Half-year Report

Smart Metering Systems PLC
12 September 2023
 

12 September 2023

 

Smart Metering Systems plc

 

Strong H1 performance; confident outlook

 

Smart Metering Systems plc (AIM: SMS, "SMS" or the "Group"), the integrated energy infrastructure company owning and managing meters, energy data, grid-scale batteries and other carbon reduction ("CaRe") assets, today publishes its half year results for the six months ended 30 June 2023.

 

H1 financial performance

 

£'m (unless stated otherwise)

H1 2023

H1 2022

% Change

Alternative performance measures


 


Index-linked annualised recurring revenue ("ILARR")1

110.0

93.1

+18%

Pre-exceptional EBITDA2

36.1

29.1

+24%

Underlying profit before taxation3

11.2

10.3

+9%

Underlying basic EPS (p)4

6.13

5.92

+4%



 


Statutory performance measures


 


Revenue

79.3

62.7

+26%

EBITDA

34.1

25.8

+32%

Profit before taxation

8.0

6.1

+31%

Basic EPS (p)

4.32

3.37

+28%

Dividend per share (p)

22.689

20.625

+10%

Net (debt)/cash

(96.3)

38.6

n/a

1 ILARR is the revenue generated from meter rental and data contracts at a point in time. Includes revenue from third-party managed meters.

2 Pre-exceptional EBITDA is statutory EBITDA excluding exceptional items.

3 Underlying profit before taxation is profit before taxation excluding exceptional items and amortisation of certain intangibles.

4 Underlying basic EPS is underlying profit after taxation divided by the weighted average number of ordinary shares for the purpose of basic EPS.

A reconciliation between statutory and underlying performance is detailed in the Financial Review section. 

 

Highlights

 

Financial

·    ILARR of £110.0m at 30 June 2023, up 13% on year-end (31 December 2022: £97.1m) and up 18% on the prior period (30 June 2022: £93.1m)

·    Revenue up 26% to £79.3m (H1 2022: £62.7m)

·    Pre-exceptional EBITDA up 24% to £36.1m (H1 2022: £29.1m)

·    Underlying profit before taxation up 9% to £11.2m (H1 2022: £10.3m)

·    Net debt at 30 June 2023 of £96.3m (30 June 2022: net cash of £38.6m)

 

Smart meters

·    ILARR growth was supported by higher rental per smart meter, driven by indexation and an increased focus on single fuel and Industrial and Commercial ("I&C") smart meter installations

·    Smart meter portfolio increased to 2.3 million (31 December 2022: 2.1 million)

·    Contracted order pipeline of c.1.95 million (31 December 2022: c.2.17 million), net of c.220,000 smart meters installed during the period

·    Significant year-on-year growth in total engineer-delivered works resulting in higher transactional revenues and ILARR growth

·    Continued increases to engineering capacity is expected to accelerate the installation run rate in H2 2023; on track to deliver at least 500,000 installations this year

 

Grid-scale batteries

·    Grid-scale battery portfolio increased to 860MW (31 December 2022: 760MW) including:

240MW operational1

§ 140MW operational during H1 2023; performance within the Board's expected range

§ Additional 100MW operational since H1 2023

370MW fully secured, with 50MW expected to be operational in Q4 2023

250MW under exclusivity

·    Secured the option to increase the duration of at least 290MW 1 MW/hour sites to 2 MW/hour sites

 

Developing CaRe assets

·    SMS continues to build delivery capability, commercial models and pipelines in developing CaRe assets, strategically aligned with adjacent markets

Acquired the domestic services division of Evergreen Energy on 22 August 2023, specialising in the installation and maintenance of renewable energy assets, including heat pump, solar and battery storage for homeowners

Development of METIS Energy - currently piloting behind-the-meter CaRe asset solutions to businesses, housing associations and consumers, beginning with domestic EV charging

Installed first public EV charging hubs, operated by the Clenergy EV platform

 

Capital allocation

·    The current pipeline(2) of smart meters and grid-scale batteries can be fully funded from asset-backed internally-generated cash flows and debt facilities

·    Compounding RPI on recurring revenues provides effective protection in a higher interest rate environment

·    Notwithstanding this strong position, the Group may consider selective asset recycling to maintain a prudent level of gearing in the medium term and to support future growth

 

Outlook

·    FY 2023 pre-exceptional EBITDA and underlying PBT are expected to remain in line with the Board's expectations

·    The Board expects FY 2024 pre-exceptional EBITDA to be marginally ahead of its previous expectations with year-on-year growth of c.20%, and underlying PBT is expected to be in line with the Board's previous expectations

·    The Board continues to be confident in the medium-term outlook with the index-linkage of SMS's meter revenues continuing to underpin long-term cash flows

·    Dividend growth of 10% to 33.275p per share intended for FY 2023 in line with stated policy of a 10% per annum increase until 2024; expect to continue with progressive dividend policy thereafter

 

(1)    Of the 240MW operational, 50MW is energised and will be trading by the end of September

(2)    Current pipelines include the existing c.1.95million meter order pipeline and 620MW 1 hour duration grid-scale battery pipeline.

 

Tim Mortlock, Chief Executive Officer, commented:

 

"SMS continues to deliver operationally and financially, with the strength and resilience of our model reflected in the significant growth in ILARR and EBITDA achieved during the first half of the year.

 

"Our index-linked revenues provide a natural hedge against increased interest rates in the short term whilst significantly benefitting long-term cash flows.

 

"Our existing pipelines of meters and grid-scale battery assets can be fully funded from our internal cash flows and debt facilities. Delivery of this pipeline is expected to drive further growth, and to more than double the Group's EBITDA over the next c.4 years.

 

"We are working to expand these pipelines, and to deliver the significant additional growth opportunities that exist within our developing CaRe assets.

 

"We have always been, and will remain, focused on delivering high quality, safe and secure growth."

 

There will be an analyst webcast at 9.00am today - please contact sms@instinctif.com for details. The half year results presentation will be published on the Group's website shortly.

 

 

For further information:

 

Smart Metering Systems plc

0141 249 3850

Tim Mortlock, Chief Executive Officer

Gail Blain, Chief Financial Officer

Dilip Kejriwal, Head of Investor Relations




Cavendish Securities plc (Joint Broker and Nomad)

0131 220 6939 / 020 7397 8900

Neil McDonald / Pete Lynch




Investec Bank plc (Joint Broker)

020 7597 5970

Christopher Baird / Henry Reast / James Rudd


 

RBC Capital Markets (Joint Broker)

Matthew Coakes / Evgeni Jordanov / Jack Wood

 

 

020 7653 4000

Instinctif Partners (PR Adviser)

020 7457 2020

Tim Linacre / Guy Scarborough / Vivian Lai

 

SMS@instinctif.com

 

The Company announces that its Joint Broker and Nominated Adviser has changed its name from Cenkos Securities plc to Cavendish Securities plc following completion of its own corporate merger.

 

Notes to Editors

Smart Metering Systems plc (www.sms-plc.com), the integrated energy infrastructure company owning and managing smart meters, energy data, grid-scale batteries and other carbon reduction assets ("CaRe") to facilitate effective energy management. The Group manages and optimises these assets through its in-house technology and data analytical platform "METIS".

 

Established in 1995, SMS provides a full end-to-end service, from funding and installation to management and maintenance, with a highly skilled workforce, deep engineering expertise and well-established industrial partnerships.

 

SMS is leading the low carbon, smart energy revolution in the UK and is committed to reducing its own carbon emissions to net zero by 2030. SMS has been recognised with the London Stock Exchange's Green Economy Mark every year since it was introduced in 2019.

 

SMS plc is headquartered in Glasgow with a national presence across twelve UK locations.

