers which have been
identified as having a potentially elevated credit risk as a direct
consequence of COVID-19, and have been provided for on a specific
basis. This judgement will be revisited as the economy
recovers.
Excluding COVID-19 costs, other operating exceptional items
total GBP2.8m and primarily comprise GBP2.6m of losses on the
traditional and SMETS1 meter portfolio (2019: GBP4.1m). With the
Enrolment and Adoption process of SMETS1 meters into the DCC now
due to extend into 2021, consistent with 2019 the Group has
continued to see a small proportion of SMETS1 meters removed from
the wall. As these removals are attributable to the temporary
industry transition period, management has taken the judgement to
recognise losses arising on the disposal of these meters as
exceptional.
The remaining exceptional operating cost of GBP0.2m relates to
restructuring costs incurred in right-sizing the Group's
installation business in response to delays in the UK smart meter
rollout.
Operational and pre-tax profits
Depreciation costs on general property, plant and equipment,
excluding meter assets, have increased by GBP0.5m to GBP2.2m (2019:
GBP1.7m) due to net additions across the various asset classes.
Depreciation costs on meter assets have decreased by GBP2.1m to
GBP13.3m (2019: GBP15.5m). This is predominantly due to
management's revision of the useful economic life of traditional
meter assets through to 1 July 2025 following the UK government's
confirmation in June 2020 that it will introduce a new four-year
regulatory framework for the next phase of the UK smart meter
rollout, to be implemented from 1 July 2021. As a result of this
change in estimate, the depreciation charge in the income statement
for the period ended 30 June 2020 was reduced by GBP2.3m. The
additional depreciation charged in relation to newly installed
meters has been offset by a decrease in depreciation as a result of
removals, making up the remaining net GBP0.2m difference.
The net interest charge in the period is GBP3.2m (2019:
GBP4.1m), reflecting the overall lower leveraged position of the
Group following the Disposal.
Underlying profit before taxation has increased by 98% to
GBP9.1m due to a flow through of the above points.
Effective tax rate
The current forecast of the effective tax rate for the full year
is estimated at 39.28% (30 June 2019: 17.78%). The increase in the
effective rate is driven primarily by an increase in the deferred
tax rate from 17% to 19%, which has been applied to the Group's
brought forward deferred tax liabilities on its portfolio of meter
assets. Excluding the impact of this rate change, the full year
effective tax rate is estimated at 20.55%. This still reflects an
increase on the prior period as a result of an increase in
permanent differences from disallowable items.
The Group's capital expenditure as it pertains to meter assets
qualifies for capital allowances, providing the Group with tax
relief on such expenditure. These allowances are claimed in the tax
year in which the asset is acquired and set against taxable profit
for that year, thus reducing the total tax payable. As a result,
the Group was not tax paying in either the current or prior
period.
Earnings per share (EPS)
Underlying basic EPS, which excludes exceptional costs,
amortisation of intangibles and their associated tax effect is
5.02p (2019: 3.40p), reflecting the underlying profitability of the
Group. Statutory earnings per share increased to 171.07p (2019:
(1.28p)) as a result of higher statutory profits for the reasons
detailed above.
Diluted EPS does not vary significantly from basic EPS; a small
decrease is seen as a result of the dilutive impact of shares
issuable in the future to settle the Group's share scheme
obligations.
Dividend
As detailed below, the Group's liquidity position has remained
strong since the end of the year, despite the challenges COVID-19
has presented. The second interim dividend for 2019 of 4.58p per
share (GBP5.2m) was paid to shareholders on 4 June 2020.
The Group has a growing, sustainable dividend and, as previously
announced, in line with the Board's policy SMS intends to pay a 25p
per share dividend in respect of FY 2020 (representing an increase
of 3.6x over FY 2019), with the first of three interim dividend
instalments to be paid in October 2020, followed by a final
dividend in July 2021. A scrip dividend alternative will also be
offered with the October interim dividend.
The provisional dividend timetable for FY 2020 will be as
follows:
Instalment Ex-dividend date Record date Payment date
1 1 October 2020 2 October 2020 29 October 2020
----------------- --------------- ----------------
2 7 January 2021 8 January 2021 28 January 2021
----------------- --------------- ----------------
3 1 April 2021 2 April 2021 29 April 2021
----------------- --------------- ----------------
4 1 July 2021 2 July 2021 29 July 2021
----------------- --------------- ----------------
When the revised dividend policy was initially announced on 12
March 2020, highlighting the significant increase from 6.88p to 25p
per share, the Group also stated the Board's intention to increase
dividends at least in line with RPI p.a. until FY 2024.
The Board is pleased to provide further clarity around the
dividend growth intentions of annually increasing the dividends by
10% for each of the financial years FY 2021, FY 2022, FY 2023 and
FY 2024. As is usual practice, the Board will review this regularly
with shareholder value in mind, taking into account a range of
factors including expected business performance.
These future dividend payment amounts are covered by income from
the Group's existing metering and data asset base and their
long-term index-linked cash flows.
Cash flow
Operating cash inflow in H1 2020 was GBP10.6m (2019: GBP15.0m),
supported by robust operational performance and a continued focus
on cash collection despite the challenges of COVID-19. This
operating cash flow is net of a restricted cash balance of GBP4.9m
that has been recognised in H1 2020 in relation to amounts received
from energy suppliers on the I&C assets disposed of. Cash
collection forms part of the Group's ongoing management of the
portfolio of disposed assets for the new owners and, until this
cash has been allocated, it is held in a restricted trust account.
In line with IAS 7, this movement in restricted cash has been
classified as an operating cash flow in line with the operational
nature of the management service being delivered.
Capital expenditure on property, plant and equipment was
GBP17.4m (2019: GBP48.4m). Of this, GBP16.5m (2019: GBP43.4m) has
been used to invest in revenue-generating assets. This capital
expenditure is lower than the prior period as a result of the
disruption caused by COVID-19 and the temporary suspension of
non-essential field work, including smart meter installations, from
24 March 2020 to 1 June 2020. Over three months into the Group's
remobilisation plan, installation rates are beginning to resume to
normal levels. Capital expenditure is thus expected to increase in
H2, although is unlikely to reach the same levels as 2019 due to
the knock-on delays caused by the suspension.
