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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Smart Metering Systems Plc | LSE:SMS | London | Ordinary Share | GB00B4X1RC86 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 952.00 | 954.00 | 957.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSMS
RNS Number : 0128A
Smart Metering Systems PLC
21 March 2017
Smart Metering Systems plc
("SMS" or "the Company" or "the Group")
Final results for the year ended 31 December 2016
Smart Metering Systems plc (AIM: SMS.L) is pleased to announce its final results for the 12 months to 31 December 2016, which show continued growth across all business areas.
Financial Highlights
-- Revenue increased by 25% to GBP67.2m (2015: GBP53.9m) -- Total annualised recurring income* increased by 19% to GBP41.3m (2015: GBP34.7m)
o Gas: meter recurring rent increased by 13% to GBP31.5m (2015: GBP27.8m) and data recurring income increased by 17% to GBP2.6m (2015: GBP2.2m)
o Electricity: meter recurring rent increased by 125% to GBP2.9m (2015: GBP1.3m) and data recurring income grew 23% to GBP4.3m (2015: GBP3.5m)
-- Gross profit increased by 23% to GBP36.9m (2015: GBP30.1m) -- Gross profit margin remained consistent at 55% (2015: 56%) -- EBITDA increased by 17% to GBP32.5m (2015:GBP27.9m) -- Underlying EBITDA** increased by 21% to GBP31.9m (2015: GBP26.3m) -- Underlying EBITDA** margin at 48% (2015: 49%) -- PBT increased by 4% to GBP18.2m (2015:17.5m) -- Underlying PBT** increased by 13% to GBP19.6m (2015: GBP17.4m) -- Earnings per share decreased to 17.33p (2015: 17.46p) -- Underlying earnings per share*** increased to 19.20p (2015: 17.38p)
-- Final dividend of 2.73p per ordinary share totalling 4.1p for the full year (2015: 3.3p), an increase of 24%
* Recurring revenue refers to revenue generated by meter rental and data contracts. Annualised recurring income refers to the revenue being generated at a point in time.
** Underlying PBT and EBITDA are before exceptional items, intangible amortisation and other operating income.
*** Underlying earnings per share is profit after taxation but before exceptional items, other operating income and intangible amortisation, divided by the weighted average number of ordinary shares in issue.
Operational Highlights
-- Total gas and electricity metering and data assets increased by 272,000 to just over 1.25 million under management at 31 December 2016 (2015: 979,000)
o Total gas meter portfolio increased by 22% to 881,000 (2015: 723,000), with industrial and commercial (I&C) meters increasing by 25% to 143,000 (2015: 114,000). Gas data portfolio increased by 27% to 108,000 (2015: 85,000)
o Total electricity meter portfolio increased by 166% to 77,000 (2015: 29,000). Electricity data portfolio increased by 31% to 186,000 (2015: 142,000)
-- ADM(TM) installations up 23% to 91,000 units at 31 December 2016 (2015: 74,000) with international trials continuing
-- Capital expenditure on meters was GBP42.5m (2015: GBP41.1m), reaching a monthly run rate of approximately GBP4.0m in December 2016
-- Completed the acquisitions of CH4 Gas Utility and Maintenance Service Limited (CH4), Trojan Utilities Limited (Trojan) and Qton Solutions Limited (Qton), to further strengthen the Group ahead of the UK's domestic smart meter rollout programme with the full UK-wide direct installation and IT support capacity
Change to Chief Financial Officer
Smart Metering Systems is also pleased to announce the appointment of David Harris as Chief Financial Officer of the Company with immediate effect. David replaces Glen Murray who served as Chief Financial Officer of the Company since 2011. Please see our separate announcement for further details.
Alan Foy, Chief Executive Officer, commented:
"2016 has been a year of transformation for the business as it grew to over 1.25 million utility metering and data assets under management generating GBP41.3m in annually recurring index-linked income. The strong financial position has supported three strategic acquisitions, which has delivered a scalable delivery platform with the opportunity to install and own new domestic smart utility meters (gas and electricity) mandated to be installed in every home in the UK over the next four to five years.
We have seen a strong start to 2017 and are well positioned to continue making progress in our core markets. We will continue to invest in meter and data assets and grow our recurring revenue base across both the I&C and Smart Domestic market segments. We have built the foundations to allow us to capitalise on future opportunities."
For further information:
Smart Metering Systems plc 0141 249 3850 Craig McGinn, Company Secretary Cenkos Securities plc 0131 220 6939 / 0207 397 8900 Neil McDonald Nick Tulloch Kreab 020 7074 1800 Matthew Jervois Daniel Holgersson
Notes to Editors
About Smart Metering Systems
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. The Company provides a fully integrated service from beginning to end to cover the installation of a gas/electricity supply/connection to the procurement, installation and management of a gas or electricity meter asset to the collection and management of customer data and ongoing energy management services.
The Company has further applications for gas with its ADM(TM) device which allows "smart" functions such as remote reading and half-hourly consumption data to be offered to customers in addition to the normal metering services. The Company was admitted to the AIM market in July 2011 and is now part of the FTSE AIM 50 index. For more information on SMS please visit the Company's website: www.sms-plc.com.
Chairman's statement
Review of the year
I am delighted to be able to introduce my first Chairman's Statement. On behalf of all of my colleagues on the Board, I would like to thank my predecessor, Paul Dollman, for his contribution to SMS.
In 2016 SMS strategically changed its operational delivery model from being largely reliant on subcontractors for the installation of utility meters to gaining direct control of a large proportion of installation capacity and the end-to-end IT platform which underpins it. We are now in a position, with the acquisition and integration of smart meter installation businesses CH4 and Trojan and field services software and data security firm Qton Solutions, where we have full ownership, control and installation of our delivery model on a scalable and robust platform.
The change in our business model reinforces our credentials to install, own and manage utility metering assets for our energy supplier customers. This puts us in a strong position to increase the growth of our share of the UK's new domestic smart meter installation programme of c.30 million premises in the UK which represents c.48 million meters over the next four to five years.
In terms of our physical presence, SMS has grown from approximately 300 staff and two offices in 2015 to over 700 employees spread across twelve offices nationwide by the end of 2016.
SMS now manages over 1.25 million utility metering and data assets on behalf of an expanding customer base of energy suppliers in the Industrial and Commercial (I&C) and Domestic markets. This includes 51,000 in the new domestic smart meter market installed by the end of 2016 as we commenced our operations in this new market segment.
During 2016 SMS signed eight new contracts for the installation and ownership of gas and electricity domestic smart meters with energy suppliers that currently supply gas and electricity to over 2.5 million homes.
Our business
SMS has continued to perform strongly through what has been a period of significant change and opportunity for the business. The Group has delivered double-digit growth, increasing revenue by 25% during the year with consistent growth in recurring income in our gas and electricity business and a substantial increase in our gas and electricity meter portfolio.
The UK domestic smart meter rollout, a UK government initiative, has mandated the installation of a smart meter in every home and small business across the UK by 2020. This represents a further new opportunity to increase the utility meters under management and hence index-linked recurring income. Over 48 million new meters are planned to be installed by 2020. SMS has geared up during 2016 for this market with significant investment in its systems, people and processes. With strategic acquisitions enhancing the business' existing strong metering services propositions, industry and product knowledge and reputation for customer services established over the last 21 years in the UK utility sector.
Our energy products and services continue to perform strongly for UK utility suppliers and blue chip UK and international customers in the I&C market. These include energy data analytics optimisation, which is becoming more prevalent because of the continuing installation of smart meters and provision of Energy Performance Certificates (EPC) and Energy Savings Opportunity Scheme (ESOS) consultancy services, which are ongoing requirements for large UK companies under the Energy Performance of Buildings Regulations 2007 and the ESOS Regulations 2014. The key driver for these services is to reduce carbon emissions through identification of viable energy initiatives which may then lead to capital investment and new asset classes under management to complement the existing and growing metering assets portfolio.
Strategy
Our strategy is to increase the meter installation and management run rates with our existing customers, and continue to grow the meter asset portfolio beyond the 1.25 million assets currently under management targeting in particular the new domestic smart meter.
Our strategic priorities, in 2017, will be to:
1 Continue to install and own utility metering infrastructure and secure recurring rental and data income from SMS's contracted energy suppliers in the I&C market.
2 Build on our investment, strategic acquisitions and new operational delivery model established in 2016 to take advantage of the significant Domestic smart meter market opportunity in the UK based on SMS's proven end-to-end delivery capability, increased capacity and long-established market position.
3 Maintain a focus on customer delivery and innovation across all aspects of our business and in particular in our energy services division where opportunities exist to assist our partners in reducing their carbon emissions.
People and systems
I am pleased to announce Graeme Bissett's appointment as Non-executive Director and Chairman of the Audit Committee. Miriam Greenwood has become the Senior Independent Non-executive Director and Chair of the Remuneration Committee and we have recently appointed Craig McGinn as Company Secretary.