 

SMS's shares are listed on AIM.

 

Overview

The Group continued to deliver a strong operational and financial performance during H1 2023; a testament to the resilient nature of our business model underpinned by our index-linked annual recurring revenues, which increased to £110.0m (+13% on year-end 2022). Our operational grid-scale battery portfolio performed in line with expectations, and we continued to make progress in developing other CaRe assets. 

 

In H1 2023, SMS's engineering capability delivered significantly higher volumes of activity compared to the previous period. It fulfilled more transactional callout services alongside a higher proportion of single fuel and I&C installations, which generate a higher average rental per meter. The Group installed c.220,000 smart meters during H1 2023 (H1 2022: c.230,000) and, supported by continued increases to our engineering capacity, expects to accelerate the meter installation run-rate during the second half of the year and to achieve at least 500,000 installs in FY 2023.

 

The Group's smart meter portfolio stands at 2.3 million (31 December 2022: 2.1 million), with an additional contracted pipeline of c.1.95 million smart meters to be installed by the end of the roll-out programme.

 

The Group's operational grid-scale battery portfolio performed within the Board's expectations, generating an annualised EBITDA of c.£57,000 per MW in the period. An additional 100MW has become operational since 30 June 2023, bringing the Group's total operational capacity to 240MW. We expect to increase this to 290MW by year end. The balance of our grid-scale battery pipeline stands at 570MW, of which 320MW is fully secured, with 250MW under exclusivity.

 

The existing pipeline of meter and grid-scale battery assets is expected to more than double the Group's EBITDA in c.4 years compared to FY 2022.

 

Notable developments in other CaRe verticals were achieved in H1 2023, followed by the acquisition of Evergreen Energy's domestic services division in August, which will enhance SMS's capacity to deliver an extended range of low-carbon, behind-the-meter energy solutions to the UK's domestic and commercial marketplaces. The Group has been developing its new consumer-facing business - METIS Energy - and pilots have commenced for the delivery of domestic EV infrastructure. We also installed our first public EV charging hubs in Elmbridge, operated by the Clenergy EV platform. These early-stage projects are important to inform the commercial model as we seek to build a diverse pipeline of activity across the UK.

 

The Board expects FY 2023 pre-exceptional EBITDA and underlying PBT to be in line with its expectations. For FY 2024, the Board expects pre-exceptional EBITDA to be marginally ahead of its previous expectations with c.20% year-on-year growth. Despite the impact of higher interest rates, underlying PBT is expected to be in line with previous expectations. The medium-term outlook remains strong as our index-linked revenues provide a hedge against interest rates whilst significantly benefiting long-term cash flows.

 

Index-linked annualised recurring revenue

ILARR grew to £110.0m as at 30 June 2023, which includes the annual RPI adjustment. This represents a 13% increase since the year end (31 December 2022: £97.1m).

 

Category

% Change

ILARR

Portfolio

Smart meters

+ 16.9 %

£71.5m

2.3 million

Data assets

+ 5.6 %

£16.9m

0.4 million

Industrial & Commercial meters

+ 17.2 %

£6.2m

0.1 million

Traditional domestic meters

+ 5.6 %

£11.8m

0.2 million

Third party assets

+3.9 %

£3.6m

1.4 million

Total

+ 13.3%

£110.0m

4.5 million

 

The Group's ILARR grew in line with the Board's expectations with higher rental per meter, driven by indexation and an increased delivery of single fuel and I&C smart meter installations.

 

UK smart meter rollout

SMS installed c.220,000 (H1 2022: c.230,000) smart meters during the first half of 2023, increasing the Group's smart meter portfolio to 2.3 million (31 December 2022: 2.1 million). The Group has maintained market share of c.14%, in line with FY 2022.

 

The UK smart meter rollout continues to present a significant opportunity to grow our ILARR, with a contracted smart meter order pipeline at 30 June 2023 of c.1.95 million meters (31 December 2022: c.2.17 million), net of meters installed in the period. Once fully installed this pipeline is expected to add c.£47m of EBITDA, excluding the impact of RPI. The roll-out programme aims to have at least 75% of all meters exchanged to smart by the end of 2025.

 

SMS's engineering capability delivered higher volumes of activity compared to the prior period, fulfilling more transactional callout services alongside a higher proportion of single fuel and I&C installations (which generate a higher rental income per meter). The positive net outcome was strong growth in ILARR and higher transactional revenue. We also continued to ensure the efficient overall utilisation of our engineering capacity during this period.

 

The Group has further increased its engineering capacity and expects the meter installation run-rate to accelerate during the second half of the year as a result; we expect to install at least 500,000 meters in FY 2023.

 

H1 2023 saw a concentrated drive to recruit and retain skilled talent amidst a competitive engineer labour market, with high demand across the industry. There will be ongoing investment in these initiatives during H2 2023, especially in the southeast of England, to ensure we appropriately and efficiently balance regional engineering capacity with customer portfolios. This, coupled with SMS's strong supply chain and inventory levels, provides the Board with confidence in the Group's ability to deliver successfully its contracted smart meter pipeline.

 

SMS has continued to support the enrolment and adoption of first generation ('SMETS1') smart meters into the Data Communications Company ("DCC") platform. The migration of the Group's own SMETS1 portfolio is progressing and is expected to continue through the remainder of the year in line with the wider enrolment and adoption programme.

 

During H1 2023, SMS won a pilot project with Alternative Home Area Network Company aimed at removing the technical barriers for smart meters in 'hard to reach' residential properties, which account for c.4% of UK households. This project builds on our previous provision of test centre facilities for this technical solution, which, alongside the Group's end-to-end integrated platform, provides additional growth opportunities in smart metering.

 

Grid-scale battery storage

At 30 June 2023, the Group's portfolio of grid-scale battery storage assets totalled 860MW (31 December 2022: 760MW), split as follows:

 

·      240MW1 operational

·      140MW operational during H1 2023

·      additional 100MW became operational in H2 2023

·      370MW fully secured, with 50MW expected to be operational in Q4 2023

·      250MW under exclusivity

 

Performance of the operational sites in H1 2023 has been within the Board's expected range, generating an annualised EBITDA of c.£57,000/MW. As anticipated, a larger volume of available battery storage capacity across the UK has saturated the frequency market, which was the primary grid service for the Group's portfolio in the prior year. Revenues year-to-date have been largely generated from balancing services, which forms the basis of our long-term expected annualised EBITDA contribution.

 

The successful energisation and commencement of operations for the additional two 50MW sites in September is a significant milestone for the business as we continue to execute on our pipeline and grow our operational, revenue generating, portfolio. A further 50MW project is in advanced construction and is expected to be operational by year end.

 

SMS has secured the option to increase the duration of at least 290MW 1 MW/hour sites to 2 MW/hour sites, which will enable the Group to access further revenue opportunities from delivery of balancing and other wholesale services.

 

(1)    Of the 240MW operational, 50MW is energised and will be trading by the end of September

 

Developing CaRe verticals

Our developing CaRe verticals are strategically aligned with adjacent markets in which we can leverage our closely related technologies, engineering expertise and wider capabilities.

 

Behind-the-meter

SMS has been actively developing METIS Energy, contributing to the Group's journey to provide behind-the-meter CaRe solutions for businesses, housing associations and consumers, which are critical to the UK's transition to net zero.

 

The initial focus of METIS Energy will be the delivery of domestic EV charging infrastructure, with the aim of extending this to solar, storage and air source heat pump solutions in the near term. The Group has been operating several pilots and is actively engaging with the market, in particular housing associations and end consumers, to develop the commercial asset models required to scale full operation. 

