Final Results

RNS Number : 3548B

Smart Metering Systems PLC

16 April 2012

Smart Metering Systems plc

("SMS" or the "Company")

Final results

Smart Metering Systems plc (AIM: SMS.L), the integrated metering services company that connects, owns, operates and maintains current generation and new advanced metering assets and databases is pleased to announce final results for the 12 months to 31 December 2011.

Financial Highlights

· Successful admission to trading on AiM and £10m of gross proceeds raised in July 2011

· Revenues increase by 29% to £16.0m (2010: £12.4m)

· Recurring revenues increased by 51% to £6.6m (2010: £4.4m)

· Gross profit increased by 61% to £8.9m (2010: £5.5m) with gross margin increased to 55.5% (2010: 44.4%)

· Adjusted EBITDA* increased by 96% to £5.7m (2010: £2.9m)

· Increased lease finance facility made available by Clydesdale Bank plc in October 2011, extending the available facility from £12m to £19.5m

· Available resources at year end £14.8m

· EPS increased by 301% to 2.93p (2010:0.73p)

*excluding exceptional items

Operational Highlights

· Gas connections

o 1,333 in 2011 (2010: 1,275)

· Meter Asset Management

o Total meter portfolio increased by 19% to 254,000

o Increase of 77% in capital investment on meter assets to £9.2m as a result of increasing run rate in meter installations with existing gas supplier clients

o Increase in annualised recurring revenue of 29% to £7.6m

o Client base grew from 12 to 15 representing 80% of the industrial and commercial market

· Data Management

o ADM device received zone zero accreditation and preliminary EU patent approval

o Successful ADM trials with three gas supplier clients

Alan Foy, Chief Executive Officer, commented:

"We had a very solid 2011 with strong results in all our business segments. The Company was delighted to welcome new gas supplier clients, increasing our base of major clients to 15 representing over 80% of the I&C meters market. In 2012 we will continue to focus on accumulation of meter assets organically and potentially through new contract wins. We are very pleased by successful trials of our ADM device which has an addressable market of an estimated 378,000 units. We will also seek out new domestic and international markets for our products and services to widen our footprint in the UK and establish an international presence. I look forward to 2012 with optimism."

Enquiries:

Smart Metering Systems plc	0141 249 3850
Alan Foy, Chief Executive Officer
Glen Murray, Finance Director

Cenkos Securities	0131 220 6939 / 0207 397 8900
Ken Fleming
Jon Fitzpatrick

Kreab Gavin Anderson	020 7074 1800
Ken Cronin
Anthony Hughes

Notes to Editors

Established in 1995, Smart Metering Systems plc based in Glasgow, connects, owns, operates and maintains metering systems and databases on behalf of major energy companies.

Currently the Company is concentrating its efforts on offering its unique integrated services to the UK industrial and commercial gas market in which its customers have an 80% market share.

Longer term the Company has further applications for the water and LPG markets where it has started trialling its new advanced metering system, the ADM™, which will allow "smart" applications such as remote reading and half hourly consumption data to be offered.

The Company was admitted to the AiM market in July 2011, for more information on SMS please visit the Company's website: www.sms-plc.com

SMART METERING SYSTEMS PLC

CHAIRMAN'S STATEMENT

This is the first set of full year results since the Company's admission to trading on AIM on 8 July 2011 raising £10m of gross proceeds.

The proceeds of the float have strengthened our financial resources enabling the Company to accelerate the organic growth of the business mainly based on connecting, owning, operating and maintaining gas meters and their associated databases on behalf of gas suppliers.

I am pleased to report a solid set of results for the year ended 31 December 2011 and a positive outlook for 2012.

Financial highlights

The results for the year have been strong, with revenues increasing by 29% to £16m, profit from operations before exceptional items and finance costs increasing by 119% to £4.5m, and profit from operations after exceptional items and finance costs increasing from £0.9m to £3.3m.

In addition to the proceeds from the IPO and cash flow from operations of £4.9m (2010: £3.6m), the Company also secured additional bank borrowing to support further capital investment in meters which amounted to £9.2m in the year compared to £5.2m in 2010. At the year end our available resources including cash and borrowing facilities amounted to £14.8m.

I am also pleased to announce that all major KPIs across our three business divisions were met and are detailed in the Chief Executive's Review.

People

The move from a private to publicly listed company has involved a number of changes for SMS. I was delighted to accept the invitation to be Chairman in advance of the IPO. In addition, Nigel Christie has also joined the Board as a Non-executive Director, bringing with him a wealth of financial and senior management experience. We will keep the composition of the Board, including the possibility of appointing a further Non-executive Director, under review during the current financial year.

A critical part of our operations is our people. We have an exceptional team and I would like to take this opportunity to thank them all for their efforts during the year. In the year of IPO, I would also like to thank the advisors that worked hard alongside the Company's executive team to make it happen, in what can best be described as challenging markets.

Strategy

The business activities are focused on managing the installation and registration of new meter assets onto our systems each year. Full revenue from the installed meters is realised the following year, installation and registration of new meter installations from the same overhead annually leads to compounding of recurring rentals and increasing of revenues and profits, as demonstrated in our financial performance.

Annualised recurring rental is now £7.6M, group net debt is £3.4m and we have £16M current available facility including £5.2M cash from operations to invest in meter assets.

During 2012 the company expects to increase banking facilities for the purpose of continuing to accumulate meter assets in the domestic market and with the objective of establishing the ADM smart metering solution as the market standard in the I&C market leading to further accumulation of meters.

No major investment in operations infrastructure is currently foreseen with systems operating at 5% capacity. The Company own all Intellectual Property Rights to its developed and fully deployed IT systems and new ADM smart metering solution focused on the I&C metering market.

Dividend

At the time of our admission to AIM, we stated that we intended to adopt a dividend policy that will take account of the Company's profitability, underlying growth prospects and availability of cash and distributable reserves, while maintaining an appropriate level of dividend cover.

Subject to the Company's continuing financial performance, the Directors intend to declare a maiden dividend as a public company as an interim dividend for the financial year ending 31 December 2012, which we anticipate will be paid in November 2012.

Outlook

SMS has a robust business model, a strong management team and leading smart meter technology which has been underlined by the strong set of results announced in this annual report.

2011 was an important year for SMS with its flotation on the London Stock Exchange. This milestone has allowed the Board to support an ambitious strategy for growth in our core areas, in developing new and exciting markets by product and geography and by providing the financial strength and flexibility to take advantage of new opportunities as they arise.

2012 has, to date, delivered on that strategy through the ongoing accumulation of meter assets installed on request of the Company's existing gas supply clients, and very positive conclusion on the trialling of the Company's smart meter technology. This has allowed the Company to further strengthen the quality of the management team in key areas. I look forward to a successful year ahead with a strong performance against challenging KPIs, a dedicated and motivated team and, most important, a satisfied, loyal and expanding client base.

Kevin Lyon

Chairman and
Non-executive Director

SMART METERING SYSTEMS PLC

CHIEF EXECUTIVE'S REVIEW

I am pleased to report that SMS has made a strong start as a listed company. These results are testament to the quality of our clients, our people and our ability to deliver relevant and valuable solutions to support our clients' businesses.

Our business

Our business operation is based on connecting, owning, operating and maintaining metering systems and databases on behalf of major energy companies.

Our core focus is on gas meters in the UK, where we aim to:

· be the market leader in the independent ownership of industrial and commercial meters

· establish ADM as the industry standard smart metering solution for industrial and commercial (I&C) clients and

· grow our domestic meters business organically and potentially through new contracts.

We will also seek out new domestic and international markets for our products and services to widen our footprint in the UK and establish an international presence.

Business performance

Gas Connections

Our Gas Connections business is a transactional support services business which manages new gas connections and meter installations for our clients. The business acts both as a steady and consistent revenue stream in its own right and as an important feed into our meter asset management business.