A further GBP2.7m (2019: GBP3.7m) investment has been made in
intangible assets. This includes development of software to support
the installations business, together with investment in a
Group-wide Enterprise Resource Planning system that went live
across the Group in H1 2020 and will consolidate, integrate and
update various support systems.
As detailed above, gross proceeds from the Disposal were used to
make a voluntary prepayment under the Group's revolving credit
facility and the total outstanding principal value at 22 April 2020
of GBP270m, together with outstanding interest and commitment fees
of GBP0.6m, was settled. Following this, there has been a GBP15.0m
increase to cash held from drawdowns. GBP4.8m of interest and loan
costs have also been paid (2019: GBP5.3m), including GBP0.1m of
transaction costs incurred in modifying the total commitments
available under the facility.
The Group continues to manage its cash flows carefully amidst
the ongoing disruptions of COVID-19, with a continued concentrated
effort to collect debt from customers and manage business costs
prudently so that operational flexibility is maintained in this
uncertain time.
Financial resources
Concurrent with the voluntary facility prepayment detailed
above, the total available funding under the loan facility was
reduced from GBP420m to GBP300m on the same terms through to the
end of 2023. The Group has not required any new or extended
facilities as a result of COVID-19, nor has it needed to
renegotiate or waive any of its bank covenants. The Group was fully
compliant with all of its bank covenants at 30 June 2020.
At 30 June 2020, utilisation of the new facility totalled
GBP12.7m, net of GBP2.3m arrangement fees which continue to be
amortised over the term of the facility. No principal repayments
are required until 2022.
As a result of the Disposal, together with lower capital
expenditure on revenue-generating assets as a result of the
suspension of all non-essential field work, the Group was in a net
cash position of GBP44.5m at 30 June 2020 (31 December 2019: net
debt of GBP219.2m). This excludes restricted cash as described
above. The Group's available cash and unutilised element of the
revolving credit facility stood at GBP342.3m (2019: GBP200.8m) and
the Group had cash in bank of GBP57.3m at 30 June 2020 (31 December
2019: GBP50.1m), again excluding restricted cash.
As anticipated, the Disposal has provided the Group with
significant headroom to manage the business going forward on a low
leveraged basis. The liquidity of the Group remains strong and
continues to provide the financial flexibility required in order to
maximise growth in a capital efficient way.
Definitions of alternative performance measures
Alternative performance
measure Definition
--------------------------- ------------------------------------------------
Index-linked annualised The revenue being generated from meter
recurring revenue rental and data contracts at a point
in time. Includes revenue from third-party
managed meters.
--------------------------- ------------------------------------------------
Depreciation-adjusted gross Statutory gross profit adding back depreciation
profit on revenue-generating assets, recognised
within statutory cost of sales.
--------------------------- ------------------------------------------------
Depreciation-adjusted gross Depreciation-adjusted gross profit divided
profit margin by statutory revenue.
--------------------------- ------------------------------------------------
Pre-exceptional EBITDA Statutory EBITDA excluding exceptional
items.1
--------------------------- ------------------------------------------------
Underlying profit before Profit before taxation excluding exceptional
taxation items and amortisation of intangibles.
--------------------------- ------------------------------------------------
Underlying profit after Profit after taxation excluding exceptional
taxation items and amortisation of 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 debt Total bank loans less cash and cash equivalents,
excluding restricted cash. Excludes lease
liabilities recognised under IFRS 16.
--------------------------- ------------------------------------------------
(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 2020
Unaudited
--------------------------------------------------------------------------
Six months ended 30 June
--------------------------------------------------------------------------
2020 2019
Before 2020 Before 2019
exceptional Exceptional 2020 exceptional Exceptional 2019
items items 1 Total items items1 Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
Revenue 3 54,151 - 54,151 54,205 - 54,205
Cost of sales (27,846) (4,309) (32,155) (37,295) - (37,295)
------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
Gross profit 26,305 (4,309) 21,996 16,910 - 16,910
Administrative expenses (15,726) (4,110) (19,836) (11,359) (5,207) (16,566)
Other operating
income 844 - 844 2,019 - 2,019
Gain on disposal
of subsidiary 5 - 194,729 194,729 - - -
------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
Profit from operations 11,423 186,310 197,733 7,570 (5,207) 2,363
Finance costs (3,251) (115) (3,366) (4,098) (103) (4,201)
Finance income 108 - 108 113 - 113
------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
Profit/(loss) before
taxation 8,280 186,195 194,475 3,585 (5,310) (1,725)
Taxation (3,322) 1,621 (1,701) (637) 919 282
------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
Profit/(loss) for
the period and total
comprehensive income
attributable to
owners of the parent
1 4,958 187,816 192,774 2,948 (4,391) (1,443)
------------------------ ----- ------------ ------------ -------- ------------ ------------ --------
1 Refer to note 4 for details of exceptional items.
Consolidated statement of comprehensive income
For the period ended 30 June 2020
Unaudited
---------------------------------------------------------------------------------
Six months ended 30 June
---------------------------------------------------------------------------------
2020 2019
Before 2020 Before 2019
exceptional Exceptional 2020 exceptional Exceptional 2019
items items Total items items Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --- ------------ ------------ --------- ------------ ------------ --------
Profit for the period 4,958 187,816 192,774 2,948 (4,391) 1,443
---------------------------- --- ------------ ------------ --------- ------------ ------------ --------
Other comprehensive
income
Exchange differences
on translation of foreign
operations 83 - 83 - - -
---------------------------- --- ------------ ------------ --------- ------------ ------------ --------
Other comprehensive
income for the period,
net of tax 83 - 83 - - -
---------------------------- --- ------------ ------------ --------- ------------ ------------ --------
Total comprehensive
income for the period
attributable to owners
of the parent 5,041 187,816 192,857 2,948 (4,391) 1,443
---------------------------- --- ------------ ------------ --------- ------------ ------------ --------
The profit from operations arises from the Group's continuing
operations.