 

SMS purchased the domestic services division of Evergreen Energy Limited in August 2023, bringing into the Group significant technical expertise in domestic heat pumps, solar PV and battery storage. This strategic acquisition bolsters the Group's overall capacity to deliver these carbon reduction assets on a wider national scale, to a fast-growing domestic and commercial marketplace.

 

We have also partnered with Samsung to deliver a UK Government funded heat pump trial in Oxford, comprising 150 heat pumps. This initial project is part of a wider requirement for 30,000 air source heat pumps across the council by 2040 and could be further upscaled nationwide.

 

Public EV charging infrastructure

The Group has installed its first public EV charging hubs in Elmbridge. The hubs will be operated by the Clenergy EV technology platform, a charge point operator platform which now manages over 3,500 public charging stations across the country. We are working with landlords, businesses, local authorities and fleet operators to build a pipeline of activity in the destination and rapid charging segments of the EV market and early-stage projects like this are important to inform the business case.

 

This is a developing area of our business and one which is closely aligned to our existing engineering skills and technology platforms, and where we see significant growth opportunity over the longer term.

 

Energy data management

Earlier this year we were pleased to be the largest independent aggregator of customers into the National Grid Demand Flexibility Service, which we believe is an important precursor to the development of a more flexible energy system - built on the data from smart meters.

 

As an established provider of accredited half hourly data services to businesses and energy suppliers in the I&C space, we have extended this capability in recent years to ensure we can obtain data effectively from domestic smart meters.

 

We are, therefore, well positioned as the industry programme to facilitate the mandatory market wide introduction of half hourly settlement to energy suppliers on smart meters progresses. SMS have been accepted as early adopters for the programme, with our METIS data services platform scheduled to participate in system testing in Q4. This programme, once implemented by 2026, will enable a more flexible UK energy system.

 

Energy Services

As expected, H1 2023 saw continued growth in our traditional consultancy and energy management services compared to the prior period, with ongoing pressures on our Industrial & Commercial customers to reduce costs in response to the current inflationary environment and retail energy prices.

 

ESG progress and sustainability

During H1 2023, SMS continued to make progress in executing its 2030 net zero roadmap.

 

Energy-efficiency upgrades are almost complete at one of our major office sites, including the use of solar, batteries and air source heat pumps. Almost one-fifth of the Group's fleet are expected to transition to mild-hybrid (MHEV) vehicles by the end of the year, firmly on track to transition the entire vehicle fleet to fully electric by 2030. 

 

SMS's 'handprint' (carbon emissions mitigated through our customers using our products and services) during the period was twenty-two times higher when compared to our total Scope 1 and Scope 2 'footprint' (carbon emissions generated through our operations for the reasons explained below).

 

We have also seen continual improvement across our ESG ratings during H1 2023. Notably:

 

·      MSCI - upgraded to AA rating

·      S&P Global - increased score of 50 from 39, performing significantly above the average global score of 23

·      Sustainalytics - performance in the top 4th percentile for the 'Global Universe' and 'Subindustry' categories

·      Moody's - performance above sector average across all ESG performance categories

 

Capital allocation

The Group's current pipeline of smart meters and grid-scale batteries can be fully funded from asset-backed internally generated cash flows and debt facilities.

 

The Group has incurred c.£60m of capital expenditure on grid-scale battery storage sites still in construction and not yet operational as at 30 June 2023. Adjusting for this, the Group's leverage ratio is closer to c.0.5x (unadjusted: c.1.3x).

 

Notwithstanding this strong position, the Group may also consider selective asset recycling to both maintain a prudent level of gearing in the medium term and to support future growth.

 

Board changes

Mike Winkel was appointed as a Non-executive Director of the Group from 6 June 2023. As former COO of E.ON SE and CEO of its renewables business, Mike has extensive energy industry experience, which will be of significant value to the Group as it continues to build on its established growth platform. 

 

Current trading and outlook

 

Meters:

·      ILARR at the end of August 2023 stood at £111.0m (30 June 2023: £110.0m).

·      Expect to install at least 500,000 meters in 2023 with a higher average rental per meter than our previous expectations.

 

Grid-scale battery storage:

·      Two 50MW sites operational in September; further 50MW site expected to become operational by the end of the year.

·      Trading performance of the Group's operational portfolio in H2 2023 is expected to remain in line with H1 performance.

 

Outlook:

·      Index-linked revenues provide a hedge against short-term interest rates whilst significantly benefiting long-term cash flows.

·      FY 2023: The Board expects pre-exceptional EBITDA and underlying PBT to remain in line with its previous expectations.

·      FY 2024: The Board expects pre-exceptional EBITDA to be marginally ahead of its previous expectations, with year-on-year growth of c.20%, and underlying PBT to be in line with its previous expectations.

·      The Board remains confident in both the near-term and medium-term outlook.

 

Financial review

 

Revenue

 

H1 June 2023

£m

H1 June 2022

£m

 

% Change

Asset management

53.6

44.8

20%

Asset installation

17.6

12.3

43%

Energy management

8.1

5.6

45%

Group revenue

79.3

62.7

26%

 

Asset management revenues of £53.6m are 20% up on the prior period. This growth reflects the flow-through effect of meters installed by the end of 2022, new assets installed in H1 and the annual RPI uplift which took effect on 1 April 2023.

 

Asset installation revenues of £17.6m increased 43% on the prior period as a result of increased volume in transactional meter works, including emergency callout services.

 

Energy management revenues of £8.1m were 45% up on the prior period. This includes £4.0m revenue from our grid-scale battery sites (H1 2022: £2.8m); two further sites became operational in December 2022. Revenue from energy management excluding grid-scale batteries was £4.1m, up 46% on the prior period as a key customer project in the hospitality sector sustained momentum with a sector focus on energy efficiency. At the beginning of the period, the energy management division also benefited from the successful participation in the National Grid Demand Flexibility Service using our Flexigrid platform.

 

Gross margins

SMS includes depreciation on revenue-generating assets within cost of sales for statutory reporting purposes. Removing this from the gross margin provides a better comparison of the Group's underlying trading performance year-on-year.

 

Depreciation-adjusted gross margin for the asset management segment was 93% which is in line with prior period (H1 2022: 93%).

 

The asset installation segment gross margin was 25% (H1 2022: 14%). As expected, the margin recovered through the second half of 2022 and into H1 2023. H1 2022 margin was depressed by additional one-off costs incurred in the sizeable upscaling of the Group's engineering workforce. Investment in our engineering capacity has continued in H1 2023, whilst ensuring efficient utilisation.

 

The energy management segment depreciation-adjusted gross margin has slightly decreased to 46% (H1 2022: 49%). This is due to our grid-scale battery sites which generated a 68% depreciation-adjusted gross margin over the period (H1 2022: 75%), impacted by timings as two further sites ramped up revenue-generating activity following completion of construction at the end of 2022. Grid-scale batteries delivered revenue of £4.0m and depreciation adjusted gross profit of £2.7m in the period. The gross margin on the segment's other activities remained broadly constant at 25% (H1 2022: 23%).

 

Overall, the depreciation-adjusted gross margin at the Group level remained consistent with the prior period at 73% (H1 2022: 73%).

 

Pre-exceptional EBITDA

Pre-exceptional EBITDA provides a measure of underlying performance that is comparable over time. Pre-exceptional EBITDA of £36.1m is 24% higher than in the prior period (H1 2022: £29.1m).

 

The £11.8m increase in depreciation-adjusted gross profit is partly offset by a £4.6m increase in net operating costs, excluding depreciation and amortisation. This has been driven primarily by an increase in staff costs, with several reward initiatives delivered in the period in recognition of the sustained inflationary pressures.