During the year SMS completed the strategic acquisitions of CH4, Trojan and Qton. This enabled the business to strengthen its position by having control over a directly employed dedicated installation field force, supported by two training academies ensuring the Group can conduct in-house training and increase its installation capacity further, particularly for the domestic smart meter rollout. This has been supported by market-leading internal IT work management systems.
All of these businesses have been brought under the SMS brand and the business has worked hard during the year to integrate the three businesses and establish a market-focused structure, with three main service lines:
-- Asset Management: SMS secures funding at a commercially attractive rate for the purchase of metering assets that it installs directly or adopts from third parties in the energy market.
-- Asset Installation: SMS offers a nationwide, large scale dual fuel metering installation service, aimed at helping energy suppliers achieve their obligations under the Government's smart meter programme. As pressure builds to deliver the programme so will the value of the installation capability that SMS has developed.
-- Energy Management: SMS has a large team of experts which provides a full range of energy services, including risk management, billing, energy efficiency, carbon compliance, renewables and new energy networks. The increasing switch to smart metering in the I&C market now provides granularity of meter reads and consumptions; SMS is able to utilise these capabilities more efficiently and address its partners' challenges of reducing carbon emissions and as such provide revenue growth opportunity for the business.
The acquisition of Qton has created significant IT software and data security capabilities and capacity, not only to support our Asset Management, Asset Installation and Energy Management businesses but also to develop new applications and technologies to the ongoing benefit of our customers.
The safety of our staff and the general public is our primary concern, and as such the Group has a proactive operational culture that puts health and safety at the top of its agenda in order to reduce the likelihood of an accident. We work very closely with our customers, employees and Health and Safety authorities to evaluate and assess risks to ensure that health and safety procedures are rigorously followed.
Dividend
SMS is pleased to announce a proposed final cash dividend of 2.73p for the year ended 31 December 2016 (2015: 2.2p) to shareholders. In addition to the interim dividend of 1.37p (2015: 1.1p), this will make a total dividend of 4.1p (2015: 3.3p). The final dividend will be paid on 1 June 2017 to those shareholders on the register (record date) on 28 April 2017 with an ex-dividend date of 27 April 2017.
Outlook
SMS enters 2017 in a strong financial position with a strengthened and differentiated utility metering installation and ownership service proposition, and positive growth drivers in all of the markets it operates in.
SMS expects to make further investment to increase metering installation and ownership capacity, to be in a strong position to benefit from both the new domestic smart metering market. In addition we will establish opportunities for its existing energy products and services to reduce carbon emissions in the I&C market as more and more meter reading information at a granular level becomes available due to the installation of smart meters.
With the domestic smart meter market due to enter a period of increased take-up in 2017, we are confident the leadership team will continue to build on our success story.
Chief Executive Officer's statement
I am pleased to report on the continued strong business and financial performance of SMS for the year ended 31 December 2016.
2016 has been a year of transformation for the business as it grew to over 1.25 million utility metering and data assets under management generating GBP41.3m in annually recurring index-linked income. The strong financial position has supported three strategic acquisitions, which have delivered a scalable delivery platform with the opportunity to install and own new domestic smart utility meters (gas and electricity) mandated to be installed in every home in the UK over the next four to five years. The acquisitions were part of our strategy to obtain control over the installation element of asset ownership. These installation businesses by their nature typically operate at a lower margin to the core asset business. Combined with our strategic decision to invest for growth in additional engineering capacity, ahead of time, to ensure we are best placed to serve our energy supplier customers, the installation division has incurred planned training and investment costs in the period post acquisition. As we look to the 2017 financial year, these acquisitions are now well placed in the market and provide us with full control of a UK-wide installation workforce, training schools, ownership of end to end software IPR rights and scalability of the installed operating platform.
All our acquisitions have now been fully integrated into the business under the three functional divisions:
-- Asset Management: investing in utility metering and data infrastructure assets in the UK for long-term recurring rental income.
-- Asset Installation: high capacity, nationwide utility meter installation workforce, offering full-service end-to-end meter installation, utility connections and emergency support services in the Industrial and Commercial and now the Domestic smart metering market in the UK.
-- Energy Management: expert engineering, data and energy management services, through long-term contracts with UK and international blue chip customers with the potential to create future energy related asset owning opportunities.
During the year we signed eight non-exclusive framework agreements with UK domestic energy suppliers, which currently supply over 2.5 million homes with energy, to install and own domestic smart meters. Installation began late in 2016 adding 51,000 meters by the year end and contributing GBP1.5m in recurring revenue to the Group's total recurring revenue from meters and data assets of GBP41.3m.
Operational review
During 2016 our gas and electricity meter and data portfolio increased 28% from just under 1 million to 1.25 million assets. Meter assets grew 27% from 752,000 to 958,000 and data assets grew by 29% from 227,000 data points to 294,000 data points.
Our two key financial metrics both demonstrated substantial growth in the year. Our total revenue increased by 25% from GBP53.9m to GBP67.2m, and our annualised long-term recurring revenue for recurring rental income from the installed meter and data assets increased by 19% from GBP34.7m at December 2015 to GBP41.3m at December 2016.
These metrics are core to our long-term annuity financial model and once installed these meters will provide recurring rental revenue for the lifetime of the assets.
Industrial and Commercial meter market
This remains an active market segment for SMS and we expect it to remain so over the short to medium term. SMS has a proven track record in the Industrial and Commercial market and we benefit from continued demand from existing contracted energy supplier customers to complete their mandated meter exchange programmes particularly in the small business segment.
The ADM(TM) device is SMS's industrial and commercial metering solution which allows for remote meter reading on a half-hourly basis and has been designed specifically to meet our customer and industry/market requirements. SMS continues to deploy the ADM(TM) devices in the UK's Industrial and Commercial metering market.
In 2016 the number of ADM(TM) installations increased to 91,000, up from 74,000 in 2015, and SMS remains confident that its ADM(TM) device technology has potential applications in other utility metering solutions in the UK and internationally.
UK Domestic smart meter market
SMS has now commenced installation of domestic smart meters as part of the UK government's domestic smart meter programme, with every home and small business in the UK to be provided with smart meter functionality by 2020.
There are over 30 million homes in the UK representing over 48 million gas and electricity meters that will be changed during the programme, of which less than 11% have been exchanged to date.
Whilst there is continued scepticism in the press and industry to programme completion timescales, energy suppliers have begun to place contracts to commence their rollouts. SMS's size and increased capacity as a result of our acquisitions, together with our proven track record, position the business well to enable energy suppliers to meet their obligations.
We are well funded with a GBP280m revolving credit facility to fund our remaining industrial and commercial metering order book and the new domestic smart meter installations.
Energy management services
The Energy Management division continues to provide services to new retail, residential, commercial, and industrial and energy generation projects on a nationwide basis. SMS provides end-to-end design and delivery capability across all utilities for projects including one-off major and minor commercial connections and some of the largest long-term master plan mixed-use residential and commercial projects in the UK, as well as supporting a number of major national infrastructure projects.
The division also provides a full range of energy management services, including comprehensive bureau, energy efficiency, performance management, procurement and environmental compliance. It processed and analysed over 700,000 billing points and performed over 170 energy audits and compliance surveys, identifying potential opportunities for SMS to deliver turnkey energy reduction projects.
SMS works with some of the largest corporate multi-site energy users in the country and is increasingly focused on the turnkey funding and implementation of such energy reduction measures, often identified through SMS's own auditing services.
Consolidated statement of comprehensive income
For the year ended 31 December 2016
Hot Features
Premium
2015
2016 GBP'000
Notes GBP'000 restated
---------------------------------------------- -------- ---------
Revenue 1 67,188 53,945
Cost of sales 2(30,257) (23,805)
--------------------------------------------- -------- ---------
Gross profit 36,931 30,140
Administrative expenses 2(17,438) (12,106)
Other operating income 2 1,075 1,546
--------------------------------------------- -------- ---------
Profit from operations 2 20,568 19,580
--------------------------------------------- -------- ---------
Attributable to:
Operating profit before exceptional
items, other operating income and
amortisation of intangibles 21,939 19,493
Amortisation of intangibles (1,991) (1,459)
Other operating income 1,075 1,546
Exceptional items and fair value adjustments 2 (455) -
--------------------------------------------- -------- ---------
Finance costs 5 (2,327) (2,118)
Finance income 5 2 3
--------------------------------------------- -------- ---------
Profit before taxation 18,243 17,465
Taxation 6 (2,998) (2,463)
--------------------------------------------- -------- ---------
Profit for the year attributable to
equity holders 15,245 15,002
Other comprehensive income - -
--------------------------------------------- --------- ---------
Total comprehensive income 15,245 15,002
--------------------------------------------- --------- ---------
The profit from operations arises from the Group's continuing operations.