In 2011, we continued to support both contracted and non-contracted energy clients by undertaking over 1,333 connections, a similar level to the year before.

Meter asset management

Our meter asset management business works across both the domestic and I&C gas markets working on perpetuity, index linked contracts. We own, operate and manage meter assets on behalf of our clients, securing revenue through a rental of the meter asset to gas suppliers.

In 2011, our total meter portfolio increased by 19% to 254,000.At 31 March 2012 the portfolio was 265,000. This was achieved by an increase in capital investment in meter assets of 77% to £9.2m, delivering a recurring rental income increase of 51% to £6.6m. At 31 December the annual equivalent recurring rental income was £7.6m.

Asset accumulation

In 2011 the Company was delighted to welcome new gas supplier clients, increasing our base of major clients to 15 representing over 80% of the I&C meters market.

In 2012 we will continue to focus on accumulation of meter assets organically and potentially through new contract wins.

The Company seen a significant increase thus far in 2012 in our domestic meter installation run rate secured from existing gas supplier clients.

The ADM smart metering solution has been designed to the exacting requirements as requested by the Company's existing client base for the I&C market and, following trials, is now an established proven solution.

The objective is to add a further recurring meter rental income to the Company from the provision of data services generated by the installation of the ADM device to I&C meters by gas supplier customers. Addionally however, a new meter is intended to be installed at the same time as an ADM device installation, thereby further increasing the Companies meter asset portfolio in this market segment.

Data management - ADM

SMS has developed a cost effective and reliable data collection solution incorporating a smart meter device called ADM, principally aimed at the I&C market. The device has been granted preliminary European patent approval and safety certification for operation in the most hazardous environments and has been trialled by three major energy suppliers in the UK during the course of 2011.

A key advantage of ADM is that it does not require pre-installation programming and is very much 'plug and play'. Supported by a comprehensive IT solution, the ADM device will provide an important source of new income and act as a feeder into the meter asset management business, in a similar way to our gas connections business.

Following extensive trials we can now provide clients with a proven full service offering incorporating installation of gas meters through to advanced metering services providing many opportunities for the Company to build further value from its existing client base.

The market for I & C meters which represents an estimated 1.6m clients has two distinct options with respect to advanced or smart metering. Up to 2014 small I&C meter clients have the opportunity to opt for an advanced metering solution such as the ADM device or alternatively be included in the proposed domestic roll out of smart meters. The Company believes that this market segment is attractive for implementing the ADM solution and will increase marketing efforts in this area throughout 2012.

Gas suppliers have already got a licence condition to install advanced meters, such as the ADM device to large meters, combined with large consumer group portfolios the Company estimate these immediately addressable markets to be around 378,000 meters.

Further expansion to new areas

During 2011 we established that the ADM device was a suitable technology for other market sectors such as water meter data collection. We have had early success and are currently trialling the ADM device in the I&C sector.

The addressable market is large and estimated at 1.6m units.

People

A significant part of our business proposition has always focused on how we interact with our clients through attention to detail and excellent customer service. These core values have underpinned our business since its inception in 1995.

Our team

It is the dedication and professional work ethic of our team that has provided the strongest of foundations for the successful growth of our business and I wish to thank all those individuals that have fostered our key relationships with clients over the years.

Several of our clients are now celebrating ten years working with SMS. The trust developed over such long periods has helped us accumulate our meter portfolio to date. This strong growth is anticipated to continue through 2012 and beyond. Throughout the course of this review, I have highlighted areas where we will focus our efforts and, as always, keeping true to our core values within a dedicated and professional team will be important in the delivery of targeted growth. We look forward to many more milestones achieved throughout 2012.

Alan Foy

Chief Executive Officer

SMART METERING SYSTEMS PLC

FINANCE DIRECTOR'S REPORT

Results for the year

In 2011, the Group generated £16m in revenue, an increase of 29% over 2010, as the Company continued its growth of owned meters and meters under management. Recurring revenue, in line with the Company's strategy, increased from 35% of the total in 2010 to 41% in 2011.

Administration expenses at £4.4m (excluding exceptional costs) were up 27% compared to 2010, substantially due to investment in staff numbers which have increased from 35 to 42 in line with the growth of the Company and its listed status, and increased depreciation due to the increased meter base held by the Company.

Finance costs increased from £250k to £535k, in line with the increased borrowings that have supported our investment in meter assets.

Profit before tax increased from £857k to £3.3m and profit after tax from £490k to £2.2m.

Cash and borrowings

As at 31 December 2011, the Company had cash balances of £7.3m and unused facilities of £7.5m. In October 2011, SMS was pleased to announce that Clydesdale Bank PLC had agreed to extend the master lease facility, originally made available to SMS on 24 September 2010, by increasing the lease facility from £12m to £19.5m. The increased amount of £7.5m will be available for drawdown until 12 October 2012 and will be used to continue to expand investment in meter assets.

Gearing was 32% compared to 493% in 2010.

Capital investment in meters was £9.2m compared to £5.2m in 2010.

Treasury policies

The Company uses interest rate swaps to manage interest rate fluctuations on interest-bearing loans and borrowings which means that the Company pays a fixed interest rate rather than being subject to fluctuations in the variable rate.

Interest rate swaps covered an amount of £5.5m as at 31 December 2011 (2010: £3.8m) and an interest rate cap over an amount of £5.5m as at 31 December 2011 (2010: £4m).

The interest rate swap results in a fixed interest rate of 2.99% and the interest rate cap applies a floating rate with a cap of 2.99%. The termination date for both derivatives is 15 September 2015.

The Company completed a transaction for a further interest rate cap in November 2011 with an effective date of January 2012 applying a floating rate with a cap of 2.25%. This will eventually apply to future drawdowns up to £5m.

Glen Murray

Finance Director

SMART METERING SYSTEMS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2011

	Notes	2011 £'000	2010 £'000
REVENUE	1	15,964	12,368
Cost of sales	2	(7,109)	(6,876)

Gross profit		8,855	5,492
Administrative expenses	2	(5,050)	(4,385)

PROFIT FROM OPERATIONS	2	3,805	1,107
Attributable to:
Operating profit before exceptional items		4,482	2,042
Exceptional items and fair value adjustments	2	(677)	(935)

Finance costs	5	(535)	(250)
Finance income	5	41	-

PROFIT BEFORE TAXATION		3,311	857
Taxation	6	(1,121)	(367)

PROFIT FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS		2,190	490

Other comprehensive income		-	-

TOTAL COMPREHENSIVE INCOME		2,190	490

The profit from operations arises from the Group's continuing operations.

Earnings per share attributable to owners of the parent during the year:

	Notes	2011	2010
Basic earnings per share (pence)	7	2.93	0.73
Diluted earnings per share (pence)	7	2.90	0.73

SMART METERING SYSTEMS PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2011

	Notes	2011 £'000	2010 £'000	1^ST January 2010 £'000
ASSETS
Non-current
Intangible assets	9	1,885	1,731	1,863
Property, plant and equipment	10	21,327	12,951	8,303
Financial asset investments		-	-	20

		23,212	14,682	10,186
Current Assets
Inventories	12	83	-	-
Trade and other receivables	13	1,606	1,219	1,958
Financial asset investments	11	-	180	517
Cash and cash equivalents	14	7,317	1,835	592
Other current financial assets	18	18	99	-

		9,024	3,333	3,067

TOTAL ASSETS		32,236	18,015	13,253

LIABILITIES
Current liabilities
Trade and other payables	15	6,379	6,090	5,644
Bank loans and overdrafts	16	1,328	1,003	49
Commitments under hire purchase agreements	17	3	7	510
Other current financial liabilities	18	339	171	-

		8,049	7,271	6,203
Non-current liabilities
Bank loans	16	9,845	8,253	427
Obligations under hire purchase agreements	17	13	-	3,973
Deferred tax liabilities	20	1,873	964	559
Other payables		-	-	554