Earnings per share attributable to owners of the parent during
the period:
Six months Six months
ended ended
30 June 30 June
2020 2019
Notes Unaudited Unaudited
----------------------------------- ----- ---------- ----------
Basic earnings per share (pence) 6 171.07 (1.28)
Diluted earnings per share (pence) 6 169.74 (1.27)
----------------------------------- ----- ---------- ----------
Consolidated interim statement of financial position
As at 30 June 2020
Unaudited Audited
30 June 31 December
2020 2019
Notes GBP'000 GBP'000
-------------------------------------------------- ----- --------- ------------
Assets
Non-current assets
Intangible assets 25,680 23,743
Property, plant and equipment 8 321,971 412,658
Investments 75 75
Trade and other receivables 16 232
-------------------------------------------------- ----- --------- ------------
Total non-current assets 347,742 436,708
-------------------------------------------------- ----- --------- ------------
Current assets
Inventories 23,802 22,061
Trade and other receivables 47,858 48,287
Income tax recoverable 234 227
Cash and cash equivalents 57,289 50,092
Restricted cash 4,852 -
-------------------------------------------------- ----- --------- ------------
Total current assets 134,035 120,667
-------------------------------------------------- ----- --------- ------------
Total assets 481,777 557,375
-------------------------------------------------- ----- --------- ------------
Liabilities
Current liabilities
Trade and other payables 44,866 46,796
Lease liabilities 975 1,013
Bank loans and overdrafts 9 53 1,724
-------------------------------------------------- ----- --------- ------------
Total current liabilities 45,894 49,533
-------------------------------------------------- ----- --------- ------------
Non-current liabilities
Bank loans 9 12,743 267,536
Lease liabilities 2,515 2,950
Deferred tax liabilities 8,838 13,779
-------------------------------------------------- ----- --------- ------------
Total non-current liabilities 24,096 284,265
-------------------------------------------------- ----- --------- ------------
Total liabilities 69,990 333,798
-------------------------------------------------- ----- --------- ------------
Net assets 411,787 223,577
-------------------------------------------------- ----- --------- ------------
Equity
Share capital 1,128 1,128
Share premium 160,231 160,106
Other reserve 9,562 9,562
Own share reserve (859) (768)
Foreign currency reserve 17 (66)
Retained earnings 241,708 53,615
-------------------------------------------------- ----- --------- ------------
Total equity attributable to owners of the parent 411,787 223,577
-------------------------------------------------- ----- --------- ------------
Consolidated interim statement of changes in equity
For the period ended 30 June 2020
Foreign
currency
Share Share Other Own share translation Retained
Attributable to the owners capital premium reserve reserve reserve earnings Total
of the parent company: GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 1 January 2019 1,125 158,861 9,562 (588) - 57,173 226,133
Total comprehensive income
for the period - - - - - (1,443) (1,443)
Transactions with owners in
their capacity as owners
Dividends (note 7) - - - - - (4,485) (4,485)
Shares issued 2 841 - - - - 843
Movement in own shares - - - (80) - (47) (127)
Share-based payments - - - - - 386 386
Income tax effect of share
options - - - - - (93) (93)
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 30 June 2019 1,127 159,702 9,562 (668) - 51,491 221,214
Total comprehensive income
for the period - - - - (66) 5,440 5,374
Transactions with owners in
their capacity as owners
Dividends (note 7) - - - - - (2,594) (2,594)
Shares issued 1 404 - - - (829) (424)
Movement in own shares - - - (100) - (122) (222)
Share-based payments - - - - - 285 285
Income tax effect of share
options - - - - - (56) (56)
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 31 December 2019 1,128 160,106 9,562 (768) (66) 53,615 223,577
Total other comprehensive
income for the period - - - - 83 - 83
Transactions with owners in
their capacity as owners
Dividends (note 7) - - - - - (5,168) (5,168)
Shares issued - 125 - - - - 125
Movement in own shares - - - (91) - (70) (161)
Share-based payments - - - - - 389 389
Income tax effect of share
options - - - - - 168 168
---------------------------- -------- -------- -------- --------- ------------ --------- --------
As at 30 June 2020 1,128 160,231 9,562 (859) 17 241,708 411,787
---------------------------- -------- -------- -------- --------- ------------ --------- --------
Consolidated interim statement of cash flows
For the period ended 30 June 2020
Six months Six months
ended ended
30 June 30 June
2020 2019
Unaudited Unaudited
GBP'000 GBP'000
--------------------------------------------------------- ---------- ----------
Operating activities
Profit before taxation 194,475 (1,725)
Finance costs 3,251 4,098
Finance income (108) (113)
Foreign exchange loss 11 -
Exceptional items: gain on disposal of subsidiary (note
5) (194,729) -
Exceptional items: other1 2,962 5,131
Depreciation 15,523 17,195
Amortisation of intangibles 864 1,058
Share-based payment expense 389 318
Loss on disposal of property, plant and equipment 579 502
Movement in inventories (1,741) (6,032)
Movement in trade and other receivables(2) (4,277) (8,818)
Movement in restricted cash (4,852) -
Movement in trade and other payables(2) (1,754) 3,352
--------------------------------------------------------- ---------- ----------
Cash generated from operations 10,593 14,966
Income tax received/(paid) - -
--------------------------------------------------------- ---------- ----------
Net cash generated from operations 10,593 14,966
--------------------------------------------------------- ---------- ----------
Investing activities
Proceeds on disposal of subsidiary, gross 290,615 -
Payments to dispose of subsidiary(3) (11,573) -
Payments to acquire property, plant and equipment (17,367) (48,421)
Proceeds on disposal of property, plant and equipment 3,079 1,864
Payments to acquire intangible assets (2,688) (3,713)
Finance income received 108 113
--------------------------------------------------------- ---------- ----------
Net cash generated from/(used in) investing activities 262,174 (50,157)
--------------------------------------------------------- ---------- ----------
Financing activities
New borrowings 15,000 65,386
Borrowings repaid (270,000) -
Principal elements of lease payments (576) (614)
Finance costs paid (4,793) (5,300)
Net proceeds from share issue 125 13
Purchase of own shares (161) (127)
Dividends paid (5,168) (4,485)
--------------------------------------------------------- ---------- ----------
Net cash (used in)/generated from financing activities (265,573) 54,873
--------------------------------------------------------- ---------- ----------
Net increase in cash and cash equivalents 7,194 19,682
Exchange gain on cash and cash equivalents 3 -
Cash and cash equivalents at the beginning of the period 50,092 30,027
--------------------------------------------------------- ---------- ----------
Cash and cash equivalents at the end of the period 57,289 49,709
--------------------------------------------------------- ---------- ----------
1 Other non-cash material exceptional items include GBP2,611,000
for losses on our meter portfolio and a GBP351,000 exceptional bad
debt charge. In the period ended 30 June 2019, non-cash material
exceptional items included GBP4,115,000 for losses on our meter
portfolio and GBP898,000 of deferred remuneration arising on the
acquisition of a subsidiary in 2016 settled in shares in April
2019.
