25 July 2023
Smart Metering Systems plc
Trading update and Outlook
Smart Metering Systems plc (AIM: “SMS”, the “Group”), the integrated energy infrastructure company owning and managing meters, energy data, grid-scale batteries and other carbon reduction (CaRe) assets, provides a trading update for the six months to 30 June 2023 (“H1 2023”) and the Board’s future expectations.
Key Highlights
· Index-linked Annualised Recurring Revenue (“ILARR”) grew 13.3% to £110.0m (31 December 2022: £97.1m)
· Meter assets:
o smart meter portfolio increased to c.2.3m (31 December 2022: c.2.1m)
o contracted smart meter order pipeline of c.1.95m(1) (31 December 2022: c.2.17m)
· Grid-scale battery storage assets:
o total portfolio increased to 860MW (31 December 2022: 760MW)
§ 140MW operational; performed within the Board’s expected range
§ 470MW fully secured with 150MW expected to be operational in H2 2023
§ 250MW under exclusivity
· Continue to build delivery capability, commercial models and pipelines in developing CaRe assets
· Capital allocation:
o net debt as at 30 June 2023 was £96.3m
o current pipelines(2) can be fully funded from internal cash generation and debt facilities
o may consider selective asset recycling to maintain a prudent level of gearing and to support future growth.
Outlook
· FY 2023 underlying EBITDA and PBT expected to be in line with the Board’s expectations; confident in FY 2024 and medium-term outlook
o index-linked revenues provide a hedge against short-term interest rates whilst significantly benefiting long-term cash flows
· Expected FY 2023 dividend of 33.275 pence per share, +10% y-o-y in line with stated policy
Tim Mortlock, CEO of SMS said:
“We have delivered another strong operational and financial performance during H1 2023, a testament to the resilient nature of our business model which is underpinned by our index-linked recurring revenues.
Our existing pipeline of meter and grid-scale battery assets is expected to more than double the Group’s EBITDA in c.4 years compared to FY 2022, with significant additional growth opportunities in existing and developing CaRe assets(3).”
(1) Net of meters installed over the same period.
(2) Current pipelines includes the existing c.1.95m meter order pipeline and 860MW 1 hour duration grid-scale battery portfolio.
(3) Includes ‘Behind-The-Meter’, such as solar and storage, domestic EV chargers, air-sourced heat pumps and public EV charging infrastructure.
Index-linked annualised recurring revenue
ILARR grew to £110.0m as at 30 June 2023, which includes the annual RPI adjustment. This represents a 13.3% increase since the year end (31 December 2022: £97.1m).
| Category | % change | ILARR | Portfolio |
| Smart meters | + 16.9 % | £71.5m | 2.3 million |
| Data assets | + 5.6 % | £16.9m | 0.4 million |
| Industrial & Commercial meters | + 17.2 % | £6.2m | 0.1 million |
| Traditional domestic meters | + 5.6 % | £11.8m | 0.2 million |
| Third party assets | +3.9 % | £3.6m | 1.4 million |
| Total | + 13.3% | £110.0m | 4.5 million |
Smart meters
Smart meter ILARR grew in line with the Board’s expectations with higher rental per meter, driven by an increased focus on single fuel and Industrial and Commercial (“I&C”) smart meter installations.
SMS installed c.220,000 (H1 2022: c.230,000) smart meters during the first half of 2023 and has maintained market share of c.14%, which is in line with FY 2022.
In H1 2023, SMS’s engineering capacity delivered higher volumes of activity, largely driven by transactional callout services alongside a higher proportion of single fuel installations. The Group has further increased its engineering capacity to support higher transactional volumes and expects the meter installation run-rate to accelerate during the second half of the year as a result. This, coupled with SMS’s strong supply chain and inventory levels, provides the Board confidence in the Group’s ability to successfully deliver its contracted smart meter pipeline.
In the period, SMS won a pilot project with Alternative Home Area Network Company aimed at removing the technical barriers for smart meters in ‘hard to reach’ residential properties, which accounts for c.4% of UK households. This technical solution, alongside the Group’s end-to-end integrated platform, provides additional growth opportunities in the smart metering space.
Grid-scale battery storage
The Group’s operational grid-scale battery portfolio has performed within the Board’s expected range, generating an annualised EBITDA of c.£57,000/MW. The Group generated the majority of its revenues from Balancing Services, compared to last year when the majority of revenues were generated from Frequency Services.
We continue to expect a long-term annualised EBITDA contribution of £57,000-£65,000/MW, with the majority of revenues continuing to be generated from Balancing Services.
Of the total 860MW portfolio, the Group has secured the option to increase the duration of at least 290MW 1 MW/hour sites to 2 MW/hour sites. This would enable the Group to access further revenue opportunities from delivery of Balancing Services.
Developing CaRe assets
The Group has continued to build its delivery capability, commercial models and pipelines for the provision of other developing CaRe assets and data services:
§ The Clenergy EV platform is used in c.3,500 public chargers across the UK with significant additional future pipeline.
§ SMS’s data services platform ‘METIS’ will participate this Autumn as an early adopter in system testing for the implementation of market-wide half hourly settlement, which, once implemented by 2026, will enable a more flexible energy system.
§ In Behind-the-Meter assets, SMS has partnered with Samsung to deliver a UK Government funded heat pump trial in Oxford, comprising 150 heat pumps. This initial project is part of a wider requirement for 30,000 air source heat pumps across the council by 2040 and could be further upscaled nationwide.
Capital allocation
The Group’s current pipeline of smart meters and grid-scale batteries can be fully funded from asset-backed internally-generated cash flows and debt facilities.
Notwithstanding this strong position, the Group may consider selective asset recycling to maintain a prudent level of gearing in the medium term and to support future growth.
Outlook
FY 2023 pre-exceptional EBITDA and underlying PBT are expected to be in line with the Board’s expectations. The Group remains confident in FY 2024 and its medium-term outlook.
SMS expects to publish its H1 2023 results on 12 September 2023.