Earnings per share attributable to owners of the parent during the year:
Notes 2016 2015
------------------------------------ ----- -----
Basic earnings per share (pence) 717.33 17.46
Diluted earnings per share (pence) 717.02 16.78
----------------------------------- ----- -----
Consolidated statement of financial position
As at 31 December 2016
2016 2015
Notes GBP'000 GBP'000
--------------------------------------------- -------- --------
Assets
Non-current assets
Intangible assets 9 14,611 10,028
Property, plant and equipment 10 157,977 125,700
Investments 11 118 83
Trade and other receivables 14 628 901
----------------------------------------- -------- --------
173,334 136,712
--------------------------------------------- -------- --------
Current assets
Inventories 13 6,121 1,099
Trade and other receivables 14 15,794 10,205
Cash and cash equivalents 15 7,999 5,711
Other current financial assets 19 - -
----------------------------------------- -------- --------
29,914 17,015
--------------------------------------------- -------- --------
Total assets 203,248 153,727
----------------------------------------- ------------ --------
Liabilities
Current liabilities
Trade and other payables 16 26,742 15,364
Bank loans and overdrafts 17 14,530 8,496
Commitments under hire purchase
agreements 18 28 64
Other current financial liabilities 19 - 46
----------------------------------------- -------- --------
41,300 23,970
------------------------------------------------------- --------
Non-current liabilities
Bank loans 17 87,646 76,219
Commitments under hire purchase
agreements 18 1 14
Deferred tax liabilities 21 7,885 6,139
----------------------------------------- -------- --------
95,532 82,372
------------------------------------------------------- --------
Total liabilities 136,832 106,342
--------------------------------------------- -------- --------
Net assets 66,416 47,385
--------------------------------------------- -------- --------
Equity
Share capital 23 892 861
Share premium 10,861 9,650
Other reserve 25 8,447 4,258
Treasury shares 24 (327) (231)
Retained earnings 46,543 32,847
--------------------------------------------- -------- --------
Total equity attributable to equity holders
of the parent company 66,416 47,385
--------------------------------------------- -------- --------
Company registration number
SC367563
Consolidated statement of changes in equity
For the year ended 31 December 2016
Share Share Other Treasury Retained
Attributable to the owners capital premium reserve shares earnings Total
of the parent company: GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- -------- -------- -------- --------- --------
As at 1 January 2015 856 9,291 4,258 (92) 20,096 34,409
Total comprehensive income
for the year - - - - 15,002 15,002
Transactions with owners in their capacity
as owners:
Dividends (note 8) - - - - (2,564) (2,564)
Shares issued 5 359 - - - 364
Shares held by SIP - - - (139) - (139)
Share options - - - - 410 410
Income tax effect of
share options - - - - (97) (97)
--------------------------- -------- -------- -------- -------- --------- --------
As at 31 December 2015 861 9,650 4,258 (231) 32,847 47,385
Total comprehensive income
for the year - - - - 15,245 15,245
Transactions with owners in their capacity
as owners:
Dividends (note 8) - - - - (3,145) (3,145)
Shares issued 31 1,211 4,189 - - 5,431
Shares held by SIP - - - (96) - (96)
Share options - - - - 444 444
Income tax effect of
share options - - - - 1,152 1,152
--------------------------- -------- -------- -------- -------- --------- --------
As at 31 December 2016 892 10,861 8,447 (327) 46,543 66,416
--------------------------- -------- -------- -------- -------- --------- --------
See notes 24 and 25 for details of the treasury shares and other reserve.
Consolidated statement of cash flows
For the year ended 31 December 2016
2016 2015
GBP'000 GBP'000
------------------------------------------------------- --------
Cash flow from operating activities
Profit before taxation 18,243 17,465
Finance costs 2,327 2,118
Finance income (2) (3)
Fair value movement on derivatives (46) (24)
Depreciation 9,977 6,816
Amortisation 1,991 1,459
Share-based payment expense 348 271
Movement in inventories (4,773) 112
Movement in trade and other receivables (2,646) (1,689)
Movement in trade and other payables 6,330 (1,776)
--------------------------------------------- -------- --------
Cash generated from operations 31,749 24,749
Taxation (401) (304)
--------------------------------------------- -------- --------
Net cash generated from operations 31,348 24,445
Investing activities
Payments to acquire property, plant and
equipment (42,904) (41,474)
Disposal of property, plant and equipment 2,499 235
Payments to acquire intangible assets (1,084) (555)
Acquisition of subsidiary (35) -
Cash acquired with subsidiary 452 -
Finance income 2 3
--------------------------------------------- -------- --------
Net cash used in investing activities (41,070) (41,791)
--------------------------------------------- -------- --------
Financing activities
New borrowings 30,442 33,059
Capital repaid (12,845) (9,893)
Hire purchase repayments (1,028) (76)
Finance costs (2,646) (2,118)
Net proceeds from share issue 1,232 364
Dividend paid (3,145) (2,564)
--------------------------------------------- -------- --------
Net cash generated from financing activities 12,010 18,772
--------------------------------------------- -------- --------
Net increase in cash and cash equivalents 2,288 1,426
Cash and cash equivalents at the beginning
of the financial year 5,711 4,285
--------------------------------------------- -------- --------
Cash and cash equivalents at the end of
the financial year (note 15) 7,999 5,711
--------------------------------------------- -------- --------
Accounting policies
The consolidated financial statements of the Group for the year ended 31 December 2016 were approved and authorised for issue in accordance with a resolution of the Directors on 21 March 2017. Smart Metering Systems plc is a public limited company limited by shares and incorporated in Scotland, with its registered office at 2nd Floor, 48 St. Vincent Street, Glasgow G2 5TS. The Company's ordinary shares are traded on AIM.
Basis of preparation
The consolidated financial statements have been prepared in accordance with EU-endorsed International Financial Reporting Standards (IFRSs), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRSs.
The consolidated financial statements are presented in British Pounds Sterling (GBP) and all values are rounded to the nearest thousand (GBP'000) except where otherwise indicated.
During the year the Directors decided to reallocate meter asset depreciation of GBP9.2m (2015: GBP6.4m) from administrative costs to cost of sales to reflect all associated costs with generating recurring revenue and also bring in line with other operators in the industry. If meter asset depreciation had not been reallocated during the year gross profit for 2016 would have been GBP46,166k (2015: GBP36,518k).
Going concern
Management prepares budgets and forecasts on a rolling 24-month basis. These forecasts cover operational cash flows and investment capital expenditure. The Group has committed bank facilities of GBP280m which extend to March 2019.
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.
Basis of consolidation
The consolidated accounts of the Group include the assets, liabilities and results of the Company and subsidiary undertakings in which Smart Metering Systems plc has a controlling interest. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has all of the following: power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect its returns.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
Use of estimates and judgements
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:
-- Recognition of installation revenue in advance of the work being performed -- Capitalisation of internal installation costs. -- Impairment of goodwill -- Useful life of a meter assets
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 or receivable, 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 Group fulfils its contractual obligations to customers by supplying services.
Meter rental income
Rental income represents operating lease payments receivable from gas and electricity suppliers. Revenue is recognised on a straight line basis over the lease term. Rental income is calculated on a daily basis and invoiced monthly. Rental contracts do not operate on a fixed-term basis and are cancellable at any time by the lessee, in which case termination payments are levied and recognised as other operating income in accordance with the terms of the contract with immediate effect and do not transfer risks and rewards of ownership of the underlying asset. They are therefore considered as operating lease arrangements and accounted for as such.
In line with the underlying contractual terms, termination fees due are recognised at fair value upon notification of de-appointment and are classified as other operating income.
Utility connection
Revenue from connection contracts is recognised upon delivery of the related service.
Data management
Data income is recognised on a straight line basis over the contract period. Amounts invoiced in advance are recorded as deferred income.
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 derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition.
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 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 overdrafts, loans and borrowings, financial guarantee contracts and derivative financial instruments.
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.
Exceptional items and separately disclosed items
The Group presents as exceptional items on the face of the Consolidated statement of comprehensive income 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. Termination fee income is reported as a separately disclosed given the materiality and nature.
Research and development
Expenditure on pure and applied research activities is recognised in the Consolidated statement of comprehensive income 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; if 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, when the product or system is available for use, 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 10% 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 administrative expenses disclosed in the Consolidated statement of comprehensive income.
Intangible assets acquired as part of a business combination are recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably.
Intangible assets are amortised over their useful lives as follows:
Software 12.5% and 20% straight line Customer contracts 20%
Useful lives are examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
Longer life software is related to underlying meter assets.
Goodwill
Goodwill arising on consolidation represents the excess of the consideration transferred and the fair value of the identifiable assets and liabilities of the acquiree at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but is tested annually for impairment and is carried at cost less accumulated impairment losses. See note 12 for detailed assumptions and methodology. Impairment losses are not subsequently reversed.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose identified according to operating segment.