2 Movement in trade and other receivables includes an adjustment
of GBP4,922,000 and movement in trade and other payables includes
an adjustment of GBP237,000 for working capital disposed of as part
of the subsidiary sale.
3 Payments to dispose of subsidiary of GBP11,573,000 include
cash disposed of GBP4,681,000 and transaction costs paid of
GBP6,892,000.
Notes to the interim report
For the period ended 30 June 2020
1 Basis of preparation
This condensed consolidated interim financial report for the
half-year reporting period ended 30 June 2020 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
2019.
The financial information for the six months ended 30 June 2020
is also unaudited.
The comparative information for the year ended 31 December 2019
has been extracted from the Group's published financial statements
for that year, which were prepared in accordance with International
Financial Reporting Standards (IFRSs) as endorsed by the European
Union 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.
Following the outbreak of COVID-19, forecasts have been reviewed
in detail based on the estimated potential impact of COVID-19
restrictions and regulations, along with the Group's proposed
responses. Non-essential field work, including planned
installations of smart meters, was suspended from 24 March 2020.
However, this was a temporary response measure and, following the
government's announcement detailing phased lifting of restrictions,
a progressive resumption of all non-essential field work commenced
from 1 June 2020. Although this temporary suspension will impact
Group revenues and ILARR in the short term, management is of the
view that, subject to no further setbacks with the pandemic, smart
meter installations - and other site works - should return to
normal levels in Q4 2020. Whilst new installations and
non-essential field work were suspended, the Group continued to
generate ILARR from its 3.7 million revenue-generating assets
already on the wall, demonstrating the robust nature of the
metering infrastructure asset class.
Management has modelled several different meter installation
scenarios, including a downside case, as a result of COVID-19 and
has carried out reverse stress testing on its cash flow forecasts.
This modelling provides confidence to management that, even in
extreme circumstances, the business will still have sufficient
resources to continue to operate. Overall, the main impact of
COVID-19 is one of timing and, longer term, management does not
anticipate any significant effects on the business as a result of
the pandemic.
Management has concluded that no significant structural changes
to the business are needed as a result of COVID-19.
Following the disposal of a minority of the Group's meter
assets, effected by the sale of a wholly owned subsidiary of the
Group on 22 April 2020 (the Disposal), gross cash consideration of
GBP290.6m was received (see note 5 for further details). These
proceeds were used to make a voluntary prepayment under the Group's
existing loan facility of the full outstanding principal of
GBP270m. Concurrently, the total available funding under the loan
facility was reduced from GBP420m to GBP300m on the same terms
through to the end of 2023 (see note 9 for further details). At the
date of approving the interim financial report, the Group had
access to its full GBP300m revolving credit facility, with no
amounts drawn on the facility. The Group has not required any new
or extended facilities as a result of COVID-19, nor has it needed
to renegotiate or waive any of its bank covenants.
The Group was compliant with all its debt covenants at 30 June
2020. The financial covenants attached to this facility are that
EBITDA should be no less than 4.00x interest and net debt should be
no more than 5.75x EBITDA. At 30 June 2020 these stood at 7.06x and
-1.34x respectively, demonstrating significant headroom. The Group
does not expect to breach these covenants in the year from the date
of approval of this report.
As a result of the Disposal, the Group was in a net cash
position of GBP44.5m at 30 June 2020 (31 December 2019: net debt of
GBP219.2m) and, at that date, undrawn facilities were GBP285m (31
December 2019: GBP150.0m). The Group balance sheet shows
consolidated net assets of GBP411.8m (31 December 2019: GBP223.6m),
of which GBP309.4m (31 December 2019: GBP398.7m) relates to
revenue-generating meter and data assets. The liquidity of the
Group thus remains strong and continues to provide the financial
flexibility required in order to support the Group's long-term
growth prospects.
The Group's cash generation over the period from 24 March to 1
June, from its already installed asset portfolio, enabled the
return of funds received from the UK government under the
Coronavirus Job Retention Scheme (CJRS), together with withdrawal
from the scheme altogether. The Group has not had to rely on any
other government support schemes as a result of COVID-19. With
confidence in the Group's liquidity position, despite COVID-19, the
Directors elected not to suspend payment of the second interim
dividend for 2019 and GBP5.2m was paid out to shareholders on 4
June 2020. With significant coverage provided by existing
long-term, inflation-linked and recurring cash flows, the Group
also remains committed to its revised dividend policy and intends
to pay a 25p per share dividend in respect of FY 2020, with the
first of four cash instalments to be paid in October 2020.
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 interim 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.
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's annual
consolidated financial statements for the year ended 31 December
2019.
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
1(a) Significant accounting policies
As required in AIM Rule 18, the interim financial report for the
half-year reporting period ended 30 June 2020 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 2020 and having regard to the IFRS applicable to such
annual accounts.
The accounting policies adopted are consistent with those of the
previous financial year and corresponding interim period except for
the following changes in estimates that have been made with regard
to property, plant and equipment and intangible assets:
Changes in estimates with effect from 1 January 2019
-- Subsequent to the impairment review carried out at 31
December 2018, the estimate of residual value on the domestic
traditional meter asset portfolio was reduced to 0% to reflect
management's updated forecasts and assumptions regarding the
recoverability of value on these assets. As a result, the income
statement for the period ended 30 June 2019 was charged with an
additional GBP2.9m, recognised within depreciation in cost of
sales.
-- The following change was made in the latter half of the year
ended 31 December 2019, with effect from 1 January 2019. It is
therefore consistent with the accounting estimates applied in the
previous financial year but is not consistent with those applied in
the interim period ended 30 June 2019:
-- Capitalised IT development expenditure is disclosed within
intangible assets as part of IT development and software.
Development and software were previously disclosed separately but
were combined into a single asset class for the year ended 31
December 2019 as all costs capitalised within these categories
relate to information technology and, with effect from 1 January
2019, are amortised over the same useful economic life of five
years.