		11,731	9,217	5,513

TOTAL LIABILITIES		19,780	16,488	11,716

NET ASSETS		12,456	1,527	1,537

EQUITY
Share capital	22	833	-	-
Share premium	22	8,653	-	-
Other reserve	24	1	1	1
Retained earnings		2,969	1,526	1,536

TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY		12,456	1,527	1,537

SMART METERING SYSTEMS PLC

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2011

Attributable to the owners of the parent Company:	Share capital £'000	Share Premium £'000	Other reserve £'000	Retained earnings £'000	Total £'000

As at 1 January 2010	-	-	1	1,536	1,537
Profit for the year	-	-	-	490	490
Transactions with owners in their capacity as owners:
Dividends ( Note 8)	-	-	-	(500)	(500)

		_________
As at 31 December 2010	-	-	1	1,526	1,527
Profit for the year	-	-	-	2,190	2,190
Transactions with owners in their capacity as owners:
Shares issued (Note 22)	666	-	-	(666)	-
Shares issued (Note 22)	167	9,833	-	-	10,000
Share issue costs	-	(1,180)	-	-	(1,180)
Dividends ( Note 8)	-	-	-	(180)	(180)
Share options	-	-	-	99	99
	________
As at 31 December 2011	833	8,653	1	2,969	12,456

SMART METERING SYSTEMS PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2011

	2011 £'000	2010 £'000
CASH FLOW FROM OPERATING ACTIVITIES
Profit before taxation	3,311	857
Finance costs	535	250
Finance income	(41)	-
Fair value movement on derivatives	249	71
Depreciation	956	598
Amortisation	234	249
Share based payment expense	99	-
Investment revaluation	-	337
Increase in inventories	(83)	-
(Increase)/Decrease in trade and other receivables	(438)	775
Decrease in trade and other payables	128	448
Loss on disposal of investment	-	5

CASH GENERATED FROM OPERATIONS	4,950	3,590

Taxation	-	1

NET CASH GENERATED FROM OPERATIONS	4,950	3,591

INVESTING ACTIVITIES
Payments to acquire property, plant and equipment	(9,332)	(5,246)
Disposal of fixed assets investment	180	15
Payments to acquire intangible assets	(388)	(118)
Finance income	41	-

NET CASH USED IN INVESTING ACTIVITIES	(9,499)	(5,349)

FINANCING ACTIVITIES
Net proceeds of new borrowings less capital repaid	1,937	4,304
Net outflow from other long term creditors	-	(554)
Finance costs	(535)	(250)
Net proceeds from share issue	8,820	-
Dividend paid	(180)	(500)

NET CASH GENERATED FROM FINANCING ACTIVITIES	10,042	3,000
Net increase in cash and cash equivalents	5,493	1,242
Cash and cash equivalents at the beginning of the financial year	1,824	582

Cash and cash equivalents at the end of the financial year (Note 13)	7,317	1,824

SMART METERING SYSTEMS PLC

ACCOUNTING POLICIES

The Company is incorporated and domiciled in the UK. The Group's activities consist of the rental and management of gas meters and that of laying infrastructure pipes for industrial and commercial premises and the provision of specialist technical advice on the use and management of energy for industrial and commercial users.

Basis of Preparation

The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments which are measured at fair value in line with applicable accounting standards. The consolidated financial statements are presented in British pounds sterling (£) and all values are rounded to the nearest thousand (£'000) except where otherwise indicated.

Going Concern

Based on the current projections and facilities in place the Directors consider it appropriate to continue to prepare the financial statements on a going concern basis.

Statement of Compliance

For all periods up to and including the year ended 31 December 2010, the Group prepared financial statements in accordance with generally accepted accounting practice in the United Kingdom ((UK GAAP). These financial statements for the year ended 31 December 2011 are the first the Group has prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union. An explanation of the principal adjustments made by the Group in restating its UK GAAP statement of financial position as at 1 January 2010 and its previously published UK GAAP financial statements for the year ended 31 December 2010 is provided in note 28.

Basis of Consolidation

The consolidated financial statements incorporate the consolidated financial statements of the Company and all Group undertakings being UK Gas Connection Limited, UK Meter Assets Limited and UK Data Management Limited. These are adjusted, where appropriate, to conform to Group accounting policies and are prepared to the same accounting reference date. The Company was incorporated on 27 October 2009. The Group was formed on 24 December 2009 through the acquisition of the entire share capital of UK Gas Connection Limited and UK Meter Assets Limited (the only subsidiaries in existence at that time).

Whilst the Group was newly formed, the ultimate ownership of all companies remained unchanged and, as such, the financial statements have been prepared based on a reconstruction under common control, reflecting the Group results for the current and prior years as though the Group structure has always existed.

Use of Estimates

The preparation of the financial statements requires the use of estimates and assumptions. Although these estimates are based on management's best knowledge, actual results ultimately may differ from these estimates.

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are the estimation of share based payment costs. The estimation of share based payment costs requires the selection of an appropriate valuation model, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest, inputs for which arise from judgements relating to the probability of meeting non-market performance conditions and the continuing participation of employees.

Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts and VAT.

Revenue is recognised when the significant rewards and risk of ownership have been passed to the buyer. The risk and rewards of ownership transfer when the Company fulfils its contractual obligations to customers by supplying goods and services, or when they have the right to receive the income. Where revenue is recognised due to the right to receive the income and the Company has not invoiced for the goods or service, an accrual is incorporated for the estimate of providing such.

Rental income is accounted for on a straight line basis over the term.

Segment Reporting

An operating segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. Operating segments are reported in a manner consistent with the reports made to the chief operating decision maker which are consistent with the reported results.

The Company considers that the role of chief operating decision maker is performed by the Board of Directors.

Financial Assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

The Group's financial assets include cash and short-term deposits, trade and other receivables, loans and other receivables, quoted and unquoted financial instruments, and derivative financial instruments.

Financial Liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, net of directly attributable transaction costs.

The Group's financial liabilities include trade and other payables, bank overdraft, loans and borrowings, financial guarantee contracts and derivative financial instruments.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same

lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

Offsetting of financial instruments

Financial assets and financial liabilities are offset, and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Initial recognition and subsequent measurement

The Group uses derivative financial instruments such as interest rate swaps to hedge its interest rate risk. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The Group has not designated any derivatives for hedge accounting.

Current versus non-current classification

Derivative instruments that are not designated as effective hedging instruments are classified as current or non-current or separated into a current and non-current portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).

- Where the Group will hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the reporting date, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item.

- Derivative instruments that are designated as, and are effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if a reliable allocation can be made.

Exceptional Items

The Group presents as exceptional items on the face of the income statement 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 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.

Research and Development

Expenditure on pure and applied research activities is recognised in the income statement as an expense as incurred.

Expenditure on product development activities is capitalised if the product or process is technically and commercially feasible and the Group intends and has the technical ability and sufficient resources to complete development, future economic benefits are probable and if the Group can measure reliably the expenditure attributable to the intangible asset during its development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads.

Capitalised development expenditure is stated at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:

Amortisation 13% on cost straight line

Intangible Assets

Intangible assets acquired separately from third parties are recognised as assets and measured at cost.

Following initial recognition, intangible assets are measured at cost at the date of acquisition less any amortisation and any impairment losses. Amortisation costs are included within the net operating expenses disclosed in the statement of comprehensive income.

Intangible assets are amortised over their useful lives as follows:

Software 8 years straight line

Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. The Company does not have any intangible assets with indefinite lives.

Property, Plant and Equipment

Property plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation, respectively.

All other repair and maintenance costs are recognised in the income statement as incurred.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

- Short leasehold property 20% on cost

- Plant and machinery 5% on cost

- Fixtures and fittings 15% on cost

- Equipment 33% on cost

Land is not depreciated.

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised. The assets' residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively, if appropriate.

All fixed assets are initially recorded at cost.