Provisional fair values are adjusted against goodwill if additional information is obtained within one year of the acquisition date about facts or circumstances existing at the acquisition date. Other changes in provisional fair values are recognised through profit or loss.
Changes in contingent consideration arising from additional information, obtained within one year of the acquisition date, about facts or circumstances that existed at the acquisition date are recognised as an adjustment to goodwill. Other changes in contingent consideration are recognised through profit or loss, unless the contingent consideration is classified as equity. In such circumstances, changes are recognised within equity.
Impairment
At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment and intangibles to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit (CGU) to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is recognised as income immediately.
Detailed assumptions with regard to discount, growth and inflation rates are set out in note 12 to the accounts.
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. 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. Pursuant to the acquisition of the meter installation businesses on 18 March 2016 (see Note 28) certain internal costs to the group are also capitalised where they are demonstrated as being directly attributable to bringing the meter rental assets into their useable condition.
All other repair and maintenance costs are recognised in the Consolidated statement of comprehensive income as incurred.
Depreciation is calculated on a straight line basis over the estimated useful life of the asset as follows:
Freehold property 2% on cost Short leasehold Shorter of the lease term or property 15% and 20% on cost Plant and machinery 5%, 10% and 20% on cost Fixtures, fittings 15% and 33% on cost and equipment Motor vehicles 25% on cost
Land is not depreciated.
During the year, the Directors reassessed the useful life of domestic meters that are due to be replaced before the end of their useful life as part of the Smart Meter rollout programme. An exercise was undertaken to identify all meters affected and their useful life has been shortened from 20 years to 5 years. In addition, the receipt of termination income under certain circumstances when meter rental assets are removed before the end of their useful life has also been reflected in a revision to residual values. These factors have resulted in a net increase to the overall depreciation charge that amounted to GBP685,000 in the current year. As this change is prospective, there is no corresponding change to depreciation in prior years.
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 Consolidated statement of comprehensive income when the asset is derecognised. The asset's residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.
Property, plant and equipment are initially recorded at cost.
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 Consolidated statement of financial position comprises 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 consists 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 property, plant and equipment at their fair value. The capital element of the future payments is treated as a liability and the notional interest is charged to the Consolidated statement of comprehensive income in proportion to the remaining balance outstanding.
Leased assets and obligations as lessee
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets acquired under finance leases are capitalised in the balance sheet at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is recorded in the balance sheet as a finance lease obligation. The lease payments are apportioned between finance charges to the income statement and a reduction of the lease obligations.
Rental payments under operating leases are charged to the income statement on a straight line basis over the applicable lease periods.
Group as lessor
Leases in which the Group does not transfer substantially all the risks and rewards of ownership of assets are classified as operating leases with meter income recognised in line with the meter rental income policy.
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 Consolidated statement of comprehensive income.
Share-based payments
The costs of equity-settled share-based payments are charged to the Consolidated statement of comprehensive income 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 Consolidated 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.
Deferred tax assets include temporary differences related to employee benefits settled via the issue of share options. Recognition of the deferred tax assets assumes share options will have a positive value at the date of vesting, which is greater than the exercise price.
Standards and interpretations
The following standards and interpretations have been adopted in these financial statements and have not had a material impact on the Group's accounts in the period of initial application.
Standard or Periods commencing
interpretation on or after
------------------- ----------------------------------------------
Amendment to Equity Method in Separate Financial 1 January
IAS 27 Statements 2016
Amendments 1 January
to IAS 1 Disclosure Initiative 2016
Annual Improvements 1 January
to IFRSs 2012 to 2014 Cycle* 2016
Non-current Assets held for Sale 1 January
IFRS 5 ad discontinued Operations 2016
Amendments
to IAS 16 and Clarification of Acceptable Methods 1 January
IAS 38 of Depreciation and Amortisation 2016
Amendments Accounting for Acquisitions of 1 January
to IFRS 11 Interests and Joint Operations 2016
Amendments
to IFRS 10,
IFRS 12 and Investment Entities - Applying 1 January
IAS 28 the Consolidation Exception 2016
------------------- ----------------------------------- ---------
Standard or Periods commencing
interpretation on or after
-------------------- --------------------------------------------------
Amendment to Recognition of Deferred Tax Assets 1 January
IAS 12 for Unrealised Losses 2017*
Amendments 1 January
to IAS 7 Disclosure Initiative 2017*
1 January
IFRS 15 Revenue from contracts with Customers 2018
Clarifications 1 January
to IFRS 15 Revenue from contracts with Customers 2018*
1 January
IFRS 9 Financial Instruments 2018
1 January
IFRS 16 Leases 2019*
Amendments Classifications and Measurement 1 January
to IFRS 2 of Share-based Payment Transactions 2018*
Annual Improvements 1 January
to IFRS standards 2014-2016 Cycle 2017/2018*
IFRIC Interpretation Foreign Currency Transactions 1 January
22 and Advance Consideration 2018*
-------------------- ------------------------------------- -----------
* Not yet adopted for use in the European Union.
The above standards and interpretations will be adopted in accordance with their effective dates and have not been adopted in these financial statements.
For standards with a future effective date, the Directors are in the process of assessing the likely impact and look to finalise the standards before formalising their view.
Notes to the financial statements
For the year ended 31 December 2016
1 Segmental reporting
For management purposes, the Group is organised into three core divisions, Asset Management, Asset Installation and Energy Management, which form the basis of the Group's reportable operating segments, and 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:
Asset Management comprises regulated management of gas meters, electric meters and ADM(TM) units within the UK.
Asset Installation comprises installation of domestic and I&C gas meters and electricity meters throughout the UK.
Energy Management comprises the provision of energy advice.
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.
At the most granular level of information presented to the CODM, Asset Management aggregates four operating segments (gas meter rental, electricity meter rental, gas data and electricity data) principally on the basis that they derive from the same asset using similar processes for consistent customers and are often provided together. Asset Installation aggregates two operating segments (gas transactional and electricity transactional) due to the consistent nature of the services, customers and delivery processes.
The following segment information is presented in respect of the Group's reportable segments together with additional balance sheet information:
Asset Asset Energy Total
Management Installation Management Unallocated operations
31 December 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----------- ------------- ----------- ----------- -----------
Segment/Group revenue 37,359 26,115 3,714 - 67,188
Cost of sales (14,441) (13,735) (2,081) - (30,257)
----------------------------- ----------- ------------- ----------- ----------- -----------
Segment profit - Group
gross profit 22,918 12,380 1,633 - 36,931
Items not reported by segment:
Other operating costs/income - - - (13,174) (13,174)
Depreciation - (22) - (721) (743)
Amortisation (1,991) - - - (1,991)
Exceptional items and
fair value adjustments - - - (455) (455)
----------------------------- ----------- ------------- ----------- ----------- -----------
Profit from operations 20,927 12,358 1,633 (14,350) 20,568
Net finance costs (2,325) - - - (2,325)
----------------------------- ----------- ------------- ----------- ----------- -----------
Profit before tax 18,602 12,358 1,633 (14,350) 18,243
Tax expense (2,998)
----------------------------------------------------------------------------------- -----------
Profit for year 15,245
----------------------------------------------------------------------------------- -----------
Asset Total
Management Asset Energy operations
restated Installation Management Unallocated restated
31 December 2015 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----------- ------------- ----------- ----------- -----------
Segment/Group revenue 30,233 19,535 4,177 - 53,945
Cost of sales (10,526) (10,891) (2,388) - (23,805)
----------------------------- ----------- ------------- ----------- ----------- -----------
Segment profit - Group
gross profit 19,707 8,644 1,789 - 30,140
Items not reported by segment:
Other operating costs/income - - - (8,663) (8,663)
Depreciation - - - (438) (438)
Amortisation (121) - - (1,338) (1,459)
Exceptional items and
fair value adjustments - - - - -
----------------------------- ----------- ------------- ----------- ----------- -----------
Profit from operations 19,586 8,644 1,789 (10,439) 19,580
Net finance costs (2,127) - 4 8 (2,115)
----------------------------- ----------- ------------- ----------- ----------- -----------
Profit before tax 17,459 8,644 1,793 (10,431) 17,465
Tax expense (2,463)
----------------------------------------------------------------------------------- -----------
Profit for year 15,002
----------------------------------------------------------------------------------- -----------
Deprecation associated with meter assets has been reported within cost of sales as the meter assets directly drive revenue.