 

IT costs have also increased on the prior period, driven by strategic investment in key technologies and platforms to support growth in both our existing and developing CaRe verticals.

 

Underlying profit before tax

Depreciation costs on meter assets increased 15% to £15.7m (H1 2022: £13.7m) due to the increase in the meter asset portfolio.

 

Depreciation costs on grid-scale battery sites increased 275% to £1.5m (H1 2022: £0.4m) as a consequence of the commencement of depreciation on operational grid-scale battery sites at the end of 2022 and into H1 2023.

 

Depreciation costs on general property, plant and equipment, excluding meter assets and grid-scale battery sites, has reduced by £0.5m to £1.4m (H1 2022: £1.9m) due to some computer equipment and fixtures and fitting now being fully depreciated.

 

Amortisation costs on our intangible assets of £2.4m (H1 2022: £2.1m) mainly consist of software amortisation and are slightly higher than the prior period as a result of ongoing investment in our IT systems.

 

Net finance costs increased by £3.0m to £4.6m (H1 2022: £1.6m). Finance costs relating to our loan facility increased £3.1m as we started drawing on the facility in the second half of 2022 and macro-economic conditions have driven up interest rates in the current period. Interest on leases also increased £0.1m in relation to land leases on our grid-scale battery sites. The impact was, however, partly offset by interest income earned.

 

As a result, underlying profit before taxation increased by 9% to £11.2m (H1 2022: £10.3m).

 

Exceptional items

Exceptional items of £2.0m (H1 2022: £3.3m) mainly comprise a £1.9m loss on the traditional and first-generation smart meter ('SMETS1') portfolio (H1 2022: £3.3m). In line with the Group's established policy, these losses are shown separately as exceptional items in order to enhance disclosure of underlying continuing profitability. Other exceptional operating items amounted to £0.1m (H1 2022: £nil).

 

Effective tax rate

The Group's capital expenditure on meter assets qualifies for capital allowances, providing the Group with tax relief on this expenditure. These allowances are claimed in the tax year in which the asset is acquired and set against taxable profit for that year, thus reducing the total tax payable. As a result, the Group was not tax-paying in either the current or prior period.

 

The current estimate of the effective tax rate on pre-exceptional profits for the full year is 27.41% (30 June 2022: 25.49%). This broadly represents the announced rate of UK corporation tax of 25% from 1 April 2023, which is the rate that will apply when the deferred tax liability generated by the capital allowances unwinds. The increase in the forecast full year effective tax rate is largely attributable to a reduction in the deferred tax asset on the Group's share options.

 

Earnings per share

Underlying basic earnings per share (EPS), which excludes exceptional items, amortisation of certain intangibles and their associated tax effect, was 6.13p (H1 2022: 5.92p), reflecting the growth in underlying profitability of the Group. Statutory earnings per share increased to 4.32p (H1 2022: 3.37p).

 

Dividend

A 30.25p per share dividend in respect of FY 2022 was approved at the Group's Annual General Meeting in May, and the fourth and final instalment of this was paid in July 2023. A dividend accrual of £10.1m has therefore been recognised at 30 June 2023 in our interim financial statements.

 

In line with the Group's policy to grow dividends at 10% per annum until 2024, a 33.275p per share dividend is intended in respect of FY 2023. This is expected to be settled in four equal quarterly instalments in accordance with the provisional timetable below:

 

Instalment

Ex-dividend date

Record date

Payment date

1

05 October 2023

06 October 2023

26 October 2023

2

04 January 2024

05 January 2024

25 January 2024

3

04 April 2024

05 April 2024

25 April 2024

4

04 July 2024

05 July 2024

25 July 2024

 

The Board remains comfortable that future dividend payments are sufficiently secured by long-term,

sustainable cash flows generated from our existing portfolio of metering, data and grid-scale battery assets.

 

Cash flow and capex investment

Operating cash inflow in H1 2023 was £30.3m (H1 2022: £18.6m). The cash inflow reflects £36.1m pre-exceptional EBITDA, £2.7m of non-cash costs included in EBITDA and a £8.5m cash outflow on working capital net of tax receipts, largely due to a deliberate build-up of inventory levels to mitigate the risk of delays in the supply chain and ensure that meters are available to grow our installation run rate.

 

The Group drew down a further £75.0m under its loan facility during the period, taking the total facility drawn to £140m.

 

The cash generated from operations and from our borrowing is funding continued investment in our revenue-generating meter and grid-scale battery assets.

 

Capital expenditure on property, plant and equipment was £63.0m (H1 2022: £59.1m). Of this, £50.1m was invested in meter and data assets and £10.2m in developing grid-scale battery sites.

 

Investing activities also include payments of £0.5m to settle deferred consideration on battery sites acquired in prior periods and a further £7.9m of instalment payments for grid-scale batteries which have not yet been delivered. On the balance sheet, the sites under development are classified as assets under construction within property, plant and equipment and the instalment payments for batteries are classified as other non-current receivables.

 

A further £2.6m (H1 2022: £1.1m) investment has been made in intangible assets, mainly relating to the development of software to support the metering, data and installations businesses.

 

Financial resources

Net debt at 30 June 2023 was £96.3m (31 December 2022: £31.2m). This excludes restricted cash and lease liabilities accounted for under IFRS 16.

 

The Group has in place a £420m debt facility and was fully compliant with all its bank covenants throughout the period. The Group has £45.3m available in cash (31 December 2022: £32.8m) and £280m in unutilised facilities (31 December 2022: £355m) and therefore continues to have the financial flexibility required to deliver growth in a capital-efficient way.

 

The Group's leverage ratio, calculated as net debt over the 6-month annualised EBITDA, was c.1.3x at 30 June 2023. However, this includes c.£60m of cumulative capital expenditure on the construction of grid-scale battery storage sites that are not yet operational. Adjusting for this, the Group's leverage ratio is closer to c.0.5x.

 

The Group's current pipeline of smart meters and grid-scale batteries can be fully funded from asset-backed internally generated cash flows and debt facilities. Notwithstanding this strong position, the Group may also consider selective asset recycling to both maintain a prudent level of gearing in the medium term and to support future growth.

 

Definitions of alternative performance measures

 

Alternative performance measure

Definition

Index-linked annualised recurring revenue

The revenue being generated from meter rental and data contracts at a point in time. Includes revenue from third-party managed meters.

Depreciation-adjusted gross profit

Statutory gross profit less depreciation on revenue-generating assets, recognised within cost of sales.

Depreciation-adjusted gross
profit margin

Depreciation-adjusted gross profit divided by statutory revenue.

Pre-exceptional EBITDA

Statutory EBITDA excluding exceptional items.

Underlying profit before taxation

Profit before taxation excluding exceptional items and amortisation of certain intangibles.

Underlying profit after taxation

Profit after taxation excluding exceptional items and amortisation of certain intangibles and the tax effect of these adjustments.

Underlying basic EPS

Underlying profit after taxation divided by the weighted average number of ordinary shares for the purposes of basic EPS.

Underlying diluted EPS

Underlying profit after taxation divided by the weighted average number of ordinary shares for the purposes of diluted EPS.

Net cash/debt

Total bank loans less cash and cash equivalents, excluding restricted cash. Excludes lease liabilities recognised under IFRS 16.