Impairment of Assets

Property, plant and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For purposes of assessing impairment assets that do not individually generate cash flows are assessed as part of the cash generating unit

to which they belong. Cash generating units are the lowest levels for which there are cash flows that are largely independent of the cash flows from other assets or Groups of assets.

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Cash and Cash Equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short term deposits as defined above, net of outstanding bank overdrafts.

Hire Purchase Agreements

Assets held under hire purchase agreements are capitalised and disclosed under tangible fixed assets at their fair value. The capital element of the future payments is treated as a liability and the notional interest is charged to the statement of comprehensive income in proportion to the remaining balance outstanding.

Leased Assets and Obligations

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the income statement. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term.

All other leases are operating leases and the annual rentals are charged to the statement of comprehensive income on a straight line basis over the lease term.

Pension Costs

The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group. The annual contributions payable are charged to the statement of comprehensive income.

Share-based payments

The costs of equity settled share based payments are charged to the income statement over the vesting period. The charge is based on the fair value of the equity instrument granted and the number of equity instruments that are expected to vest.

Taxation

Tax currently payable is based on the taxable profit for the year. Taxable profit differs from accounting profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is measured using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The deferred tax balance is calculated based on tax rates that have been enacted or substantively enacted by the reporting date.

Adoption of the International Accounting Standards

Standards affecting presentation and disclosure

In the current year, the following new and revised Standards have been adopted but have not had any material impact on the amounts reported in these financial statements:

IFRS 1 (amended 2010) Additional exemptions for first time adopters

IFRS 3 (amended 2010) Business combinations

IFRS 7(amended 2010) Financial instruments: disclosures

IAS 1 (amended 2010) Presentation of financial statements

IAS 21 (amended 2010) The effects of foreign exchange rates

IAS 24 (revised 2009) Related party disclosures

IAS 27 Consolidated and separate financial statements

IAS 34 (amended 2010) Interim financial reporting

IFRIC 19 Extinguishing financial liabilities with equity instruments

At the date of authorisation of the financial statements, the following Standards and Interpretations which have not been applied in the financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 1 (amended 2010) First time adoption of IFRS: Hyperinflation

IFRS 7 (amended 2010) Financial instruments disclosures: transfers of financial assets

IFRS 7 (amended 2011) Financial instruments disclosures: offsetting financial assets and financial liabilities

IFRS 9 Financial instruments

IFRS 10 Consolidated financial statements

IFRS 11 Joint arrangements

IFRS 12 Disclosure of interests in other entities

IFRS 13 Fair value measurement

IAS 1 (amended 2011) Presentation of other comprehensive income

IAS 12 (amended 2010) Income taxes: deferred tax

IAS 19 (amended 2011) Employee benefits

IAS 27 (amended 2011) Separate financial statements

IAS 28 (amended 2011) Investments in associates and joint ventures

IAS 32 (amended 2011) Financial instruments presentation: offsetting financial assets and
financial liablilities

The Directors do not expect that the adoption of these Standards or Interpretations in future periods will have a material impact on the financial statements of the Group.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

1 SEGMENTAL REPORTING

For management purposes, the Group is organised into two core divisions, management of assets and installation of meters, which form the basis of the Group's reportable operating segments. Operating segments within those divisions are combined on the basis of their similar long term economic characteristics and similar nature of their products and services, as follows;

The management of assets comprises regulated management of gas meters within the UK.

The installation of meters comprises installation of domestic and industrial and commercial gas meters throughout the UK.

Management monitors the operating results of its divisions separately for the purpose of making decisions about resource allocation and performance assessment. The operating segments disclosed in the financial statements are the same as reported to the Board. Segment performance is evaluated based on gross profit or loss excluding operating costs not reported by segment, depreciation, amortisation of intangible assets and exceptional items.

The following tables present information regarding the Group's reportable segments for the years ended 31 December 2011 and 31 December 2010.

31 December 2011	Asset management £'000	Asset installation £'000	Unallocated £'000	Total operations £'000

Segment/Group revenue	6,614	9,350	-	15,964
Operating costs	(1,973)	(5,136)	-	(7,109)


Segment profit - Group gross profit	4,641	4,214	-	8,855


Items not reported by segment:
Other operating costs	-	-	(3,182)	(3,182)
Depreciation	(918)	-	(38)	(956)
Amortisation	(235)	-	-	(235)
Exceptional items	-	-	(677)	(677)

Group operating profit after amortisation and exceptional items	3,488	4,214	(3,897)	3,805
Net finance costs	-	-	(494)	(494)

Profit before tax	3,488	4,214	(4,391)	3,311
Tax expense				(1,121)

Profit for year				2,190

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

1 SEGMENTAL REPORTING (continued)

31 December 2010	Asset management £'000	Asset installation £'000	Unallocated £'000	Total operations £'000

Segment/Group revenue	4,372	7,996	-	12,368
Cost of sales	(1,850)	(5,026)	-	(6,876)


Segment profit - Group gross profit	2,522	2,970	-	5,492


Items not reported by segment:
Other operating costs			(2,603)	(2,603)
Depreciation	(551)		(47)	(598)
Amortisation	(235)	(14)		(249)
Exceptional items			(864)	(864)

Group operating profit after amortisation and exceptional items	1,736	2,956	(3,514)	1,178
Net finance costs	-	-	(321)	(321)

Profit before tax	1,736	2,956	(3,835)	857
Tax expense				(367)

Profit for year				490

All revenues and operations are based and generated in the UK.

The Group has one major customer that generated turnover within each segment as listed below:

	2011 £'000	2010 £'000

Customer 1 - Asset Management	4,380	3,071
Customer 1 - Asset Installation	2,860	1,987



	7,240	5,058

The majority of assets and liabilities are managed at subsidiary and Group level and are not integral to the operations of any of the Group's segments.

No segmentation is presented for the majority of Group assets and liabilities as these are managed centrally, independently of operating segments.

Those assets and liabilities that are managed and reported on a segmental basis are detailed below.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

1 SEGMENTAL REPORTING (continued)

Segment assets and liabilities

31 December 2011	Asset management £'000	Asset installation £'000	Total operations £'000
Assets reported by segment
Intangible assets	1,885	-	1,885
Plant and machinery	21,125	-	21,125
Inventories	83	-	83

			23,093
Assets not reported by segment			9,143


Total assets			32,236

Liabilities reported by segment
Obligations under hire purchase agreements	16	-	16


			16
Liabilities not reported by segment			19,764


Total liabilities			19,780

31 December 2010	Asset management £'000	Asset installation £'000	Total operations £'000

Assets reported by segment
Intangible assets	1,731	-	1,731
Plant and machinery	12,875	-	12,875
Inventories	-	-	-

			14,606
Assets not reported by segment			3,409




Total assets			18,015

Liabilities reported by segment
Obligations under hire purchase agreements	7	-	7


			7
Liabilities not reported by segment			16,481


Total liabilities			16,488

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

2 INCOME STATEMENT BY NATURE AND ITEMS OF EXPENDITURE INCLUDED IN THE CONSOLIDATED INCOME STATEMENT

	Note	2011 £'000	2010 £'000

Revenue		15,964	12,368

Direct rental costs		(1,973)	(1,655)
Direct subcontractor costs		(4,437)	(3,684)
Other direct sales costs and systems rental		(699)	(1,538)

Staff costs		(1,965)	(1,676)

Depreciation - Owned assets - Leased assets		(948) (8)	(576) (23)
Amortisation		(234)	(249)

Auditors remuneration - as auditors		(59)	(33)
Exceptional costs		(677)	(935)
Operating lease costs - Plant and equipment		(25)	(5)
Loss on disposal of fixed assets		-	(5)
Other operating charges		(1,134)	(882)

Operating profit		3,805	1,107

Finance costs		(535)	(250)
Finance income		41	-

Profit before taxation		3,311	857

Included in exceptional administrative expenses are: i) £329,000 (2010: £nil) that relates to costs incurred during the listing process, ii) £249,000 (2010: £71,000) relates to the interest rate hedge fair value adjustment, iii) £nil (2010: £527,000) of costs associated with new debt facilities, iv) £nil (2010: £337,000) of a write down on current asset investments, and v) £99,000 (2010: £nil) that relates to share based payments.