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:
2016 2015
GBP'000 GBP'000
--------------------------------------- --------
Customer 1 - Asset Management 10,752 11,865
Customer 1 - Asset Installation 4,991 4,704
------------------------------- ------ --------
15,743 16,569
--------------------------------------- --------
Segment assets and liabilities
Asset Asset Energy Total
Management Installation Management Unallocated operations
31 December 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----------- ------------- ----------- ----------- -----------
Assets reported by segment
Intangible assets 11,114 3,497 - - 14,611
Property, plant and equipment 155,131 66 - 2,780 157,977
Inventories 5,569 446 106 - 6,121
----------------------------- ----------- ------------- ----------- ----------- -----------
171,814 4,009 106 2,780 178,709
Assets not by segment 24,539
----------------------------------------------------------------------------------- -----------
Total assets 203,248
----------------------------------------------------------------------------------- -----------
Liabilities by segment
Bank loans 102,176 - - 102,176
Obligations under hire
purchase agreements - 29 - 29
----------------------------- ----------- ------------- ----------- ------------------------
102,176 29 - 102,205
Liabilities not by segment 34,627
----------------------------- -----------------------------------------------------------------
Total liabilities 136,832
----------------------------- -----------------------------------------------------------------
Asset Energy
Management Asset Management Total
restated Installation restated operations
31 December 2015 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----------- ------------- ----------- -----------
Assets reported by segment
Intangible assets 10,028 - - 10,028
Property, plant and equipment 125,700 - - 125,700
Inventories 996 - 103 1,099
------------------------------- ----------- ------------- ----------- -----------
136,724 - 103 136,827
Assets not reported by segment 16,900
------------------------------------------------------------------------ -----------
Total assets 153,727
------------------------------------------------------------------------ -----------
Liabilities reported by segment
Bank loans 84,715 - - 84,715
Obligations under hire purchase
agreements 63 - 15 78
------------------------------- ----------- ------------- ----------- -----------
84,778 - 15 84,793
Liabilities not reported by segment 21,549
------------------------------------------------------------------------ -----------
Total liabilities 106,342
------------------------------------------------------------------------ -----------
The prior year asset by segment has been restated to show a reallocation of GBP6.2m property plant and equipment from Energy Management to Asset Management as these assets are attributable to the operations of Asset Management.
2 Income statement by nature and items of expenditure included in the Consolidated statement of comprehensive income
2016 2015
GBP'000 GBP'000
------------------------------------------------------ --------
Revenue 67,188 53,945
Direct rental costs (4,684) (4,148)
Direct subcontractor costs (4,054) (6,504)
Other direct sales costs and systems rental (12,285) (6,775)
Staff costs (9,710) (7,166)
Depreciation:
- owned assets (9,898) (6,751)
- leased assets (79) (65)
Amortisation (1,991) (1,459)
Other operating income 1,075 1,546
Auditor's remuneration:
- as auditor (136) (80)
- other services (9) -
Exceptional costs (455) -
Operating lease costs:
- plant and equipment - -
Other operating charges (4,394) (2,963)
-------------------------------------------- -------- --------
Profit from operations 20,568 19,580
Finance costs (2,327) (2,118)
Finance income 2 3
-------------------------------------------- -------- --------
Profit before taxation 18,243 17,464
-------------------------------------------- -------- --------
Included in exceptional items are GBP455,000 (2015: GBPNil) of acquisition costs. Included within depreciation - owned asset is GBP9,235,000 (2015; GBP6,378,000) of depreciation that has been allocated and reported in cost of sales.
Auditor's remuneration can be analysed as:
2016 2015
GBP'000 GBP'000
-------------------------- --------
Statutory Group audit 136 80
Other services 9 -
--------------------- --- --------
145 80
-------------------------- --------
3 Particulars of employees
The average number of staff employed by the Group, including Executive Directors, during the financial year was:
2016 2015
Number Number
----------------------------------- -------
Number of administrative staff 100 17
Number of operational staff 580 276
Number of sales staff 2 3
Number of IT staff 30 12
Number of Directors 2 2
------------------------------ --- -------
714 310
----------------------------------- -------
The aggregate payroll costs, including Executive Directors, of the employees were:
2016 2015
GBP'000 GBP'000
------------------------------ --------
Wages and salaries 18,880 9,205
Social security costs 1,895 935
Staff pension costs 240 192
Share-based payment 444 410
Director pension costs 19 20
---------------------- ------ --------
21,478 10,762
------------------------------ --------
Included with wages and salaries are GBP8,432,000 (2015: GBPNil) of costs from the new acquisitions.
4 Directors' emoluments
The Directors' aggregate remuneration in respect of qualifying services were:
2016 2015
GBP'000 GBP'000
-------------------------------------------- --------
Emoluments receivable 858 821
Value of Group pension contributions to
money purchase schemes 6 5
Other pension 13 16
--------------------------------------- --- --------
877 842
-------------------------------------------- --------
During the year one of the directors exercised 500,000 unapproved share options, resulting in a gain of GBP1,725,000.
2016 2015
Emoluments of highest paid Director GBP'000 GBP'000
----------------------------------- -------- --------
Total emoluments 513 488
Pension contributions 13 16
----------------------------------- -------- --------
526 504
--------------------------------------------- --------
The number of Directors who accrued benefits under Company pension schemes was as follows:
2016 2015
Number Number
------------------------ -------
Money purchase schemes 2 2
----------------------- -------
5 Finance costs and finance income
2016 2015
GBP'000 GBP'000
-------------------------------------- --------
Finance costs
Bank loans and overdrafts 2,323 2,134
Interest rate hedge fair value (46) (24)
Hire purchase 50 8
------------------------------- ----- --------
Total finance costs 2,327 2,118
------------------------------- ----- --------
Finance income
Bank interest receivable 2 3
------------------------------- ----- --------
Total finance income 2 3
------------------------------- ----- --------
6 Taxation
2016 2015
GBP'000 GBP'000
--------------------------------------------------------- --------
Analysis of charge in the year
Current tax:
Current income tax expense 1,362 1,159
Adjustment to tax charge in respect of
previous periods 450 (163)
-------------------------------------------------- ----- --------
Total current income tax 1,812 996
Deferred tax:
Origination and reversal of temporary differences 1,186 1,467
-------------------------------------------------- ----- --------
Tax on profit on ordinary activities 2,998 2,463
-------------------------------------------------- ----- --------
The charge for the period can be reconciled to the profit per the Consolidated statement of comprehensive income as follows:
Profit before tax 18,243 17,465 ------------------------------------------------------------ ------ ------ Tax at the UK corporation tax rate of 20.00% (2015: 20.25%) 3,649 3,536 Expenses not deductible for tax purposes 11 (62) Adjustments to tax charge in respect of previous periods 123 (107) Change in tax rate (785) (904) ------------------------------------------------------------ ------ ------ Tax expense in the income statement 2,998 2,463 ------------------------------------------------------------ ------ ------
Current tax credit through equity in the year was GBP1,250k (2015: GBP180k).
7 Earnings per share
The calculation of EPS is based on the following data and number of shares:
2016 2015
GBP'000 GBP'000
-------------------------------------------------- --------
Profit for the year used for calculation
of basic EPS 15,245 15,002
Amortisation of intangible assets 1,991 1,459
Other operating income (1,075) (1,546)
Exceptional costs 455 -
Tax effect of adjustments 274 19
----------------------------------------- ------- --------
Earnings for the purpose of adjusted EPS 16,890 14,934
----------------------------------------- ------- --------
Number of shares 2016 2015
------------------------------------------- ---------- ----------
Weighted average number of ordinary shares
for the purposes of basic EPS 87,955,744 85,928,114
Effect of potentially dilutive ordinary shares:
- share options 1,604,623 3,463,275
------------------------------------------- ---------- ----------
Weighted average number of ordinary shares
for the purposes of diluted EPS 89,560,367 89,391,389
------------------------------------------- ---------- ----------
Earnings per share:
- basic (pence) 17.33 17.46
- diluted (pence) 17.02 16.78
Adjusted earnings per share:
- basic (pence) 19.20 17.38
- diluted (pence) 18.86 16.70
------------------------------------------- ---------- ----------
The Directors consider that the adjusted earnings per share calculation gives a better understanding of the Group's earnings per share as the adjusted earnings basis better reflects the Groups underlying sustainable business performance.
8 Dividends
2016 2015
GBP'000 GBP'000
------------------------------------------------ --------
Equity dividends
Paid during the year:
Interim paid in respect of 2016, 1.37p
per share 1,226 -
Final paid in respect of 2015, 2.20p per
share 1,919 -
Interim paid in respect of 2015, 1.10p
per share - 947
Final paid in respect of 2014, 1.88p per
share - 1,617
----------------------------------------- ----- --------
Total dividends 3,145 2,564
----------------------------------------- ----- --------
A final dividend of 2.73p per share for the year ended 31 December 2016 has been proposed and due to be paid in June 2017.
