Enabling smarter solutions Smart Metering Systems plc Alan Foy, CEO
Agenda Overview Business Positioning Operational Review Financial Review Outlook Q&A Appendix 1
Overview
Overview 20 2019 ye year ar-end highlights • Financial performance • • Bu Busi siness positi tioning • Long-term sustainable growing dividends with upside potential from existing and potential new meter asset pipeline, our continued core focus • Partnership with Columbia Threadneedle Sustainable Infrastructure Fund (“ESIF”) to fund SMS’s pipeline of Carbon Reduction (CaRe (1) ) assets • • • Sustainability is at the heart of SMS operations • • 3
Long-term Infrastructure model developing Carbon Reduction assets • • • • • • • • • • • • • • • 1995 2004 2011 2014 2016 2017 2018 2019 2020 • • • • • • • • • 4
Business Positioning
Business Positioning (1/2): Dividends, Capital Structure and Growth • Di Divi vidend po policy • • • • • • • Cap apital al structure e for or future e grow owth • • • • Grow owth in Met Meter ering Asset ets • • • 6
Business Positioning (2/2): Carbon Reduction (CaRe) assets • Car arbon Red educt ction (CaR aRe (1) ) as asset ets s mar market et opport rtunity • • • • Partnership with Columbia Threadneedle Sustainable Infrastructure Fund (“ESIF”) to fund CaR aRe as asset ets • • • 7
Operational review
ESG and Sustainability at the heart of SMS operations Sustainable leadership Net positive perspective SMS’s ESG recognition • • • • 9
Smart meters essential to achieve Net-Zero ambition Supply and demand side decarbonisation Decarbonisation scenario Why smart meters Electricity generation and supply Energy efficiency Demand side Decentralised generation and storage Innovative energy services & business Homes Transport (car travel) Electricity generation Contribution to 14% 15% 19% UK GHG emissions 54% CO2 reduction 77% CO2 reduction 10
Meter and Data Smart Operating Review • ILARR current and order book • • • Potential smart meter asset pipeline beyond order book • • 11
A Well Established Energy Management platform for CaRe assets Control over IT and Data platform coupled with end-to-end turnkey solutions provides significant competitive advantage FlexiGrid platform provides full data analytics matching renewables to Data analytics platform battery storage and other assets Control of Data and Analytical platform • Platform • • • Profitability • • Delivery credentials • • 12
CaRe assets: Market Segments Energy Distributed Efficiency Lighting Energy Storage EV Charging Data & Control Generation Verticals (1) of potential Systems CaRe assets BTM (2) Solar & Virtual Power HVAC LEDs Battery Public Charging Wind Plant Scope of CaRe assets Residential Commercial Industrial • • • • • • Key Target markets • • • • (existing relationships) • • • Partnership with ESIF to fund these projects • 13
Financial Review & Capital Structure
2019 Income Statement • EBITDA improved due to flow through from increased revenues, December 2019 partially offset by increased costs incurred to create capacity to £m support future growth Group revenue 114.3 • £8.5m of exceptional costs recognised, primarily relating to Pre-exceptional EBITDA 58.9 losses on meter portfolio arising from temporary industry (8.5) transition period and costs expensed in relation to the sale of a Statutory EBITDA 50.4 minority of assets (36.6) • Depreciation increased due to a revision in the depreciation (8.3) accounting policy for traditional meter assets with the residual value reduced to nil Statutory profit before taxation 5.5 Underlying profit before taxation* 15.6 15
2019 Divisional Performance • Revenue up 27%, reflecting increase in meter and data assets. 3.35% RPI increase applied in April 2019 2019 £m 82.9 • The largest component of cost of sales is meter depreciation. Asset Increase beyond meter portfolio growth driven by changes in Management (37.4) accounting for traditional meters to write off over 4 years, 45.5 resulting in an additional depreciation charge in year 55% • Depreciation adjusted profit margin 93% (2018: 92%) 2019 • External smart installation-only work ended in Q1 2019 £m 22.4 Asset • H1 investment to enable delivery of order book. However, Installations (28.0) proposed extension of smart meter rollout deadline to 2024 in (5.6) Q3 enabled review of cost base going forward to suit revised installation forecasts (25%) 2019 • Progress with large-scale energy efficient lighting contract £m 9.0 Energy • Improved margins due to a smart heating controls project (6.8) Management • Continuing focus on enlarging platform for growth and 2.2 developing longer-term customer relationships 24% 16
2019 Group Cash Flow 180 160 140 120 100 80 60 40 20 0 Cash at 2018 year end Cash inflow from New finance drawn Cash outflow on Debt servicing Dividends paid Acquistions Other Cash at Dec 19 operating activities from banking facilities assets 17
Growth Funding Strategy Meter assets CaRe Assets • Secured order book of c.2m meters with additional • Strong pipeline opportunities pipeline opportunities with our customers • Three-year partnership with ESIF to provide funding for • Funding options provide flexibility to maximise development of the pipeline opportunities in the smart metering space • • • • • • 18
Revised Dividend Strategy: Sustainable and Long-term 2020 divi viden end • 25p per share, growing at least in line with RPI until 2024 Fr Frequ equen ency of of payme ayments • Quarterly, first payment starting October 2020 Di Divi vidend grow owth • Opportunity to increase dividend significantly due to: • headroom in operating cash cover (c.2x); and • additional ILARR and asset management fees from business growth 19
Outlook
Business Strategy and Outlook • Ut Utility met eter ering g an and dat ata a act activi vities es • • • • • Car arbon Red educt ction act activi vities es • • • • 21
Q&A
Appendices
Our track record • Since 1995 SMS has transitioned from an energy services business into a diversified asset installation and ownership infrastructure business • SMS has a demonstrated track record of strong growth: 2019 12 2 1,200+ 2018 UK-wide locations Academies Staff 2017 2014 2011 2011 2012 2013 2014 2015 2016 2017 2018 2019 Recurring revenue and asset portfolio growth since IPO in 2011 24
Full turnkey end-to-end delivery model • Invested significantly to develop end-to-end service and scalable business model • • • • SMS continues to focus on the large market opportunity in UK domestic smart meter rollout • SMS • • • • 25
Balance Sheet December • Increase in non-current assets arising mainly from increase in 2019 revenue-generating assets £m Assets • Increase in current assets reflects growth in trading levels 436.7 • Changes in bank loan balances due to refinancing of Group’s 70.6 loan facility on 21 December 2018, providing access to £420m 50.1 RCF for five years. Existing facility settled in full on 3 January 557.4 2019 upon first drawdown under new RCF. Current portion of Liabilities new facility relates to accrued interest payable within twelve 1.7 months from reporting date 47.8 • As at 31 May 2020, cash at bank stood at £48m and a £300m 267.6 banking facility 16.7 333.8 223.6 26
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