Auditor's remuneration amounts in total to £247,000 (2010: £47,000).

	2011 £'000	2010 £'000
This can be analysed as:
Statutory audit (Baker Tilly UK Audit LLP)	59	33
Reporting accountant services (Baker Tilly Corporate Finance LLP)	167	-
Taxation services (Baker Tilly Tax and Accounting Limited)	15	11
Non-statutory audit services (Baker Tilly UK Audit LLP)	6	3
	___	___
	247	47
	___	___

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

3 PARTICULARS OF EMPLOYEES

The average number of staff employed by the Group, including Executive Directors' during the financial year was:

	2011 No	2010 No

Number of administrative staff	5	4
Number of operational staff	34	28
Number of Directors	3	3

	42	35

The aggregate payroll costs, including Executive Directors, of the above were:

	2011 £'000	2010 £'000

Wages and salaries	1,711	1,468
Social security costs	195	172
Staff pension costs	40	23
Director pension costs	19	13

	1,965	1,676

4	DIRECTORS' EMOLUMENTS	2011 £'000	2010 £'000
	The Directors' aggregate remuneration in respect of qualifying services were:

	Emoluments receivable	586	614
	Fees	333	-
	Value of Group pension contributions to money purchase schemes	3	6
	Other pension	16	7

		938	627


	Emoluments of highest paid Director	2011 £'000	2010 £'000

	Total emoluments	310	317
	Pension contributions	10	4

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

The number of Directors who accrued benefits under Company pension schemes was as follows:

	2011 No	2010 No

Money purchase schemes	2	1

5	FINANCE COSTS AND FINANCE INCOME	2011 £'000	2010 £'000
	Finance costs
	Bank loans and overdrafts	533	235
	Finance leases	2	15

	Total finance costs	535	250

	Finance income
	Bank interest receivable	41	-

6	TAXATION	2011 £'000	2010 £'000
	Analysis of charge in the year
	Current tax:
	Current income tax expense	212	-
	Over provision in prior year	-	(38)

	Total current income tax	212	(38)

	Deferred tax:
	Origination and reversal of temporary differences	909	405

	Tax on profit on ordinary activities	1,121	367


	The charge for the period can be reconciled to the loss per the consolidated statement of comprehensive income as follows:

	Profit before tax	3,311	857

	Tax at the UK corporation tax rate of 26.5% (2010: 28%)	877	240
	Expenses not deductible for tax purposes	228	170
	Adjustments to tax charge in respect of previous periods	51	10
	Change in tax rate	(35)	(36)
	R & D enhanced deductions	-	(17)

	Tax expense in the income statement	1,121	367

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

7	EARNINGS PER SHARE
	The calculation of EPS is based on the following data and number of shares:
		2011 £'000	2010 £'000s
	Profit for the year used for calculation of basic EPS	2,190	490

	Amortisation of intangible assets	235	235
	Exceptional costs	677	864
	Tax effect of adjustments	(92)	(242)
		_____	_____
	Earnings for the purpose of adjusted EPS	3,010	1,347


	Number of shares	2011	2010

	Weighted average number of ordinary shares for the purposes of basic EPS	74,709,610	66,673,080

	Effect of potentially dilutive ordinary shares:
	- Share options	728,577	-
		_________	_________
	Weighted average number of ordinary shares for the purposes of diluted EPS	75,438,187	66,673,080

	Earnings per share
	- basic (pence)	2.93	0.73
	- diluted (pence)	2.90	0.73
	Adjusted earnings per share
	- basic (pence)	4.03	2.02
	- diluted (pence)	3.99	2.02

The Directors consider that the adjusted earnings per share calculation gives a better understanding of the Group's earnings per share

8	DIVIDENDS	2011 £'000	2010 £'000
	Equity dividends
	Paid during the year:
	Dividends on equity shares £600 (2010 : £1,166.67)	180	350
	Approved and unpaid:
	Dividends on equity shares £nil (2010 : £500)	-	150

	Total dividends	180	500

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

9	INTANGIBLE ASSETS	Research and development £'000	Software £'000	Total £'000
	Cost

	As at 1 January 2010	53	1,810	1,863
	Additions	118	-	118


	As at 31 December 2010	171	1,810	1,981
	Additions	388	-	388


	As at 31 December 2011	559	1,810	2,369

	Amortisation

	As at 1 January 2010	-	-	-
	Charge for year	14	236	250


	As at 31 December 2010	14	236	250
	Charge for year	-	234	234

	As at 31 December 2011	14	470	484


	Net book value

	At 31 December 2011	545	1,340	1,885


	At 31 December 2010	157	1,574	1,731


	At 31 1 January 2010	53	1,810	1,863

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

10 PROPERTY PLANT & EQUIPMENT

	Short leasehold property	Plant and machinery	Fixtures and fittings	Equipment	Total
	£'000	£'000	£'000	£'000	£'000
Cost
As at 1 January 2010	18	8,663	8	105	8,794
Additions	13	5,189	16	28	5,246

As at 31 December 2010	31	13,852	24	133	14,040
Additions	-	9,168	1	163	9,332

As at 31 December 2011	31	23,020	25	296	23,372

Depreciation
As at 1 January 2010	7	425	-	59	491
Charge for year	5	552	4	37	598

As at 31 December 2010	12	977	4	96	1,089
Charge for year	6	918	5	27	956

As at 31 December 2011	18	1,895	9	123	2,045

Net book value
At 31 December 2011	13	21,125	16	173	21,327


At 31 December 2010	19	12,875	20	37	12,951


At 1 January 2010	11	8,238	8	46	8,303

Hire purchase agreements

Included within the net book value of £21,327,000 (2010: £12,951,000, 2009: £8,703,000) is £145,418 (2010: £Nil, 2009: £4,711,000) relating to assets held under hire purchase agreements. The depreciation charged to the consolidated financial statements in the year in respect of such assets amounted to £7,654 (2010: £23,000, 2009: £248,000).

The assets are secured by a bond and floating charge (note 15).

11	FINANCIAL ASSET INVESTMENTS	2011 £'000	2010 £'000	1^st Jan 2010 £'000
	Current
	Investments	-	180	517

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

SUBSIDIARY UNDERTAKINGS	Country of incorporation	Holding	Proportion of shares held	Nature of business
All held by the Company:
UK Gas Connection Limited (formerly Eco Project Management Limited)	Scotland	Ordinary Shares	100%	Gas Utility management
UK Meter Assets Limited (formerly The UK Meter Exchange Limited)	Scotland	Ordinary Shares	100%	Gas Utility management
UK Data Management Limited	Scotland	Ordinary Shares	100%	Data management

12	INVENTORIES	2011 £'000	2010 £'000	1^st Jan 2010 £'000

	Inventories	83	-	-

13	TRADE AND OTHER RECEIVABLES	2011 £'000	2010 £'000	1^st Jan 2010 £'000

	Trade receivables	480	330	838
	Other receivables	1,052	823	690
	Corporation tax repayable	-	51	15
	VAT recoverable	74	-	415
	Other receivables	-	15	-

		1,606	1,219	1,958

The debtors above include the following amounts falling due after more than one year:

2011

£'000

2010

£'000

1^st Jan 2010

£'000

Other receivables

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

The Group's credit risk is primarily attributable to trade receivables. The amounts presented in the statement of financial position are net of allowances for doubtful receivables. There was no allowance for doubtful receivables in the year (2010: £Nil, 2009: £Nil). The ageing profile of trade receivables is shown below.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

	2011 £'000	2010 £'000	1^st Jan 2010 £'000
Current	435	113	323
31-60 days	20	124	270
60-90 days	15	26	57
over 90 days	10	67	188

	480	330	838

Allowance for doubtful receivables	-	-	-

	480	330	838

Trade receivables are non-interest bearing and are generally on 30-90 days terms.