 

Reconciliation of statutory to underlying results

SMS uses alternative performance measures, defined above, to present a clear view of what the Group considers to be the results of its underlying, sustainable business operations. Excluding certain items enables consistent year-on-year comparisons and aids a better understanding of business performance. A reconciliation of these performance measures is disclosed below:

 


Period

ended

30 June

2023

£m

Period ended

30 June

2022

£m

Percentage

 change

Index-linked annualised recurring revenue

110.0

93.1

18%

Group revenue

79.3

62.7

26%

Statutory profit from operations

13.0

7.7


Amortisation of intangibles

2.4

2.1


Depreciation

18.7

16.0


Statutory EBITDA

34.1

25.8

32%

Exceptional items1

2.0

3.3


Pre-exceptional EBITDA

36.1

29.1

24%

Net interest

(4.6)

(1.6)


Share of profit/(loss) of associate

(0.4)

-


Depreciation

(18.7)

(16.0)


Amortisation of intangibles included in underlying profit before taxation

(1.2)

(1.2)


Underlying profit before taxation

11.2

10.3

9%

Exceptional items1

(2.0)

(3.3)


Amortisation of intangibles excluded in underlying profit before taxation

(1.2)

(0.9)


Statutory profit before taxation

8.0

6.1

31%

Taxation

(2.2)

(1.6)


Statutory profit after taxation

5.8

4.5

29%

Amortisation of intangibles excluded in underlying profit after taxation

1.2

0.9


Exceptional items1

2.0

3.3


Tax effect of adjustments

(0.8)

(0.8)


Underlying profit after taxation

8.2

7.9

4%

Weighted average number of ordinary shares (basic)

133,338,954

133,225,387


Underlying basic EPS (pence)

6.13

5.92


Weighted average number of ordinary shares (diluted)

133,911,379

134,030,175


Underlying diluted EPS (pence)

6.11

5.89


1 Exceptional items are those material items of income and expense which, because of the nature or expected infrequency of the events giving rise to them, merit separate presentation on the consolidated income statement.

Financial tables and notes

 

Consolidated income statement

For the period ended 30 June 2023

 



Unaudited



Six months ended 30 June

 

Notes

2023

Before

 exceptional

 items

£'000

2023

Exceptional

 items1

£'000

2023

Total

£'000

2022

Before

 exceptional

 items

£'000

2022

Exceptional

 items1

£'000

2022

Total

£'000

Revenue

3

79,307

-

79,307

62,676

-

62,676

Cost of sales

 

(38,838)

-

(38,838)

(30,834)

-

(30,834)

Gross profit


40,469

-

40,469

31,842

-

31,842

Administrative expenses


(25,783)

(1,984)

(27,767)

(21,330)

(3,325)

(24,655)

Other operating income

 

344

-

344

532

-

532

Profit from operations


15,030

(1,984)

13,046

11,044

(3,325)

7,719

Share of profit/(loss) of associate


(388)

-

(388)

-

-

-

Finance costs


(5,092)

-

(5,092)

(1,741)

-

(1,741)

Finance income

 

471

-

471

78

-

78

Profit/(loss) before taxation


10,021

(1,984)

8,037

9,381

(3,325)

6,056

Taxation

 

(2,746)

464

(2,282)

(2,391)

831

(1,560)

Profit/(loss) for the period and total comprehensive income attributable to owners of the parent

 

7,275

(1,520)

5,755

6,990

(2,494)

4,496

1     Refer to note 4 for details of exceptional items.

 

 

Consolidated statement of comprehensive income

For the period ended 30 June 2023

 

 



Unaudited



Six months ended 30 June

 

 

2023

Before

exceptional

items

£'000

2023

Exceptional

items

£'000

2023

Total

£'000

2022

Before

exceptional

items

£'000

2022

Exceptional

items

£'000

2022

Total

£'000

 

Profit/(loss) for the period


7,275

(1,520)

5,755

6,990

(2,494)

4,496

 








 

Exchange differences on translation of foreign operations


(1)

-

(1)

9

-

9

 

 

(1)

-

(1)

9

-

9

 

Total comprehensive income for the period attributable to owners of the parent


7,274

(1,520)

5,754

6,999

(2,494)

4,505

 

 

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

 

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

 

Notes

Six months

ended

30 June

2023

Unaudited

Six months

ended

30 June

2022

Unaudited

Basic earnings per share (pence)

5

4.32

3.37

Diluted earnings per share (pence)

5

4.30

3.35

 

 

Consolidated interim statement of financial position

As at 30 June 2023

 

 

Notes

Unaudited

30 June

2023

£'000

Audited

31 December

2022

£'000

Assets




Non-current assets




Intangible assets


25,946

25,832

Property, plant and equipment

7

569,780

533,240

Investments


40

40

Investments in associates


1,551

1,940

Trade and other receivables

 

20,264

12,347

Total non-current assets

 

617,581

573,399

Current assets


 


Inventories


45,760

37,438

Trade and other receivables


55,552

52,935

Cash and cash equivalents


45,272

32,770

Restricted cash

 

219

307

Total current assets

 

146,803

123,450

Assets held for sale

 

 513

513

Total assets

 

764,897

697,362

Liabilities


 


Current liabilities


 


Trade and other payables


80,577

69,378

Bank loans and overdrafts


2,920

591

Lease liabilities


718

885

Other liabilities

 

950

1,388

Total current liabilities

 

85,165

72,242

Non-current liabilities


 


Bank loans

8

138,624

63,349

Lease liabilities


11,105

11,476

Deferred tax liabilities


15,922

13,496

Provisions


2,033

2,033

Other long-term liabilities

 

1,195

1,280

Total non-current liabilities

 

168,879

91,634

Total liabilities

 

254,044

163,876

Net assets

 

510,853

533,486

Equity


 


Share capital


1,336

1,334

Share premium


333,416

332,332

Other reserve


9,562

9,562

Own share reserve


(1,086)

(955)

Foreign currency translation reserve


(37)

(36)

Retained earnings

 

167,662

191,249

Total equity attributable to owners of the parent

 

510,853

533,486

 

 

Consolidated interim statement of changes in equity

For the period ended 30 June 2023

 

Attributable to the owners of the parent company:

Share

capital

£'000

Share

premium

 £'000

Other

reserve

£'000

Own share

reserve

£'000

Foreign currency translation

reserve

£'000

Retained

earnings

£'000

Total

£'000

As at 1 January 2022

1,333

332,048

9,562

(825)

(45)

211,717

553,790

Total comprehensive income for the period

-

-

-

-

9

4,496

4,505

Transactions with owners in their capacity as owners








Dividends (note 6)

-

-

-

-

-

(27,505)

(27,505)

Shares issued

1

257

-

-

-

-

258

Movement in own shares

-

-

-

(102)

-

(64)

(166)

Share-based payments

-

-

-

-

-

1,366

1,366

Income tax effect of share options

-

-

-

-

-

(509)

(509)

As at 30 June 2022

1,334

332,305

9,562

(927)

(36)

189,501

531,739

Total comprehensive income for the period

-

-

-

-

-

10,375

10,375

Transactions with owners in their capacity as owners








Dividends (note 6)

-

-

-

-

-

(10,087)

(10,087)

Shares issued

-

27

-

-

-

-

27

Movement in own shares

-

-

-

(28)

-

(201)

(229)

Share-based payments

-

-

-

-

-

1,245

1,245

Income tax effect of share options

-

-

-

-

-

416

416

As at 31 December 2022

1,334

332,332

9,562

(955)

(36)

191,249

533,486

Total comprehensive income for the period

-

-

-

-

(1)

5,755

5,754

Transactions with owners in their capacity as owners








Dividends (note 6)

-

-

-

-

-

(30,282)

(30,282)

Shares issued

2

1,084

-

-

-

-

1,086

Movement in own shares

-

-

-

(131)

-

(102)

(233)

Share-based payments

-

-

-

-

-

1,186

1,186

Income tax effect of share options

-

-

-

-

-

(144)

(144)

As at 30 June 2023

1,336

333,416

9,562

(1,086)

(37)

167,662

510,853

 

 