Changes in estimates with effect from 1 January 2020
-- With respect to the domestic traditional meter asset
portfolio, the useful life of all opening assets has been extended
from 31 December 2022 to 1 July 2025 to reflect the UK government's
confirmation on 18 June 2020 that it will introduce a new
regulatory framework for the next phase of the UK smart meter
rollout. The new four-year framework will be implemented from 1
July 2021, effectively extending the smart meter rollout to 1 July
2025. It is accepted that the rate of meter exchange to smart
meters will vary year by year as the rollout proceeds but there is
currently no reliable basis on which to predict the annual profile.
Accordingly, a straight line approach to depreciation of these
assets continues to be adopted. As a result of this change in
estimate, the consolidated income statement for the period ended 30
June 2020 reflected a reduced charge for depreciation of GBP2.3m,
recognised within depreciation in cost of sales.
1(b) New and amended standards adopted by the Group
The Group has applied the following standards and amendments for
the first time for their annual reporting period commencing 1
January 2020:
Standard or interpretation Effective date
-------------------------- -------------------------------------------- --------------
IFRS 3 (amendment) Definition of a Business 1 January 2020
IAS 1 and IAS 8
(amendment) Definition of Material 1 January 2020
CF Conceptual Framework for Financial Reporting 1 January 2020
-------------------------- -------------------------------------------- --------------
The amendments listed above did not have any impact on the
amounts recognised in prior periods and the current period and are
not expected to significantly affect future periods.
1(c) Critical accounting judgements
In addition to the critical accounting judgements disclosed in
the Group's published financial statements for the year ended 31
December 2019, the Directors have made the following judgement in
the process of preparing the interim financial statements for the
period ended 30 June 2020:
Presentation of costs attributable to COVID-19 as
exceptional
-- On 24 March 2020 the Group temporarily suspended all
non-essential field work, including smart meter installations, in
response to COVID-19. As a result, management has estimated that
GBP5.2m of costs that would ordinarily be capitalised as directly
attributable to the installation of meter assets - consisting
primarily of staff costs - have remained in underlying profit.
Consistent with the Group's accounting policy on exceptional items
(see below), these material costs are attributable to a rare
macroeconomic event, being the COVID-19 pandemic, and therefore
management has taken the judgement to recognise these costs as
exceptional.
-- At 30 June 2020, management has assessed the expected credit
losses for trade receivables. COVID-19 has generated global
financial uncertainty; however, the potential impact of this on the
Group's credit risk is mitigated by the highly regulated nature of
the utilities industry and the extensive support made available to
energy - and other infrastructure - suppliers by the UK government.
As a result, management has not increased the expected loss rates
for the trade receivables portfolio as a whole. Instead, a
sub-portfolio of smaller, independent customers has been identified
as having a potentially elevated credit risk, due to a greater risk
of administration as a direct consequence of COVID-19. This
sub-portfolio of trade receivables has been provided for on a
specific basis and has resulted in an additional GBP0.4m impairment
loss. Given the continued and changing uncertainty regarding the
impact of COVID-19 on customer default risk, management will
continue to monitor the situation and reassess its expected credit
losses at each reporting period end accordingly. Management has
taken the judgement to recognise this incremental impairment loss
as exceptional on the same basis as that outlined above.
The Group's accounting policy on exceptional items is included
below for reference:
Exceptional items and separately disclosed items
The Group presents as exceptional items on the face of the
consolidated income statement those items of income and expense
which, because of the material nature or expected infrequency of
the events giving rise to them, merit separate presentation to
allow shareholders to understand better the elements of financial
performance in that year, so as to facilitate comparison with prior
periods and to assess better trends in financial performance.
2 Segmental reporting
For management purposes, the Group is organised into three core
divisions, as follows:
-- asset management, which comprises regulated management of gas
meters, electric meters and ADM(TM) units within the UK;
-- asset installation, which comprises installation of domestic
and I&C gas meters and electricity meters throughout the UK;
and
-- energy management, which comprises the provision of energy
consultancy services and, following the acquisition of Solo Energy
Limited in September 2019, the management of Distributed Energy
Resources (DER) assets.
The Group's chief operating decision maker (CODM), being the SMS
plc Board, receives certain management information at a granular
"utility" level. Asset management includes reporting on gas meter
rental, electricity meter rental, gas data and electricity data.
Asset installation includes reporting on gas transactional work and
electricity transactional work. However, whilst the Group has the
ability to analyse its underlying information in this way, this
information is only used to assess performance for the Group as a
whole. These utility levels are thus combined within asset
management and asset installation, respectively, on the basis that
they have similar long-term economic characteristics - they derive
from the same asset, use similar delivery processes, have
consistent customers and have similar long-term gross margins.
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 CODM. It is these divisions, therefore, that are defined as
the Group's reportable operating segments.
Segment performance is evaluated based on gross profit.
The following segment information is presented in respect of the
Group's reportable segments together with additional balance sheet
information:
Asset Asset Energy Total
management installation management Unallocated operations
30 June 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ----------- ------------- ----------- ----------- -----------
Segment revenue 41,974 22,406 2,779 - 67,159
Inter-segment revenue - (13,008) - - (13,008)
----------------------------------- ----------- ------------- ----------- ----------- -----------
Revenue from external customers 41,974 9,398 2,779 - 54,151
Cost of sales (16,035) (9,824) (1,987) - (27,846)
Exceptional cost of sales - - - (4,309) (4,309)
----------------------------------- ----------- ------------- ----------- ----------- -----------
Segment gross profit/(loss) 25,939 (426) 792 (4,309) 21,996
Other operating costs/income - - - (11,810) (11,810)
Depreciation (136) - - (2,072) (2,208)
Amortisation of intangibles (848) - (16) - (864)
Exceptions items: gain on disposal
of subsidiary 194,729 - - - 194,729
Exceptional items: other - - - (4,110) (4,110)
----------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations 219,684 (426) 776 (22,301) 197,733
Net finance costs: exceptional (115) - - - (115)
Net finance costs: other (3,128) - - (15) (3,143)
----------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) before tax 216,441 (426) 776 (22,316) 194,475
Tax credit - - - (1,701) (1,701)
----------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) for the period 216,441 (426) 776 (24,017) 192,774
----------------------------------- ----------- ------------- ----------- ----------- -----------
Asset Asset Energy Total
management installation management Unallocated operations
30 June 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ----------- ------------- ----------- ----------- -----------
Segment revenue 39,368 28,253 4,617 - 72,238
Inter-segment revenue - (18,033) - - (18,033)
-------------------------------- ----------- ------------- ----------- ----------- -----------
Revenue from external customers 39,368 10,220 4,617 - 54,205
Cost of sales (18,554) (15,156) (3,585) - (37,295)
-------------------------------- ----------- ------------- ----------- ----------- -----------
Segment gross profit/(loss) 20,814 (4,936) 1,032 - 16,910
Other operating costs/income - - - (6,569) (6,569)
Depreciation (661) - - (1,052) (1,713)
Amortisation of intangibles (1,058) - - - (1,058)
Exceptional items (4,114) - - (1,093) (5,207)
-------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) from operations 14,981 (4,936) 1,032 (8,714) 2,363
Net finance costs: exceptional (103) - - - (103)
Net finance costs: other (3,927) - - (58) (3,985)
-------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) before tax 10,951 (4,936) 1,032 (8,772) (1,725)
Tax credit - - - 282 282
-------------------------------- ----------- ------------- ----------- ----------- -----------
Profit/(loss) for the period 10,951 (4,936) 1,032 (8,490) (1,443)
-------------------------------- ----------- ------------- ----------- ----------- -----------
Inter-segment revenue relates to installation services provided
by the asset installation segment to the asset management
segment.