Trade receivables due from related parties at 31 December 2011 amounted to £34,000 (2010: £31,000, 2009: £30,000).

Receivables are all in sterling denominations.

The Directors are of the opinion that none of the overdue debts as at 31 December 2011 (2010: £Nil, 2009: £Nil) require impairment.

14 CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash held by the Group. The carrying amount of the asset approximates the fair value. All balances are held in sterling.

During each period, there were no amounts of cash placed on short term deposit.

For the purposes of the cash flow statement, cash and cash equivalents comprise:

	2011 £'000	2010 £'000	1^st Jan 2010 £'000

Cash	7,317	1,835	592
Bank overdraft	-	(11)	(10)

	7,317	1,824	582

15	TRADE AND OTHER PAYABLES	2011 £'000	2010 £'000	1^st Jan 2010 £'000
	Current:
	Trade payables	2,035	1,568	1,394
	Other payables	10	274	72
	Other taxes	143	245	59
	Corporation Tax	161	-	-
	Accruals and deferred income	4,030	4,003	4,119

		6,379	6,090	5,644

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

The maturity profile of trade payables is given below:

	2011 £'000	2010 £'000	1^st Jan 2010 £'000

Current	1,530	1,113	673
31-60 days	281	122	584
60-90 days	39	198	72
over 90 days	185	135	65

	2,035	1,568	1,394

Trade payables are non-interest bearing and are normally settled on 30-45 day terms.

All trade liabilities are sterling denominated.

16	Bank loans and overdrafts	2011 £'000	2010 £'000	1^st Jan 2010 £'000
	Current
	Bank loans	1,328	992	39
	Bank overdrafts	-	11	10

		1,328	1,003	49

	Non-current
	Bank loans	9,845	8,253	427
	Bank overdraft	-	-	-

	Non-current	9,845	8,253	427

Bank loans at 31 December 2011 relate to a term loan facility of £0.5 million and a master lease facility of £19.5 million. The master lease facility was increased from £12 million to £19.5 million in October 2011.

The term loan is for a term of 5 years and is payable in equal quarterly instalments of £25,000. The term loan attracts interest at a rate of 3.5% over the 3 month LIBOR.

The master lease facility has a term of 10 years following drawdown period (September 2011) and is repayable in monthly instalments. This facility attracts interest at a rate of 3.1% over 3 month LIBOR for the original facility and 3.25% over 3 month LIBOR for the increase of £7.5 million. The Bank retains ownership of all assets acquired using this facility until full repayment. .

The Bank have a bond and floating charge over current and future property and assets.

The Group have fixed the bank interest payable through an interest rate swap and cap (see note 18).

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

17	COMMITMENTS UNDER HIRE PURCHASE AGREEMENTS	2011 £'000	2010 £'000	1^st Jan 2010 £'000
	Future minimal commitments under hire purchase agreements are as follows:

	Current
	Amounts payable within 1 year	3	7	510

	Non current
	Amounts payable between 2 to 5 years	13	-	3,973
	Amounts payable after more than 5 years	-	-	-

		13	-	3,973

The Group has hire purchase contracts for various items of computer equipment. These leases have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease.

The Directors consider that the future minimum lease payments under hire purchase contracts approximate to the present value of the minimum payments. Obligations under hire purchase contracts are secured on the underlying assets.

18 OTHER FINANCIAL LIABILITIES AND ASSETS

The Group's treasury policy and management of financial instruments, which form part of these financial statements, are set out in the financial review.

	2011 £'000	2010 £'000	1^st Jan 2010£'000

Other financial assets	18	99	-


Non-current liabilities

Other financial liabilities	339	171	-

Other financial assets and liabilities relate to the fair value adjustment on interest rate swaps.

The Group uses interest rate swaps to manage interest rate risk on interest-bearing loans and borrowings which mean that the Group pays a fixed interest rate rather than being subject to fluctuations in the variable rate. The Group has not designated these derivatives as cash flow hedges.

The interest rate swaps cover an interest rate swap for an amount of £5,500,000 as at 31 December 2011 (2010: £3,800,000, 2009: £Nil) and an interest rate cap over an amount of £5,500,000 as at 31 December (2010: £4,000,000, 2009: £Nil).

The interest rate swap results in a fixed interest rate of 2.99% and the interest rate cap applies a floating rate with a cap of 2.99%.

The termination date for both derivatives is 15 September 2015.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

The Group completed a transaction for a further interest rate cap in November 2011 with an effective date of January 2012 applying a floating rate with a cap of 2.25%.

The movement in the fair value is shown below

	2011 £'000	2010 £'000	1^st Jan 2010 £'000
Interest rate swap
Opening position	99	-	-
Adjustment to fair value	(81)	99	-

Closing position	18	99	-


Interest rate cap
Opening position	(171)	-	-
Adjustment to fair value	(168)	(171)	-

Closing position	(339)	(171)	-

Fair values

The Directors do not consider there to be any material differences between the fair values and carrying values of any financial assets or liabilities recorded within these financial statements at the balance sheet date other than as set out below.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

- Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

- Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

At 31 December 2011, the Group held the following financial instruments measured at fair value:

Assets measured at fair value

31 December 2011

£'000

Level 1

£'000

Level 2

£'000

Level 3

£'000

Financial assets at fair value through the income statement:

Interest rate derivatives

Liabilities measured at fair value

31 December 2011

£'000

Level 1

£'000

Level 2

£'000

Level 3

£'000

Financial liabilities at fair value through the income statement:

Interest rate derivatives

(339)

Fair value has been assessed on a Mark to Market basis.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

The above liabilities are shown on the statement of financial position as other current financial assets and other current financial liabilities.

During the reporting period ended 31 December 2011, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

19 FINANCIAL RISK MANAGEMENT

The Board reviews and agrees policies for managing the risks associated with interest rate, credit and liquidity risk. The Group has in place a risk management policy that seeks to minimise any adverse effect on the financial performance of the Group by continually monitoring the following risks:

Interest rate risk

The Group's interest rate risk arises as a result of both its long and short term borrowing facilities.

The Group seeks to manage exposure to interest rate fluctuations through the use of fixed interest rate swaps.

Interest rate sensitivity

The following table demonstrates the sensitivity to a change in interest rates on loans and borrowings, after the impact of hedge accounting. The Group's profit before tax is affected through the impact on floating rate borrowings as follows:

Pound sterling

Increase/decrease in basis points

Effect on profit before tax

£'000

2011

2010

Interest rate risk profile of financial liabilities

The interest rate profile of the financial liabilities of the Group (being bank loans and overdrafts, obligations under finance leases and other financial liabilities) as at each period end is as follows:

	Fixed Rate	Variable rate
	Financial liabilities £'000	Financial liabilities £'000	Total £'000

2011	5,516	5,673	11,189
2010	5,000	4,434	9,434
1^st January 2010	-	4,960	4,960

The fixed rate financial liabilities relates to the portion of the banking facility that is fixed through hedging instruments.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

19 FINANCIAL RISK MANAGEMENT (continued)

The following is the maturity profile of the Group's financial liabilities as at 31 December:

	2011 £'000	2010 £'000	1^st Jan 2010 £'000
Fixed rate
Less than 1 year	642	500	-
2 - 5 years	2,555	2,000	-
Over 5 year	2,444	2,500	-

	5,641	5,000	-

Variable rate
Less than 1 year	630	570	560
2-5 years	2,521	1,567	4,400
Over 5 year	2,522	2,297	-

	5,673	4,434	4,960

Interest rate risk profile of financial assets

The Group's financial assets at 31 December 2011 comprise cash and trade receivables. The cash balance of £7,317,000 (2010: £1,835,000, 2009: £592,000) is a floating rate financial asset.

Fair values of financial liabilities and financial assets

The fair values, based upon the market value or discounted cash flows of financial liabilities and financial assets held in the Group, was not materially different from their book values.