Consolidated interim statement of cash flows

For the period ended 30 June 2023

 

 

Six months

ended

30 June

2023

Unaudited

£'000

Six months

ended

30 June

2022

Unaudited

£'000

Operating activities



Profit before taxation

8,037

6,056

Share of (profit)/loss of associate

388

-

Finance costs

5,092

1,741

Finance income

(471)

(78)

Foreign exchange loss

-

(19)

Exceptional items1

1,857

3,293

Depreciation

18,651

16,104

Amortisation of intangibles

2,356

2,059

Share-based payment expense

1,186

1,365

Loss on disposal of property, plant and equipment

1,452

892

Loss on disposal of intangible assets

52

-

Movement in inventories

(7,322)

(5,923)

Movement in trade and other receivables

(2,844)

691

Movement in restricted cash

-

(1,655)

Movement in trade and other payables

1,644

(6,398)

Movement in provisions

-

(4)

Cash generated from operations

30,078

18,124

Income tax received

227

503

Net cash generated from operations

30,305

18,627

Investing activities



Payments for acquisition of subsidiaries, net of cash acquired2

(543)

(1,655)

Payment for acquisition of new business

-

(1,432)

Payment to acquire interest in associate

-

(2,125)

Payments to acquire property, plant and equipment

(62,985)

(59,119)

Payments on account to acquire grid-scale battery assets

(7,918)

(13,632)

Proceeds on disposal of property, plant and equipment

3,494

1,730

Payments to acquire intangible assets

(2,582)

(1,133)

Finance income received

471

78

Net cash (used in)/generated from investing activities

(70,063)

(77,288)

Financing activities

 


New borrowings

140,000

-

Borrowings repaid

(65,000)

-

Principal elements of lease payments

(843)

(719)

Finance costs paid

(2,658)

(1,440)

Net proceeds from share issue

1,086

258

Purchase of own shares

(233)

(166)

Dividends paid

(20,178)

(18,334)

Net cash (used in)/generated from financing activities

52,174

(20,401)

Net (decrease)/increase in cash and cash equivalents

12,416

(79,062)

Exchange gain on cash and cash equivalents

(2)

(1)

Cash and cash equivalents at the beginning of the period

33,077

117,687

Cash and cash equivalents at the end of the period

45,491

38,624

1 Non-cash material exceptional items include £1,857,000 for losses on our meter portfolio (30 June 2022: £3,293,000).

2 Payments for acquisition of subsidiaries comprise £543,000 of deferred consideration from prior period acquisitions settled in the current period. There were no new subsidiaries acquired in the period ended 30 June 2023.

 

 

Notes to the interim report

For the period ended 30 June 2023

 

1 Basis of preparation

This condensed consolidated interim financial report for the half-year reporting period ended 30 June 2023 has been prepared in accordance with Accounting Standard IAS 34 Interim Financial Reporting. The Company is a public limited company incorporated and domiciled in Scotland whose shares are quoted on AIM, a market operated by the London Stock Exchange.

 

The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. It does not therefore include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2022.

 

The financial information for the six months ended 30 June 2023 is also unaudited.

 

The comparative information for the year ended 31 December 2022 has been extracted from the Group's published financial statements for that year, which were prepared in accordance with UK-adopted international accounting standards and have been delivered to the Registrar of Companies. The report of the auditor on these accounts was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

Going concern

Management prepares budgets and forecasts on a five-year forward-looking basis. These forecasts cover operational cash flows and investment capital expenditure and are prepared based on management's estimation of installation run rates through the UK smart meter rollout and the planned roll-out of grid-scale battery storage assets.

 

Management has modelled several different meter installation and grid-scale battery storage scenarios, including a downside scenario which assumed a reduced rollout of new meter installations over the five-year period and delayed energisation of grid-scale battery storage sites. The scenario proved that the business would still have sufficient cash flow to continue to operate, banking covenants would remain satisfied with adequate headroom, and adequate cash would be available to cover liabilities and operating costs. This modelling provides confidence to management that, even in adverse circumstances, the business will still have sufficient resources to continue to operate.

 

The Group has a £420m revolving credit facility which matures in December 2025. At 30 June 2023, the Group had drawn down £140m (31 December 2022: £65m) and had a net debt position of £96.3m (31 December 2022: £31.2m).

 

The Group was compliant with all its debt covenants at 30 June 2023. The financial covenants attached to the facility are that EBITDA should be no less than 4.00x interest and net debt should be no more than 4.75x EBITDA. At 30 June 2023 these stood at 11.79x and 1.28x respectively, demonstrating significant headroom. The Group does not expect to breach these covenants in the year from the date of release of this report.

 

The Group balance sheet shows consolidated net assets of £510.9m (31 December 2022: £533.5m), of which £456.4m (31 December 2022: £429.7m) relates to revenue-generating meter and data assets. The liquidity of the Group thus remains strong and continues to provide the financial flexibility required to support the Group's long-term growth prospects.

 

With significant coverage provided by existing long-term, inflation-linked and recurring cash flows, the Group remains committed to its enhanced dividend policy. It approved a 30.25p per share annualised dividend in respect of FY 2022 and all four cash instalments had been paid at the date of approving the interim financial statements. The Group intends to pay a 33.275p per share annualised dividend in respect of FY 2023.

 

Based on the current cash flow projections and facilities in place and having given consideration to various outcomes of future performance and forecast capital expenditure, including extreme downside scenarios, the Directors consider it appropriate to continue to prepare the financial statements on a going concern basis and are of the view that there are no material uncertainties regarding the Group's going concern status.

 

Significant accounting policies

As required in AIM Rule 18, the interim financial report for the half-year reporting period ended 30 June 2023 is presented and prepared in a form consistent with that which will be adopted in the annual statutory financial statements for the year ended 31 December 2023 and having regard to the accounting policies applicable to such annual accounts.

 

The accounting policies adopted are consistent with those followed in the Group's financial statements for the year ended 31 December 2022, except for the adoption of new standards effective 1 January 2023.

 

For periods of account commencing on or after 1 January 2023, IAS 12.15 (d) has amended the scope of the Initial Recognition Exemption ('IRE') to prevent its application to deferred tax assets and liabilities arising from a single transaction. The application of this amendment to the Group has been assessed at 30 June 2023 and is not considered to have a material impact on the condensed consolidated interim financial results.

 

Several other amendments apply for the first time in 2023 but do not have an impact on the condensed consolidated interim financial report for the half-year reporting period ended 30 June 2023.

 

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

Critical accounting judgements

The critical accounting judgements made by the Directors in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the Group's published financial statements for the year ended 31 December 2022.

 

2 Segmental reporting

For management purposes, the Group is organised into three core divisions, as follows:

 

•    Asset management, which comprises regulated management of gas and electric meters, ADM™ units and energy data assets within the UK;

•    Asset installation, which comprises installation of domestic and I&C gas meters and electricity meters throughout the UK; and

•    Energy management, which comprises the building and operation of grid-scale batteries, the provision of energy consultancy services and the management of Distributed Energy Resources (DER) assets.

 

For the purpose of making decisions about resource allocation and performance assessment, it is the operating results of the three core divisions listed above that are monitored by management and the Group's chief operating decision-maker, being the SMS Board. It is these divisions, therefore, that are defined as the Group's reportable operating segments.

 

Segment performance is evaluated based on gross profit.