Depreciation of GBP13.3m (30 June 2019: GBP15.5m) associated
with meter assets has been reported within cost of sales as the
meter assets directly drive revenue.
All material revenues and operations are based and generated in
the UK. Following the acquisition of Solo Energy Limited in
September 2019, a small minority of operations are based in the
Republic of Ireland.
Asset Asset Energy Total
management installation management Unallocated operations
30 June 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------- ----------- ----------- -----------
Assets reported by segment
Intangible assets 20,184 3,496 2,000 - 25,680
Property, plant and equipment 313,870 364 - 7,737 321,971
Inventories 23,585 217 - - 23,802
Contract assets - - 149 - 149
------------------------------ ----------- ------------- ----------- ----------- -----------
357,639 4,077 2,149 7,737 371,602
Assets not by segment 110,175
------------------------------ ----------- ------------- ----------- ----------- -----------
Total assets 481,777
------------------------------ ----------- ------------- ----------- ----------- -----------
Liabilities by segment
Contract liabilities 1,135 2,078 294 - 3,507
Lease liabilities 810 - - 2,680 3,490
Bank loan 12,796 - - - 12,796
------------------------------ ----------- ------------- ----------- ----------- -----------
14,741 2,078 294 2,680 19,793
Liabilities not by segment 50,197
------------------------------ ----------- ------------- ----------- ----------- -----------
Total liabilities 69,990
------------------------------ ----------- ------------- ----------- ----------- -----------
Asset Asset Energy Total
management installation management Unallocated operations
31 December 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------- ----------- ----------- -----------
Assets reported by segment
Intangible assets 18,417 3,493 1,833 - 23,743
Property, plant and equipment 403,948 518 - 8,192 412,658
Inventories 21,734 327 - - 22,061
Contract assets - 11 - - 11
------------------------------ ----------- ------------- ----------- ----------- -----------
444,099 4,349 1,833 8,192 458,473
Assets not by segment 98,902
------------------------------ ----------- ------------- ----------- ----------- -----------
Total assets 557,375
------------------------------ ----------- ------------- ----------- ----------- -----------
Liabilities by segment
Contract liabilities 1,360 2,010 124 - 3,494
Lease liabilities 893 - - 3,072 3,965
Bank loan 269,260 - - - 269,260
------------------------------ ----------- ------------- ----------- ----------- -----------
271,513 2,010 124 3,072 276,719
Liabilities not by segment 57,079
------------------------------ ----------- ------------- ----------- ----------- -----------
Total liabilities 333,798
------------------------------ ----------- ------------- ----------- ----------- -----------
3 Disaggregation of revenue from contracts with customers
The Group reports the following segments: asset management,
asset installation and energy management, in accordance with IFRS 8
Operating Segments. We have determined that, to meet the objective
of the disaggregation disclosure requirement in paragraph 114 of
IFRS 15, which is to disaggregate revenue from contracts with
customers into categories that depict how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by
economic factors, further disaggregation is required into the major
types of services offered. The following table thus discloses
segmental revenue by type of service delivered and timing of
revenue recognition, including a reconciliation of how this
disaggregated revenue ties in with the asset management, asset
installation and energy management segments, in accordance with
paragraph 115 of IFRS 15.
Asset Asset Energy Total
management installation management operations
Period ended 30 June 2020 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ----------- ------------- ----------- -----------
Major service lines
Metering 38,029 - - 38,029
Data management 3,945 - - 3,945
Utility connections - 3,924 - 3,924
Transactional meter works - 5,132 - 5,132
Energy management - 342 2,779 3,121
---------------------------------------- ----------- ------------- ----------- -----------
41,974 9,398 2,779 54,151
---------------------------------------- ----------- ------------- ----------- -----------
Timing of revenue recognition
Services transferred at a point in time - 5,132 - 5,132
Services transferred over time 41,974 4,266 2,779 49,019
---------------------------------------- ----------- ------------- ----------- -----------
41,974 9,398 2,779 54,151
---------------------------------------- ----------- ------------- ----------- -----------
Asset Asset Energy Total
management installation management operations
Period ended 30 June 2019 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ----------- ------------- ----------- -----------
Major service lines
Metering 35,750 - - 35,750
Data management 3,618 - - 3,618
Utility connections - 4,113 - 4,113
Transactional meter works - 5,802 - 5,802
Energy management - 305 4,617 4,922
---------------------------------------- ----------- ------------- ----------- -----------
39,368 10,220 4,617 54,205
---------------------------------------- ----------- ------------- ----------- -----------
Timing of revenue recognition
Services transferred at a point in time - 5,677 - 5,677
Services transferred over time 39,368 4,543 4,617 48,528
39,368 10,220 4,617 54,205
---------------------------------------- ----------- ------------- ----------- -----------
4 Exceptional items
30 June 30 June
2020 2019
GBP'000 GBP'000
------------------------------------- -------- --------
Exceptional operating items
Gain on disposal of subsidiary 194,729 -
Costs attributable to COVID-19 (5,575) -
Losses on the traditional and SMETS1
meter portfolio (2,611) (4,115)
Other (233) (1,092)
--------------------------------------- -------- --------
186,310 (5,207)
------------------------------------- -------- --------
Exceptional finance items
Facility fees (115) (103)
--------------------------------------- -------- --------
(115) (103)
------------------------------------- -------- --------
Total exceptional items 186,195 (5,310)
--------------------------------------- -------- --------
An exceptional gain on the disposal of a subsidiary of GBP194.7m
has been recognised separately on the consolidated income statement
for the period ended 30 June 2020. See note 5 for details.