Foreign currency risk

The Group's exposure to the risk of changes in foreign exchange rates is insignificant as primarily all of the Group's operating activities are denominated in pound sterling.

Liquidity Risk

The Group manages its cash in a manner designed to ensure maximum benefit is gained whilst ensuring security of investment sources. The Group's policy on investment of surplus funds is to place deposits at institutions with strong credit ratings.

The ageing and maturity profile of the Group's material liabilities are covered within the relevant liability note.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

19 FINANCIAL RISK MANAGEMENT (continued)

Credit Risk

Credit risk with respect to trade receivables is due to the Group trading with a limited number of companies who are generally large utility companies or financial institutions. Therefore, the Group does not expect, in the normal course of events, that these debts are at significant risk. The Group's maximum exposure to credit risk equates to the carrying value of cash held on deposit and trade and other receivables.

The Group's maximum exposure to credit risk from its customers is £480,000 (2010: £330,000, 2009: £838,000) as disclosed in note 12 - trade and other receivables.

The Group regularly monitors and updates its cash flow forecasts to ensure it has sufficient and appropriate funds to meet its ongoing operational requirements whilst maintaining adequate headroom on its facilities to ensure no breach in its banking covenants.

Capital management

Capital is the equity attributable to the equity holders of the parent. The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure, and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, sell assets, return capital to shareholders or issue new shares.

The Group monitors capital on the basis of a gearing ratio. This ratio is calculated as net debt divided by EBITDA. Net debt is calculated as total borrowings less cash. EBITDA is calculated as operating profit before any significant non-recurring items, interest, tax, depreciation and amortisation.

20 DEFERRED TAXATION

The movement in the deferred taxation asset during the period was:

	2011 £'000	2010 £'000	1^st Jan 2010 £'000

Opening deferred tax liability	964	559	131
Increase in provision through income statement	909	405	428

Closing deferred tax liability	1,873	964	559

All movements identified have gone through the income statement.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

The Group's provision for deferred taxation consists of the tax effect of temporary differences in respect of:

Group	2011 £'000	2010 £'000	1^st Jan 2010 £'000
Excess of taxation allowances over depreciation on fixed assets	2,329	1,405	928
Tax losses available	(371)	(421)	(369)
Fair value of interest rate swaps (net)	(85)	(20)	-

	1,873	964	559

The deferred tax included in the income statement is as follows:

	2011 £'000	2010 £'000

Accelerated capital allowances	924	477
Tax losses	50	(52)
Movement in fair value of interest rate swaps	(65)	(20)

	909	405

21 RELATED PARTY TRANSACTIONS

A number of key management personnel hold positions in other entities that result in

them having control or significant influence over the financial or operating policies.

A number of these entities transacted with the Group in the reporting period. The terms and conditions of the transactions with key management personnel and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel and related entities on an arm's length basis.

During the period, the Group entered into the following transactions with related parties:

During the year the Group paid rent amounting to £41,500 (2010: £65,500, 2009: £65,500) to the Directors' pension scheme, Eco Retirement Benefit Scheme, for the use of certain premises. Both Stephen Timoney and Alan Foy are trustees of the scheme. At the year end date, an amount of £4,150 (2010: £6,414, 2009: £13,000) was outstanding in this regard.

During the year, the Group paid management charges to FM Assets Limited, a Company owned and controlled by Mr SP Timoney and Mr A Foy of £Nil (2010: £16,000, 2009: £315,000). As at the year end an amount of £27,709 was due from FM Assets Limited (2010: £121,000 was due to FM Assets Limited, 2009: £57,000).

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

22	SHARE CAPITAL	2011 £'000	2010 £'000	1^st Jan 2010 £'000
	Allotted and called up:
	83,339,747 Ordinary shares of £0.01 each (2010 & 2009: 300 Ordinary shares - of £1 each)	833	-	-

On 17 June 2011 each of the 300 Ordinary Shares of £1 each then in issue was sub-divided into 100 Ordinary shares of £0.01 each.

On 17 June 2011 4,980,000 Ordinary Shares of £0.01 each were issued to Stephen Timoney and Alan Foy by means of a bonus issue.

On 20 June 2011 61,663,080 Ordinary Shares of £0.01 each were issued to Stephen Timoney and Alan Foy by means of a bonus issue.

On 8 July 2011 16,666,667 Ordinary Shares were issued for £0.60.

23 SHARE BASED PAYMENTS

On 20 June 2011 the Company adopted both an Approved Company Share Option Plan (the "CSOP") and an Unapproved Company Share Option Plan (the "Unapproved Plan").

CSOP

The CSOP is open to any employee of any member of the Group up to a maximum value of £30,000 per employee. No option can be exercised within 3 years of its date of grant.

Unapproved Plan

The unapproved plan is open to any employee, Executive Director or Non-Executive Director of the Company or any other Group Company who is required to devote substantially the whole of his time to his duties under his contract of employment. Except in certain specified circumstances no Option will be exercisable within 5 years of its grant.

Plan

At 1/1/11

Granted

At 31/12/11

Exercise Price (pence)

Date

Exercisable

Expiry Date

CSOP

578,947

15/7/14

15/7/21

Unapproved

3,800,833

20/6/16

20/6/21

Valuation

The fair value of all options granted has been estimated using the Black Scholes option model, taking into the account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the year ended 31 December 2011.

CSOP

Unapproved plan

Dividend yield

Expected share price volatility

Risk free interest rate

Expected life of option (years)

Option strike price (£)

Share price (£)

1.18%

45%

1.18%

0.76

0.765

1.25%

45%

2.12%

0.60

24 OTHER RESERVE

This is a non-distributable reserve that arose by applying merger relief under s162 CA06 to the shares issued in 2008 in connection with the Group restructuring. This was previously recognised as a merger reserve under UK GAAP. Under IFRS, this has been classed as an "other reserve".

25 COMMITMENTS UNDER OPERATING LEASES

The Group has entered into commercial leases for office space. These leases have lives between one and fifteen years with no renewal option included in the contracts. There are no restrictions placed upon the Group by entering into these leases.

Future minimum rentals payable under non-cancellable operating leases as at each year ended are as follows:

	2011	2010	1^st Jan 2010
	£'000	£'000	£'000
Future minimal commitments under operating lease agreements are as follows:

Payable within one year	68	82	42
Payable within 2 and 5 years	166	166	166
Payable after 5 years	218	291	332

	452	539	540

26 ULTIMATE CONTROLLING PARTY

There is no ultimate controlling party by virtue of the structure of shareholdings in the Group.

27 CONTINGENT LIABILITY

The Group is the subject of an ongoing HMRC enquiry in respect of payments made to Employee Benefit Trusts in prior years. Whilst the outcome of the enquiry is, as yet, uncertain, the beneficiaries of the Trusts have provided the Company with indemnities against any additional tax that may become payable as a result of these enquiries.

28 TRANSITION TO IFRS

For all periods up to and including the year ended 31 December 2010, the Group prepared its financial statements in accordance with generally accepted accounting practice in the United Kingdom (UK GAAP). These financial statements for the year ended 31 December 2011, are the first the Group has prepared in accordance with International Financial Reporting Standards ("IFRS").

The Group has prepared financial statements which comply with IFRS applicable for periods beginning on or after 1 January 2011 as described in the accounting policies. The Group's opening statement of financial position was prepared as at 1 January 2010, the Group's date of transition to IFRS. This note explains the principal adjustments made by the Group in restating its Local GAAP statement of financial position as at 1 January 2010 and its previously published UK GAAP financial statements for the year ended 31 December 2010.

