04/09/2013

Smart Metering Systems plc (AIM: SMS.L) is pleased to announce its interim results which show continuing growth for the six months ended 30 June 2013 and an increased dividend to shareholders.

Financial Highlights
  • Revenue increased by 42% to GBP13.2m (H1 2012:GBP9.3m)
  • Recurring meter rental increased by 43% to GBP6.0m (H1 2012 GBP4.2m) representing 46% of total revenue
  • Gross Profit increased by 40% to GBP8.1m (H1 2012:GBP5.8m) -- Adjusted EBITDA* increased by 37% to GBP5.5m (H1 2012:GBP4.0m) -- Basic earnings per share increased to 3.27p (H1 2012: 2.60p)
  • Interim dividend increased by 40% to 0.7p per ordinary share -- Available cash and unused debt facility of GBP25.5m

*Excluding exceptional items and fair value adjustments

Operational Highlights
  • Total meter portfolio increased by 18% to 401,000 from end of December 2012 (December 2012: 341,000)
  • Increase of 78% in capital investment in meter assets to GBP10.5m (H1 2012: GBP5.9m)
  • Increase in annualised recurring meter rental at 30 June 2013 of 43% to GBP13.0m (H1 2012: GBP9.1m)
  • Contract extensions or additions with a number of major customers
  • Energy Brokers served increased to 11 from 5 at December 2012
  • ADM(TM) installations increased to over 7,000 units to date - Advanced Trials commenced in the Water and LPG markets in the UK - International trials commenced but at early stage
  • Increase of 41% in asset installation revenue to GBP7.2m (H1 2012: GBP5.1m) of which Gas
  • Connection business increased turnover by 37% to GBP4.1m (H1 2012: GBP3.0m)
Post Balance Sheet Events
  • Dong Energy contract renewal and extension to include new gas connections, gas meters and data management services using the ADM(TM) solution. This is a preferred supplier contract covering the entire portfolio of meter points to which Dong Energy are the registered gas supplier.
  • New contract with Opus Energy for gas meters and data management services including the ADM(TM) solution.

 

"SMS has had another strong trading period. We have continued to increase the number of customers we serve and have shown again a significant increase in our meter portfolio providing on-going recurring revenue. A number of customers have recently increased the number of meters required which underlines the quality of service SMS provides and bodes well for the future. This confidence is reflected in the increase in dividend we have announced today."

Alan Foy Chief Executive Officer

For Further Information:

Smart Metering Systems Plc

Alan Foy, Finance Director Glen Murray, Finance Director

0141 249 3850

 

Cenkos Securities

Ken Fleming Neil McDonald

0131 220 6939 / 0207 397 8900

 

Kreab Gavin Anderson

Chris Philipsborn Christina Clark

020 7074 1800

 

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 and energy brokers.

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

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. Longer term the Company also has additional applications for water and LPG.

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 and Chief Executive Officer's Statement

We are pleased to announce continued growth in the first half of 2013, across all our business, in both the number of customers we serve and also the number of meters in our portfolio.

Our Business

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

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

  • be the market leader in the independent ownership of industrial and commercial meters;
  • establish ADM(TM) as the industry standard smart metering solution for Industrial and Commercial (I&C) clients; and
  • grow our domestic meters business organically and potentially through new contracts.

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

Operational Review

During the first half of 2013 the meter portfolio has broken the 400,000 level with an increase of 60,000 in the first six months mainly as a result of a number of major contract wins in 2012.

The increase in our meter portfolio is reflected in the build-up of our annualised recurring revenue, providing an increasing percentage of our total revenue. These recurring revenues are as a result of the long term nature of our contracts which provide an index linked revenue stream.

Industrial and Commercial meters

In addition to recent new contract wins with Dong Energy and Opus Energy, we have had extensions from major customers on existing contracts.

SMS continues to target the energy broker market which provides a useful additional revenue stream. The number of brokers has increased from 5 to 11 since the year end and contracts cover both the provision of meters and the ADM(TM) device. In addition SMS has also experienced a greater demand for new meters through its I & C gas connections activities.

The value of I & C meters is typically much greater than that of domestic meters and therefore the revenue per meter is approximately 10-15 times higher on average.

ADM(TM)

The ADM(TM) device is SMS's advanced metering solution which allows for remote meter reading on a half-hourly basis and has been designed in line with our own customer requirements.

SMS has now installed over 7,000 ADM(TM) devices. Feedback continues to be extremely positive. The ability of remote reading alongside SMS's full service capability in the I & C market provides a major opportunity for the Company in extending the service we offer and the ability to seek out further markets for our overall service.