There were total other exceptional items on the consolidated
income statement of GBP8,534,000. Exceptional operating costs
comprise GBP5,575,000 of costs directly attributable to COVID-19
(see note 1(c) - critical accounting judgements - for further
details), GBP2,611,000 of losses on our traditional and SMETS1
meter portfolio and GBP233,000 of restructuring costs incurred in
right-sizing the Group's installation business in response to
delays in the UK smart meter rollout. Exceptional finance costs of
GBP115,000 comprise break costs incurred on full voluntary
prepayment of the Group's loan facility (see note 9 for
details).
In the period ended 30 June 2019, there were total exceptional
items on the consolidated income statement of GBP5,310,000.
Exceptional material operating costs comprised GBP4,115,000 for
losses on our meter portfolio and GBP898,000 of deferred
remuneration arising on the acquisition of a subsidiary in 2016
settled in shares in April 2019. Exceptional finance costs of
GBP103,000 included GBP92,000 accelerated amortisation of loan
arrangement fees in relation to the refinancing of the loan
facility and GBP11,000 of bank break fees.
5 Disposal of subsidiary
On 12 March 2020, the Group conditionally signed an agreement to
dispose of a minority of the Group's meter assets through the sale
of the entire share capital of Crail Meters Limited (Crail), a
wholly owned subsidiary of the Group.
The meter asset provision (MAP) business carried on by two
existing operating subsidiaries of the Group (the Meter Managers)
was transferred to Crail on 12 March 2020. The business transferred
included c.187,000 Industrial & Commercial (I&C) meter
assets, amongst other working capital balances. Crail continued to
trade from 12 March 2020 through to 22 April 2020.
On 22 April 2020 the entire share capital of Crail was sold to
an unconnected third party. Total gross cash consideration of
GBP290.6m was received, comprising a payment for the sale of the
shares in Crail and the repayment of an intercompany debt owed by
Crail to the Meter Managers. There was no contingent or non-cash
consideration.
The total carrying amount of net assets disposed was GBP89.0m,
including GBP86.1m of meter assets, a GBP9.1m net receivable of
working capital balances and GBP6.2m of deferred tax liabilities,
giving rise to a gross gain of GBP201.6m. After the deduction of
GBP6.9m transaction costs, a net gain on disposal of GBP194.7m has
been recognised separately in the consolidated income statement.
Excluding deferred taxation and transaction costs, the gain is
GBP195.4m.
Crail does not meet the definition of a discontinued operation
under IFRS 5 on the basis that the minority portfolio of I&C
assets disposed does not represent the loss of a separate, major
line of business and, although I&C activities have been
significantly reduced, they have not been entirely
discontinued.
SMS will continue to manage the disposed I&C meter portfolio
on behalf of the purchaser, for which it will receive annual
RPI-linked management fees of GBP0.8m.
6 Earnings per share (EPS)
The calculation of EPS is based on the following data and number
of shares:
Six months Six months
ended ended
30 June 30 June
2020 2019
Unaudited Unaudited
GBP'000 GBP'000
----------------------------------------------------------- ---------- ----------
Profit/(loss) for the period used for calculation of basic
EPS 192,774 (1,443)
----------------------------------------------------------- ---------- ----------
Six months Six months
ended ended
30 June 30 June
2020 2019
Number of shares Unaudited Unaudited
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purposes
of basic EPS 112,686,659 112,495,520
Effect of potentially dilutive ordinary shares:
- share options 881,386 913,773
------------------------------------------------------------ ----------- -----------
Weighted average number of ordinary shares for the purposes
of diluted EPS 113,568,045 113,409,293
------------------------------------------------------------ ----------- -----------
EPS:
- basic (pence) 171.07 (1.28)
- diluted (pence) 169.74 (1.27)
------------------------------------------------------------ ----------- -----------
7 Dividends
Six months Six months Six months Six months
ended ended ended ended Year ended Year ended
30 June 30 June 30 June 30 June 31 December 31 December
2020 2020 2019 2019 2019 2019
Unaudited Per share Unaudited Per share Unaudited Per share
GBP'000 (pence) GBP'000 (pence) GBP'000 (pence)
---------------------- ---------- ---------- ---------- ---------- ------------- -------------
Paid final dividend - - 4,485 3.98 4,485 3.98
Paid second interim
dividend 5,168 4.58 - - - -
Paid interim dividend - - - - 2,594 2.30
---------------------- ---------- ---------- ---------- ---------- ------------- -------------
Total dividends 5,168 4.58 4,485 3.98 7,079 6.28
---------------------- ---------- ---------- ---------- ---------- ------------- -------------
Per the Group's revised dividend policy, a 25p per share
dividend is intended in respect of FY 2020. This will be paid to
shareholders in four cash instalments.
The first instalment is intended to be paid on 29 October 2020
to shareholders on the register at 2 October 2020, with an
ex-dividend date of 1 October 2020.