9 Intangible assets
Customer
Goodwill Software Development contracts Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- ----------- ---------- --------
Cost
As at 1 January 2015 4,112 2,160 1,548 5,251 13,071
Additions - - 525 30 555
---------------------------- ----- -------- ----------- ---------- --------
As at 31 December 2015 4,112 2,160 2,073 5,281 13,626
Additions - - 454 630 1,084
Additions from acquisitions 3,497 6 - 2,000 5,503
Disposals - - (13) - (13)
---------------------------- ----- -------- ----------- ---------- --------
As at 31 December 2016 7,609 2,166 2,514 7,911 20,200
---------------------------- ----- -------- ----------- ---------- --------
Amortisation
As at 1 January 2015 - 332 121 1,686 2,139
Charge for year - 666 121 672 1,459
---------------------------- ----- -------- ----------- ---------- --------
As at 31 December 2015 - 998 242 2,358 3,598
Charge for year - 432 228 1,331 1,991
---------------------------- ----- -------- ----------- ---------- --------
As at 31 December 2016 - 1,430 470 3,689 5,589
---------------------------- ----- -------- ----------- ---------- --------
Net book value As at 31 December 2016 7,609 736 2,044 4,222 14,611 ---------------------------- ----- -------- ----------- ---------- -------- As at 31 December 2015 4,112 1,162 1,831 2,923 10,028 ---------------------------- ----- -------- ----------- ---------- -------- As at 1 January 2015 4,112 1,828 1,427 3,565 10,932 ---------------------------- ----- -------- ----------- ---------- --------
10 Property, plant and equipment
Fixtures,
Freehold/ Plant fittings
leasehold and and Motor
property machinery equipment vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ---------- ----------- --------- --------
Cost
As at 1 January 2015 2,131 98,646 1,162 112 102,051
Additions 13 41,192 256 - 41,461
Disposals - (222) - (32) (254)
---------------------------- ----- ---------- ----------- --------- --------
As at 31 December 2015 2,144 139,616 1,418 80 143,258
Additions 20 42,503 381 - 42,904
Additions from acquisitions 75 69 309 1,384 1,837
Disposals - (1,479) - (1,295) (2,774)
---------------------------- ----- ---------- ----------- --------- --------
As at 31 December 2016 2,239 180,709 2,108 169 185,225
---------------------------- ----- ---------- ----------- --------- --------
Depreciation
As at 1 January 2015 106 10,142 492 34 10,774
Charge for year 64 6,378 340 34 6,816
Disposals - (21) - (11) (32)
---------------------------- ----- ---------- ----------- --------- --------
As at 31 December 2015 170 16,499 832 57 17,558
Charge for year 93 9,235 508 141 9,977
Disposals - (217) - (70) (287)
---------------------------- ----- ---------- ----------- --------- --------
As at 31 December 2016 263 25,517 1,340 128 27,248
---------------------------- ----- ---------- ----------- --------- --------
Net book value
As at 31 December 2016 1,976 155,192 768 41 157,977
---------------------------- ----- ---------- ----------- --------- --------
As at 31 December 2015 1,974 123,117 586 23 125,700
---------------------------- ----- ---------- ----------- --------- --------
As at 1 January 2015 2,025 88,504 670 78 91,277
---------------------------- ----- ---------- ----------- --------- --------
Hire purchase agreements
Included within the net book value of GBP157,977,000 (2015: GBP125,700,000) is GBP16,839 (2015: GBP73,258) 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 GBP79,578 (2015: GBP65,060).
The assets are secured by a bond and floating charge (note 17).
11 Financial asset investments
Shares in
Group Unlisted
undertaking investments Total
GBP'000 GBP'000 GBP'000
-------------------------------------- ------------ --------
Cost
As at 1 January 2016 43 40 83
Additions as part of acquisitions - 35 35
---------------------------------- ------------ --------
As at 31 December 2016 43 75 118
---------------------------------- ------------ --------
Financial asset investments are not consolidated on the basis they are not material to the Group.
Subsidiary undertakings
Proportion
of
Registered shares Nature of
office Holding held business
--------------------- -------- ---------- ----------------------
All held by the Company:
SMS Connections Ordinary
Limited 1 shares 100% Gas utility management
SMS Meter Assets Ordinary
Limited 1 shares 100% Gas utility management
SMS Data Management Ordinary
Limited 1 shares 100% Data management
Ordinary
UKMA (AF) Limited* 2 shares 100% Leasing
SMS Energy Services Ordinary Electricity utility
Limited 3 shares 100% management
Ordinary Electricity utility
SMS Italia SRL* 4 shares 100% management
CH4 Gas Utility
and Maintenace Ordinary
Services Limited 3 shares 100% Meter installation
Trojan Utilities Ordinary
Limited 3 shares 100% Meter installation
Qton Solutions Ordinary Business and domestic
Limited 3 shares 100% software development
-------------------- -------- ---------- ----------------------
* The shareholding in this company is indirect via a subsidiary company.
1. Registered office address: 2nd Floor, 48 St. Vincent Street, Glasgow G2 5TS.
2. Registered office address: CMS Cameron McKenna LLP Cannon Place, 78 Cannon Street, London EC4N 6AF.
3. Registered office address: Prennau House Copse Walk, Cardiff Gate Business Park, Cardiff CF23 8XH.
4. Registered office address: Via Gaudenzio Ferrari, 21/C 21047 Saronno VA, Italy.
12 Impairment of goodwill
The goodwill acquired in business combinations is allocated, at acquisition, to the CGUs that are expected to benefit from that business combination. The goodwill is allocated to the Asset Management and Asset Installation segments which are the segments that are expected to benefit from combining gas and electricity offerings. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The annual impairment test was performed and no evidence of impairment was found as at the balance sheet date.
Goodwill has been tested for impairment by comparing the carrying amount of each CGU, including goodwill, with the recoverable amount. The recoverable amounts are determined from value-in-use calculations.
The key assumptions for the value-in-use calculations are those regarding pre-tax cash flow projections, discount rates and growth rates. The pre-tax cash flow is based in past performance and expectations as set out in the latest projections based on financial budgets approved by management. This discount rate reflects the current market assessment of the time value of money, Long-term growth is assumed at 2% and the estimated cash flows are derived by discounting future cash flows that are based on conservative growth and attrition rates and discounted at a pre-tax rate of 8.2%.
Base case forecast show significant headroom above carrying value of each CGU, there is no reasonably possible change that would cause the carrying values to exceed recoverable amounts.
13 Inventories
2016 2015
GBP'000 GBP'000
--------------------- --------
Finished goods 5,569 996
Consumables 552 103
-------------- ----- --------
6,121 1,099
--------------------- --------
14 Trade and other receivables
2016 2015
GBP'000 GBP'000
----------------------------- --------
Trade receivables 7,610 4,815
Prepayments 1,369 221
Accrued income 5,248 5,145
Other receivables 617 24
VAT recoverable 892 -
Income tax recoverable 58 -
---------------------- ----- --------
15,794 10,205
----------------------------- --------
Amounts falling due after more than one year:
2016 2015
GBP'000 GBP'000
-------------------- --------
Accrued income 628 901
--------------- --- --------
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 and accrued income. The amounts presented in the consolidated statement of financial position are net of allowances for doubtful receivables. The allowance for doubtful receivables or provision against accrued income in the year was GBP1,081,541 (2015: GBP367,253). The ageing profile of trade receivables past due date is shown below:
2016 2015
GBP'000 GBP'000
------------------------------------------- --------
31-60 days 1,039 1,168
61-90 days 391 321
Over 90 days 1,883 776
---------------------------------- ------- --------
3,313 2,265
Allowance for doubtful receivables (1,082) (367)
---------------------------------- ------- --------
2,231 1,898
------------------------------------------- --------
Trade receivables are non-interest bearing and are generally on 30-90-day terms.
Trade receivables due from related parties at 31 December 2016 amounted to GBPNil (2015: GBPNil).
Receivables are all in Sterling denominations.
The Directors are of the opinion that GBP1,082,000 of the overdue debts as at 31 December 2016 require impairment.
Accrued income is invoiced periodically and customers are the same as those within trade receivables. Due to its nature there is no accrued income past due.
15 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:
2016 2015
GBP'000 GBP'000
----------- --------
Cash 7,999 5,711
---- ----- --------
7,999 5,711
----------- --------
16 Trade and other payables
2016 2015
GBP'000 GBP'000
-------------------------- --------
Current
Trade payables 11,421 5,324
Other payables 2,913 94
Advance payments 2,700 3,105
Other taxes 1,782 827
Deferred income 790 602
Accruals 6,411 4,967
Income tax payable 725 445
------------------ ------ --------
26,742 15,364
-------------------------- --------
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
Trade payables are non-interest bearing and are normally settled on 30-45-day terms.
All trade liabilities are Sterling denominated.
17 Bank loans and overdrafts
2016 2015
GBP'000 GBP'000
------------------ --------
Current
Bank loans 14,530 8,496
---------- ------ --------
14,530 8,496
------------------ --------
Non-current
Bank loans 87,646 76,219
---------- ------ --------
87,646 76,219
------------------ --------
Bank loans at 31 December 2016 relate to a revolving credit facility of GBP150.0m that was finalised in March 2016.