 

The following segment information is presented in respect of the Group's reportable segments together with additional balance sheet information:

 

30 June 2023

Asset

management

£'000

Asset

installation

£'000

Energy

management

£'000

Unallocated

£'000

Total

operations

£'000

Segment revenue

53,621

46,324

8,057

-

108,002

Inter-segment revenue

-

(28,695)

-

-

(28,695)

Revenue from external customers

53,621

17,629

8,057

-

79,307

Cost of sales

(19,724)

(13,248)

(5,866)

-

(38,838)

Segment gross profit - pre-exceptional cost of sales

33,897

4,381

2,191

-

40,469

Exceptional items (cost of sales)

-

-

-

-

-

Segment gross profit

33,897

4,381

2,191

-

40,469

Other operating (costs)/income

252

-

14

(21,907)

(21,641)

Depreciation

-

(21)

(146)

(1,274)

(1,441)

Amortisation of intangibles

(1,146)

-

(59)

(1,152)

(2,357)

Profit/(loss) from operations - pre-exceptional operating items

33,003

4,360

2,000

(24,333)

15,030

Exceptional items (operating)

(1,859)

-

-

(125)

(1,984)

Profit/(loss) from operations

31,144

4,360

2,000

(24,458)

13,046

Share of profit/(loss) of associate

 

 

 

 

(388)

Net finance costs: other

 

 

 

 

(4,621)

Profit/(loss) before tax

 

 

 

 

8,037

Tax expense

 

 

 

 

(2,282)

Profit for period

 

 

 

 

5,755

 

30 June 2022

Asset

management

£'000

Asset

installation

£'000

Energy

management

£'000

Unallocated

£'000

Total

operations

£'000

Segment revenue

44,833

43,688

5,549

-

94,070

Inter-segment revenue

-

(31,394)

-

-

(31,394)

Revenue from external customers

44,833

12,294

5,549

-

62,676

Cost of sales

(16,962)

(10,592)

(3,280)

-

(30,834)

Segment gross profit - pre-exceptional cost of sales

27,871

1,702

2,269

-

31,842

Exceptional items (cost of sales)

-

-

-

-

-

Segment gross profit

27,871

1,702

2,269

-

31,842

Other operating costs/income

-

-

409

(17,232)

(16,823)

Depreciation

-

(53)

(18)

(1,845)

(1,916)

Amortisation of intangibles1

(892)

-

(15)

(1,152)

(2,059)

Profit/(loss) from operations - pre-exceptional operating items

26,979

1,649

2,645

(20,229)

11,044

Exceptional items (operating)

(3,338)

(29)

-

42

(3,325)

Profit/(loss) from operations

23,641

1,620

2,645

(20,187)

7,719

Net finance costs: other





(1,663)

Profit/(loss) before tax





6,056

Tax expense





(1,560)

Profit for period

 

 

 

 

4,496

 

Inter-segment revenue relates to installation services provided by the asset installation segment to the asset management segment.

 

Depreciation of £15.7m (30 June 2022: £13.7m) associated with meter assets has been reported within Cost of sales, in the asset management segment, as the meter assets directly drive revenue.

 

Depreciation of £1.5m (30 June 2022: £0.4m) associated with grid-scale batteries has been reported within Cost of sales, in the energy management segment, as the battery assets directly drive revenue.

 

Within the energy management segment, Revenue of £4.0m (30 June 2022: £2.8m) and depreciation-adjusted Cost of sales of £1.3m (30 June 2022: £0.7m) associated with the grid-scale battery service line have been reported, generating a depreciation-adjusted gross profit of £2.7m in the period ended 30 June 2023 (30 June 2022: £2.1m).

 

All material revenues and operations are based and generated in the UK. Following the acquisition of Solo Energy Limited in September 2019, a small minority of operations are based in the Republic of Ireland.

 

Segment assets and liabilities

30 June 2023

Asset

management

£'000

Asset

installation

£'000

Energy

management

£'000

Unallocated

£'000

Total

operations

£'000

Assets reported by segment






Intangible assets

14,810

3,497

3,164

4,475

25,946

Property, plant and equipment

456,436

102

102,662

10,580

569,780

Investments in associates

-

-

1,551

-

1,551

Inventories

45,491

269

-

-

45,760

Other receivables

-

-

20,264

-

20,264

Contract assets

-

17

18

-

35


516,737

3,885

127,659

15,055

663,336

Assets not by segment

 

 

 

 

101,561

Total assets

 

 

 

 

764,897

Liabilities by segment






Contract liabilities

2,323

1,059

38

-

3,420

Lease liabilities

-

-

8,374

3,449

11,823

Other liabilities

-

-

950

-

950

Provisions

-

-

1,963

70

2,033

Other long-term liabilities

626

-

569

-

1,195

Bank loans

-

-

-

141,544

141,544


2,949

1,059

11,894

145,063

160,965

Liabilities not by segment

 

 

 

 

93,079

Total liabilities

 

 

 

 

254,044

 

31 December 2022

Asset

management

£'000

Asset

installation

£'000

Energy

management

£'000

Unallocated

£'000

Total

operations

£'000

Assets reported by segment






Intangible assets

13,550

3,497

3,161

5,624

25,832

Property, plant and equipment

429,709

71

95,225

8,235

533,240

Investments in associates

-

-

1,940

-

1,940

Inventories

37,136

302

-

-

37,438

Other receivables

-

-

12,347

-

12,347

Contract assets

-

10

277

-

287






86,278

Assets not by segment

 

 

 

 

697,362

Total assets

13,550

3,497

3,161

5,624

25,832

Liabilities by segment






Contract liabilities

1,518

1,805

80

-

3,403

Lease liabilities

-

-

8,405

3,956

12,361

Other liabilities

606

-

2,062

-

2,668

Provisions

-

-

1,963

70

2,033






20,465

Liabilities not by segment

 

 

 

 

143,411

Total liabilities

 

 

 

 

163,876

 

Assets not by segment include cash and cash equivalents, trade and other receivables and investments. Liabilities not by segment include trade and other payables and deferred tax liabilities.

 

3 Disaggregation of revenue from contracts with customers

The Group reports the following segments: asset management, asset installation and energy management, in accordance with IFRS 8 Operating Segments. We have determined that, to meet the objective of the disaggregation disclosure requirement in paragraph 114 of IFRS 15, which is to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors, further disaggregation is required into the major types of services offered. The following table thus discloses segmental revenue by type of service delivered and timing of revenue recognition, including a reconciliation of how this disaggregated revenue ties in with the asset management, asset installation and energy management segments, in accordance with paragraph 115 of IFRS 15.

 

Period ended 30 June 2023

Asset

management

£'000

Asset

installation

£'000

Energy

management

£'000

Total

operations

£'000

Major service lines





Metering

47,117

-

-

47,117

Data management

6,503

-

-

6,503

Utility connections

-

4,023

-

4,023

Transactional meter works

-

13,589

-

13,589

Grid-scale batteries

-

-

4,010

4,010

Energy management

-

18

4,047

4,065

 

53,620

17,630

8,057

79,307

 

Timing of revenue recognition





Services transferred at a point in time

-

13,589

1,024

14,613

Services transferred over time

53,620

4,041

7,033

64,694

 

53,620

17,630

8,057

79,307

 

Period ended 30 June 2022

Asset

management

£'000

Asset

installation

£'000

Energy

management

£'000

Total

operations

£'000

Major service lines





Metering

38,515

-

-

38,515

Data management

6,319

-

-

6,319

Utility connections

-

3,448

-

3,448

Transactional meter works

-

8,695

-

8,695

Grid-scale batteries

-

-

2,764

2,764

Energy management

-

151

2,784

2,935

 

44,834

12,294

5,548

62,676

 

Timing of revenue recognition





Services transferred at a point in time

-

8,695

-

8,695

Services transferred over time

44,834

3,599

5,548

53,981

 

44,834

12,294

5,548

62,676

 

4 Exceptional items

 

 

 

 