8 Property, plant and equipment
Fixtures,
Freehold/ fittings Right-of-use
leasehold Meter Plant and and Motor assets
property assets machinery equipment vehicles (note [10]) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------- --------- ---------- ----------- --------- ------------ ---------
Cost
As at 1 January
2019 2,536 410,128 504 4,248 2,814 - 420,230
Additions 215 95,186 520 2,498 3,279 4,889 106,587
Acquisitions - - - 6 - - 6
Reclassifications(1) - 205 - - - - 205
Impairment - - - - - (90) (90)
Disposals - (21,991) - (894) (65) (54) (23,004)
Exchange adjustments - - - - - - -
--------------------- ---------- --------- ---------- ----------- --------- ------------ ---------
As at 31 December
2019 2,751 483,528 1,024 5,858 6,028 4,745 503,934
Additions 5 16,466 8 888 - 17 17,384
Disposals - (121,719) - (47) (12) - (121,778)
Exchange adjustments - - - 2 - 5 7
--------------------- ---------- --------- ---------- ----------- --------- ------------ ---------
As at 30 June
2020 2,756 378,275 1,032 6,701 6,016 4,767 399,547
--------------------- ---------- --------- ---------- ----------- --------- ------------ ---------
Depreciation
As at 1 January
2019 519 59,766 233 2,618 362 - 63,498
Charge for year (14) 31,491 267 1,337 1,139 917 35,137
Reclassifications(1) - 74 - - - - 74
Impairment - - - - - (37) (37)
Disposals - (6,520) - (841) (35) - (7,396)
--------------------- ---------- --------- ---------- ----------- --------- ------------ ---------
As at 31 December
2019 505 84,811 500 3,114 1,466 880 91,276
Charge for period 81 13,314 157 811 677 483 15,523
Impairment - - - - - - -
Disposals - (29,215) - (3) (5) - (29,223)
--------------------- ---------- --------- ---------- ----------- --------- ------------ ---------
As at 30 June
2020 586 68,910 657 3,922 2,138 1,363 77,576
--------------------- ---------- --------- ---------- ----------- --------- ------------ ---------
Net book value
As at 30 June
2020 2,170 309,365 375 2,779 3,878 3,404 321,971
--------------------- ---------- --------- ---------- ----------- --------- ------------ ---------
As at 31 December
2019 2,246 398,717 524 2,744 4,562 3,865 412,658
--------------------- ---------- --------- ---------- ----------- --------- ------------ ---------
As at 1 January
2019 2,017 350,362 271 1,630 2,452 - 356,732
--------------------- ---------- --------- ---------- ----------- --------- ------------ ---------
1 Capitalised development expenditure on ADM(TM) units was
reallocated from IT development and software in intangible assets
to meter assets within property, plant and equipment, to align with
the Group's accounting policy.
Meter asset disposals in the period include the c.187,000 assets
disposed of as part of the sale of a subsidiary on 22 April 2020.
The assets disposed of had a net book value of GBP86,103,000.
Included within the closing meter assets net book value of
GBP309,365,000 (31 December 2019: GBP398,717,000) is GBP26,250,000
(31 December 2019: GBP30,298,000) relating to the traditional
domestic meter portfolio. Following the change in our accounting
estimate (see note 1(a) for details) these assets will be written
down to zero by 1 July 2025. In the H1 2020 consolidated financial
statements there was a GBP2,845,000 depreciation charge recognised
on the traditional domestic meter portfolio (H1 2019:
GBP5,489,000). GBP13,795,000 annualised recurring revenue as at 30
June 2020 (30 June 2019: GBP15,951,000) arises from the owned
traditional and domestic meter portfolio.
The assets are secured by a bond and floating charge.
For the purpose of impairment testing, the traditional meter
asset portfolio recognised within "meter assets" is assessed as a
stand-alone cash-generating unit (CGU) and its carrying amount is
compared with the recoverable amount. In line with IAS 36, no
impairment review was considered necessary at 30 June 2020 as the
previous impairment review at 31 December 2019 showed a significant
excess of recoverable amount over carrying amount and management
concluded that there were no reasonably possible changes in the key
assumptions that would cause the carrying amounts of the
traditional meter portfolio to exceed the value in use.
There have also been no events during H1 2020 that would
eliminate this excess. As a result of COVID-19, and the temporary
suspension of all smart meter installation activity, there has been
a lower volume of traditional meter asset removals. In addition, as
detailed in note 1(a), the useful economic life of traditional
meter assets has been extended to 1 July 2025 following the UK
government's announcement of its new framework for the UK smart
meter rollout.
Therefore, no impairment has been recognised in the period ended
30 June 2020 (30 June 2019: GBPnil).
No impairment on other meter assets has been recognised in the
period ended 30 June 2020 (30 June 2019: GBPnil).
9 Bank loans
30 June 31 December
2020 2019
GBP'000 GBP'000
------------ -------- -----------
Current
Bank loans 53 1,724
------------ -------- -----------
Non-current
Bank loans 12,743 267,536
------------ -------- -----------
12,796 269,260
------------ -------- -----------
Bank loans at 31 December 2019 related to the Group's revolving
credit facility of GBP420m, available for five years (the
facility). The Group had a total outstanding principal of GBP270m
at 31 December 2019 and, as repayment of the principal is not
required until 2022 under the terms of the contract, this balance
was classified as non-current. Accrued interest of GBP1.7m was
recognised as part of the carrying value of bank loans at 31
December 2019 together with a deduction of GBP2.5m for unamortised
transaction costs. In 2019, the facility attracted interest at a
rate of 1.85% over the three-month LIBOR and 0.65% was payable on
undrawn funds. The interest is required to be settled quarterly and
was thus classified as current at 31 December 2019.
Following the Group's sale of a wholly owned subsidiary on 22
April 2020, the gross proceeds received of GBP290.6m were used to
make a voluntary prepayment and the total outstanding principal
value at 22 April 2020 of GBP270m, together with outstanding
interest and commitment fees of GBP0.6m, was settled. Concurrently,
the total commitments available under the facility were reduced
from GBP420m to GBP300m. There were no other material changes to
the terms and conditions. This amendment does not substantially
change the existing revolving credit facility, nor does it
discharge any obligations. As such, this is deemed to be a
modification. There has been no impact to the consolidated income
statement in the period ended 30 June 2020 as a result of the
modification.
Following a drawdown in May 2020, the Group had a total
outstanding principal of GBP15m at 30 June 2020. Accrued interest
of GBP0.05m has been recognised as part of the carrying value of
bank loans at 30 June 2020 together with a deduction of GBP2.25m
for unamortised transaction costs.
Unamortised transaction costs from the initial establishment of
the revolving credit facility in December 2018 continue to be
amortised over the remaining duration of the facility to 2023,
together with additional transaction costs of GBP0.1m directly
attributable to the modification of the loan on 22 April 2020. At
30 June 2020, GBP0.3m of transaction costs had been recognised
within the consolidated income statement.
GBP0.1m of break costs incurred as a result of the voluntary
prepayment have been recognised as an exceptional finance cost in
the period ended 30 June 2020.
The Group has complied with the financial covenants of its
borrowing facility during the current and prior reporting
periods.
10 The half-yearly financial report was approved by the Board of
Directors on 15 September 2020.
11 A copy of this half-yearly financial report is available by
visiting our website at www.sms-plc.com.
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END
IR VZLFFBKLFBBV
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