The loan is available for 24 months, is payable in equal quarterly instalments based on a ten-year repayment profile, with a final repayment date of 14 March 2019. The loan attracts interest at a rate of 1.9% over the three-month LIBOR. 0.76% is paid on undrawn funds.
Since the year end a new GBP280m revolving credit facility has been agreed with a syndicate of banks which comprises Barclays Bank PLC, Santander UK PLC, HSBC UK, Clydesdale Bank PLC and Bank of Scotland PLC. The revolving credit facility replaces the Group's existing GBP150m revolving credit facility.
The banks have a bond and floating charge over current and future property and assets.
18 Commitments under hire purchase agreements
Future minimal commitments under hire purchase agreements are as follows:
2016 2015
GBP'000 GBP'000
----------------------------------------------- --------
Current
Amounts payable within one year 28 64
------------------------------------------- --------
Non-current
Amounts payable between two and five years 1 14
------------------------------------------- --------
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.
19 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.
2016 2015
GBP'000 GBP'000
----------------------------- --------
Other financial assets - -
---------------------------- --------
Non-current liabilities
Other financial liabilities - 46
---------------------------- --------
Other financial assets and liabilities relate to the fair value adjustment on interest rate swaps. In December 2015 the fair value of financial instruments were valued using Level 2 techniques.
The interest rate swaps cover an interest rate swap for an amount of GBPNil as at 31 December 2016 (2015: GBP26,400,000).
The interest rate swap was settled on 15 September 2016.
20 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:
Increase/decrease Effect on
in basis profit
points before tax
Pound Sterling GBP'000
--------------- ----------------- -----------
2016 - 46
2015 1% 329
--------------- ----------------- -----------
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:
Variable
Fixed rate rate
financial financial
liabilities liabilities Total
GBP'000 GBP'000 GBP'000
----------------------- ------------ --------
2016 - 112,796 112,796
2015 26,400 58,556 84,956
1 January 2015 30,153 31,550 61,703
--------------- ------ ------------ --------
The fixed rate financial liabilities relate to the portion of the banking facility that is fixed through hedging instruments.
Interest rate risk profile of financial assets
The Group's financial assets at 31 December 2016 comprise cash and trade receivables. The cash balance of GBP7,999,000 (2015: GBP5,711,000) 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, were not materially different from their book values.
Foreign currency risk
The Group's exposure to the risk of changes in foreign exchange 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, this is considered to be institutions with a credit rating of AA- and above. Currently, all of the chosen investment institutions are in line with his criteria.
The ageing and maturity profile of the Group's material liabilities is covered within the relevant liability note or below.
2016 2015
GBP'000 GBP'000
-------------------------- --------
Fixed rate
Less than one year - 3,392
Two to five years - 12,497
Over five years - 14,119
------------------ ------ --------
- 30,008
-------------------------- --------
Variable rate
Less than one year 16,574 6,728
Two to five years 62,792 25,597
Over five years 33,430 35,096
------------------ ------ --------
112,796 67,421
-------------------------- --------
Credit risk
Credit risk with respect to trade receivables and accrued income is due to the Group trading with a limited number of companies which 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, other receivables and accrued income.
The Group's maximum exposure to credit risk from its customers is GBP12,858,000 (2015: GBP9,960,000) as disclosed in note 14 - trade and other receivables, and accrued income.
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 leverage 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.
The objective of SMS's strategy is to deliver long-term value to its shareholders whilst maintaining a balance sheet structure that safeguards the Group's nancial position. From an ordinary dividend perspective our objective is to provide a progressive, through cycle dividend that reflects the potential volatility of our business.
21 Deferred taxation
The movement in the deferred taxation liability during the period was:
2016 2015
GBP'000 GBP'000
-------------------------------------------------- --------
Opening deferred tax liability 6,139 4,395
Increase in provision through Consolidated
statement of comprehensive income 1,186 1,467
Increase in provision through equity 98 97
Deferred tax on intangibles acquired as
part of acquisitions 462 -
Other - 180
------------------------------------------- ----- --------
Closing deferred tax liability 7,885 6,139
------------------------------------------- ----- --------
All movements identified have gone through the statement of comprehensive income.
The Group's provision for deferred taxation consists of the tax effect of temporary differences in respect of:
2016 2015
GBP'000 GBP'000
-------------------------------------------------------- --------
Excess of taxation allowances over depreciation
on property, plant and equipment 8,934 7,029
Tax losses available (265) -
Deferred tax asset on share options (1,643) (1,708)
Deferred tax on intangible acquired 679 828
Fair value of interest rate swaps (net) - (10)
Other 180 -
----------------------------------------------- ------- --------
7,885 6,139
-------------------------------------------------------- --------
The deferred tax included in the Consolidated statement of comprehensive income is as follows:
2016 2015
GBP'000 GBP'000
---------------------------------------------- --------
Accelerated capital allowances 1,690 1,736
Tax losses (175) -
Deferred tax asset on share options (33) 36
Movement in fair value of intangibles (491) (309)
Movement in fair value of interest rate
swaps 10 4
Other 184 -
--------------------------------------- ----- --------
1,185 1,467
---------------------------------------------- --------
Finance Bill 2016, which was substantively enacted on 6 September 2016, includes legislation reducing the main rate of UK corporation tax from 20% to 17%. This decrease is to be phased in with a reduction to 19% effective from 1 April 2017, then a further reduction to 17% effective from 1 April 2020. Consequently deferred tax has been provided at the tax rates at which temporary differences are expected to reverse.
22 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 GBP41,500 (2015: GBP41,500) to the Directors' pension scheme, Eco Retirement Benefit Scheme, for the use of certain premises. Alan Foy is a trustee of the scheme. At the year-end date, an amount of GBP4,150 (2015: GBP4,150) was outstanding in this regard.
The Group also paid rent of GBP28,417 (2015: GBP32,000) to another individual classified as key management for the use of certain premises.
During the year, the Group paid dividends to Alan Foy of GBP269,548 (2015: GBP252,178) and Miriam Greenwood of GBP401 (2015: GBP298).
At the year end Trojan Utilities Limited had a balance with Utilities Academy Limited of GBP26,442 with transactions during the year amounting to GBP49,508.
Remuneration of key management, which includes Executive and Non-executive Directors together with certain management personnel, was as follows:
2016 2015
GBP'000 GBP'000
---------------------------------------------- --------
Salaries and other short-term employee
benefits 1,622 1,227
--------------------------------------- ----- --------
23 Share capital
2016 2015
GBP'000 GBP'000
--------------------------------------------------- --------
Allotted and called up:
89,203,739 ordinary shares of GBP0.01 each
(2015: 86,112,912 ordinary shares of GBP0.01
each) 892 861
---------------------------------------------- --- --------
On 11 January 2016, 6,579 ordinary share options were exercised, 5,008 retained and 1,571 subsequently sold by staff.
On 31 March 2016, 17,598 ordinary share options were exercised, 11,722 retained and 5,876 subsequently sold by staff.
On 5 April 2016, 1,072,055 ordinary shares were issued as consideration for the acquisition of CH4 Gas Utility and Maintenance Services Limited (CH4), Trojan Utilities Limited (Trojan) and Qton Solutions Limited (Qton). See note 28 for further information.
On 12 April 2016, 35,378 ordinary share options were exercised, 26,560 retained and 8,818 subsequently sold by staff.
On 25 April 2016, 4,079 ordinary share options were exercised, 2,704 retained and 1,375 subsequently sold by staff.
On 23 June 2016, 1,452,725 ordinary share options were exercised, 412,912 retained and 1,039,812 subsequently sold by staff.
On 8 July 2016, 500,000 ordinary share options were exercised and subsequently sold by staff.
On 12 July 2016, 713 ordinary share options were exercised and subsequently sold by staff.
On 10 November 2016, 1,700 ordinary share options were exercised and subsequently sold by staff.
24 Share-based payments
On 20 June 2011, the Company adopted both an Approved Company Share Option Plan (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 GBP30,000 per employee. No option can be exercised within three years of its date of grant. The performance conditions for awards are based on market capitalisation and individual performance targets.
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 five years of its grant. The performance conditions for awards are based on market capitalisation and individual performance targets. The options granted on 28 June 2013 were granted following the surrender of previously vested awards held by the non-executive directors and became exercisable immediately on the date of grant.