SMART METERING SYSTEMS PLC

RECONCILIATION OF CONSOLIDATED EQUITY AT 1 JANUARY 2010

	NOTES	UK GAAP	Effect of transition to IFRS	IFRS
		£'000	£'000	£'000
ASSETS Non-current assets
Intangible assets		1,863	-	1,863
Property, plant and equipment		8,303	-	8,303
Financial asset investments		20	-	20
		10,186	-	10,186
Current assets
Trade and other receivables		1,958	-	1,958
Financial asset investments		517	-	517
Cash and cash equivalents		592	-	592
		______	______	_____
Non-current assets classified as held for sales		3,067	-	3,067
		______	______	_____

Total assets		13,253	-	13,253
		______	______	_____
LIABILITIES
Current liabilities
Trade and other payables		5,644	-	5,644
Bank loans and overdrafts		49	-	49
Obligations under finance leases		510	-	510
		6,203	-	6,203
		______	______	_____
Non-current liabilities
Bank loans		427	-	427
Other creditor		554	-	554
Deferred tax liabilities		559	-	559
Obligations under finance leases		3,973	-	3,973
		______	______	_____

Total liabilities		11,716	-	11,716
		______	______	_____
Net assets		1,537	-	1,537
		______	______	_____

SMART METERING SYSTEMS PLC

RECONCILIATION OF CONSOLIDATED EQUITY AT 1 JANUARY 2010

	NOTES	UK GAAP	Effect of transition to IFRS	IFRS
		£'000	£'000	£'000
EQUITY
Share capital
Other reserve		1	-	1
Retained earnings		1,536	-	1536
Total equity		1,537	-	1,537
		_____	_____	_____

RECONCILIATION OF CONSOLIDATED TOTAL COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2010

	NOTES	UK GAAP	Effect of transition to IFRS	IFRS
		£'000	£'000	£'000
Revenue		12,368	-	12,368
Cost of sales		6,876	-	6,876
Gross profit		5,492	-	5,492
Administrative expenses		3,450	-	3,450
		_____	_____	_____
Gains / (losses) on remeasurement of investment properties
Profit from operations		2,042	-	2,042
Exceptional costs and fair value adjustments	a)	865	70	935
Finance costs		250	-	250
Profit before tax	a)	927	(70)	857
		_____	_____	_____
Income tax expense	a)	387	(20)	367
Profit for the year		540	(50)	490
		_____	_____	_____

Notes to reconciliation of Consolidated Total Comprehensive Income.

a) Fair value of interest rate derivatives

Under IFRS financial derivatives such as interest rate swaps are recognised in the statement of financial position at fair value with corresponding movements in fair value being taken to the income statement. Under UK GAAP the Group did not previously recognise the fair value of these derivatives on the balance sheet. Derivatives were entered into during the year ended 31 December 2010, therefore this impact on net assets in the statement of financial position at 1 January 2010 but an increase to costs of £70k for the year ended 31 December 2010. Deferred tax has been provided in respect of the fair value of the financial instruments.

SMART METERING SYSTEMS PLC

PARENT COMPANY BALANCE SHEET

31 DECEMBER 2011

	2011	2010
Notes	£'000	£'000

FIXED ASSETS

Investments	2	-	-
		______	______

CURRENT ASSETS

Debtors

9,685

150

CREDITORS
Amounts falling due within one year	4	5	150
		_________	_______
NET CURRENT ASSETS		9,680	-
		_________	_______
TOTAL ASSETS LESS CURRENT LIABILITIES		9,680	-
		_________	_______

CAPITAL AND RESERVES

Called up share capital	6	833	-
Share Premium	7	8,653	-
Profit and loss account	7	194	-
		_________	_______
EQUITY SHAREHOLDERS' FUNDS		9,680	-
		_________	_______

SMART METERING SYSTEMS PLC

NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

1 PARENT COMPANY ACCOUNTING POLICIES

Basis of Accounting

The consolidated financial statements have been prepared under the historical cost convention, with the exception of current asset investments held at valuation.

Going Concern

Based on the current projections and facilities in place the Directors consider it appropriate to continue to prepare the financial statements on a going concern basis.

Turnover

Turnover represents revenue recognised in the accounts. Revenue is recognised when the Company fulfils its contractual obligations to customers by supplying goods and services, or when they have the right to receive the income, and excludes value added tax. Where turnover is recognised due to the right to receive the income and the Company has not invoiced for the goods or services supplied an accrual is incorporated for the estimate of providing such.

Deferred Taxation

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company's taxable profits and its results as stated in the consolidated financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the consolidated financial statements.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

Financial instruments

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities.

Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability.

Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity.

SMART METERING SYSTEMS PLC

NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

2 INVESTMENTS

Company	Group companies
	£'000

Cost

At 1 January 2011	-
Additions	-
	────
At 31 December 2011	-
	════

Net book value

At 31 December 2011	-
	════
At 31 December 2010	-
	════

Country of incorporation

Holding

Proportion of shares held

Nature of business

SUBSIDIARY UNDERTAKINGS

All held by the Company:

UK Gas Connection Limited (formerly Eco Project Management Limited)	Scotland	Ordinary shares	100%	Gas utility management
UK Meter Assets Limited (formerly The UK Meter Exchange Limited)	Scotland	Ordinary shares	100%	Gas utility management

UK Data Management Limited	Scotland	Ordinary Shares	100%	Data management

3 DEBTORS amounts falling due within one year

	2011	2010
	£'000	£'000
Amounts owed by Group undertakings	9,685	150
Other debtors	-	-
	________	_______
	9,685	150
	________	_______

4 CREDITORS amounts falling due within one year

	2011	2010
	£'000	£'000
Other creditors	5	-
	_____	_____
	5	-
	_____	_____

SMART METERING SYSTEMS PLC

NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

5 RELATED PARTY TRANSACTIONS

The Company had no material related party transactions to disclose in line with Financial Reporting Standard 8.

The Group has taken advantage of the exemption in Financial Reporting Standard 8 from the requirement to disclose transactions within the Group.

6 SHARE CAPITAL

	2011	2010
	£'000	£'000

Allotted and called up:

83,339,747 Ordinary shares of £0.01 each

(2010: 300 Ordinary shares - of £1 each)

833

_______

On 17 June 2011 each of the 300 Ordinary Shares of £1 each then in issue was sub-divided into 100 Ordinary shares of £0.01 each.

On 17 June 2011 4,980,000 Ordinary Shares of £0.01 each were issued to Stephen Timoney and Alan Foy by means of a bonus issue.

On 20 June 2011 61,663,080 Ordinary Shares of £0.01 each were issued to Stephen Timoney and Alan Foy by means of a bonus issue.

On 8 July 2011 16,666,667 Ordinary Shares were issued for £0.60.

7 RESERVES

	Profit and loss reserve	Share premium	Share capital
	£'000	£'000	£'000
As at 1 January 2011	-	-	-
Returned earnings	1,040	-	-
Dividend paid	(180)	-	-
Bonus issue	(666)	-	666
Arising on shares issued	-	9,833	167
Share issue costs	-	(1,180)	-
	________	________	_______
As at 31 December 2011	194	8,653	833
	________	________	_______

8 CONTINGENT LIABILITY

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR UVRSRUSASAAR

Companies

Smart Metering Systems (SMS)

Wednesday, 15th May 2024

COMPANIES COVERED:

EXPN KLR HTG

Oil services company Hunting sees share price jump on news of significant contract win from Kuwait, Keller advances as pre-AGM trading statement upgrades profit forecast and Experian full year performance lands at top of expectations.

Full Archive

UK 100

Latest directors dealings

12 minutes ago Rathbones Group
17 minutes ago Quartix Technologies
52 minutes ago C&C Group (CDI)
57 minutes ago Aquila Energy Efficiency Trust (EUR)
1 hour ago Cranswick

All directors dealings today

Final Results

ASSETS

Non-current assets

Total assets

LIABILITIES

Current liabilities

Total liabilities

RECONCILIATION OF CONSOLIDATED EQUITY AT 1 JANUARY 2010

Revenue

Gross profit

Finance costs

Profit before tax

Income tax expense

Companies

UK 100

Latest directors dealings