The Department of Energy & Climate Change (DECC) has recently announced a delay in the start of the UK domestic smart metering programme. The Company believes, however, that the small I & C market will be largely unaffected by this delay as suppliers are already rolling out advanced solutions for commercial reasons to allow their customers to benefit from being able to manage their energy bills at the earliest practicable date rather than waiting until they are mandated to install smart meters. Based on the ADM's competitive price and ease of installation and the ongoing increase in the Company's meter portfolio, SMS expects to benefit from this delay and also to be well placed when the mandated smart metering program actually occurs.

Domestic Meters

SMS, as previously announced, has been contracted by SSE to provide Meter Operations Services in all regions outside of Scotland and the South-East of England up to April 2014. SMS is on track to complete the original 180,000 meter program.

SMS will continue to support its existing and potential new customers in the domestic market for gas meter services, leaving the business well placed to support our customers in the domestic smart programme now expected to commence in the autumn 2015

Other Markets

SMS' focus is principally on the UK gas market where it continues to see good long term growth potential. However the Company continues to identify and test other potential markets for its products and services.

In the UK water sector, the Company has moved to advanced trials with a number of potential customers. Internationally, with the benefit of funding from Scottish Enterprise, SMS has started trials for the ADM(TM) device in South Africa and Asia with pre marketing ongoing in the USA.

Financial Review

Results for the year

During the first half of 2013, the Company increased revenue by 42% to GBP13.2m principally as a result of increasing meters under ownership and management. Annualised recurring meter rental revenue, in line with the Company's strategy, increased to GBP13.0m compared to GBP10.8m at the end of 2012.

Asset installation revenue increased to GBP7.2m (2012 H1: GBP5.1m) of which the Gas Connection business increased turnover by 37% to GBP4.1m (2012 H1: GBP3.0m)

Administration expenses, at GBP3.9m (excluding exceptional costs), were up compared to the first half 2012, mainly due to investment in staff numbers which have increased to over 100, up 30 since the year end. This increase is in line with the growth of the Company. Depreciation and amortisation increased by 65% to GBP1.3m due to the increased meter base held by the Company.

Finance costs increased from GBP318k to GBP545k due to higher outstanding debt in the period as a result of the increase in meter investment.

Gross profit increased from GBP5.8m (H1 - 2012) to GBP8.1m and adjusted EBITDA from GBP4.0m (H1 - 2012) to GBP5.5m.

Cash and borrowings

As at 30 June 2013, the Company had net debt of GBP19.5m (December 2012: GBP13.9m). This comprised debt of GBP26.0m (December 2012 GBP20.4m) and cash balances of GBP6.5m. Unused facilities were GBP19.0m.

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SMS has a GBP45.0m facility with Barclays Bank PLC (lead bank), Clydesdale Bank PLC and Lloyds Bank PLC to fund the purchase of meter assets. Interest is paid quarterly at 2.9% plus three month rolling LIBOR on the outstanding balance with drawn funds repaid equally over ten years. 1.45% is paid on undrawn funds. SMS has entered into a hedging arrangement to swap three-month rolling LIBOR, currently at c.0.51%, to a fixed 0.90-0.92% over four years for c.70% of the facility.

Capital investment in meter assets was GBP10.5m compared to GBP5.9m in the first half of 2012.

Treasury policies

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

Interest rate swaps covered an amount of GBP19.8m as at 30 June 2013 (December 2012: GBP13.2m).

The interest rate swap results in a fixed interest rate of 0.90-0.92%. The termination date for the derivatives is 15 September 2016.

People

Staff numbers have increased during 2013 to over 100.

The most important part of our business is ensuring that we provide the highest quality of service to our customers, a value that continues to underpin the business. The results to date this year reflect the continued dedication of our staff in this endeavour and we would like to thank them for their continued support.

During the six months ended 30 June 2013, Steve Timoney retired from the Board and the Company is actively seeking to recruit an additional non executive Director.

Dividend

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

SMS is therefore delighted to announce a proposed interim cash dividend of 0.7p for the half year ended 30 June 2013 to shareholders. The interim dividend will be will be paid on 22 November 2013 to those shareholders on the register (record date) on 18 October 2013 with an ex-dividend date of 16 October 2013.

Outlook

With growth across all sectors in the first half of 2013, underpinned by an increasing long term recurring meter rental revenue, SMS looks forward with confidence.

SMS plc CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD

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