At At Exercise
1 January 31 December price Date Expiry
Plan 2016 Granted Exercised Lapsed 2016 (pence) exercisable Date
----------- ---------- ------- ----------- -------- ------------ -------- ------------ --------
CSOP 179,961 - (93,834) - 86,127 76.0 15/07/14 15/07/21
CSOP 3,500 - (3,500) - - 153.5 28/05/15 28/05/22
Unapproved 2,560,393 - (1,920,725) (50,002) 589,666 60.0 20/06/16 20/06/21
Unapproved 1,150,737 - - (49,548) 1,101,189 153.5 28/05/17 28/05/22
Unapproved 28,700 - - - 28,700 60.0 28/06/13 28/06/23
Unapproved 1,337,935 - (713) (36,152) 1,301,070 350.0 12/11/19 12/11/24
Unapproved - 317,382 - - 317,382 391.8 20/03/21 19/03/26 Unapproved - 172,634 - - 172,634 470.0 18/08/21 17/08/26 ----------- ---------- ------- ----------- -------- ------------ -------- ------------ --------
The average weighted average share price at the date of exercise was GBP4.90.
Valuation
The fair value of all options granted has been estimated using appropriate option pricing models, taking into account the terms upon which the options were granted, including the market-based performance conditions. The fair value per share of the outstanding options were estimated as follows.
Fair value
Grant date Plan (pence)
--------------- ----------- ----------
15 July 2011 CSOP 17.1
28 May 2012 CSOP 31.5
20 June 2011 Unapproved 17.4
20 June 2011 Unapproved 13.0
28 May 2012 Unapproved 40.0
28 June 2013 Unapproved 244.0
12 Nov 2014 Unapproved 84.8
20 March 2016 Unapproved 61.5
18 August 2016 Unapproved 87.2
--------------- ----------- ----------
The total fair value of these options is recognised over the period from their grant date until they become exercisable.
Share Incentive Plan (SIP)
The Company introduced the Smart Metering Systems Share Incentive Plan (SIP) in October 2014. All employees of the Group (including executive Directors) are eligible to participate in the SIP. Participants may each acquire "Partnership Shares" worth up to GBP1,800 per year from their pre-tax earnings at market value. The Company awards participants one Matching Share for each Partnership Share which they acquire. Dividends received on shares held in the SIP are reinvested to acquire Dividend Shares at market value. (Matching Shares may be forfeited if the participant disposes of the corresponding Partnership Shares or leaves the employment of the Group within three years of the award date.)
SIP awards
The table below shows the number of shares held in the SIP at the beginning and end of the financial year.
Weighted
At At average
1 January Awarded 31 December acquisition
Type of award 2016 shares Sold Lapsed 2016 price
-------------- ---------- ------- ------- ------- ------------ ------------
Partnership 60,895 35,662 (2,450) - 94,107 GBP4.90
Matching 60,549 35,662 (624) (1,880) 93,707 GBP4.90
Dividend 317 1,200 (20) - 1,497 GBP3.58
-------------- ---------- ------- ------- ------- ------------ ------------
Total 121,761 72,524 (3,094) (1,880) 189,311
-------------- ---------- ------- ------- ------- --------------------------
25 Other reserve
This is a non-distributable reserve that initially arose by applying merger relief under section 162 of the Companies Act 2006 to the shares issued in 2009 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". Additionally, the premium of GBP4,189,000 arising on the issue of shares as part of the acquisitions of CH4 Gas Utility and Maintenance Services Limited (CH4), Trojan Utilities Limited (Trojan) and Qton Solutions Limited (Qton) has been credited to this reserve.
26 Commitments under operating leases
The Group has entered into commercial leases for office space. These leases have lives between one and 15 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 end are as follows:
2016 2015
GBP'000 GBP'000
--------------------------------------------------- ----------
Future minimal commitments under operating lease agreements
are as follows:
Payable within one year 1,543 271
Payable within two and five years 2,144 375
Payable after five years 162 259
------------------------------------------- ------ ----------
3,849 905
--------------------------------------------------- ----------
During the year vehicles acquired as part of Trojan Utilities Limited that were previously financed under Hire Purchase agreements were subject to a sale and operating leaseback arrangement with a third party at arms length rates.
27 Ultimate controlling party
There is no ultimate controlling party by virtue of the structure of shareholdings in the Group.
28 Business combinations
Acquisitions of Trojan, CH4 and Qton
On 18 March 2016, the Group acquired 100% of the issued share capital of CH4 Gas Utility and Maintenance Services Limited ("CH4"), 100% of the issued share capital of Trojan Utilities Limited ("Trojan") and 100% of the issued share capital of Qton Solutions Limited ("Qton").
CH4 and Trojan are meter suppliers and they will enhance SMS's capability to be a key participant in the substantial new Domestic smart meter market for homes and small businesses in the UK.
Alongside these installation businesses, Qton will help to serve SMS's existing and future contracts, most of which use its systems already. This will ensure full confidence to energy suppliers throughout the domestic smart meter rollout.
CH4 is a specialist in traditional and smart gas and electricity metering installations to the Domestic and I&C sectors. It operates throughout the UK and is a current service provider to SMS.
Trojan is a leading installation service provider to energy suppliers in the UK and delivers domestic smart has and electricity trained and accredited installation services.
Qton has a team of IT professionals specialising in the provision of work and field management IT systems applications for gas and electricity metering installations. The customers for the company's solutions are energy suppliers, installations contractors and meter asset managers and owners in the UK with specific applications tailored for domestic dual fuel smart installations.
The acquisition has been accounted for using the acquisition method. The fair value of the identifiable assets and liabilities of each company as at the date of acquisition was as follows:
CH4 Trojan Qton Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- -------- -------- --------
Property, plant and equipment 366 1,459 18 1,843
Software - 500 1,500 2,000
Customer contracts - - - -
Other financial assets - 109 - 109
Inventories 175 73 - 248
Trade and other receivables 1,622 673 228 2,523
Cash and cash equivalents 167 88 197 452
-------------------------------- ------- -------- -------- --------
Total assets 2,330 2,902 1,943 7,175
-------------------------------- ------- -------- -------- --------
Trade and other payables (551) (516) (38) (1,105)
Accruals and deferred income (1,046) (1,624) (564) (3,234)
Obligations under hire purchase
agreements (92) (923) - (1,015)
-------------------------------- ------- -------- -------- --------
Total liabilities (1,689) (3,063) (602) (5,354)
-------------------------------- ------- -------- -------- --------
Acquisition date fair value
of the assets 641 (161) 1,341 1,821
Goodwill arising on acquisition 1,359 579 1,559 3,497
-------------------------------- ------- -------- -------- --------
Total consideration transferred
(as equity instruments) 2,000 418 2,900 5,318
-------------------------------- ------- -------- -------- --------
Analysed as
CH4 Trojan Qton Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- -------- -------- --------
Ordinary Shares 4 - 7 11
Merger reserve 1,596 - 2,593 4,189
Deferred consideration (included
within other creditors) 400 418 300 1,118
--------------------------------- ----- -------- -------- --------
Total consideration 2,000 418 2,900 5,318
--------------------------------- ----- -------- -------- --------
On 5 April 2016 1,072,055 ordinary shares were issued as consideration for the acquisition of CH4, Trojan and Qton at a price of 391.775p.
The fair value of the equity instruments (ordinary shares) issued as consideration paid was determined on the basis of the closing market price of SMS ordinary shares on the date of acquisition.
There are no contingent consideration arrangements in any of the acquisitions.
The financial information included the results of CH4, Trojan and Qton for the period 18 March 2016 to 31 December 2016, during which time:
CH4 Trojan Qton Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- --------
The contribution to revenue
by each company was: 907 5,115 871 6,893
And to Group profit for the
period was: (1,224) (1,502) 351 (2,376)
---------------------------- ------- -------- -------- --------
If the combinations had each taken place at the beginning of the period:
CH4 Trojan Qton Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ -------- -------- --------
The contribution to Group profit
from each would have been: (1,521) (1,698) (158) (3,377)
And the contribution to revenue
from continuing operations
from each would have been: 2,140 6,576 1,163 9,879
--------------------------------- ------- -------- -------- --------
The acquisitions of CH4 and Trojan are part of the Group's strategy to gain direct control of a large proportion of our installation capacity for ongoing delivery of our customer contracts in the I&C and Domestic meter markets. This will provide confidence to our customers in our delivery model for the new Domestic smart metering market. In addition, the acquisition of Qton allows the Group to gain direct control and ownership of all software applications used by SMS for asset installation and ongoing management.
The goodwill recognised above is attributed to the expected benefits of securing our installation capacity and controlling our software applications.
None of the goodwill recognised is expected to be deductible for income tax purposes.
The primary components of this residual goodwill comprise:
-- the workforce; -- the software capability; -- revenue synergies from dual fuel; and -- new opportunities available to each company as part of the larger AIM-listed Group.
The identifiable intangible assets will be amortised as follows:
-- Software - 20% -- Customer contracts - 20%
Transaction costs and expenses directly relating to the acquisitions of GBP455,000 have been disclosed as exceptional items in the consolidated financial statements and are included within administrative expenses.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DMGZFMGKGNZZ
(END) Dow Jones Newswires
March 21, 2017 03:01 ET (07:01 GMT)
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