30 June 2023

£'000

30 June 2022

£'000

Exceptional operating items





Losses on the traditional and SMETS1 meter portfolio



(1,858)

(3,292)

Other



(126)

(33)

Total exceptional items

 

 

(1,984)

(3,325)

 

 

5 Earnings per share

The calculation of earnings per share (EPS) is based on the following data and number of shares:

 

Six months

ended

30 June

2023

Unaudited

£'000

Six months

ended

30 June

2022

Unaudited

£'000

Profit for the period used for calculation of basic EPS

5,755

4,496

 

Number of shares

Six months

ended

30 June

2023

Unaudited

Six months

ended

30 June

2022

Unaudited

Weighted average number of ordinary shares for the purposes of basic EPS

133,338,954

133,225,387

Effect of potentially dilutive ordinary shares:

 


- share options

572,425

804,788

Weighted average number of ordinary shares for the purposes of diluted EPS

133,911,379

134,030,175

EPS:

 


- basic (pence)

4.32

3.37

- diluted (pence)

4.30

3.35

 

6 Dividends

 

Six months

ended

30 June

2023

Unaudited

£'000

Six months

ended

30 June

2023

Per share

(pence)

 

Year ended

31 December

2022

Audited

£'000

 

Year ended

31 December

2022

Per share

 (pence)

Six months

ended

30 June

2022

Unaudited

£'000

Six months

ended

30 June

2022

Per share

(pence)

FY21 2nd interim dividend paid

-

-

9,166

6.875

9,166

6.875

FY21 3rd interim dividend paid

-

-

9,169

6.875

9,169

6.875

FY21 final dividend paid

-

-

9,170

6.875

9,170

6.875

FY22 first dividend accrued

-

-

10,087

7.5625

-

-

FY22 1st interim dividend paid

-

-

-

-

-

-

FY22 2nd interim dividend paid

10,088

7.5625

-

-

-

-

FY22 3rd interim dividend paid

10,090

7.5625

-

-

-

-

FY22 final dividend accrued

10,104

7.5625





Total dividends

30,282

22.6875

37,592

28.1875

27,505

20.625

 

Per the Group's dividend policy, a 30.25p per share dividend was approved in respect of FY 2022, payable in four instalments of 7.5625p per share. The final instalment of the FY 2022 dividend was paid on 27 July 2023.

 

A 33.275p per share dividend is intended in respect of FY 2023 payable in four instalments of 8.31875p per share.

 

 

7 Property, plant and equipment

 

 

Freehold/

leasehold

property

£'000

 

Meter

assets

£'000

Plant and

machinery

£'000

 Fixtures,

fittings and

equipment

£'000

Motor

vehicles

£'000

Right-of-use

assets

£'000

 Grid-scale assets

£'000

Assets under construction

£'000

Total

£'000

Cost










As at 1 January 2022

2,805

461,340

1,170

8,207

5,131

12,273

-

33,990

524,916

Reclassification

-

-

-

1

-

-

54,048

(54,049)

-

Reclassified as held for sale

(688)

-

-

-

-

-

-

-

(688)

Additions

1,105

105,004

18

994

719

5,509

84

36,251

149,684

Acquisitions

-

-

-

1

-

-

-

15,190

15,191

Disposals

(4)

(20,773)

(2)

(8)

(494)

(785)

-

-

(22,066)

Exchange adjustments

-

-

-

3

-

3

-

-

6

As at 31 December 2022

3,218

545,571

1,186

9,198

5,356

17,000

54,132

31,382

667,043

Reclassification

-

-

-

-

-

-

124

(124)

-

Additions

-

50,086

96

320

2,391

-

-

10,177

63,070

Disposals

-

(12,014)

(5)

(36)

(1,108)

(54)

-

-

(13,217)

Exchange adjustments

-

-

-

(2)

-

(1)

-

-

(3)

As at 30 June 2023

3,218

583,643

1,277

9,480

6,639

16,945

54,256

41,435

716,893

Depreciation










As at 1 January 2022

851

94,635

994

6,232

3,410

2,893

-

-

109,015

Reclassified as held for sale

(174)

-

-

-

-

-

-

-

(174)

Charge for year

172

28,340

91

1,176

1,038

1,264

994

-

33,075

Disposals

(3)

(7,116)

-

(7)

(391)

(599)

-

-

(8,116)

Exchange adjustments

-

-

-

2

-

1

-

-

3

As at 31 December 2022

846

115,859

1,085

7,403

4,057

3,559

994

-

133,803

Charge for period

79

15,716

30

474

311

632

1,494

-

18,736

Disposals

-

(4,373)

(5)

(36)

(956)

(54)

-

-

(5,424)

Exchange adjustments

-

-

-

(1)

-

(1)

-

-

(2)

As at 30 June 2023

925

127,202

1,110

7,840

3,412

4,136

2,488

-

147,113

Net book value










As at 30 June 2023

2,293

456,441

167

1,640

3,227

12,809

51,768

41,435

569,780

As at 31 December 2022

2,372

429,712

101

1,795 

1,299

13,441

53,138

31,382

533,240

As at 1 January 2022

1,954

366,705

176

1,975

1,721

9,380

-

33,990

415,901

 

Included within the closing meter assets net book value of £456,441,000 (31 December 2022: £429,712,000) is £9,251,000 (31 December 2022: £11,173,000) relating to the traditional meter portfolio, which will be written down to zero by 1 July 2025. In the H1 2023 consolidated financial statements there was a £2,061,000 depreciation charge recognised on the traditional domestic meter portfolio (H1 2022: £2,581,000). £11,790,000 annualised recurring revenue as at 30 June 2023 (30 June 2022: £11,675,000) arises from the owned traditional meter portfolio.

 

The assets are secured by a bond and floating charge.

 

For the purpose of impairment testing, the traditional meter asset portfolio recognised within "Meter assets" is assessed as a standalone cash-generating unit (CGU) and it's carrying amount is compared with the recoverable amount. In line with IAS 36, no impairment review was considered necessary at 30 June 2023 as the previous impairment review carried out at 31 December 2022 showed a significant excess of recoverable amount over carrying amount and management concluded that there were no reasonably possible changes in the key assumptions that would cause the carrying amounts of the traditional meter portfolio to exceed the value in use. Since this date there have also been no events that would eliminate this excess or any new material indicators of impairment.

 

Therefore, no impairment has been recognised in the period ended 30 June 2023 (30 June 2022: £nil). No impairment on other meter assets has been recognised in the period ended 30 June 2023 (30 June 2022: £nil).

 

8 Bank loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months

ended

30 June

2023

Unaudited

£'000

Six months

ended

30 June

2022

Unaudited

£'000

Current








2,920

-

Non-current








138,624

-









141,544

-

 

The Group has a £420m revolving credit facility which matures in December 2025. Interest is payable at a rate of 1.85% over SONIA and 0.65% is payable on undrawn funds.

 

The balance as at 30 June 2023 is stated net of £1,376,000 of unamortised transaction costs (31 December 2022: £1,651,000).

 

The Group has complied with the financial covenants of its borrowing facility during the current and prior reporting periods.

 

9 The half-yearly financial report was approved by the Board of Directors on 12 September 2023.

 

10 A copy of this half-yearly financial report is available by visiting our website at www.sms-plc.com.

 

11 Post balance sheet events

Following the 30 June 2023 period end, the Group acquired the trade and assets of the domestic services division of Evergreen Energy Limited. Evergreen Energy's domestic services division specialises in the installation and maintenance of renewable energy assets, including heat pump, solar and battery storage for homeowners. The acquisition will enhance SMS's capacity to deliver an extended range of low-carbon, behind-the-meter energy solutions to the UK's domestic and commercial marketplaces.

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